Funny quote

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White House economic spokesperson Austan Goolsbee, on a panel, responding to Jack Welch's opinion that Barack Obama's budget is "from the moon":



The budget is from the moon, Jack is from Mars and Joe [Stiglitz] is from Venus.


Look, we enter the government essentially in a hotel that is on fire. We’re throwing people from the windows into the pool to save their lives and this is the evaluation of the Olympic diving committee: Well, the splash was too big.



I am no economist, but neither are most people who want to debate the economy with me. I don't know if what's being done is right, but I'm not sure anyone else does either, so when people complain, on either side, I just tune out. It's like discussing the weather.


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Alex Tabarrok interview from TED

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TED talks, as most my readers here know, are great. Most of the content on that site is on video form, but they have interesting written content as well, like this text transcript of an interview with economist Alex Tabarrok (of Marginal Revolution fame). As on Marginal Revolution, the discussion covers many fascinating topics, from the rise of China and India to the tv show The Wire to the value of police.



I utterly reject the view that the Third World is doomed to poverty and starvation. Not only is this wrong, I think this attitude verges on the immoral, like thinking that slavery is an unalterable facet of the human condition so why bother doing anything about it? Moreover, thinking of this kind -- I call it the Lebensraum point of view -- leads to war and destruction. The Lebensraum point of view, however, is rejected by evidence from the second half of the twentieth century. Peace and free trade are the routes to wealth -- not a grab for "limited" resources.


***


Cordell Hull, U.S. Secretary of State under Franklin Delano Roosevelt, is said to have remarked, "When goods don't cross borders, armies will." Free trade unites the world and reduces the threats from other nations. It doesn't eliminate it, but we have much less to fear from a rich, prosperous China than we do from a poor, starving China.

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Kindle book pricing, and the Kindle DX

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Short article in Wired a few weeks back about Kindle users protesting prices higher than $9.99 for digital books. It's as if users are valuing the books as just pure digital bits. When you buy books at a bookstore, you have some visual justification for why some books are more expensive than others. The book may be thicker, with more pages, or with glossy heavy stock paper with beautiful photographs, or an expensive leather binding. The varying form factor for books has allowed that industry to get away with much more pricing variation than, say, the music industry, where most CDs and LPs are shaped exactly the same, or the theatrical exhibition industry, where going to the movies costs the same regardless of what movie you're seeing and how much it cost to make (on an absolute basis, the cost variance for producing one movie versus another is much larger than in books and music). To the viewer, many elements of the moviegoing experience are the same regardless of which movie you're seeing: they are about the same length, shown in theaters that are shaped, for the most part, the same, with screens of roughly comparable size. That along with years of uniform pricing have pretty much ensured that the only theaters that can get away with varied pricing are ones offering a unique experience (e.g. a price premium for the massive curved screens of IMAX, or a price discount for the really old movies offered at second-run theaters).


With books for the Kindle, you have few visual cues to distinguish the value of one book from the other. And so it's understandable that users might be inclined to think every digital book should cost the same. In one sense, they're right, as the digital cost of storing one book versus another will not vary by much at all.


What is missing, of course, is the understanding of all that has gone into the production and marketing of that work, or a linkage between the quality of the book and the price. The uniform price that Apple placed on songs in the iTunes music store at launch ($0.99 per track) removed price variance as an element of the shopping decision, for better or worse. That is now a mental anchor, and any deviation seems, well, deviant.


As a retailer, Amazon and Apple have roughly the same costs for whichever digital book or song they sell, so I can understand their interest in standardizing the pricing and encouraging impulse buying with the simplified decision structure. I can also understand why a publisher or music label would prefer pricing variance, to better account for their costs in acquiring and marketing the different books in question.


As for my Kindle 2 , I have owned and used it just about long enough that I am ready to share an overall assessment soon (quick summary is that it's solid but with lots of room for improvement), but not long enough to avoid the disappointment of hearing Amazon announce the Kindle DX today. I've barely had my Kindle 2 for 3 months, and already a replacement has been announced?


I can understand and accept product obsolescence and early adopter risk in technology, in fact I'm well-versed in it what with iPods and iPhones and digital SLRs and laptops getting replaced by newer, higher-performance models every half year to a year, but the Kindle 2 barely started shipping 3 months ago. I feel like Kindle 2 buyers should have either received a heads up that the Kindle DX would be coming or that we should be offered an option for trading in our Kindle 2 for the DX. The Kindle DX seems a bit pricey to me at $489, not a slamdunk purchase, but one of my biggest issues with the current Kindle 2 is its screen size, and I would have liked to have known the DX was coming at this price point back when I was making my Kindle-buying decision back in February.


