Thursday, June 30, 2005


Henry, on Wal-Mart

Wal-Mart is widely known for its low prices. It is also widely known in the business world for getting low prices by using its size and purchasing power to “strong arm” its suppliers into reducing the cost of their products. Some people think that Wal-Mart’s power and tough negotiating with manufacturers to reduce price may even be helping to keep inflation low. A simple, static view of this situation makes it seem like Wal-Mart is creating savings for its customers (and more business for itself) by forcing manufacturers to accept lower profit margins on their goods. In that zero-sum analysis Wal-Mart transfers wealth from manufacturers to their customers by their tough negotiating and low pricing policies. This obviously helps consumers by saving them money. This arrangement also helps Wal-Mart by increasing their customer base as more people shop there to save money. This arrangement would seem to be very bad for Wal-Mart’s suppliers. But I’m not sure of that. I think Wal-Mart may be doing a great service to their suppliers, and the entire manufacturing community.

This article at discusses Wal-Mart and their tough negotiating tactics with their suppliers. It gives the example of Vlasic, who Wal-Mart pressured into selling them almost a quarter million gallon jars of pickles every week at a profit for Vlasic of around only one cent per jar! How could something like this be good for a supplier? Let’s ask my friend Henry, who knew more about reducing manufacturing costs than everyone at Harvard Business School put together. Henry said:

“One of the ways of discovering what a cost ought to be is to name a price so low as to force everybody in the place to the highest point of efficiency. The low price makes everybody dig for profits. We make more discoveries concerning manufacturing and selling under this forced method than any method of leisurely investigation.”

For all the complaints about how tough Wal-Mart is for demanding low costs from its suppliers, I can’t imagine that they are as tough as Henry was on his own company. After all, Henry surely knew more about his own company's products (which he did the original development work on) than Wal-Mart’s purchasing agent knew about pickles. Henry wouldn’t cut prices down to only a penny’s profit; he would cut below costs and trust in innovation and mass production to get costs back below his set prices again. The idea that if a company is forced to reduces prices on a product by a dollar, then it loses a million dollars on every million units it sells is wrong because it fails to look at dynamic factors like the effect of lower prices on sales, the effect of sales on economy of scale, and the effect of price pressure on increasing the rate of innovation. Again, Henry explains it better than I could:

“Reducing prices is taken by the short-sited to be the same as reducing the income of a business. It is very difficult to deal with that sort of a mind because it is so totally lacking in even the background knowledge of what business is. For instance, I was once asked, when contemplating a reduction of eighty dollars a car, whether on a production of five hundred thousand cars this would not reduce the income of the company by forty million dollars. Of course if one sold only five hundred thousand cars at the new price, the income would be reduced forty million dollars- which is an interesting mathematical calculation that has nothing whatsoever to do with business, because unless you reduce the price of an article the sales do not continuously increase and therefore the business has no stability…Old time business went on the doctrine that prices should always be kept up to the highest point at which people will buy. Really modern business has to take the opposite view. Bankers and lawyers can rarely appreciate this fact. They confuse inertia with stability…”

So I don’t doubt that Wal-Mart helps to reduce inflation. It doesn’t do this by taking money from manufactures, but rather by encouraging innovation the same way Henry did in his own industry. Wal-Mart’s constant pressure for lower prices forces their suppliers to make more discoveries about manufacturing than they ever would make through leisurely investigation. These reduced prices allow Wal-Mart to buy and sell in larger quantities. These larger quantities then produce their own savings through economy of scale and by capital improvements that could not have been justified with the previously smaller rates of production. While Henry may have been better at it with his own company than Wal-Mart is with their suppliers, Henry only had one business. Wal-Mart deals with a huge variety of products, and so the improving effects of its relentless pressure are spread over an amazing number of industries. There is no telling how many innovations in manufacturing have occurred because of Wal-Mart’s aggressive negotiating policies with its suppliers*. This is a tremendous service to the manufacturing community. The fact that Wal-Mart’s actions aren’t done deliberately to improve the state of manufacturing technology, as Henry did, doesn’t diminish the real effects of that policy.

