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Great Hurricane Katrina Coverage on CNBC
Most news about hurricane Katrina is understandably focused on the immediately-affected areas. And it's full of attention-grabbing video and soundbytes that aim to project the magnitude of the damage and the resulting human suffering.
This is a "thank you" note to CNBC for their less parochial coverage. I live thousands of miles from the affected area, so the specific details of the devastation are not very interesting to me. But I am interested in the farther-reaching effects of Katrina.
CNBC has been doing a great job providing information I'm actually interestd in. Here are a few things I learned by watching a portion of the 8/30 broadcast of Closing Bell over lunch:
The economic impact of Katrina will be very large, but I want to emphasize how well markets will adapt to this. Giant corporations like Wal-Mart and Home Depot are determined to re-open their stores as soon as possible, providing much-needed supples to people in the region. The enormous logistical task of moving these materials to the areas where they are needed will be solved by private individuals motivated by profit. Shortages in the immediate aftermath will give way to general and widespread availability of goods as giant profit-hungry corporations race to beat each other in reopening their stores and selling everything that people need. Price gouging, if allowed, would hasten the end of shortages.
This will occur without political posturing, without playing favorites, without interest groups tripping over each other in adulation and bribery of politicians who might grant them a special allocation of some important good while making a speech about how important rebuilding is and how wonderful that their administration can help, vote for them.
In the rest of the country, we will see higher fuel, transportation, and commodity prices. These price adjustments will prevent shortages by reducing total demand, and the available supply will be directed toward its most important uses. But most people don't have to worry about it. You won't see any change except slightly higher prices for a few weeks or months. People involved in commodities and logistics will have more to worry about, but it's their profit-motivated job to solve these problems, and their solutions will help all of us. We won't even have to ask.
My Letter to Buick
Here's the complaint letter I've written to send to Buick in response to their screwing up my order again. I've redacted everything that might be personally identifiable.
Buick Customer Service:
I'm writing to you about my purchase of a new Buick LaCrosse. Unfortunately, this is the second time it has been necessary for me to write.
My first letter was the result of the factory not building the vehicle I ordered (#xxxxxx). It was not built due to production switching from 2005 to 2006 vehicles, despite the order being submitted approximately a month before the end of 2005 production. Reference case file number x-xxx-xxxxxx for more information.
Buick decided that a simple verbal apology was a sufficient resolution to my complaint. The people I spoke with are xxxx…xxxx.
I was not happy, but because I believed a LaCrosse is the vehicle I wanted, I re-ordered the vehicle as a 2006 (#xxxxxx). This vehicle was built (VIN# xxxxxxxxxxxxxxxxx) and delivered in just 33 days. The swift build and delivery made me again wonder why a month wasn't enough time to build my 2005 order in the first place.
The 2006 vehicle delivered is not the vehicle I ordered.
I ordered the Driver Confidence Package (PCI), but the delivered vehicle did not contain one of the components of this package. The steering wheel controls for audio and temperature (UK3) were missing. In every other respect the vehicle matched my order. The paperwork accompanying the vehicle suggested that the factory was aware of this change. Both my salesman and I were disappointed that the factory made this change without any notification whatsoever, much less asking if it was an acceptable change.
My salesman contacted Buick to ask what happened to my car. No immediate answer was available. Instead, he was given case file number x-xxx-xxxxxx and promised a return call in two business days. (I am writing this letter prior to that call; I haven't heard the excuse yet.)
Please ensure that the aforementioned case files are linked to each other and that this matter is escalated to the appropriate level of visibility. That these problems occur at all is evidence that your procedures are broken; that they both affected the same customer is insulting.
I still want a Buick LaCrosse. I've done a lot of research and believe it's better than the competition. It's a great car — if you can get one. I thought I could. I expected the factory to build it correctly, and you've managed to screw up both "build it" and "correctly." I've wasted three months learning that "build it correctly" is an unrealistic expectation for the world's largest car company to meet.
I will not simply try again through the same system that has already failed me twice. You have squandered my trust. I require a firm commitment from Buick that you will build it correctly. You must give me a reason to believe you when you claim "this time, it will be different." I want someone to be personally responsible for ensuring my vehicle is built correctly, and I want it in writing.
There's an incentive problem here. The factory doesn't have an incentive to get things right. If the factory doesn't build an order, that's fine because the customer will re-order. If the factory doesn't build an order correctly, that's fine because the customer might accept it anyway — or better, it might mean building an extra vehicle! The factory doesn't pay for its broken commitments or mistakes. Customers and dealerships do. This is wrong. The factory must be held responsible, or mistakes of this nature will continue.
