Occam’s Razor

Is mutual interdependence the solution?

That is what I have been asking myself this evening. As often happens, I was getting dishpan hands this evening while listening to the radio. Tonight, C-SPAN Radio was featuring speakers at yesterday’s Republican Straw Poll in Ames, Iowa. I happened to tune into a speech given by candidate and former Arkansas Governor Mike Huckabee. He was winning kudos from the friendly crowd by speaking of the virtues of energy independence. He proposed a plan that within ten years would make our country energy independent. He also warned of an even bigger national security issue: food independence. A nation that cannot grow the crops to sustain itself could be blackmailed, he warned. He warned the crowd that we could not let this happen. He received warm rounds of applause for these points.

I too have made similar points in the past. When discussing illegal immigration, I pointed out the consequences to our nation if much of our agriculture disappeared because we could not find sufficient migrant labor to pick our crops. When discussing global warming, I pointed out that conservation and renewable fuels could help us become energy independent. Once we were energy independent, the consequences of another war in the Middle East would trouble us a lot less.

While I still think that both goals are laudable it occurred to me that there is a downside to all this independence. What we are really saying when we talk about energy or food independence is we want our nation to be completely self-reliant. If we can take care of ourselves, then, if necessary, we can seal our borders and live in relatively happy isolation from the world’s chaos.

In our interconnected world, we will never be isolated from the world’s problems again, if we ever were. It is still said that when Wall Street sneezes, the rest of the world catches a cold. This seems to be borne out by the turmoil the last few weeks in our risky sub-prime mortgage market. Now it is also true that when stock markets tank in South Korea or in China, Wall Street catches a cold. These effects of course simply reinforce my point that we are increasingly interdependent. There is no way to go back to our isolationist past. We need to accept this reality. That our economy is growing at all is largely a result of our interdependence. Imagine how you would feel as a shareholder of Microsoft if it could only sell inside the United States.

So what does this mean? It means, as I have suggested before, that nation-states are moving toward obsolescence. I see this in small ways in my own life. I earn a few bucks on the side installing software for clients. I have yet to meet any of my clients in person. There is one client twenty miles or so away, but even in his case, all of our interaction was accomplished through email. Most of my clients live in the United States, but I have had clients in Israel and Great Britain too. It is not hard to transact business. They send me money via PayPal. I do the work over the Internet. At least in my case I can state that the Internet has made such things that used to matter, like the country where someone lives, irrelevant. Their money may be in a different color when they go buy groceries, but it is green when it arrives in my PayPal account.

It looks like before we ingloriously leave our debacle in Iraq will cost us at least a trillion dollars. Why did we do it? President Bush was quite candid about his rationalization before we invaded: because he perceived a real threat from Iraq to our national security. We thought that given more time Iraq could create atomic weapons that it might lob at us. Apparently, that was unacceptable to the cost of about one trillion dollars and hundreds of thousands of lives. Our ability to remain an independent nation apparently trumps all other needs including the need for all nations to peacefully coexist.

Most economists tout the virtues of free trade. They see it as a cure to the world’s economic ailments. Free trade, they intone, raises all boats. If it is cheaper to import vegetables from Mexico because the labor is cheaper there, this is ultimately good. Consumers benefit. Our farmers may be a bit put out but overall both the United States and Mexico would benefit. Our agriculture would change to be more efficient, or we would develop new industries to replace it. However, what free trade also does is that it promotes our world’s mutual interdependence.

From listening to politicians running for office, I am left to conclude that the world’s mutual interdependence is a bad thing. Is it? Maybe what we really need is to encourage our interdependence. Maybe nation-states are entities that are on their way out. Maybe what the world needs is world federalism instead. If this is where we need to go, from a world of autonomous states, to a world of federated nation-states then we need more interdependence, not less.

My firm conviction is that these dynamics are already well underway. Those who adapt to this new reality, like Europe, are likelier to prosper. The longer that the United States of America deludes itself into thinking that we will always be completely sovereign the more painful and costly our adjustment will be. Arguably, the debacle in Iraq is a one trillion dollar consequence of our delusion.

Imagine a different world where this is no my country vs. your country competition except in sports. I am not naïve enough to think that such a world will happen overnight. However, I do think that since the process is already well underway, the longer we delude ourselves then the more painful our transition will be. We need to discard ourselves of foolish notions like we can provide entirely for our country’s needs. While energy independence may help us find cleaner means of generating energy to reduce global warming, its ultimate goal is to find ways for the world to also do this. For global warming, like much of what ails us, can only be solved globally.

The more we rely on other countries, and other countries rely upon us, the more natural incentive there is for all of us to get along together in peace and harmony. These ties truly bind us together as a planet. We need to listen to the message. China, Russia, North Korea, Iran, Pakistan, India and many other countries need to listen too. The European Union has already heard the message and is prospering.

