Thursday, May 31, 2012

Local Currency Chatter

The level of chatter about a local currency in Greece has increased, and the talk is becoming more specific. How will the new money originate, where will it be used, how will the banks survive? Some economists are suggesting Argentina as an example to follow, though with Argentina giving all the appearances of a new currency crisis of its own, it may be more of a cautionary example. Some of the talk of a local currency is being directed toward Spain too, after a tentative political deal yesterday that would seem to pave the road for Spain’s euro exit, perhaps simultaneous with Greece.

In spite of all the complexities, I believe local currency rather than euro exit is the right answer for the flight of money from places like Greece and Spain. It may temporarily be necessary for all wages, interest, and real estate payments to be made in the local currency. This is still better than a complete or permanent ban on commerce in euros.

Tuesday, May 29, 2012

250 Percent Solar

On Friday and Saturday, Germany set a new record for on-grid solar electric generation by a country. For a few hours on Saturday, solar panels were providing 50 percent of the electricity on the grid. The same electricity was generated on Friday, but it was only about 32 percent of that day’s electricity. Friday was a business day and more industrial and commercial facilities were operating, so the demand for electricity was higher.

It is not always sunny, so Germany averages just over 20 percent of electricity from all renewable sources combined. On the other hand, building owners continue to add solar capacity on a daily basis, a trend that may not stop during our lifetimes, so if peak solar output is 50 percent one day this month, it could be 55 percent next month, 70 percent in two years, and 100 percent in five years.

On a summer day when solar is providing 100 percent of the electric supply, the fuel-burning power plants could be idled for five hours in the middle of the day. It will cut into their profits but will also make maintenance easier to do.

And there is no reason for solar capacity to stop at 100 percent. In 10 years or so, solar panels at the peak of a sunny day could provide 250 percent of the grid power demand. At first, the excess power can simply be sold on. Arizona’s solar capacity, for example, is not merely compared to the demand in Arizona, but also to the much larger demand of California.

The accounting conventions of electricity virtually guarantee an excess supply, eventually. As long as you pay to have electricity delivered, on top of the cost of generating it, locally generated power (that is, from your own rooftop) will always be less expensive.

Eventually, then, we will have to have a plan for excess electricity. When electric generation exceeds demand, it will be a time to use electricity faster so it doesn’t go to waste. What could you do during a brief period of free electricity? Recharge your car, of course, but it also might be the right moment to run the clothes dryer and air-condition the attic. By consuming electricity for every use we can think of during the period of peak generation, we can reduce the demand for electricity later in the day, perhaps by as much as half.

Energy planners have talked about the need to shift electric uses into the periods of low demand, but it may be more important to shift into the periods of maximum supply. This is especially a consideration for recharging electric commuter cars. The ideal time to recharge is perhaps not at night, when no solar power is available, but in the late morning, in the employee parking lot.

Monday, May 28, 2012

A Longer Summer

Hours ago a tropical storm, nearly a hurricane, came onshore in northeast Florida. The risk of flooding from this storm will continue for the next three days in three states. It is only May, and already there have been two Atlantic tropical storms. The more typical pattern would be for the second tropical storm of the season to occur around the end of August, but the mild spring weather and especially the June-like weather in March may have advanced the start of the hurricane season. Closer to home, everyone I know who has a swimming pool has the pool already opened or will open it today. The usual start of the swimming pool season in southern Pennsylvania is around the middle of June, but this year, people have been out swimming since the second week of May.

The weather of any single year is not an indication of climate change, but the changing climate is expected to look like this someday, with long summers in places that previously experienced short summers. This will have good qualities, such as a reduced need for energy to heat buildings, and bad qualities, such as an increase in major storms that cause flooding.

Sunday, May 27, 2012

Arctic Melt-Out Won’t Happen This Year

One summer nearly all the ice that floats on the Arctic Ocean will melt away. That won’t happen without some advance warning, and it won’t happen this year.

The setup for a complete Arctic ice melt will happen in May, with an unusual ice melt pattern that leaves low concentrations of ice in the southern Arctic, so that there is more uncovered water that can soak up the sun during the peak sun season of May, June, and July. That will create warmer sea surface water temperatures to melt away any stray ice that is still around in September.

Ice concentrations in the Arctic Ocean are averaging around 95 percent this month. That is low by historical standards, but enough to mostly protect the ocean from the sun.

Ice concentration is one the best indications of which ice is about to melt, but ice extent is the most reliable way to track how the ice is doing in the long run. The ice extent graph this year so far has been retracing the line from 2010. In that summer, ice extent stayed 10 percent above the all-time low. It gives another reason to imagine that this summer’s melt will be along the lines of what we have seen in the past.

Saturday, May 26, 2012

Germany Sets Solar Record

Yesterday and today, Germany set new records for solar electric generation. At midday solar panels were feeding 22 gigawatts of electricity onto the grid. Today at its peak that was half of the country’s electric supply.

It is a favorable time of year for solar power in the northern hemisphere, and there was favorable weather, and those are reasons to discount this accomplishment somewhat. On the other hand, there are more reasons to be amazed. Germany, sitting at 50 degrees north latitude, is hardly an ideal case for solar power, which is stronger closer to the equator. Germany’s solar initiatives, though expensive, have never seemed large enough to shake up the country, and have taken up only a small fraction of the structural potential that the country has for solar panels. The solar generation numbers do not include other solar electricity that was used locally and not fed onto the electric grid.

What all this suggests is that the current technology is good enough. It is just a matter of time before solar panels provide 100 percent of midday electricity, then 200 percent, and not just in Germany, but in many other places besides. If solar panel technology improves and manufacturing costs decline further, as everyone expects, it will happen that much sooner. To say that this will shake up the electric power industry is an understatement.

Friday, May 25, 2012

This Week in Bank Failures

Spain took full ownership of Bankia as part of a new €20 billion bailout. Bankia has 10 percent of deposits in Spain and has the largest real estate loan portfolio in the country. New managers will spend the next month assessing the bank and preparing a plan of action. The takeover may have been prompted by a run on the bank, which reportedly has lost more than €2 billion in deposits this week. Regulators denied reports of deposit flight for days before the government took over the bank.

Deposit flight, or a slow-motion run on the banks, remains a problem in Spain and Greece and across southern Europe. Many of the deposits are moving to the United Kingdom, increasingly seen as a safe haven outside the euro zone.

The SEC has decided not to pursue prosecutions in the Lehman Brothers case. The announcement wraps up a three-year investigation. There was no rationale given, but the presumption has to be that the wrongdoers were considered too big to prosecute. It will give the Occupy Wall Street movement something to talk about for years to come.

