SIRF Meeting --Canceled

When I went to the Doubletree Hotel in San Jose to attend the SIRF shareholder meeting, three people informed me that the meeting had been re-scheduled to August 19, 2008. Apparently, because SIRF is a Delaware corporation, the meeting has to be done within a strict time period after providing notice to shareholders of record, and SIRF had the record date a few days too early. They wouldn't tell me what law firm failed to do the research and due diligence, but at least I learned some new tidbits on incorporating in Delaware.

I won't be able to attend the upcoming Google shareholder meeting, but I did read the annual report and letter from Larry Page. It's not a Warren Buffet letter, i.e., a comprehensive letter that touches on national and international issues as well as investing, but it's pretty darn good. I wouldn't mind hanging out with Mr. Page, based on the tone and enthusiasm he seems to have.

Most interesting in Google's annual report are the risk factors, which all annual reports have, but Google's risks seem more detailed and realistic than other reports. Google talks about more than just the IP and legal risks commonly found in other company reports. Google talks about how anti-spamming filters, ad blocking software, and copyright protections may affect its ability to find data. Google struck me as moving towards the direction of "free information" in an era where everyone is trying to protect information and make it more onerous to copy anything online. Google also listed a risk factor of not being able to control bandwidth providers and data centers, meaning that Google's growth is ultimately reliant, like most online companies, on the Baby Bells and other internet service companies to ensure that consumers get internet access at a reasonable cost. This reliance struck me as somewhat odd, because I thought I heard a while back that Google had purchased some wireless spectrum in an government auction, but perhaps I am confusing two different issues. Google also reiterated its anti-dividend philosophy.

I will be going to Wesco's shareholder meeting tomorrow in Pasadena to see Buffett's right-hand man, Charlie Munger. The Berkshire Hathaway meeting is over in Omaha, and Mr. Munger is back in California.

SJ Mercury News: Personnel Costs = 2/3 of City Budget

The San Jose Mercury News has published on its front page the scandal that has been occurring local government--see April 15, 2008, "$200,000 club." The article by John Woolfolk states, "Personnel costs [salaries and benefits] account for two-thirds of the city's operating budget, which has been plagued by multimillion-dollar deficits...salaries have grown 38 percent..."

So 2/3 of the taxes we pay that go to the city get put into government workers' pockets. What happened to spending money on private citizens and their children by buying them books, computers, new classrooms, etc.? If we use this money wisely, perhaps we can give every single high school student a laptop at school that is locked to a desk, with different passwords for different students to use. Also, why not implement high-tech security systems to protect children?

There ought to be a law requiring that any government salary increase be voter-approved above certain numbers, say, $99,000, or anything that is more than the consumer price index (CPI) (the downside to setting a specific percentage like a 5% annual target is that by doing so, we'll probably guarantee annual raises of 4.99%). Let us know what we're paying for with our own money, or we'll be hostage to government unions, who seem to increase their salaries year after year, without regard for budgetary constraints.

Five Short Blasts, by Pete Murphy

Five Short Blasts (Open Window Publishing, Clarkston, MI (2007)) is a very interesting economic book from a non-economist. Mr. Murphy is actually a former engineer who was laid off and began studying economics on his own. His book is well-researched and uses his technical background to analyze charts and statistics from several government websites. His major points are these:

1. We need to reduce population and immigration, even legal and family-based immigration, to have a better quality of life.

2. Reducing population would allow us to preserve more of the environment and bring us closer to nature.

3. We should have higher tariffs on products from densely-populated countries.

4. The more densely populated we become, the less we are able to afford and buy larger products; larger products such as cars and boats include major commodities, such as timber, steel, and other items that require more processing or more refining; the nature of the materials put into heavier and larger consumer items requires more people and therefore more jobs; thus, as we become densely populated and live in smaller spaces, our ability to buy larger items diminishes, causing a loss of jobs, especially in manufacturing. [This is his unique point--not too many economists have explored the relationship between consumption of heavier, larger items and a reduction in available land.]