We cannot solve our national problems by being independent in all things, or even in areas that we consider critical to our sovereignty. This is delusion. However, the world can solve its problems by engaging in them together. Economic interdependence is the means by which a newer and saner world order could emerge. It is likely to be messy, as are most things in human affairs, but it offers a hopeful vision, and seems more viable than our current tactics.

Imagine there’s no countries

It isn’t hard to do

Nothing to kill or die for

And no religion too

Imagine all the people

Living life in peace…

You may say I’m a dreamer

But I’m not the only one

I hope someday you’ll join us

And the world will be as one

- John Lennon, “Imagine”

August 12th, 2007 at 09:35pm Posted by Mark | Politics 2007 | no comments

Hug an illegal immigrant today!

Here is a basic truth about American history that you are unlikely to find revealed in our history books: our success as a country is due to immigration. Most likely, our country’s decline will start when immigrants decide to go elsewhere.

Immigrants have always been crucial to our country’s success. When we could not get enough immigrants, we captured slaves and brought them over here instead. Yet through much of our history, whether here legally or illegally, immigrants have been scorned. In truth, immigrants are the gasoline that fuels our economy. We say we do not want them in our country, at least the ones who are not here legally. Yet if they were to go, our standard of living would decline precipitously. Inflation would go through the roof. Immigrants make it possible for the rest of us to live the American Dream. My vaunted six-figure salary is directly due to the guy making $15,000 working for Goodwill who doesn’t seem to speak English and who hauls away the trash from my office everyday.

Thankfully, there is little chance that people will stop coming into our country, no matter how impressively we build our barriers. It does not matter how low on the totem pole immigrants will be when they get into this country. Invariably they will be better off than where they came from. Cleaning out toilets in airports may not be your idea of a great job. It is probably not their idea of a great job either, but it beats starvation, or regular dysentery drinking the polluted water back home, or raising an uneducated child in a tarpaper shack.

Thank goodness, we have people willing to clean toilets at any price. How long do you think your local airport would be able to stay in business if they had no one willing to do this disagreeable task? How many restaurants would be in business at all if all the illegal dishwashers and potato peelers in this country suddenly disappeared?

The argument I hear is that, “Well, if they all went tomorrow, businesses would have to raise salaries. Good Americans would fill those jobs. And what’s wrong with that?” As a liberal Democrat, I like the idea of our citizens making more money. I just hope it will actually improve their standard of living. I do suspect though that if there are 200 jobs needing to be filled and only 100 people willing to work for wages businesses can afford to pay, there are going to be some economic adjustments and they will not be for the better. Of course, businesses would do their best to cope. They would try to become more efficient and resourceful. At some point, we would end up with an effective unemployment rate of zero. Then the excrement would hit the fan. I am not sure which businesses would be the first to go under, but I bet people who are asked to do the most disagreeable jobs would be the first to bolt. Dishwashers would become very hot commodities. Those restaurants profitable enough to employ them at higher wages would thrive. Those which cannot, and restaurants tend to survive on tiny profit margins, would close shop. I can even see a new version of the draft, not to fight our wars overseas, but to make sure restaurants have enough people to serve meals, sweep floors and do the dishes.

Perhaps with higher wages more of us who are already employed would be willing to work a second job (if we are not already, trying to keep pace with the cost of living). At some point, that market would exhaust itself too. The likely result would be a phenomenon we remember from the 1970s: stagflation. Stagflation is rapid inflation during a period of recession. We would be lucky though if this were the worst of it. The short-term result would be that as unemployment up the food chain increased from the fallout, more and more people would be willing to work in these relatively low wage jobs. The effect though would be to push down standards of living for all of us. These jobs, while necessary, are simply not as productive as those that generally pay more money. Decreased productivity is one of the major drivers of stagflation.

A workforce of course is the fuel of any economy. We may think we can automate everything using computers, but even if that were possible, someone has to keep those computers going. Goods do not magically get from points A to B. It is our willingness to be employed, and in effect be the lubricant that keeps our complex society functioning, that makes our advanced society possible.

In effect, our economy, much like our social security system, is a great Ponzi scheme. Growth, as is always the case, comes from the bottom up. If we cannot convince lots of poor people to start at the bottom and engage in economic Darwinism to try to ascend the economic ladder, the system eventually collapses. I see signs of it already. My daughter, though she has never held a full time job and just recently graduated high school, refuses to work just anywhere. She has her standards. She has decided that she can work at a Barnes and Noble or a Vie de France, but not at a Bloom supermarket, nor at a McDonalds, nor at a Subway … in fact, her list of places she is not willing to work is much larger than her list of places she would work. Fortunately for her the labor market is pretty tight here in Fairfax County, Virginia so she has the luxury of being somewhat choosy.