Amazon rarely disappoints me, but today it did.


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I like...big...growth but it's all a lie

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James Surowiecki assesses how the financial sector grew so large this past decade and why it was not sustainable:



There have been three big banking booms in modern U.S. history. The first began in the late nineteenth century, during the Second Industrial Revolution...The second wave came in the twenties, as electrification transformed manufacturing, and the modern consumer economy took hold. The third wave accompanied the information-technology revolution. Each wave, Philippon shows, was propelled by the need to fund new businesses, and each left finance significantly bigger than before. In all these cases, it wasn’t so much that the bankers had changed; the world had.


The same can’t be said, though, of the boom of the past decade. The housing bubble was unique, and uniquely awful. Each of the previous waves had come in response to a profound shift in the real economy. With the housing bubble, by contrast, there was no meaningful development in the real economy that could explain why homes were suddenly so much more attractive or valuable. The only thing that had changed, really, was that banks were flinging cheap money at would-be homeowners, essentially conjuring up profits out of nowhere.



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Oops

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Online brokerage Zecco claims it wasn't an April Fool's Day joke, but the timing is suspicious, and most certainly inauspicious: on April 1, customers opened their accounts, looked at their balances, and found they were suddenly millionaires. In a sign of our times, some of them proceeded to purchase stocks with their newfound wealth, and in a panic, Zecco's sold off the new purchases and charged the difference to the customers.


Good times all around. I pity no one in this fiasco. But I enjoy reading the Zecco forum posts as one user after another discovered their good fortune.


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This age we live in

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Right now on Amazon, it costs more to purchase the MP3's for Neko Case's new album than it does to buy the CD and have it shipped to you. It's as if they're discounting the CD to compensate for the hassle of it's physical form factor taking up space in your home, having to be packed for your next move, etc. This is the opposite of what has been the rule to date, which is that it's cheaper to buy the digital good because they pass through the savings of foregoing shipping and handling of an actual good.


Amazon.com: neko case


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Silicon Alley Insider reports with seeming surprise that Jeff Bezos is working in an Amazon distribution center for a week. That shouldn't surprise anyone--almost everyone at Amazon went to work in the distribution centers over the holidays for many years to help handle the spike in holiday orders (at the time, there wasn't enough temporary labor in any of the markets where the DCs were located to handle the seasonal volume surge, though in this economy it might be different). With increased distribution capacity and automation, such stints are no longer required annually, but when I left Amazon every new employee spent at least some amount of time working in customer service inquiries and the distribution centers. It was always part of being the world's most customer-centric company.


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I'm with Khoi Vinh on this one: the SXSW badges, program, and maps this year were all but unusable. Not to minimize the difficulty of producing these with a volunteer team, but one thought on how to leverage some talent is to ask for help from one of the many participating design firms or panelists in exchange for prominent credits on the materials, and maybe some free advertising inventory. One's work would certainly reach a very chatty and influential crowd there.


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Movie Theaters and CDs and MP3s as mere marketing tools

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Sasha Frere-Jones reads in recent concert ticket bonus offerings the completion of the transition of recorded music from standalone product to mere advertisement for concerts.



If you buy a top-price ticket to one of No Doubt’s upcoming shows (between $50 and $150, roughly), you will receive a free download of the band’s entire catalogue. This makes sense, as touring is the one verifiably healthy part of the music business. Prince will release a new three-CD bundle on March 29, available exclusively at Target for $11.98. That may seem like a rollback to bargain prices of yesteryear (even though one of the CDs is by Prince’s protégée Bria Valente), but it’s more likely that Prince is seeing into the future—again. In 2004, he gave away a copy of his “Musicology

The nanny tax

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Over at Marginal Revolution, Tyler writes about the tax trouble of appointees Geithner, Daschle, and Killifer (sounds a bit like Santa's reindeer as referred to in Munich or something):



I am more than willing to grant that not every nominee deserves to be appointed to rule over me. But I'm also worried about the incentives we are producing by applying tougher standards. Knocking out the caught cheaters won't make all the DC people honest or virtuous. The long run effect is to select for people who have known -- from the very beginning -- that they seek power and who are willing to pay money to the taxman to keep that option alive. We are selecting for people who are very good at covering up their misdeeds. We're selecting for honest people too. There's lots of posturing on this issue, but I'm not sure whether the net effect of the crackdown is positive, once you take all these selection effects into account. There's something to be said for selecting people who are relatively bad at cover-ups.