Wells Fargo acknowledged this week that it does the same kind of high-risk hedging that got JPMorgan into trouble. Wells Fargo, though, insists that its credit default swaps business is on a much smaller scale, not large enough to present any kind of economic risk to its balance sheet.

Anyone hoping for the Fed to find out what happened at JPMorgan shouldn’t hold their breath. JPMorgan’s CEO is a New York Fed director and can be expected to use his board position to deter any substantial investigation. The JPMorgan board of directors also may not be much help. Its risk committee lacks banking experience, but includes a director who was a director at AIG when it fell apart because of unmanaged risks.

Wall Street might have lost half a billion dollars on the Facebook IPO last week, included an estimated $100 million in hypothetical exchange liabilities and $200 million in market maker losses. Essentially, when Facebook declined in value by $10 billion in its first day of trading, Wall Street firms got stuck with a share of that decline.

Thursday, May 24, 2012

Flashlights in Detroit

Children in Detroit might need a flashlight to walk to school this fall.

The city is so broke it can’t afford to maintain its streetlights. It estimates that only about 60 percent of them are still working, and the situation will get worse as time goes on.

There is no magic solution. But to reduce the appearance of chaos, the city is planning to abandon the streetlights in more than half of the city. They will be permanently turned off at some point this summer. This means that more than 100,000 people will be living on unlit streets. And when the shorter days of fall roll around, they will be driving to work on unlit streets, and walking to school on unlit streets.

It is hardly a happy solution. Walking to school with a bag full of books and other supplies is hard enough. Having to carry a flashlight so you can find your way will just make it harder.

But the city’s plan to borrow money so it can pay to maintain the streetlights that will still operate in the other half of the city doesn’t make sense either. When you are borrowing money to pay for routine maintenance, that is almost the definition of living beyond your means.

The United States does not have much experience with large cities that shrink to become medium-sized cities. There will be a great deal to be learned from the solutions that Detroit comes up with.

Wednesday, May 23, 2012

Is It the Personal Computers or the Corporations?

Supposedly, a stabilizing economy in 2010 and 2011 would lead to a burst of corporate purchases of personal computers. Eventually, the computer makers said, corporations would have to replace desktop systems that in many cases date from 2006 and earlier.

Well, don’t hold your breath. The rebound never hit, and both HP and Dell, the two main suppliers of computers to large U.S. corporations, have had bad news to report this week. Dell’s earnings were down one third from last year. The earnings report was nearly as bad at HP, and though it recorded a slight increase in personal computer sales, that is in comparison to last year when HP was talking about getting out of that business.

Since then HP has reorganized its computer business twice. Tonight it confirmed reports of staff reductions of 27,000, or 1 in 13 workers. About an eighth of those will have to be layoffs, as that is too many workers to lose through attrition and early retirement in a one-year period.

So is this the death of the PC or just the whole corporate sector running scared when it comes to spending on equipment? Or could it be that PCs haven’t improved since 2005, so that there are no credible upgrades for a computer maker to sell?

It is important to note that the use of desktop computers is at an all-time high. Corporations continue to purchase new desktop computers, just not as many. And, they continue to use desktop computers made in 2004 and 2005 and are doing just fine with that strategy. How much computing capacity does it take to read and write email messages anyway?

Even after considering the rational explanations, the dearth of corporate investment in new computers is a sign that cubicle land is in less than vibrant financial health. The mass layoffs at HP may serve as a reminder that more corporate layoffs are on the way, even as the broader U.S. economy picks up steam going forward. It is not the twilight of the corporation any more than it is the death of the PC. But both are inching ever farther away from the center of economic life.

Tuesday, May 22, 2012

When Large Organizations Go Crazy

The American public seems to be losing patience with large organizations that abandon their principles or do crazy things. Two current examples:

  • The national organization behind Race for the Cure decided in January to restrict cancer screening, pulling it out of many towns in a weird sort of political statement. There was a vast public outcry and the organization was forced to backtrack, but it had already shredded its reputation (and lost several board members). Participation in the Philadelphia Race for the Cure had been reliably huge for more than 15 years, but when it was held this month, attendance was so bad that race organizers were pleading for people who could not attend to register anyway. This only reinforced an air of desperation surrounding the event that suggests its future may be in doubt.
  • The Heartland Institute has always presented itself as being skeptical of science, but it went too far when it paid for a billboard that implied in no uncertain terms that science is the moral equivalent of murder. The billboard was covered over after one day, but its message was so obviously wrong that employees and board members resigned, sponsors demanded their names removed, and this week’s conference, which was supposed to be its big event of the year, had most of its program canceled and is having attendance literally in the tens.

In years past, it seems to me, we would have given these two organizations and others like them several years, or longer, to work their problems out. Now, an organization that does something big that comes across as petty and sneaky or that simply goes crazy has just a matter of days for damage control. Organizations that wait too long or respond too aggressively are toast.

Perhaps it is better this way. Why hold on to an organization that has crossed the line and doesn’t seem to have a clue about what it did wrong? In the case of the Heartland Institute, who would really want to be seen at all in connection with an organization that associates itself so prominently with a mass murderer?

People are being more decisive in these matters partly because affiliated institutions are being more decisive, pulling back when controversy strikes to protect their own reputations. When a national organization loses several board members and long-term sponsors at once, it no longer seems like a wild guess that it has lost its way. But part of the change, I am sure, is just the time pressure that almost everyone feels. The 15,000 people who stayed home from the Race for the Cure last week didn’t just avoid the ugly political connotations of the event. They also saved themselves a seven-hour ordeal on a Sunday morning. That’s seven hours to put toward something else that matters. An organization that’s asking members of the public to give up half a day, or three days, has to hold itself to a higher standard. These days, it doesn’t take much for people to discover that they have something else to do.

Monday, May 21, 2012

Buying Facebook at the Top

The idea of a stock offering is that investors can provide the money a business needs to get started (or perhaps to get started on something new, like a new factory). The investors, in turn, own shares of stock with the possibility of being rewarded, particularly if the company and its stock goes up in value.

The Facebook IPO (initial public offering of stock) turns all that on its head. This IPO comes not at the start of the business, but long after, after the peak of its public relevance has already passed and not long before its peak in revenue.

Buying in at the top, stockholders stand little chance of gaining any reward. Quite possibly, the opening day of trading will stand forever as the peak of the company’s stock market value. At its peak the stock traded for nearly 100 times earnings, which simply means that if the company is able to continue its current pattern of operations, it could eventually earn enough to pay back its stockholders, but that would take 100 years to do.

Try to picture Facebook 100 years from now, in 2112. It is a ludicrous suggestion, particularly when you look at the trajectories of prior companies that succeeded in similar ways, most notably MySpace, but also AOL and CompuServe. Given that historical context, it is hard enough to picture Facebook ten years from now, in 2022. Realistically, Facebook faces a short window of opportunity, and its total future earnings will be a small fraction of its current stock market value.