Of course, she has to survive. If her choice were between starving and working at a McDonalds, I am sure she would choose working at McDonalds. However, why should she do what she considers demeaning work in a business that she does not like? For example, why work at a Wendy’s when she would likely be the only Caucasian woman working there and she cannot speak more than a dozen words of Spanish? Why get hot and sweaty trying to keep up with jangling timers continually going off on the French fries machines when she can work behind the counter in a nice, cool and air-conditioned Vie de France restaurant instead? Others, who came from a harder school of knocks, are supposed to work at Wendy’s. For them a Wendy’s job probably really is opportunity. She perceives it as a low-grade horror.

Arguably, if all the Wendy’s in America went out of business we would probably be a lot healthier. Still, Wendy’s alone pumps a huge amount of money into the economy. The parent company Wendy’s International had sales of $2.45 billion dollars in 2006, owned 12.7% of the burger market and employed 57,000 people. If it closed because it could not profitably stay in business, more than 57,000 people would be affected. Its suppliers would be laying off people. Cattle ranchers would reduce herds. Grain prices would fall. Perhaps other businesses would pick up its market. However, if we did not have enough people willing to work at the bottom of the labor scale the effect on the labor market would quickly spread across the economy, likely causing a chain reaction.

If there were no more immigrants I would end up mowing my lawn again, which might not be a bad thing either. It would cost me more to get my roof replaced, if I could find anyone willing to do it at all. Either my six-figure income would feel a lot more like a five figure income, or I would be a lot busier incompetently trying to do the things I pay people to do for me. I would have to hope that I would die in my bed. It is unlikely I could afford a nursing home at any price. It would be a luxury only for the richest among us. Perhaps the poor house would make a comeback.

While I do not particularly like the idea of immigrants streaming across our borders illegally, I also understand why it has been in our economic interest to look the other way for so long. That our standard of living is rising at all is largely due to our glorious cognitive dissonance on this issue. If we could actually fully enforce our immigration laws then within a year we would be protesting en-masse on the Mall in Washington demanding the immediate repeal of these laws. The last thing we will give up is our slice of the American dream. Immigrants serve us that slice.

The good news is the immigrants who come to our country choose to come here, often at the cost of enormous peril. They understand the tradeoff. They will do our scut work for us, gambling that in time given their perseverance, luck and circumstance they will be in our shoes someday. They might aspire to be Bill Gates, but even if they only get up half the ladder, they are better off than they were. So are the rest of us.

Therefore, instead of railing against immigrants and protesting at local day laborer sites, as some want to do here in Herndon, Virginia, perhaps, if you speak their language, you should be thanking them for coming instead.

August 8th, 2007 at 10:14pm Posted by Mark | Politics 2007 | one comment

Squeezed

For me the last day of the year is a day to take stock of my financial universe. If I wasn’t feeling the pain of most middle income Americans before, after I got through looking at the details of my family’s personal situation I do now. Our upper middle class family is being squeezed too. I feel fortunate that so far, while we have coped rather well. Yet we are being squeezed nonetheless. So are you. Now I have all the proof I need: my income vs. expenses reports churned out by my Quicken financial software.

2005 is the first year since the 1980s that my family has had less income than the previous year. This is due entirely to my wife losing her IT Help Desk job a year ago. She did not find another job in her field until a couple months ago. Where she used to work full time, she is now working part time. She now makes a fraction of her former wages and at least one third less per hour than her old job. In her last job, she had a 401-K and access to health insurance. In her new job, being a part timer, she has neither.

The good news is that she is really enjoying the job. The bad news is that with substantially less income than we had in 2004, we are not living quite as we used to. Granted, we are not eating dog food, but the fact that this is happening at all to my family when we have known nearly twenty years of steady income growth is disquieting.

In 2004 when we were flush, we spent over $6K so my wife could get elective surgery. In 2005, this is totally out of the question. In addition to elective surgery, we have cut back on other medical expenses. We are not getting the level of mental health care we got in 2004. Our insurance is reasonably generous with mental health benefits, and allows up to 26 sessions per year with co-pay. In 2005, these benefits were exhausted by July. We could have paid $150 a visit out of pocket for the rest of the year, but that is $3900. Ouch. In 2006, we will hope that our mental health benefits stay the same. Unless my wife makes a lot more money, although members may need weekly visits it will mean biweekly visits.

I bet that most of you are going through similar experiences. The Bush Administration talks about how wonderful the economy is. Consumer confidence, having tanked earlier in the year, is now rising again. I do not give too much credence to those numbers. I know that in the real America of 2005 things are different. If your family’s fortunes increased during 2005, consider yourself lucky: you are bucking a general trend. I hope your luck continues. My experience and the experience of many others of us suggest you are likely living on borrowed time. Most of the rest of us downsizing our lives. In my case, the downsizing is so far relatively modest, but it is still a bit scary. If my family’s downsizing continues for a few more years, our choices will get increasingly troubling.

