Monday, April 30, 2012

The Politics of No

Wisconsin governor Scott Walker is so unpopular in his state that his campaign for the upcoming recall election is a closely guarded secret. Campaign events are not publicized and are closed to the public. Even the campaign headquarters is at an undisclosed location.

Recall elections used to be uncommon in Wisconsin, but that was before Republicans there said there was no alternative but to suspend the constitution to pass a long series of austerity measures that most voters disagreed with. Since those measures passed, Wisconsin’s economy has collapsed, shrinking faster than that of any other state in the country. These are the problems with government austerity programs. First, they involve very visibly breaking promises, and then, they slow down the economy, and that is also a very visible problem.

Austerity programs are justified with the political argument that there is no other way. There is no alternative. Politicians might as well just be saying no. No, you cannot see a doctor. No, you cannot keep your job. No, there is no hope for the future.

This line of argument upsets voters perhaps just as much as the awful economic consequences of austerity programs. It is bad enough that some countries are seeing the highest unemployment rates most people alive can remember. When politicians say there is nothing that can be done to make things better, it is infuriating. In Wisconsin, Walker will have a hard time competing in the recall election if he is unable to show his face in public. Things are not quite so bad in Europe, yet one national government after another has been ousted there, a trend that may continue through next year.

Another problem with the assertion that there is no alternative is that it is not true. In political matters there are always alternatives. In the current situation, there are well-known alternatives that would make almost everyone better off. Any economist can tell you that a high level of unemployment is a waste of resources. More work gets done if people who want to work are working than if they are not. It is better to put people to work on any work of proportional value than to force them to sit idle. The reason this is not mentioned as a possibility is not that it is hard to do, but that it is upsetting to people in positions of power.

And that leads me to the fundamental problem of the politics of no. It is not just politicians saying no to the people. It is a whole entrenched power structure resisting change. Resistance, by nature, leads to more resistance, and voters and consumers are coming to realize that they can say no too.

Sunday, April 29, 2012

Congress Votes for Postal Shutdown

Threatening to shut down the government is old hat. Now Congress is working on plans that would shut down the U.S. Postal Service.

A plan passed by the Senate early last week is being presented as a plan to rescue the postal system, but when you look at the details, its actual effect would be the opposite. By limiting cost-cutting and postponing some measures for years, the Senate bill would virtually ensure that the USPS would no longer be able to pay its workers at some point next year. Among other burdens the Senate bill would load onto an already barely-solvent system is the continuation of Saturday mail deliveries until about 2015. Realistically, Saturday mail will go away this year, and we should be talking about taking away Monday and Thursday too.

But if the Senate bill would push the postal service into a near-term crisis, the House seems more interested in dismantling it piece by piece. To be fair, the House has not yet been able to come to agreement on any specific steps. However, the draft House bill being considered would hack away at the postal service relentlessly. It would effectively eliminate the postal unions immediately and the board of directors in 2014. Then, a new panel would be appointed with the authority to hack away at the system until there is nothing left. The one saving grace about the House bill is that it may never go anywhere. The House leadership says the mail is not a legislative priority, and scoffs at a May 15 deadline that is the result of previous Congressional action.

It is a surprising degree of hostility from Congress when you consider that members of Congress can send as much official mail as they wish without having to pay for it out of their office budgets. But then, the sanguine attitude of postal executives, who have promised all along that the postal system will keep running in spite of the various financial trends that suggest otherwise, is not helping either. Realistically, the May 15 deadline will come and go before Congress does anything, and then the USPS can start acting on its own to cut costs. Considering that the House and Senate bills would push the USPS into a crisis faster, the absence of Congressional action may actually give the USPS the best chance to survive in the near term.

Saturday, April 28, 2012

Islands of Self-Sufficiency

Many of the world’s islands have a long history of taking care of themselves, so it is no surprise that several islands now are trying to put themselves forward as models of energy self-sufficiency. These include Samsø and Ærø in Denmark, El Hierro in the Canary Islands, Eigg in Scotland, Iceland, and the Isle of Wight.

Islands have greater access to tidal and wind power than most inland places, and small size and clear boundaries make them attractive as demonstration projects. On an island, it is harder to suspect that the energy burden is being shifted across a political boundary somehow. At the same time, the difficulties of access gives islands a greater reason to seek self-sufficiency. If war or severe weather disrupts ocean shipping, the people on an island want to be able to carry on. By the end of this decade, there may be 20 to 30 islands that are no longer regularly importing energy in any form. Their approaches will surely provide a starting point or direction for other places that are drawing up energy plans.

Friday, April 27, 2012

This Week in Bank Failures

When Wells Fargo held its annual meeting this week, it took the unusual move of barring individual shareholders from the meeting. Invited institutional shareholders and company employees (who presumably were shareholders themselves and not merely posing as such) were admitted, and a few public shareholders managed to sneak in, but ordinary shareholders were kept out by building security and police. The company wanted to avoid a repeat of last year’s meeting, when a handful of shareholders voiced disagreement with the company’s foreclosure policies. Barring shareholders from attending the annual meeting of a corporation is a calculated risk, however, as a court could decide to annul the meeting, forcing the corporation to hold it all over again.

