Why "Free" Municipal Wireless Has Flopped

Slate.com: It's hard to dislike the idea of free municipal wireless Internet access. Imagine your town as an oversized Internet cafe, with invisible packets floating everywhere as free as the air we breathe. That fanciful vision inspired many cities to announce the creation of free wireless networks in recent years. This summer, reality hit—one city after another has either canceled deployments or offered a product that's hardly up to the hype. In Houston, Chicago, St. Louis, and even San Francisco, once-promising projects are in trouble. What happened—was the idea all wrong?

Simple...

Setting up a large wireless network isn't as expensive as installing wires into people's homes, but it still costs a lot of money. Not billions, but still millions. To recover costs, the private "partner" has to charge for service. But if the customer already has a cable or telephone connection to his home, why switch to wireless unless it is dramatically cheaper or better? In typical configurations, municipal wireless connections are slower, not dramatically cheaper, and by their nature less reliable than existing Internet services. Those facts have put muni Wi-Fi in the same deathtrap that drowned every other company that peddled a new Net access scheme.

Job Security? Not Really, Not In the Long Run

From "The UAW's Awakening" in today's Wall Street Journal:

"The problem with unions is not all that dissimilar to that posed by entrenched management: Once they win comfortable contracts, they often become impediments to the kind of innovation and flexibility essential to success in today's economy. So in the name of "job security," they undermine a company's -- or a nation's -- competitiveness. The result, over time, is less job security for everyone, especially the union workforce. There's no better example of this than GM, where the UAW now represents about 74,000 hourly workers, compared to 246,000 in 1994. Some security."

This is classic textbook economics, paraphrased from Gwartney and Stroup:

For a time, unionized workers enjoy higher wages and job security. In the long run, however, investment will move away from firms with low profitability (Ford and GM). To the extent that the profits of unionized firms are lower (GM, Ford), investment expenditures will flow into the nonunion sector (Toyota, Honda, Nissan) and away from unionized firms. As a result, the growth of both productivity and employment, as well as market share, will tend to lag in the unionzed sector.

The larger the wage premium of unionized firms and the greater the guarantees of job stability, the greater the incentive to shift production toward nonunion operations. Empirical evidence shows that industries and companies with the largest union wage premiums and greatest guarantees of job stability are precisely the industries and companies with the largest declines in the employment of unionized workers.

Bottom Line: Gains in the short run of higher-than-market wages and benefits, and greater job security, eventually undermine the companies employing unionized workers, destroying hundreds of thousands of union jobs in the long run. The more success a union has in the short-run, the greater the failure in the long run. The discipline of the market eventually dominates and prevails.

Music I've Been Listening To, Recommended

1. When it comes to groovin', burnin,' swingin' Hammond B3 organ jazz and blues, in the tradition of Jimmy Smith, Jimmy McGriff and Richard "Groove" Holmes, it doesn't get much better than Tony Monaco. Give him a listen on his CDs East to West, Intimately Live at the 501, Fiery Blues, or Burnin' Grooves.

2. For something a little bit unusual and off-beat, but with a great Latin jazz flavor, check out Roberto Perera, a Paraguayan jazz harpist - "In the Mood" is a great CD.

3. I've mentioned it before, but it's worth another plug - check out Pandora Radio, the Internet radio station that plays only the music you like - you pick your favorite artist(s) or favor songs, and it creates a customized radio play list with only those artists or songs that are similar in style to your favorite(s).

4. I've also mentioned KFAI-FM in Minneapolis before. If you want to hear the very best blues on the planet, check out the afternoon blues programs: Rollin' and Tumblin' (Tues), House Party (Wed), Blueslady's Time Machine (Thursday) and Sugar Shop (Friday - blues and R&B), either live from 3-6 p.m. CST online, or anytime through the KFAI archives for up to two weeks after the live show.