I think Daschle and Geithner's offenses are egregious. They can afford to hire a tax guy, and if they claim to have misinterpreted the tax code they're lying. The public already believes that their Congressmen operate under a separate set of standards when it comes to taxes, and this won't help.


But for Killifer, withdrawal may be excessive. I have never heard of any person who pays taxes on their nanny, politician or otherwise. In fact, if the government wants to increase its income, they should crack down on the illegal nanny trade. Half the parents we all know would be slapped with fines, which might force some of them to downgrade their strollers from designer all-wheel drive offroad models to something more pedestrian, like the plastic-wheeled polyester-hammocked contraptions that passed for strollers when I was in diapers.


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Warren Buffett on the recession and stimulus package

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As William Goldman said about Hollywood, "Nobody knows anything."


The same is true of the economy and the current recession. As soon as anybody starts talking about how they'd solve our economic problems, I tune out, because honestly, who knows what will solve this?


Still, if there's anyone's opinion that holds any value on this topic, it's Warren Buffett's. Here are his thoughts on Obama and the recession:



Well I think if you think that he can turn things around in a month or three months or six months and there’s going to be some magical transformation since he took office on the 20th that can’t happen and wouldn’t happen. So you don’t want to get into Superman-type expectations. On the other hand, I don’t think there’s anybody better than you could have had; have in the presidency than Barack Obama at this time. He understands economics. He’s a very smart guy. He’s a cool rational-type thinker. He will work with the right kind of people. So you’ve got the right person in the operating room, but it doesn’t mean the patient is going to leave the hospital tomorrow.



When asked whether there should be a stimulus package and tax cuts, Buffett responded:



The answer is nobody knows. The economists don’t know. All you know is you throw everything at it and whether it’s more effective if you’re fighting a fire to be concentrating the water flow on this part or that part. You’re going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective in the short run we don’t know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again.



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Gee, thanks SEC

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The SEC is probing Apple's handling of Steve Jobs health. After years of letting banks get away with all sorts of egregious behavior, after missing out on blatant scammers like Madoff, now the SEC is going to make a big deal of investigating Steve Jobs health? What a joke.


The SEC is like the security guard who was on duty while your house got robbed clean.



Three links

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How Porsche made a killing in the financial markets by creating a short squeeze on VW stock. That is just crazy.


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Why Obama's tax rebate may work to boost consumption where others have failed.



The key factor in these kinds of distinctions, Thaler’s work suggests, is whether people think of a windfall as wealth or as income. If they think of it as wealth, they’re more likely to save it, and if they think of it as income they’re more likely to spend it. That’s because many people tend to base their spending not on their long-term earning potential or on their assets but on what they think of as their current income, an amount best defined by what’s in their regular paycheck. When that number goes up, so does people’s spending. In Thaler’s words, “People tend to consume from income and leave perceived ‘wealth’ alone.

You get what you pay for

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James Surowiecki writes in this week's New Yorker about the decline of newspapers.



The peculiar fact about the current crisis is that even as big papers have become less profitable they’ve arguably become more popular. The blogosphere, much of which piggybacks on traditional journalism’s content, has magnified the reach of newspapers, and although papers now face far more scrutiny, this is a kind of backhanded compliment to their continued relevance. Usually, when an industry runs into the kind of trouble that Levitt was talking about, it’s because people are abandoning its products. But people don’t use the Times less than they did a decade ago. They use it more. The difference is that today they don’t have to pay for it. The real problem for newspapers, in other words, isn’t the Internet; it’s us. We want access to everything, we want it now, and we want it for free. That’s a consumer’s dream, but eventually it’s going to collide with reality: if newspapers’ profits vanish, so will their product.


Does that mean newspapers are doomed? Not necessarily. There are many possible futures one can imagine for them, from becoming foundation-run nonprofits to relying on reader donations to that old standby the deep-pocketed patron. It’s even possible that a few papers will be able to earn enough money online to make the traditional ad-supported strategy work. But it would not be shocking if, sometime soon, there were big American cities that had no local newspaper; more important, we’re almost sure to see a sharp decline in the volume and variety of content that newspapers collectively produce. For a while now, readers have had the best of both worlds: all the benefits of the old, high-profit regime—intensive reporting, experienced editors, and so on—and the low costs of the new one. But that situation can’t last. Soon enough, we’re going to start getting what we pay for, and we may find out just how little that is.