And so this is essentially it. Last week’s IPO accounts for most of the money Facebook stands to get in its entire history. In financial terms, its stockholders are essentially donors, putting money into the hat to thank the company (and those who provided its previous financing) for a job well done. There is fundamentally nothing wrong with that, but for such a transaction to pass as an IPO shows that several things have gone very wrong along the way.

Sunday, May 20, 2012

Institutional Authenticity in Egypt’s Election

Observers seem to agree that Egypt’s upcoming election has an air of authenticity about it. Few would dare to predict the winner, but it seems safe to say that there will be a real election. It is a sign of the value of institutional authenticity, something American political observers in recent years have often overlooked.

The interim government in Egypt seems determined to have, above all else, a procedurally correct election. That, in turn, encourages participation, giving voters some reason to hope that their vote will count for something. It boosts the reputation of democracy in Egypt.

In the United States there has not been a procedurally correct presidential election in ages. It will not happen this year either, with effectively anonymous international business corporations dominating the political spending. This kind of compromised institutional presence discredits the electoral process and discourages participation, with the likely result that the winning candidate will be selected by the votes of only one fifth of the people in the country. U.S. voter participation will remain low until something changes to give people the hope of participating in a very real and present democratic process.

Saturday, May 19, 2012

She Works Hard for the Money

Maybe once a year there is a song that becomes an important moment in economic culture. One such song was the 1983 Donna Summer single “She Works Hard for the Money.”

Before 1983 people had conflicted feelings about women’s careers. When women worked, it was seen as transitional or regrettable in some way, perhaps the result of poverty or other misfortune. As hard as it may be to believe now, there was a raging religious debate about whether women should work at all. “She Works Hard For The Money” changed all that.

The song depicted a woman who got up at 5 a.m. to go to work, but there was no second-guessing her work. It was the same work for decades, and she worked not merely to support herself, but because her family and the world were counting on her. It was a story of sweat and sacrifice, but ultimately of perseverance and success. The song told women, most of whom had to work regardless, that if they worked hard they would win the respect of their clients and their families. The sweaty exuberance of the music drove that point home.

After this song, it came more easily to most people to see women and their jobs as a proud part of the bedrock of the economy. The argument against women holding jobs might continue among religious theorists, but as far as the broader public is concerned, it is a question that was put to rest in 1983.

We lost Donna Summer this week, but she will not be forgotten.

Friday, May 18, 2012

This Week in Bank Failures

Politicians usually won’t talk about bank runs, but there is no obscuring this week’s bank run in Greece. President Karolos Papoulias had to say something about the banks, and described the mood of depositors as “great fear that could develop into panic.” And it is not just Greece that is affected. Depositors, especially businesses, have been drawing down their accounts in Belgium, France, Spain, and Italy also this week. Despite public worries about a panic, this slow-motion bank run will almost surely be self-limiting, as business managers feel calmer with smaller balances at risk. The movement of deposits is so slow partly because the more nervous depositors have long since moved their less active deposits to the United Kingdom, Scandinavia, Switzerland, and (ironically) Iceland, along with other countries seen as financially safer. The main risk to the banks comes from the possibility of unexpected, alarming news from Athens or other European capitals that causes depositor opinions to change quickly.

A week after trying to obscure the scale of banks’ losses by exempting most loans from reporting requirements, Spain has appointed an independent authority to estimate the value of banks’ loan portfolios.

JPMorgan CEO Jamie Dimon has agreed to testify before Congress in the middle of June. Members of the Senate Banking Committee will surely ask questions about how the bank lost billions of dollars in a badly structured hedging strategy. Estimates of the bank’s losses from that trading strategy have risen to $3 billion. The original estimate, a week ago, was $2 billion. The losses, large as they are, are still not enough to negate JPMorgan’s expected trading profit during the current quarter. Observers in derivatives markets say someone, apparently JPMorgan, was issuing excessive volumes of some derivatives. The volumes were far greater than the market would support, so the bank was effectively selling the derivatives at a 20 to 30 percent loss. In derivatives trading, it is not surprising to see someone create a derivative and sell it at a loss, but what traders do not understand is why anyone would continue to do so in large volume for an extended period, as JPMorgan apparently did between last year and last week. This would explain why JPMorgan cannot fix the size of its losses, as it would have to wait for the derivatives to run off. The bank itself has not commented on any of this speculation.

Bank failures resumed tonight after a week off. The OCC closed Alabama Trust Bank, a small-town bank in Sylacauga, Alabama. Southern States Bank is taking over the deposits and purchasing the assets.

Wisconsin regulators closed Wausau Postal Employees Credit Union, which had 845 members. Member share accounts were transferred to CoVantage Credit Union.

Thursday, May 17, 2012

A Local Currency in Greece

Sometime in the last 48 hours, the consensus of observers about the course of events in Greece changed. Maybe it was the political fumbling in Athens that changed people’s minds, or the Spiegel cover story that “screamed” (the headline was that shocking when people first saw it) “Time to Admit Defeat: Greece Can No Longer Delay Euro Zone Exit.” Whatever the cause, the consensus now is that Greece must withdraw from the euro quickly.

The withdrawal of Greece from the euro, if it happens, will cost the euro zone a fortune, and economists are scrambling to estimate the impact. The United Kingdom, which you might think would be out of harm’s way, is already making policy changes to mitigate the impact there. Early estimates of the disruptive impact across Europe range between 1 and 4 weeks of GDP, or perhaps $1 trillion.

It is a high price to pay when you consider how little Greece actually needs to work its way forward. All it needs to avoid a depression is enough money to pay its workers. Yet it clearly cannot get any more euros. To create money it will need another currency, presumably a new drachma.

The most disruptive thing about this in Greece will come from the legislative steps to ensure that the new drachma is accepted. Retailers will have to set prices in drachmas and salaries and pensions will have to be accounted and paid in drachmas. It will not seem like a high price to pay when set against the alternative of sustained depression-level unemployment. But of course, the ripples from Greece’s actions will have a broader impact, and Greece’s gain will be Europe’s loss.

Another solution, in theory if not in practice, would be if the whole euro zone were to issue more money in euros. This would be money the European Union and euro countries could use to meet their wage and pension obligations for several weeks. It would go a long way toward solving the crisis across the euro zone and would benefit most of the countries, while doing no particular harm in the countries where the extra money is not urgently needed. Alas, democracy and common sense are not the EU’s strengths, so nothing of the kind will happen.