Free Speech is a Messy Affair

Among Mahmoud Ahmadinejad, Andrew Meyer and Lawrence Summers, the world has been treated recently to a carnival of free expression as our most treasured right was exercised on university campuses.

Or wasn't. Depending.

Three individuals trying to exercise freedom of speech in three different university environments with three different results. The one with the greatest credibility (Summers) was censored. The one whose regime restricts academic freedom and imposes censorship was given a forum. The one whose participation in the free speech experiment arguably counts the most -- the student -- was physically punished.

Read more here.

Forbes 400 as a Lesson in the Invisible Hand

The Forbes 400 As a Lesson in Economics:

Of the charter members of the first Forbes 400 in 1982, only 32 remain today. Far from a country where only the rich get richer, the wealthy in the US are very much a moving target. While there are 74 Forbes 400 members who inherited their entire fortune, 270 members are entirely self-made. Though many attended Harvard, Yale and Princeton, there are countless stories within of high school and college dropouts, not to mention others who grew up extremely poor. Politicians who regularly engage in class warfare would do well to keep the Forbes 400 out of the hands of their constituents, because it makes a mockery of the kind "Two Americas" rhetoric suggesting the existence of a glass ceiling that keeps hard workers at the bottom of the economic ladder. To read the Forbes 400 is to know with surety that the U.S. is still very much the land of opportunity.

To read many business journalists today, one might assume that the U.S. economy is stratified, offers little room for advancement, and that those at the top are impervious to market forces while enjoying market power that enables them to fleece the less fortunate. Thanks to the lessons offered up yearly in the Forbes 400, we know the opposite is true. Successful people are that way because they make our lives exponentially better, while yearly dropouts from the Forbes list frequently offer evidence showing that consumers punish those who falter. For that, we should be glad that the Forbes 400 goes against the conventional grain and celebrates successful American enterprise.

Here's the Forbes 400 article.

Bottom Line: Consumers ultimately determine the Forbes 400 list with their dollar votes in the marketplace. If you want to get on the list next year or in the future, first figure out some way that you can significantly improve the lives of millions of consumers and you might have a chance.

Socialism Works, But Only if You Know Their Names

I'm attending a Free Market Forum at Hillsdale College featuring Robert Barro from Harvard, James Gwartney of Florida State (author of the textbook I use for economics), Alan Reynolds of Cato, Mary Anastasia O'Grady of the Wall Street Journal, Walter Williams from George Mason among others.

After Walter Willams' dinner speech last night, Robert Barro asked a question about whether the government had any obligation to provide any socialist-type safety-net programs for the general good.

Walter responded something like this. "Let me make this perfectly clear. I support and practice many types of socialist programs including income redistribution, welfare payments, disability support, free health care, and social saftey nets. But I only practice socialism IN MY OWN FAMILY; and socialism like this only works when you know the names of the people involved. In any situation when you personally can't name everybody involved, then the market is superior to socialism."

Bottom Line: Within a family, socialism works much better than the market. Outside of a family, the market usually works much better than socialism. Good point, Walter!

If GM Can't Buy and Sell Globally, Why Should UAW?

Washington Post: "The UAW got the assurances it wanted that GM would invest in building new products in the United States, thereby providing job security for members."

Detroit News: "The contract offers assurances from GM that it will continue to invest in its U.S. factories and maintain union jobs."

Just wondering, wouldn't it be fair then to ask UAW members to:

1. Agree to not take any vacations out of the U.S. or engage in any foreign travel to maintain U.S. tourism jobs.

2. Agree not to make any investments in stock or bonds outside the U.S.

3. Agree not to wear any foreign-made clothing, thereby providing job security for American apparel workers.

4. Agree not to eat any foreign-produced food products like bananas or coffee, to maintain U.S. agricultural jobs.

5. Agree not to watch any foreign-made movies, read any books by foreign authors, or listen to any foreign music.

In other words, if the UAW wants to restrict GM's ability to invest, buy and sell globally, shouldn't UAW workers agree to the same restrictions?