Here is the reality for this upper middle class household. Things cost much more than are stated in the inflation numbers. Even though I am fortunate enough to have an existing locked in mortgage, my property taxes are rising. Ours are up about $500 from last year. This means that my monthly mortgage payments are also going up. Other big-ticket items going up: health insurance is up $400 compared to 2004. Copays for medicines: up $300. These three items alone add up to $1200 more money I had to pay in 2005, and with markedly less income. I do not track gasoline as a separate expense, but if I did, I am sure it would amount to at least a couple hundred dollars more a year.

Then there are the nickel and dime things that when totaled amount to real money: cable TV, auto insurance, homeowner’s insurance, association fees and electricity. Except for the cable TV, none of these are services that we can really do without. To compensate we have cut cash expenditures, charitable giving, dining out, entertainment, food (we are eating plainer), and gifts (nearly in half).

When we can, we are also deferring big expenses. We are less likely to engage in project like replacing the roof. Fortunately, before my wife lost her job we had finished all the costly home repair projects. My priorities are to keep a roof over our heads, put as much money as I possibly can into retirement accounts and keep contributing to my daughter’s college education fund. On the latter by May with virtually no income coming in from my wife, we cut our contributions to our daughter’s college fund from $400 to $200 a month. You can only pinch a nickel so far when you are living on one income.

Speaking of investments, I am really disappointed by how mine are doing. I bet you are too. Mine are nothing fancy: mutual funds that tend to track indexes. My USAA Income fund, which I purchased for low risk and started buying in 2002, has had essentially flat performance. Now it is worth about $120 less than what I paid for it. I am losing money on it, although the amount is small compared to the total investment. My USAA S&P 500 fund, which went gangbusters when Clinton was in office and the tech boom was hot, followed the very flat stock market since Bush took office. My total gain is 9.2% or about 1% a year, much of it realized before Bush took office!

These funds are set aside for our daughter’s education. I followed what I thought was sound financial advice at the time. Over seven years I expected some return on my investment that exceeded inflation. However, our non-indexed fund did much worse. Our USAA Growth Fund has lost 26% of its value since we began purchasing shares in 1996.

What a fool I was. I was taking mainstream actions, just like you I bet, and we still got screwed. I feel that we have been taken to the cleaners by the Bush Administration. No wonder Bush’s attempts to privatize Social Security fell flat with the public. Americans simply had to look at their portfolios and realize, “We sure don’t need more of this!” Bush may be good for his big business cronies, but he is not good for the average investor who will need the money they are so diligently and painfully saving. Business taxes and capital gains may have been cut, but it has not resulting in any more wealth for me because I am not realizing any gains! The only good thing about selling a fund is that since I am losing money on it, I can take it as a deduction on my tax returns.

So just how is Bush really good for business? The reality is that stock prices have been flat. If a company has profits, they are more likely to use it to buy back their own stock instead of passing the profits on to shareholders. As The Washington Post reported this week, it is not translating into increased share prices, as it has in the past. It does however give the company more clout over its own future, and shareholders less.

I am no longer fooled. Don’t you be fooled any longer either. The Bush Administration and our Republican Congress have proven over five years that they are bad for your bottom line. Just run your family’s financial numbers as I did. I bet you see a similar trend. Bush and his Republican cohorts in Congress are systematically and very deliberately stealing wealth from all but the richest of us. If they continue with their reckless foolishness, we will be back to a society of rich and poor, with no one in the middle. As long as this crew remains in charge, you can expect the trend to exacerbate.

With the New Year comes mid term elections in November. If you are planning to vote your economic interests, you would do well to send as many of Republicans as possible in Congress packing.

December 31st, 2005 at 06:28pm Posted by Mark | Politics 2005 | no comments

The chickens have come home to roost, at last

Occam’s Razor likes to peer into the future. Sometimes I get it right, and sometimes I get it wrong. Overall though my ability to prognosticate is good. After all not many like me were predicting prior to our war in Iraq that it would turn into the insurgency that it did.

My timing can be off though. Perhaps I see trends too early. Clearly, after reelecting Bush a year ago Americans are now having buyer’s remorse. Had the election been held even a month later the presidency might well have flipped. However, shortly after last year’s election, I pointed out that Bush had set in motion events that could not be stopped. His comeuppance could not be forever postponed.

Events in 2005 have cascaded into a crescendo of bad news not just for Bush, but also for Republican rule. Bush’s approval ratings have tumbled even further, averaging recently at around 37%. While we will have to wait a year to find out the damage done to the Republican’s hold on Congress, we might get a hint from scattered elections this month that another political earthquake is coming.

One sign that should be very worrisome to Republicans is that Tim Kaine (a Democrat) won the governorship here in reliably red state of Virginia. It took a lot for Democrat Mark Warner to win the governorship in state four years ago. To win he had to convince Virginia voters that he was both a good ol’ boy and was not a liberal.