It is an artificial and unfamiliar situation in Greece that the same currency used for the everyday local necessities of life, housing, transportation, food, and water, could be depleted by imports and financial payments sent outside the country. The local money shortage is exacerbated now by a run on the banks as Greeks and others withdraw money from the banks in Greece and place some of it in banks in other countries. If the international currency is too tightly controlled to be a solution to this problem, then the obvious next step is a local currency in some form. It is better if the local currency is issued by the government than if it forms informally on the black market, but it will come about inevitably, one way or another. That is the crossroads that Greece has come to.

Wednesday, May 16, 2012

Corporate Disasters and the Information Disincentive

Imagine a hypothetical corporate executive in charge of something that goes terribly wrong. I don’t mean JPMorgan CEO Jamie Dimon, who squeaked past a sort of confidence vote days after disclosing a trading loss of $2 billion or more, but a hypothetical executive in a vaguely similar situation. What are an executive’s incentives when everything goes wrong?

An executive wants to do the same thing as anyone else on a salary: to keep his job. This is especially true of top CEOs, who may earn as much in a day as some workers make in a year. If their strategy has turned into a disaster and they know they will be fired, their key objective is to delay the inevitable in order to keep drawing a salary for a few more days.

Imagine that you were being paid $10,000 a day and had just made a mistake that put the future of your company in doubt, but no one understood what had happened yet. You might even draft a letter of resignation, but how could you ever send it, knowing that you could collect another $10,000 by putting off that action until tomorrow?

This also means that executives in a crisis situation have a stronger incentive to contain problems than to solve them. For the CEO, it is especially important to keep the facts of the situation hidden from the board of directors. For other executives, it may be just as important to keep the CEO from finding out all the details of what is going on. For ordinary employees in possession of information that might indicate bankruptcy for the corporation, there is a similar incentive to keep that information under wraps just long enough to dust off the resume and get a new job.

The same salary that creates the incentive to work also creates a disincentive to disclose disasters. As a result, when financial disaster strikes a corporation, especially if it was preceded by an executive or any employee making any kind of decision, it is almost impossible to determine what actually happened. No one wants to get caught fabricating information, of course, but when something has gone terribly wrong, there is a strong incentive to shade, obfuscate, and delay, and in the already confusing environment of the corporation, that is usually all it takes.

Tuesday, May 15, 2012

The Weight of the Nation on HBO

The HBO obesity documentary The Weight of the Nation has inspired a vigorous discussion of issues surrounding economics and obesity. My earlier post warned about cultural conflicts based on body fat levels, but that is hardly the most urgent issue. Many people have had something to say.

Robyn O’Brien writes in Inspired Bites that childhood obesity could be the root cause of most allergies.

Fooducate says that character is not the issue. People are as responsible as we ever were. The real problem is that the economy is obesogenic — it is designed to make most people obese.

Susan Blumenthal, a medical doctor and Huffington Post’s public health editor, offers a more optimistic assessment of the situation. Yes, the obesity problem is getting worse and the personal and public costs are enormous, but at the same time, we know more than ever about what we can do to solve the problem. The key to success, she says, is making healthy food and exercise more accessible to people.

I won’t link to any of the practicing medical professionals who commented because they all seem to say the same thing: Weight loss is far more complicated than HBO made it out to be. You shouldn’t expect to make any progress on your own, but hire a team of medical specialists, and you might have a chance.

And if that point of view seems self-serving, much of the conversation surrounding The Weight of the Nation has been less responsible than that. An alarming number of “advocates” (though who knows how many of them are secretly on big pharma payrolls) are essentially encouraging people to be fat. They argue that obesity should be regarded as a normal condition and not as a illness, which is basically like saying that illness should not be regarded as an illness. There actually is a point behind that reasoning, but in the end it is self-defeating. There has to be a way of approaching obesity that creates the possibility of action. No one really wants to die young, fat, and happy, even if such a thing were possible.

Most alarmingly, many writers, even at mainstream media outlets with strong reputations, have used the occasion as an excuse to promote unscientific and dangerous fad diet systems.

The best answer to those who would try to profit from obesity is found at The Full Yield Blog. Commercial culture is the cause of obesity and a host of related personal problems, and self-determination is the only solution we have.

Unfortunately, behind the veneer of the idealistic blog, The Full Yield is actually part of the big commercial weight loss system that hopes to profit from your obesity for as long as possible. It is a complicated world indeed for anyone seeking commercial solutions to personal problems.

The whole Weight of the Nation movie can be seen online. One place to see it is at the HBO Documentary Films channel on YouTube:

Another is at the documentary’s own web site:

The Fat Gap

HBO’s four-part obesity documentary Weight of the Nation started last night and continues tonight, and unlike some of the other four-part original movies seen on HBO, no one should expect a happy ending. From what I can gather from today’s chatter surround the documentary, its purpose is to paint the gloomiest possible picture of the obesity trend in the United States, employing a one-sided mountain of scientific evidence to show that the obesity problem will just get worse for the foreseeable future no matter what anyone does.

Perhaps I exaggerate. But the obesity trend is so large and so damaging that it is not so easy to find hope in the countertrend. Yet I can personally vouch for the existence of the fitness trend. I saw it firsthand two days ago as I ran the Delaware Marathon. Distance runners are not known for being overweight, yet it is still easy to see an improvement in the fitness of marathon participants year after year. And this trend is not the result of attrition. Individual runners are thinner, in many cases, than a few years ago, and the number of marathon participants increases year after year.

And there is more. The degree of participation is increasing, with more runners talking about running multiple marathons, sometimes on consecutive weekends. At the same time, there was less talk of injuries than ever, an unexpected trend in an event that is meant to be grueling.

Of course, it is not just the marathon runners. I know plenty of people who used to be overweight, but who turned the corner somehow and have been losing weight steadily for years. Sometimes the weight loss is just two or three percent per year, but after ten years of that and a 20 percent decline in body weight, you have to call it a long-term trend. Quite apart from the question of body fat, walking has become a trend in popular culture this spring, with people realizing that walking is easy to do, feels good, and costs nothing.

All in all, nearly a third of the country is losing weight or getting in better physical shape. But that trend is not so easy to spot when well over half the country is gaining weight.

The CDC made headlines last week by predicting that 42 percent of Americans could be obese by 2030. It is a gruesome picture to consider, but the prediction is not so audacious when you look at the current obesity rate. The numbers aren’t in yet for 2012 but the best guess is 35 percent. There aren’t that many percents between 35 and 42.

I know I was hoping the recession would give overweight people the combination of spare time and tight money that often leads to successful belt-tightening. That did indeed happen, but unfortunately, that trend didn’t reach much of the public.

Both the obesity trend and the fitness trend seem to have plenty of momentum. If both trends continue, though, a real split could form in the American population.

America could become a nation of the “fats” and “fat-nots,” with the moderately overweight people in between feeling like “Weird Al” Yankovic at the beginning of the “Fat” video when his obese friend waves a finger at him and demands, “The question is, are you fat, or what?”

