In a nutshell, this means prices on ebooks went up because the agreement with Apple made it so other sellers, like Amazon, couldn’t lower the price on ebooks.

Three of the seven publishers have already settled with the Department of Justice, but Apple, Penguin, and Macmillan rejected the offer. Now that we know the reasons behind the lawsuit, let’s see if any of this news is actually will have an effect on pricing.

Read the full article here.

I couldn’t bring myself to buy a Toyota Prius like our good friend Fleshy. I am not sure if it is because I don’t like the “cramped” look of the car, or simply that Fleshy, and so many liberals, wear that car as a (tight fitting) badge of good liberalism.

I was clearly aware that some people drive the Prius simply to show that “they care.”  Recently Freakonomics Radio (brought to you by the same guys that brought you the books Freakonomics and SuperFreakonomics) discussed the concept of “Conspicuous Conservationism” — that is, people that try to enhance their status by showing that they are being “altruistic” — even if they aren’t really effective.  For instance, in the story they talk about how the “greens” in San Francisco are putting solar panels on their roofs, and regardless of which side of the house is best for the sunlight, they put them on the side facing the street.

But I wanted to discuss another quick area: Real Efficiency.

I am hearing more and more people push towards Hybrids in an almost “knee jerk” way.  They feel that a hybrid is simply better for the environment than a purely internal combustion engine.  But here’s the question:  If I have a vehicle that is extremely efficient and is solely gas powered, is it worse than a hybrid on the environment?  Let’s say they get equal fuel economy.  Is one “better” than the other?

This is an interesting question.  If they are both generating the same number of miles for every gallon of gas consumed, are they not both being efficient?  And even if the burning of the fuel is somehow slightly more polluting in dangerous gasses than the hybrid cars, what is the environmental impact of these heavy metal batteries that, once they fail, must be handled as hazardous waste?

As consumers, we need to take more time to  learn about the full environmental impact of our decisions, and make choices not only on the status our choices will convey but the actual improvement in our environment that we will receive.

Please, let’s all work to make real environmentally aware decisions, and not ‘made for appearances’ choices.

On Veteran’s Day, Genesis10’s founder and CEO Harley Lippman and newly appointed Manager of Diversity and Veterans Relations, Richard Sanchez, were interviewed by MSNBC’s Dylan Ratigan about the challenges American Veterans face transitioning their careers from the military to corporate America. Watch the clip here:

Working with Genesis10 means working with a company that is dedicated to serving our community where and when we can. Veterans Outreach is our latest initiative whereby Genesis10 will partner with clients to identify opportunities for U.S. Veterans. Using training and mentoring programs in place internally and through external partners, Genesis10’s Veterans Outreach will prepare and support Veterans during their career transition from the military to the private sector.

If you know a Veteran who may benefit from this program, we want to know. You or the Veteran can send a message directly to G10Veterans@genesis10.com. Please share this message with your network. We ask you to help us spread the word – because by working together we can connect and support the men and women who served to protect our freedoms with new career opportunities in business and technology.

I would encourage everyone to share this post, the video link, and the email address with anyone who is either a veteran, or knows a veteran–or knows someone who knows… (you get it–tell everyone!)

The primary and secondary schools systems are selecting a specific device and the books are content to go on that device. In this case, the system purchases the devices and the content and then delivers that to the student. So who is the consumer in this case? Setting aside for the moment the argument that the taxpayer is always the consumer, let’s focus on whether the consumer is the school district or the student. We can all agree that there are many stakeholders in this arrangement: the school board, parents, teachers, students, taxpayers, and I’m sure many others. But when I consider the consumer, I am considering their role in consumer plays in shaping the marketplace. In this case, while the students consumed the content, the school board by virtue of the purse string is the consumer. We can hope they are making wise decisions as they select the best combination of hardware, software, and support infrastructure.

Given this scenario the selection of a specific hardware platform makes sense. As a consumer the school district is selecting an all encompassing solution for all to use. This approach will undoubtedly balance the educational needs with the technological abilities, and of course the fiscal reality is the school board faces. The district will be able to leverage their scarce taxpayer dollars to get the best benefit possible. Are there limitations to this approach? Perhaps. There might be better solutions that only run on a different platform. But those are the tradeoffs one makes when one selects a technological platform on which to base decisions. We must satisfice.

Not consider the higher education model. As professors and students alike start to look towards digital textbooks as a valuable and viable alternative to the costly new-used-new book cycle we find a new challenge. In the old paper based book paradigm each professor selected the content and the medium for delivery of the material for their class. As I wrote previously this whole paradigm the content and the medium are inextricably entwined. Each selection of a book was in and of itself the selection of the ecosystem combining the technology (paper) and the content, and quite frankly the support infrastructure. Digital course content (textbooks) separate those.

In the old paradigm the student as consumer handbook three choices. They could buy the book new, they could buy the book old were used, or quite frankly they could choose not to buy the book. They controlled the purchasing decisions and there were really no other considerations of value for them or their professor since all books were delivered in the same – way as complete units. Now, we have some separation between the content and the media.

So who is the consumer and how does that shape the market? Following the old model the professor will select the textbook and the student will be expected to buy that content. If we allow the old system to continue unchanged the faculty member may continue to select what they feel to be the best possible text for the class without regard to the delivery media they will be forcing upon the student. Of course, they are decision may well be driven by the technology they happen to own and not the technology the students own. A professor with an android tablet may well selected android specific text applications while another faculty member with an iPad may well selects iPad content applications. This becomes especially problematic when faculty are selecting multimedia are rich content that may only work in one operating system and not the other.

Purchasing decisions than shift from the student who controls their own purse strings and now can fall on the faculty member who is on constrained by the fiscal realities their students face. It is quite possible for students to need three separate portable digital devices to support three or more classes. The student, by my definition earlier, is the consumer who must make the purchasing decision but that decision has been taken from them.

Once again, we see the value of interface and interoperability standards that cross the various platform divides. Rather than develop operating system specific applications, textbook publishers should work to ensure that their content can be delivered across the wide spectrum of portable devices available. Certainly Amazon has provided that ability through their multiple instances of the kindle application. If a professor assigns a Kindle book a student can easily select that content to view on nearly any device. With the maturation of HTML5 hopefully we will see more and more experience-based course content available and not tide to specific platforms were operating systems.

This will then returned the student to the role of consumer allowing them to make the decision about which media device best fits their needs and wants, while allowing the faculty member to select the content that they believe best fits their course requirements.

I would love to learn your thoughts on the role of consumer in education, and not just in relation to textbooks but who the consumer really as in both primary and secondary education as well as higher education.

Tweak me @SCMprofessor with your thoughts or share them here.

Privacy.  PRIVACY.  The RIGHT to PRIVACY.  Do you believe we should have a right to privacy?  Should we expect that our government will allow us to live our lives without surveillance, free from the need to check, to constantly look over our shoulders to see who from the government is watching?

As always the world is full of events occupying our time and driving the news.  And, as is usually the case, each story is presented in isolation.  Rarely does anyone discuss the connectedness of the stories or their implications.  Often, that means little, but occasionally the disconnectedness points to the dissonance in government when agencies pursue their agendas.  Once in a while the opportunity arises from this to view the conflict in “generalizable principles” that drive our government’s behavior.

Yesterday President Obama made a rare selection for the Supreme Court choosing someone who has not sat on the bench. ¹  In the past few decades concomitant with the selection of a nominee we have heard the hue and cry from both sides of the abortion debate.  So far there has been little discussion on this issue. ²   The Washington Post today suggests today that part of the silence is due to the economic issues of the past few years, but hints that the lack of a record on the part of Elena Kagan will cause many to dig back through what record there is.  This in itself could be cause for silence.

As the Post points out the issue of concern to many is her views on the “right to privacy.”  Interestingly, this is the “right” that has been cited as the underpinnings of a woman’s right to choose.  Also, interestingly, opponents point out the glaring absence of the “right” to privacy in the constitution. ³

The Washington Post may be correct–this may well be the sleeper issue of the summer. ⁴

So the right to privacy has been a major underpinning of the “pro-choice” movement.  And so far the government has held that there is a “right to privacy.” The question now is–is that a special right, or a general right?  That is, does this “right to privacy exist only for the arguments surrounding and defending abortion, or is it a fundamental right that is applied to everyone in every walk of life, every day?

Think long and hard about this.  What is the heart of the debate concerning immigration in Arizona?  Is it really racism? Or is it about the right to live a private life, without the intrusion of the government into your private life without cause?  After removing the words “Racism” and “racist” from the discussion, the most vocal arguments so far against the new immigration law in Arizona have centered around the stopping of individuals that law enforcement might believe are here illegally based solely on “their perceived ethnic origin.” So the question really is one of privacy.

Now let’s take that next step–the government actually implying that they are using the tools of high-tech espionage to track down citizens–not for terrorism, or murder, or violent crimes, but for failing to pay $4000 in taxes. ⁵  (See the video below)

Of course, we all know that the state of Pennsylvania doesn’t actually use satellite surveillance and listening devices, and gps tracking to monitor their citizens.⁶  It’s just a commercial. It’s not meant to REALLY intimidate anyone.  It’s just meant to be cute.

Right?  RIGHT?

So now we face  the BIG PROBLEM.

By shifting to a policy where everyone is now to be insured, we open the floodgates of demand (okay, a bit much. But we certainly will allow millions more in.) Demand for services will increase. So it would make sense that prices would increase to balance out the demand (remember Econ 101, all else equal, in the near term an increase in demand will result in an increase in price. In the long term it should result in an increase in supply, as the market responds to the increased demand for the product).

Will we see prices increase? Not for the consumer–they are capped at the Co-pay. And now we are seeing pressures to not raise prices from the supply side (and the insurance companies will be SHOT if they raise rates significantly).

So what happens now? If prices cannot go up, then demand will remain (unrealisticly) high. Unrealistic in that demand is acting free of the market place.

With demand high, and the inability to increase prices we will see no real “benefit” to more providers entering the marketplace.

More to the point, even if we could see more providers enter the market there are significant barriers to entry. Consider the medical field:

1. Doctors must go through extensive training, and then licensing (not to mention the fact that they never really get it right–so must keep “practicing”)

2. medicines must be approved after rigorous testing, and their labs must be approved, and so forth.

3. Various other licensing and authorizing are in place for therapists, assistants, nurses, and the like.

Supply cannot respond quickly, and with a rising demand and supply unable to keep up, and with no pricing mechanism to regulate the demand we will face:

Shortages of service resulting in long waiting lines/delays.

And how do you deal with shortages? Since the market forces are not allowed to work, we are left with the government stepping in, once again, to fix the mess of it’s own making. They will have to “ration” care.

Sorry–it’s a fact. In every nation that has shifted to “socialized” they have faced shortages, lines and rationing.

It’s not something we can “do better.”

It’s economics.

The whole initiative is predicated on a few arguments:

1. Costs (prices) are too high.
2. Insurance companies are “making too much money”
3. Millions of people don’t have access to care
4. The Health Care people are receiving is poor (oh, wait, it’s not about the actual care…)

So let’s tackle this. The basic problem now comes down to a discussion of supply and demand/economics.

As the system currently works we have two sets of perverse incentives fighting against the consumer (and one of these incentives takes place with the willing, yet unknowing, assistance of the patient)

First, the perverse incentives of the patient:

Currently, the “cost of entry” into the health care system is high (monthly “Insurance” rates) but thanks to low, or no, co-pays, the marginal costs of most health care transactions are quite low.

Given the low costs incurred per visit, and the high “sunk” costs incurred to enter the system, the insureds (patients) who HAVE insurance are incented to go to the doctors more frequently, and to go ahead and get the prescriptions (Hey, it’s only $3 copay at Wal*Mart!)

Of course, this is a mirage. The actual costs of each visit and each prescription are borne by the insurance companies, which then have to recover their costs through increased premiums, which of course has everyone screaming that the insurance companies are “gouging” the customers.