Spain is scrambling after the country was downgraded this week. The country was already facing record unemployment, 24 percent overall and over 50 percent among younger workers. There are worries about loan losses at the banks because of the country’s economic decline. The government will probably have to respond with a combination of wage cuts and tax increases.

Five banks failed tonight with a total of $1.3 billion in deposits.

In Minnesota: InterBank, with four branches spread around the outer suburbs of Minneapolis. The failed bank had been accused of failing to disclose the condition of bad mortgages it sold. It had recorded losses of $40 million over the last three years.

Missouri-based Great Southern Bank is taking over the deposits and purchasing the assets.

In South Carolina: Plantation Federal Bank, with 4 locations in the state’s shore towns and 2 more in Greenville, in the hills at the opposite end of the state. The bank’s holding company issued an apologetic statement after the closing, noting the economic pressures on borrowers. Charleston-based First Federal Bank is taking over the deposits and purchasing the assets.

In Maryland: HarVest Bank of Maryland and Bank of the Eastern Shore. HarVest Bank of Maryland had four branches in the northern suburbs of Washington, DC, along Interstate 270. The bank had spent the last year trying to raise capital, but one deal after another fell through. Virginia-based Sonabank is taking over the deposits and purchasing the assets.

The FDIC created a bridge bank to operate the branches of Bank of the Eastern Shore. The FDIC has transferred checking and savings accounts to the bridge bank so that depositors can withdraw their funds and transfer them to other banks. The bridge bank will operate for four weeks, but depositors should start on Monday to make other banking arrangements. The FDIC will mail checks to the owners of CD and IRA accounts for the amount of their insured deposits. The FDIC will retain all assets of the failed bank for now.

In California: Palm Desert National Bank, with a single location. It is the first California bank to fail this year. Pacific Premier Bank is taking over the deposits and purchasing the assets, one year after its acquisition of the failed Canyon National Bank nearby. The FDIC will not share in the losses from the assets of Palm Desert National Bank.

Thursday, April 26, 2012

Winning Over a Skeptical World With Drugs

The stories surrounding CEO changes at AstraZeneca and Johnson & Johnson reflect a world that is becoming more skeptical of drugs, and a global prescription drug industry in turmoil, not knowing which way to turn.

It is only fair that executives and investors are confused. Before the last decade, prescription drugs was an industry that seemed unstoppable, with the largest companies promising double-digit annual growth. Only a wave of consolidation hinted at an industry that might have passed its peak. But revenues have been shaky for years now, and pharmaceutical executives, far from promising growth, are more likely to be talking about how to slow down the decline.

It is no longer just the health advocates warning about the dangers of pharmaceuticals. The Food and Drug Administration has taken one pharmaceutical manufacturer after another to court for trying to sell drugs for purposes where they are not medically useful. The Centers for Disease Control has warned about the overuse of specific prescription drugs. A series of scandals about manufacturing quality and side effects has seen a dozen household-name drugs recalled or withdrawn. And epidemiologists have recorded a decline in the death rate simultaneous with consumers’ decreasing drug use, reinforcing the perception that at least sometimes, drugs are more dangerous than helpful.

The new pharma executives will have to find a way to offer products good enough to win over the skeptics. It’s an uncomfortable and unfamiliar position for the pharmaceutical industry.

Wednesday, April 25, 2012

Death and Bacon Cheeseburgers

Imagine the publicity value when someone actually dies at the Heart Attack Grill. And the restaurant will still be able to say, “You can’t say we didn’t warn you.”

The Heart Attack Grill has been open in Las Vegas for less than a year, selling food that defies all the rules of common sense about eating. Imagine, for example, an oversize bacon triple cheeseburger that adds up to more food than an active person would sensibly eat in three days. Add alcohol and cigarettes, and it’s obvious that the occasional customer will fall over dead. The risk is no secret, even if you don’t follow the science news — it is emphasized with signs at the entrance and food item names on the menu. The restaurant’s food has already sent two customers out on stretchers (fortunately, both survived) and some accounts suggest that other emergency room visits have been of customers who came directly from the restaurant.

It’s a clever psychological stance that the Heart Attack Grill employs. The message is, in effect, “You know eating like this will kill you eventually, but go ahead and enjoy it.” It preempts the objections to the potentially deadly effects of the food by mentioning the element of danger first — in the first two words of the restaurant name. The preemptive warning may also be sufficient to preempt the lawsuits that could follow.

