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Barbarians at the Gates?

Bill Gates revealed at the end of the World Economic Forum in Davos that he thinks US visa laws are creating a "disaster" for the software industry. Truth be told, Gates leaves out the part of the story that makes him look like an unsympathetic character.

The United States government puts a quota on the number of skilled laborers that all companies can sponsor to work in the US by visa. Originally, these H-B1 visas were used for jobs where the US market place did not have a competitive demand for them. (People who work in nuclear power, for example). However, foreign workers often will take lower wages than American ones for the same job. Add to the fact that software and other "high-tech" industries are not unionized pervasively and you have the first prong of the "disaster": employers in the US too eager to hire foreign labor for even the most skilled and sensitive jobs if there is a major salary savings to the company.

But wait, there's more. The H-B1 visa does not apply to students. In the past, many firms like Microsoft had the chance to find and offer internships to bright students from all corners of the globe as they studied engineering or science in the US. Since there is no hard quota on student visas, Microsoft and others had found a nifty way to cheat: sign your new talent while they are still in the US on student visas and sponsor their citizenship before they enter the labor market and become governed by H-B1 rules. So not only are employers too reliant on foreign labor we learn, but they are too reliant on loopholes in the visa system as well.

But the reason there have been so many foreign students in the US to begin with also involves a substantial profit. Namely, universities do not have to offer federal financial assistance to international students. They have to pay their own way. And for America's universities that is an extremely profitable way to go. Add to the fact that international students often are willing to attain postgraduate degrees as well; universities then proceed to use them as "free research assistants" in exchange for paying their way through these master and doctoral programs. As these conditions can be less than desirable, many American students who studied engineering at the graduate level opt to become patent lawyers, consultants and other jobs which do not require a doctorate in their chosen profession. Safe in the comfots of American suburban life, the previous generation of foreign-born American engineering students have sired offspring which hope to do well in business, the arts, and other non-technical fields. Such choices allowed the use of international students to fill engineering programs at universities to be self-perpetuating. Until the State Department changed the rules in the wake of the World Trade Center attack, that is.

For the last point Gates brushes off is the schizophrenia the Bush Administration has toward education. Universities were usually so hard up for money in first place because federal aid to students has not increased noticeably since the 1970s. The shortage stems from the Republican desire, both at the state and federal level, to make higher education less subsidized by government money. Absent from Gates's speech was a call to make college accessible to all Americans so that we can be independent of foreign labor in high-tech sectors if need be. He wants no such thing. Gates still wants to have a cheaper labor costs via immigration, but he invariably wants the majority of software development here in the United States. For it is in the US where copyright and patent laws are the strongest.

But is there even a "disaster"? Unfortunately, it is all too imminent. For it is not just that Microsoft will not be able to find new engineers to hire. It will have to pay them almost as much as the older workers they will replace. The problem is real, however, Gates nor Larry Summers nor the federal government have ventured a solution. This is because there has never been a shortage of new immigrants to fill jobs created by economic growth. While the the change in visa rules has reduced the flow of immigration to a degree, that flow will be dwarfed by the job vacanies which loom over the next decade.

It is good to see that Gates is trying to draw attention to this. For in the economics of politics, the more prevalent talk of problems and crises are, the sooner people try to fix them. But it is also true that he is hardly an honest broker. To survive Microsoft and others will have to create a new labor model which will embrace the demographic changes of the 21st century. The only question is whether that Microsoft will still have Gates at the helm.

posted by Thomas at 6:06 PM 0 comments

 

You won't be seeing any of this at the 2005 World Economic Forum.
posted by Thomas at 2:08 AM 0 comments

 
No Dick

Mark Landler of the New York "Times" reports about the opening day of the World Economic Forum in Davos, Switzerland with a few curious insights.

The obvious one is that no member of the Bush Administration is in attendance (at least so far). Plenty of Americans in both business are government are there, just no one in the Executive Branch. To be honest, the WEF has been described as a "love-in". You have major economic and political personalities gushing in a mutual admiration society. Protestors always attempt to make a name for themselves but the Swiss police keep them at bay, far from the action. So as cold as Davos is in January, it's still an excuse to fly Swissair to Zurich and flex the expense account.

Newly minted Secretary of State Condolezza Rice obviously was preoccupied, but not sending even John Snow at Treasury indicates Bush has decided not to use the WEF as a platform to say anything. Perhaps he was not expecting the deficit projections to be so ... big.