The aforementioned article includes these quotes:

“Many companies and their executives frankly admit that supplying Wal-Mart is like getting into the company version of basic training with an implacable Army drill sergeant. The process may be unpleasant. But there can be some positive results.”

“Getting ready for Wal-Mart has been like putting Levi on the Atkins diet. It has helped everything—customer focus, inventory management, speed to market.”

“’Wal-Mart won’t necessarily say you have to reconfigure your distribution system,’ says Carey. ‘But companies recognize they are not going to maintain margins with growth in their Wal-Mart business without doing it.’ The way to avoid being trapped in a spiral of growing business and shrinking profits, says Carey, is to innovate.

“John Mariotti is a veteran of the consumer-products world—he spent 9 years as president of Huffy Bicycle Co. and is now chairman of World Kitchen… He could not be clearer on his opinion about Wal-Mart. It’s a great company, and a great company to do business with. ‘Wal-Mart has done more good for America by several thousand orders of magnitude than they’ve done bad,’ Mariotti says. ‘They have raised the bar, and raised the bar for everyone.’”

Looking only at the theoretical, static, zero-sum depiction of Wal-Mart beating up on suppliers it is hard to understand these positive comments. But they make perfect sense in the dynamic world that business and manufacturing really inhabit. We no longer have Henry around to drive manufacturing costs down. Thank God we at least have Wal-Mart to not only revolutionize the productivity of retailing itself, but also to relentlessly motivate all their suppliers to increase the productivity of their own industries and to provide the large volume business to justify the investment needed to do so.

*Yes, one of the things this drive to reduce costs does is increase outsourcing, but this is not a post about mercantilism and its flaws. I’ll save the discussion on outsourcing for another day.

Tuesday, June 28, 2005


How Much Civilization is Too Much?

In his latest TechCentralStation article Lee Harris asks: Can people have too much respect for the law?

I have long thought that a culture was too uncivilized when its people can't spontaneously organize themselves into a line (or queue if you are European) when waiting for something. At the other extreme, a culture is overcivilized when its people will wait at a stoplight in a remote area when it is obvious that there are neither other cars to hit or police assets there to ticket them.

Monday, June 27, 2005


Worse than Kelo vs. City of New London

A lot of people are upset at the Supreme Court decision in Kelo vs. City of New London which upholds greatly expanded abilities of the gov’t to seize people’s property using eminent domain. At least when the gov’t uses eminent domain to take people’s property, they receive compensation. Many people do not realize that there is another way that the gov’t can take their property without having to pay any compensation. All the gov’t has to do to seize your money or property is for a law enforcement officer to suspect that it has been used in a crime. That’s right, you don’t have to be convicted of a crime, or have a warrant issued for you, or even have a judge issue the order. A law enforcement officer can just take something from you. If you don’t believe something like that can be possible in America, read this news story, or this, or this, or these cases of innocent citizens having property taken by suspicious or greedy law enforcement agencies. Remember any news stories where boats and cars are seized from drug dealers on the spot without prosecuting them? The same law can, and sometimes is, used on innocent people since there is no trial required to insure that the victim of the seizure is really guilty. And since the seizing agency often gets to keep what they take, there is a strong incentive for them to err on the side of taking stuff.

A victim can sue to get their property back, but since they aren’t charged with a crime (technically only their property is), there is no presumption of innocence. They have to prove they deserve to get it back. And, of course, sometimes it can cost more to sue the gov’t to reclaim your rightful property than the value of what they stole.