As governor Warner defied conventional logic and proved that even in a red state voters will support pragmatic taxes increases. Working with minority Democrats in the state assembly and a handful of moderate Republicans he was able to pass a modest half-cent increase in the state sales tax. As a result serious money started flowing into urgently needed transportation projects. In addition Virginia schools were able to receive desperately needed additional aid to keep up with growing population and testing demands. His pragmatic approach found wide support across the state. Arguably Tim Kaine, the former Lieutenant Governor, rode on Warner’s coattails. He won the gubernatorial election by more than five percent against his Republican opponent, Jerry Kilgore. More astonishingly, solidly reliably counties like nearby Loudoun County voted solidly for Kaine. Kilgore’s antitax message rang hollow and seemed shrill. Virginians are returning toward embracing pragmatic government again. Apparently good schools and roads are more important than paying a half a cent more in sales taxes.

Kilgore found that being a Republican was no longer much of a selling card, even in Virginia. He avoided President Bush, who wanted to campaign with him in the state, until the very end. His one campaign appearance with Bush shortly before the election seemed to seal his defeat. Yes, even here in the reliably red state of Virginia, more people disapprove of Bush than approve of him. The result of these elections suggests Bush is now toxic. In addition Republicans are being viewed by voters with jaundiced eyes. Apparently even Republicans can interpret poll number and are sobering up. They realize they may be out of office next year if things don’t change. Consequently we are witnessing serious fractures of the Republican machine in Washington. Despite all the odds, the budget cuts proposed by fiscal conservatives, which targeted the poor by cuts to Medicare and Medicaid, could not win over moderate Republicans. The bill could not even pass by removing the requirement for oil drilling in the Arctic National Wildlife Refuge. This is an amazing denouement for a party that just a couple months ago believed it could ram through congress pretty much anything its leadership wanted.

I do not need to spend much time restating Bush’s problems because most of you keep up on current events. Bush has been carpet bombed since his reelection. From the deepening quagmire in Iraq (for which we have no realistic exit strategy), to his surreal and deadly mishandling of Hurricane Katrina and its aftermath, to skyrocketing gas prices, to fumbled Supreme Court nominations, to indictment against Vice President Cheney’s chief of staff, I. Lewis “Scotter” Libby, Bush is more than wounded. He has had limbs blown off.

Americans are in a surly mood. The economy is doing okay, but the benefits are not trickling down to them. For the average American, expenses keep exceeding income. The new expenses are costs we can do little to trim back. As a result the middle class continues to shrink. Many, like my wife who managed to find a new job recently, will work for much less than they made in their last job. While many find their income is down, necessary expenses like health care, gasoline and home heating oil keep skyrocketing. We wonder how much longer the American Dream will be available. And we wonder why we are allowing the dream to slip away. Why did we elect people who did not serve our interests, but instead slavishly served only the interests of those that funded their campaigns? This anxiety is reflected in rather disturbing consumer confidence statistics.

The voters are sobering up. Over the last five years our country has been raped and pillaged by Republicans. What we are witnessing is the intense anger, and even hatred, of those who were disenfranchised. We no longer have a government that even makes a pretense about serving the common good. It serves those who support Bush and the Republican Party and gleefully shafts the rest. Both the president and the Congress are drunk on power. More tax cuts for the rich in a time of soaring budget deficits? Until recently, this was not a problem. Weaken air pollution laws as a response to hurricane relief? Sure, why not? Cry over Terri Schiavo’s brain dead body, but let senior citizens drown to death in New Orleans’ nursing home? Not a problem either. After all, they couldn’t vote and beside they were not one of their kind.

I do not think this situation will improve. I think it will continue to get worse. I hear people say that at 37% approval ratings, Bush has reached his floor. I don’t think so. I think it will go even lower in the months ahead. Bush is now in the rapids and he is losing control of the ship of state. The time is ripe for a change in congressional power, and we should see it in the 2006 elections. It remains to be seen though whether Democrats are savvy enough to fully capitalize on the moment. As I suggested Democrats need a new Contract with America. It is painfully clear at this point what one party Republican rule has delivered misery for the average American. A clear vision for the future should turn the House of Representatives back to its traditional Democratic Majority. With only a third of the seats up for grabs in the Senate in 2006, it is less likely that Democrats can take that chamber too, but it is not outside the bounds of possibility. Bereft of the public trust, Americans have little choice but to embrace an alterative or to suffer through even more disastrous mismanagement of their government.

A stiff wind of pragmatism is beginning to sweep across America again. It will be good to feel it again. It has been sorely missed.

November 14th, 2005 at 09:03pm Posted by Mark | Politics 2005 | no comments

Something is gonna give

I know America is in trouble when I notice my family’s own spending habits changing for the worse.

There was a time about a year ago when we were flush. We were a dual income family. My wife and I both had full time jobs. Our joint income was around $150K. That sounds like a lot of money but because we live in Fairfax County, Virginia it is far less than it seems. For example, according to a Washington Post study a single mother with two children, one an infant and one a preschooler would need nearly $68K for a “bare bones” lifestyle in my county. Yikes!