If the country breaks down into two camps, one sized S-M-L and the other 3–6(XL), each with its own TV news programs and its own expectations of food, clothing, health, and accommodations, the political dynamic won’t be pretty. The “Fat Gap” could be just as big a deal in the politics of 2025 as the “Generation Gap” was in 1970.

The cultural issues debated across the Generation Gap do not seem so consequential now: hair length, plaid vs. tie-dye, white bread vs. whole wheat. The arguments lasted so long only because there was no common cultural reference point that could help form a consensus. In the same way, the Fat Gap could complicate discussions of food labeling, ergonomics, health policy, and other issues related to body fat. When one group’s “common sense” is another group’s “unfair burden,” it is always a difficult bridge to cross.

Monday, May 14, 2012

Argentina’s Trade War

No one would seriously expect Argentina to win a trade war with the rest of the world. Yet that is where things seem to be headed, with Argentina registering a complaint against Spain even as the EU is preparing legal action against Argentina. At the same time, Brazil is reinstating a licensing requirement for importers of potatoes, flour, and similar items from Argentina, a requirement that has been waived for many years. The tougher rules in Brazil are described as a retaliation for new trade restrictions imposed by Argentina in recent months. Argentina now requires a government permit for virtually every import transaction, and the permits are said to be available only to people who are well-connected.

Of all the countries on the Atlantic Ocean, Argentina might well be the least prepared to go it alone economically, and that is why its new trade war makes so little sense. It is a sign, perhaps, of a government with a fantasy view of the world. That style of wishful thinking usually takes hold only when a country’s economic expectations have run ahead of its resources and capabilities. Historically, Argentina has not done well when it has sought to isolate itself from the world, and there is nothing to suggest that the current episode will end well either.

Sunday, May 13, 2012

The Bozo Filter

In The Dilbert Future, a book released 15 years ago, Scott Adams seems particularly prescient when he predicts the future of communications. He predicts “The Bozo Filter,” an idea borrowed from Guy Kawasaki, explaining,

I don’t want new ways to communicate, I want new ways to stop the people who are trying to communicate with me.

He goes on to describe what might be done in a mechanical sense to separate legitimate messages from abusive ones.

Since then, of course, message blocking in its various forms has become an essential technology and a regular part of everyday life. It has become so easy to send supposedly personal messages to complete strangers that we have no choice but to seek out ways to avoid them.

Saturday, May 12, 2012

DVD and Blu-Ray Are Dead

DVD and Blu-Ray are dead as media for delivering movies to U.S. consumers.

I say this after reading about new government warnings that will appear on major new movie releases starting now. Nate Anderson writes at Ars Technica,

The US government yesterday rolled out not one but two copyright notices, one to "warn" and one to "educate." Six major movie studios will begin using the new notices this week. . . .

The idea isn't to deter current pirates, apparently (the new scheme requires all legal purchasers to sit through 20 seconds of warnings each time they pop in a film, but will be totally absent from pirated downloads and bootlegs). It's to educate everyone else.

From an intellectual property rights owner’s point of view (and yes, most of my own income depends on intellectual property rights), this new initiative is frighteningly similar to the series of events that killed off music CDs.

That all started with the Shakira Laundry Service CD, which a few months after its release was remastered to include “secret” computer software. The software prevented the CD from playing in many DVD players and car stereos and restricted its use on computers. The software also damaged many computers’ operating systems to the point of rendering the computers unusable. Record labels went on to give hundreds of popular new CD releases the same treatment.

No one would want to play music from a music CD that was designed to cause problems. The obvious workaround was to copy the music from the CD to a clean CD, taking the necessary precautions to protect the computer you used to make the copy. Once people started doing that, though, there were shortcuts. It was easier to obtain the tracks from someone who had already gone to the trouble of copying them from the CD. And then, it didn’t seem quite right to purchase the official CD that you couldn’t actually use. Anyway, it was sometimes easier to skip the CD and CD player entirely when you were playing music. After people got to that point, it was no surprise to see 90 percent of the record stores close over the next 18 months.

I think a new 20-second delay built into movie media just might be enough of a push to lead people down this same path for movies. A 20-second wait is not an insignificant price when compared to the entire price of purchasing a movie. It is more than long enough, and a series of sternly worded law enforcement messages crossing your screen is more than irritating enough, to be an embarrassment for the host of any movie viewing involving two or more people. Telling people that the delay is “unskippable” is just daring them to find a way to skip it. And the easiest way, I am afraid, will be to copy the movie files from the DVD to a clean DVD that doesn’t incorporate the delay. Most people don’t have the hardware to copy files from a Blu-ray, but they can get around that by purchasing the DVD edition or by purchasing a computer Blu-ray drive.

And then, once people learn how easy it is to take apart and put together the files of a DVD, they will be doing it all the time. They will quickly discover the same shortcuts they found with music CDs. And if the movie studios wait till they see this happening, that movie fans are bypassing the government warnings by bypassing the DVD player altogether, it will be too late to turn back the clock. You can’t force or entice people to start using their DVD players again, any more than you can get people to dust off their VCRs (video cassette recorders, which were immensely popular devices for playing movies until 2001).

The irony is the same as before. By asserting too much control in the effort to protect copyrights in physical media, publishers are pushing people away from physical media products, toward other media that is more easily controlled by the user, and where there are few if any protections against copyright violations. In my opinion, copyright protections are necessary, but repeating the same mistakes that the music industry made in this area will not help the movie industry avoid the same fate.

Friday, May 11, 2012

This Week in Bank Failures

Admitting only “egregious mistakes,” JPMorgan last night disclosed a $2 billion loss from high-risk trading. The actual size of the loss is unknown, but $2 billion is a careful estimate. Banks typically take on trading risks in difficult times to try to make up for deficits in other parts of the balance sheet. JPMorgan has made a fortune in presumably high-risk trading over the last few years, so yesterday’s $2 billion dollar loss is probably not actually a mistake, but just the inevitable downside of an ongoing pattern of risk-taking. When the stock market turns downward, as it must eventually, all of the very large banks and insurance companies will have losses to report.

People were already trying to revive the idea of shrinking the too-big-to-fail banks before the JPMorgan news came out. It gains extra impetus from the worry that JPMorgan or another bank might trade away its remaining capital the way AIG did in 2006. A measure that would have restricted the size of banks was shouted down in the Senate two years ago, but new measures being considered in Congress appear to target only the four or five largest banks. Some are talking of actually breaking up the banks, by creating an auction-style mechanism for dividing up the assets among several new companies. There is also talk about setting a fixed limit on how much a bank can borrow — if a bank exceeded that limit, its management would be removed and it would be placed in conservatorship until its debts were brought under control.