As long as the congress is taking up the issue of constitutional amendments, they should make one to strengthen the 5th amendment protections against being deprived of property without due process. Certainly we can expect many gov’t agencies that use asset forfeiture to complain that requiring due process before taking money or property from suspicious people would make their job harder. Asset forfeiture laws allow them to punish people they believe are guilty without having to go through the difficult work of getting proof and putting together a case that will stand up in court. Well, if we wanted to make their job easier we could also just allow them to imprison people without trials as well. Heck, why don’t we just let them kill people they don’t like. As long as they say that deep down in their hearts they know the person deserved it, should that be enough? Those changes would make their jobs really easy. Obviously we don’t do these things because we would rather make the jobs of the police harder than to give up our rights. What is true for life and liberty should be true for property as well. Until congress fixes this problem, you can protect yourself by making sure you don’t have any money or nice things on your person when you are around any law enforcement officers.

Thursday, June 23, 2005


Never ^H^H^H^H^H^H Again

While petty politicians try to win media "points" by accusing America of following in Pol Pot's footsteps, a real replay of Khmer Rouge style crimes in Zimbabwe seems unopposed by polite society in the First World. Why aren't we dropping THESE THINGS to the oppressed people there? I can understand why the corrupt, hopolophobic UN would sit on its hands, and obviously our military resources have to be spent right now dealing with threats to our own interests, but what is America's excuse for allowing them to remain defenseless?

Wednesday, June 22, 2005


Flag Eating?

The House has approved a constitutional amendment to ban the desecration of the flag.

Kathryn Lopez at The Corner wonders if 'desecration' includes eating.

I hope not.

FLAG CAKE--This 8 ft. X 4 ft. Flag Cake was made by 4-H'ers. It was made up of 20 extra large cakes from 60 cake mixes, 120 lbs. of powdered sugar, and 9 cans of shortening. A minimum of 32,000 star tips filled in the 13 stripes and 50 stars.


Why we need the F-22

The Scotsman reports that a new Eurofighter Typhoon single-handedly beat two F-15s in a mock dog fight. This suggests that last years embarrassing loss in the Cope India war-game by USAF pilots flying F-15s to Indian pilots flying a mix of Soviet developed Su-30s, Mig-29s, Mig-27s, and Mig 21s was not just bad luck. The F-15 was the best air-to-air fighter plane in the world when it was deployed in the mid 1970s. It has been upgraded since so that current F-15s are better than they were 30 years ago. But the fact remains that the F-15 is a 1960’s design made with 1970’s technology. There is only so much improvement that can be done to a three decade old design, and now even with the best upgrades an F-15 is inferior to the current generation of European and Russian fighter planes that are being sold all over the world. That is why, despite some complaints of its expense, the USAF needs the F-22.

I understand that other branches of the service need more money for their developments, but the place to find money is not out of the Air Force’s fighter budget. It has been a long time since American soldiers and Marines have not enjoyed the benefit if fighting under an umbrella of air supremacy, and losing that benefit would be a costly military blunder. Air supremacy is more than just protecting our troops from enemy bombs, delivering air strikes against enemy soldiers, and allowing the more vulnerable UAVs to freely roam the skies sending back intelligence to ground commanders in the event of war. The ability to achieve air supremacy is also a strong deterrence that helps to prevent such wars from even starting. Considering all the effort potential rivals like China are putting into modernizing their air forces, we would be both reducing our ability to deter aggression against us or our allies and increasing the losses we would suffer in responding to such aggression if we do not regain the lead in air combat with the F-22.

Neither I nor this website are in anyway affiliated with the F-22 program, mfg, or suppliers. I just don’t like the idea of being one or more generations behind our potential enemies in so vital an area of military technology.

Tuesday, June 21, 2005


Tom on Gitmo, MSM bias, and Public Diplomacy

I started this weblog partly because of some advice from my friend Tom. Everyone seems to be upset over imprisoning radical Islamists at Gitmo. Tom indicated that we should be more worried about the larger ideological battle. If we, right thinking people can stand up to those anti-American and anti-Western Civilization apologists and propagandists, and demonstrate to the general public the falseness of their ideas and the danger of their plans then we can win. If we fail to counter the mis-education our opponents spread at every level, then we can’t build enough Gitmos to win. A broad education campaign on the merits of our system, and the emptiness of the Islamist, fascist, socialist, and communist thinking is needed for America and Western Civilization to prevail in the 21st century. I do not have the linguistic talent to engage in the multi-lingual public diplomacy that Tom thinks is necessary; but I do have the ability to add another voice to the blogosphere, so I’m doing what I can.