Last October my wife lost her job. Our income was reduced by a third. Fortunately, we didn’t notice the change that much. Her employment was not an absolute necessity. We got by with minimal effects on our lifestyle. We even purchased a new car.

And so it went through 2005. My wife picked up a few greenbacks here and there. She built computers for friends and strangers. She taught a class at a community college. Tax refunds and my occasional three-paycheck months seemed to even things out. We did what most people should do in our circumstances. We deferred expenses when we could. We ate out a bit less. And we waited for better economic days ahead. If they were to happen anywhere, they should happen here in Fairfax County, one of the most prosperous counties in the country.

My wife recently took a part time job maintaining the computer infrastructure at a neurology office. She works about twenty hours a week and enjoys her work. However, she is making at least a third less per hour than she used to make. Needless to say, as a part time worker she is not being offered 401-K plans or other benefits. Just like many others, she has been downsized.

If she had remained underemployed I am sure that we would continue to get by somehow. Nevertheless, our style is becoming increasingly crimped. We managed to avoid drawing from our savings account somehow, but I have noticed our ready supply of cash has steadily diminished over the months.

Since then Hurricanes Katrina and Rita hit the Gulf Coast, driving up the cost of gasoline, which had been on an upswing for the last year anyhow. We have done sensible things to cope, like buy a hybrid. I am also fortunate enough to be able to bike to work. Even so, we notice our gasoline costs mounting. The tank of gas we bought a year ago for about $20 is now $32. My wife, who used to sit at home most days, is now commuting thirty miles or so a day five times a week.

Our bottom line is that money that usually was around at the end of the month and thrown into savings or spent on the occasional frivolity is rarely there anymore. It was spent on life’s necessities instead. Yet this is not the half of it. I have noticed that other bills that used to be paid by insurance we are now largely responsible for paying. All three of us went to the dentist last quarter. Our services were nothing unusual: basic cleaning and X-rays. Insurance picked up about $25 for each of us. The rest was paid for out of pocket. This weekend I wrote out a check for more than $300 to the dentist. Not a tooth was pulled nor a cavity filled.

I am one of the fortunate ones. I have a good and flexible health insurance plan. I shudder to think what many less fortunate Americans are going through. I am willing to bet that for millions of Americans the dentist has now joined the “nice to have” category.

Like many Americans stuck in this modern world, we need more than a personal physician. My wife has a number of conditions. It is a rare month when she has not seen at least two or three doctors. Most of the time our insurance picks up the bill. Sometimes we need to see specialists outside the plan. This means paying full price and getting some portion back months later after claims are paid. Then there are the costs of prescription drugs. They keep going up. Of course, we are expected to keep paying more of these costs.

The facts are that for many normal middle class Americans these trends are now turning into real economic hardship. I do not think official government statistics are quite capturing them. We can get some inkling of how nervous Americans are from a recent survey of consumer confidence, which plunged last month. I am beginning to believe that the official government statistics understate the true costs of living. The costs of necessities are going up quickly. This is perhaps why those Americans fortunate enough to be homeowners are making ends meet by living on their house’s equity. In addition, in response to rapidly escalating costs of basic services more Americans are deferring payments on their credit cards. Some lenders, feeling nervous about their customer’s precarious financial conditions are upping minimum monthly payments.

Everyone is affected by the increasing price of oil. Come this wintertime, those who depend on natural gas for home heating are going to get more sticker shock. Natural gas prices may double between last year and this year. Once again, these are not optional costs. Freezing to death is not an option. I expect Americans will add these costs to their debt burden and hope they can keep managing the debt. I doubt that will be the case. The age of cheap oil is over for good.

What we are experiencing is no longer prosperity. It is a combination of a number of ominous factors. It is partly inflation. It is also unemployment, underemployment and reduced wages when a worker finds a new job. America is living on the margins.

These are dangerous times. Americans are taking on increasing but necessary expenses yet have less ability to pay for them. We are in hock up to our eyeballs. We have supersized our lives without necessarily having the means to afford our lifestyle. For many of us our only real wealth is our home equity. What would happen today if real estate prices suddenly collapsed? In the 1920s, the stock market crashed and triggered a depression. This time it could be a collapse of the housing market.

And if all this economic uncertainty were not enough, we also have to manage hurricane relief, fret over international terrorism and, oh yes, try to stave off a virulent bird flu. This flu has already infected humans in Asia and could kill hundreds of millions across the world if it is not contained and if effective vaccines are not developed and made widely available.

I feel that we are like the frog that is put into a pot of tepid water on the stove. The burner is on and the temperature in the pot is rising. However, it is rising so slowly that the frog is not aware it is about to be boiled to death. I along with lots of other Americans have the uneasy sense that our economic lives are fragile and increasingly risky. Something will give and soon.