Meanwhile, the ever pessimistic Stephen Roach of Morgan Stanley blamed the Federal Reserve for not raising interest rates to put the brakes on all this debt. It's kind of funny....Morgan Stanley poured in over half a million dollars to Bush-Cheney '04 on the premise (you would think) that a privatization scheme in Social Security would be in the offing. Now Roach wants us to believe that Bush is so incompetent he cannot even lobby the Federal Reserve for an interest rate hike? Either the White House is "on script" or it's not and in any event Roach obviously can call in and ask.

In any case, it is probably true that this is the year where interest rates in the US will rise precipitously. Perhaps that speech was not going to go over too well in the rosy glow of the weak winter sun. The party will go on at Davos, make no mistake, just with no Dick.

posted by Thomas at 10:01 PM 0 comments

 

2002:(by Eric Draper) Jeb's sucess at keeping down Medicare costs no doubt buoys his hope for reforming Medicaid.
posted by Thomas at 10:55 PM 8 comments

 
From Tallahassee to Washington, Part I

Florida Governor John E. Bush wants to outsource Medicaid to the private sector. He wants to do it because, surprise, he is worried about facing Hillary Clinton in 2008 for the Presidency. It's premature to suggest that such a Bush-Clinton match will be had, but ol' "Jeb" is not taking any chances. Medicare and Medicaid both are facing cost explosions. This is largely due to the two programs covering more and more drug types, treatments, and afflictions--and with its recipients less and less likely to have another means to health insurance. This gap is pronounced in the working world now, which makes single-payer health care possibly only an election cycle away.

If universal health care becomes inevitable, the Republicans will favor a market-style solution. In effect, something close to Jeb's idea where private companies still will own the hospitals, pay the doctors and sell the drugs. The government will then give you a stipend to spend as you see fit. Bush is no fool, he realizes that to sell this idea nationally he has to prove that it works in his home state (being a governor and all).

Bush can't experiment with Medicare: he lives in a state with a huge elderly population and the federal government funds the program completely. Medicaid costs are split between Washington and the states, however. Further, Florida's economy is largely based on a lower wage structure that states with more manufacturing jobs. Its voters in 2004 responded to this by raising the minimum wage. But this does not make health insurance more affordable; Floridians have to hope that big employers of low-wage workers offer them a policy. That is, unless they manage to qualify for Medicaid by being under 18, pregnant, disabled, or even HIV-positive.

So make no mistake, John Bush has a Florida Legisluature dominated by Republicans. He can get any initiative passed he wants. And those are whatever policies he intends to incorporate into a national platform for 2008. Jeb only will declare himself if it appears that the Republicans have a shot. His opposition is likely to coalesce around two men: Mitt Romney and Chuck Hagel. All three will begin their explorations once the midterm elections wind up in November of 2006...but anything can happen in two years. If the economy turns sour, or if there's another terrorist attack...Jeb would be hurt the most. If calamity stays only on the horizon, he remains the toughest out of the bunch.

The Democrats may not end up running Hillary Clinton. But in any even they intend to take issues such as health care and education and go after the Republican nominee (as the placeholder for Bush) with both guns blazing. However, just as Jeb might scuttle plans in the face of bad news, other prominent Democrats might defer until later, allowing an unknown dark-horse to challenge the House of Bush. Too bad Bill Clinton is prohibited by law from running again.

posted by Thomas at 7:37 PM 0 comments

 
Endless Summers

The New York Times has a feature which shows which news stories are the most emailed from their World Wide Web edition. Despite the inauguration of the President, the story generating the most hype this week is about Harvard President Lawrence Summers. More specifically, the shock and horror of female faculty and alumnae about his suggestion that biologically differences may explain why female students stay away from hard science.

Harvard hired him despite his infamous World Bank memo in 1991. Harvard stuck with this guy despite his conflict with Cornell West and Anthony app over African-American Studies. It's hard to believe that a statement (made on the fly) would be the nail in the coffin. After all, Summers is not someone fazed by trying to keep everyone happy. (He was the second Treasury Secretary for Bill Clinton.) Still as the criticism rolls in, there is not much insight. It is fine to say Summers is dead wrong, but what is the correct explanation? And where is the female faculty and alumni pushing to strengthen the number of women in Harvard's scientific majors?

So while Harvard continues to enjoy the controversy and free advertising, don't be surprised if other Ivy League schools attempt to copy America's oldest university. Instead of shunning a personality like Summers, they may seek someone just as controversial to stir the pot.


posted by Thomas at 11:49 PM 0 comments

 


The future of aviation supposedly began earlier today in Toulouse, France with the unveiling of the Airbus A380. While Singapore Airlines has revealed already what route it has in mind for the A380, the largest order for A380s has been from Emirates. Emirates does fly plenty of longhaul routes being based in Dubai, but will these routes beneift from increased capacity? Of course two of America's largest airlines think there is plenty of room for increased capacity. They happen to be UPS and Federal Express. If the A380 allows them to compete with the Postal Service (which has passenger airlines carry its mail) on price, there could be increased calls to raise postal rates or privatize the Postal Service entirely. Far and away, USPS accounts for the largest number of federal employees in the US, outstripping even the military.

