A great way to grow the GDP (me on TV)

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It would be nice if modesty prevented me from linking to this WBZ TV interview regarding an unfortunate encounter between a Southwest 737 winglet and a JetBlue Airbus A320 horizontal stabilizer at Logan airport (CNN).

To prepare for the interview I tapped into my vast store of aviation knowledge and… Google. From a Boeing Web site I learned that a pair of winglets costs about $1 million. Presumably a replacement for this plastic-reinforced-by-carbon-fiber part is cheaper but it occurred to me that if this were to happen every day we could generate some beautiful GDP growth numbers.

Google Voice transcription of a pocket dial message

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Google Voice informed me of a message from my most important contact. Here’s the robot’s transcription of what she said “HI bye bye. Hey, bye bye bye, cos hello. Bye. Hello, Okay, bye bye. Hello, the bye bye bye. Hey, bye okay but delivery cos bye hey, shh are.”

[When I listened to the audio it was a classic pocket dial with no human voice sound at all.]

Keynes predicted everything except how greedy people are

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Here’s an interesting book review in New Yorker by Elizabeth Kolbert regarding Overwhelmed: Work, Love, and Play When No One Has the Time. It turned out that Keynes was remarkably prescient regarding the economic growth that would result from technological progress, but he predicted that people would work fewer hours per week, not grow in their greed for consumption to match economic growth.

I read this New Yorker piece during the same week that I saw Shakespeare’s “The Tempest” (my review) and Alexander Payne’s Nebraska. Both the 1610 play and the 2013 movie take the position that if you are rich you’ll become a fat target for thieves and grifters and that even blood relation/family feeling is not nearly as powerful as greed. If reasonably comfortable people are willing to cheat and even kill for greater wealth, why wouldn’t they be willing to work longer hours?

At the same time, it does seem odd that people work so hard. My parents were Harvard graduates and my father had a great job with the Federal Trade Commission. The five of us shared a 1500 square foot house in Bethesda, Maryland with a black and white TV. My dad rode the Metrobus to work. Mom drove a dark green 1970 Chevrolet station wagon with black vinyl seats and no air-conditioning that broke down on the New Jersey turnpike every few trips to see the cousins. Putting a kid wearing shorts into the car on an August afternoon was bona fide child abuse that could result in first degree leg burns. (Note to youngsters reading this blog: the car did not break down due to advanced age; even fairly new cars in the old days were not as reliable as a 12-year-old Honda Accord would be today.) We attended public school and read books from the library. Our cavities were filled by a dentist who didn’t use novacaine for pediatric patients because it was too expensive and time-consuming. Kids in our (prosperous) neighborhood generally took between 0 and 2 commercial airline flights through high school graduation. We all shared a rotary-dial telephone. I don’t remember any family discussions over why my Dad didn’t take a second job or my Mom a full-time job so that we could have fancier stuff, a bigger house, or elaborate vacations like the lobbyists took their families on (even then lobbying the government was a great way to make money for all concerned!).

The material lifestyle that we had back in the 1970s could be achieved today with either zero work (i.e., collecting welfare of one sort or another), by reasonably skilled individuals with the 15 hour/week schedule that Keynes envisioned as becoming typical, or with the profits from a one-night encounter that produced a child (top of the Massachusetts child support guidelines is over $40,000 per year for a single child, i.e., more than the median after-tax household income in the state). Yet how many content themselves with what today we would call “the simplest life” and that back in the 1970s we called “the good life”? Welfare recipients, perhaps responding to “the welfare cliff”, tend not to pursue jobs that would reduce their benefits, but they often work for cash. People who get high hourly wages 15 hours per week find it tempting to take on an additional project and work 25 or 40 hours per week. According to their attorneys, at least, people who have found it profitable to collect child support on one child oftentimes have second and third children with additional co-parents, thus increasing their income (in New York and Texas, for example, it is exactly twice as profitable to have three kids with three different co-parents than to have three kids with the same co-parent; in Massachusetts, three kids with the same $250,000/year co-parent would yield child support of $55,390, but three kids with three $250,000/year co-parents would yield a tax-free revenue stream of $120,413, i.e., more than twice as profitable).