On the other hand, we have a set of pricing incentives that also conspire against the consumer. The ‘care providers” are aware that the patient/customer doesn’t see the actual costs–they only pay the co-pay. So given this we have a series of perversions that are at play:

1. Doctors are more able to prescribe tests/medicines, and the like, since they will receive little if any push-back from the patients because of costs. More services with a low marginal cost to the consumer/patient, but a higher total cost, paid by the insurance companies.
2. Insurance companies work to lower their costs by negotiating to pay health care providers a fraction (some value less than 1) of the billable rate. Thus the providers are incented to increase their prices the maintain their revenue stream. This increases the costs once again.

So these two twists to the problem work once again to force the insurance companies to have to raise the rates (really on everyone) to cover the payments they are having to make.

Now–as consumers, we see that we are paying a high “sunk cost” as a monthly fee and, rather than view this as traditional insurance (where I am betting against myself) the consumer wants to try to get at least that benefit back out of the “system” (and is encouraged to do so, by “low co-pays”)

Sadly, the whole mess was brought on by our desire to protect everyone and provide some level planning to health care. The “free market” actually would provide better incentives here, placing limits/governors not only on how much people are willing to spend on services, but the prices that people would have to pay. If service providers want to stay in business then they would be forced to price competitively based on the market, and the market would be making the decisions based on the consumers. As it stands now, with the “same co-pay regardless” the consumer has no indication of value, and the market cannot respond. Viagra is as valued as Interferon and as Motrin.

What to do when everything costs the same?

I am not alone in my expectation that the Health Care (insurance) reform will not improve Health Care (it won’t make bad doctors good ones, for instance) and it won’t improve access since lower prices have that pesky effect of increasing demand–in a field where the barriers to entry for suppliers are significant.

I will say this:  Welcome to the new “Grand Experiment.”  If it succeeds, then by all means celebrate (but could we get a good solid definition of success on which we can all agree?)  But (and this is significant) if it fails, how many will have died as part of the experiment, and will we ever be able to recover?

One final note:  As researchers we have to seek, and get, informed consent from human subjects before we can experiment on them.  Did you get the forms?

I am not writing this as a “hater” or critic of the iPad.  I just would love to see if the demand spiked on the first day and dropped precipitously, or whether the demand over the 21 days prior to shipping stayed relatively constant, or even ramped up as we approached the 3rd of April.

Here’s what I wonder:  people who are early adopters, and the first to get in line and wait for days for a new product, are by all anecdotal evidence I have heard the ones who pre-order, and pre-ordered on the first day they could.  And in the case of my brother, ordered it as soon as the Apple Store made it available.

If my supposition is true, then the demand for pre-ordered items would have been heavily front-loaded.  Conversely,  I would find it quite interesting if demand for the iPad through pre-ordering had any sort of ramping to the demand pattern.  If the demand was increasing, then the big question of the day would be:  Why?

The next question is are the people who would normally stand in line to get the next “really cool product” the same who would want to pre-order right away (and thus reduce or eliminate lines at the stores) or is the psychology of waiting in line for a “cool new product” palpably different from the psychology of “getting” it?

Anyone have any thoughts or insights into this?

What sort of incentives could they be talking about? And why choose that word?

Well, the last point is obvious.  The definition of incentive (by most dictionaries) is to encourage or motivate to action.  These are all “positive” words.  Things that make us shake our head in the affirmative. “Ahhh… incentives. Nice.”

We usually see these as pay bonuses, time off, gifts.  Additional “things” that would encourage us to do a bit more.

Of course, that isn’t what AT&T is thinking.  In this case AT&T is going to try to come up with some way to get people (their customers) to stop using a service they provide–most likely the service offering that led them to AT&T and the iPhone in the first place! AT&T is looking to “consider new pricing models to curb users’ data usage as it tries to keep up with growing demand.”

What pricing model would “encourage” you to use less of something you currently consume and enjoy?  I think this is obvious–AT&T is going to charge you more.  So the incentive here is a negative one.  ¹

What is perhaps even more interesting is this (and I will leave you with this thought):  AT&T isn’t saying “We realize you like using our product and our product is in high demand and thus we will increase the price and generate greater profits for our shareholders.”  They are saying “We realize you like using our product, but we don’t want you to, so we are going to raise the price so that you stop using it.”

Tell ya what AT&T, when my contract runs out, how about I reduce my data consumption to zero.  The Droid sure is looking better every day!

So for those that have been listening to our podcast Real Tech for Real People, we have talked quite a bit about the numbers of people that don’t have high speed (broadband) internet access.  We have been reporting the numbers we had previously read that had anywhere from 40-45% of the population does not have access.

Okay, I am confused. FCC says 96% of households have, or have access to, broadband.

“No less than 96 percent of households either subscribe to or have access to broadband service, according to an F.C.C. task force, which presented a status report to the commission last month.” (see commission report here)

The article reports that the task force goes on to report that:

• median speed is 3 megabit/second ¹
• 1/3 of households “choose” to not subscribe

The seem to be dumbfounded that so many households would choose to not get high-speed internet.

“The most interesting question here is the one that the F.C.C. can’t answer: Why have 33 percent of American households that have access to broadband elected not to subscribe? The reasons “are not well understood,” the report says. A survey focusing on the nonadopters is under way.” (see Pew survey for breakdown of demographics)

The astute reader will note a few things here:

• 33% of “households” does not equal %33 of population.
• “have access to” is not clearly defined.  Does this mean “can drive to Panera?” Or are sitting under a satellite?
• The assumption that these households “elect” ( or choose) to not subscribe is a poor assumption
• There exists a Pew survey (see link above) that actually gives strong hints as to why they don’t have it–so why aren’t they “well understood”?

I have sat through many presentations where the demographics have been dissected ad nauseum, along with conclusions!  Usually it revolves around the high cost of delivery of low quality service to rural areas, $50-$80/month for .5, to 1.5 megbit/second.  Think about that.  If you pay $50 for FIOS for 15 mb/sec service, you are paying the same price for 30 TIMES more speed/capability than the same price for satellite internet, without the latency (lag) issues associated with satellite.  And the satellite internet puts a 17 GB download/month cap on your use! Oh, and with FIOS you can also get TV service, and phone service.

Of course, there are other issues as well, including the fact that some segments of the population prefer to live their “first life” rather than a “Second Life” interacting in a real rather than a virtual world.

But I cannot get past the simple, obvious fact that “access” that is over-priced and under-capable is not really access at all, but political double-speak.

Do you know people without a “broadband subscription” (let’s say, for this discussion, broadband at home)?  Why do you think they have “elected” not to subscribe? Or if they have told you–please share!

Tell me–what do YOU think?  I would like to share your thoughts in our next Podcast that we record Tuesday night, 20 October 2009.

Part of my argument hinged on the elimination of the resale market in large part due to the robust DRM (copy protection) afforded by the digital books.  Unfortunately, when I presented this argument a few weeks ago, someone pointed me to a site that shared the (convoluted) steps necessary to break the DRM on the Kindle.  So much for secure. ¹

This forced me to think a bit further.

In this post, I hope to make a case for reasonably priced digital textbooks in an era of “cracked DRM” that can still result in a win-win.

If students can copy textbooks and share them, will they?  Perhaps I have a more optimistic view of the world, but I think that, when given a choice to do the right thing, students will.  That is, if they think they are being treated as adults, and not being unjustly charged.  Let me explain.

I believe that students will buy the textbooks rather than steal them, if the books are affordable.  and by affordable I mean, as one student put it when asked on Twitter “@ steep discount.”  Probably $30 for a textbook that in print sells for $150.  Remember from my previous post that publishers aren’t selling to every student as it is.  Capturing a significantly larger piece of the market, semester over semester, will result in significant revenue increases–without any additional overhead or variable costs.

I also believe that students will buy a reasonably priced textbook if, along with the book, they receive other types of “digital” support.  That support will be available, but may require them to have a “licensed” copy of the book.  Simple enough.  Your digital reader has a serial number/PID, so the licensed copy can access additional licensed material.   The additional materials could include podcasts, video lectures, or video/audio tutorials on working through homework problems.

I also believe students will pay for books, because the system supports the buying of books.  Loans cover tuition and expenses, to include books. Parents buy books.  My students have reminded me that there is a significant amount of “outside” money that comes their way for book purchases.  But that alone won’t be enough to get them to buy the books. What will?

How about providing a way for students to continue to “resell” their books?  Another common criticism from students is that they get pennies on the dollar when they go back to resell the book.  They are more incensed when they see the mark-up the bookstore then places on the book they sold back!² Students currently fight back by selling (and buying) their used books on sites such as half.com, a used book online marketplace.

I think that a technological solution to book resales, that allows the students to transfer digital ownership to another student, will result in more students buying legitimate copies.  Why? In the paragraph above I mention that students get “outside” money for book purchases.  More than a few students pointed out to me that, at the end of the semester, they sell those book back and that money then becomes “theirs.”  A few call it “Beer money” but I am sure there are other uses as well.  Given that this is digital, this doesn’t have to be seen as a competitor to the publisher, but rather as another opportunity for the publisher to “add value.”

Imagine this:  the publisher, who controls the DRM accounts, sets up a clearing house where the student who purchased the book can make the book (and the license to read/use that book) available for resale, setting the sale price themselves.  At the end of the sale, the seller essentially will turn over the digital rights to the book to the new purchaser.  This is half.com made simpler.  There are no shipping costs.  The transfer can be automatic and nearly instantaneous.  And if the publisher manages the site, the publisher can charge a “reasonable” handling fee, just like half.com.  And we know students are willing to pay it–because they already do!

So, in summary, the hacking of the DRM doesn’t have to spell the doom of affordable digital textbooks.  Despite what RIAA and the MPAA may say, we aren’t all criminals.  When provided with affordable content, and a reasonable way to re-sell the content when the semester is over, students will continue to buy books from the publishers, and the publishers can continue to make revenue–even in the resale market!

Win! Win! Win!

¹ For the record, I tried it, and it works.  I broke the protection of a book I bought, and read it in another device that I own. After that, I deleted them.

² (For example, a $180 book was “bought back” at $15. Resold at $80. Yes, that is an extreme example, but it is a true one!)

• Text books have a limited audience, resulting in smaller volumes of sales and prin runs (10′s not 100s, of thousands).  Limited runs mean that the overhead and setup costs of printing a run are spread across a fewer number of books. Historically to make a book cheaper they either had to reduce the quality of the materials, automate the process, or produce larger production runs hoping to sell more of the books.
• The costs associated with distributing books are high (packaging, warehousing, and shipping to name a few key ones)
• The inability to accurately forecast demand for “new” editions at locations, because of the…
• Strong used  book market that publishers compete against

My support for digital textbooks has emphasized that digital textbooks drive out  out the costs associated with physical books, and thus allow for both a reduction in price, and an increased margin for the publisher.  This can be seen because:

1.  Publishers no longer need the overhead necessary to design the packaging (including the covers), presses to print the books, warehouses to store the books, or distribution systems to ship the books.   Oh, and they don’t need the management to manage all of that.  This drives costs out of the process. (hint–what could this do for prices?)

2.  Because the books are delivered, directly to the student through digital means, there is no need to keep safety stocks of book inventories to cover the sales of the books.  No physical inventory drives costs out because it means there is:

• No capital outlay for bookstores to buy a “forecasted” amount of books
• No shelves required for the books
• No possibility of stockouts (I had a class where there were only enough books for 10% of my students well into the second week of class!)
• No need to ship back the unsold books, because the forecast was “wrong” (due to used book sales, borrowed books, or just students “dropping” the class.)