Bank of America acknowledged this week that it is looking at ways of putting mortgage subsidiary Countrywide Financial into bankruptcy. The statement comes in the same week as reports of a bankruptcy at the mortgage unit of Ally Financial (GMAC), though that filing never did occur. In either case, the bankruptcy of a subsidiary has to be approached warily. In theory, a corporate subsidiary can go bankrupt without doing any further financial harm to the parent company — that is the essential intention of the corporate form of a business — but much depends on the details of contracts and the way they are handled in bankruptcy.

Deutsche Bank will pay $200 million to settle charges resulting from sloppy handling of mortgages at its mortgage subsidiary MortgageIT. In order to resell mortgages, the bank routinely told the FHA that borrowers had the financial ability to repay mortgage loans. Yet it may have known that this statement was often not true, as it was especially eager to resell mortgages whose borrowers were in financial distress. The government has lost $400 million so far on those loans.

Bank of America’s revelation about a possible Countrywide Financial bankruptcy came at the Bank of America annual meeting. The bank and city officials were worried about protestors showing up at the meeting, but the predicted throngs never materialized. Instead, there were fewer than 1,000 relatively quiet picketers outside. Bank of America did not close its annual meeting as Wells Fargo had done two weeks ago, but amid the chaos of the extra security, some 100 shareholders, a group that included bank employees and institutional shareholders, were unable to gain access to the meeting.

Bankia, formed in 2010 from the seven Spanish regional savings banks hit hardest by the real estate decline, is looking more and more like a “bad bank.” Its executive chairman resigned on Monday. On Wednesday, Spain decided to take control of the bank by converting its bailout bonds into stock. Bankia has the largest real estate loan portfolio, not a happy market position in a country seeing a California-like decline in real estate values. Bankia raised capital in the stock market last year, but the stock has lost most of its value in less than a year, and further stock sales are probably impossible.

Today Spain announced a tepid series of financial measures, smoke and mirrors the government claims will protect banks from their bad assets. Spain’s optimistic tone about its train wreck of a banking system is beginning to remind economists of what happened in Ireland, where political leaders refused to recognize the scale of the problems in the banks until a series of bailouts and guarantees had brought the government to the point of financial collapse. In Spain, regulators this week announced new loan loss provision requirements, but for only a small fraction of real estate portfolios. It is easy to imagine why: if the full problems were put on the books, the country as a whole would be insolvent. Unlike Ireland, Spain is too large, too isolated, and too idle to rescue. Spain is hampered mainly by a slow economy, one that anywhere else would be considered a depression. Only half of workers are fully employed and one fourth, in any given week, are not employed at all, yet the public has so far resisted reforms that would expand employment.

A banking crisis in Spain could have troubling implications for the Americas and the westernmost countries in Europe, where many of the giant banks are Spanish-owned. Or, the overseas operations could stave off a collapse. Santander in particular continues to earn a respectable profit in U.S. and Latin American even as its domestic operations hope to break even.

Thursday, May 10, 2012

The Computer That Ate the Universe

Random number generators are not the easiest technology to explain, and recently I was in the position of trying to explain a particular random number generator. It led me to some curious thoughts about cosmology and computing. Those are two topics that seem like they don’t go together, I admit, but bear with me for a minute and I promise I will draw meaningful comparisons between the two.

The paradox of random number generators is that they are, at heart, machines, which means their actions are not random at all. They generate numbers that appear to be random just by providing every number they can think of in a sequence that gives the appearance of being random. This sequence of numbers is called a random number stream, and given the nature of machines, it is finite, which means, eventually, it repeats. The length of a random number stream before it starts over is called the period of the random number generator.

It used to be that most random number generators had a period no greater than 232, 2 to the 32nd power, or 4,294,967,296. That was a concession to the 32-bit integers that were the largest integer values readily available to programmers. But while 4,294,967,296 is a very large number, it is hardly an unimaginably large number. It is smaller, for example, than the number of people on Earth. It is also, and this is an important point, roughly equal to the operating frequency of a computer. The computer I am writing on now, for example, operates at a frequency of 3 GHz, or 3,000,000,000 time slices per second. Put a traditional random number generator on a computer like this, and a program could loop through the entire random number stream every few seconds. It is a thought that makes statisticians uncomfortable.

There is no such problem with the current-generation random number generator I was looking at. It has a period of 219,937, 2 to the 19,937th power, or a number so large it cannot comfortably be written. So after every 219,937 random numbers, the random number generator starts to repeat itself. Well, in theory, it does. In practice, that is impossible. No computer program could ever run that long.

I am not sticking my neck out when I say that. The age of the universe, as it turns out, is a much smaller number. It is estimated at 2114, 2 to the 114th power, a very large number, but tiny in comparison to the capacity of the random number generator.

When I say that the age of the universe is the number 2114, I am attempting to measure according the Planck scale. The Planck scale, in physics, is the scale of the smallest places and smallest units of time in which space, time, energy, and mass have any understandable meaning. It is also the smallest scale of any single physical action. The Planck scale creates a limit on any sequence of action. If you could push the pace of action to its physical limit, you could still only have 2114 actions in sequence from the origin of the universe to the present. For various physical reasons, such as temperature, the pace of any controllable sequence of actions is much slower than this. Still, the Planck scale provides a useful point of reference as the outer limit of physical action.

I am not saying that it would take a billion universes to generate all the available random numbers. The number in question is much, much larger than a billion. It would take more universes than you can imagine to provide enough time to generate the entire sequence of 219,937 random numbers.

It is a peculiar way of looking at something as commonplace as an ordinary computer, but it is absolutely true: the potential action of an ordinary computer is on a scale larger than that of the entire universe. That is, if you could somehow provide your computer with all the time and energy in the entire universe, it still could not get through everything it is digitally designed to do.

The age of the universe is one thing, but we are closer to the practical limits of digital data than that. We are, I dare say, bumping into it already.

Computers operate on a certain number of bits, or binary digits, at one time. This grouping of information is called a word. Current high-end computers have a 64-bit architecture and are operating on 64-bit words.

A 64-bit word is not all that big. It is literally the size of an 8-letter word. It is not even that hard to imagine all the 64-bit words that are possible. The easiest way to do this is to think in terms of hexadecimal digits. These are the familiar digits 0 through 9, plus the letters A through F. All the possible 64-bit words can be written as sequences of 16 hexadecimal digits. For example, 0123456789ABCDEF represents one of the possible 64-bit words; AAAA1111BBBB2222 is another. It is not hard to imagine the possible combinations of 16 hexadecimal digits.