But if this strategy is a hit so far, with curious diners flocking to the novelty restaurant, the long-term result may be to push people in the opposite direction. As people consider the restaurant and its food risks with varying degrees of seriousness, it leads to discussions. How big does a cheeseburger have to be to kill a person? When people start to ask this kind of question, it forms a lasting cognitive association. In this case it has people drawing a connecting line between processed meat and early death. Eventually, people will learn that there is a real scientific answer to the cheeseburger question. The scientific answer might be vague and probabilistic at this point, but it is specific enough to tell you that if maximizing your chances of good health is the priority, you wouldn’t eat a bacon cheeseburger at all, regardless of size.

The short-term risk in eating a bacon cheeseburger, even a jumbo one, might be small, but that won’t matter when the story is told about the first person to keel over and die upon eating one at a restaurant called the Heart Attack Grill. It’s a story that, when it happens, will push people in two directions. Thousands may want to take on the challenge of eating the biggest bacon cheeseburger they can find. But millions may no longer want to eat burgers or beef at all. And that’s how the mystique of the Heart Attack Grill, even as it boosts its own business, works against the beef industry in the long run.

Tuesday, April 24, 2012

Jobs and Gasoline

At any given moment, closely related indicators may be moving in opposite directions. We see that this week with gasoline prices and the job market. In general, U.S. employment increases, and gasoline prices increase accordingly. With more people driving to work, less gasoline is available for everything else. This week, though, that connection is not holding. The job market is showing new signs of recovery. In particular, there are more job openings being posted, and more of them are for full-time permanent jobs. Meanwhile, gasoline prices are edging downward, down almost 4 percent from their recent peak.

These two measures cannot move in opposition for very long. My hunch is that both employment and gasoline prices will be higher 6 weeks from now than they are this week.

Monday, April 23, 2012

How Many Bribes

How many bribes can a company make before it is disqualified from operating a bank?

That was one of the questions to come out of the big business news story of the weekend, and to me, the most fascinating aspect of the story is the mere fact that people are discussing this question. To me, this is a bigger deal than the possible alignment of an American company with the criminal element in a foreign country, in opposition to the legitimate governmental authority there.

For most of my life it has been a given that no degree of malfeasance would disqualify a financial company from continuing to operate. When a bank is caught paying bribes or participating in the financial side of drug running, one or two executives may have to take the fall and be banned from banking for life, and maybe even go to jail for a year, but the bank itself will carry on, essentially unaffected, its governance, licenses, and market positioning never in any serious doubt.

But maybe not this time, or at least, it’s become a matter of discussion. And if there can be a public discussion, then you can no longer take for granted that big businesses that want to operate outside the law will be met with a nod and a wink. Maybe they will, or maybe they will be met with quite a different reaction.

Sunday, April 22, 2012

Energy on Earth Day

Earth Day is today, and it is a good day to remember how much depends on energy sources, and how complicated the world becomes when the routine of daily life hangs on energy sources that can’t be counted on. We’ll all breathe easier, in more ways than one, when the energy problem is solved.

Saturday, April 21, 2012

Getting Started With Spring Cleaning and Clutter

With spring cleaning, and decluttering especially, people often feel that they don’t know where to start. And unfortunately, this often means that people don’t get started on this very important process. This is an issue that I address in the Fear of Nothing blog in a series starting today with the post “Where Do I Start?” (part 1).

Friday, April 20, 2012

This Week in Bank Failures

The giant banks in Greece posted the largest losses ever as a result of the government’s debt refinancing. As a result of the losses, the banks will effectively be nationalized by the government, and will need additional private capital beyond the government rescue package.

Stockholders at at least two large U.S. banks have voted down executive pay packages. In both cases the respective boards of directors had recommended pay packages that industry analysts said were far beyond industry norms, and large stockholders had signaled their intention to vote against the excessive pay. It is not clear what happens next.

There was one bank failure tonight: Fort Lee Federal Savings Bank, in New Jersey, a very small bank with about $50 million in deposits. Alma Bank paid a 1.8 percent premium for the deposits, but is purchasing less than one third of the failed bank’s assets.

Thursday, April 19, 2012

Cable’s Decline Reaches Wall Street

The decline in cable television may be more noise and irritation than pop culture wave at this point, but it has progressed far enough to start affecting the plans of the television industry.

Word of cable’s decline has reached Wall Street, where analysts

were "flummoxed" by a steep fall in cable network ratings

but nevertheless announced a series of downgrades. Meanwhile in Canada, Shaw’s is trapped in a no-win cycle of price hikes to boost revenue and price promotions to try to slow the loss of subscribers.

Wednesday, April 18, 2012

Better Than Oil

I often get postcards touting the latest special offers of local oil service providers, but the one that arrived last weekend was different. The company was not proposing to overhaul my oil furnace, or to sell me a new hybrid furnace, or anything at all to do with oil. Rather, it was offering to install a rooftop solar array. It could cut my electric bill in half, the postcard suggested, and federal tax incentives would cover about one fourth of the cost.

It says something about how much the price of solar panels has fallen that even an oil company thinks solar is a better value than oil. Solar panel prices have fallen by about half since 2010. The decline is so great that the leading company that was tracking retail solar prices has stopped doing so. Prices are too low to track in a meaningful way just by comparing this month’s catalog to the month before. Meanwhile, oil prices are within 20% of their all-time high.