I fear I don’t do justice to the wisdom of Tom’s advice by paraphrasing or explaining it, so I will reproduce it here verbatim:

“We hear a great deal in these days about radicalism, for example, and I have no doubt that the greater part of what we hear is true. We are trying to fight this by locking up some dangerous people, deporting others and trying thus to warn them all.

“With these methods I have not the slightest quarrel. Doubtless they are necessary. They may check the immediate dangers arising from constantly regrowing. It is conceivable that they may help.

“Used alone certainly they won’t permanently help us much. We must put soap-box orator against soap-box orator, if we wish, as the opponents of our present system do, to produce results, print pamphlet against pamphlet, in every conceivable way put argument against argument.

“The best way to combat a campaign of mis-education is to conduct a campaign of education. The undesirables are gaining ground not because they are permitted to speak, print and scheme but because their falsities are uncontradicted. Putting a few of them in jail won’t cure the evil, although I don’t say keep them out of jail.

“The thing which would destroy them utterly, making all their efforts unavailing with the American public, would be to prove them to that public to be liars. If we adopted tactics of that sort we could run them out of the country in a year. We wouldn’t need to deport them; they would deport themselves, and be glad to have the chance to get away. A man will run a good deal faster from a hostile population than he will from a hostile Secret Service or police force.

“We’ve got an immense foreign-born population to deal with. They don’t read the English-language press, in which most of the arguments against radicalism are printed. Why should they be expected to? They don’t know how, and it will be years before we can teach them to.

“But most of them probably can read some language, and there are not so many languages that it would be impossible for the United States of America to use all of them as effectively as the radical workers and propagandists now use them.”

-Thomas Alva Edison

Monday, June 20, 2005


Communists Promote Bible Study in the People's Republic?

In a recent article at TechCentralStation, Lee Harris argues that in a world where non-Christian parents did not fear their children might be converted to Christianity the Holy Bible would be required reading in schools because it is such a historically important and influential book. After all, classic ancient Greek literature dealing with the Pantheon of Greek gods is now studied in school and technically it has religious themes. He writes:

“Indeed, the day may come when the current attempt to suppress the reading of the Bible in public school is looked upon as being no less hysterical than the efforts of the good town of Artichoke to repress the reading of Homer in their public schools.”

The town of Artichoke he refers to is a fictional creation for the purposes of his article. Mr. Harris seems to think that the day when the Bible is dispassionately studied as an important work of literature will be far in the future, but it may already be upon us. The question isn’t when will this happen, but where.

There was an article last October in the Shanghai Daily News reporting that the Bible had been added to the recommended reading lists for local schoolchildren. This makes perfect sense, when considered in light of Mr. Harris’s article. Shanghai is a major center of trade with the West, and given the incredible influence the Bible has had on Western culture, politics, and language it would seem to be an obvious book to have Shanghai schoolchildren study to help them understand the Occidentals they will do business with when they grow up. There would seem to be no ‘risk’ to having their children study the Bible if, as good Communists should, they believe that the rejection of Christianity (and other religions) by society is historically inevitable. So if there is no chance of the Bible altering the course of their society and it would improve their understanding of the West, it would be hard to argue with the Shanghai Education Commission decision to encourage Bible reading among Shanghai youth.

I wonder if there is another possible explanation, however…

Christianity is on the rise in mainland China. Perhaps, like pre-Constantine Rome, there are more Christians in the upper class of Chinese society than many now believe. I can’t help but wonder if perhaps some of those Christians are on the Shanghai Education Commission, and the promotion of Bible reading is result of their secret influence. If so, it is a very clever political maneuver. As I mentioned above, it is easy to justify on the basis of practical education. Despite the fact that most Chinese probably realize that this will help the spread of Christianity, it is hard to argue that without also saying that Christianity can compete and win ideologically against Communism. In fact, some of the parents interviewed in the article did voice concerns about their teenagers being exposed to religious influence. While the ideological weakness of Communism may be obvious to most mainland Chinese, it is still something that few people are comfortable saying officially. Thus the spread of Christian influence can occur right under everyone’s nose and yet few will even comment on it for fear of being impolitic.