Of course all this changes if an American carrier decides to use the A380 on domestic routes. Currently, very few domestic flights in the US use even a Boeing 747. But that may change. JetBlue began its road to profitability by charging $250 roundtrip to fly from New York City to Florida. Southwest offers plenty of cheap flights from all over the country to Las Vegas. However both carriers use single-aisle planes. But "legacy airlines" could start to use the A380's larger capacity to compete with cheaper fares on discount carriers. The 747 did trigger the need for deregulation in American aviation. The A380's promise of lower fares might convince legacy carriers to compete against each other more forcefully, making true market deregulation a reality.

posted by Thomas at 6:47 PM 0 comments

 

NASA photo courtesy of Wiki Commons.
posted by Thomas at 1:14 AM 0 comments

 
The Blunder Down Under

It's received minimal if any media attention in the US, but January 1 marked the start of a new free trade pact between Australia and the US. However, the deal is pretty one-sided, most of Australia's biggest exports to the US face quotas and other restrictions, whereas 99 percent of all American goods face no additional rules. Opposition to the free trade accord was much stronger in Australia than the US, making it an open question why the Government there acceeded to nearly every American demand.

The conspiracy theory that rules Down Under is that it has a lot to do with Rupert Murdoch's reorganization of NewsCorp from Adelaide to New York City. News Corp owns half of the cable networks in Australia. With the Fox brand now being technically an American product, he would find "local content rules" limiting what he can show that is produced outside the Commonwealth. The free trade agreement scraps those rules for cable, allowing Rup to show whatever he wants whether it is made in New York, Sydney, London, or Los Angeles.

But there's another reason even less talked about. The largest import in Australia from American by far is aircraft and aircraft parts. This is because while Australia is almost the same size physically as the US, it has only about 1/10 the number of people. Roads in the Outback are few, and air travel on small planes is crucial. And suffice to say, international travel is only possible from Australia by plane, and usually on very long flights. Boeing, Gulfstream and Cessna all look like winners. But Australia's biggest export to the US, beef, faces quotas. And the next biggest export, alcoholic beverages, is one third the monetary volume of US aircraft exports alone.

Absent is liquified natural gas. Australia has large offshore deposits of natural gas which is already sold to Japan and now China. Previously America has relied on its own natural gas deposits, but now supplies are running thin. LNG, as it is known industry wide, can be transported over long distances. Terminals to receive LNG are being built all across the California coast anticipating this future need. And under the free trade agreement, the Australians will find no barriers to ship their LNG to us as very competitive prices, irrespective of beef quotas.

The short-term aspects for the free trade accord appear dreadful for Australia. But long-term, perhaps inadvertantly, things look pretty sunny for the Commonwealth's trade relationship with America.

posted by Thomas at 1:01 AM 0 comments

 

2003: US Marines tour Babylon ruins rebuilt under Saddam Hussein. Photo by Daniel O'Connell, Gunnery Sergeant, USMC
posted by Thomas at 9:36 PM 0 comments

 
Nothing Sacred

The British Museum's director of its Anicent Near East operations has filed a scathing report of how American and Polish military forces have damaged the ancient city of Babylon. There was not much the US could do after Abu Ghraib to damage our reputation more. This, however, probably will.

Assistant Secretary of Defense Paul Wolfowitz was quick to point out that money for Iraq's reconstruction was not necessarily the US's monetary problem. Wolfwitz was convinced the Iraqis would pay for it themselves. Most of this centered around exporting oil. But few if any people have pointed out that oil revenue, even with an optimal security situtation, would probably not generate enought money to reconstruct Iraq. Even if the Iraqi people had welcomed us as "liberators", the US would have still had to grapple with economic redevelopment.

For there are not only oilfields in Iraq but factories for steel and textiles, vast tracts of date orchards and sugar farms, not to mention schools, roads, and other infrastructure to support the service sector. But because of Saddam Hussein's authortarian regime, not much tourism. So whether the US likes it or not, tourism is crucial to the future of a stable and safe Iraq. The country has fascinating ecological sights, such as the "Garden of Eden" marshland near Basra. It has a warm and sunny climate. But most of all, Iraq has very unique archeological sites like Babylon.