I look forward to your written response. Make me an offer. Convince me that it's worth giving Buick a third chance for my business.
My Car-Buying Saga
A few months ago I blogged a lot about buying a new car. I'd like to glimpse back at that history and provide an update on recent events.
Last year I did some math on auto incentives to prepare myself to make an informed choice between financing or discount incentives. My example was the Buick LaCrosse, which coincidentally turned out to be the vehicle I ordered.
I didn't start vehicle shopping in earnest until four months later when I realized I wasn't going to do it unless I gave myself a deadline. I used the renewal of my auto insurance as a convenient but arbitrary date. I began the process of researching over thirty models.
After two test drives I eliminated one vehicle, and after the final test drives I placed a factory order for a a Buick LaCrosse on May 24th. Then I offered my advice to automakers to improve the online car shopping experience.
I got some bad news on June 23rd: The factory didn't build my LaCrosse before the end of the 2005 model production. This was very disappointing, because there was approximately a month between the time I placed the order and the end of '05 production. That should have been enough time to build it. I would miss the "Employee Discount for Everyone" program, and had to back out of the sale of my current vehicle.
I wrote a letter to Buick Customer Assistance about this, and talked to some people on the phone. They decided not to do anything to turn this frustrated customer into a happy one.
I re-ordered the vehicle as a 2006 on July 22nd. (I had to wait so long because pricing information was not released quickly.) This time the vehicle was built — and quickly! — arriving at the dealership on August 24th. (This rapid manufacture and delivery makes me very curious to know why my original order didn't go through…) I went to see my car two days later.
It's beautiful with all that chrome. It even has a go-faster stripe!
(click for larger image)
This isn't the car I ordered.
I ordered the "driver confidence package", a collection of seven options. One of them, steering wheel controls for audio and temperature "(UK3)", was missing. This was not an oversight — the vehicle's paperwork indicated that this item was specifically not present. This is not how the vehicle was ordered. (It couldn't have been ordered that way even if we had wanted to.) The factory decided to make this change and didn't even notify the dealership, much less the customer, to ask if it's okay.
It's not. This is totally unacceptable. The factory knew that this vehicle was already sold; that it was going to a real person and not just dealership stock. The factory should get every order right, but especially those orders placed by end customers. Otherwise, why even present the fiction that customers can order vehicles with options they specify?
Give them a second chance? This was their second chance. The first time they didn't build it at all. The second time they built it wrong. I originally ordered in May; it's three months later and I still don't have my car!
Monday morning my salesman is going to contact the manufacturer and get an explanation for what happened to my order. Buick customer service can expect to receive another letter from me (less polite, this time) and another couple phone calls (again, less polite).
For a thirty thousand dollar automobile, I expect professionalism and a commitment to customer satisfaction. I am not impressed.
The irony in all this is that I've been trying to find a buyer for my old car (a 1992 Buick Regal Custom). I had to back out of the sale when the factory didn't build my car. This time, I didn't advertise until the car had arrived. But I advertised before I knew something was wrong with it.
My ad said, "Now that the new car has physically arrived, I can sell this with confidence." Heh. Fool me twice…
At least this time I can cancel before the test drive.
I Told You So (again)
A year and a half ago I wrote about rising wages in India, a predictable result of globalization. Let's do it again.
Nowadays it's becoming increasingly important for companies looking for cost savings to to look beyond India:
Hmm, I wonder what Paul Craig Roberts has been saying about globalization recently. I've dealt with his pessimism before. It's time to see what he's been writing, and do it again.
Permit me a personal anecdote involving a major exporter.
My team at Intel has been consistently hiring for years. The ever-increasing amount of work we have to do has spurred growth in headcount, even after the significant productivity increases we've created by improving our processes. We've gone from 3 in 2001 to approximately 20 in 2005. But it's not just my group — similar groups in other geographies (including India!) have also grown or have been created from scratch. Other physically nearby groups are growing too; all this growth has actually created a space crunch and we're compressing the cubicles despite having built two new office buildings on this campus in recent years.
In my personal experience, globalization has not been about moving domestic jobs overseas. It's been about hiring both domestically and overseas just to keep up with the increasing complexity of our jobs. Moore's Law is a harsh mistress. But she's very, very sexy.
Why did Roberts pick physics, chemistry, and math to complain about? It's common knowledge that it's hard to find a job as a physics or math major. Chemistry is easier. But my group is a mix of computer science, computer engineering, and electrical engineering. (And truth be told, scandalously little of what I studied in school is relevant anyway.)