5. When less densely populated countries trade with densely populated countries, the less populated country always loses, because the higher population in the other country creates more competition and therefore lower wages, thereby bringing down the standards of the less dense nation. [In other words, Murphy doesn't believe in Ricardo's "comparative advantage" principle.]

6. On page 189, Murphy comes up with a great idea to preserve our food supply--he says that rather than rely on imports or an unstable supply of immigrant workers, we should establish a "Farm Corps," like the Peace Corps, "for high school and college students to earn decent wages working the fields during the summer." I think this might actually work, assuming the wages were high enough to attract at least high school students. I'm not so sure college students would be involved, unless there was some loan forgiveness included. I am also skeptical of yet another farm subsidy program, but this one seems more innocuous than paying farmers not to grow food.

Having summarized Murphy's ideas, his book suffers from a fatal flaw: he doesn't account for poorer nations ever becoming affluent or getting a middle class. If only 10% of the Chinese population enters the ranks of the middle class, that's 120 million people who can buy our products and who might appreciate the higher value and safety that they provide in a more regulated environment. Murphy seems to think that even as these countries get more dollars to spend, they will all somehow continue to remain permanently poor. His thinking is that because there is a much higher supply of labor in more densely populated countries, there will always be more people willing to work for meager wages, so a country like the U.S. can never really be an equal trading partner with a country like China or India. But again, the entire country doesn't have to get rich in order to balance the trade deficit--if only 20% become middle class, that's enough to create a population that will hopefully want to buy iPhones and Dell laptops and Brooks Brothers suits.

That's another flaw in Murphy's thinking--even if larger items become less attractive as available land decreases, there are plenty of high margin products that are in demand, such as iPhones. The real problem is the regulatory environment in less developed countries, which hurt U.S. revenue by not protecting IP rights. That issue has nothing to do with population.

Also, the U.S. isn't anywhere near optimal population yet--almost the entire Midwest needs more population, not less, and is projected to lose even more population in coming years. With the Medicare deficit, we need more immigrants, not fewer, to help support these entitlement programs. The key issue is what kind of immigrants we want, and how to get immigrants who are law-abiding and who will pay taxes. So far, the family-based and company-based programs have seemed to work just fine in attracting hard-working immigrants. Yet, Murphy wants to reduce almost all immigration, even legal immigration.

Overall, Murphy has a unique perspective by including demographics with an economic analysis. If you want to read a Malthusian who laments the good old days, when lines were short and people could drive easily on sparsely populated roads on cheaper gas, you'll love Murphy's book. If, however, you believe that this country needs more people to cover the entitlement programs and debt we've run up, and that we're not densely populated yet, you might not be converted to his ideas. Yet, his overall point is correct--the smaller the population, the more you can control growth in a steady progression that leaves fewer people behind. But if that's the main goal, there are other ways of achieving it.

I'm not sure if job displacement and income inequality can be solved by changing immigration or population rather than analyzing how to further women's rights. If you really want to reduce population and reduce the trade deficits between countries, you have to give women jobs and contraception in more densely populated countries. Countries that promote a woman's right to work provide more options for women, who then have access to more money and more power, and usually choose to have fewer children. This creates two benefits: one, the brains of about half of the population get utilized more in such countries, leading to more stability; and two, by having fewer kids and another income, families can invest more in their children, which makes society more stable. To his credit, Murphy makes the same point I do about limiting births by talking about contraception and education at the end of his book, where he also talks about his Catholic faith. But he continues to stick to his idea that if we want to have a better quality of life, we need to take affirmative steps to reduce population by limiting immigration. See page 198: "[Y]ou only have three choices when addressing immigration: a) balance it with emigration, b) tell U.S. citizens they can have fewer children in order to make room for immigrants, or c) drive the death rate higher. The first of these is the only logical choice." In that context, Murphy is clearly anti-immigrant, but in true engineer form: "I know that the things I've proposed may sound like the rantings of a xenophobic madman.. [But] [i]t's a simple matter of math and the need to stabilize our population." That's probably not the right path to take in an era of massive public debt. Providing more jobs and funds to women in all countries, especially less developed countries, would reduce population more effectively. Still, you have to give Murphy credit for trying to sound five warning blasts about what he feels is the denigration of the way of life he used to know, when this country was smaller, more manageable, and seemingly less harsh to its citizens.