I don’t think it is reasonable to blame technological progress for our lack of contentment, as Kolbert does to some extent. The computer applications that people love the most (Web, Facebook, Gmail, etc.) are free and run on ridiculously cheap hardware. A reasonably good smartphone voice+data connection can be obtained for about $40 per month. The stuff that seems to have Americans spinning on the rat wheel is non-technological, e.g., a McMansion and the energy to heat/cool it, a monster SUV or pickup truck for day-to-day transportation instead of a car, a cruise around the Caribbean, etc.

If I had to pick one factor I think it is population growth. This has been a boon to politicians anxious to collect as much tax revenue as possible, but a bane to the would-be-slacker citizen. In the 1970s the roads weren’t nearly as clogged so you didn’t spend so many extra hours in a car essentially parked in the middle of the road relying on the air-conditioning for a breeze and the audio system for entertainment. In the 1970s there were fewer people demanding theater tickets, rides at Disneyland, sporting event seats, etc. Therefore you didn’t need to work 60 hours per week to earn enough to seat a family of 5 at a professional baseball or football game (and parking was a lot cheaper because there were fewer cars competing for the same real estate).

But could it be that the answer is as simple as “Why didn’t Keynes remember his Shakespeare?”

More: Read the New Yorker.

What if the magicians in the Tempest could do magic? (ART production through June 15)

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If you’re in or around Boston, I recommend heading down to the American Repertory Theater before June 15 to see The Tempest. The characters to whom Shakespeare gave magical capabilities actually do seem to have those capabilities in this production (with some help from Teller, apparently). Four of us went on Wednesday night and we all voted thumbs up.

(After the show, you’ll want to see this video on how levitation works.)

Piketty’s simple plan: tax people who aren’t like Piketty

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Thomas Piketty’s Capital in the Twenty-First Century is mostly about wealth inequality within countries, but takes an international approach to taxation due to the fact that people are able to invest internationally. A small portion of the book, however, concerns inequality considered globally.

Consider citizens of France, fortunate to be born into a country with fertile soil and ample fresh water. Working a legal maximum of 35 hours a week, thanks to these abundant natural resources, the French are able to enjoy the world’s best fruit and other agricultural products. Could a program of global wealth redistribution start with a special (“exceptional”) tax on French people that would be paid to Earth residents living in arid countries and suffering from a diet of week-old produce that has been shipped in? Apparently not, according to Piketty.

Or how about just look at countries sorted by per-capita GDP and tax those in the richest 30 to support folks in the bottom 150+? That would mean a tax on Thomas Piketty and his friends due to the fact that France comes in at #22 (IMF list). Capital in the Twenty-First Century does not propose this as a good idea.

What would be a good idea, however, is a tax on people in oil-rich countries (i.e., not France):

When it comes to regulating global capitalism and the inequalities it generates, the geographic distribution of natural resources and especially of “petroleum rents” constitutes a special problem. International inequalities of wealth—and national destinies—are determined by the way borders were drawn, in many cases quite arbitrarily. If the world were a single global democratic community, an ideal capital tax would redistribute petroleum rents in an equitable manner.

It is not up to me to calculate the optimal schedule for the tax on petroleum capital that would ideally exist in a global political community based on social justice and utility, or even in a Middle Eastern political community. I observe simply that the unequal distribution of wealth in this region has attained unprecedented levels of injustice, which would surely have ceased to exist long ago were it not for foreign military protection. In 2012, the total budget of the Egyptian ministry of education for all primary, middle, and secondary schools and universities in a country of 85 million was less than $5 billion.45 A few hundred kilometers to the east, Saudi Arabia and its 20 million citizens enjoyed oil revenues of $300 billion, while Qatar and its 300,000 Qataris take in more than $100 billion annually.

Piketty does not explain why when the Qataris were poor nobody felt an urgent need to help them out, but now that the Qataris are rich they should be taxed to help those who previously ignored them.