India's Stock Market Rocks; New High Above 17,000

NEW YORK (Associated Press) - India's benchmark stock index crossed 17,000 for the first time Wednesday after zooming up 1,000 points in just six sessions since the U.S. Federal Reserve cut its key interest rate last week. That's the fastest ever 1,000-point gain for the Bombay Stock Exchange's 30-share Sensex. The index took 51 trading sessions to get from 15,000 to 16,000 (see chart above).

The benchmark index has risen 22% this year - and 6 percent in the past week - as foreign investors have pumped money into the market amid brisk economic growth that is averaging about 9% annually the last couple years.

Here's another report on India's red-hot stock market, with a timeline on the rise of the Sensex through Indian stock market history back to 1990, when the BSE closed above 1,000 for the first time.

(HT: Sanil Kori)

For the American Car Buyer, It's Never Been Better

From today's Wall Street Journal:

"Over the decades that the Big Three have struggled with their American operations, foreign auto companies have rapidly established and expanded U.S. production through foreign direct investment.

Broaden the view even more, to all American consumers, who have benefited greatly from the global engagement of the U.S. auto industry. The easiest way to see this is to visit any parking lot. The tally this morning outside my office? Five Big Three vehicles and 10 foreign-company vehicles. At the national level, in 1980 the Big Three had 73% of the U.S. automobile market. In recent months this share has slipped below half.

Thanks to all the competition among the Big Three and foreign companies, consumers have enjoyed massive innovation, new variety -- and lower prices. From 1990 through 2006, the overall U.S. consumer price index rose 53%. The rise in the autos CPI component? Just 13.4% (see chart above)."

MP: We hear a lot of bad news for U.S. automakers, especially in Michigan, e.g. about the decline of the Big Three's market share, the huge losses suffered by GM and Ford, the decline in UAW membership, the $90 billion in health-care benefits the Big Three owe to hundreds of thousands of union retirees, etc.

What we don't hear as much about though is the good, great, and even spectacular automotive news for U.S car buyers. Consider that the CPI for new cars is the same in August 2007 (about 160) as it was in 1994 (see chart above). In other words, new car prices have been flat for 13 years, are lower today than 10 years ago, and are only 12% higher than in 1990.

American car buyers have never had it better in terms of price, quality and selection. Globalization and competition have produced a true car buyer's heaven. It might be getting worse and worse for GM and the UAW, but it's getting better all the time for the group that really counts: the U.S. CONSUMER.

UAW-GM Battle: Showdown About the Past

In the grand scheme of things, the latest installment of the UAW-GM battle has the makings of this fall's Army-Navy football game—a match between two ancient powers whose rivalry once dominated the headlines but who now play a largely symbolic role. GM and UAW—the largest American manufacturing enterprise and the nation's largest manufacturing union—brawled in bloody 1930s battles and ultimately reached an accommodation that led to a golden age. But GM and the UAW matter less and less to the U.S. economy, and the U.S. economy matters less and less to GM.

Both GM and the UAW will argue that the outcome of these contract talks is vital to the future of the U.S. auto industry. But the subject of the talks—the creation of a trust to guarantee health benefits for retirees and workers, the union's desire for job security commitments, and GM's demands for significant cost reductions so it can compete in the United States—prove that the showdown is really about the past.

From today's Slate.Com article "Strike Out: The Sorry Little Conflict Between GM and the UAW."

Bayer Bails On the NYSE, Cites U.S. Regulations

Relieving itself of the pain of high regulation fees in the U.S., German aspirin maker Bayer left the New York Stock Exchange today. Bayer says leaving the NYSE will save more than $20 million in listing fees and accounting costs.

Bayer joins British Airways and 32 other foreign companies that have delisted from the New York Stock Exchange this year. Nine other foreign companies have announced they plan to do so as well this year. Another 20 foreign firms said this year they plan to leave the Nasdaq or have done so already.