Damaging and pirating historical treasures is culturally insensitive and helps demonize the US abroad as heathens to which nothing is sacred. But it also demonstrates that the Bush Administration has no clue how it's going to ressurrect the Iraqi economy and ensure political stability for the future.



posted by Thomas at 4:47 PM 0 comments

 
No Quarter

Businessweek observes that federal sentencing guidelines have been overturned just as the Department of Justice readies its case against such corporate crooks as Bernie Ebbers and Ken Lay. I think the Government is extremely reluctant to cut a deal with both of them. Both men are from Texas and knew George W. Bush. It does not help that Lay ran Enron, a compnay which California's state pension fund sued for misrepresentation of its stock price after the firms collapse. Lay's trial is going to provide fodder that equity fund managers do not remain particularly vigilant about their clients' money. With the Bush Administration desperate to partially privatize Social Security into the purview of these same managers, the courtroom dramas will provide plenty of negative publicity for Alliance Capital, Janus, Vanguard 500 and Fidelity.

But wait there's more. The WorldCom trial is likely to cause investigations into media deregulation. Though it hasn't received much press, the Bush Administration through Federal Communications Commissioner Michael Powell is hoping to overturn the 1969 Supreme Court decision of US v. Red Lion. Previously major media players such as Viacom and Disney opposed the case building to overturn Red Lion. However do to Powell's phony war on obscenity they have begun to play ball and change their position on the case. Should Powell succeed, the FCC would lose much of its power to rein in telecommunications. Up to now, this policy by Powell has received little scrutiny but once Ebbers has to present a defense it might turn public sentiment against Powell.

And if that is not enough, there is real potential that Lay will try to undercut the Government by discussing his participation in a secret Energy Task Force convened by Dick Cheney in 2001. The pretense being that Enron was encouraged to be aggressive by the Vice President. Lay would then suggest that this goading by Cheney made him more willing to trust people like Enron CFO Andy Fastow. Lay already hopes to claim that being trusting of board members like Skilling and Fastow might have been naive but not criminal. Add some encouragement by the former President of Halliburton (who conveniently is Vice President at the time) and Lay might succeed in appearing the "real victim".

The trial against Lay is still a few months away. Jury selection for US. v. Ebbers, however, begins Wednesday, January 19.

posted by Thomas at 11:26 PM 0 comments

 
George W. Bush: Messiah or Anti Christ?

The President granted members of the Washington "Times” a rare Oval Office interview yesterday. Drawing the most fire were his comments about religion. But as some of the newspaper’s writers have said on TV, Bush himself seems to create a Messianic parallel when talking about himself. So while others have tried to connect eschatological visions in the Bible (such as the Apocalypse) to Bush as the putative Anti-Christ, more striking are the President's comments in the interview compared with the Gospel of John, Chapter 5:19-44

19 Jesus answered and said to them, "Amen, amen, I say to you, a son cannot do anything on his own, but only what he sees his father doing; for what he does, his son will do also. 20 For the Father loves his Son and shows him everything that he himself does, and he will show him greater works than these, so that you may be amazed. 21 For just as the Father raises the dead and gives life, so also does the Son give life to whomever he wishes. 22 Nor does the Father judge anyone, but he has given all judgment to his Son, 23 so that all may honor the Son just as they honor the Father. Whoever does not honor the Son does not honor the Father who sent him. 24 Amen, amen, I say to you, whoever hears my word and believes in the one who sent me has eternal life and will not come to condemnation, but has passed from death to life.

25 Amen, amen, I say to you, the hour is coming and is now here when the dead will hear the voice of the Son of God, and those who hear will live. 26 For just as the Father has life in himself, so also he gave to his Son the possession of life in himself. 27 And he gave him power to exercise judgment, because he is the Son of Man. 28 Do not be amazed at this, because the hour is coming in which all who are in the tombs will hear his voice 29 and will come out, those who have done good deeds to the resurrection of life, but those who have done wicked deeds to the resurrection of condemnation.30 I cannot do anything on my own; I judge as I hear, and my judgment is just, because I do not seek my own will but the will of the one who sent me.

31 "If I testify on my own behalf, my testimony cannot be verified. 32 But there is another who testifies on my behalf, and I know that the testimony he gives on my behalf is true. 33 You sent emissaries to John, and he testified to the truth. 34 I do not accept testimony from a human being, but I say this so that you may be saved. 35 He was a burning and shining lamp, and for a while you were content to rejoice in his light. 36 But I have testimony greater than John's. The works that the Father gave me to accomplish, these works that I perform testify on my behalf that the Father has sent me.