October 2nd, 2005 at 08:30pm Posted by Mark | Politics 2005 | one comment

The end of the fast food job

It seems even the fast food industry is not immune from outsourcing. I don’t know why this article surprised me, but it did. An excerpt:

Pull off U.S. Interstate Highway 55 near Cape Girardeau, Missouri, and into the drive-through lane of a McDonald’s next to the highway and you’ll get fast, friendly service, even though the person taking your order is not in the restaurant - or even in Missouri.

The order taker is in a call center in Colorado Springs, more than 900 miles, or 1,450 kilometers, away, connected to the customer and to the workers preparing the food by high-speed data lines. Even some restaurant jobs, it seems, are not immune to outsourcing.

The man who owns the Cape Girardeau restaurant, Shannon Davis, has linked it and three other of his 12 McDonald’s franchises to the Colorado call center, which is run by another McDonald’s franchisee, Steven Bigari. And he did it for the same reasons that other business owners have embraced call centers: lower costs, greater speed and fewer mistakes.

Cheap, quick and reliable telecommunications lines let the order takers in Colorado Springs converse with customers in Missouri, take an electronic snapshot of them, display their order on a screen to make sure it is right, then forward the order and the photo to the restaurant kitchen. The photo is destroyed as soon as the order is completed, Bigari said. People picking up their burgers never know that their order traverses two states and bounces back before they can even start driving to the pickup window.

Davis said that he had dreamed of doing something like this for more than a decade. “We could not wait to go with it,” he added.

Bigari, who created the call center for his own restaurants, was happy to oblige - for a small fee per transaction. McDonald’s Corp. said it found the call center idea interesting enough to start a test with three stores near its headquarters in Oak Brook, Illinois, with different software than that used by Bigari. But it added that it was more focused on other, continuing customer service improvements, like adding wireless Web access, or Wi-Fi, to restaurants, and introducing ways to let customers pay with credit and debit cards.

Jim Sappington, a McDonald’s vice president for information technology, said that it was “way, way too early” to tell if the call center idea would work across the 13,000 McDonald’s restaurants in the United States.

You realize that it is now only a matter of time before you pull up to a fast food franchise and instead of your order being taken by a call center in Colorado Springs, someone will take it in Bangalore or Manila.

But this is just a start. I have to wonder what took the fast food industry so long. For an industry that works on tiny margins, low wages and lots of sweat I would have thought they would have outsourced their drive through order takers years ago. Like the amoral owners of Wal-Mart fast food owners have no shame. What they seemed to lack until now is some imagination on how to change their business model to pump up their profits. Shannon Davis has figured it out.

Of course I have to wonder why fast food restaurants require a human being to take orders at all. There are ways to remove the human being entirely from the drive thru order taking process. Most likely you pump and pay for your own gas. For now fast food restaurants can simply create an express drive through lane. In this lane you enter your order onto a touch pad screen. You can even pay for your order by inserting your debit or credit card into the convenient slot next to the screen. For a while restaurants may need a lane for those old fashioned types who can’t seem to place an order without talking to an actual human being. But that will change as we evolve into a cashless society.

But let’s think large. Actually interacting with a human being when getting fast food is so 20th century. Fast food restaurants could have us assemble our own orders too. Hamburgers and fries could pop down through chutes at the pickup window.

Doubtless there are lots of other ways to take the human out of preparing fast food too. Why not a robot at the French fry vat? Machines could also potentially cook, garnish, assemble and wrap hamburgers too.

By 2050 I predict that we will have the virtually manpower free fast food restaurant. Someone will still have to deliver the food to the stores, but perhaps programmed trucks could pull into automated docking stations at the back of a fast food restaurant. Then robotic arms could remove packets and place them into staging areas where other machines would draw on them as necessary. How efficient!

Those who quaintly want to eat at the restaurant could be accommodated without a single member of the service class. Greatly advanced Roombas could take care of sweeping the floors. Other robots could handle wiping counters. Some entrepreneur will doubtless create a restroom-cleaning robot too. Actually they have already created a self-cleaning restroom. But expect that fast food restaurant owners will be savvy enough to charge for the privilege.

Admittedly it will make things tough for youth looking for that first entry-level job or for that knowledge worker whose expertise has been outsourced overseas or is accomplished with artificial intelligence software. But that’s the price we pay for progress in this country. Whatever makes us more efficient is good. These were mindless, dead end jobs that no one could survive on anyhow. We might as well let the technology do it for us.

Watch out Wendy’s. McDonalds will be savvy enough to see the dollar signs in their shareholders’ eyes when this proves viable. Taco Bell has done most of their food preparation outside the restaurant for years. Yes, the first phase of the restaurant wars of the 21st century has begun. And fast food workers will be victims.

July 22nd, 2004 at 08:49pm Posted by Mark | Technology | no comments

The Dual Income Trap

I like it when the little light bulb above my head goes off. It doesn’t happen as often these days, but it did the other day when I read this interview in Salon with Elizabeth Warren. She is professor at the Harvard Law School. Together with her daughter Amelia Warren Tyagi they wrote a recently published book “The Two-Income Trap: Why Middle Class Mothers and Fathers are Going Broke.”

It’s a great interview and I’ll probably have go out and buy the book now. The book puts its finger on a nagging question: why more of us are going broke in America. The results were not what I expected. The McMansions popping up around my neighborhood do not mean that we are living better; in fact the study shows that people are living pretty much the same lifestyle our parents did. Yes, we have more toys like DVD players and computers, but we are not spending more on similar things than our parents did.

What has changed is that to live the lifestyle our parents lived it takes two incomes, not one. And because it takes two incomes, the loss of any one income is devastating and can lead rather rapidly to bankruptcy. Consequences range from homelessness to moving your husband, wife and children into the basement of your parent’s house, if you are that lucky.

I see it around me in this economic malaise, but in reality this is a 30 year phenomenon. A neighbor’s husband down the street lost his job about a year back and is still unemployed. They’ve burned through his 401-K and most of their other assets. He was another victim of the high tech implosion. Her income, which is pretty decent working as she does for Fannie Mae, is insufficient to maintain their fairly modest lifestyle.

They live in the same sort of house I had growing up: just another colonial in a decent neighborhood. But in the past if one parent became unemployed the other could probably get some work to help make ends meet. In a depressed economy finding two or three jobs to make ends meet is difficult. If they can be found they are unlikely to pay the bills.

Why? Because lots of bills have gone through the roof. As the authors document, things cost more — a lot more, in real terms, than they used to. Two big examples: mortgage payments and health insurance. It used to be that you did not need health insurance; if necessary you could pay for medical costs out of pocket. That’s not an option anymore. The mortgage payment phenomenon is more interesting. The problem seems to be that we are drawn to zip codes with good schools and will pay inflated prices for housing so that our children will benefit from good education. It’s quite possible to find more affordable housing elsewhere, it’s just that most of us have a fear of living in these neighborhoods. But, paradoxically, if we had the courage to live in these neighborhoods rather than “follow the crowd” there would be sufficient critical mass to likely improve the local schools to our liking.

A few of their observations I figured out a long time ago and implemented in my life but still could not quite articulate them. One was that kids are huge financial risk factors. In short kids not only increase the risk that you will go broke but are huge income drains on the family. Sensing this was one of the reasons I was comfortable with stopping at one child. My wife and I had talked about having a second child but thinking of how much money it would take to raise a second child and send him or her to college was one reason I wanted to stop at one: adding another child would be too risky to our family unit. Of course I was also aware that life would be a lot more manageable with one child. But on some level I understood that even though I came from a family of ten I would be lucky to maintain the same lifestyle my parents had, which was pretty Spartan, with two children.

The interview though made me realize why it’s almost impossible to elect a politician these days who will raise your taxes. It’s not that taxes are evil, as many Republicans assert, it is because families have no more money to throw at taxes. Their money is already committed and they are at enough risk with two incomes trying to navigate their family through life to pay more taxes. It’s not a matter of philosophy, it’s a matter of economic necessity. Metaphorically, parents are on their front porch with a loaded shotgun warily looking up and down the street. They know it won’t take much for their American Dream to vanish, and they are vigilant in an almost reflexive way.

The consequences of “me first” on society at large are very real. If my income were cut in half I probably would be neglecting a lot of basic maintenance. The house and yard would look pretty shabby. The same is true of our society. As our costs of living escalate, and with little ability or will to maintain the infrastructure, things suffer. That’s why our roads and schools are so crowded. Citizens are saying “Sorry, me first!”

You have seen this happen most recently in California in the election of Arnold Schwarzenegger. Schwarzenegger said he would repeal the tripling of car taxes. This is money that people can put in their pockets. Naturally it’s hard not to vote for someone like that. The consequence is to exacerbate California’s budget problems but citizens are saying “Too bad: me and my family first.” It’s not that Californians explicitly want their state to go to hell; it’s that they are living too close to the margin and are consequently too scared to pull together.

I’m not sure how this will play out but most likely we will continue to see a decline in our prosperity. Right now we don’t really see it because dual income families are providing the illusion that it is under control. But increasingly cracks are beginning to show and soon we may have a bellwether event. It may be that with the costs of health insurance becoming out of reach even for middle class Americans we will demand national health insurance. It may be that the engines that sustain our growth, like cheap land, will gradually disappear and there will be no real way to get out of this economic box.

Ultimately this “me first” approach is not sustainable. We are in this together. It’s all well and good to promote growth as President Bush is doing, but this is not going to solve these systemic problems. To some extent the Wal-mart-izing of American may be the last step. We are making it as cheap as possible to buy the stuff we need, but eventually all the cost savings from that supply chain will be realized. And then what?

The malaise that so many people are feeling is very palpable. The solution out of it is not.

October 15th, 2003 at 10:03am Posted by Mark | Politics 2003 | no comments