It is easy to imagine, yet you could never write them all out. The number of possible 16-hexadecimal-digit values, which is the same as the number of distinct 64-bit words in computing, is 264, 2 to the 64th power. By comparison, the number of seconds in a year is 225, 2 to the 25th power. A theoretical person writing numbers for a year, or a trillion years for that matter, would not begin to approach the complete set of 64-bit words.

Computers take actions faster than people do. A person can do perhaps one distinct action in a second. A computer can do perhaps one distinct action (in sequence) in a nanosecond. But a year is about 255, 2 to the 55th power, nanoseconds, still far short of the number of distinct 64-bit word values. In its useful lifetime, even with theoretically ideal programming, a computer still could not generate all the possible 64-bit words.

In practice, most of the 64-bit words don’t occur in computing, even though they could. There simply isn’t time to use them all.

And I haven’t even mentioned that the average computer spends 99.9 percent of its processing time waiting. That means it is generating the no-operation instruction, which is just a single 64-bit value if it is a 64-bit computer, over and over again. On top of that, most computers are actually powered off most of the time. In practice, by random chance, I could believe a computer might run through something like 240, 2 to the 40th power or about a trillion, different 64-bit word values over the course of a year.

And the rest of the digital values? You could almost think of them as “vanity” values, included in the design of the computer processor in case they might occur, even though they don’t actually occur.

If 64-bit computing is already this far down the road to digital vanity, I have to imagine that 128-bit computing, though serious computer scientists are seriously working on it, has to be some kind of cosmic mistake. The number of possible values of a 128-bit word is 2128, 2 to the 128th power. But remember the age of the universe? It is a smaller number, 2114. If a theoretically ideal computer ran for the entire life of universe up to the present, it still could not possibly use more than a tiny fraction of the theoretically available 128-bit words.

A 64-bit processor is already comparable to the informational capacity of the physical universe. So how much could really be gained by expanding to a 128-bit processor?

The digital width of computer processors has doubled three times, from 8 bits to 16 to 32 to 64. But after comparing the theoretical digital capacity of a 64-bit processor to the informational capacity of the physical universe as a whole, I can’t believe that the move to 128-bit processing is the next step. Rather, it seems to me that it will only take some heady work by information theorists and engineers to compress 64-bit processing back into a 32-bit channel without giving up too much speed along the way. An ordinary MP3 file compresses digital music by a ratio of 7 to 1, so how hard could it be to compress the 40 bits of information we actually use in a 64-bit processor to fit into a 32-bit processor?

Wednesday, May 9, 2012

Defying Expectations at Yahoo

In all the theories and textbooks on corporate governance, my guess is that no one anticipated the current situation at Yahoo, where there is a war going on between the board of directors and a dissident shareholder essentially over who could dismantle the company faster.

It is hard to argue that things are going well at Yahoo. The previous strategy of shutting down three fourths of the company was successful in cutting costs, but with the unfortunate side effect of depriving the company of its image. No one knows what Yahoo stands for anymore. It does not help that a web site makeover so brazenly copied the style of the AOL web site. I now find myself frequently confusing Yahoo with AOL, something I never would have done in the past. It’s fair enough that shareholders would be scratching their heads. I mean, if you have the choice of every web site in the world to copy, why AOL? Just because you think they won’t be needing their design much longer? Yet it is the disappearance of so much of the company that really has users confused. As a Yahoo user, it is almost as if you don’t want to get comfortable with any of Yahoo’s services, because as soon as you come to rely on something at Yahoo, the company will shut that page down too.

And yet the only answer the dissident shareholder seems to have is to shut down the company faster. Fire more people, shut down more services, replace all the executives, basically just an acceleration of the strategy that brought about the current crisis at Yahoo.

It is a spectacle that an economist is hard pressed to explain. In theory, a shareholder’s ownership stake in a company should create an incentive to see the company succeed. Yet somehow, instead, we see a shareholder undertaking a series of actions that look like they are intended to drive a floundering company into the ground faster.

If this is startling from an economic point of view, it is not so strange when looked at through the lens of game theory. Game theory describes the actions of competitors as they try to anticipate each other’s actions, and as you can imagine, this can get very complicated very quickly. In game theory, it is not strange at all to see a person taking on a strategy that proceeds in exactly the opposite direction of the person’s own interests. A player can be tricked into this by other players. He can be trying to mislead everyone about his true intentions. Or he may just be so confused by the complexity of the situation that he loses track of what he was originally trying to do. It is that last scenario that seems to come closest to fitting many of the players in the Yahoo story at this point.

Tuesday, May 8, 2012

Energy Projects, All in a Day’s Work

Sustainable energy projects are becoming routine, as indicated by the low news value of two stories that have come across this week.

In Wales, government regulators green-lighted an inland wind farm, said to be the largest of its kind to date. Yesterday, a 50-megawatt solar power plant went online in southern Nevada.

Projects like these are too small to draw the public’s attention, but to make up for their small scale, they are coming along at a faster pace than we have ever seen. The number of major electric generating stations could triple in the next ten years, resulting in a more stable and less fragile electric infrastructure.

Monday, May 7, 2012

DV Tape vs. Flash Memory

I spent much of the weekend recording a new song and a music video to go with it. You can’t really record a song or make a video in one weekend; this was a quick rendition of a new song (“This Is the Moment”) for the purposes of a contest.

As I recorded the video, it struck me how archaic video tape is. I was working mainly with a DV camcorder that I bought new around 1999. The DV format uses about 26 megabits per second, so a one-hour DV (or “mini DV”) tape holds about 12 gigabytes of data, and for my quick music video, I recorded only about 5 gigabytes of video. Meanwhile, this year, a DV tape does not cost much less than a standard 32-gigabyte flash drive.

In consumer electronics stores DV was replaced by flash memory five years ago. You can still buy a DV camcorder, but it is hard to understand why anyone would. Consumers mostly do not need the mass storage capacity of a DV tape. They can record 10 or 20 minutes of video and transfer it to another device. And by now, even if you are recording hour after hour of video on location, you would feel more comfortable holding it in your hand on flash drives than in a few boxes of tapes.

DV is essentially the last video tape format. Sharper than VHS and smaller than virtually any earlier video format, it made sense as a medium for remote video capture. Pro video tape formats were already disappearing around the time DV was introduced, as hard-disk video proved to be so much easier to edit and archive.

Resolution is ultimately the problem with DV. Its 640-by-480 resolution quickly became a standard. A decade ago it was a little better than most of the video you would see on television. The resolution was adopted by the iPod and YouTube for a few years, and for the most part, when people refer to “standard definition” video they are talking about 640 by 480 and not the lower standards of older broadcast television. But the standards of television production and cable systems have moved upward in the last ten years, and even YouTube now encourages sharper video formats. My music video shot in DV is detectably grainy by today’s standards. (The false color and simulated overexposure in my video are production effects added in editing that aren’t related to the data limitations of DV, but the graininess of the picture is essentially the same as originally recorded by the camera.)