3.  The digital rights management (DRM, or “copy protection”) of digital books appears to be rock solid, so students are not likely to “give” copies to their friends.  Publishers would be guaranteed sales², allowing them to lower prices. This would mean that:

• Publishers don’t compete with a ‘re-sale’ market. Think about this.  Part of the reason the costs are so high for the textbooks is that the publishers know that they will only “fully” sell out in the first semester the book is available.  Every semester after that they are competing with a (rather robust) resale market.
• Publishers won’t have to release new editions every two years “simply” to refresh the sales.  With strong DRM publishers can expect to make sales to nearly every student, every semester.
• New editions will be developed for the right reasons–new, improved content and new knowledge.

Given the above, my argument really focused on the need for publishers to pass on the savings to the consumer (the student) making textbook pricing reasonable again.   The major criticism of students (the high prices of textbooks) could all but disappear.

Affordable textbooks for students, and increased (and guaranteed) revenue for publishers!

One of the key points in my argument had been (yes, had) that the DRM on the Kindle and Sony readers was secure, and thus students wouldn’t hack the books and “share” (illegally give copies) to other students.  That is essential to keeping the revenue model moving forward for publishers and is why the RIAA and MPAA are working so hard to protect their intellectual property.  But alas, sometimes things change, and we know that if anyone can hack a DRM it will most likely be motivated college students.

Thus, I have been spending time thinking about how we can still achieve a win-win, even if students “crack” the DRM market.

Stay tuned! More on this to come!

¹ Unfortunately, there will be near term losers, including the people working at the printing presses, the local bookstores, and the supply chain partners that normally deliver, store, and reship textbooks. More on these folks later.

² Think about it. In a class of 30 students, in the first semester a new book is offered, all the students will buy the book. Let’s say the book costs $100. That is $3000 in sales for the publisher. (Not profit. Remember the high costs of physical books.) Now let’s assume that half of the students with new books decide to resell their books each semester. If in the next semester half of the next class purchases “used: books that reduces the revenue for the publisher to just $1500. If we follow this through, then the 3rd semester, 3/4^ths of the books in the class are used books cutting revenue to $750. by the end of the second academic year the publishers revenue is cut to about $400. In two years, with 120 students going through the class, the publisher would make $5650. If there was no used book market, the publisher could make the same revenue selling the books at $47/book. And that is assuming there was no savings in costs by shipping digitally!

In reading her post, however, I find that while I agree that when it comes to “how” content is delivered a “professor is a scribe” may be correct, I believe that is unfortunately a rather narrow view of the role of the professor.

Back when the printing presses were gaining ascendancy, they replaced the scribe, because they were doing what the scribe was doing–copying someone’s words for others to read.  Scribes had to be worried, since printing presses ostensibly would make fewer *random* errors than scribes would. (That said, the printing presses could easily replicate the same error by the hundreds, and now millions.)

The people who at the time should have (and probably were) most excited by this revolution were the authors.  Those people who spent time thinking, researching, and writing the texts that were now being made available at a far faster rate.

Professors are not mere scribes.  Professors are experts in their field of study, who are contributing to that body of knowledge through that research, and then share that “research informed knowledge” with the world.  One way they share that knowledge is through publications, another through presentations and talks, and finally (and perhaps most importantly) professors share it by educating the next generation.

So professors are not scribes.

Who should be worried that they can be considered scribes?  Instructors.  Those people hired to teach materials developed by someone else, without having a rigorous, peer reviewed research stream of their own.  They are simply vessels through which others speak.  THAT can be easily replaced by well-designed technology.

That said, professors are certainly worried.  Rightly so.  Not that they will be replaced, but that people seem to think they can be.

As I have written before, I thoroughly enjoyed reading Andrew Keen‘s book “Cult of the Amateur.”  He argues that experts are essentially being pushed out of the arena and replaced by those whom I will call the “dabblers.”  These are people that some would say “know enough to be dangerous” but are not well-versed in the detailed specifics to be experts, and therefore unable to deal with the nuances.  In fact professors, as an integral part of their earning their terminal degree, learn the research methods necessary to truly understand the data they are viewing.  Regardless of whether one is a Hebrew Literature scholar or a theoretical physicist, the opinions of the Professor are informed by their understanding of how to interpret their data. Without such a background all interpretations are considered valid, and truth becomes subjective.

I am anything but a technophobe, but I am concerned that, as we start touting the role of youtube, facebook, twitter, and Wikipedia as ways for students to share their knowledge about materials, we fail the students.  We allow them to elevate their views, their perspectives, and their understanding of the material while simultaneously dev0lving the role of professor as mentor, guide and expert.

Let’s all work to enable better ways of helping students grasp material, but please, let’s not make the mistake of thinking that professors are “just scribes.”

Banks are in trouble because they loaned out money to people that are having a hard time paying them back.  That’s mortgages, and credit cards, and car loans, and… well you get the point.

So the government gives money to the banks.  OUR money to the banks.  Money from the people that are having a hard time paying the bills.

As I see it, this results in taxpayers (you know, those of us giving the money to the Government to use “wisely” on our behalf) owing two debts instead of one.  I have the original debt that I have a hard time paying, and now I have this NEW debt that my government has assumed on my behalf.  Thanks, Government.  You’re a peach.

What would I have done?  Well, given that “let things work themselves out without government meddling ” isn’t a good idea (apparently) I would have said “hmm…. let’s give the money to the people that owe the money.  Let them pay the banks back, so the banks get the capital they need, and we don’t drown our populace in debt.”

Imagine that.  The government supporting the banks through helping the people the government is really here to help–THE PEOPLE!

Thankfully, we have people like Jon Stewart on our side.  Unfortunately, the government doesn’t listen.

But you should.  Get a cup of coffee and take a 10 minute break from work and watch.

One of the first issues we had to grapple with, however, was our task. We were tasked initially to look at this with the title “Performance Driven Outcomes. (PDO)” I was convinced that the phrase was wrong. It wasn’t a simple disagreement of semantics. It was a fundamental way of viewing the problem. It seemed to me that the PDO approach focused on what you do, and that the outcomes derive from that. If we let our performance drive the outcomes we achieve, we will have high marks but may not ever be successful.

At the time, I wrote (in discussing the DoD):

…we see clearly why we have this disconnect. The politicians and the media are looking for outcomes, and we are actively measuring and providing outputs. Congress wants to read about enemy forces overtaken and a war won. We want to talk about sorties flown, numbers of bombs dropped, and parts avail-able on the shelf.

This is, of course, not a problem limited to DoD.  It’s a problem that faces every organization (and dare I say it, even our personal lives.)  The problem is that often we use surrogates for the outcomes (dollars spent, dollars earned, customers served, students enrolled) and we don’t focus on the Outcome.

Generally, the outcome tends to be amorphous, and thus harder to nail down. That doesn’t mean we SHOULDN’T nail it down–just that it is more work.  For instance, Nike is conducting an overall review/restructuring of their operations, and apparently they have the “outcome” in sight:

“In light of the current economic climate, it is more essential than ever to sharpen our focus on the consumer to maximize opportunities for product innovation and brand management in the marketplace,” he said. “The decision to reduce our workforce is a difficult one, but it will put our business in the strongest position possible to continue to deliver long-term profitability and growth.”

Of course, the devil is in the details–specifically how they operationally define “focus on the consumer.”  In fact, if you read carefully the quote, you will read that they are focused on the customer to “maximize opportunities for product innovation and brand management.” Do you think they will “get it right?”

I am actively seeking your thoughts on this.  specifically in three areas:

1.  What do you see as the difference between these two phrases (or do you even see a difference?)

2.  Does your organization focus on the “Outcome” or are they distracted by measuring outputs?

3.  Do you think in a time of economic crisis it is more, or less, important to focus on “Outcomes?”

Many callers talked about how we need to raise the gas taxes, not only to provide funds to repair the highways, but to get people to learn to conserve, and to support alternative fuels. In fact several callers felt we needed a tax “floor” implemented immediately.  A “tax floor” would mean that if the price of gas dropped below a threshold (most said $3/gallon) then the price would stay at $3, and the government would scarf up the difference.  In that way, the government would reap the “windfall profits” of low prices (instead of the consumer).  (see my past discussions regarding windfall profits here.)

Interestingly, if the price rises and falls in part due to fluctuations in demand (and demand changes relative to price) would the price charged ever get much below three, if the gas stations knew they would have to just “give” that to the government?

So I want to know, what is YOUR opinion about gas taxes?  Are you in favor of a higher gas tax?

Look forward to your answers.

Steve:

You forgot one important point: “Your employer, who is about to close BECAUSE YOU EXTORTED MONEY OUT OF THEM THAT YOU WERE NOT ENTITLED TO RECEIVE IN THE FIRST PLACE, was unable to meet your unreasonable and unconscionable demands for ill-gotten gains . . . ”

Yeah, I used to belong to the machinists union. The sole purpose of the union is to drive the PRICE OF LABOR ABOVE ITS MARKET VALUE.

How does the concept of “SUSTAINABLE” apply to unionism?

Dear UE Local 1110 Members,

I empathize with your plight, I really do. But I wonder if you thought through all of this.

The company, your company, just didn’t have the money. They couldn’t pay you. As they say, you can’t get blood from a turnip. They were unable to secure the loan that would be necessary to keep their business going, and to pay you.

They really had no choice. They had to close.

Bank of America determined that a company that only had 3 days of reserves was not a good candidate for a loan. They chose not to “throw good money after bad” and denied the loan request.

In response, you… sat down?

As a result, BoA has now given a “loan” to your company. A loan that they will most likely use to give you what you have demanded, and then they will in all likelihood still close. Just after 60 days.

So you won. You have forced BoA to give a loan to a company that by every indication has no intention of paying it back. A company that in all likelihood will be declaring bankruptcy in less than 60 days.

Assuming that the BoA “bailout” was used to fund this, all you have done is take money from your fellow tax-payers (and presumably yourselves, once you regain employment.)

So where, again, was the victory here?

Having just made made my estimated tax payment (late, yet again, I know…) was reading through the IRS 1040 ES tax pamphlet, and came across a list of list of expiring tax benefits.  I have (using the power of the Jing Project!) excerpted from that document that list:

Why would I list this?  Well, I find it quite interesting that, as part of the Democrats efforts to eliminate Bush’s “tax cuts for the rich” they are letting these evil tax cuts die.  You know the ones..  That credit for encouraging energy efficiency?  Oh, and that pesky credit for research (darn those tax-evading scientists!)¹

Interestingly, despite his obvious leftist leanings, Dean Dad hasn’t commented on the expiration of the tax benefit called “Tuition and fees deduction.”  He also hasn’t commented on the loss of the educator deduction from the AGI.  I wonder why?

So my question for you, dear readers is this:  Why were these tax cuts/benefits evil, and how do they only help the rich?

¹ Interestingly, several of the podcasts I have listened to lately have applauded the Obama election, and talked about the expectation that the floodgates of funding will be swinging wide. Hmm… at the same time that we remove the tax credit for conducting research? Apparently (and I just surmise here) the only “good science” is that which is directly funded by the government.  Ahh, yes, suckling…

The premise of the book is that life is “random” or at least in large partt driven by likelihoods and probabilities.  Those of you that actually know me, know that I appreciate the random nature of life, and that I believe no outcome is “certain.”  Even knowing that, intellectually, I find myself reflecting on the various lessons in this book, particularly after my recent automobile accident.  In that accident, I started second guessing my decisions.  What if I had gone to Home Depot first?  What if I had decided to go back to the main road to get between stores?  What if I had waited a few seconds before leaving Lowe’s?  What if I hadn’t asked for help, and had left Lowe’s 2 minutes earlier?

The timing of receiving the book (and reading it) helped my put all this in perspective.  All those decision points, and actions arising from those points, are what quatum physicists would call “alternative realities” (and some would tell you they all occured, in parallel universes!)  But there is little one can do to control the outcome.

According to this book (at least, up to my current point in reading it) we see patterns in most things, after the fact.  We play an elaborate game of connect the dots, to make “sense” out of what happened.  We ignore the role of chance, the importance of sheer “randomness” in the events.  The author writes:

Past events will always look less random than they  were (it is called the hindsight bias). I would listen to  someone’s discussion of his own past realizing that  much of what he was saying was just backfit  explanations concocted ex post by his deluded mind.