One of the things that changes when energy costs change is the relative importance of the labor costs of installation. The work of installation may now account for more than half of the cost of a home solar installation. Meanwhile, the costs of equipment and installation for an oil heater are dwarfed by the cost of fuel for the first winter. It makes sense that an service-oriented business might be more interested in solar energy work now that solar is becoming more labor-intensive.

Tuesday, April 17, 2012

Tax Day, Not a Holiday, But Not a Normal Day Either

I was going to skip my blog today, on the theory that most of my readers are too busy with their U.S. income tax filings to notice whether I write anything or not. But then the thought occurred to me that it might be worthwhile to point out what a strange day tax day is. You could tell there was something strange going on with just a glance at the traffic this afternoon and evening. Traffic was unusually light, for a business day. People were in strange moods too, not quite like a business day or a weekday, but somewhere in between a holiday and the preparations for a weather disaster. In spite of the summer-like weather, I saw hardly anyone on the beach for most of the afternoon.

The income tax is equally strange in a macroeconomic sense. To say that tax day is overshadowed by income tax work would be understating the impact. In all, about one percent of all the work done in the United States, an average of more than two days per worker each year, goes into the paperwork associated with federal and state income taxes. Even those who hire professionals to do their tax forms must do hours of work just receiving and keeping track of the required papers. It is a huge time sink, roughly the equivalent of football season but without the same entertainment value. My guess is that the tax day experience leaves most people thinking that income taxes ought to be simpler somehow. And when you look at the purpose of income taxes, the process certainly could be a great deal simpler.

Monday, April 16, 2012

Google Replacements

Concern about how much raw information Google is collecting about its customers is more widespread now than it was when Google gave me pause by locking me out of my Google account in November. Justin James at TechRepublic has a useful roundup of alternatives for 10 Google services. The greatest security concerns are attached to services that are more mobile and more frequent, but fortunately, those are also the Google services that are easiest to replace.

Sunday, April 15, 2012

5 Reasons to Convert to LED Lighting Now

Most people do better to replace traditional lights with LED lights gradually, a few this year and a few more next year, but these are reasons you might want go faster.

  1. You’re aggravated about the high electric bill. If it bothers you that so much money is going to the electric company, high-efficiency lighting is one of the quickest ways to cut the bill down to size. Another way to stick it to the electric utility: spend less time on the video screen.
  2. Money, and nowhere to invest it. LEDs are a good choice if you’re tired of the low rates of return on your investments. Even in the least favorable scenario (replacing high-efficiency fluorescent lighting in a little-used room) an investment in LED lighting gives you a rate of return of 2 percent, and the best cases return more than 100 percent. Better than the stock market, eh? If you’re thinking it’s a shame you can’t put thousands of dollars into this investment, look into rooftop solar panels as a follow-up.
  3. Air conditioning. Anywhere the air conditioner runs day and night, the return on energy efficiency in lighting is that much faster. Save money and make the air conditioning run a little quieter with the most efficient lighting you can get. And even then, don’t forget to turn out the lights you aren’t using.
  4. No nukes. Realistically, the transition from nuclear power to sustainable forms of electric generation can’t happen without energy efficiencies, and LED lighting is one of the easiest ways to make a statement in that area. And if you’ve been putting off doing a home energy audit, getting that done is an even better way to make a statement about your personal energy use.
  5. Party time. Get some pro-quality LED lights in various colors, add a lighting controller, and you can turn your whole house into anything from a rock stage to a dance floor at the flip of a switch. And the amazing thing is that you’ll be saving energy at the same time.

Saturday, April 14, 2012

The New Big Box Store

No one seems to have the answer for the malaise at the big box stores — least of all Best Buy’s CEO, who turned in his resignation on Tuesday. But even assuming someone somewhere were to discover the answer, is it possible to launch a new big box store chain at this point?

There are plenty of empty stores, obviously, but once a store is set up, what will make people come in? Who will be the core customers at the new store? Older shoppers are the first to discover a new big box store, and are happy enough to visit, and they may have money to spend, but they are not so likely to buy anything. The store will get foot traffic, but no revenue. Younger shoppers, by contrast, have little interest in big box stores and often have little money to spend. They may need to hear a series of personal success stories with a new store before they will think about going inside — and where will those stories come from? Then, once inside, they will buy a product only if it is really the right thing, at the prevailing market price. On the surface, this sounds like a crazy challenge for a new retailer to take on.

It is a challenge faced by H.H. Gregg as it tries to be the next big box home appliance store, picking up, in many locations, where Circuit City failed. It may be a bigger challenge than the retail chain planned on. “I don’t get the point of that store,” is the assessment I heard this week from one shopper, a woman near the middle of the 32-to-49 age group that big box stores hope to target. She had been inside the store, once, for five minutes. It didn’t have the product she needed, though it had no end of low-end products in the same category. The prices were unimpressive and the layout confusing. What will it take to get a shopper like this to enter the store a second time? Obviously, traditional strategies like newspaper inserts will not be much help. As television falters, particularly among viewers under 40 years old, there may no longer be a simple way to reach a broad local audience with an advertising message.