One reason is cost. The NYSE listing fee for most foreign companies is $38,000 a year. But fees needed to comply with Sarbanes-Oxley rules and convert books to meet U.S. accounting standards can add millions of dollars in costs.

Expect the exodus to continue, a global market expert says. "You will see more (foreign companies) delisting from U.S. markets," she says. "I'm hearing everyone in Europe discussing it."

Bottom Line: If you tax or regulate something, you get less of it.

Carpe Diem Milestones

1. Carpe Diem is now officially one year old. This was my very first post on September 20, 2006, and this is now post #1424, which is an average of 3.84 posts per day.

2. The number of visits to Carpe Diem just went over 200,000 a few days ago, view the SiteMeter statistics here.

3. Carpe Diem was just included in the "Top 100 Academic Blogs Every Professional Investor Should Read," published today by CurrencyTrading.Net.

Carpe Diem!

BIS: Global Currency Markets Explode

According to a triennial central bank survey of foreign exchange activity just released by the Bank for International Settlements (BIS):

1. Daily turnover in global currency markets rose to $3.2 trillion in 2007, which is a 71% increase since the last survey in 2004, when daily foreign exchange trading volume was $1.87 trillion.

2. The 71% increase is the largest percent jump in daily currency trading since the BIS began conducting its benchmark survey in 1989.

3. Foreign exchange trading in the U.S. increased by 44% over the last three years, from $461 billion in 2004 to $664 billion this year (see chart above).

4. Trading in financial derivatives linked to currencies soared to $2.1 trillion a day, the report said, a rise of more than 70% since 2004. Large companies are also taking a more active and sophisticated approach to managing currency exposure.

5. Currency trading in the U.K. ($1.359 trillion per day), the world's largest currency center, represented 42.5% of world currency volume, and trading in the U.S. (ranked #2 at $664 billion daily) represented about 21% of world currency volume. Together, the U.K. and U.S. account for more than 63% of the world's currency trading every day.

6. To put $3.2 trillion of daily currency trading in perspective, consider that $3.2 trillion is greater than the ANNUAL Gross Domestic Product of Germany ($2.9 trillion), China ($2.6 trillion) and the U.K. ($2.4 trillion). In the U.K., more currency is traded in London in two days ($2.77 trillion) than the value of all goods and services ($2.4 trillion) produced in the country in a year!

Read more here in today's Wall Street Journal.

Interesting Puzzle....

Check out the unusal, moving jigsaw puzzle, drag the pieces together to make the picture above...

Get Your Passport: Business Education Going Global

The list of items to bring to college is going to be a little longer for freshmen who enter the University of Minnesota's Carlson School of Management next fall. They're going to need to bring a passport.

The university announced Monday that starting next fall, students who enter the business school will be required to have an international experience before they can graduate. The reason is pretty simple: The business world is becoming more global.

Continue reading in today's Star Tribune....

The Downward Spiral....

And the downward spiral of GM and Ford's long term debt, from investment grade to junk.....

Question: Will a strike increase either company's market share or bond rating? Answer: Not likely.

Toyota vs. GM vs. Harley-Davidson

In 2006 GM produced about 9 million vehicles worldwide, about the same as Toyota; and Ford produced about 6.6 million vehicles. And yet look at the whopping difference in market value in the graph above between Toyota ($208 billion) and GM (only $19.5 billion). Is that what $51 billion in health care liabilities does to a company's market value? Look for a prolonged strike to erode GM's market value even further.

And consider that motorcycle manufacturer Harley-Davidson's market value of $12 billion is not far behind GM and Ford, even though it only manufactures about 300,000 motorcycles annually!

Mississippi vs. Michigan

It's not even close any more in the ongoing contest between Mississippi and Michigan for the state with the highest unemployment rate in the country. Mississippi can declare victory.

State unemployment rates for August came out today, and Michigan now ranks #51 with a jobless rate of 7.4%, the highest in the country and the highest rate in Michigan in more than 14 years (since June 1993).