The job opportunities in the economy do require it. We've done a lot of interviews and we've turned down a lot of candidates. It's very difficult to find people with the skill set we're desperate for.
Please submit your resumés.
Right, Wrong, Fact, and Value
Monday morning as I was getting ready for work, my mind was wandering. Mundane stuff always does that — in this case, inspiration struck while I was brushing my teeth. I suddenly thought it was curious that in the English language we use the word "wrong" both for describing statements of fact and statements of value: "Those calculations are wrong." "Stealing is wrong."
The word "right" has the same curious property: "These calculations are right." "It is right to engage in productive work."
I don't know (or particularly care) whether this property of English is common in lots of other languages. What strikes me is how appropriate this word choice is. Leave your fears about equivocation aside for the moment. In fact, let's embrace it. This will be easy if you're a consequentialist, and hard otherwise.
Metaphysically, facts are primary and values are secondary. Facts simply are. Values are more complicated. The realm of values is really the realm of a particular kind of relationship: the relationship between a living entity and all the things that affect its life. Things that enhance its life are good, and things that undermine its life are bad. Actions of moral agents are right (good) or wrong (bad).
The correct identification of facts is good, is right, because as human beings our mind is our chief tool of survival. The correct identification of facts is, to express it one way, the very foundation of science. All our life enhancing knowledge and tools are ultimately a product of the correct identification of facts. It is good to be correct; it is right to be right.
The opposite is true for "wrong": To mis-identify facts is fundamentally anti-life because it makes our minds impotent to aid our lives, or worse, leads us to actually self-destructive behavior. It is bad to be incorrect; it is wrong to be wrong.
The relationship between is and ought, between facts and values, isn't esoteric. Rather, the relationship is embedded in common usage of the English language.
The political concept of "rights" is similarly rooted. Rights are things that are good, that are right — freedoms that people ought to have because those freedoms do (I'll say it: "in fact!") enhance their lives.
The Cost of Opt-Out, part 2
Let's try this again. It's so much easier to blog on weekends. :)
As I planned last time, I've used the Trustees Report to estimate the number of workers entering the Social Security system over time. Upon seeing a few negative numbers from historical years, and noting that those years had net immigration, I realized that this data doesn't track the unemployment rate! Rather than try to adjust for this, I decided to only use five-year-interval data so this effect is smoothed out.
I need an age distribution for those who would opt out. I arbitrarily decided that 50% of the opt-outs would be 20-24, 30% would be 25-29, and 20% would be 30-34. I verified with census figures that these age groups have similar populations.
I assume constant average incomes for everyone. No adjustments for age, and no income impact on the decision to opt out or not. I assume people are 20 when they become part of the workforce. I assume all workers face the same likelihood of death, and all retirees face the same likelihood of death, regardless of age. I don't do anything special with immigration, in effect assuming that all immigrants immigrate at age 20.
My results are, at least, not ludicrously wrong. The numbers I'm calculating seem to be roughly reasonable. If any actuary sees these and has the urge to help, I would certainly appreciate that. I think the most serious error is in the mortality assumptions. People don't die at a steady rate like I've modeled. The error is obvious by noticing that the percentage of contributors opting out doesn't settle to the correct value.
The most interesting number — in what year would the trust fund be exhausted if opt out were allowed? — remains elusive. I haven't found the data set from which the current expectations are based. I have, however, created a projection of the income and cost rates.
My calculations are all on this spreadsheet. Here are some graphs based on the Trustees' 2005 Intermediate Forecast with my dubiously-accurate numerical hackery assuming 50% of new workers will opt out of Social Security:
From these estimates it's fairly clear that the trust fund would be exhausted sooner under my assumptions for individual opt-out than for the existing system. This is expected, of course, because the existing system is breathtakingly unfair to those under 30, who expect to pay full contributions all their working years yet see benefits slashed 25% by the time they retire. This injustice would be moved forward to members of the Baby Boom generation who, given their greater numbers, would individually be hurt less by it.
The Cost of Opt-Out, part 1
The short answer is that this is a very difficult question. I was browsing through the 2005 Social Security Trustees Report looking for useful data and realized that I don't feel motivated to figure out the best reasonable number given the revenue, cost, and demographic trends available in the Report. I'd rather be a lot more lazy and put together something relatively simple but still useful. Our goal is to figure out roughly how long the trust fund will last under the condition of people opting out.
