Monday, April 28, 2008

CA Demographics, 2008 Population Growth

Some people were contesting my earlier statement that California, for the first time in years, was losing population. They were technically correct--it appears that CA is still experiencing population growth, but at a reduced rate. My overall point remains the same--with fewer people, California will most likely receive less tax revenue. See this link:

The budget website is quite interesting to review. Tax dollars are being sent into K-12 education services more than any other area:

So the next time California teachers ask you for more money, keep in mind that most of your tax dollars already go to their schools, especially if you pay property taxes. As a result of these outlays, which are very hard to reduce, California is one of the few states projected to have budget gaps between two and eleven billion dollars in 2009. The only other states in this ignominious category? Florida, Nevada, New Jersey, and Arizona. See

Something must be done about our K-12 schools. Vouchers, anyone? (At least for a start...)

Thomas Paine

So many people have mangled Thomas Paine's famous saying, I feel the need to quote it properly. See Rights of Man (1791):

When it can be said by any country in the world, my poor are happy, neither ignorance nor distress is to be found among them, my jails are empty of prisoners, my streets of beggars, the aged are not in want, the taxes are not oppressive, the rational world is my friend because I am the friend of happiness. When these things can be said, then may that country boast its constitution and government. Independence is my happiness, the world is my country and my religion is to do good.

Actually, the incorrect quotation does sound better: "The World is my country, all mankind are my brethren, and to do good is my religion."

Sunday, April 27, 2008

The Anti-Imperalist League

Yes, such a group actually existed back in the day, and Mark Twain was a member. Below is part of the Anti-Imperialist League's mission statement, which refers to the American annexation of the Philippines and the Philippine-American War:

We deny that the obligation of all citizens to support their Government in times of grave National peril applies to the present situation. If an Administration may with impunity ignore the issues upon which it was chosen, deliberately create a condition of war anywhere on the face of the globe, debauch the civil service for spoils to promote the adventure, organize a truth suppressing censorship and demand of all citizens a suspension of judgment and their unanimous support while it chooses to continue the fighting, representative government itself is imperiled.

We hold, with Abraham Lincoln, that "no man is good enough to govern another man without that man's consent. When the white man governs himself, that is self-government, but when he governs himself and also governs another man, that is more than self-government--that is despotism." "Our reliance is in the love of liberty which God has planted in us. Our defense is in the spirit which prizes liberty as the heritage of all men in all lands. Those who deny freedom to others deserve it not for themselves, and under a just God cannot long retain it."

Boston, 1899

Saturday, April 26, 2008

Two Reading Tips: Money and China

National Geographic Magazine is probably one of the most overlooked publications in the U.S. This month's (April 2008) issue focuses on China and is absolutely fantastic. In addition to the articles and pictures, there is a detailed map of modern-day China.

I also read a newer publication, Lapham's Quarterly, Vol 1, No. 2, titled, About Money. All of the articles in the Spring volume's journal are about--you guessed it--money. There are too many interesting tidbits to quote everything, but the writers include everyone from Alexis de Tocqueville to Orson Welles. I especially enjoyed the Benjamin Franklin and Jim Cramer pieces. Here are some quotes from the journal:

Thomas Jefferson: "Money, not morality, is the principle of commercial nations."

Roger Starr: "It is not the accumulation of money which is vicious, but overconsumption...[the very poor] are "dehumanized because his relative poverty deprives him of the human responsibility of choice."

Henry Ford(!): "The automobile business was not on what I would call an honest basis, to say nothing of being, from a manufacturing standpoint, on a scientific basis, but it was no worse than business in general." "How much gasoline it [a car] used was of no great moment..." (In 1922, oil was around $3.50 a barrel)

James Boswell: "In civilized society, personal merit will not serve you so much as money will. Sir, you may make the experiment. Go into the street, and give one man a lecture on morality, and another a shilling, and see which one will respect you the most."

Tocqueville: "What grips the heart most powerfully is not the peaceful possession of a precious object but the imperfectly satisfied desire to possess it and the constant fear of losing it."

Elias Cannetti: "What is that happens in an inflation? The unit of money suddenly loses its identity. The crowd it is part of starts growing and, the larger it becomes, the smaller becomes the worth of each unit...Just as one can go on counting upward to any figure, so money can be devalued to any depth... [Are you listening, Bernanke?] An inflation cancels out distinctions between men which had seemed eternal and brings together in the same inflation crowd people who before would scarcely have nodded to each other in the street."

Upton Sinclair: "The assumption [in the entertainment business] was that they would live happily ever after, though never was it shown how that miracle would be achieved, and though the divorce rate in America was continually increasing."

Andrew Carnegie: In bestowing charity, the main consideration should be to help those who will help themselves; to provide part of the means by which those who desire to improve may do so; to give who desire to use the aids by which they may rise; to assist, but rarely or never to do all. Neither the individual nor the race is improved by alms-giving. Those worthy of assistance, except in rare cases, seldom require assistance."

Sallust: "Growing love of money, and the lust for power which followed it, engendered every kind of evil. Avarice destroyed honor, integrity, and every other virtue, and instead taught men to be proud and cruel, to neglect religion, and to hold nothing too sacred to sell."