Certainly Bible studies in Shanghai schools, could be a product of rational atheists, as proposed by Lee Harris. But I still suspect that at least some of those involved with the decision have ulterior, evangelical motives. Combining this with my earlier observations in the post Uprising in Mainland China, I am getting more optimistic about the near future of the PRC. If there are any old China hands that have insight into this, I'd appreciate the input.

Sunday, June 19, 2005


Power of Productivity Interview

Nick Schulz interviews William Lewis at TechCentralStation about his new book The Power of Productivity and the role of productivity in determining the wealth of a society. The most suprising claim, I think, was that education doesn't have as large an impact on productivity as 'common knowledge' would suggest. It is an interesting discussion, and makes me want to buy the book.


Uprising in Mainland China

I recently read this Washington Post article about a small peasant uprising in the People’s Republic of China, that has resulted in the gov’t backing down and apparently giving in to a lot of the local’s demands. Mao wouldn't have put up with that; he knew how to keep a nation oppressed. Stalin, Hitler, Hussein, Assad… these men also understood the danger to a tyrant of letting even a few people get away with defying the authorities like this. But succeeding generations of dictators get handed their place without learning the brutal business that their predecessors knew first-hand. Like free men who take for granted the liberty that others earned for them, petty tyrants who came to power by keeping their heads down and rising up through the party bureaucracy or family tree may not have the knowledge and ability to do what it takes to keep what they were given. The fact that these rebellious peasants are not only still alive and free, but talking to the media is a very strong indicator to me (and a lot of other people, I'm sure) that the ChiCom leadership is losing the ruthlessness and balls it takes to run an authoritarian state. I had previously thought that it would take another generation or two of Communist Party leaders in mainland China before they got too soft to effectively oppose large scale democratic reforms. Their unwillingness to massacre these brave farmers makes me wonder if I have been too pessimistic about that timetable.

Saturday, June 18, 2005



Just because you rarely hear about them on the evening news, read about them in the news weeklies, or see them promoting War Bonds, doesn't mean that there aren't war heroes fighting in Iraq and Afghanistan. I realize this is about a week late, but anyone who hasn't done so yet should read the Jun 14th special edition of Stars and Stripes.


Did Terry Schiavo Have Blindsight?

During Terry Schiavo’s dehydration, her friends and family members who did not want her killed frequently used video of her watching and apparently recognizing things in her field of view to prove that she was not in a persistent vegetative state. The autopsy of Ms. Schiavo indicated on page 8 of the attached neuropathology report, however, that she had damage to her occipital lobe that would have rendered her blind. This seeming contradiction bothered me. It is possible that people who watched the video were seeing a pattern in her behavior that wasn’t really there, perhaps because they wanted to see it. Still I wonder if there isn’t another explanation of her behavior: blindsight. Blindsight occurs sometimes when people have functioning eyes, but brain damage that prevents them from converting the nerve impulses from their eyes into images, just as the autopsy indicates Ms. Schiavo did. A person with blindsight cannot consciously see objects the way a normal person can, but the nerve impulses from their eyes are still processed by other portions of the brain. Wil McCarthy devoted an article in his Lab Notes column to the subject. Apparently blindsight sufferers can not look at a crowded room and describe it, but they could navigate from one end to the other without bumping into anything. Could Ms. Schiavo’s apparent tracking of objects in her visual field have been due to blindsight? I don’t know. If anyone is familiar with blindsight, I’d be interested in their opinion.