Thomas Piketty shows the conflict between economics and morals?

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A continuous background theme in Thomas Piketty’s Capital in the Twenty-First Century is that citizens in democracies are stupid and/or ill-informed, which is why they don’t vote to use the government’s power to take away more income and wealth from rich people. In Piketty’s view, the Honda drivers out there need to read his book to see that others are driving BMWs and Mercedes SUVs to shopping sprees at designer boutiques then returning home to their massive McMansions/estates. If they had access to his data they would see that what is rightfully theirs has been unfairly collected by a rich person and they would try to get it back.

I’m wondering, though, if Piketty isn’t seeing a difference in data availability and IQ, but rather a difference in morals. A PhD economist generally takes an amoral view of the world. More money is good. Less money is bad. But the average citizen does not have a PhD in economics or the corresponding amoral outlook. Thus Milton Friedman and more than 500 less famous economists signed a letter back in 2005 calling for legalization of marijuana, an idea that most voters did not support at the time. To an economist, the drug war is an obvious pure waste from a dollars and cents point of view. But apparently drug prohibition has some value to voters, as evidenced by the electoral success of politicians who take a “tough on drugs” stance. I personally don’t want to pay for the imprisonment of stoners. However, if my neighbor does want to pay for that (through his or her tax dollars) and votes accordingly, I don’t think it follows that my neighbor is therefore stupid or misinformed as to the cost of imprisoning stoners.

Could it be that Piketty’s “tax the rich” plan reveals the same conflict? An ancient human idea is that it is immoral to take things away from other people and that it is immoral to covet things that rich people own. Exodus 20:1-17 and Deuteronomy 5:4-21 instruct Jews and Christians as follows:  “Thou shalt not covet the neighbor’s McMansion”; “Thou shalt not covet the neighbor’s 4K Samsung”; “Thou shalt not steal”. The Buddha said “Steal not, neither do ye rob; but help everybody to be master of the fruits of his labor”. A Buddhism expert lists “Avoid stealing — taking what is not yours to take” as the #2 moral precept (reference).

In our pilot community we recently came up against this. A man earning $75,000 per year was splitting up from his wife of 10 years, one of the superstar executives whose compensation Piketty decries (and I as a shareholder also don’t like the practice!). The divorce mediator and judge advised him that he could tap this woman for years of alimony payments that far exceeded his income, but he replied “I don’t want it. She worked for it. She works all of the time. She earned it. I didn’t. I am comfortable on what I earn. I don’t need to take something that belongs to someone else.” He was reminded that under Massachusetts law he was absolutely entitled to take a few million dollars out of this woman, but he continued to turn it down due to the conflict with his personal morals.

If an 18-year-old girl got pregnant after a one-night encounter with a drunken medical specialist, law firm partner, finance industry executive, or management consultant, her profits from child support in most states would exceed the median after-tax household income in that state. Yet more women pursue college degrees and work for a living than decide to turn their bodies and children into cash.

By reference to Balzac, Piketty points out that it makes more sense to pursue wealth through marriage to an heir than to work. And Piketty might say that our pilot friend is an idiot and that the 18-year-old girls who study boring subjects in college or take jobs that aren’t enjoyable simply aren’t aware of the profit opportunity in having children in the U.S.

Piketty mostly agrees with Balzac that “Behind every great fortune there is a great crime”. Steve Jobs earned his fortune honestly (previous posting) in Piketty’s view, but many rich people got there because they appointed their golfing buddies to the board of a public company or because they established a monopoly. If we adopt Piketty’s facts and assume that 50 percent of rich people are justly rich and 50 percent of rich people are unjustly rich, it comes down to personal morals as to what the correct course of action would be. If we think it is more important to take money away from the unjustly rich then we can establish a wealth tax on anyone with money. If we think it is more important to adhere to the teachings of the Buddha and the Hebrew Bible then we let some monopolists get away so that we don’t steal from those who became wealthy from hard work and/or saving rather than spending. Piketty says that anyone who prefers Choice #2 is an idiot and/or doesn’t have enough data. But maybe people picking Choice #2 simply adhere to a moral code to which Piketty does not subscribe.