Jack Weatherford: "Compared with the physical force of the military and the spiritual authority of religion, money offered a third and completely novel way to organize society. Without regard to rank, class, or standing, anyone with the proper coin could buy a goat or a turnip, a jug of wine or a basket of fish, a parcel of land for a vineyard or a pinch of salt to flavor dinner...In the global economy that is still emerging, the power of money will supersede that of any nation, combination of nations, or international organization now in existence. The newly ascended financial elites hold no brief or loyalty for any particular country, and the third revolution in the history of money threatens to erode the value of kinship, religion, occupation, and citizenship as the defining components of civil and social life."

Tim Parks: "The real scandal of money, and particularly usury, as we have already said, is that it does not respect traditional hierarchies. The merest artisan can make a fortune and start strutting around in expensive crimson. The feudal order breaks down."


Other than a classical music class I took at a community college--one of the best deals in existence, as the CDs that came with the textbook are still used--I have no expertise in music. But this article about Mozart caught my attention, primarily because it states in different, more concise words my belief that our brains get caught up in limited local patterns that inhibit intellectual growth.

See Corinna Da Fonseca-Wollheim: "The Magic Flute" is as utopian and abstract as "The Abduction" is fresh. By placing his characters in an oriental setting, Mozart reminds us that it is only in confrontation with an Other from whom we allow ourselves to learn that we can find our own voice and transcend prejudice. (WSJ, April 26, 2008)

Absolutely correct, in my humble opinion.

Monday, April 21, 2008

Peggy Noonan's Life, Liberty and the Pursuit of Happiness

I enjoy reading Peggy Noonan's column in the Wall Street Journal, so when I saw one of her books in a used bookstore for $5.50, I bought it. Noonan's style is difficult to describe. It is best-suited to columns and short speeches, but I could not explain to you why I feel this way. The writing in Life, Liberty, and the Pursuit of Happiness (Adams Publishing (1994)) evokes a calm, folksy demeanor, favoring anecdotes over heavy prose. Basically, Noonan's style is vintage Erma Bombeck--if Bombeck had a political agenda.

When Noonan is more concise and quoting others, she is less preachy; for example, she introduces the reader to two interesting quotes, such as "Life makes conservatives of us all," and "Politicians prefer unarmed peasants." The second one made me laugh, and the first one was used very well in its full context. Noonan clearly aims to be a political philosopher, and here is what she says when she refers to Jack Kemp's evolving views of limited government:

[I]t's not the federal government that is the prime helper of the poor in America, it is freedom. Freedom to build, freedom from excessive taxation, from regulations and lawsuits that can ruin your dry-cleaning business because someone says you don't employ enough of this race and that gender. Freedom to work as a kid off the books and learn and get good habits and not have the guy who runs the candy store be buried under tax and medical forms. (page 178)

As a political insider, Noonan also has access to Justice Clarence Thomas, and in response to how he felt during the Anita Hill hearings, we see a more human side of the man:

"I didn't go in there strong," he says. "I went in there a broken man. I had been broken. They had reduced me literally and figuratively to a fetal position. I was broken. And what got me through it was I prayed, I said 'Lord, I am weak, I am weak, you must help me.'" (page 114)

On Dick Cheney, Noonan's experience is telling, even in 1994. After asking him to keep a diary so he could one day write a book, here is what happens:

Cheney makes that wince face he makes and looks down. "No, unfortunately you can't keep diaries in a position like mine anymore." "Why?" I ask. "Because," he says, "anything you write can be subpoenaed or become evidence in a potential legal action. So you can't keep and recount your thoughts anymore. (page 89)

Later, Noonan, a Republican insider, states, "Fact: No one really knows what Cheney would do or think domestically." (page 184) It's enough to make an American do a wince face.

Speaking of domestic issues, California is having heated discussions about immigration in 2008. However, it appears the issues were the exact same in 1994, and after 14 years, California is doing relatively fine, and the same issues keep coming up every few years (it's almost enough to make you think that politicians play the immigration card when it's convenient for them and when they need to get votes):

"What are you going to do about immigration?" "It isn't xenophobia," he said; the Mexicans and other recent immigrants were coming up to him and asking about it, they're taxpayers and they're seeing California sink under the weight of illegals who come into the state and go on its services...California's going broke." (page 186)

And there is what makes Noonan slightly unbearable to read in an expanded format: wide brushes of policy packed in folk style, which are designed to impart a certain lesson, but without regard for accuracy. It's passive-aggressive politico-speak. California is suffering from a lower bond rating in 2008--many years after her book was published--but it is not clear at all whether undocumented immigrants are the reason for the decline in the state's ability to pay future projected costs. (In fact, it appears most payments from the State go to bonds relating to schools--which, last time I checked, needed approval by by citizen taxpayers and which benefited all children.)