Barry Goldwater

Earlier, I quoted Barry Goldwater's most famous quote, about vice and virtue. What follows is an excerpt from Barry Goldwater's 1964 speech at the 28th Republican National Convention, where he accepted the nomination for president and made the famous statement. Even back then, Senator Goldwater was dismissed as a loony, much like Ron Paul is being dismissed today. But his words ring true and make me wistful about how far we've fallen since the 1960's:

Now, my fellow Americans, the tide has been running against freedom. Our people have followed false prophets. We must, and we shall, return to proven ways-- not because they are old, but because they are true. We must, and we shall, set the tide running again in the cause of freedom. And this party, with its every action, every word, every breath, and every heartbeat, has but a single resolve, and that is freedom - freedom made orderly for this nation by our constitutional government; freedom under a government limited by laws of nature and of nature's God; freedom - balanced so that liberty lacking order will not become the slavery of the prison cell; balanced so that liberty lacking order will not become the license of the mob and of the jungle.

Now, we Americans understand freedom. We have earned it, we have lived for it, and we have died for it. This Nation and its people are freedom's model in a searching world. We can be freedom's missionaries in a doubting world. But, ladies and gentlemen, first we must renew freedom's mission in our own hearts and in our own homes.

During four futile years, the administration which we shall replace has distorted and lost that faith... [Oh what I would give to hear the new 2008 president say those words...]

Those who seek absolute power, even though they seek it to do what they regard as good, are simply demanding the right to enforce their own version of heaven on earth. And let me remind you, they are the very ones who always create the most hellish tyrannies. Absolute power does corrupt, and those who seek it must be suspect and must be opposed. Their mistaken course stems from false notions of equality, ladies and gentlemen. Equality, rightly understood, as our founding fathers understood it, leads to liberty and to the emancipation of creative differences. Wrongly understood, as it has been so tragically in our time, it leads first to conformity and then to despotism.

Fellow Republicans, it is the cause of Republicanism to resist concentrations of power, private or public, which enforce such conformity and inflict such despotism. It is the cause of Republicanism to ensure that power remains in the hands of the people. And, so help us God, that is exactly what a Republican president will do with the help of a Republican Congress... [As we can see, the Republican Party is a mere chimera of its former self in the new millennium.]

The beauty of the very system we Republicans are pledged to restore and revitalize, the beauty of this Federal system of ours is in its reconciliation of diversity with unity. We must not see malice in honest differences of opinion, and no matter how great, so long as they are not inconsistent with the pledges we have given to each other in and through our Constitution. Our Republican cause is not to level out the world or make its people conform in computer regimented sameness. Our Republican cause is to free our people and light the way for liberty throughout the world. [This key issue--diversity--will become more important as the U.S. becomes more diverse, and the Democrats have taken away this issue from the Republicans, which has led to their success. Senator Obama's speeches show that it is his Democratic platform that seeks to "unite diversity with unity," which should be the first goal of any politician.]

Ours is a very human cause for very humane goals.

[Sigh. One day, I hope we all wake up and remember again what America stands for.]

Demographics and Future Economics

The WSJ published one of the most comprehensive articles I've ever seen on modern U.S. demographics on May 1, 2008 (page A3: "Surge in U.S. Hispanic Population Driven by Births, Not Immigration"). Here is one section from the article:

According to the Pew Research Center, whites are projected to make up only 45% of the working-age population in 2050, down from 68% in 2005. The center projects that the share of Hispanics in the working-age population will rise to 31% from 14%. The ratio of senior citizens to working-age people age 25 to 64 will grow to 411 seniors per 1,000 working-age people in 2030 from 250 per 1,000 in 2010, according to Dowell Myers, a demographer at the University of Southern California.

"If you are pro-economic growth, you must be pro-immigration and pro-Hispanic, because we don't have the workers," says Donald Terry, a senior official at the Inter-American Development Bank in Washington.