Friday, June 17, 2005


The Japanese/French Son-of-Concorde vs. the Quiet Small Supersonic Transport

The BBC has an article on Japanese and French cooperation to build the successor to the Concorde SST. Rand Simberg is skeptical that this will produce anything but paper studies. An important piece of information in the BBC article is that the Japanese and French will only be spending about $1.8 million a year for three years on the project. That is clearly not enough money to build an airplane, and probably not enough to even test any significant pieces of hardware. So it seems very unlikely that this will produce anything but a few conceptual designs and a lot of paper and PowerPoint presentations. Perhaps this is just a PR stunt to grab some headlines during the Paris Airshow. Perhaps Japan and France each hope that the project will give their engineers a chance to steal some of the other’s ideas.

Another “fact” in the article that is almost certainly fiction is the statement:

The new plane will have 300 seats and cut the flight time between New York and Tokyo to six hours, reports said.

Because of the noise pollution of a loud sonic boom, there is almost no chance that airlines would be able to get permission to fly supersonically on the overland portion of the flight from New York to Tokyo. The only way I can see civilian supersonic overland flights being approved in the First World is if quiet supersonic aircraft are built and demonstrated. You might be able to do that with a business jet, or even a small commuter jet. I feel safe in predicting that Japan and France (or anyone else) cannot eliminate the sonic boom for a 300 seat Mach 5 airplane in time for the next generation airliner. Given the realities of the sonic boom and NIMBY politics, overland flights of a 300 seat SST from New York to Tokyo at all seem impractical for the near future. Proponents might try to claim that the plane could fly subsonic during the overland portion of the flight, but that implies the plane could be economically operated in both subsonic and supersonic flight. That seems only slightly less likely than a silent supersonic jumbo jet. Supersonic flight from LA to Tokyo would seem to have been an obviously better example to have given, and the fact that NY to Tokyo was given instead makes me wonder if the Japanese and French organizations who made the announcement are even trying to be taken seriously.

I think a much more realistic near term civilian supersonic aircraft is the small supersonic jet. Sukhio and Gulfstream in particular have been interested in making supersonic business jets for years. There is also a Supersonic Aerospace International, who at least has a very pretty website that describes the concept. I recently read a paper from Gulfstream on the prospect of building a successful small supersonic airplane. The author seemed very confident that such a plane could be economically successful if one condition could be achieved: the sonic boom (and other environmental impact) could be reduced sufficiently to get gov’t approval of supersonic overland flights. If that condition can be met and overland flights approved then small civilian supersonic jets will be a reality in the near future. While making the sonic boom and engine noise of a 300 seat airliner acceptable seems “far out”, the idea of quieting a 10 to 20 person jet enough to allow overland flights might be accomplished in the near term.

One obvious market for a quiet small supersonic civilian airplane would be as a business jet. The advantage to large companies of being able to send high value personnel to handle unexpected problems at a distant facility would be considerable. For similar reasons, civilian and military government agencies (from many countries) would probably buy some of these aircraft as well. Executives involved in multinational business would obviously want the planes to reduce the amount of time they wasted travelling. The prestige of having a supersonic business jet would also be a draw to major corporations. Salesmen or lobbyists would love to offer to fly clients or politicians up to their factory on some excuse like “auditing our quality assurance systems”, and then show up at the local airport to pick up their guests in a Mach 2 jet. I fear that the few practical purchasing agents who thought “they must be overcharging us if they can afford this,” would be more than outweighed by the ones who thought “Wheeee! These guys are so cool”. Some of the aircraft will also probably be used for courier services like DHL. Getting repair parts to urgently needed locations like a stranded ship, inoperative oil rig, or idle factory could keep a small fleet of these quiet small supersonic transports profitably employed.

A third obvious application of quiet small supersonic transports would be for high speed airliner use. Instead of having a few flights of a Concorde or 300 person son-of-Concorde overseas between major costal airports, an airline could have a larger number of flights of the smaller aircraft. Because the smaller aircraft could be flown overland, they would open up more routes. The NY to Tokyo route proposed in the BBC article might be serviced by several quiet small 14 person supersonic business jets converted to airline use (provided, of course, the airplane had enough range). Entirely domestic supersonic flights such as NY to LA might then occur.