Noonan's folksy style becomes excruciatingly asinine in some places:

Young black men will save our country. I'm not sure completely what I mean by this but--they're tough and smart and know how to survive...Anyway, something just tells me they're going to save our country." (page 26)

Although she is foremost a political insider, Noonan comes across best when she dispenses common sense advice:

When you think about your enemies, you're letting them live in your head without paying rent. (The same person told me, When you worry, you're paying a deposit on trouble that may not be delivered.) (page 157)

Noonan continues to be most interesting when she talks about being a mother and about life in general, such as her own born-again experience. Noonan's use of personal experiences are her greatest strength--feet on the ground, writing to lift you just far enough so you can see beyond the horizon and see the promise of conservative principles:

[I]n a way, life is overrated. We have lost somehow a sense of mystery--about us, our purpose, our meaning, our role. Our ancestors believed in two worlds, and understood this to be the solitary, poor, nasty, brutish and short one. We are the first generations of man that actually expected to find happiness here on earth, and our search for it has caused such unhappiness. (page 215)

As long as she sticks to shorter pieces of work, she'll continue to be one of my favorite writers.

© Matthew Rafat (first published April 2008, revised)

April 21, 2008 -- Stocks

I have a bench trial this morning where I'm representing an employee not paid his wages, so I went to the office at 6:30AM to review my notes. I did my usual routine and checked my stocks, and also noticed that oil was selling for $117 a barrel. I immediately sold most of my individual stock holdings, except for MOT (I have only 200 shares, which I bought at around 9 dollars a share), PFE (earnings already released), and SNY (a Buffett holding). I even sold GE, but will buy it back if it dips. I did buy a few shares of SWZ for my Roth, and I continue to have stock holdings in my 401(k) in the form of mutual funds. However, I now have no individual holding worth more than 2,400 dollars.

I sold most of my individual stocks because the market rose too much last week without any fundamental change in the economy. Merely because one company--Google--reported stellar earnings, the Dow almost hit 13,000. But Google is not dependent on oil prices or consumer spending, and most of the economy is dependent on those two factors. With oil priced at $117/barrel and consumer spending projected to be anemic, the case for owning individual stocks becomes harder to support. In addition, with several earning reports coming out this week, the market should be volatile. If you own stocks in a Roth, there is no tax penalty for selling, and the case for being a buy-and-hold investor diminishes with increased volatility.

Sunday, April 20, 2008

Ted Sorenson, JFK's Speechwriter

Ted Sorenson, a former aide to President John F. Kennedy, gave this moving commencement speech at the New School University in New York on May 21, 2004.

"A Time to Weep"

This is not a speech. Two weeks ago I set aside the speech I prepared. This is a cry from the heart, a lamentation for the loss of this country's goodness and therefore its greatness.

Future historians studying the decline and fall of America will mark this as the time the tide began to turn - toward a mean-spirited mediocrity in place of a noble beacon.

For me the final blow was American guards laughing over the naked, helpless bodies of abused prisoners in Iraq. "There is a time to laugh," the Bible tells us, "and a time to weep." Today I weep for the country I love, the country I proudly served, the country to which my four grandparents sailed over a century ago with hopes for a new land of peace and freedom. I cannot remain silent when that country is in the deepest trouble of my lifetime.

I am not talking only about the prison abuse scandal, that stench will someday subside. Nor am I referring only to the Iraq war - that too will pass - nor to any one political leader or party. This is no time for politics as usual, in which no one responsible admits responsibility, no one genuinely apologizes, no one resigns and everyone else is blamed.

The damage done to this country by its own misconduct in the last few months and years, to its very heart and soul, is far greater and longer lasting than any damage that any terrorist could possibly inflict upon us.

The stain on our credibility, our reputation for decency and integrity, will not quickly wash away.

Last week, a family friend of an accused American guard in Iraq recited the atrocities inflicted by our enemies on Americans, and asked: "Must we be held to a different standard?" My answer is YES. Not only because others expect it. WE must hold ourselves to a different standard. Not only because God demands it, but because it serves our security.

Our greatest strength has long been not merely our military might but our moral authority. Our surest protection against assault from abroad has been not all our guards, gates and guns or even our two oceans, but our essential goodness as a people. Our richest asset has been not our material wealth but our values.

We were world leaders once - helping found the United Nations, the Marshall Plan, NATO, and programs like Food for Peace, international human rights and international environmental standards. The world admired not only the bravery of our Marine Corps but also the idealism of our Peace Corps.

Our word was as good as our gold. At the start of the Cuban Missile Crisis, former Secretary of State Dean Acheson, President Kennedy's special envoy to brief French President de Gaulle, offered to document our case by having the actual pictures of Soviet nuclear missiles in Cuba brought in. "No," shrugged the usually difficult de Gaulle: "The word of the President of the United States is good enough for me."

Eight months later, President Kennedy could say at American University: "The world knows that America will never start a war. This generation of Americans has had enough of war and hate ... we want to build a world of peace where the weak are secure and the strong are just."

Our founding fathers believed this country could be a beacon of light to the world, a model of democratic and humanitarian progress. We were. We prevailed in the Cold War because we inspired millions struggling for freedom in far corners of the Soviet empire. I have been in countries where children and avenues were named for Lincoln, Jefferson, Franklin Roosevelt and John F. Kennedy. We were respected, not reviled, because we respected man's aspirations for peace and justice. This was the country to which foreign leaders sent not only their goods to be sold but their sons and daughters to be educated. In the 1930's, when Jewish and other scholars were driven out of Europe, their preferred destination - even for those on the far left - was not the Communist citadel in Moscow but the New School here in New York.