The only answer I can think of is that a retailer may need to prove itself and establish its name in a small-format store first before it can consider making the jump to the big-box format. This is, after all, what Sears did, and Lowes, and Kmart, and Circuit City — and the people at Circuit City probably wish, now, that they had not attempted that jump.

In other words, it may take a decade or longer to establish a retailer before it can open its first big box store. If this seems unfairly indirect and roundabout, look at it from the other side. A big box store, by nature, needs roughly 100 paying customers per day to make a profit. Where do you expect these 100 people to come from? The current theory is that they will materialize as a result of the clarity and persistence of the retailer’s advertising concept. But as consumers become more resistant to advertising messages, it may be a strategy that no longer works well enough to launch a big box store from out of the blue.

Friday, April 13, 2012

This Week in Bank Failures

Banks are beginning to report financial results from the quarter ending March 31. While it is clear that the banks are still under stress, and recovering slowly from past mistakes, so far there is nothing alarming in the financial reports.

In Europe the recent focus of worry is the banks of Spain. Worries increased after reports that Spain’s banks are deeper in debt than they have ever been.

Thursday, April 12, 2012

Why Apple Cannot Settle the Price-Fixing Case

Together, Apple, Amazon, and Barnes & Noble dominate the e-book business. And it is a business that is unusually hostile to its suppliers. E-book sellers require a very strange form of best-price guarantee from publishers. E-book publishers are responsible for the retail price of their products wherever they are sold. The retail price essentially has to be exactly the same everywhere. It is an arrangement that appears to violate antitrust laws on the face of it. The Department of Justice pointed this out to Apple and a handful of book publishers last week, but while one or two of the book publishers were willing to settle, Apple was not. And it is a case that Apple simply cannot afford to settle.

Apple is much better off winning or losing in court. Nor could Amazon or Barnes & Noble settle, if they were the ones being targeted by the Department of Justice. Book publishers too are better off losing in court than agreeing to a settlement. Any party that settles this kind of price-fixing case before the rest of the industry does puts itself at a competitive disadvantage.

That’s because settlements do not create legal precedents. The only precedents that matter in U.S. antitrust law are federal appeals court decisions. If the e-book industry is ever to stop price-fixing, it has to be decided in court and affirmed on appeal. That will create a precedent that anyone in the industry can use as a model to follow, or as a template to settle any similar misconduct.

Imagine the fate of a book publisher who agreed to stop its price-fixing practices while the rest of the e-book industry carried on. Imagine, for a moment, that you are this book publisher. Agreeing with the Department of Justice to stop price-fixing puts you almost immediately in violation of your contracts with Amazon, which, just like Apple’s, makes you responsible for price-fixing. Something similar to this happened once, and Amazon, overnight, set about withdrawing all of the publisher’s products from its store — and not just the e-books, but the printed books and everything. The terms of Amazon’s supplier contracts permit it to do this, and if it did it once, it could do it again. The publisher wouldn’t have its book in Amazon’s store again until the Department of Justice had a similar talk with Amazon — and who knows when that might happen? The public life of a newly released book is often less than a year. The wheels of justice routinely take ten years or longer to reach a resolution. No book publisher knows whether it will even be around ten years hence.

To see what is at stake, you have to imagine the e-book business without price-fixing. If there is no more price-fixing, e-book sellers will have to start competing on price.

Of course, the biggest costs in selling digital downloads are the money-handling costs, the transaction fees charged by the banks for credit card payments and the like, and these are roughly the same for everyone. But look at just the operating costs, and these strongly favor Apple, especially when compared to Amazon. Operating costs are important to look at, because when businesses have to compete on price, often what happens is that less efficient businesses are forced out. That’s the nature and the putative advantage of free-market competition. In consumer electronics recently, this was the story of Circuit City. Circuit City spent more money on its operations and charged higher prices to cover its costs. Customers went looking for lower prices, and Circuit City shut down. Another possible result is that the more efficient company earns a fortune while its competitors struggle to break even. Does this sound familiar within the history of Apple?

Apple has the advantages of economies of scale. It sells lots of digital downloads of all kinds, while its e-book competitors sell few downloads other than e-books. It has the advantages of vertical integration. Apple designs and builds computer servers and networking equipment of the sort that are used in a data center for delivering digital downloads. It can set up its data center without having to pay retail price for much of anything. Apple also has the advantages of operating efficiency. ITunes Store, from which the technology for its iBookstore is borrowed, has been a model of low-cost operation for years. Amazon will eventually figure out how to duplicate this, but it could take ten years to catch up with where Apple is now.