I realize that, in some way, (perhaps some warped way) I am taking solice in the fact that the accident was just a statistical probability that for some reason, on Thursday, decided to “realize” itself on the side of my car. BAM!

Now, that said, the book also plays a role in explaining the importance of “managing” randomness.  In the book, the author discusses a man, Nero who, as a trader in Chicago, learned early on to play the “game” of moderation.  Nero (being a statistician by education) understood the role of probability even in the market, and understood even better the impact of the “statistically rare event” or what the author calls “The Black Swan.” (He then later writes a longer book on this topic “The Black Swan: The Impact of the Highly Improbable — This one is on my shelf and will be next in my reading queue).

According to Taleb, Nero chose to limit his gains by not seeking the high rewards, because those carry with them the greatest risk, in the event of the “statistically unlikely” black swan. In my accident, Honda helped moderate the risks by providing side curtain and seat-embedded airbags.  We were t-boned, but my wife (sitting on the side that got hit) doesn’t have a single scratch and given the extent of the damage to the door, we believe the airbags protected her.

These are the sorts of things that we teach our students in decision analysis.  Assess the probable outcomes, and the likelihood of the event.  Understand the possible gains and losses.  Then make your decisions based not on the certainty of your ability (flawed) but on your knowledge of the impact of randomness.

This book arrives at just the right time to console me, to remind me that sometimes “stuff happens” and it’s just random.  Accept it, acknowledge it, and plan as best you can.  It’s a great read, and I highly recommend it to all.  But it leaves me with this question:  If it’s arrival was truly at “just the right time” –

Was it’s arrival… Random?

Actually, this is one of those great ideas for a “get away special” at a lake, or campsite.  Note that the houses are actually (apparently) on trailers (at least, they have wheels) so this is quite a luxurious camper setup.  And no worrying about resettling when you change jobs.  So long as you don’t move someplace off the continent, you should be “good to GO!”

Definitely check out the “Tumbleweed Tiny House Company” Video tour.

Take the GE commercials, for instance.  They have laid out clearly, in several commercials, how they are actively engaged in alternative energy projects.  GM touting their lower consumption and hybrid and electric vehicles.  Boeing and their lighter and less fuel consuming aircraft.  The list goes on.

As I see it, they are telling us the things that are already going on. Steps that are being done today, based on research and development conducted for at least the past 8 years (and more likely 20-30 years.)  Clearly, we are seeing today the fruits of labor and investments made in the past decades.

On the other hand, we have Obama’s commercial.  In his commercial (hey, he approved it!) he points out that the hands that do many every day things can also things to put in place alternative energy programs.  Like wind power. Alternative fuel cars.  Solar power. All noble thoughts.  And he is right, our hands can do those things.  In fact, as evidenced by not just the other ads, but our own experience (and the fact that the video used shows locations already doing these things).

So just what will Obama bring to the table? How will he enable our hands? Hmmm?

It seems to me that the Democrats are the ones playing off the fears of the American public.  Not the fear of terrorists, but fear of energy failures.  And they are promising…. um… wait, I had the memo right here…

Oh, yeah. Change.

Now, if we could just hear what that change is, and how it will be different.

I’m still waiting.

One more thing:  the last time this was done, under Carter, the expected revenues just didn’t materialize.  According to the report published in 2006 by the Congressional Research Service (CRS), “The $80 billion in gross revenues generated by the WPT between 1980 and 1988 was significantly less than the $393 billion projected. Due to the deductibility of the WPT against the income tax, cumulative net WPT revenues were about $38 billion, significantly less than the $175 billion projected.”

That got me thinking.  What people are really saying is not that they want to tax “windfall profits” (defined at the Financial Dictionary as “A sudden unexpected profit uncontrolled by the profiting party.”) but rather people are upset that the oil companies are making money by charging the consumer a higher price than they used to. Yup.  It apparently is unfair to charge a price that the market will bear.

Hillary Clinton, on May 1st is quoted as saying “The oil companies have made out like bandits, and there is no basis for them to have these huge profits.”

That said, I started to look around and see what other companies are earning these sort of “obscene” profits, during what has been described by Obama as “a recession, or worse.” So, first, I looked at the percentage profits earned by Exxon the most-oft used target of opportunity by the left.  For that past three years, Exxon has earned between 9 and 10 % profits (computed by dividing their “net income” into “total Revenue”–all data from http://finance.yahoo.com the hotlinks on the company names will take you to those pages)

Exxon
Net Income    Total Revenue    ”% Profit”
2005 36130              370680           9.75%
2006 39500              377635         10.46%
2007 40610              404552         10.04%

So, that doesn’t seem unreasonable to me, but perhaps I missed something.  Perhaps that 10% return in unmatched by any other company.  So, I decided to look at another company.  Yes, I had a biased selection.  I chose Apple, Inc, for two reasons.  First, Apple has had strong success making in-roads into several markets (computers, cell-phones, music), and secondly, because it seems Apple tends to be the computer platform of choice by those on the left. 

Well, it turns out Apple has performed comparably to Exxon in the first two years, while beginning to signficantly outperform Exxon in 2007.

Apple
Net Income    Total Revenue    “% Profit”
2005 1335                  13931           9.58%
2006 1989                   19315         10.30%
2007 3496                   24006         14.56%

Now, it was pointed out to me that people don’t need and iPhone, or an iPod, or even a Mac, so that comparison is flawed.  People apparently do need to consume gasoline however (I point to my previous discussion about the gas tax for why many do not need, or even consume, gasoline.)  I conceded this point.  I would, however, argue that computers have become ubiquitous, and no operating system is more prevalent than Microsoft’s Windows. So, it makes sense to look at Microsoft’s profits.

Microsoft
Net Income    Total Revenue    “% Profit”
2005 12254                39788           30.80%
2006 12599                44282           28.45%
2007 14065                51122           27.51%

Amazing.  If Exxon’s 10% profit is evil, I can only imagine what must be thought about Microsoft.

But, in all fairness, this doesn’t tell the most recent story. I can hear your critique now “but the oil prices only started really ramping up last fall, and didn’t really approach $4/gallon until the Spring 2008.”  Good point.  So what happens if we look at the quarterly numbers for these three companies, instead? (there will be some missing data, since not all companies report on the same dates.)

Exxon Apple Microsoft
6/30/2007 10.43%                          22.70%
9/30/2007 9.20%      14.54%         31.17%
12/31/2007 10.00%     16.46%         28.76%
3/31/2008 9.32%     13.91%         30.36%
6/28/2008 14.36%

So, even when Exxon was under attack from Senators Clinton and Obama, their quarterly earnings, though large, were still smaller than either Apple’s or Microsoft’s as a percent profit.  (And remember, if their total revenues were much larger than Apple’s so were there costs.)

The question then is:

Are we upset that oil, as Senator Clinton said ‘have made out like bandits, and … have these huge profits.”  Or are we upset at the price we must pay, and we lash out, without reason, at the oil companies because they are the most visible target?

——————————————————————————

n.b.: While I started this analysis back in May, It turns out the Wall Street Journal has recently undertaken a similar analysis, and arrived at similar conclusions, at least with respect to Exxon’s obscene profits of 10%.  They compared industries:

If that’s what constitutes windfall profits, most of corporate America would qualify. Take aerospace or machinery — both 8.2% in 2007. Chemicals had an average margin of 12.7%. Computers: 13.7%. Electronics and appliances: 14.5%. Pharmaceuticals (18.4%) and beverages and tobacco (19.1%) round out the Census Bureau’s industry rankings. The latter two double the returns of Big Oil, though of course government has already became a tacit shareholder in Big Tobacco through the various legal settlements that guarantee a revenue stream for years to come.

1. Visit here regularly if you are from around Mechanicsburg to check the lowest prices
2. Visit the gasbuddy.com site and search for lowest prices in your area
3. Join their site and provide updates to the prices for the stations you pass every day
4. If you have a blog, add a listing for your local area

The way I see it, McCain has a strategy that when taken as a whole will hopefully remove “energy” from our worry list. (see my entries here, and here) But… that doesn’t mean we shouldn’t be doing things to help each other out in the meantime.  By updating the gasbuddy.com site as we see changing gas prices, we help our neighbors save a little, and hopefully reward those stations that have the lower prices, encouraging more downward pressure on prices (Of course, economics being what it is, the increased volume at those lower-priced stations may be seen as an increase in demand that should result in an increase in prices at the micro level.  Who knows…)

So, what are your thoughts on how we can help our neighbors lessen the impact of higher gasoline prices? (and might I suggest that telling them to drive less, or buy a new car, isn’t very helpful…)

In addition, Obama’s attacks McCain’s proposal to offer a $300M prize for battery development

“to improve battery technology for full commercial development of plug-in hybrid and fully electric automobiles” to leapfrog currently available batteries and would have to build “more than one” advanced battery at 30 percent of current costs.

(In fact, in that same article Michigan Sen. Debbie Stabenow, D-Lansing, is quoted as saying “We don’t need a game show,” which, while making a great sound bite, seems to ignore the tremendous innovation currently seen through the use of prizes even at government expense, such as the X-Prize.  See here, here, here, and here.)

In several other stories we see the McCain has proposed immediate, near, mid and long term solutions.  Generally speaking, what Obama is calling gimmicks, we call a strategy.  He is working to alleviate (or at least reduce) the immediate pain at the pump, while seeking to ameliorate the overall energy situation through investing, and rewarding, innovation.

Obama’s plan?  Well, he really doesn’t seem to have a targeted one.  He supports a second round of stimulus tax rebates.  He also supports taxing “big oil” for making their record profits (which, by the way, are a far lower percentage of revenue than the much beloved Apple Inc.  If you don’t trust me, just challenge me.  I did the math…)  He also has called for higher fuel efficiency standards to double fuel economy by 2027!  (is that a near term solution?) And he supports alternative sources, such as solar, wind, and biofuels.

So does this add up to a coherent strategic plan that addresses the immediate needs, as well as the mid- to long-term needs?  What does Obama himself have to say about this:

Obama admitted that his own plan will not immediately affect gas prices but said his proposal for a second stimulus package will offer overall financial relief. “I wish I could wave a magic wand and make gas prices go down, but I can’t,” he said. “What I can do – and what I will do – is push for a second stimulus package that will send out another round of rebate checks to the American people.”

So, what is Obama’s plan for today?  He and McCain seem to agree on the long-term.  And the need for change.  But Senator Obama, do we really have 10 to 20 years to wait?

So, readers, I ask this.  If you were putting together a comprehensive strategy, what would be your:

• immediate term solution for lowering the price at the pumps today
• near/mid term solution for keeping costs down
• long term solution for weaning Americans off a dependence not just on foreign oil, but oil.

“I’ll make oil companies like Exxon pay a tax on their windfall profits, and we’ll use the money to help families pay for their skyrocketing energy costs and other bills,” the Illinois senator said.

He of course hasn’t stated at what point profits become “windfall profits.” So off to the definer place I went (you know, a dictionary!) According to The Free Dictionary, windfall profits is: “profit that occurs unexpectedly as a consequence of some event not controlled by those who profit from it”

This has me wondering what (or who else) has profited unexpectedly and therefore should be taxed on th eir “windfall.” I have a few thoughts:

The federal government should be “punished” because of the “windfall profits” they have earned because of the failure to index the Alternative Minimum Tax. Of course, when this particular creeping tax is brought up the Democrats “won’t move unless Congress finds ways to replace lost revenues.” (Perhaps the oil companies should insist that Congress extend them the same courtesy? Only tax “windfall profits” if they provide another way to make up the lost profits?)

Auto Manufacturers of fuel efficient vehicles seem to be reaping “windfall profits” according to this definition. This one, directly related to higher oil prices, is interesting because it hits other manufacturers of the less efficient trucks and SUVs. Perhaps the former manufacturers should be taxed, and subsidies be given to the latter? After all, it’s not “fair” that they are able to earn so much money.