This pattern of increased influence but decreased revenue due to the fast and cheap distribution enabled by the internet has been seen in the music industry also, and we'll see it again in the tv and movie industry.


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Two links to the NYTimes

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Oh, now the U.A.W decides to offer some concessions to the Big 3, when the Big 3's potential demise might drag the U.A.W. down with them. As Superman said at the end of Superman II, "Too late, Luthor! Too late."


In economic terms, the demise of the U.A.W. would be a good thing for the Big 3. In the U.S. auto industry, as in the airline industry, labor unions have long left those companies incapable of profitability, which is hard enough when the Big 3 can't make a car anyone wants to buy.


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Six habits of highly respectful physicians.



...medical schools may be underemphasizing a much simpler virtue: good manners.



I agree, many doctors behave like asses, but how do I resolve that with my favorite doctor, Gregory House?


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Michael Pollan's letter to Obama

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This is hardly a new article, but I'm so busy that I don't ever get to reading issues of the New Yorker or NYTimes until weeks, sometimes months later.


In the food issue of the NYTimes Magazine from Oct 9, Michael Pollan pens an open letter to the President-Elect urging for a reform in U.S. food policy. It is one of the best articles I've read all year, appropriate for both those already familiar with food policy and those who don't know the first thing about where the food on their dinner plate comes from.


Pollan's thesis:



There are many moving parts to the new food agenda I’m urging you to adopt, but the core idea could not be simpler: we need to wean the American food system off its heavy 20th-century diet of fossil fuel and put it back on a diet of contemporary sunshine.



The most fascinating part of the article is Pollan's history of how our current food production system came to be.



After World War II, the government encouraged the conversion of the munitions industry to fertilizer — ammonium nitrate being the main ingredient of both bombs and chemical fertilizer — and the conversion of nerve-gas research to pesticides. The government also began subsidizing commodity crops, paying farmers by the bushel for all the corn, soybeans, wheat and rice they could produce. One secretary of agriculture after another implored them to plant “fence row to fence row

One think I do thank Dubya for

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Maybe the only thing: recently he signed into law the Alternative Minimum Tax Relief Act of 2008. Years too late, for my taste, but better late than never. I'm not sure what the old AMT tax was intended to do, but what it did to me was tax me on exercised stock option value even if I hadn't sold them. Way back in the day of the old Internet stock bubble, that meant paying a ton in taxes on Amazon.com stock that I couldn't sell as an employee.


Of course, later, the stock came back down to earth, conveniently when the window for employee selling opened back up and after the government had bled me dry. Instead of getting my AMT taxes back as a refund, the government kept it all and only allowed me to apply the credit as an offset against capital gains of which I never had enough in the subsequent years to claim much of the credit.


So for some ten years, the government has had a big interest free loan from yours truly. So forgive me if I'm not feeling so generous about funding bailouts of mismanaged banks and those dinosaurs in Detroit.


The relevant clauses of the next tax act, for those dot-commers affected:



• Increase of AMT Refundable Credit Amount for Individuals with Long-Term Unused Credits for Prior Minimum Tax Liability. The Extenders Act changes the way in which the refundable portion of the "long-term unused minimum tax credit" for a particular tax year is computed, and eliminates the previously applicable phaseout of the credit based on adjusted gross income, potentially increasing the credit available in that year. Individuals with long-term unused minimum tax credits in a tax year ending on or before December 31, 2012 now may receive a refundable credit equal to the greater of (i) 50 percent of the long-term unused minimum tax credit or (ii) the amount, if any, of the long-term unused minimum tax credit determined for the preceding tax year.


• Specific Relief for AMT Attributable to an Incentive Stock Option Exercise. The Extenders Act eliminates any otherwise outstanding liability for tax, penalties and interest attributable to an AMT liability arising from the exercise of any incentive stock option before 2008. In addition, the amount of a taxpayer's long-term unused minimum tax credit described above that is allowed as a refund in each of 2008 and 2009 is increased by 50 percent of any interest or penalty paid by a taxpayer that would have been abated by the Extenders Act if it had not already been paid.