What has happened to our country? We have been in wars before, without resorting to sexual humiliation as torture, without blocking the Red Cross, without insulting and deceiving our allies and the U.N., without betraying our traditional values, without imitating our adversaries, without blackening our name around the world.

Last year when asked on short notice to speak to a European audience, and inquiring what topic I should address, the Chairman said: "Tell us about the good America, the America when Kennedy was in the White House." "It is still a good America," I replied. "The American people still believe in peace, human rights and justice; they are still a generous, fair-minded, open-minded people."

Today some political figures argue that merely to report, much less to protest, the crimes against humanity committed by a few of our own inadequately trained forces in the fog of war, is to aid the enemy or excuse its atrocities. But Americans know that such self-censorship does not enhance our security. Attempts to justify or defend our illegal acts as nothing more than pranks or no worse than the crimes of our enemies, only further muddies our moral image. 30 years ago, America's war in Vietnam became a hopeless military quagmire; today our war in Iraq has become a senseless moral swamp.

No military victory can endure unless the victor occupies the high moral ground. Surely America, the land of the free, could not lose the high moral ground invading Iraq, a country ruled by terror, torture and tyranny - but we did.

Instead of isolating Saddam Hussein - politically, economically, diplomatically, much as we succeeded in isolating Khadafy, Marcos, Mobutu and a host of other dictators over the years, we have isolated ourselves. We are increasingly alone in a dangerous world in which millions who once respected us now hate us.

Not only Muslims. Every international survey shows our global standing at an all-time low. Even our transatlantic alliance has not yet recovered from its worst crisis in history. Our friends in Western Europe were willing to accept Uncle Sam as class president, but not as class bully, once he forgot JFK's advice that "Civility is not a sign of weakness."

All this is rationalized as part of the war on terror. But abusing prisoners in Iraq, denying detainees their legal rights in Guantanamo, even American citizens, misleading the world at large about Saddam's ready stockpiles of mass destruction and involvement with al Qaeda at 9/11, did not advance by one millimeter our efforts to end the threat of another terrorist attack upon us. On the contrary, our conduct invites and incites new attacks and new recruits to attack us.

The decline in our reputation adds to the decline in our security. We keep losing old friends and making new enemies - not a formula for success. We have not yet rounded up Osama bin Laden or most of the al Qaeda and Taliban leaders or the anthrax mailer. "The world is large," wrote John Boyle O'Reilly, in one of President Kennedy's favorite poems, "when its weary leagues two loving hearts divide, but the world is small when your enemy is loose on the other side." Today our enemies are still loose on the other side of the world, and we are still vulnerable to attack.

True, we have not lost either war we chose or lost too much of our wealth. But we have lost something worse - our good name for truth and justice. To paraphrase Shakespeare: "He who steals our nation's purse, steals trash. T'was ours, tis his, and has been slave to thousands. But he that filches our good name ... makes us poor indeed."

No American wants us to lose a war. Among our enemies are those who, if they could, would fundamentally change our way of life, restricting our freedom of religion by exalting one faith over others, ignoring international law and the opinions of mankind; and trampling on the rights of those who are different, deprived or disliked. To the extent that our nation voluntarily trods those same paths in the name of security, the terrorists win and we are the losers.

We are no longer the world's leaders on matters of international law and peace. After we stopped listening to others, they stopped listening to us. A nation without credibility and moral authority cannot lead, because no one will follow.

Paradoxically, the charges against us in the court of world opinion are contradictory. We are deemed by many to be dangerously aggressive, a threat to world peace. You may regard that as ridiculously unwarranted, no matter how often international surveys show that attitude to be spreading. But remember the old axiom: "No matter how good you feel, if four friends tell you you're drunk, you better lie down."

Yet we are also charged not so much with intervention as indifference - indifference toward the suffering of millions of our fellow inhabitants of this planet who do not enjoy the freedom, the opportunity, the health and wealth and security that we enjoy; indifference to the countless deaths of children and other civilians in unnecessary wars, countless because we usually do not bother to count them; indifference to the centuries of humiliation endured previously in silence by the Arab and Islamic worlds.

The good news, to relieve all this gloom, is that a democracy is inherently self-correcting. Here, the people are sovereign. Inept political leaders can be replaced. Foolish policies can be changed. Disastrous mistakes can be reversed.

When, in 1941, the Japanese Air Force was able to inflict widespread death and destruction on our naval and air forces in Hawaii because they were not on alert, those military officials most responsible for ignoring advance intelligence were summarily dismissed.

When, in the late 1940's, we faced a global Cold War against another system of ideological fanatics certain that their authoritarian values would eventually rule the world, we prevailed in time. We prevailed because we exercised patience as well as vigilance, self-restraint as well as self-defense, and reached out to moderates and modernists, to democrats and dissidents, within that closed system. We can do that again. We can reach out to moderates and modernists in Islam, proud of its long traditions of dialogue, learning, charity and peace.