In fact, how about those oft-maligned farmers. We are seeing record prices in corn and rice, in part due to the increased demand for ethanol. Of course, now we are seeing additional upward pressure due to the flooding in the midwest, again forces outside the control of the farmers (the definition of windfall.) Should these farmers now face a “windfall profit” tax? After all, they are earning this money on the backs of everyone who eats.

Seriously though, the point of this post isn’t to defend “big oil” but to point out that “windfall profits” makes a good sound bite, but there needs to be some serious thought, and definitions applied, before we start punishing.

One more thing:  the last time this was done, under Carter, the expected revenues just didn’t materialize.  According to the report published in 2006 by the Congressional Research Service (CRS), “The $80 billion in gross revenues generated by the WPT between 1980 and 1988 was significantly less than the $393 billion projected. Due to the deductibility of the WPT against the income tax, cumulative net WPT revenues were about $38 billion, significantly less than the $175 billion projected.”

Perhaps even more importantly, the CRS report goes on to say that any return of a “windfall profits tax” would be ineffectual, at best

Reinstating the windfall profit tax would reduce recent oil industry windfalls due to high crude and petroleum prices but could have several adverse economic effects. If imposed as an excise tax, the WPT would increase marginal production costs and be expected to reduce domestic oil production and increase the level of oil imports, which today is at nearly 60% of demand. Crude prices would not tend to increase. Some have proposed an excise tax on both domestically produced and imported oil as a way of mitigating the negative effects on petroleum import dependence. Such a broad-based WPT would tend to reduce import dependence, but it would lead to higher crude oil prices and likely to oil industry profits, potentially undermining its original goals. Because the pure corporate profits tax is relatively neutral in the short run — few, if any, price and output effects occur because marginal production costs are unchanged in the short run — a possible option would be a corporate income surtax on the upstream operations of crude oil producers. Such a tax that would recoup any recent windfalls with less adverse economic effects; imports would not increase because domestic production would remain unchanged. In the long run, such a tax is a tax on capital; it reduces the rate of return, thus reducing the supply of capital to the oil industry.

Joseph Thorndike, director of the Tax History Project at TaxAnalysts.com, spoke with Joe Segal about the history of “windfall taxes” on NPR.  For further information, go check out his blog, as well.

So today, Apple announces the advent of the much awaited “Jesus Phone 2.0″ sporting 3G and GPS.  And–the new iPhone is $199 for an 8 gb model.  Quite the drop in price AND an improvement in feature sets.  I like what the Wall Street Journal had to say about the new phone, relative to price

The moves are an acknowledgement by the Cupertino, Calif., company that the original iPhone was too pricey for the mass audience, especially in a weakening economy…  Mr. Jobs told the audience that Apple surveyed people who hadn’t bought iPhones and more than half of them said their decision was based on the price of the device. “We need to make iPhone more affordable,” Mr. Jobs said.

So does this mean I am “negative” on the iPhone?  Not at all.  I have two in the family!  My son and my wife both have iPhones, and love them.  I get jealous when driving down the road, looking over and watching them surf the web, and commenting on blogs.  Some day, I will have to get me some of that iPhone for myself.

And that day may just be soon.

For the four years preceding Reagan (better known as the “Carter Years”) there was a deficit run each and every year. Reagan did not inherit a Balanced budget. Not even close. I always thought it an interesting bit of history that prior to 1999, the last “balanced budget was in 1969, and that was only after “using” the Social Security surplus to balance the books.

Just thought you might want to know.

And now, having dispensed with that myth, let’s look at some other economic indicators from the Carter Era.

In addition, Reagan started with double digit inflation (12.5% for 1980), double digit interest rates (the federal reserve, or PRIME was at 13.35 in 1980), and unemployment was at a more “reasonable” 7.1% level.

So, since Drew opened this, let’s take a look, shall we, at how our current “bad economy” compares to the one Jimmy Carter handed to Reagan.

Inflation:12.5% Carter, 4.1% Bush

Prime Interest Rates: 13.35% Carter, 5.02% Bush (and have dropped more since the final ’07 figures)

Unemployment: 7.1% Carter, 4.6% Bush

So. what lessons can we draw from this? Well, certainly we can learn that we should check facts before making statements like “Just like Reagan, Bush II has taken a balanced budget and screwed it up.”

But we should also learn from this that we should place our current economic situation in historical perspective. While we are flirting with a recession (defined as 2 consecutive quarters of “negative growth” in the GDP), we have, by many measures a strong economy. Some would argue that it is built on a deck of cards, and that all these indicators are simply castles in the sand. Perhaps. Or perhaps economies always have troubles, and challenges, and growing and declining markets.

Perhaps we have had it so good, for so long, that we lose sight of how good we still are doing today, compared to even 30 years ago.

I was reading the blog over at “Imperfect Mommy” where I read, and at first accepted without questioning her comment “I read yesterday that suspending the gas tax would save the average American $30 over the course of the summer. $30.” Of course, then I felt rather guilty for not questioning the number. Not because I don’t trust her, but because it just seemed a bit “off.” At first I just figured “well, with almost 5 drivers in the family we are certainly not ‘average’” but then I realized–no one is.

My first thoughts, as a good researcher where:

• Who did the research that determined $30 per average American?
• How did the structure the demographic of the analysis?
• Did they consider that a significant percentage of “Americans” don’t drive? (And I don’t mean just those too young to drive.)
• What percent of the population lives in cities and doesn’t drive? Doesn’t even have a license?
• How many people would it take to have an every man woman and child each get “$30″?

So let’s look at some numbers.

• If the tax is $0.18 per gallon (for gasoline), then a $30 savings is the equivalent of purchasing 166.67 gallons of gas. In a typical 20 gal tank, that equates to 8.3 fill-ups. I know many people that fill up their tank at least once per week. The summer is 12 weeks long. If “most” people fill up only 12 times, that savings is really $45.
• According to the Washington Post, the revenue the government will lose will be $10 Billion dollars. That’s a hefty sum! If you divide 10 billion by 30, we can determine just how many Americans will be receiving this benefit. The answer? 333,333,333.3. Yup. 333 MILLION Americans each will save $30.
• According to the US Census Bureau, there are only 255,103,151 people in America.
• According to Senator Obama 78,230,182 more people will save $30 than are actually in the US. That’s right apparently we have 78 MILLION more people in the country than we think!

Now, these “quick and dirty” numbers are just that. I haven’t figured in the greater savings that the trucking industry would see, since they have a higher per gallon tax and a higher consumption rate. I also haven’t factored in the interplay between changes in gas prices, and changes in consumption. While it is argued that demand for gasoline is inelastic (that is, does not change much with changes in prices) there is some elasticity if people cancel longer driving vacations in the summer.¹

While the caveats I noted above could lessen the benefits of the tax “holiday” there are other issues to consider that would increase the impact for those that actually drive. To get to the $30 per average American, you have to ignore that most households are made up of more than 1 American (thus increasing the household savings), and that many Americans don’t drive, and most likely don’t even own a car. It would be interesting to figure how many people in large cities such as New York City rarely, if ever, drive.

The bottom line is this: The savings for people who actually drive in the summer is most likely larger, and potentially by a significant amount. Don’t just “repeat what you hear.”

Think about it.

Question it.

Challenge it!

¹ Interestingly, the demand for diesel fuel should be even more “inelastic” relative to fuel prices since that demand is driven more by demand for products delivered by truck. That demand is impacted perhaps only inasmuch as higher fuel prices leave less disposable income. A more “derived” demand elasticity.

Alas, all is not as clear when assessing the economy. In fact, a “weak dollar” has some significant benefits–especially for the “average” American.  And, for those readers here for Supply Chain information, the impacts of the dollar are felt throughout.

When the dollar is weak, it means that a dollar can buy less of a good or service produced in a foreign nation. BMWs and Computers can be more expensive. The costs to produce haven’t gone up, but rather the relative cost to produce when exchanging currencies. The result is we pay more (and buy less) imported items. keep in mind this also means the price of oil increases. This not only impacts us at the pumps but also increases the cost to transport goods. if the cost to transport goods goes up, consumers are more likely to purchase locally. (And this can mean locally produced since the cost to transport is most likely included in the price.)

But, it also means that goods and services produced in the United States are now more affordable in markets overseas. This means that, assuming we produce goods/services that people want, we start to export more.

Result? Imports–down. Exports–up.

What else does this mean? It means that here at home “American made” once again becomes a sign not only of (we hope) quality but perhaps affordability. Consumers may be paying more for everything, but if “American made” products are once again affordable (relative to the no longer “cheap” imports) then demand for these products should increase at home, as well as abroad.

Win! If demand for US made products goes up, we will find that production will increase. When production increases, employment increases. To top it all off, if energy prices continue to climb, the benefits of “off-shoring” (low labor costs, lessened regulations, among others) starts to be off-set by the increasing costs making “re-shoring” more plausible. Jobs come home.

One final note. I mentioned a few times the increasing costs of oil, and the impact on the pump. What would the silver lining be here? Think “Green.” Market forces (the “invisible hand” of Adam Smith) tend to be the best shaper of policy. Better than government, and far more successful that any promises of any politician seeking to create “Change.” I won’t speak for you, dear reader, but as you know I have started to look for alternative energy sources in my daily life, starting with a hybrid automobile. As petroleum prices increase¹
consumers start clamoring for alternatives. This creates markets² for alternatives.  Once the demand for alternatives reaches a point where the demand makes production viable, we will see alternatives flourish.  We are already seeing this with hybrid autos.  We are seeing the early signs of this in other energy sources as well, including solar and wind. But these discussions belong in another post.

Is it all buttercups and roses?  No.  There are disadvantages to a weak dollar.  Overall prices do go up.  Trips overseas become more expensive. I never argued that there weren’t disadvantages.  It just seemed that it was time to point out that there are some significant advantages to this shift in the dollar.

“Reading Rainbow Moment” To read more about strong, and weak, dollar performance, check out the Federal Reserve Bank of Chicago’s site and specifically their page discussing this very topic.

^1. note, I don’t say fossil fuels. Read more here)

^2. market refers to the group of consumers or organizations that is interested in the product, has the resources to purchase the product, and is permitted by law and other regulations to acquire the product.

It struck me today that “tax day” is perfectly placed for politicians.  Far enough ahead of election day that we forget the pain, and far enough after election day that we aren’t thinking about the pain quite yet.

Coincidence?

To review the bidding, socio-politico-economic forces led us into a situation where pretty much everyone was happy with people buying homes they couldn’t afford, at terms they couldn’t meet, for properties that were carried on the books at more than they were worth [speculators, flippers, builders, race hustlers, municipalities, and regulators all joined in the fun].

This went on for several years, and everyone was happy. People got to live in better houses than they could afford, and pay very little for them. Builders sold properties (and built even more!). Banks and mortgage companies shifted risk into the future, secured by value that didn’t exist. Borrowers who wouldn’t normally get loans did. TV shows actually showed us how to buy homes on “interest only” notes as long as we could sell them before the ARM ballooned and make money on the artificial value increases. Prioperty tax revenues flowed into municipalities like rivers of milk and honey. Fund categories were created to continue the illusion; look, The Share Price Just Went Up!

The problem (as with *all* pyramid schemes) is that eventually we run out of new suckers to buy into the scam. At that point, the underlying value of what is being traded becomes important. If the “paper” value of the assets greatly exceeds the “actual” value of the assets (hmmm what happens to the value of a product when supply outstrips demand?). After decades of overbuilding, the “air was let out of the balloon” in many markets.

The same people who “made” $$$ all of a sudden “lost” $$$.

So here we are.