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Michael Lewis on the end of Wall Street

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Good read in Portfolio from the author of Liar's Poker on perhaps finally witnessing the end of Wall Street that he'd forecast after his days at Salomon Brothers.


Both Lewis and James Surowiecki of The New Yorker emphasize that one of the amplifiers of this recent financial blood bath was the decision of investment banks to go public. Surowiecki wrote:



All, then, seemed good. But, for Wall Street firms, going public was a deal with the devil, because it meant exposing themselves to what was, in effect, a minute-by-minute referendum, in the form of the stock price, on the health of their operations. This was fine as long as things were going well—the higher the stock price, the richer everyone got—but, once things started to go bad, that market referendum started to look like a vote of no confidence. And that made the problems that the companies were already facing much, much worse.


That’s because the entire edifice of Wall Street is built on confidence. Investment banks rely on short-term debt to run their businesses, and their businesses consist of activities—trading, dealmaking, money management—that depend on people’s faith in their ability to honor their obligations. As soon as the customers and creditors of a company like Lehman start to wonder whether it might collapse, they become less willing to lend or to trade, and more likely to demand their money back. The perception of weakness exacerbates the reality of weakness. And although there are myriad measures of a company’s health, nothing looks scarier than a stock price that’s heading toward zero.


All companies, of course, worry about how their stock is doing. But for most the stock price is a product of performance, rather than a cause of it. If Procter & Gamble’s stock plummeted tomorrow, people would still keep buying Tide. By contrast, if an investment bank’s share price tumbles, it not only wrecks people’s confidence but also can lead to credit-rating downgrades, which provoke a further decline in the stock price, and so on. The downward spiral can be stunningly fast and near-impossible to escape. Lehman’s assets were not significantly more toxic last Monday, when the company filed for bankruptcy protection, than they had been a week earlier. And, technically speaking, the bank may not even have run out of money, since it had access to an emergency liquidity line from the Federal Reserve. What Lehman did run out of was credibility. It couldn’t remain a going concern because creditors and customers no longer trusted it. Why would they, when its stock price had fallen nearly eighty per cent in the previous week? The less faith the market had in the possibility of Lehman’s survival, the more remote that possibility became.



One of the risks of going public is having your stock price govern your decision-making as a company. Managing the morale of employees becomes more difficult. Even if things are going well for the company, if the stock price is low, attrition becomes a concern.


Going public isn't just about cashing in on stock options, as someone once noted about free lunches.



Warren Buffett on the economic crisis

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As usual, a voice of sanity with the credibility of billions of dollars behind him.



Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.


Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.

The Amazon users' verdict on Spore: DRM bad

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The restrictive DRM of Spore is one of the primary reasons it currently receives an average rating of 1 star at Amazon. That's across 2,123 reviews at last count, spurred on in part by the organizing power of the web, where DRM is a dirtier word than most four-letter words.


What is Spore's DRM? From what I've read, you have to connect to the web to activate the game the first time you install it, and you can only install the game on three computers before you have to call EA for permission to install it again. I have an old copy of Movie Magic Screenwriter that I bought years ago that had a similar DRM model, and I have to concede it's been a real hassle over the years. You have to be very careful to retire a computer from your installation count when you get a new computer or install a new operating system or have a hard drive fail on you, and you're stuck keeping that box of software around forever.


I hate DRM, it never thwarts the people it's focused on. Take iTunes. I buy a song on iTunes on one computer, and getting it to another computer is a hassle. If I copy the song to my iPod or iPhone, I can't pull it back down to my other laptop, even if both are computers I register among the 5 that I authorize to play those songs. I can never remember which computer my iPhone is synced to, but keeping my music in sync between all my Macs is way too difficult. This is probably due in great part to pressure from the music labels, but regardless of whose fault it is, the honest consumer suffers.


On gaming platforms, DRM is a tough pill to swallow when the competition from consoles is so stiff.


Meanwhile, Metacritic gives Spore an average review of 86 out of 100. The truth is probably somewhere in the middle as the web tends to attract polarized opinions. I haven't played Spore, but I doubt it's a 1-star game if you consider just gameplay. But as a form of mass protest, this is an effective one. If you're Electronic Arts, you sure as hell better listen and respond. Brands are meaning, and those meanings are written by more than just Will Wright and the employees at EA. And if you're on the fence about buying this game, you're going to hesitate when you see the following user review distribution.


Amazon.com: Customer Reviews: Spore


Maybe the Democrats need to spread rumors that McCain and Palin come with DRM.


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