There is one more point that works against Amazon if there is a free market for e-books. Amazon has been using the profits from e-books to subsidize its e-book hardware. How much money Amazon loses when it sells an e-book device is a closely guarded secret, but estimates have run as high as $200. Meanwhile, Apple sells its devices at a handsome profit. If the price-fixing stops, Amazon will no longer be able to rob authors to pay engineers. Its business model will be broken.

Apple may be the defendant, but it is its biggest e-books competitor, Amazon, that has the most to lose if Apple loses its case in court. This could be the reason why the Department of Justice picked Apple instead of Amazon as its first defendant. Amazon as a defendant would be fighting for its life. Amazon would fight so hard it might even win its case in court, overturning a century of price-fixing laws. That’s a risk the Department of Justice decided not to take. Apple, by contrast, has obvious conflicts of interest as a defendant. Apple loses only if the case sets a strangely narrow legal precedent. Essentially, it loses only if it settles out of court.

Price-fixing cases are usually defended by denying that any price-fixing took place. That is an avenue of defense that would seem not to be available when the duty to fix prices is written directly in a contract that may be presented for the judge to see. I have a hard time imagining the legal theories Apple may employ to defend the e-book industry’s practices, but whatever the theories are, Apple’s legal team can be counted on to argue them vigorously, forcing the courts to make a clear determination.

Wednesday, April 11, 2012

The Not-So-Cold Season, 2011–2012

The National Climatic Data Center says the cold season from October 2011 to March 2012 was the second warmest on record in the contiguous United States. Temperatures were 3.8°F above average. March, which became known as “summer in March,” was a month for the record books, with temperatures averaging 8.6°F above average. Half of the states, essentially the inland states east of the Rockies, had the warmest March average temperatures ever recorded.

Cold-season average temperature is the most important weather statistic for energy use. It correlates with the energy demand for heating. A nation spending 10 percent less than usual on heat for the winter has some breathing room to recover from other economic difficulties. The reduced use of heating oil is helping to keep oil and gasoline prices temporarily below long-term levels, though that effect is not likely to last into the summer.

There is something of a warming trend recently, with the contiguous United States recording its second hottest summer in 2011, and before that, its fourth warmest winter.

Tuesday, April 10, 2012

The Season for LED Room Lighting

If you live in a northern country, this is the season for installing LED light bulbs for indoor room lighting. Why now? The waste heat from light bulbs isn’t really wasted during the heating season, when it provides heat to the building, but it turns into a big expense when the air conditioning is on. The heating season is essentially over in half of the United States, and is winding down in the northern states, so you get the fastest return on investment by installing an LED light bulb now.

The prices for LED light bulbs have come down from last year. Last week I bought a 10-watt LED light bulb for $14. This replaced a 60-watt light bulb in my office. I use this particular light about 7 hours a day, so I will save $12 in electricity between now and October. LED lighting has reached the financial tipping point, the point where it often pays for itself in electric savings within the first year.

Savings are higher if you are replacing an incandescent bulb in a room with air conditioning, or if a light is on all day. Savings are lower if you are replacing a high-efficiency fluorescent bulb in a room without air conditioning, or if the light is not used so often.

The cost of LEDs has already fallen enough that you can no longer make a financial case for fluorescent lighting. We already knew that you pay less in the end for LEDs. But look at first-year costs only, and this year’s LED light bulb is the best choice in most cases. That means now is the time to stop buying fluorescent light bulbs. Instead, as they fail (one by one, over the next 20 years), replace them with LED light bulbs.

LEDs will continue to improve, and they last for ages, so purchasing LED lights one or two each April may be a good strategy anyway. You get immediate savings with this year’s LEDs, then you can add the improved efficiency and style of the LEDs that come along later. And you can do all that without having to make a special adjustment in your household budget.

Monday, April 9, 2012

One Hard Disk Drive

I now have four hard disk drives in my desktop computer. But this arrangement, as common as it was a few years ago, doesn’t make much sense now.

The new drive, which I installed yesterday and finished configuring overnight and this morning, has a capacity of 2 terabytes (TB). It’s clear enough that 2 TB is the go-to capacity for hard disks right now. A 1 TB drive has half the storage capacity but costs just 20 percent less. A 3 TB drive, with 50 percent more storage, costs more than twice as much.

With a primary hard disk drive that has a capacity of 2 TB, it is hard to say what the other three drives are for. Combined, they offer less than 1 TB of storage. Yet each drive uses 5 watts of peak power regardless of its capacity. I will surely want to unplug the three older drives to save electricity. As an extra benefit, pulling those drives out will make the computer less than half as loud.

It is hard to explain how much storage 2 TB is. One way I look at storage capacity it is to compare it to a $15 million data warehousing project I worked on in the mid 1990s. The data warehouse had so much data when it started out that it was stored in two rooms of computers, spread across two states. And that was for one terabyte. I now have two on a single disk.