If Piketty is right about rich people getting high returns, why do banks lend at low rates?

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A critical assumption in Thomas Piketty’s Capital in the Twenty-First Century is that rich people get a better return on investment than average S&P 500 buy-and-hold idiots. This assumption leads to runaway wealth inequality and the necessity for a new worldwide tax on wealth.

Why do rich people get such a great return, according to Piketty? They have access to brilliant financial managers and investments that the rest of us can’t find.

What about big banks then? With billions in assets they are unarguably rich. Their office towers are stuffed full of the best financial managers that $500k-$20 million/year salaries can buy. They sit in the biggest cities and have access to every conceivable business idea. Big Banks should have ever better investment opportunities than Mr. Generic Rich Bastard. Yet they are happy to lend out money right now for a return of about 2 percent (e.g., margin interest on stock holdings, best adjustable mortgage rates for the first five years). If there are such great investment opportunities out there for the sufficiently rich and sufficiently connected, why would a big international bank want to lend out money at 2%?

The Gulfstream crash at Hanscom Field

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Friends have been asking me about the crash of N121JM, a 2000 Gulfstream G-IV, after running off the end of Runway 11 at Hanscom Field on Saturday evening (Boston Globe). I didn’t know any of the people involved, I don’t have a Gulfstream type rating, and at this point the most that anyone can do is speculate. However I will share with readers what I have shared with friends, mostly based on my experience flying the Canadair Regional Jet, a similar size aircraft.

Background: In theory, you take off in a twin-engine turbojet by holding the brakes, pushing the thrust levers forward, verifying that you’ve reached full power, and letting go of the brakes. The pilot flying looks down the runway. The pilot monitoring checks the airspeed indicators on both sides and says “100 knots cross check”. Then the pilot monitoring calls out “V1“. This is the “decision speed”. If an engine quits before V1, you pull the thrust levers back, hit the brakes and stop before running off the end of the runway. The FAA allows about one second as a reaction time and assumes near-perfect technique after that. This is the reason that commercial airport runways are so long. The plane needs enough runway to come within 1 millisecond of taking off and then enough runway to brake to a stop from 150 miles per hour or so. If an engine quits and you’ve reached V1 you continue the takeoff on one engine. You wouldn’t be at that airport with that load of passengers and fuel if the dispatchers hadn’t calculated your ability to take off and climb out to clear obstacles on one engine (i.e., you won’t be able to carry as much weight if taking off from a high altitude airport surrounded by mountains, since turbojet engine power output falls as altitude increases).

Takeoff configuration: The CRJ simply would not take off, even from a 15,000′ runway and with full power, unless flaps were extended. The clean wing was designed to minimize drag during high-speed cruising. Thus it is critical to have the flaps properly configured for takeoff or the airplane will simply keep accelerating down the runway without lifting. All of the standard performance charts for the Gulfstream G-IV assume “flaps 20″ but the NTSB reports so far have described the flaps being set to just 10 degrees in the cockpit (given that the plane supposedly reached 165 knots, it should still have been able to lift off at flaps 10).

Refinement 1: In the real world, pilots aren’t that great at aborting takeoffs and it is hard on the airplane’s systems to slam to a stop once the plane reaches about 115 miles per hour. So at our airline we had a rule that unless it was something pretty dire we would continue the takeoff once we reached 100 knots and then work out the problem in the air.

Refinement 2: Passengers prefer a “rolling takeoff” in which the brakes are not held as the thrust levers are advanced. Unless one is operating from a short runway in the mountains, this is how take-offs are typically done. Unfortunately this chews up additional runway due to the plane rolling as the engines “spool up” to full power. For the CRJ, no data are available regarding exactly how much runway is wasted in this fashion and whether or not the plane can still be stopped after recognizing a problem at V1. A friend sent me a portion of the Gulfstream G-IV Airplane Flight Manual (AFM) and it seems to indicate that the performance charts can be relied upon even given a rolling takeoff.