Mississippi's jobless rate is now 1.5% below Michigan at only 5.9% (and it ranks #49), ahead of Alaska's unemployment rate at 6.3% (#50), which is more than 1% below Michigan.

GM Anti-Jobs Bank: Nice Nonwork If You Can Get It

One issue contributing to the UAW's strike against GM is that negotiations reached an impasse regarding the future of the "jobs bank," or what the Wall Street Journal calls "GM's Anti-Jobs Bank, the company's euphemism for a post-employment limbo in which GM pays laid off members of the United Auto Workers not to work." As the WSJ points out today, it's "Nice nonwork, if you can get it."

There probably isn't a single issue that better highlights the problems facing GM and the UAW than the "Jobs Bank," which they both agreed to in 1984. Here is what the WSJ had to say about it in a 2005 editorial "GM's Anti-Jobs Bank":

If you want to know why GM's costs are too high for the number of cars it sells, here's one explanation - the Jobs Bank.

GM doesn't like to talk about the "jobs bank," to the point that it won't disclose how many idled workers are in the bank or even how much it costs the company. However, the Detroit Free Press has dug around and reported that the "bank" holds some 5,000-6,000 employees, at an annual cost of as much as $800 million a year. And that's just the beginning of the damage it does.

The jobs bank was created in 1984 at a time when it became fashionable to worry that automation would cause robots to replace workers on factory floors. So in exchange for the right to introduce productivity improvements in factories, GM, Ford and Chrysler all consented to jobs banks. The idea was that in exchange for educating themselves, doing community service or in some cases just sitting around a factory, workers would continue to collect pay and benefits until the automaker could find another job for them.

One trouble is that U.S. car makers have been shrinking more than growing in the two decades since, meaning people have stayed in the bank longer than envisioned. The commitment to find a new job for those workers only made sense in an environment in which GM's demand for labor was stable or growing. Instead, that demand has been steadily shrinking as productivity has increased and market share has decreased.

The jobs bank sends a message that downsizing is temporary, and that GM can accommodate those workers somewhere. The reality is that many of them are simply waiting out retirement.

GM has a host of problems, from the attractiveness of its product lines to the health-care costs it pays for its one million retirees. But a major one is size: It is a smaller company than it was or expected to be when it made the promises it's now trying to keep both to retirees and current workers. GM has some of the most productive industrial workers in the world, but it has too many of them for the number of cars it can sell today.

The jobs bank is both cause and symptom of that problem. We don't wish hardship on those workers, but the company's future now rests on its ability to make its payroll match its production. If the jobs bank -- and the self-deception it represents -- cannot be fixed, that millstone will continue to drag down what was once one of America's great companies.

MP: Only when and if GM and the UAW agree to eliminate the "jobs bank," will there be any hope that either will survive.

India Is Outsourcing Outsourcing: UAW Listen Up

India is now outsourcing outsourcing, the New York Times reports today in World Busines:

To fight on the shifting terrain, and to beat back emerging rivals, Indian companies are hiring workers and opening offices in developing countries themselves, before their clients do.

Infosys (NASDAQ: INFY) says its outsourcing experience in India has taught it to carve up a project, apportion each slice to suitable workers, double-check quality and then export a final, reassembled product to clients. The company argues it can clone its Indian back offices in other nations and groom Chinese, Mexican or Czech employees to be more productive than local outsourcing companies could make them.

Such is the new outsourcing: A company in the United States pays an Indian vendor 7,000 miles away (Infosys) to supply it with Mexican engineers working 150 miles south of the United States border.

As an Infosys senior vice president put it, the future of outsourcing is “to take the work from any part of the world and do it in any part of the world.”

Or as Indian CEO Raman Roy said "Geography is history."

MP: This might be a lesson from Inida for U.S. unions about how business will take place in the 21st Century. For example, the UAW wants GM to lock in future work for U.S. factory workers by promising jobs, product commitments and investments in U.S. plants.