Some among us scoff that the war on Jihadist terror is a war between civilization and chaos. But they forget that there were Islamic universities and observatories long before we had railroads.

So do not despair. In this country, the people are sovereign. If we can but tear the blindfold of self-deception from our eyes and loosen the gag of self-denial from our voices, we can restore our country to greatness. In particular, you - the Class of 2004 - have the wisdom and energy to do it. Start soon.

In the words of the ancient Hebrews:

"The day is short, and the work is great, and the laborers are sluggish, but the reward is much, and the Master is urgent."

New Colonist

One of the greatest benefits of the internet is the delight comes with an unexpected discovery. I've just unearthed a great website:

It's about cities and people, two of my favorite topics. The "Letters" section is fun to read. Browsing the website, I ran into some gems of writing, like this one:

California breeds high expectations and then crushes them. Through history and myth, it tells you there are no limits, and then it leaves you stranded in a cracker box tract house between a 7-Eleven and a freeway interchange." -- Steve Lopez

If you like good writing about cities, check out The New Colonist.

Speaking of good finds, I also enjoyed Aaron David Miller's article in the Spring 2008 (Vol. 32, No. 2) Wilson Quarterly, "The Long Dance: Searching for Arab-Israeli Peace." Here's one sentence from the article: "We must make a fanatical commitment to seeing the world as it is, not as we want it to be or as others want us to see it." This same vein of pragmatism is what I see in successful leaders (e.g. Lee Kuan Yew). I am beginning to realize that the American way--of getting an ideology and then defending the ideology against another (e.g. capitalism v. socialism, rich v. poor, Democrat v. Republican) in a Socratic or adversarial method--must give way to a new paradigm. For progress to continue in a world that is becoming more and more complicated in terms of culture, people, and resources, the smartest people will be the ones without hubris who realize they cannot possibly factor in all the necessary variables to arrive at the right decision or ideology on a macro-level. As a result, we should move towards a more cooperative model where we work with others to achieve solutions that can be modified as needed, rather than try to make singular, dramatic changes based on any particular overarching theme.

Tuesday, April 15, 2008

Richard Florida's Who's Your City?

Richard Florida has published an interesting book about what makes certain cities more desirable than others, and what factors ought to be taken into consideration when a person decides to move. The main points I got out of his book were these:

1. People don't buy houses or land for the property--they pay high prices in CA and NY to gain access and proximity to certain types of people. In the South and Midwest, people pay to be around more agreeable personalities, while on the East Coast, people are more neurotic and pay to be around people like them. In addition, highly educated people cluster together, creating super-centers of innovation, such as San Jose, CA, or, for offbeat, artistic types, Portland, OR. In short, people pay (in some cases, extraordinary costs) to choose their neighbors. It's an interesting premise, based on the old adage that "people of the same feathers flock together," and destroys the idea that people pay for a house based on square footage rather than neighbors and local amenities. (Potential buyers of a 550 sq foot guest house in Palo Alto, CA for 500,000 dollars, take note!)

2. Cities with high gay/lesbian populations tend to have favorable characteristics such as tolerance and culture, thereby attracting more affluent people who favor such openness. I agree that gay/lesbian populations add to the vibrancy of a city, but not because of any innate predilection towards "culture." The answer is far more simple. Gay people, on average, do not have children or many children; as a result, they tend to have much higher disposable incomes than families, who typically save more due to future expected expenses, such as college educations. Cities with residents who have higher disposable incomes tend to attract interesting outlets for spending money and more small businesses willing to take the risks of setting up shop to cater to affluent residents.

Mr. Florida has some charts in the back of his book that list "best buys" and ranks different locations for potential nomads based on different criteria (families, singles, etc.) I wouldn't call Mr. Florida the second coming of Jane Jacobs just yet. Reading his book is like eating a sweet, light cupcake with sprinkles of statistics--it'll fill you up for a little while, but in about two hours, you'll start getting hungry for more substance.

Wednesday, April 9, 2008

Does Overpopulation Cause Declining Wages?

I had a little debate with the author of this blog (, who posted a comment to my recent entry reviewing the book, Free Trade:

Here is how I understand your theory: overpopulation (and thereby immigration) eventually causes less per capita consumption due to the limits of land and space for consumables. In other words, as population increases, space decreases, and at some point, consumption must decrease, especially because overpopulation also causes less wage growth. The problem with any economic theory based on overpopulation is that the U.S. is one of the least densely populated places in the world. Also, the idea of physical space limiting consumption only applies to certain industries, such as autos and boats. It is far more likely that spending will increase as people buy smaller products, such as an iPhone or a laptop, which need to be replaced more often than larger products. In addition, more workers are necessary to pay the Medicare and Social Security liabilities we've built up, and some economists estimate 50 to 99 trillion dollar liabilities with respect to government entitlements/programs.