Let's assume the AARP's number that 22% of current workers would opt out immediately. I'll need to invent an age distribution for that 22% — so I'll first need to find out the current age distribution in the United States and guess which 22% it will be. Then I'll need to use Table IV.B2 for figures on the numbers of workers and retirees in each year, and Table V.A1 for the death rates of retirees. From those I'll be able to estimate the age distribution of the population over time. I'll also need to guess what percentage of new workers will opt out (it'll be higher than 22%).
Hmmm, what else do I need? I need to know how incomes vary with age so I can estimate the contributions that will be paid. I'll need to figure out what interest rate to pay the trust fund bonds at. I'll need to figure out what the average retirement benefit is and how it will change over time.
This is awfully complicated. And I'm already tired. I'm clearly not going to get anything numerical done tonight. :( Maybe I'll come back to this with a more resolute attitude about simplification. Right now, all I can think of are the myriad ways my calculations would be full of errors.
This is what you get for asking a validator to estimate something. I can tell you a whole lot about how the estimate will be a bad one before I even try to create an estimate. :)
The Popularity of Social Security Opt-Out
Over the past several months I've been uncomfortable with something. Because there are so many good reasons to opt out of Social Security, it ought to be a popular idea — right? Imagine my frustration when everyone I talk to tells me that of course it's a good idea but <sigh> it's politically impossible, it wouldn't be popular, and people have already tried and failed to make it happen.
But where's the data? That's what I've been missing. Show me a poll that says opt-out is unpopular! No one could.
This weekend I got a hint that someone has polled on the question recently. Monday, I got the details — thank you, Lea G. It turns out that than the AARP included a question about opt-out in their Social Security 70th Anniversary Survey. You can download the PDF report from their website.
It's so good to have data! The questionnaire they used plus the summary figures they obtained are available at the end of their document. The relevant question is #11, asked of 929 non-retired people in July 2005:
Notice that this question asks whether they personally would opt out, not whether they would support giving people the opportunity to opt out even if they didn't personally want to opt out. Also notice how the phrasing of the question was slightly biased to create the feeling of an obligation to "stay in and support" Social Security. For both reasons, the percentage of people who would support an individual opt-out is definitely higher than the 22% reported. Look at the age distribution of survey-takers (question S8):
Of the 1200 people surveyed, only the 929 non-retired people were asked about opt-out. Assuming none of the under-30 group were retired, they represented about 23% of the people who answered the opt-out question. I think it's encouraging that the survey reported such a high percentage of people would opt out, even though less than a quarter of the respondents were under 30!
A weakness of this survey — for my purposes, anyway — is that it didn't describe what would happen to past Social Security contributions if you opted out, and was not clear about whether the decision would be irrevocable. People had to answer the question based on what they thought was most likely … if they thought about it in detail at all.
Regardless, I am surprised and encouraged by these numbers. Social Security opt-out looks quite popular even among people who haven't read my essay. :)
Now that I have a sense for how many people would actually opt out if given the choice, I'll try to answer the question I was asked about the fiscal impact of opt out. (But I'm booked Tuesday night. It'll have to wait for Wednesday.)
Social Security Essay Published
I'm done. Here's a lengthy essay on why individuals should be allowed to opt out of Social Security. (Lengthy is a slight understatement. This essay is over one and a half times the size of my pro-globalization essay.)
Go ahead, read it. Spend some quality time with it. Enjoy.
You'll probably be surprised at how different this essay is from the usual banter about Social Security reform. There are several issues that I chose not to emphasize or chose not to discuss at all, precisely because I don't want this essay to be susceptible to canned responses that don't address it on the merits.
Regular blogging will resume as soon as I don't feel burned out from writing so much. :) In addition to working on this essay in my free time all week, I've also been writing a lot at work. (Technical stuff, microcode specs.) I might need a few days to relax.
Still Working on that Essay
You may have noticed I haven't posted a Social Security opt-out essay yet. :) It's taking longer than I expected. It's also becoming longer than I expected.
What's the current status? I've reviewed everything I've ever blogged about
the topic to make sure I don't forget about any important arguments I've
made in the past. I've made brief sketches of all the arguments I plan
to use, but they're not organized into a good outline yet. I've written the
actual text for only two of the arguments. I think those will turn out to be
the most time consuming of the whole bunch, because they were empirical and
involve lots of links. They have some graphs too — I'm starting to get
I think this essay is trending to be about the same size as, or longer than, my pro-globalization one, previously the longest thing I've blogged by a significant margin. I hope it doesn't take as long to write…
I can't resist adding a plug for my previous Social Security essay. I wrote that almost two years ago and I'm very proud of it. I will be re-using several of its arguments.