Refinement 3: In the real world, a twin-engine turbojet has way more power than it needs for most flights. If you’re lightly loaded (few passengers, short trip so not too much fuel) and departing from sea level, why would you want to make those engines work so hard? The FAA Advisory Circular AC 25-13 from 1988 explains that “Takeoff operations conducted at thrust (power) settings less than the maximum takeoff thrust (power) available may provide substantial benefits in terms of engine reliability, maintenance, and operating costs.” An additional advantage of reduced thrust is that passengers on a lightly loaded plane won’t be slammed back in their seats like astronauts.

If you’re an engineer you would naturally assume that this would all be idiot-proof on a $50 million plane stuffed full of computers. The airplane infers its departure runway and airport altitude from the GPS location and heading. You push a button for “reduced thrust”, the airplane reads its weight from the strain gauges on the landing gear, and then you advance the thrust levers fully when you’re ready to go. The airplane will make sure that the flaps are set properly and if one engine stops developing thrust the other one will automatically advance to full power. If you lived to be 1000 years old you would probably not be able to get this design certified by the FAA (for the same reasons that the FAA-run air traffic control system will not send your airplane a text message with the instrument flight plan waypoints; instead a controller will read it to the pilot over the radio and the pilot will enter a bunch of 5-letter waypoints and 3-letter VORs into a GPS (possibly getting them wrong)).

In real life what happens is that the pilots calculate the aircraft weight (we did it on paper back in 2008!) and then use a paper chart or maybe an iPad app to calculate the proper reduced thrust setting. If there is a error in this calculation or the transcription from the calculation or the entry of the airport/runway, the resulting thrust might not be enough to become airborne. This is a serious problem because pilots are making the go-no-go decision primarily on aircraft speed (V1 yet?) not based on how much runway is left. The assumption is that the calculations have ensured that the runway length will be sufficient for all possible events. And of course the actual setting of the thrust requires the pilots to watch gauges, another opportunity for misinterpretation. The airplane, though equipped with a GPS, does not have a warning such as “You’ve got 2000′ of runway left. Maybe it is time to go to full power?”

Can a pilot get this wrong? Sure. In fact, four pilots can get this wrong, as demonstrated on March 20, 2009 by Emirates A345, an Airbus A340-500 departing from Melbourne (official report). A simple data entry error caused a lower-than-sufficient thrust to be calculated and the $200 million airliner ran off the end of the 12,000′ runway, taking out lights and antennae. The Emirates crew made the “go” decision rather than the “stop” decision of the Hanscom Gulfstream. When the end of the runway was near the pilot pushed the thrust levers forward for full power and the airplane then flew quite easily.

Please don’t read this posting and infer that I know anything about why this Gulfstream crashed. The intent is just to answer the question that friends asked repeatedly, i.e., “Is there any way to crash a modern business jet on takeoff without the cause being a catastrophic mechanical failure?” And I am as saddened as everyone else about the loss of life.

[Separately, local pilots have been discussing the safety record of our airport, which has more than 150,000 operations per year. The NTSB database shows that the most recent fatal accidents were the following:

  • 11 years ago: four-seat single-engine Cessna crashed on an instrument approach due to pilot disorientation in the 400' overcast (report from 2003).
  • 16 years ago in a four-seat single-engine Piper that got slow in a turn and suffered an aerodynamic stall after a 4.5-hour flight (see this NTSB report from 1998)
  • 30 years ago: four-seat single-engine Piper crashed due to spatial disorientation on an ILS, almost identical to the 2003 accident (report from 1984)

]

Are any smart home systems, such as Zigbee or Z-wave, ready for prime time?

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Folks:

I am setting up a new office inside a house built in the 1960s. It is going to need a lot of electrical work including upgrading the service from 60-amp to 200-amp. I am thinking “Maybe this would be a good time to rip out all of the switches and outlets and replace them with the smart home standard.” But as I poke around I find that the smart home still exemplifies the old adage that “The wonderful thing about standards is that there are so many to choose from.” smarthome.com offers INSTEON, UPB, X10, Z-Wave, Zigbee, and WiFi, for example.