If your overpopulation/anti-immigration theory is correct, then people, especially younger ones, would be flocking to open spaces, such as Indiana and South Dakota, and states with smaller cities would have a higher GDP per capita. But a quick look at the following websites shows that CA (#11 and 10), Illinois (#14, 14) and NY (#5, 5) have relatively high per capita income: (2005) (2006)

What you are really saying is that the fewer the people in a country, the more work there is for the existing residents, because competition is less; however, promoting population decline is a good idea only if you want to be a slow growth country. Part of growth means making way for the younger population and immigrants who can found companies, such as eBay (Iranian/French), Sun Microsystems (Indian), Google (Russian), Yahoo (Taiwan), and probably at least 30% of the start-ups in San Jose, CA:

Immigrants who found companies in the U.S. create more jobs and also penalize the countries that couldn't keep them (referred to as the "brain drain"). So your argument is flawed, because it assumes population growth is automatically responsible for declining wealth and declining wages in all industries. Such an argument is simply not true--and if it were, NY and CA would not be at the high end of the per capita salary list. (You could counter with TX at #27 and #20, but that is still nowhere near the bottom of the list, as your argument would require.)

What is true is that certain industries, such as manufacturing, will see a drastic decline in wages, while employees in other industries, such as nursing, hotel ownership, marketing, advertising, and law, will experience a higher per capita wage increase. The primary issue is what should be done about the prospect of declining wages in industries that can easily outsource jobs or that require little training (e..g, McDonald's). I wish I knew the answer to that, but all I can come with are 1) job re-training programs; 2) better education, especially at the high school level; 3) longer periods of time unemployment insurance can be collected; 4) corporate acceptance of some due process prior to being terminated for cause, such as IBM's peer review panel, in exchange for an agreement that if the employee pursues litigation, s/he would be liable for the company's attorneys' fees [Update: up to a reasonable cap, such as 20% of total compensation at the time of his/her termination] if s/he loses in court and would be barred from receiving attorneys' fees; 5) elimination of all civil laws except for wage and contract laws relating to businesses with fewer than six non-family employees and/or gross revenue of less than 575,000 dollars per year (thereby encouraging entrepreneurs and small businesses); and 6) heavily subsidized health care benefits financed by higher taxes on gasoline, "sin taxes" (on cigarettes and alcohol), and also a sales tax that would go to the state (notice I said state, not federal) agencies administering the health care programs. Subsidized health care would create service jobs that could not be outsourced and which would also increase wealth across the board by decreasing all Americans' health care costs.

In addition, note that U.S. homeowners will also see a higher wealth effect as demand for homes increases because of population growth (after the market corrects the current bubble, which was good for most homeowners in the U.S. who already owned homes). Thus, while certain wages may decrease, net worth may actually increase due to higher demand for certain products.

Note: here is a counterargument to my post:

This article says that because 70% of the American workforce is involved in "production/manufacturing" work, outsourcing will cause major displacement that presumably cannot be moderated by legislation or piecemeal benefit programs.

Also, on a separate note, Switzerland's prosperity may indicate that a slow growth economy can work in certain circumstances, assuming a liberal guest worker program (apparently, about 15 to 20% of the workforce in Switzerland are from other countries).

Adobe Shareholder Meeting, April 9, 2008

I attended the Adobe Shareholder meeting in downtown San Jose. CEO Shantanu Narayen--who has my nomination for the coolest name in business--stayed afterwards to chat with a few shareholders. He was articulate and obviously extremely intelligent. Some CEOs don't come across well at all (Atmel's George Perlegos comes to mind), but Mr. Narayen presents very well. For such a well-recognized company, very few shareholders attended the meeting, probably around 20 or so (aside from the directors).

In a nutshell, Adobe is doing very well. Almost every metric of measuring profit showed improvement, usually by at least 20%. Software has great margins, so it is usually a good business, assuming a competitor doesn't make it obsolete. But with 2 billion or so in cash, Adobe can pull a Microsoft and buy out its competition.

The refreshments were average, the usual spread of coffee, some fruit, and some muffins.

Following the Adobe/Apple saga, I asked about Adobe's relationship with Apple, and the CEO remarked that the relationship was fine and that Adobe had access to Apple's newly released code and was working on an application for cell phones called Flash Lite. Adobe seems to be creating new products that will allow it to remain the standard in the marketplace. Overall, I was impressed with the company but concerned that it was not doing enough to increase its profile in Wall Street. Adobe may want to hire a PR firm to increase its visibility among traders and the public.

Saturday, April 5, 2008

Jagdish Bhagwati's Free Trade Today

Professor Bhagwati has published a number of economic books and is becoming a "hot" name in the academic world. I recently read one of his earlier works, Free Trade Today. I dislike his writing style, which carries a strange odor of disarming arrogance. Still, no one can doubt Professor Bhagwati's diligent research--there were 114 footnotes in a 120 page book, some to his own works (hence, the arrogance).