37 Moreover, the Father who sent me has testified on my behalf. But you have never heard his voice nor seen his form, 38 and you do not have his word remaining in you, because you do not believe in the one whom he has sent. 39 You search the scriptures, because you think you have eternal life through them; even they testify on my behalf. 40 But you do not want to come to me to have life. 41 "I do not accept human praise; 42 moreover, I know that you do not have the love of God in you. 43 I came in the name of my Father, but you do not accept me; yet if another comes in his own name, you will accept him. 44 How can you believe, when you accept praise from one another and do not seek the praise that comes from the only God? 45 Do not think that I will accuse you before the Father: the one who will accuse you is Moses, in whom you have placed your hope. 46 For if you had believed Moses, you would have believed me, because he wrote about me. 47 But if you do not believe his writings, how will you believe my words?

The passage is significant not because of some hidden of magical prophecy, but because it may have a great impact on the psychology of the President. Notice versus 19 and 20 describe a person who can only continue, but exceed or finish what his Father. And the realization is not that Bush sees himself as serving his own father in this sense but the Almighty Father through continuing his biological father’s agenda. Verse 30 is even more revealing, about a person who cannot do anything on his own but judges with “what I hear”.

True or not, the reason that Bush sounds perilously like the Anti-Christ is the forty-third verse. Jesus is suggesting that people will believe a false prophet who “comes in his own name” over Jesus. This is to point out the fact that Jews had hoped in earlier Biblical works for a powerful military leader to expel the Greeks, Syrians and Romans from Israel. Instead there the human version of the tent used to hide the Tabernacle. Looked like nothing important, but looks are deceiving. So again, the translation hints that a person who comes with regalia, power and glory in the name of God would not be the savior. And in the First Letter of John describes such a person as one of many Anti-Christs.

So while the Gospel of John provides little proof that “Dubya” is Beelzebub, it does speak to things Bush brought up himself in the Washington “Times” interview.

posted by Thomas at 10:13 PM 0 comments

 

Raw Deal

With the stench of Governor Schwarzenegger’s budget proposal still wafting about, the San Francisco “Chronicle” notes that Arnold will soon announced a comprehensive strategy of housing, urban development, and transportation planning called“Go California”.

This could be the most laughable attempt at public policy ever seen in the history of mankind. I say this because nearly all the problems seen by the state were caused by overzealous developers extending the suburbs beyond the limit of viable infrastructure. Most middle class whites were race-baited into moving farther out from the city center largely because of busing in school districts like LAUSD. And there’s no shortage of eager developers ready to build houses from Los Angeles to Phoenix or San Francisco to Reno if given the opportunity. It is true that transportation funding is low, but that is because in 2001 President George W. Bush cut the National Highway Transportation Fund to pay for Homeland Security outlays. California has been trying to catch its breath ever since. Notice Arnold has done nothing to convince the Feds to reimburse the state, as he promised when he was elected. But seriously, Schwarzenegger shot himself in the foot by repealing an increase in the crucial vehicle licensing registration fee. So what does Go California really sound like? More traffic, more sprawl, less public transportation, less accountability. But hey at least it won’t cost more in taxes.

posted by Thomas at 1:24 AM 0 comments

 

More Green in This Red State

Talk about buzz. Word leaked yesterday that DNC Chairman Terry McAuliffe will hand over today $1.5 million to Tim Kaine for his Virginia gubernatorial bid somewhere in Arlington.

It’s unclear if the handover will be done publicly or in private. What is clear would be McAuliffe’s desire to up the ante on the Republicans and demonstrate that Democrats can win in the South. After all, numerous Southern governors are Democrats. But somehow, there is the belief that down in the heartland you can’t win by being liberal and usually you can’t win by being a Democrat.

This is why McAuliffe is so eager to pony up. He is eager to dispel that myth and show the main reason Democrats lose in Dixie is that they are outspent. By matching the Republicans in out of state money, McAuliffe thinks Kaine ought to win in a walk. It is early enough to say that such hopes are premature. So much of the campaign is defined by the candidate himself. So why can The DNC Chair give this money with such a cavalier attitude? Does the phrase “red state” mean anything to you? Democrats are tired of appearing equivocal and soft. They want nothing more than the chance to aggressively take the fight to the “red states”. No matter how the election goes, most Democrats believe making a stand will be a moral victory if not an actual one. And unless Kaine is blown away, ala Janet Reno in 2000, critics of this strategy will be hard to find.

posted by Thomas at 1:58 AM 0 comments

 

No Pundit Left Behind

Just when you think the investigative journalists at USA Today have permanently gone fishin’ the crown jewel of Gannett’s media empire surprises you. Someone (and you can bet Greg Toppo ain’t telling) suggested that the newspaper file a Freedom of Information Act request about Department of Education expenditures promoting No Child Left Behind. What was uncovered is that through an intermediary the Department funneled $240,000 to commentator Armstrong Williams to plug No Child Left Behind. Williams is black, a self-confessed conservative, but most of all a syndicated columnist. His syndication partner, Tribune, terminated his contract after the story broke. So is this about propaganda? Well, Williams says he wholeheartedly believes in NCLB.
He was eager to promote it, irrespective of financial considerations. As much egg as it puts on his face, this really isn’t about Armstrong Williams. It’s about a very cynical attitude that the Bush Administration has towards African-Americans. This idea was designed to make inroads among African-Americans. Guys like Karl Rove sought to chip away at black support for the Democrats by hyping NLCB. But because of Bush’s dreadful reputation among blacks, the Bush brain trust sought a respective African-American to push the agenda. That does not sound so outrageous until you take a hard look at NLCB.