Besides the benefit of being more easily made quiet, the small supersonic transport could have another advantage: it could land at a smaller airport. To be successful as a corporate jet, the aircraft would have to be able to land and take off from the small airfields around the country that do not serve full sized airliners, but regularly see use by business jets. By being able to use small airfields, airlines could reduce the passenger’s total trip time by saving them time on both the ground and in the air. Instead of having to leave home two or more hours early in order to fight traffic to the major airport, park, go through check-in, security, and boarding, luxury supersonic passengers could drive to a smaller airport whose only scheduled airline flights are a few small SSTs totaling no more than 100 passengers a day. Traffic would be lighter, parking would be closer to the terminal (and of course if you’re paying for an SST valet parking seems justified), with only a dozen passengers on the flight check-in and security screening could be very quick. Since the smaller runway requirements would open up more airfields the airport might even be located even closer to likely passengers. The idea of daily 300+ seat son-of-Concorde overland flights direct from Martha’s Vineyard to Aspen seems very unlikely, but for a quiet small supersonic transport it would be very believable. I could easily see a network of small, ultra luxury, airline facilities being set up in small to medium airfields around the nation that had either no other airline traffic or very little. Use of these airports might save an additional hour or two off the passenger’s total travel time just by speeding his trip to and though the airports on each end of his flight. So the words ‘quiet’ and ‘small’ in phrase quiet small supersonic transport could be just as important as the word ‘supersonic.’ I think that the next generation SST is a lot more likely to be a small plane from the USA, Russia, and/or Canada than a 300+ airliner made by Japan and/or France.

Wednesday, June 15, 2005


Social Security Doesn't Age Well

IANAL (I am not a legislator) but it seems to me that one of the attributes of good legislation is that it should “age” well. Clearly Social Security does not fit this criteria. When it was originally conceived, it was a form of extreme old age insurance, to make sure that the small percentage of people who became decrepit from old age would not live out their last years in poverty. It was not supposed to be a national pension system. It was certainly not supposed to be a paid vacation for a large percentage of an otherwise healthy person’s life. The way I see it, there are two fundamental flaws in Social Security that come from the failure of legislators to take into account the effects of how circumstances change with time.

The first problem is described well by William Sterling in an article at TechCentralStation entitled From Piece of Mind to A Piece of the Action. If the goal of Social Security was to provide enough money for a decent (but not extravagant) living for the incapacitated, then you would except that the payments would be tied to the price of consumer products. That way, as inflation drove the cost of living up Social Security recipients would be able to continue to afford the same lifestyle. But that is not how the law was written. Instead, Social Security payments are tied to increases in the cost of labor. Because of increasing capital investments and technological developments in industry that continually increase worker productivity, workers get paid more and more every year. This increase in worker pay is generally higher than the increase in the cost of living. By tying Social Security payments to labor, the system is set up to provide a continually increasing standard of living for each generation of recipients.

The second problem is discussed by Glenn Reynolds in another article at TechCentralStation, and also brought up by an article in the NY Times by John Teirney.
Because the lifespan in the United States has increased faster than the retirement age of Social Security, many people are taking Social Security while they are still leading very active, healthy lives. As medical technology improves, this situation is likely to get worse. I’m sure the “me generation” of babyboomers will pour huge amounts of their (and through gov’t spending, everyone else’s) money into life extension technology in order to stave off their day of reckoning as long as possible. If these investments pay off with large increases in the human lifespan, then we could have the case where people are becoming eligible for Social Security while they still have more than half of their life ahead of them. Presumably these people would be healthy much longer into their old age as well, so they would be getting paid to indulge themselves in hobbies or recreation while they might otherwise have decades of productive wage earning ahead of them. Congress could always change the law to increase the retirement age, but they would have to do that each time a new medical breakthrough occurred and there would be considerable pressure from soon-to-be retirees against each attempt to increase retirement age.