"Globalization is killing us," said Jerry Gillespie, president of a UAW local in Warren, Mich., whose members work on engineering and design of future products. "They want to build engineering centers in the rest of the world and take that work away from us. That's our fight."

That's soooooooooooo Machine Age, 20th Century thinking.

UAW Strikes GM

DETROIT, MICHIGAN--The United Auto Workers launched a national strike today against General Motors Corp. after 10 days of marathon bargaining failed to produce a new labor pact for the automaker's 73,000 hourly U.S. workers.

The stunning move came after the union told its members on Sunday they were to walk off the job unless they heard otherwise by 11 a.m. That word never came, and now GM is facing its first strike since the UAW struck the automaker's operation in Flint in 1998.

Prediction: GM's falling market share, currently at 23.56% (year-to-date), will fall by several more percentage points by the end of the year.

We've Got A Lawyer Surplus and Doctor Shortage; Why Couldn't It Be the Other Way Around?

From the front page today's WSJ, an article about the oversupply of lawyers, "Job Market Wanes for U.S. Lawyers; Law Schools Proliferate:"

"On the supply end, more lawyers are entering the work force, thanks in part to the accreditation of new law schools and an influx of applicants after the dot-com implosion earlier this decade. In the 2005-06 academic year, 43,883 Juris Doctor degrees were awarded, up from 37,909 for 2001-02, according to the American Bar Association (see chart above). Universities are starting up more law schools in part for prestige but also because they are money makers. Costs are low compared with other graduate schools and classrooms can be large. Since 1995, the number of ABA-accredited schools increased by 11%, to 196."

MP: Now, if we could only have an outcome similar to this for medical schools and graduates from medical school, which have remained constant at 125 schools and 16,000 graduates, respectively, for at least the last 20 years (see chart above).

Unfortunately, "the marketplace doesn't determine how many doctors the nation has, as it does for engineers, pilots and other professions. The number of doctors is a political decision, heavily influenced by doctors themselves."

Result: We now have a doctor shortage and a lawyer surplus. The difference is that the lawyer surplus will eventually correct itself as law school graduates face falling wages and declining employment opportunities, resulting in fewer students being attracted to law. As long as medical schools and the number of graduates are artifically restricted, the doctor shortage will continue, especially for the "Family and General Practitioner" category (see chart below).

Retro Medicine: Doctors Making House Calls 24/7

From today's New York Times,

A new kind of medical practice is flourishing nationwide that offers to go to where the patients are — whether a home, an office or a hotel — to treat ailments as diverse as a sprained ankle or a bad case of bronchitis. Some services may even wheel in a mobile X-ray machine or an ultrasound machine, depending on the ailment, or perhaps pull out kits to test for strep throat or to draw blood. They may dole out medication on the spot or arrange for pharmacies to deliver prescriptions.

“When you call, you can speak to a doctor in five minutes, and that doctor can be there with you within the hour. Where else do you get that kind of delivery?” said Walter Krause, founder of Inn-House Doctor. The company says it has 40 physicians on call in Boston, Chicago, Dallas, Houston, Las Vegas, Phoenix, Philadelphia and Washington; some of the doctors are in private practice or work in hospitals, and they make house calls during their time off.

The convenience comes at a price. Appointment fees can range from $250 to $450, with additional tests and medication extra. And payment is due at the time of the appointment.

Another service for Manhattan only is Sickday Medical House Calls and one for Miami only My Home Doctor. About 10 years ago, I argued in this article Deregulate Health Care, Bring Back House Calls, that deregulating medicine and ending the artificial restrictions on the supply of physicians would restore competition to the point that we would see doctors making house calls again. Although not widespread yet, I think the new trend towards housecalls in major cities is a promising sign that market solutions for health care are being taken seriously, especially given other trends like the low-cost, consumer-friendly, market-driven, walk-in health care clinics in retail stores spreading across the country.