1. Experts are urging people to live in their foreclosed properties for up to a year and “slow roll” the eviction process [note: At least 8 months is possible in just about every state. Apparently, the key is to just stop making payments to your lender, and not acknowledge that anything is amiss. You don't even need a laywer in every case. It takes that long before someone with a gun actually shows up at your door.] ; and

2. An alarming trend of ex-homeowners trashing the homes on their way out has developed. Recent WSJ article noted that several banks/mortgage lenders are now hiring agents to go from home to home offering thousands of dollars to tenants to not trash the property while leaving.

So you simply sieze the property for up to a year and then demand a bribe so as to not reduce it’s value further.

AND WE WANT TO GIVE A BAILOUT TO THESE PEOPLE?!?!

the other steve

Let’s start with the credibility.  I wondered about the credibility of the author of the article. So I read the credentials listed at the end of the article “Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com” He lives in Washington STATE! Yes–of course, How could I miss that credential! I should listen/pay attention to him. (And does anyone else find it, um… odd, that Mike’s email address is “FERGIE?”)

Now, I would like to take a brief moment to encourage everyone to do something called “research.” You may recall, as regular readers to this site, that I often encourage one to practice academic and intellectual honesty. Stop. Check the data. Question the sources. Challenge the techniques.

First, and most simply, I found that clicking on the source link for the article (http://www.counterpunch.org/whitney/02222008.html) results in a “connection timed out” error. (as of 2/25/08, 1118hr EST) That could mean that everyone is going there and resulted in the site being overloaded, or it could mean that the article on the site has been “pulled.” Either way, the credibility of the source is now questioned. Especially since the main site, Counterpunch.org is also returning a “connection has timed out” error.

Second: There are statements that should be easily verifiable in the article. For instance, the author (Mike? Fergie?) writes: “The $330 billion ARS market has dried up overnight pushing up rates as high as 20 per cent on some bonds…” which is quite a bit of news! Did anyone see this high bond rate reported? Can anyone find a news source that reported this? I would think that, if Fergie/Mike was able to find the information, then it should be “findable” right? I am not saying that the information isn’t there–but I am wondering why sources aren’t given.

Now, actually, it wasn’t that hard to do. I did find this snippet:

The Port Authority of New York and New Jersey, for instance, is paying $390,000 in interest this week on one $100 million bond that cost just over $83,000 last week, before a failed auction pushed the rate on the bonds to 20 percent from 4.2 percent.

Now, I also found numerous other sites that actually state, verbatim, what Mike/Fergie wrote. For instance, the Free Market News reports:

The credit storm which began in July when two Bear Stearns hedge funds were forced to liquidate, has continued to intensify. Last week the noose tightened around auction-rate securities, a little-known part of the market that requires short-term funding to set rates for long-term municipal bonds. The $330 billion ARS market has dried up overnight pushing up rates as high as 20 per cent on some bonds — a new benchmark for short term debt.

That should count, right? Well, one might think so, except it really is a summary of the article written by Mike/Fergie, and points back to the (unavailable) site. Move along. Nothing to see here.

And, while I could continue, I will end with this: given that the document written by Mike/Fergie is posted on a website, and created for electronic distribution, he/she should have taken the time to provide links to the actual sources for his/her information. “Good” bloggers at least hold themselves to that standard. Heck, even bad/poor bloggers (like good ol’ Eric over at A Liberal Dose) link to sources where they get the information they then distort. This may well be a maelstrom that consumes all in the fiery demise of the world economy. But then again, without sources (reputable or otherwise) this is simply another pundit, among the many, touting gloom and doom.

Obviously I have had an interest lately in fuel economy, and alternatives to the status quo. These are not driven simply by an altruistic vision of the future, but by rather practical personal and business considerations. Considerations that one can see in the supply chain. That said, I would like to invite your thoughts, in more of a conversational vein.

Perhaps you can share your thoughts on the impacts on supply chains of:

• Local food producers gaining a foot-hold in the market
• higher fuel prices as driven by crude oil prices
  • Consider off-shoring in this discussion. Labor prices drive production off-shore. Will fuel prices bring them back?
• alternative, native-grown fuel sources
• transportation routes devoted to moving crude oil
• transportation networks designed to move grains and grasses
• Economic impact of alternative fuel sources
  • If demand for fuel shifts to biomass, what would the impact be on crude oil prices?

I would recommend that you also visit the blog of “Imperfect Mommy” specifically where she outlines the benefits of local eating.

I look forward to reading your thoughts.

The past few years have seen an increase in the attention given to biomass as a fuel source. You all may recognize this a little better as the “ethanol from corn” movement, among others. Of course, there is the first criticism–we need food for people, not to run automobiles. Or to put another way “are we Americans so self-absorbed that we want to take food off the plates of people, and burn it in our cars?” Somewhat inflammatory, but that is generally the way the argument is formulated. Of course, in his book “Omnivore’s Dilemma” Michael Pollan points out that corn really isn’t all that good for people, either.

Additionally, there have been ongoing debates over whether we actually get enough energy out of corn and other crops. In fact, a controversial Cornell University study determined:

Pimentel and Tad W. Patzek, professor of civil and environmental engineering at Berkeley, conducted a detailed analysis of the energy input-yield ratios of producing ethanol from corn, switch grass and wood biomass as well as for producing biodiesel from soybean and sunflower plants. Their report is published in Natural Resources Research (Vol. 14:1, 65-76).

In terms of energy output compared with energy input for ethanol production, the study found that:

• corn requires 29 percent more fossil energy than the fuel produced;
• switch grass requires 45 percent more fossil energy than the fuel produced; and
• wood biomass requires 57 percent more fossil energy than the fuel produced.

In terms of energy output compared with the energy input for biodiesel production, the study found that:

• soybean plants requires 27 percent more fossil energy than the fuel produced, and
• sunflower plants requires 118 percent more fossil energy than the fuel produced.

Did I mention it was controversial? Well, this week Scientific American reports that switchgrass is a better choice than corn for ethanol, and goes on to report that:

But yields from a grass that only needs to be planted once would deliver an average of 13.1 megajoules of energy as ethanol for every megajoule of petroleum consumed—in the form of nitrogen fertilizers or diesel for tractors—growing them [...] This means that switchgrass ethanol delivers 540 percent of the energy used to produce it, compared with just roughly 25 percent more energy returned by corn-based ethanol according to the most optimistic studies.

So I am brought again to the views of my youth. We can take back our energy independence. We can have an affordable, cleaner-burner (although not “clean burning”) fuel source. And we can breath life once again into the backbone of America, the family farmer.

I tell myself this is healthy. This is a good thing. That I am keeping my body healthy. And yet, I can’t help but wonder about the efficiencies of a system that makes clean and pure water available to drink, out of half-liter bottles.

There are a number of concerns here, almost all of which touch on environmental issues, but are also at their heart “supply chain” issues. For instance, if we are shipping cases of water, we are moving tons, literally tons, of water by truck. This uses resources that could perhaps be used, or even saved, to move other things. What resources? Well, the obvious resource is fuel required to power the trucks. In addition, the bottles of water take up space in trailers that could, perhaps, have been used for transporting some other good.

And then, of course, there are the issues of storage. Storage at the bottling plants, at the distribution centers, and finally storage at the retailer. A friend of mine used to work at a bottler, and she had told one of my classes that, to prepare for the busiest months of summer, they started stockpiling bottled water in January. This required that they seek “off site” contractor storage, just to store bottles of water! When you think about this, the costs just keep adding up. Obviously, the bottler incurs an additional cost when they have to pay a contractor for storage. But they also have to pay to transport the water to the 3PL (third part logistics provider’s) warehouse. Again, using fuel, and trucks. Finally, they have at least one additional step moving the water from that warehouse to the retailer, but more than likely bringing it back to their own distribution center first.

And of course, being a good conservative, seeking to conserve resources, I think we should also practice reuse, and recycling. This requires a collecting of the bottles, shipping them to a processing facility, and then sorting and melting them. Can you see the use of resources tied up now, heading both directions in this supply chain? All for the delivery of bottles of water?

A recent Wall Street Journal column by the Numbers Guy (Carl Bialik) tackles deals with the purity of the shipping container used for bottled water–the bottle!

Bialik point s out that “Nestlé claims it offers the lightest half-liter bottles in the U.S. market.”As he usually does, he tackles the statistics, and the numbers, behind the assertions. His quest? To determine if their claims are accurate. I decided to look at a slightly different angle. By reducing the weight of the bottle, what impact does that have on the logistics tail–the supply chain?

Bialik was provided the numbers by Nestlé, and since he trusted their data (gathered by Tragon) I will as well. Let’s assume that everyone uses normal, everyday water, and that any minerals added “for taste” are inconsequential to the issue at hand, the weight. We can be reasonably certain that a half-liter of water weighs a half-kilogram, or 500 grams. This then is our baseline. the lightest bottles (the new Nestlé bottles) weight 12.26 grams, and the heaviest ones weight 25.94 grams.

Simple math shows that reductions from the heaviest bottles (Fiji) to the lightest, will reduce transportation weights by 2.6%. Of course, not every bottle shipped is a Fiji bottle, and Nestlé has not replaced every bottle sold. The actual reduction in weight transported would be less, and thus the environmental and supply chain impact reduction would be less, as well.

What to do? Obviously the first solution is to drink more tap water. If at home, get a water filter. I have a Pur faucet filter, but any would work. Just go check out the selection at your local Wal*Mart or Target.

Might I also suggest we take a page out of the athletes’ book and start using reusable water bottles. Nalgene is the bottle of choice among the swimmers I know, but they are certainly not the only manufacturer. Just be sure to get a high quality water bottle to protect against the leaching of chemicals from the plastics and into the water, and thereby into you.

There are other positive stories coming out, including restaurants finally providing tap-water again, rather than insisting on selling you bottled water. I will work to update these stories on occasion as well. In the meantime, share with me your ways of reducing the logistics footprint, and thus both the environmental impacts, and the costs of logistics!

Thankfully, others have taken on this task.  Specifically, Seth Godin (you know, the “All Marketers are Liars” author! and blog) has identified several ways that Apple could have differentiated their product, making people “happy” to have paid 33% more for the same product.  As he puts it, “The key is to not give price protection to early buyers (that’s unsustainable as a business model) but to make them feel more exclusive, not less.”

Godin’s ideas include:

• Free exclusive ringtones, commissioned from Bob Dylan and U2, only available to the people who already had a phone. (This is my favorite because it announces to your friends–every time the phone rings–that you got in early).
• Free pass to get to the head of the line next time a new hot product comes out.
• Ability to buy a specially colored iPod, or an iPod with limited edition music that no one else can buy.

Neat–and as he points out, they wouldn’t have cost Apple $20 Million in profit.

I think it is time for another look at that old friend of Economists and students in Econ 101, the “Demand Curve” and the slightly more complex notion of “Price Discrimination.”

To catch up, you undoubtedly recall that the demand curve essentially shows that, as prices decrease, demand will increase for a product. This is shown in the following graph:

Thus we can expect Steve Jobs is correct in saying that they did this to increase sales before the Christmas season. In fact, lowering the price should increase the sales, assuming that there is elasticity in the pricing and demand curve. Remember, elasticity is the degree to which quantity changes with a change in price. The more elastic, the greater the change (steeper the slope of the curve.)

Now, there is this other notion of “price discrimination.” Price discrimination, or “Yield Management,” is the practice of charging different customers a different price for the same product. The notion is really quite simple. As we saw in the Demand Curve, a few people are willing to pay a high price for a product. A few more would be willing to be a lower price, and so on. In the charts that follow, one can see how, by targeting different customers at different prices points, one can increase total revenue.

The first chart shows the revenue generated if one were to charge a single price. You can see that above the “box” is the revenue that is essentially lost due to customers getting a “good deal.” They would have paid more, but are most likely happy that they were able to pay less. Of course, to the right of the “box” is revenue lost because customers felt the price was not at a point where they could make a purchase.

This next chart shows, notionally, what would happen to revenue if a business were able to successfully segment the market, and provide 6 different price-points. As you can see a far greater area under the curve is colored in, showing a significantly greater amount of revenue.