This book was divided into three chapters. The first one, a defense of free trade, was impenetrable. For example, Prof. Bhagwati says that in a recession, the free market is failing to pay people their properly calibrated wage, and responding to unemployment with tariffs in an attempt to spur domestic consumption only makes the problem worse. This is because the real answer to unemployment is to create higher demand , and tariffs curtail more demand for services by limiting entrants into the market. But here's how Prof. Bhagwati expresses these thoughts:

The Keynesian warming to protection in times of unemployment due to deficiency of aggregrate demand evidently derived from the notion that tariffs could divert aggregrate demand from foreign to domestic goods. But from the viewpoint that I am setting forth about the role of free trade, it is equally possible for us to see that since the social cost of labor in a situation of massive unemployment us clearly less than its (market) wage, this is a market failure, and free trade is no longer a compelling policy. [In other words, too much unemployment leads to major social detriment, which may create a compelling scenario for government intervention.] That the optimal policy mix would still be to remove that market failure by creating a sufficiently more aggregate demand, instead of diverting a given aggregate demand towards yourself, and then holding on to free trade, is a matter that I shall turn to in the context of proposition 2 in the next section. (p. 17, Princeton U Press, 2002)

Did we all get that? (I'm still not sure I have.) Prof. Bhagwati redeems himself in the second portion of the book, which is the only portion I would recommend to anyone. In one section, Prof. Bhagwati demonstrates his high intelligence and understanding of economics vs. sociology:

First, fairness rather than justice is the defining moral principle in the United States, as compared to the more socially structured European and Japanese societies. So equality of access trumps equality of success; equal opportunity trounces equal outcomes. (p. 52)

This statement holds true, as long as the average American continues to have political beliefs slightly right of center. In an extremely interesting premise, Prof. Bhagwati also says democracy is a check against unfettered and irresponsible capitalism:

Few governments, certainly now that democracy has broken out worldwide, are likely to say instead to multinationals: come and make profits by polluting our waters and air. (p. 59-60)

In another interesting section on preferential trade agreements (PTAs), Prof. Bhagwati correctly says that rich nations insert provisions in these trade contracts that are one-sided. For example, the U.S. will focus on child labor rather than environmental or "quasi-slavery conditions for migrant labor in American agriculture." (p. 71) In addition, eliminating child labor in poor countries may lead to children entering more undesirable professions, such as prostitution. (p. 77)

The third chapter is more technical, but still readable, and focuses on how to draft bilateral agreements that favor free trade. Prof. Bhagwati points out that there are now so many bilateral agreements establishing favored trading partners or products, that it is becoming more difficult for poorer countries to navigate this system or even attain fair results.

I would not recommend this book to the casual reader, but if you want to major in economics, read this short book to see whether you have a future in the field, as most of the ideas mentioned are intelligent and informed.

Friday, April 4, 2008

Charles Morris: The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash

I just read Charles Morris's The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash. It's a quick read, and he cogently explains some very abstruse financial instruments, like credit default swaps. Banks used these swaps--which generated interest payments--to increase their cash flow. One mistake they made was retaining the local branch or entity to service the loans and guaranteeing it loan payments even in case of default. For more on credit default swaps, click here.

I will be selling my KCAP stock and any hedge-fund related stocks, because it appears that hedge funds have been buying tranches of debt or giving loans to enterprises that are too speculative. Morris's overarching theme is that in a search for greater profits, Wall Street started marketing products that had higher yields and relied too much on economic models that assumed rational investors would withdraw their funds from these financial instruments in an orderly manner.

Basically, Wall Street's models created debt instruments that offered risky but higher yields within a package of more safe debt. Various investors could buy the safer debt at a lower yield; however, the more marketable debt was the riskier debt because it had a higher yield (lower yield bonds compete with the government's ultra-safe Treasuries and muni-bonds, meaning the market isn't that broad for private sellers of very safe bonds). Standing alone, neither the low-paying safe bonds would get many buyers, nor the higher risk bonds. So Wall Street made an unholy alliance of junk bonds with AAA-rated debt to create a very marketable product, increasing yields for everyone in an instrument that was supposed to be safer by spreading the risk.

The flaw was that these instruments assumed that the better-rated payers, who had been placed with riskier debtors, would be able to absorb a certain default rate. The models never thought the better-rated (AAA-rated) payers/debtors would default as well as the lower, more riskier tranches. When both the higher rated and lower rated tranches started defaulting, it became known as a "black swan" event (loosely translated, it means sh*t happens). Mr. Morris is shaping up to become this generation's
John Kenneth Galbraith, arguing that the free market is no longer working, and we need more governmental intervention. (Thankfully, Mr. Morris's style is Hemingway-esque, the polar opposite of Mr. Galbraith's wordy, academic writing style.)

Mr. Morris's message hit home much harder, when, the same night, I watched a documentary about coal mine workers in Kentucky, called Harlan County, USA (1976). Barbara Kopple filmed this movie during one of the worst times in the American economy and profiled some of the worst working conditions in America. It is astounding to think that in the 1970's in the U.S., companies were talking about improving working conditions in terms of upgrading laborers from a situation with inadequate indoor plumbing to trailers as evidence of their commitment to their workers. At that time, benefits were about two dollar raises and 6 days of sick leave, and "pensions" were 150 dollars per month for some older workers. It's hard to believe that since then, other workers in positions requiring much less risk and daily manual labor, such as office government workers, have moved from demanding an equitable wage to receiving lifetime medical benefits and annual pensions worth more than what an average American makes in an entire year. During one interesting scene, a protesting coal miner near Duke Power Company's Wall Street offices strikes up a conversation with an amiable New York cop who says he could probably retire in his mid-30s with a pension worth 10,000 dollars a year. As you can see, inflation has serious consequences.