I won't pass up this opportunity to paraphrase Julian Bond, the most inspiring civil rights leader living today. He has said that integration and more cross-cultural understanding are essential, because today, benefits like Social Security are paid by people with names like Smith, Blake, and McAllister. In the future, however, they will be covered by people with names like Sanchez, Akeem, and Priya. Therefore, the children of the Smiths, Blakes, and McAllisters have a direct stake in seeing that the Sanchez families do well so everyone can continue having a cohesive financial net.

One issue not discussed is that many immigrants do not learn English, which limits their earning and career potential. In some neighborhoods in San Jose, I have knocked on a client's door, and will see about five people watching Telemundo in a small apartment. It is the six year old daughter, not the parent, that comes to me asking whom I want to see in English. Our ability to integrate that six year old girl is crucial to California's success, because she will have a difficult choice when she is older. Will she move away from her family into a more affluent neighborhood as her earning capacity increases, or will she stay in a poorer, less integrated neighborhood so she can assist her family? The decision to seek economic opportunities in society sometimes entails leaving the neighborhood in which you grew up. That's an easy choice if you know your parents can take care of themselves. But what if they don't speak English?

There is another, more troubling issue--any country that guarantees gun rights must ensure that its entire population is sufficiently optimistic about the future. Intuitively, people who have access to guns but no belief in a better future will pose problems.

At the end of the day, most governments "bribe" their citizens to avoid being overthrown--the question is whether such bribery takes place in the form of a promise of an unbridled, open future that leads to innovation, or in the form of enforcing a re-distributive income policy that provides expensive benefits like subsidized housing, free health care, and even free food (some governments pay for bread lines for the poor). In a capitalist system with a Second Amendment, this policy preference is no small question. If there continues to be widespread income inequality, the winds will inevitably shift to benefits and bigger government rather than less government and more freedom. And if that's the case, why not just accelerate the process and adopt European-style governance, which has more experience with administering this kind of large government? (The EU, of course, is imitating the U.S., indicating that it doesn't believe its system is working perfectly, either.)

U.S. Population Map: http://www.usgcrp.gov/usgcrp/Library/nationalassessment/images/PopMap-o.jpg

Scott Burns and Taxes

Financial journalist Scott Burns used to work for the Dallas Morning News, and now he has his own website. His most recent column explored taxes and had some interesting facts:

http://assetbuilder.com/blogs/scott_burns/archive/2008/05/02/the-truth-about-income-taxes.aspx

Here is an excerpt (published under fair use guidelines in good faith under 17 USC 504(c)(2)--these excerpts also incorporate facts publicly available)

Only 953,000 taxpayers--- about 1 percent of the total who paid taxes--- paid at the top 35 percent tax rate in 2005. They paid $315.4 billion in taxes on their $1,094 billion in income.

The most common marginal tax rate is 15 percent. That’s the rate paid by 54.4 million taxpayers...The second most common marginal tax rate is 10 percent. About 25.5 million taxpayers pay taxes at that rate...So of the two-thirds of all households that pay anything in income taxes, about three-quarters pay at 15 percent or less.

Another 22 million, 3.7 million and 1.5 million households pay income taxes at marginal rates of 25, 28 and 33 percent, respectively. In the year 2000 this top 25 percent of all taxpaying filers paid a whopping 83.6 percent of all income taxes. By 2005 they paid 85.6 percent of all taxes...

You were in the top 25 percent of taxpayers in 2005 if your taxable income exceeded $61,055.

Millions of Americans have no idea what fat cats they are.

Copyright: Scott Burns, "The Truth about Income Taxes" (2008), www.assetbuilder.com blog

Barry Goldwater

Mr. Goldwater is known as a true conservative. Here is one of his famous quotes:

I would remind you that extremism in the defense of liberty is no vice. And let me remind you also that moderation in the pursuit of justice is no virtue.

It's a sad day when the Democrats appear to be pro-war, while the Republicans appear to be against fiscal responsibility. The two-party system is failing America.