It was supposedly based on Bush’s educational reforms while governor of Texas. The transition to federal law meant that states had the flexibility to define terms differently, so long as they demonstrated progress on the test. Districts that do not find themselves starved of federal Department of Education funds. This encourages lower standards and for school districts with large numbers of blacks this often means an endless cycle of mediocrity. What are much more popular among blacks are school vouchers.

So while Williams did not say explicitly that NLCB is a prelude to vouchers, implying it certainly would help the Bush Administration’s cause. With Bush’s reelection achieved however, it seems completely possible that NLCB will be discarded or reformed so as to enable school vouchers. Such an idea will not require Armstrong Williams to be it’s pimp however. Thus begging the question how the President plans to ensure that no pundit is left behind.

posted by Thomas at 5:26 PM 0 comments

 

Michael Powell’s Poor Attempt at Subtlety

The Chairman of the Federal Communications Commission hinted on Thursday at the Consumer Electronics Show that it soon may be obsolete. By saying effectively that one could look at Comcast and SBC and “not find a meaningful difference in what they do”, Powell has announced that the future of his agency could be short. Telephone companies used to be the biggest concern of the FCC, and treating them the same as a cable provider would reduce the footprint of regulation period. This might not appear dangerous, but it’s a clever manner to get around anti-trust laws.

You see, it is illegal for one company to control an overwhelming market share of a particular product. Services have less stringent restrictions however. Private utility companies seem to enjoy the ambiguity. Even so, how about being forced to use one provider for all your telecommunication needs? If everything you use is a product, this is illegal under antirust law. But if you use a service, legal precedent is more ambivalent if you can be coerced to use that provider for other certain needs. Imagine having to use one company for your cable, broadband, local phone services, long distance, and wireless. If SBC gets its way, we guarantee that is a foregone conclusion.

And why is this getting around anti-trust laws? Currently you have only have one choice for local phone service. Ergo, consumers would have to use that local phone company for any other communication services that it so desires, or not have a ground line telephone at all.
posted by Thomas at 2:12 AM 0 comments

 

Red Meat

Buried in news of Alberto Gonzales and Barbara Boxer was the highly charged committee hearing on Agriculture Secretary Mike Johanns. It was “highly charged” not because the Democrats and the Republicans were at odds, but because all the Senators were looking for help from the appointee on international trade. The reason is simple, as this article subsequently points to. Domestic meat producers are paying lots for American beef because Canadian imports were banned until a quarantine period for mad cow had passed. American cattle owners are not eager to cut prices from Canadian importation. American demand for beef is not low, but it may have been artificially high during the Atkins Diet craze.

It should surprise no one then that the Senators involved took aim at Japan, which has been using mad cow concerns to ban American beef imports. But is this solution the panacea? Only if you believe in the “cascade theory”. Japan accounted for 30% of all American beef exports and only about ten percent is sent overseas. In other words, a total of 3% of all American beef in 2003. Canada accounted for around 2%, and so does Mexico and South Korea each respectively. That leaves a conglomeration of nations to represent the final 1%, many from Asia. Canada and Mexico have dropped American beef import bans. The thinking is if Japan does, the rest of Asia follows suit.

The fallacy there is that American beef will be favored over meat from other countries because of some inherent quality. In Japan, Yoshinoya has said publicly American beef is better for its signature teriyaki bowls. South Korea, Taiwan and the others might not have such predilections about which beef is better though. And that enough will probably means that Bush will face tremendous upheaval within his own party about trade.

posted by Thomas at 9:43 PM 0 comments

 

Schwarzenegger’s California Dreaming

Governor Schwarzenegger delivered an exuberant “State of the State” address on Wednesday afternoon. He is very excited about his agenda and says if the legislature doesn’t pass it he will put it to the voters in a June special election. Most of the agenda is likely to pass because, quite frankly, Schwarzenegger “agenda” is largely hot air. But there are three points which will be easier said than done.

Base teacher pay on merit, not tenure, and tie teachers' continued employment to their performance in the classroom.