As a libertarian, this film shook me to my core, until I realized how lucky we are today. Few workers today in America risk so much for so little, and to the extent they do, they are typically poor immigrants trying to make a new life for themselves in a new country and aware of the sacrifices. In addition, despite the brouhaha about manufacturing jobs moving overseas, it is apparent that the old tactics of a strike and blocking roads to prevent scabs from going into a factory would not work today. In the modern world, you've got about 3 billion "scabs" all over the world who want prosperity and are willing to work in unstable and terrible working conditions to get a small piece of it. Globalization, by the way, is not new--Kopple's relatively more recent work, American Dream, about a group of Hormel workers in Minnesota, shows that to some extent, globalization has always been with us. The degree of that globalization, however, has changed rapidly, creating scenarios that may eventually create a tale of two cities: one prosperous, with many options, and another with few options and no union capable of staving off capitalism's "creative destruction" of certain jobs.

The promise America makes to its citizens is that while there will be differences in income and outcomes, the path to the middle class--of owning a home, putting your children through college, and being able to retire before 65 years of age--will always be there for anyone willing to work hard and make sacrifices. Recent globalization has enacted a period of creative destruction akin to dropping a nuclear bomb on certain industries, especially in the manufacturing sector. Yet, seeing Kopple's film shows how far we've come. Today, fewer Americans need to work in dangerous jobs, and we can outsource menial labor to other countries or their citizens--that is a sign of prosperity, one that is harder to see without seeing the history behind the labor movement and the working conditions that caused it.

Thursday, April 3, 2008

FYI: Brokers that Allow Direct International Trades

Disclaimer: of course, this post is not a recommendation to buy or sell any stocks/funds/ETFs. Do your own due diligence. This post is also not a recommendation of any broker. I am not licensed to give and do not give investment advice.

It is surprisingly difficult to trade directly in foreign shares, as opposed to just ADRs. Here are some brokers that allow direct access to international markets (taken from April 3, 2008 edition of WSJ): (Mexico) (most Asian countries) (New Zealand and Australia) (Canada, France, Germany, Hong Kong, Japan, United Kingdom) (Middle East) (former USSR satellites)

The international companies I am interested in, such as Siemens and AXA, already have ADRs. In addition, Singapore, an underrated 20th century success story, already has an ETF, which I own: "EWS." However, the Philippines may present an interesting opportunity, given the number of expats sending remittances. It is estimated immigrants in the U.S. sent 66 billion dollars abroad in 2007.

Disclaimer: of course, this post is not a recommendation to buy or sell any stocks/funds/ETFs. Do your own due diligence. This post is also not a recommendation of any broker. I am not licensed to give and do not give investment advice.

Polygraphs: Reliable or Just Imperfect?

The April 3, 2008 Wall Street Journal published a letter by an economist re: the unreliability of polygraph testing that I thought worth of sharing:

Your article makes it crystal clear why a person should never consent to polygraph tests, which suffer from two types of errors: showing an innocent person to be guilty and showing a guilty person to be innocent. The article illustrates that a person is likely to fail the test because of perceived or actual guilt on subjects that aren't even being tested. The test i much more likely to show an innocent person to be guilty than a guilty person innocent. This is especially true if the person being tested is reasonably honest and worries about minor peccadillos, such as taking home a paper clip or coming to work a few minutes late. Because of this, polygraph tests encourage law enforcers who "know you are guilty" to keep digging until some question of innocence can be found on some (perhaps unrelated) activity.

Duane Eberhardt
Professor of Economics, Retired
Missouri Southern State University
Joplin, MO

See related article at Mother Jones:

Tuesday, April 1, 2008

Chip Johnson of SF Chronicle, Holding Government Accountable

Chip Johnson in his April 1, 2008 column in the SF Chronicle's B1 page, reports that almost 1/3 of Oakland's city workers are making over 100,000 dollars in salary per year. That figure, of course, does not include benefits and pensions. Overall, non-federal government (meaning, county, city and state) salaries probably make up between 10 to 15% of gross domestic expenditures, which doesn't sound like a lot until you realize that it's harder to reduce salaries once they achieve such a high level. More troubling is the fact that it's harder to reduce government benefits because such benefits are vested; in addition, such costs are difficult to estimate due to the guesswork in determining a former employee's health and life expectancy for pensions and medical benefit purposes.  In short, the public is indebted to the government for amounts unknown, even if the economy enters a period of recession or constrained growth.

Strangely, government employees making over 100,000 dollars a year are still eligible for overtime pay. In the private sector, most employees making 100K+ annually in base pay would be exempt and still expected to put in the hours that come with making such a salary.

The recent California Supreme Court decision allowing the public to see such salaries is INTERNATIONAL FEDERATION OF PROFESSIONAL AND TECHNICAL ENGINEERS, LOCAL 21, AFL-CIO et al., v. SUPERIOR COURT OF ALAMEDA COUNTY, REAL PARTIES IN INTEREST: CONTRA COSTA NEWSPAPERS (2007), which can be found at this link: