Tuesday, January 31, 2012

Apple and Ethics

Everyone loves the late Steve Jobs. President Obama lauded his job-creation during the State of the Union speech. Newt Gingrich gave Jobs as an example of a "good" capitalist in contrast with the evil Mitt Romney. World-wide, sales of Apple's phones, tablets, music players, and computers have made Apple the world's most profitable company.

Between its "I'm an Apple" ads and its Genius Bar, Apple cultivates a counter-culture image. Apple gear is popular among the OWS movement.

But there is a darker side to Apple. Counting suppliers, nearly a million people are employed in creating Apple's products but the vast majority of these jobs are in Asia, most in China. They work long hours for small wages. The suicide rate at the Foxcom factory where Apple's products are assembled is high. Recently a group of employees threatened to jump off of the factory roof unless they got raises.

Apple requires its suppliers to limit hours worked to 60 hours/week but it recently admitted that nearly half of its suppliers exceed this. around 5% of its suppliers use child labor.

Apple is not unique in this. HP uses the same factory and most high-tech electronics come from the same or similar plants. Is it fair to hold Apple to a higher standard? I think so for several reasons.

The first is that when their assembly facilities were in the US they made a point of how environmentally safe their factory was. That lent their products a halo effect which persists to today. Chinese factories are not held to the same standards as US factories to say nothing of the standards that Apple was held to.

Second, Apple is a rich company with some of the highest profit margins in high tech. This should be pushed all the way down the line. The workers who make Apple products should be paid more or have better working conditions than the workers who make lower-margin products. To do otherwise is to exploit the Chinese workers.

Which brings me to my next point - how unseemly this is. Here we have OWS protesting that the system is fixed so that the 1% richest can exploit the 99% but their gadgets of choice put them as part of the world's 1% exploiting Asian workers.

Supposedly the issue is not worker wages, it is the supply chain. China has all of the suppliers concentrated in a small area. They also have access to raw materials, especially rare earth metals. The US used to be a major producer of rare earth metals but the main mine was shut down by the EPA.

Around a year ago President Obama asked Steve Jobs about moving his manufacturing back to the US. Jobs said that those jobs will not be returning to the US. We need to reverse this trend. We need to figure out what is needed to entice manufacturers back to the US. Is it a lack of engineers? Have we made our environmental regulations so restrictive that we have to off-shore our pollution? If so then is this ethical. Should we keep tightening regulations here even if it means more emissions elsewhere in the world?

This is a conversation that the country needs to have, starting with Apple.

Wednesday, January 25, 2012

The Command Economy

According to his State of the Union speech, here is what President Obama would like to accomplish. He wants to redesign the American economy:

Tonight, I want to speak about how we move forward, and lay out a blueprint for an economy that's built to last — an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values.

Three years ago he was going to rebuild the economy based on education, health care, and green jobs. It's tough to rebuild an economy when you change its basis every two or three years.

It sounds great to say that manufacturing jobs are coming back to America but is it true? Steve Jobs didn't think so a year ago when he told Obama that the jobs are not coming back to America. One reason is that the supply chain has moved off-shore. Another reason can be found in the story of the iPhone production line. Apple's workers live in dormitories at the plant. Steve Jobs changed the design of the iPhone at the last minute, substituting a glass screen instead of the planned plastic one. That meant that the first glass screens started arriving around midnight. Apple's managers woke the workers, handed them a cup of tea and a biscuit and sent them to work assembling phones. Not only couldn't you find American workers who would be willing to take a job with these conditions but Obama's government would close them down if they tried.

Obama made several proposals for changing corporate tax codes. He wants to do away with the mythical tax break for moving workers overseas and establish some sort of minimum corporate tax. One ray of light - he also proposed reducing the corporate tax rate. All of this seems needlessly complicated. Just lower the tax rate and eliminate most of the deductions.

Obama wants a better-trained work force. That is a noble goal although it is at odds with his previous goal of sending everyone to college. An educated workforce needs a lot of people who have been trained in trades and specialties that colleges would never touch.

Obama suggests simplifying the current programs for retraining workers. This sounds like a good idea. We will see if he can flesh it out. Otherwise it may just add another level of bureaucracy.

When talking about classrooms, Obama hit one of the teacher union sore points - teaching to the test. He thinks that doing away with standardized testing will help teachers. The reason that most states established tests in the first place was that too many teachers were simply warehousing students and passing them on to the next grade without teaching them anything. Teaching to the test was seen as an alternative to not teaching anything.

Obama did threaten colleges to keep tuition down or face cuts in government grants. This is probably an empty threat.

Back to jobs, this time small businesses:

Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow.  Expand tax relief to small businesses that are raising wages and creating good jobs.

So much for eliminating tax loopholes. We're only part-way through the speech and he proposed some new loopholes.

Obama gives lots of credit to government funding. He mentions the computer chip in the same breath as federally funded research but Intel created this without federal funding. He also give the government credit for discovering fracking (without using that term). Strangely he fails to mention the role of federal funding in extracting oil from tar sands - possibly because he just killed a pipeline that would have brought this into the US from Canada.

On to Obama's real passion - green energy. He never quite comes out and says it but he wants to promote clean energy by imposing higher government standards on efficiency and clean air.

This part is laughable:

In the next few weeks, I will sign an Executive Order clearing away the red tape that slows down too many construction projects.  But you need to fund these projects.  Take the money we're no longer spending at war, use half of it to pay down our debt, and use the rest to do some nation-building right here at home.

Ok, we are out of Iraq. But a lot of those resources moved to Afghanistan so there isn't much savings. And we can't use the savings to pay down the debt because we still have a huge deficit. We are borrowing $0.40 out of every dollar we spend. So, is the President is proposing that we pay down the debt with borrowed money? And saying that we cut back on deficit spending in one place does not mean that we can borrow and spend elsewhere.

Obama wants to allow people to refinance at lower rates. Fine. But then he mentions a new fee on the largest financial institutions. Again, he is picking winners and losers. What will he do if this breaks Bank of America? Another bailout? He says that he isn't going to do that any more.

He also insists that banks sold people loans that they could not afford. He mentions it multiple times. There is no acknowledgement that the person taking the loan was also at fault. Instead he is going to create a new set of enforcers to hunt down the bankers.

And tonight, I am asking my Attorney General to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans. 

How about some penalties for the people who lied on their mortgage application? Don't you think that they might have contributed to the problem, just a bit?

We are well into the speech but he chose this time to announce his immediate priority - continuing to gut Social Security by continuing the Social Security tax holiday.

He also made a dig at the Bush tax cuts, but only the part that affected the rich and a push for raising the capitol gains tax which has turned into a special subsidy. The fact-checkers have examined the claims about billionaires paying cut-rates and found that it is rare. There are some people, like Governor Romney, whose income mainly comes from capitol gains but it is a very small percentage while the President would have you believe that it is the rule.

Here's another amazing statement:

Finally, none of these reforms can happen unless we also lower the temperature in this town.  We need to end the notion that the two parties must be locked in a perpetual campaign of mutual destruction; that politics is about clinging to rigid ideologies instead of building consensus around common sense ideas. 

This from the man blew off Republican concerns about the stimulus and used parliamentary slight of hand to pass health care against strong Republican opposition. Ironically, Rep. Giffords was sitting in the audience. Just a year ago Republicans were being blamed, without any proof, for her shooting, Obama has made it clear since August that he was more interested in scoring political points against the Republicans than actually governing.

An even ore amazing statement:

The renewal of American leadership can be felt across the globe.  Our oldest alliances in Europe and Asia are stronger than ever.  Our ties to the Americas are deeper.  Our iron-clad commitment to Israel's security has meant the closest military cooperation between our two countries in history.

Obama has spent the last three years snubbing Great Britain. Just last week he snubbed Canada by rejecting the tar oil pipeline. His record on Israel has been the least-supportive since that country was founded.

Maybe the President hopes that we aren't paying attention or, that by saying something he can make it happen. Or maybe he really believes what his teleprompter says. He has bragged before about what a friend he is to Israel.

He closed by reminding us that he got bin Lauden.

One of my proudest possessions is the flag that the SEAL Team took with them on the mission to get bin Laden.

We are lucky that he didn't bring it along to wave.

The mission that killed bin Laden is symbolic of Obama's view of the world. He ordered it to happen and it did. There were a few disasters along the way - a top secret helicopter crashed and stripped and international law violated - and his involvement was minimal but he still sees it as his victory.

Obama sees that economy as something that can only operate with heavy government influence. He wants to decide the winners and losers. He wants to help the poor and punish the rich. And he has no conception of the limits of government or his own ability to manage the economy.

Monday, January 23, 2012

South Carolina and November

Gingrich won the South Carolina primary but the big loser was President Obama. As long as the Republican nomination is in doubt, Obama cannot run a negative campaign. He has to try to be positive. He already has his anti-Romney strategy worked out. The Obama campaign and its auxiliaries in the press, will attack Romney for being a wealthy venture capitalists and for being... different (code words for Mormon). Back when it looked like Romney would would sew up the nomination with South Carolina, I started to see columnists reminding us that Romney's great-grandfather had multiple wives (for what it's worth, so did Obama's father and grandfather). I suspect that Obama's State of the Union address was going to have some veiled references to Romney. But, with the nomination still in doubt, Obama will have to wait.

Worse for Obama, Gingrich's attack on Bain Capitol will make it harder for Obama to attack Romney. Gingrich's attacks already took enormous liberties with reality such as blaming Romney for things that Bain did after leaving Bain. The general rule of thumb is that if a candidate can survive an attack in the primaries then it will be useless in the general election. Think of Clinton's infidelities or Obama's lack of experience.

The same is true if Gingrich is the nominee. By airing an interview with Newt's ex-wife just before the primary, they proved that voters don't care how despicably Gingrich treated his ex-wives. During the 1992 primary it came out that Clinton had cheated on Hillary multiple times but he survived it. Newt can, too.

Another problem for Obama - as long as the nomination is in doubt, the Republicans take center stage on the nightly news and Obama is an afterthought.

An extended primary also helps the candidates hone their message. Romney is a better candidate than he was four years ago. His earlier run helped him. This is Gingrich's first run and he entered late so an extended primary will help him, also.

Friday, January 20, 2012

Obama and the XL Pipeline

The proposed XL Pipeline will bring oil from Canada's tar sands to refineries in the southern US. From there it will be sold in the US and exported at a profit to the US. Building the pipeline will be a boon to the (unionized) construction industry. Oil pipelines are nothing new or extraordinary. Most of the oil in this country is moved around via pipeline and there is nothing about the XL pipeline to make it riskier than the other pipelines. The pipeline would also ease relations between the US and Canada which have been strained since Obama became president.

There is opposition to the pipeline. Most of it is based on global-warming guru James Hansen who says that if we allow the tar sands to be refined then it will be "game over" for the planet. There are several problems with this statement. One is that it would take hundreds of years to burn all of the Canadian oil. Another is that Canada says that it will allow China to build a pipeline and refine the oil instead.

The Obama administration wants to please both the construction unions and the environmentalists so it put off the decision on the pipeline until after the election. The excuse is that time was needed for an environmental impact study on alternate routes.

Republicans in Congress are in a hurry for the pipeline to be approved so they tried to force the President's hand and demanded a decision. Obama obliged, sort of. He rejected the pipeline because the environmental impact study has not been completed but allowed that the pipeline could be resubmitted and would be judged in due time. This is a double triumph for the Obama administration. They get to tell the environmentalists that they killed the pipeline while hinting in private to the unions that the pipeline will be approved when it is resubmitted.

This is typical of the way the Obama administration has conducted itself since September. Nothing happens unless it helps the Obama reelection campaign. There is no question that the pipeline would create jobs but the Obama administration would rather score political points than help people.

Tuesday, January 17, 2012

Climate and Politics

Michael Gerson has a column in the Washington Post on how climate change has become politicized. At the same time, Wired has an article about the National Center for Science Education (NCSE) adopting a new policy supporting the teaching of evolution and climate change.

Gerson is one of a group of right-leaning moderates who accept climate change theory as established fact. In Gerson's view, the right rejects warming theory largely because the left uses it to advance its agenda. There is some truth to this but it is incomplete. He dismisses the Climategate emails.
Climate scientists, in my experience, are generally careful, well-intentioned and confused to be at the center of a global controversy. Investigations of hacked e-mails have revealed evidence of frustration — and perhaps of fudging but not of fraud.
What the emails actually show is that climate scientists are indeed true believers but some of them have questioned why their predictions are off. More importantly, they act in concert to suppress dissenting opinions. If a peer-reviewed journal publishes a dissenting paper, they get the editor fired.

This is the hallmark of an information cascade. This happened with dietary fat. For 50 years it was accepted that dietary fat caused heart disease. Finally a major study proved otherwise. It turned out that a small minority of dedicated scientists had pushed the dietary fat/heart disease link to hard that it became the accepted view and any dissent was tamped down. This is happening to some extent with global warming.

As for the Wired article, I would like to know what would be taught in schools. Would they include Al Gore? He has admitted that he finds the IPCC's findings to be too conservative and has his own set of experts. Would they include the IPCC? Sections of their most recent report were copied from environmental group's position papers instead of from peer reviewed journals. Would they include the recent Berkeley Earth Surface Temperature Project which verified that the world has warmed over the last several decades and if they do include it, would they point out that this same study shows that warming stopped around the year 2000? Would they include predictions from the last 20 years of climate science that have failed to materialize (in 2000, NASA's James Hansen predicted that parts of Manhattan would be underwater by now)?

This is the problem with climate science. The field has a number of alarmists who think that the only way to get action is to exaggerate the risk. This totally discredits their cause, especially when it has been co-opted by political extremists.

The earth has warmed in the last century or two but it is still debatable how much of this was caused by humans as opposed to natural cyclical forces. Even more debatable is how much more the climate will warm. All of the warming productions are based on unproven feedback models. Finally, no debate at all has been given to the benefits of a warmer world.

Wednesday, January 11, 2012

Nancy and Michelle

Have we been too hard on Michelle Obama's spending? Here's a comparison from 1981.

When Ronald and Nancy Reagan moved into the White House, Nancy discovered that the official china was in a bad way. The White House did not have enough matching china to serve everyone from matching plates at a state dinner. So she ordered a new set.

There was an immediate uproar over Nancy's free-spending ways. It was pointed out that the money to buy the china was donated but that didn't help. Instead, critics pointed out that the donation was tax-deductible and figured out how much the china actually cost the paying public in lost taxes. At the time the top marginal tax rate was 70% so charitable deductions were worth more as tax deductions.

If getting matching china for state functions was spending too much then what are we to make of the Obamas?

Tuesday, January 10, 2012

Venture Capitalism

There have been a lot of attacks on Mitt Romney based on his work at Bain Capital. Here's how Bain worked. They looked for small businesses that were in trouble but had the potential to be turned around. They would buy them, lay off non-productive section and build up new ones. Some of these companies went out of business anyway but many prospered - enough to more than double Bain's investment.

The current complaints about Bain (and Romney) are because some jobs are eliminated along the way. The expectation seems to be that somehow a company can be saved without laying anyone off and that the layoffs must have been motivated by the desire for higher earnings by Bain.

So, how does a compassionate leader handle a turn-around? We have a great example - President Obama's handling of GM and Chrysler. GM is particularly instructive since it is the bigger of the two and Chrysler was sold to a foreign company.

Obama poured money into GM but he also cut out the non-productive sections. Some were put up for sale. If they could not be sold then they were closed. People were laid off - a lot of people. The resulting company was stronger and stands a good chance of surviving.

How is this different from what Bain did? Money was invested but some people still lost their jobs.

Here is an example closer to home for me. The company that my wife works for had a simple business model. They would take out a loan and use the money to buy merchandise and print catalogs. Then they would sell the merchandise, pay off the loan, and bank the profits. They did this quarterly. Then the recession came and credit dried up. So they brought in some outside investors who decided that their business model would no longer work. Instead they came up with a new model. While much of their merchandise was produced outside the company, they did have a line of cookbooks and calendars that they made in-house. The catalog sales arms was closed and a good chuck of the staff laid off. The cookbook and calendar operation was expanded and the remaining part of the company was saved.

So, which is the greater evil - laying off some workers so that a company can survive or keeping everyone employed rught up until the company goes out of business? Most people would agree that some jobs are better than none, even President Obama.

Remember this when you hear about the evils of Bain Capital.

Monday, January 09, 2012

Recess Appointments

An iron-clad law of politics is that whatever dirty tricks you use today will be used against you tomorrow.

According to the Constitution, there are several offices that require Senate approval of Presidential appointees. When the Constitution was written, it was assumed that Congress would be in recess for months at a time and that it would take days or weeks to unexpectedly reassemble. That was reasonable when messages had to be carried by someone on horseback. This created a conflict between the need to fill offices and the difficulty of assembling Congress during a recess. This was bridged through recess appointments. The President can appoint someone for a year allowing plenty of time for a formal confirmation the next time Congress is in session.

For the last century presidents have used recess appointments as a way of getting controversial appointees into office without a Senate approval. A few years ago the Democrats decided to stop the Bush administration from making recess appointments. They did this by never going into recess. During periods of traditional recess, a few senators would stay behind and hold pro-forma sessions in which the only business conducted was a motion to adjourn. Note that the Democrats supported this including Senator Obama.

The Republicans followed this precedent and left the Senate in session at the end of the year. They could do this because each house has to have the assent of the other house in order to declare a recess so the Republican-controlled House could keep the Democratic-controlled Senate in session.

But, when President Obama returned from Vacation he declared that the Senate was in recess and made the appointments anyway.

The dirty tricks are piling on each other. First there was the misuse of recess appointments, then pro-forma sessions, and now a President ignoring the Constitutional definition of a recess and declaring one on his own. This last one was particularly odious because it tromps all over the separation of powers. If allowed to stand then this could mean the end of Senate approval. You know that this will come back to haunt both parties.

This is also one of the worst examples of an imperial presidency imaginable. And it came from a former professor of Constitutional law.

Wednesday, January 04, 2012

Social Mobility

Writing in the Washington Post, Herold Meyerson complains that America is no longer the land of opertunity.

The best way to measure a nation's merit-based status is to look at its intergenerational economic mobility: Do children move up and down the economic ladder based on their own abilities, or does their economic standing simply replicate their parents'? Sadly, as the American middle class has thinned out over recent decades, the idea of America as the land of opportunity has become a farce. As a paper by Julia Isaacs of the Brookings Institution has shown, sons' earnings approximate those of their fathers about three times more frequently in the United States than they do in Denmark, Norway and Finland, and about 11 / 2 times more frequently than they do in Germany. The European social democracies — where taxes, entitlements and the rate of unionization greatly exceed America's — are demonstrably more merit-based than the United States.

It should come as no surprise that the liberal Meyerson's prescription for this is more government in the form of retraining for workers and a limit on how much anyone can make. But, is this valid? Will duplicating Scandinavian social democracies make the US a better place? Is big government responsible for Scandinavian success or is there more to it?

There are a few differences that immediately spring to mind when comparing the US and Scandinavia. The US is a massive country, straddling a continent with a highly diverse population. In contrast, Denmark, Norway, and Finland are a small part of Europe. While each of these countries is unique from the others, their populations are more homogenous than the US. Also, these countries are blessed with abundant oil resources which help to finance their governments.

A huge difference between the US and these other countries seems to have been avoided - single parent families. In the US, this is the biggest predictor of social mobility. If you are raised by two parents then you are much more likely to advance. This is far more important than union membership which is one of the factors Meyerson advocates. But, in unions, advancement is usually based on seniority rather than merit.

But these issues pale to insignificance when you look at the article Meyerson referenced. the study looks at nine countries and ranks them according to how closely a son's earnings are tied to his father's. As Meyerson points out, the US is ranked near the bottom and the three Scandinavian countries are near the top. He neglected to mention the other five countries and where they fall in the rankings. The one country worse than the US is the United Kingdom. On the other hand, Canada is almost tied with Finland as a high-mobility country. Falling in the middle rankings are France, Germany, and Sweden. Are we to believe that Canada is a social democracy but the UK and France are not?

When the entire ranking is viewed then it become much harder to prove a relationship between social mobility and social democracies. And, as been pointed out for decades, big government programs like welfare tend to institutionalize poverty. Adding more government is likely to make problems in the US worse rather than cure them.

Tuesday, January 03, 2012

Obama in 2012

As the 4th year of President Obama's first term begins, his supporters must be asking themselves "What happened?" Obama was supposed reverse the country's swing to the right and usher in a new period of Progressive government.

At first glance, Obama's resume looked perfect for this job. He had a far-left voting record and an activist background. His keynote speech in 2004 was the high point of the Democratic national convention. People regularly fainted at his campaign rallies just from being in the same space. He was the first Democrat in a generation to win more than 50% of the vote. Children sang to him in videos and celebrities pledged themselves to his cause. He came into office with large Democratic majorities in both Houses of Congress. He modeled his cabinet on Lincoln's and his first 100 days on FDR.

Three years later his approval ratings are setting record lows. The country has moved to the right instead of the left. He lost his majority in the House and stands to lose the Senate in the next election.

How did this happen?

A closer look at Obama's resume shows that this was inevitable. He only had two years experience in Federal government when he began his run. He was the most junior member of the Senate. Even in Illinois he was known more for the number of times he voted "present" than for the legislation he introduced. He had no experience in the private sector and had never managed anything larger than his presidential campaign.

Obama was known as a great public speaker but that was based almost exclusively on his 2004 keynote speech. While well-received, none of his later speeches were memorable. Worse, it became obvious that he could not even give a decent speech without a teleprompter. Despite this, his response to every event seems to be to give a new speech.

With no executive experience and a highly partisan chief of staff, Obama outsourced all of his legislation to Congress.

From the beginning, Obama was sure that his path to immortality lay in passing health care reform. At the same time, he did not have the skills to make overcome the many special interest groups. Rather than tackling the main issue of the day - rising costs - he opted to push for health insurance reform. This was his major thrust for a year and it was a disaster. The expectation was that the legislation might be opposed at the beginning but once it began going into effect it would become popular. While that might be true, the biggest provisions will not take effect for two more years. In the meantime, it is, at best, divisive and, at worst, unpopular. Currently there is a 20% gap between those who want it repealed and those in favor.

The worst thing about the push for health care reform was how out of touch it made him appear. The country's top priorities were jobs and the economy but Obama only seemed to care about health care. Three years after taking office, unemployment remains high and drops in the unemployment index reflect people dropping out of the workforce rather than new jobs being created.

Obama's foreign policy has had some mild successes and many setbacks. His biggest successes have come from continuing Bush policies that he ran against.

Iraq is a success at the moment but the troops were recalled sooner than planned because the Iraqis refused to grant continued immunity to the troops. The surge in Afghanistan is not working well. Bin Laden was killed but the raid embarrassed Pakistan and accelerated the deterioration of our relationship with the Afghans.

Obama made overtures to Russia, Iran, and Venezuela. Relations with Russia continue to deteriorate. Iran is becoming increasingly belligerent. Hugo Chavez of Venezuela is blaming the US for his cancer.

At a speech a few weeks ago Obama said that he had to keep from patting himself on the back over his support for Israel. Most others see him at the most hostile president to Israel since its inception.

Obama's support for the Arab Spring may bite him in the future. Currently the biggest beneficiaries have been anti-American Islamists.

Economically, the country continues an anemic recovery. If the economy should suddenly spring back to life then Obama stands a strong chance of reelection but this would need to happen in the next six months or less. Every day that passes without a strong recovery reduces Obama's chances of reelection. The Obama administration has exhausted its tools for promoting a recovery and there is still a chance that Europe will go into a recession and pull the rest of the world down with it.

With few accomplishments to run on, Obama plans on running against a do-nothing Congress. Accordingly he stopped making any attempts at running the country in favor of running for President.

During his August vacation his administration leaked that he would be proposing a new jobs bill. This was a campaign ploy. He gave a national address without naming specifics then took to the road with the call "Pass the bill!" before the bill ever reached Congress. His actual proposed legislation was never serious since it contained points that the Republicans could never pass. He poisoned the Super-Committee negotiations the same way - by threatening a veto of any resolution that did not include $1 trillion in new taxes on the rich.

The coming year will be nasty. Obama will continue to refuse to compromise with the Republicans in Congress in the hope that this will also tar the presidential nominee. His staff already admitted that their attack on Romney will be to make oblique references to his religion as "not being like the rest of us." With no popular accomplishments to run on, Obama has no choice but to run a negative campaign. No more hope and change, just mud.