In charter schools this idea generally works…but…pay scales tend to be up to 150% higher. Schwarzenegger’s whole plan is that merit pay will somehow lower education costs. Should the governor be reelected in 2006, his second term is going to see massive retirement by state employees. On the contrary, the state is going to have to pay more money than ever to hire new employees. What’s worse, until those new employees can grab the bull by the horns, the state faces closures and shortages from schools to highways to hospitals to state parks. Traditionally Republican voters are going to get disgusted just as quickly as Democrat ones and there could be conceivably another recall.

Will send the Little Hoover Commission a plan Thursday to reorganize the state prison system. Look, Schwarzenegger is not going to win against the prison guard union.

When you have to incarcerate as many people as California does, the prison guard union is naturally the best ally of any “tough on crime” candidate. He’s going to send a Commission a plan…whoopee…how about REAL MANDATORY SENTENCING REFORM, ARNOLD? Oh wait, some wealthy guy had to use the initiative process against you for that.

Says the state must shift move from a defined benefit to a defined contribution pension system for new state employees, similar to that offered by many private companies.

Already the state employee pension invests in stock and bonds. What Schwarzenegger wants to do is take the pension board, which are full of elected members, and abolish them. He would then offer state employees a 401(k) plan. In other words, instead of a state pension board deciding where the state employee fund is invested it would be a bunch of investment bankers on Wall Street. No wonder Schwarzenegger easily borrowed enough money to keep the state solvent in 2003, he just promised this in return. I don’t know if this will cost Schwarzenegger reelection but if any form of Social Security privatization passes nationally…this idea is politically toxic. Phil Angelides might as well draft his inaugural address.

posted by Thomas at 8:49 PM 0 comments

 

Delta Equals Change… in Math

Delta has decided to simplify its fare structure, and now it appears American might following suit. (Both airlines experimented at one of their hubs, but did not make the experiment system-wide). It might seem strange to think that this will remedy the “long-suffering” airline industry. However, it actually might. No matter how frilly JetBlue and Frontier pretend to be, they still do not have international service or first class. If the article is true and first class roundtrips are capped around $1200 or $1400…that is probably low enough to fill up the plane.

The idea is that in the past, economy passengers were pure profit, as the first class passengers made sure every flight broke even. Now, most first class passengers are “upgrades” and not paying customers. If paying customers start buying more first class tickets, fewer seats would have to be given away as upgrades. However, the airlines would have to turn a profit based on their revenue in economy class. Given that Southwest already has solved that puzzle, the only reason it would be harder for Delta or American is because they have a higher cost-per-mile expense. Another reason that larger airlines would gain an advantage: point-to-point is largely a myth. It’s true that Southwest eschews having a major hub, but many of its “point-to-point” flights actually involve multiple stops and are not to larger, more central airports. United and American actually have far more point-to-point flights, especially because they have code-sharing partners.

In any case, “legacy” airlines still need to press the Federal Government to improve security speed and professionalism and work with their host cities to develop better public transportation links and facilities. However, lobbying takes money and if the simplified fares strategy works, the airlines will have more dollars at their disposal.

posted by Thomas at 3:10 PM 0 comments

 
Social Security: Bush Using Neo-Voodoo Econ?

The Washington Post thinks it knows how Bush is going to fix the Social Security “crisis”. Once again, whoever made this policy decision is pretty astute. While it still involves “cutting benefits” in essence, this strategy seems to solve a few problems. One, it preserves Social Security as a government program and does not materially change the FICA tax rate. Two, it ensures that Social Security is more or less going to provide a safety net so that seniors will still have something at the end of the month. By not rewarding higher wages however, it’s going to encourage investment in private accounts. It used to be that if you earned more at your job, you got more SSI when you retired. Now, you wouldn’t have to open a private saving account (PSA) but the more money you make the more tempting a PSA would look.

So why oppose the PSA idea? Well the reason is because it would favor the wealthy tremendously. Unless the rules are different than say a Roth-IRA, there won’t be much choice involved with PSAs. That inflexibility means the firms that sell them will make a healthy profit, while people with more discretionary income (rich people) can make other investments to offset a lackluster PSA. At present there is no deterrent for smart people of little means to pick a better investment choice, but it seems like there almost wouldhave to be one. Unless of course, Bush really intends to empower people and not simply payback the millions in election cash he received from companies like Morgan Stanley.