While I'm focusing on this essay, I'm unlikely to do any substantive blogging. I might not even do a link roundup. This is the sort of writing project that consumes me until it's done — and I'm a very slow deliberate writer.
I don't anticipate the essay will be done until next weekend, now. I promise the wait will be worthwhile. In the meantime, check out a few of the other fine blogs in my blogroll.
New Social Security Essay Coming
For the past several weeks I've been contemplating putting together a political petition in favor of an individual opt-out for Social Security. I've decided to write it this weekend and add it to my long-neglected essays section.
It will be organized as a collection of separate and brief arguments about why individuals should be allowed to opt out of Social Security. This arrangement will make each argument individually visible, so that a person who supports few or only one of the arguments might nevertheless still agree on the overall value of individual opt-out and agree that it should be available.
Regular blogging will resume after I post the essay.
Palestinian Rocket Misfire
I'm tempted to say "good", but young children cannot deserve this sort of fate. It's a shame the misfiring rockets didn't hit adult Palestinian militants instead.
I wish the article was a little more detailed about the physical area. Were these children hanging around with militants or were they in a "safe place" far from the "action"? I seriously wonder whether their parents intentionally brought them into a dangerous environment in order to witness the firing of the rockets intended to kill Israelis.
Apropos the subject of Gaza withdrawal, I want to caution people against viewing it as an Israeli setback and something that will merely embolden the terrorists. I want to counter the idea that strengthening the Palestinian Authority (giving them money and arms) is a completely wrongheaded idea.
I think we're trying to provoke a Palestinian civil war between Hamas and the Palestinian Authority. Strengthen the PA, pull out of Gaza, and then let the PA and Hamas fight over the power vacuum Israel leaves behind. Meanwhile, our (Condi Rice's) words and actions provide diplomatic cover: we were sincerely trying to help the PA, the "legitimate" political body. But we're really after a civil war.
Israel will be safer with the militants blowing each other up instead of targeting Israelis. That's a lot less clean-up for the Israelis to do.
This plan seems very obvious to me. Especially if a civil war was believed inevitable — I think we'd rather deal with the PA as victor rather than Hamas, so we're supporting the side we'd like to "win".
I could be wrong about this. Diplomacy is a slippery thing. But I've learned over the past few years not to underestimate Bush's foreign policy.
I've been doing a little blog maintenance tonight. If you notice anything suddenly not working, please let me know. I got a little script-happy and could have broken something.
In other news, check out the icy goodness on Mars. There's a ridiculous-resolution image (13MB, 6000x4800) available.
If you're looking for something good to read, check out this week's Carnival of the Capitalists.
I decided not to do any serious blogging this weekend. Instead, I'll point you in the direction of some things I've read the past few weeks that I thought were interesting.
I'm a sucker for economics writing that includes data over a long time period. Here's a good article about unemployment and labor force participation that takes the long view. Historical data is useful, and so is awareness of changing social patterns.
I never wrote about the huge error in the US tax revenue forecast that will reduce this year's federal budget deficit by almost $100 billion. My interest in this subject would be in figuring out how large this error is compared to historical norms. I suspect this was a particularly large error, given this graph showing that the differences in tax revenues between 2004 and 2005 is the largest ever between consecutive years. Revenue is up about $200 billion over 2004.
Here's an eye-opening article on how the Indian government's energy policy created horrendous pollution and economic waste. I do have to nitpick one thing, though — the author doesn't say when his visit to India was, so I don't know if this was twenty years ago or last week.
Don Lloyd wrote an excellent article about the economics of drug development. "Contrary to popular belief, marketing expenses do not take away from R&D expenditures, and in fact they tend to add to them."
Here's a transcript of Donald Trump at the Senate International Security Subcommittee, predicting massive corruption during the remodeling of the United Nations building. His description of his discussion with the UN man in charge is priceless. The Q&A is also posted and I promise you'll roll your eyes at the end. (It looks like there's no permalink for the Q&A yet so I'm using the one on the main page, but it'll break in time. Someone needs to fix their software.) I have to heap praise on The Donald for making abundantly clear the incompetence and corruption of the United Nations. If they're this bad even regarding the building they work in, just imagine how horrible they are when the problems are remote!
This example of bigotry makes me shake my head. People should know better. Where are the adults?
Oh, and here's a story about pirates. Yeah, real ones. Arrr!