By identifying these customers, and finding ways to segment the market, a business can capture more revenue by charging higher prices to those willing to pay those prices. Ideally, businesses would like to charge a different price for every customer, targeting the maximum price they are willing to pay. That level of price discrimination would ensure that every customer felt they were receiving a “fair” deal, while removing even the smallest gaps between revenue and the demand curve. This is rare, although an argument could be made that we see this in online auctions and in car sales with negotiations.

Realistically, we do see price discrimination in our daily lives. Customers can find the “same” available for different prices, simply by shopping at different stores. What makes people pay more? A sense that they are receiving something additional for the increased costs. We are perhaps most familiar with this practice in the airline industry, where yield management has gone from art to science. We pay more for a first class ticket (obvious difference in treatment, although you still arrive at the same destination.) But customers also pay a higher price for the privilege of changing travel arrangements, or for the ability to purchase tickets at the last minute. Alternatively, the airlines are able to ensure full planes by offering a select (and scientifically computed) number of seats at lower prices. Travelers must purchase these tickets within certain guidelines, but more tickets are sold (and seats filled), because they are able to capture those people who could otherwise (perhaps) not afford to travel.

If you look around, you can find other instances as well. Coffee is more expensive depending on whether a coffee shop has the right “feel.” Clothing is more expensive when purchased at “higher end” stores.

What is critical here is the ability to segment your customers, and by doing so, create barriers to transfer. This can be accomplished in many ways to include rules ( in the airline and cellphone industries), controlling information (automobile industry), perception of enhanced service (coffee shops and boutiques) and through geography (different shopping “districts.”)

So what does all this have to do with Apple?

I am glad you asked. I believe Apple made a “good call.” They sought to capture as many people in the high end of the Demand Curve as possible. The problem (if you believe that sales may have been trailing off in August) is that the demographic may have been smaller than they anticipated, or they all reacted more quickly purchasing en masse early on. This then left a potentially large amount of sales untapped. This is essentially what Steve Jobs was talking about when he kept referring to capturing the holiday sales. They want to increase sales and to do that, they must change the price point. This slides them down and to the right along the demand curve.

I suggest that Apple was trying to practice what I will call “temporal price discrimination.” They were hoping to capture the “big spenders” early, and then move down the curve, capturing sales from those who could not, or would not, spend at the higher price points. Unfortunately Steve Jobs misjudged the timing. The group that purchased the iPhones at the higher prices were not satisfied to say that 30 to 60 days of use of an iPhone was sufficient differentiation in their minds to have paid a higher price. For many, one could argue it wasn’t worth $100 to $200 per month to have a cool phone.

So, Apple failed to take the necessary steps to successfully practice price discrimination. They failed to differentiate and segment their customers in a significant and substantial way. They did try to create barriers. They were going to limit the number of people that could “switch”¹ to the lower price by putting a time window on when you could get your money back. But customers, apparently in droves, pressured Apple early and often. Jobs responded within 36 hours, offering in store credit (among other reported compensations.)

All in all, I think this has been an interesting time. I have only given a cursory look at the economics involved, and there are far more details I left out (did I forget to mention marginal costs?)  Also, I am sure there are many other factors and pressures that influenced Apple’s initial decision, and some may even include a pending shift in the demand curve itself. (If new technology makes customers feel this iPhone Gen 1 is “obsolete” then the whole demand curve might shift to the left…) Perhaps we shall revisit this topic…

¹ Ironic that, eh? Apple trying to stop people from switching?

Regular readers will remember that I have had “issues” with the lack of care exercised by my fellow bloggers on the left when it comes to reporting the facts. In the past, I have challenged the blogging from “A Liberal Dose” when the author mis-represented the facts as reported in the stories he cited. What first drew my attention to that blog was his gross mis-representation of desertions as a “flood” following the start of the Iraq war.

Now, I find that another of my favorite liberal friends not only perpetuates the mis-representation that the Bush tax cuts only helped the richest Americans, but uses a nearly 2 1/2 year old news story to support the claim. I wrote at the time that the democrats had failed to actually read the report before launching their scathing media attack. If you visit my blog entry, you will find my analysis not of the news stories that failed to actually get the story straight, but rather my analysis of the actual CBO report. One key point:

Now, that being said, you would think that the total change in share of the tax burden, or as the CBO report puts it, the total share of the “Individual Income Tax LIabilities” would decrease by a greater rate. But we see that is not the case. According to their report, those people in the top 20% of earners (highest quintile) actually show an increase in the share of the liability for most years, and there are only three years (2006-2008) when the tax share decreases at all for those in the top 1%. On the other hand, those in the bottom 60% of earners show a decrease in the total share of income tax burden every year. EVERY year.

The bottom line when one looks at the tax report is that everyone that pays income taxes received the benefits of the tax cuts. If you paid taxes, at the end of the day, you paid less after the Bush tax cuts than before.

Over at Pressing the Flesh “fleshy” writes:

Three things are clear, however: most Americans didn’t receive any real form of tax relief from Bush’s cherished tax cuts to begin with – those cuts only rewarded those with the highest incomes.

Hopefully you, dear students, have now learned that the assertion is false. The cuts rewarded everyone.

As always, I recommend you refer to the original source documents. Don’t trust the media, and don’t trust ax-grinding bloggers. Not even me.

Until next time…

Last posting, I put a story up about SAP releasing V 5 of their SCM software. I commented there on the need for software to support supply chain collaboration, among other things. It was pointed out to me by a colleague that the book, “Why ERP” presents an implementation of an SAP ERP system that failed. I have yet to read the book, but it is now high on my reading list (and I encourage those of you interested in these things to do as well.)

Hey, I make it easy for you–I am linking this posting to the Amazon site for this book. But not to get you to buy it, because if that was my goal I would have figured out a way to get a kickback. I wanted to actually link to the comments reviewing the book, like the one quoted above. It appears that this book is fairly common required reading, and that students don’t like it. Don’t believe me? Go read the comments!

This was doubly interesting to me, since it combined the ERP discussion with a discussion on evaluations by students. Over at the blog “Confessions of a Community College Dean” the Dean is trying to figure out ways to evaluate his faculty. This is often stymied by the fact that students’ evaluations are, well, sometimes less than constructive. Note, I say sometimes.

In these reviews of the book you will find there to be constructive critiques. These critiques say things like:

“Do not read this book if you are an expert on SAP or very familiar with ERP systems. This is little more than a text book put in the form of one large example.” (Hmmm one CASE example can be quite rich in individual exmplars used for discussion and study. But still, good critique.)

CAUTION: This book (actually a novel) is good only for those who do not know anything about ERP. Finish this quickly and move on to more detailed stuff like MISSION CRITICAL by Thomas Davenport. (again, the usefulness is challenged, but at least the commentator provides an alternative.)

and, Perhaps the best review:

This actually is a good read. It kept my interest for a full 2 hours, which is what is took to read it. The case study is real and on the mark. It illustrates that even if SAP is being widely adopted in your industry (in this case furniture), it may not be the right solution for you. In this instance, SAP (or the SAP implementation approach) was wrong because the company, whose business model was “make to order”, tried to cut time and costs by directly implementing a configuration which worked well for a company that has a very limited (few part numbers with minimal change) product line.

The author also did a realistic job in presenting the politics of the situation. The company president wanted an easy integration under a tight deadline. The IT geek wasn’t interested in the business model and wanted a showcase quick installation. The marketing guy wasn’t interested in the details and wanted to showcase the installation. The book’s hero is a healthy skeptic, who is trying to understand ERP, its benefits, and how it fit his company’s business.

Based the book’s title, I thought I was picking up another SAP marketing book. But it is not that at all. It’s objective and deals with business issues. No ABAP, idocs, and organization elements here.

My recommendations for anyone writing a review or a critique, including critiquing a course or an instructor? They are quite simple really:

1. Provide positive feedback if at all possible. What did you like, and why? The why is important because it helps to know how to develop future information in a way that worked well previously. Criticism need not be negative, or even pointing out weaknesses. Sometimes people need to be told the good things.

2. Be critical, with a positive attitude. Say things like “While I appreciate XXX, it didn’t work well, because…” Again, the because, or the why, is critical to helping the professor or author provide a fix for things later.

3. Understand the purpose of what you are critiquing. If you are critiquing a course, and the course is on advanced astrophysics, don’t criticize the lack of creative writing assignments. Alternatively, if you are in an MBA program, regardless of the quantitative rigour of the individual course, you should have an expectation that students will be expected to communicate clearly–after all, you are there to be better managers.

So, remember: criticism should be given with the intent of improvement, and while it may have been cathartic for the reviewer to write: “I wouldn’t even make paper airplanes with this book – because they would suck too. When millions of books were burned in WWII, why did they miss this one?” they certainly provided nothing to the discussion.

The Prof

Postscript: (In fact, the paper airplane comment was followed by a recommendation to read “The Goal” by Goldratt. An excellent book, but with a completely different message/intent. This reviewer apparently missed point number three.)

The phrase “tipping point” has been around for a while, but was certainly made more popular with the release of the book by the same name. I wonder if this author was intending a reference to the book.

I am intrigued that this issue of dependence on foreign oil has reached this point. What does this mean? The article points out that the “political complexion of that issue is about to change considerably…” If the complexion changes significantly (relating to dependence), are we now going to see a shift in opinions? which ideas will shift? Here’s a few that could prove interesting:

1. More interest in hybrid vehicles. This doesn’t actually shift our dependence, but it does lessen the amount consumed. Perhaps the “American mind” will see this as the same thing.

2. Exploring alternative energy sources, such as wind. This seemed to be gaining traction, and then the animal right’s groups got involved. Yup–being green was a good idea, until the windmills started taking out the birds!

3. Allow for more drilling in Alaska. Perhaps the easiest solution–and it doesn’t have to result in the destruction of the desolate wilderness. This is one of those issues that is so easily couched in the faulty “either/or” logic–”either” we protect the wilderness and don’t drill, “or” we destroy nature. Technology and social conscience have come a long way since the early days of drilling. I have faith that “win-win” solutions truly are achievable.

4. Elect new leaders. This of course won’t actually DO anything–and we will complain about these folks soon enough, but it makes “most Americans” feel good about themselves.

So–We have reached a tipping point. The question is, which direction we will tip. Thoughts, anyone?

Have you ever read a news story that just seemed, well, odd? This, to me, is one of those stories.

Perhaps I have been tainted by a book I recently read and enjoyed, titled “Freakonomics.” In that book, an economist slices data in ways that challenge the “conventional” views of the world, and shows how an understanding of data can help one make more sense of the world around us.

One of my favorite vignettes in the book is the discussion about airline vs automobile fatalities. Yes, we all “know” that it is safer to fly than to ride in a car. That’s conventional wisdom. The authors point out, however, that if you evaluate the data differently, by assessing time spent “in the seat” then it turns out to be a dead heat (no pun intended.) the number of fatalities per hour spent traveling in that mode is statistically even. Go figure.

So that leads me to this story. Here we have all the makings of bad journalism–reporting misleading facts, quoting of inflammatory language, and the obligatory “counter view” at the end of the article.

Let’s tackle the facts. In the article you will find this:

“We should have experienced a significant decline in speeding-related fatalities, given the tremendous gains in safety-belt use coupled with the increasingly safe design of vehicles,” said Lt. Col. Jim Champagne of the Louisiana Highway Safety Commission and chairman of the GSHA.

That statement follows a paragraph where we are informed that “The number of speeding-related deaths is not declining” and “Speeding is a major factor in about one-third of the 42,000 traffic deaths a year in the USA.”

Hmmm… The “numbers” are not declining? Sounds like we have a problem on our hands, right? As the article points out, vehicles are far safer than ever before, and yet the “numbers” are not declining.

But wait just one minute! The article then points out that “The nation’s traffic fatality rate last year was a record low of 1.46 deaths per 100 million vehicle miles traveled, according to the National Highway Traffic Safety Administration.” Now we begin to see that in fact, fatalities have declined, and we are just spending more and more time on the road. It’s not that speeding is more deadly. It’s that we are spending more and more time on the road.