The other possibility is that inflation is going to be much higher than anticipated. However, since the number of workers is likely to fall in the future, wages would still surge ahead of inflation. But in either case, whether the labor age population rises or falls, higher inflation might still derail this strategy. This is because Social Security uses Treasury bonds that have a fixed return. If inflation in a given year exceeds the return, problems ensue. It last happened in the 1970s when the amount of wage earner dwarfed people receiving Social Security. It made the already terrible inflation worse, but was not responsible for causing devaluation in the first place. That was due to government borrowing for domestic spending and Vietnam Given how profligate we’ve been in the face of these federal income tax cuts, the parallels between then and now is almost palpable. If Bush hits the brakes hard on spending and interest rates rise he might get around this problem. But given that Iraq doesn’t look resolved that seems unlikely. Secondly should interest rates ascend too fast, we’re looking at pretty stank-smelling recession. Ironically, it would be the opposite of a jobless recovery: hiring would continue to rise because of demographic shifts

So again, this preliminary leak could be wrong. But if it isn’t, it appears Bush is using some serious voodoo economics to claim he’s “reforming” Social Security. It appears instead of reducing the real size of government FICA revenue, he’s just creating a tax loophole to get people to once again tepidly buy those mutual funds they left four years ago after it was clear Wall Street was taking them for all they had in their 401(k)s. If that’s “reform”, what is the status quo?
posted by Thomas at 1:30 AM 0 comments

 

The NAFTA Super-Mega-Uber Highway

If you are one of those people wondering what substantive policy changes are coming in George W. Bush’s second term, this one is for you. Apparently, the Federal Highway Administration (FHWA) has a rather revolutionary idea for a new interstate. It’s called “Interstate 69”, and perhaps that’s an all too apt name. The concept is really different, and yet it’s simple to explain. The US Government wants one highway to lead directly from the largest border crossing (in terms of cargo) from both Mexico and Canada. They want a NAFTA Superhighway. At first blush this looks innocent, since the Mexican crossing is near Laredo, Texas on I-35. For Canada: it’s north of Detroit at Port Huron, Michigan on the existing part of I-69. But if you drove south, you would find currently I-69 ends at Indianapolis. The plan is to build a brand new highway south of Indianapolis (or upgrade what exists already) in a southwesterly diagonal from Indiana through Kentucky, Tennessee, Arkansas, Louisiana, and finally Texas. Of course in the old days, there could only be intersections between odd and even number interstates. The idea was that the highways should be straight enough (normally) to allow planes to land on them during a national emergency. Nothing prevents diagonal construction, but this would be the first time that an interstate cuts across lower numbered sister highways. [It should cause mass confusion and chaos, but most Americans don’t even realize the meticulous numbering system that often goes into road numbering both at the state and federal level.]

The mystery about I-69 is if would be a toll road. It’s a mystery because originally Texas Governor Rick Perry wanted to include the I-69 construction as part of his “Trans-Texas Corridor” project. Perry sells the project as a massive viaduct system which would have dedicated truck and passenger car lanes sandwich commuter and high speed rail lines along with monster utility feeds for things like broadband Internet service. Because federal gas tax revenue is so small (most federal highway funding is culled from your federal gas taxes, states are free to use vehicle registration, a state gas tax, or tolls) Perry believes the only way to build the “Corridor” is to use federal and gas taxes but still charge a toll. Perry publicly envisions TTC’s for the I-35 (running from Oklahoma south through Dallas, Austin, San Antonio to Laredo) and for the mythical I-69.

But the Spanish company that Perry has signed to work as the contractor is selling something else. They are expecting to build a toll road from Dallas to San Antonio, buffeting or flanking the existing I-35. There’s no mention of I-69, rail or utility lines. Part of this can be explained by the fact that company rep that apparently negotiated the deal now works as an aide for Perry. Thing is, the governor naturally would want to charge tolls for the trucks laden with cheap goods from Mexico. Many truckers still have to use the San Antonio-Dallas segment to connect to the I-20, but it’s a lower number than the number between Laredo and San Antonio. (Once in San Antonio, a driver can head east or west on the I-10.) And it’s undoubtedly lower than the number of trucks that would use I-69. So no matter what the TTC ends up becoming, it’s not going to be as great of a commercial success unless it expands from only the Dallas-San Antonio route.

Still, I-69 could easily end up as a toll road. This is because states have the power to levy tolls on federal highways. It seems contradictory, but try driving through New Jersey and be amazed. Not all federal interstates there charge tolls, just mysteriously the only one that runs from New York to Philadelphia (I-95). But in the South, charging tolls on federally-subsidized highways is usually unpopular. But given the fact that most of the traffic might be NAFTA-related…can the states involved resist? Can the bankrupt US Government actually find a way to build the NAFTA Superhighway at all? And if they do, will it meet opposition causing the beginning of the end for the free trade zone? Few people are likely on the edge of their seats about this right now, but that ought to change in the future.

posted by Thomas at 2:19 AM 0 comments