“The dumb state of the smart home”, a January 2014 article, is not encouraging:

not all ZigBee products can communicate with each other, and that’s a major problem for what’s intended to be a standard.

Can it really be that a country that figured out to cover itself in McMansions while making German investors pay for it all cannot figure out how a PC can turn on a light?

Stupid Piketty Question: Why does it matter if the rich get (nominally) richer?

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Thomas Piketty’s Capital in the Twenty-First Century urges readers to take drastic action to prevent what he says is an inevitable explosion in the wealth of rich people worldwide. Piketty assumes the following: (1) rich people get a better return on their investments than regular investors, (2) governments will stop taxing dividend and capital gain income, (3) the world economy will grow at best slowly for the next 50-100 years, (4) the return on capital will be high, and (5) rich people won’t consume too much (which means most of their income gets plowed into additional investment). If one accepts these assumptions today’s disgustingly rich will become tomorrow’s ridiculously rich in a runaway process. This is why we need to take immediate action to tax wealth so that it doesn’t spiral upward out of control (and actually Piketty says that we need also to take immediate action on climate change for the same reason).

I have a feeling that this is a stupid question but I haven’t figured out a clear answer…. Why does it matter if today’s billionaires become tomorrow’s trillionaires?

As the Detroit realtor no doubt would have said 20 years ago, “they’re not making any more land.” I.e., once rich people own most of the world’s land all that can happen is that the nominal price of the land goes up, but the total amount of land owned doesn’t change. Similarly, there are only a certain number of factories in the world. If every rich person suddenly has 100X the wealth it will take a long time before more factories are built so the dominant effect will be bidding up the price of existing factories. General Electric is still the same company even if its shares in the aggregate become worth 10X as much as they are today.

How about personal lifestyle? Will the huge wealth increases allow rich people to live more lavishly? Not if they want to live around other rich people and show off. See the June 1, 2014 “Sky-High Demand for Luxury” in the New York Times: “multimillion-dollar apartments have been snatched up hours after they hit the market and buyers have shelled out $1 million over the asking price to secure a winning bid.” Sure the S&P 500 is up, but the price of a Manhattan duplex, a Range Rover, and a parking spot for that Range Rover, have gone up even more. A rich person could now buy all of Detroit, but why would he or she want to?

Will the super rich becoming super duper rich affect the lifestyles of the non-rich? Consider that millions of Americans have a lifestyle that is set by the government in absolute terms, i.e., they are provided with whatever housing, medical care, and food that a government official decides that they should have. Additional millions of Americans are employees of the government or government contractors. Once again, the government decides what to pay these employees, generally without reference to the market (example). How about the shrinking group of private industry workers who don’t work for government contractors? Can the uber rich force them into accepting minimum wage? It seems unlikely. The rich have to give the capable and hard-working some incentive to show up, so the wage of a good worker should be bid up until it is sufficient to support a comfortable lifestyle.

Natural resource consumption seems like the place where the rich could do some serious damage to the middle class. When people who don’t care about money travel, for example, they burn a lot of oil. The President of the United States, for example, will send out a couple of Air Force cargo planes a couple of days ahead. These are stuffed full of SUVs, helicopters, and other vehicles. Then the President shows up in his private Boeing 747. If there were another 10,000 people worldwide who traveled in the same style this would put a real dent in oil supplies and middle class people might be reduced to walk/biking/Guatemalan chicken bus. The middle class private car era will draw to a close.

But except for oil, what good will it do the rich to become uber rich? Won’t they just bid against each other and generate inflation in the prices of 20-carat diamonds, townhouses in Paris, used Gulfstream jets, etc.? Once the rich own all of the world’s land, all of the world’s factories, and all of the world’s gems and gold, how can they actually get richer from a functional point of view?

And finally why does it matter to the rest of us if a family holds onto a lot of wealth for a while? If they’re holding it aren’t they investing some of it in productive enterprises? And don’t they have to eventually spend a lot of it to get any value out?

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