But wait, there’s more! The author can’t just let the record stand corrected. The author uses the word “But.” Yup, after telling the reader that the actual rate is lower the author points out “But the number of people killed in accidents each year has remained fairly constant as the number of vehicles and miles driven increased.”

So now we see that perhaps Lt Col Champagne was speaking in hyperbole when he argued against speeding. What’s worse, he called the accidents “carnage” on the highways. Inflammatory language, to be sure. Especially since, according to Dictionary.com, carnage is “Massive slaughter, as in war; a massacre.”

Bottom line? Read carefully–and look for all the details. Ask questions about the data presented. In this case, the article at least presented the death rate, and not just raw data. Imagine if the author had chosen to leave just that one bit of data out.

So the question I have is: Which do readers notice more, and why?

Class dismissed.

Perhaps it is time for me to return to my roots. I have spent many an hour reminiscing about my days in what was then known as “The Future Farmers of America” (now, officially known only as “The FFA”). At the time, I remember being proud to be part of a family-centric tradition. Family farmers, passing down land, and practices, from generation to generation, and instilling in each generation a love for the land and for what it can produce.

Of course, I also remember the discussions about how “corporate farming” was taking over, and driving the family farmer to extinction. If left to their own devices, the agri-business folks would control the world. I, of course, scoffed.

My how times have changed. We still have family farmers, and agribusiness has contributed greatly to their success, and their ability to produce significantly more than ever before–feeding hundreds of people per farmer, where before the average farmer would feed 25, to 75, people.

But now we face a new challenge–seed as technology.

Monsanto’s claim that saving some seed, and replanting it, is the moral equivalent of bootleg copying music, would be laughable if it wasn’t so serious. Let me explain.

Stealing software, music, or movies generally requires one person making a copy, and then giving or selling it to another. Generally speaking, we have allowed (through the courts) for people to make copies for their own enjoyment and use. It’s why we have MP3 players in the first place, and why Apple is able to sell music through iTunes. People want to be able to listen to their music. But also, we understand that these items are truly technology. They are collections of machinery combined to provide a capability that didn’t exist before. essentially they are “things” that did not exist.

It seems to me that this is somehow fundamentally different. Soy Beans have always existed. Scientists have adjusted the DNA perhaps, and somehow twisted it to kep it from responding to “round up” herbicide, but it’s still “Soy beans.” Soy beans are natural, but somehow if you start with something natural, and you perform experiments on it, you gain “rights” to it that weren’t there before.

Perhaps God should consider suing Mansanto. After all–he owns the original rights, don’t you think?

Ever wonder why school levies always seem to fail, and yet school taxes always seem to go up, and never go down? It’s simple– the levies keep coming back, and coming back, until they pass. It is interesting, the levies lose, and lose, and lose, but then, due to low turn out, or bad weather, or just a weird turn of events, the levy passes, often by a number of votes that can be counted on one hand. And that settles it.

I first noticed this rather odd turn of events in St Louis, where they were trying to pass a referendum to allow riverboat gambling. The referendum failed during every election for over two years, and at every defeat those supporting the referendum vowed to bring it back again. Once the levy passed, they proudly declared “this has been settled once and for all.”

So, what makes it “once and for all” when one side wins, and not another? I think it is because those that are pushing for these issues are quick to try to shut down further debate. In fact, they often use draconian tactics to make their point.

One of my favorite responses from a school district, when their levy failed, was to not only take away busing, but then add insult to injury by coming out and announcing that if any children are injured by having to walk to school, that the fault would lay with the taxpayers who were “too cheap” to pass a levy. Yup–rather than find waste in their budget (and there was a large administrative staff that could have been cut) they went for the jugular, playing roullette with the lives of children for the sake of money.

Another school district said they would have to eliminate the advanced placement and honors classes. When pressed, they said they wouldn’t fired any teachers. Why not? Because they still had full classroom loads of students. So, this was another effort to lower the education of students, simply to “blackmail” the community into paying higher taxes.

So what would my solution be, for school districts? Let me say, my suggestions are focused not on how to defeat, or repeal, the levies, but rather on how school districts could do better without them. These suggestions at times may require a rethinking of what “public education” means, but that isn’t an insurmountable obstacle.

First, make students buy their own textbooks. College students have to do it, so why not public school students? I hear the screams now “but what about poor families that cannot afford the books?” Simple: we help them. If you are below a certain income level, then you get “free” books. If you aren’t, then you can also economize by purchasing used books, and then selling them back, just like the college model. The books in public schools now are often used for several years in a row. Requiring the purchase of the books would perhaps result in students taking better care of the books, since parents will have a direct financial stake in the care of the books.

Second, continue to require students to pay to play. Participating in sporting events and teams at taxpayers expense shouldn’t be viewed as a “right” of students. They should be required to take physical education classes, and that should be community funded, but anything beyond that should be seen as “above and beyond.”

Third, permits for parking (at local High Schools) should be purchased. This would perhaps reduce congestion (price it high enough so many would choose not to drive) and also help subsidize the busing system.

Fourth, identify any additional “above and beyond” programs, and charge fees that are appropriate for sustaining the program. If it is an event with spectators, then charge an appropriate fee for that program, and have that money go directly to support that program. Any money generated by a program should be used directly, and not subsidized a “lesser interest” program.

One quick aside on this point: If taxpayers subsidize a program, such as the football team, they should be allowed to attend for free. They already paid for it–they should get to see it!

One of these days, I want to see people insist that a referendum that passed be brought back just one more time. after 4 defeats, to finally win and declare final victory seems “odd.” How about “best two out of three.” Think we could convince people to go for that?

Don’t forget, the midterm exam is coming. Leave your homework in a pile on the desk on your way out, and make sure your name is on your work.

Wow!! Here I was preparing to write a blog about how both sides can present “true” facts (yes, I realize the humor in that…) and still hold opposing views.

It turns out that the Democrats chose to distort the facts anyway. Why would they do that? Because the facts from the CBO report show that everyone–yes everyone benefited from the tax cuts. In fact, refer to my previous discussion about why the tax cuts were a good idea to help recover from the slowing economy that Clinton passed on to Bush.

So, let’s start with the distortions. According to the Democrats, as reported in the Yahoo/Reuters news story, The CBO report shows that “the top 1 percent, with incomes averaging $1.2 million per year, will receive an average tax cut of $78,460 this year, and have seen their share of the total tax burden fall roughly 2 percentage points to 20.1 percent.” While this is most likely “accurate reporting” (that is, the Democrats did say this) it’s not actually to be found in the data of the CBO report. In fact, if you look at Table 3 of the report (use the link above, and read this for yourself) you will find that the share of “Total Tax Liabilities” for the top 1% of the population hits 21.2% by 2010, when the tax laws sunset (that is, revert back to the higher tax rates of 2000.)

So first, the Democrats actually understate the tax burden by 1 full percentage point. Not “even” a rounding error mistake. But what’s worse, they are arguing that it is “not fair” in some measure that 1% of the population is only paying 21% of the taxes. Read that again, slowly. 1% of the population is only paying 21% of the taxes. Let that sink in. That’s apparently too low, according to the Democrats.

Wow.

As if that isn’t enough, Table 4 actually is more “telling” since it presents the differences in tax Rates and liabilities. Yes, the tax rates for the top 1% dropped by a greater percentage. Could that be due to the fact that we are taxing them at a much higher rate to begin with? Remember, the more money you earn after you hit the highest tax rate, the greater percentage of your income you pay at that rate. If today, you happen to earn one dollar over the line, pushing you into the highest tax bracket, you will pay that rate–but only on one dollar. On the other hand, if you earn 1 million dollars over the line, you pay that higher rate for that total amount. So the total effective tax rate for a person one dollar over the line is far lower (given that the vast weight of the rate is the lower tax rates) than the rate for the person one million over who, for all practical purposes, earned all their income at the higher rate.

Now, that being said, you would think that the total change in share of the tax burden, or as the CBO report puts it, the total share of the “Individual Income Tax LIabilities” would decrease by a greater rate. But we see that is not the case. According to their report, those people in the top 20% of earners (highest quintile) actually show an increase in the share of the liability for most years, and there are only three years (2006-2008) when the tax share decreases at all for those in the top 1%. On the other hand, those in the bottom 60% of earners show a decrease in the total share of income tax burden every year. EVERY year.

Please, Democrats, let’s be intellectually honest here. Present the facts. The facts being simply this–The tax cuts put more money back in everyones’ hands, and at the same time did maintain the progressive tax structure that you believe is so important.

The other fact is even more insidious. Most people won’t go read the report, and the CBO won’t engage in political debates, so they won’t correct you.

But I will. And hopefully so will others.

Your homework today? Find truth. Seek truth. Live Truth.

I have given much thought to the economic news. Today the latest job figures were released, and while unemployment had gone down significantly, there is still some consternation over the fact that “only” about 30,000 jobs were created. I personally find that to be good news, and continues to put the lie to the argument that this is a presidency reminiscent of Herbert Hoover.

First, let’s set a few historical facts right. While the “Great Depression” officially started under Hoover, the economic stage was in large measure set by the actions taken by Coolidge, and by the actions of the international community around the US prior to the Hoover administration. So, to paint the Hoover administration as the “bad guy” here, would do a disservice to Hoover. In fact, this is a point I have often pondered during this campaign–why are the Democrats so quick to compare Bush to Hoover, and not Coolidge? It certainly couldn’t be that they don’t remember their civics classes, could it? I am left with few choices–either they failed to learn their history lessons in school, and are speaking from ignorance, or else they are perhaps choosing to distort history for some other purpose. Distort history? Naw…

Moving on, today Kerry also talked more about his proposed tax cuts for the middle class, and tax cut repeal (tax hike) for those earning over 200K. This is yet another salvo leashed against Bush’s tax cuts as being irresponsible during a time of economic downturn. Let me set a few things straight here.

First, it has been an accepted Macro Economic principle that, in time of recession/downturn, the government should increase spending, and perhaps go into a deficit, to moderate the negative effects of the downturn. More pointedly, if the government pumps money into the economy through government expenditures, it helps buoy the economy, and softens the blow. Typically this has been down through increased government programs, either through the various alphabet soup programs of FDR, or various subsidy/welfare expenditures of the Great Society and beyond. The problem with this approach is that it generates a ravenous consumer of resources that usually does not go away after the economy recovers. Rarely do we see government programs end (although I will give the New Deal credit–most of those programs are now gone!) These programs have spent money on government priorities, which are not usually the same prorities that the consumers would choose, resulting in a misallocation of resources. In addition, these new government demands would compete for resources in the then heating up economy and, given the tension of supply and demand, causes an increase in inflation spurred by the limited supply and competing demands.

So what did Bush do? Bush put the money directly back into the hands of the taxpayers, while not reducing government spending (and because of the war, having to increase spending moderately.) This has resulted in deficit spending, and significant deficit spending. This though is a fiscal policy espoused by the Democrats for nearly 70 years. The difference is, the money isn’t filtered through government programs! So why is this important, and in my mind, a stroke of genius? First, there are no new programs that will continue to compete for resources after the economy begins it’s recovery, which of course means that the pressures that result in inflation will be held at bay (notice, we are not too worried about inflation yet, and most concerns are minimal in the near to mid term.) Additionally, by putting the money directly into the hands of the people, the consumers use the money on those items that they most need, and are most likely to continue to purchase once the recovery takes hold. This essentially “primes the pump” ensuring that the economy is prepared for the coming boon, and is not malpositioned by meeting the needs of the government, rather than the needs of the people.

Okay, this is enough for now. The bottom line is this: the economy is recovering, and is entering a sustained recovery, because the money has been placed in the hands of the people who best know how to spend it–the Taxpayers. Give it up for George–he performed a stroke of genius, and made it seem so easy!

Class dismissed.