Another way of looking at it is the question of how many files I can store. It would be impossible to fill up even 1 TB with a lifetime of personal files. Media files are another story. One of the files on my computer is the feature film Slacker Uprising. In standard definition video, compressed for Internet download, it takes up almost 1 gigabyte (GB) of storage. I am not an avid movie fan, but if I were, I could save a year’s worth of feature films on my computer for later viewing, and that would be only 365 GB, or one sixth of the capacity of the hard disk.

I never quite filled the 500 GB of my previous primary hard disk. Realistically, I won’t be filling up a 2 TB hard disk with files until I am editing a feature-length film of my own, a project that, alas, is not in my immediate future.

There is something to be said for having a second hard disk drive as a backup device. In less demanding applications, though, to save electricity, a backup drive should be an external drive. Then, it only has to be on about one hour per week. Inside the computer, it is on whenever the computer is on, burning through potentially $5 of electricity per year. In the strictest security setups, the use of an internal mirror drive may make sense as a way to guard against data loss.

Aside from that scenario, and that of demanding computer tasks like video editing, the era of desktop computers with multiple internal hard disk drives is over. When it’s just a question of storage, now that 2 TB is the standard capacity for a hard disk, one hard disk drive will almost always be enough.

Saturday, April 7, 2012

Not Just Best Buy, It’s Big Box Stores in General

The problems at Best Buy are part of a pattern of difficulties at big box stores.

Best Buy will shut down 50 of its large stores after disappointing winter results. It will try some new things, including smaller locations and expanding the Geek Squad.

Margo D. Beller writing at CNBC suggests that the crux of the problem for big box stores is the competition from the largest online sellers.

If people shop in the store, then buy online, it cuts into sales for the store. Or, if people shop online, then go to buy in the store, the store’s layout, selection, and pricing can help or hinder customers who arrive having already decided what they came to get.

A starkly limited selection of consumer electronics has always been part of the strategy at Best Buy. Another big box store, Home Depot, takes this approach to the extreme in the area of home improvement. It is a strategy that worked better when consumers could not easily find out what other products were available.

Demographics may also be working against the big box stores, as Sears’ CEO explained in a CNBC interview. Shoppers born since 1980 haven’t showed any sign of warming up to the big box store layout or business model. Meanwhile, shoppers over about 50 years old may be shopped out: they own everything already and are skeptical about the ultimate value of the latest product design gimmicks, like 3-D TV. This leaves big box stores selling to a limited demographic window, the age group currently 32 to 50 years old, but shrinking every year.

Friday, April 6, 2012

This Week in Bank Failures

Lehman Brothers was broke for almost two years before it ultimately collapsed. It was kept afloat only as a result of a series of improper and increasingly massive short-term loans from JPMorgan — loans that JPMorgan was able to make only by turning a blind eye to accounting and underwriting rules. Specifically, JPMorgan treated Lehman Brothers customer funds deposited at the bank as if they were collateral, something the rules of both trading and banking say you can never do. After the Lehman Brothers collapse, JPMorgan froze the customer funds for two weeks, again a violation of the same rules. The Commodity Futures Trading Commission (CFTC) announced a $20 million settlement with JPMorgan this week in connection with these violations. JPMorgan also agreed to change its operating practices so that it cannot make similar errors in the future. Separately, the CFTC is looking into similar lapses that may have occurred during the final week of MF Global.

Treasury has been selling off its TARP holdings, with smaller profits than it had predicted, but smaller losses than the skeptics had expected. CEO salaries at Treasury-owned businesses, including Ally Financial, are being capped around the $10 million level again this year.

A federal court has approved the mortgage practices settlement between five giant banks and 49 states. Under the terms of the settlement, the banks will institute operational changes including the requirement of a single point of contact at the bank for borrowers before and throughout the foreclosure process.

Thursday, April 5, 2012

Mail, Government, and Advertising

Will postage rate increases, Saturday closures, and slower delivery reduce the volume of mail the U.S. Postal Service delivers?

The answer is yes, of course. Any business that offers less and charges more can expect some of its customers to look elsewhere. And the majority of postal customers have other options. There are other ways to send holiday greetings, merchandise, or advertising. Even when advertising has to be sent by mail, the same advertising message may not have to be sent so many times. The service cuts and rate increases the U.S. Postal Service is currently considering will certainly reduce the volume of mail by ten percent, and probably more. The volume of mail has been in decline for years, and it is a decline that could easily accelerate.

Postal unions worry that the post office is already in a downward spiral, in which more service cuts and price increases will drive customers away faster than they will close the post office’s budget gap. This worry is probably correct.

But there are customers who have no ready alternative to the mail: most obviously, the government. Licenses, tax forms, summonses, census forms, and a host of other government documents travel by mail, and there is, for many of these documents, no credible alternative.

To take one example, the next census will need about one million additional employees if it is impossible to send and receive census forms by mail. The additional cost to conduct the census without mail could be about $10 billion. That isn’t enough money, obviously, to cover the postal service’s deficit, but the census is just one of many functions of government that would have to adjust.