Not that anyone is complaining. I may as well continue to work in DV tape until I really need the advantages of high-definition video. The purpose of a music video is to hold people’s attention while they listen to the song. It is still possible to do that with a standard definition video.

Friday, May 4, 2012

This Week in Bank Failures

Politicians and pundits in London are seriously considering the question of whether the banking crisis was caused by the banks or by consumer borrowers. According to the logic of those who point the finger at consumers, if consumers had paid back all their loans, the banks would not have had the financial distress that led to the current crisis.

This assumption, I would hasten to point out, is not actually true. As one cabinet minister pointed out, the banks have to lend to somebody. If borrowers paid back all their loans, the banks would suddenly have virtually no interest income, and that would represent a far worse crisis than the banks are in now. Banks, as they normally operate, need borrowers to pay back loans, but not too quickly. It is an awkward position to be in even in the best of times.

And it points to a deeper question behind the current debate, and that is the issue of whether the current banking system is sustainable. If it is true that banks have to make loans at all times, whether creditworthy borrowers are willing to borrow or not, then large-scale loan losses and a subsequent banking crisis would seem to be inevitable whenever the economy’s collective creditworthiness falls below a certain threshold. The collective creditworthiness of the economy will inevitably go up and down, so banking crises can be expected to recur with some regularity. The obvious next question should be, how can the banking system be restructured so that it can fare better when aggregate creditworthiness declines? Part of the answer, I am sure, is that the banking system as a whole must be smaller and must not occupy such a central position in the global economy.

One bank failure was reported tonight. Security Bank, based in North Lauderdale, Florida, had $99 million in deposits and three branch locations. The OCC had issued a prompt corrective action order in March. Banesco USA is taking over over the deposits and purchasing the assets. It says it plans to keep the three branches open.

Thursday, May 3, 2012

A Bumpy Ride in the Job Market

When I last looked at the job market, I noted a tightening in tech jobs, and indeed, there has been a flurry of hiring activity in the past six weeks and especially in the last three days. But this does not mean that everyone who has advanced technical skills is employed now. Far from it. The job market (the tech side of it, anyway) is tighter only because employers are still reflexively refusing to consider long-term unemployed candidates and the overlooked technical graduates of the last 14 years, those who, because of the state of the economy, have not been able to find work in the fields they were trained to enter. At the same time, millions of skilled technical workers are discouraged by the job market and are no longer checking the job openings on a weekly basis.

A tighter job market is just a first step toward a market in balance, and not a very big step at that. There are long-term problems in the job market that will not be worked out easily.

Among them: the hiring freezes of the last seven years have scared students away from many specialized and technical fields, and rightly so. It is absolute folly to borrow money to train for work in a field where virtually every employer requires job applicants to have two years of experience, and the majority are considering only workers who are currently employed. Meanwhile, the drumbeat of “STEM” public service messages encouraging teenagers to go into careers in science, technology, engineering, and mathematics is not helping matters. Imagine the reaction of the student who responds to these messages about the “need” for workers with technical know-how and diligently studies for ten years, finally earning a degree only to look at the job market and find himself unemployable. It does not take many of these stories for the word to get around that “STEM” is a scam.

On the other side are the employers who now expect to interview 20 or more qualified candidates for every job opening. That, of course, is not the way a healthy job market functions. In happier times, by the time you were done interviewing the fifth candidate, you would worry that at least one of the first three had already taken another job. But consider the point of view of hiring officials who over the last decade have come to expect an endless pool of candidates. The hiring officials may have never seen any other kind of job market. It is no surprise if they are already having trouble adjusting. And if they are having trouble now, imagine how they will fare in a supposedly normal job market with unemployment one third of its current levels. If the current generation of managers were to be judged on their ability to hire and retain workers in an actually competitive job market, most would have to be replaced. And if not, then their companies may face an uncomfortably short future, as other companies hire away all of the most skilled workers.

Meanwhile, let’s not forget that the long-term unemployed have not been sitting idle. Some of the business initiatives they have hatched in the last five years will, when they can finally get them funded over the coming decade, turn more than a few industries on their heads. Others have had a chance to study and gain a level of skill in a field that the long-term employed couldn’t possibly keep up with. Put this all together, and the job market is certain to be a bumpy ride for the next decade and longer.

Wednesday, May 2, 2012

The Slow-Moving Target

In April I read The Dilbert Principle, a 1996 book by Dilbert cartoonist Scott Adams that takes a critical look at corporate management practices. The really scary thing about reading this book is not how thoroughly a humorist can skewer the pretensions of the business world, but rather how accurate the critique remains nearly two decades later. The world may have turned upside down, but in the corporate world, not much has changed. Some of the office technology has evolved — for example, three-ring binders are not quite as common now, while cubicles have become ever smaller — but the changes haven’t been enough to change the way corporations function.

If twenty years have gone by and the changes are almost too small to see, that makes the corporate world a very slow-moving target for a potential competitor to hone in on. It can surely be out-maneuvered by anyone or anything. The fact that the corporate world’s share of the total economy has eroded by only a few percent in two decades should not be much consolation to those of us whose interests lie, in part, amid the sea of cubicles. It isn’t natural for anything of importance in the modern world to move this slow. When new faster-moving competition pops up — and it eventually will — the big, old, lumbering corporation won’t stand a chance.

Tuesday, May 1, 2012

Temporary, But Maybe Not

The temporary job market, or at least the part of it that I can easily observe, seems to be tightening up again. One measure of this is that “contract-to-hire” jobs are languishing. “Contract-to-hire” is a low-paying temporary job with the vague promise of a possibility of a permanent job offer after a year or so. It makes sense from the job-seeker’s point of view that these would be the first positions to go vacant. These “temporary, but maybe not” openings appealed to job-seekers who really wanted a permanent job, only because there were no permanent jobs to apply to. With an increase in permanent job postings, workers who want the stability and benefits that go with a permanent job will apply directly for the available permanent jobs.

“Temporary, but maybe not” is also not the right formula for workers who really want a temporary job, and the low pay offered with these jobs makes them unsuitable for those who just want the highest pay they can find.

It also makes sense when you take a broader view of the market that the most non-committal employers, those who can’t make up their minds, would have the toughest time in a tightening market, even as employers who are willing to commit to a business plan still find it easy to hire at will.

It sounds like a problem when businesses create job positions that they don’t fill, and in a way it is, but it is also a favorable sign for the economy. It creates the possibility of a more rapid expansion in employment down the road.

Update, a day later: See a more thorough discussion of the sudden imbalances in hiring from a human resources point of view in the article “Recession Fallout in HR: Why Aren’t Hiring Managers Getting the Message?” by Tim Sackett.