The combination of these two failures of Social Security legislation to hold up over time make our current system terribly flawed. They mean that a program that was initially intended to prevent elderly people who could no longer be productive wage earners from living their last years in poverty will eventually become one that attempts to provide an extravagant lifestyle for the majority of most people’s lives. The AARP may claim that this is a “feature not a bug”, but measured against the stated aims of the original program I think we have to conclude that the legislators have done a bad job with how they enacted Social Security.

Fixing much of what is wrong with Social Security could be as easy as getting rid of these two problems, and then letting the (hopefully) continuing increase in worker productivity outgrow the costs. Tying benefits to the cost of living is easily done. Tying the retirement age to life expectancy would be a little harder. Unlike inflation, I don’t know of a good source of life expectancy estimates that are produced regularly. A government office could be set up to produce regular life expectancy reports, but I wonder if it would become politicized. Even if the annual estimates are politicized, the information gathered every ten years in the census would be a count instead of an estimate and so it could serve to “recalibrate” the annual life expectancy estimates and remove whatever errors had accumulated in them. Making these changes would still leave at least one other big problem with Social Security, however. The excess revenue brought in by Social Security above what is needed to pay its obligations is too tempting a source of money for Congress, and they will probably always want to spend that money on pork under the guise of “borrowing” from it.

Considering that technological and social change is happening at a much faster pace now than it was last century, I hope that our current legislators pay more attention to how well their laws will age. I won’t be holding my breath, though.

Thursday, June 09, 2005


On An Immigration Thought Experiment

At The Immigration Blog Chris Kelly has a post entitled An Immigration Thought Experiment which asks:

If we absolutely had to deport a significant portion of the illegal aliens currently in the U.S. as quickly as possible, how could we do it? If you need numbers, assume 1 to 2 million within 6 months. Please give a specific plan and succinctly describe two or three scenarios (favorable, unfavorable) for how that plan might work out from beginning to end.

A new plan does not need to be created. Operation Wetback has already demonstrated how this might be accomplished. I do, however, have my own proposal for how 1 to 2 million illegal aliens could be removed from the United States within a short period of time with less heavy-handed methods:

Step 1. Begin surreptitiously building up Border Patrol capabilities, but without applying those new capabilities. This may initially require using military units, sensors, and unmanned vehicles to supplement the existing Border Patrol. Also build new detention facilities to house illegal immigrants captured entering the country. While this is going on…

Step 2. Give no indication of this improved capability. Instead give the impression that border security will be reduced, especially during the holiday season. If possible, announce some stupid sounding policy that results in illegal immigrants getting a free, comfortable ride to Mexico (or Canada) at the Border Patrol’s expense and spread word of this "feature" among the illegal immigrant communities.

Step 3. Wait for annual rush of illegal immigrants going home to visit their family during the Christmas holiday.

Step 4. On 12:01 AM December 26th surge the border security up to its new, greatly increased, capability.

Step 5. Make the captured illegal aliens languish in an uncomfortable (but not cruel or unusual) detention facility until they are prosecuted; don't just let them go. Make sure word gets back to Mexico about the new state of border security and that people caught sneaking into the United States or using forged entry documents can expect jail sentences. Buy advertisements on Mexican TV if neccesary. Simultaneously promote legal immigration and/or guest worker program as an alternative to illegal entry.

The beauty of this plan is that we don’t have to catch and deport the illegal aliens. They leave peacefully thinking they can get back. Then they discover that they can no longer sneak across the border and have to go through the proper legal channels to return to the United States.

The problems with this plan are: First, there might not be enough illegal aliens returning home for Christmas that year to meet the “1 to 2 million” quantity required. Any leaks about possible increases in border security after the holidays could greatly reduce the number of illegal aliens who leave the country for Christmas. Second, the challenge specifically asked for ways to “deport” 1 to 2 million illegal immigrants and since most of the aliens would be leaving on their own that technically wouldn’t be “deporting” them. The same objective is accomplished however; they are outside the United States and must follow the law if they want back in.

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