As a more immediate example, the tax authorities very much depend on the mail. Without mail to send and receive tax forms, notices, payments, and summonses, the tax system would be in chaos. The amount of tax revenue would decline, not by a little, but perhaps by as much as a third. This would most obviously affect the Internal Revenue Service, but some state and local taxes could be even more adversely affected if the mail went away.

In financial terms, the government cannot afford to let the post office fail.

And if the mails are declining in importance to other customers, the government might well have to step in and pay a larger share of the cost of operating the post office.

That is not to say that the post office can continue in its current form. It matters little to the government if we receive mail only once a week. It is the advertisers who depend on more frequent mail deliveries. Advertisers, of course, pay the lion’s share of the costs of operating the mails. But if what they are paying is not enough to keep the system going in its current form, we might well have to cut back to one mail delivery per week.

Advertisers have for half a century been getting a free ride from the postal service, paying a fraction of the postal rates that everyone else pays, while requiring a more demanding level of service. If advertisers really cannot afford to pay enough to cover the cost of delivering their circulars on Thursdays, or whatever specific day of the week they designate, then those days of mail delivery will probably have to go away.

But my hunch is that advertisers can pay enough to keep mail delivery going for at least three days per week.

Government and advertisers have effectively written the rules that the postal service operates under. It is up to them to be willing to change the rules if they want to keep the system going.

Wednesday, April 4, 2012

Keeping a Short History

Consumers are beginning to learn about data retention, a subject the business world has known about for a quarter century. And the main reason people are thinking about data retention all of a sudden is the Facebook timeline.

The essential idea in data retention is that in most categories of files or other information that you keep, after a certain age, the saved data does more harm than good. You make yourself safer by systematically erasing your tracks after a certain point.

I have not seen the Facebook timeline myself, but based on what I have heard, it makes this principle painfully obvious. The timeline collects the fragments of a person’s life in a chronological fashion that seems almost cruelly designed to embarrass a person with the inevitable inconsistencies and changes that occur in anyone’s life over time.

To take a hypothetical example from my own life, I try to eat healthy food, certainly more so than I did in the past. But if I had a Facebook timeline, the way Facebook intends it, it would be no trouble for someone to locate a picture of me from years ago, noticeably fatter and eating a stack of cheeseburgers or something else equally inappropriate.

It is obviously important to be selective about what documents end up on Facebook, as in any other public medium. But just as obviously, that is not enough. The only efficient solution to the timeline problem is to keep a short history — to delete everything, automatically or nearly so, after a relatively short period, perhaps three months for some things, 15 months for others. You can never conclusively delete your digital history, but there has to be a way to keep it from being as neatly and publicly organized as a timeline would suggest.

Exactly how to keep a short online history is still an open question, but it is a question that I am confident will be solved in short order. Facebook, for example, has to come up with a solution. Because the way it is working now, people are waiting till they come to one of those points of acute embarrassment that the Facebook timeline inevitably generates for everyone sooner or later. And then they are deleting their Facebook accounts all at once. Obviously, that is not the scenario Facebook has in mind for its users. It will have to offer a less drastic answer for its users before abandoning Facebook in disgrace becomes a trend.

Tuesday, April 3, 2012

Brazil’s Stimulus Gamble

When a national economy is already growing faster than can reasonably be expected, attempts at further stimulus tend to lead to stagnation.

We’ve seen this in the United States, where the current state of the economy is the result of 14 years of non-stop stimulus efforts. Now Brazil is about to try the same thing. New tax cuts designed to boost business and hiring in Brazil are similar in scale and intent to the U.S. investment tax cuts of 1998. The result, I predict, will be similar: taking an economy that was rolling along nicely and throwing it off balance for years to come.

Monday, April 2, 2012

Steak Night

Here is another sign of the decline of beef. Tonight I am at a popular buffet restaurant’s Steak Night for the first time, and the place is practically deserted.

It is not that people are turning against beef and other heavy meat. Some are, of course, but most people who are eating less meat don’t realize they are doing it, and if asked, will tell you they like steak just as much as they used to. It is less a conscious change of opinion, and more a simple loss of interest. Maybe the novelty value of steak is wearing off.

Sunday, April 1, 2012

Canada Cancels Penny

It was one of the least controversial changes in the new Canadian budget: Canada will stop minting pennies. The one-cent coin will remain in circulation, but the government will save $11 million a year by no longer minting replacement pennies. Cash point-of-sale transactions will be rounded off to the nearest nickel, but electronic transactions will still be counted in cents.

It is part of the cycle of inflation that the least valuable forms of currency eventually have to be dropped, and higher-value pieces added, as the value of money declines over time. You can’t really buy anything for a dime, so a penny has become conspicuously heavy and cumbersome for something so ephemeral.

The United States too has for many years considering discontinuing its penny, which has the same monetary value as the Canadian penny, but the last time Congress looked at the question, it concluded that that time had not yet come. Currency is a more loaded political issue in the United States, and Congress is probably prudent in waiting until people have lost interest in pennies before taking the inevitable step of discontinuing them.