It's about time. I do think it is a good thing when economists participate in both business and policy--such things inform both teaching and research. But disclosure is important. We may all think of ourselves as forthright and objective, but we are in fact shaped by experiences (and as economists never cease to remind us, by our paychecks). Gary Becker's line in Chan's piece about replicability curing all ethical problems doesn't really hold up, because lots of economic theory has never been or has been inadequately tested against data (George Akerlof does a very good job demonstrating this in his AEA Presidential Address from 2007).
We seem as a profession to have a difficult time dealing with ethics--it makes us squeamish, because mainstream economics often celebrates avarice. But one of Adam Smith's earth shattering works was called The Theory of Moral Sentiments, so he wasn't squeamish about thinking about such things as all.
I have within this blog from time-to-time disclosed my relationships when such things might matter to what I am writing. The two most important are with Realtors (when I was a graduate student I worked for the Wisconsin Realtors Association, and I was a consultant on Existing Home Sales in the late 1990s and early 2000s) and with Freddie Mac (where I worked for less than a year and a half in 2002-03). My center at USC has a large number of donor members. I have also consulted for the World Bank. These relationships have been rewarding to me financially and intellectually, and while I like to think I play things straight, I would be foolish to pretend that these experiences have had no influence on my outlook. I leave it to readers to determine the impact of such influence on the validity of what I write.
Jumat, 31 Desember 2010
Kamis, 30 Desember 2010
How the NCAA undermines the academic enterprise
I love major college sports; I have enjoyed having athletes in class--they actually tend to run the gamut in terms of how well they do, and I appreciate the time management skills required to be a varsity athlete while performing well in class.
But part of the academic enterprise is instilling in students the importance of not bullshitting. The NCAA undermines this when it states things like:
But part of the academic enterprise is instilling in students the importance of not bullshitting. The NCAA undermines this when it states things like:
Money is not a motivator or factor as to why one school would get a particular decision versus another. Any insinuation that revenue from bowl games in particular would influence NCAA decisions is absurd, because schools and conferences receive that revenue, not the NCAA.But who are the members of the NCAA? The schools! This statement meets Harry Frankfurt's criteria for bullshit, and is an example of why bullshit is harmful. Frankfurt:
Someone who lies and someone who tells the truth are playing on opposite sides, so to speak, in the same game. Each responds to the facts as he understands them, although the response of the one is guided by the authority of the truth, while the response of the other defies that authority and refuses to meet its demands. The bullshitter ignores these demands altogether. He does not reject the authority of the truth, as the liar does, and oppose himself to it. He pays no attention to it all. By virtue of this, bullshit is the greater enemy of the truth than lies are.It seems to me that those of us who have anything to do with colleges and universities have an obligation to avoid bullshit.
Rabu, 29 Desember 2010
2011: HELLO LOSERS!
IF YOU DESCRIBE YOURSELF AS THE BANKRUPT ALSO-RAN, THE SURE-TO-LOSE STOOGE, THE DUD THAT ALWAYS FLOPS, THEN WELCOME MY DEAREST ICONIC FAILURES, JOIN THE CLUB OF LOSERS WHO WILL RULE 2011
Loser! If that word stings you to the core of your heart, yet is the exact word that describes you completely, in every aspect, then this editorial is for you. Hello losers! Let me usher in the new year 2011 for you hoping that you never forget the feeling of being a loser, and that you always hate every moment of it. Before you start cursing my ten generations and beyond, let me quickly take you through the story of five losers who, for me, embody the spirit of despondent losers.
This boy from Syracuse (New York), was labelled a dyslexic when he was just seven. His friends would harass him, and his school teachers would humiliate him. This is how he describes his early days, “I’d try to concentrate on what I was reading, then I’d get to the end of the page and have very little memory of anything I’d read. I would go blank, feel anxious, nervous, bored, frustrated, dumb. I would get angry. My legs would actually hurt when I was studying. My head ached.” He went to three different high-schools and each time, he would try to hide his disability. Soon it would be discovered, and he would be sent off to remedial reading. He raised his hands very often in class, only to ensure that his teachers noticed him and gave him extra points so that he could just about make the passing grades. Even when he had to complete his homework, he would first dictate it to his elder sister, make her write it down, and then copy it word to word.
His parents got separated when he was just 12, and he along with his sister Lee Anne, moved with his mother to New Jersey, where she had to work in three jobs simultaneously to earn enough to feed the family. Everything in his life, besides playing baseball, soccer and football, seemed hopeless. He finally managed to clear high school but failed his undergrads as he was a “functional illiterate”. He loved to learn, wanted to learn but the dyslexia was debilitating (Many times, he would even forget that when the fuel gauge in the car falls to ‘E’, it needed refuelling). He decided to move to LA to become an actor. Even then, the loser in him found it hard to pass auditions, because he simply could not read the script. He started requesting others during the auditions to read the script and the directors to talk about the characters and the film. He wanted to give it all up many times, but whenever he did, all he remembered were his mother’s words – “You’ve got so much potential. Don’t give up.” In 1983, he landed his first starring role in the film Risky Business. He got noticed. Three years later, Top Gun was released, which grossed $343 million and made him a millionaire (he earned $2 million from the film)! Thomas Cruise Mapother IV is his name; Tom Cruise is how we know him – the winner of three Golden Globe Awards (and nominations for three Academy Awards). Tom Cruise, then a dyslexic with poor memory, and today, a certified-flying pilot, a millionaire- producer and one of Hollywood’s most powerful stars! And all that because the loser never gave up!
The second loser in my list was born to unwed, teenage parents at a farm in Mississippi. Her mother was an 18- year-old housemaid (named Vernita Lee), while her father was a 20-year-old freshman in the US army (named Vernon). Soon after she was born, her parents decided to part ways, and she was left in the care of her grandmother, with whom she stayed till she was 6. Her childhood days could simply be described in three statements – she was a female, she was black, and she was very poor. As a child, she used to “playact” before an “audience” of farm animals. She was a bright kid though. On her first day at school, she left her kindergarten class after writing a note to her teacher, where she expressed her intent to study in the first grade. She was promoted to the third grade the very next year.
At the age of 6, she was sent to a very poor and dangerous neighborhood in Milwaukee, where she lived with her mother and two half-brothers. There, she was repeatedly raped by her cousin, her uncle and her mother’s friend. And her mother, because she worked odd jobs during odd hours, and because of their massively disadvantaged background, could frustratingly do nothing. The girl’s sufferings did not end there. She disintegrated into a habit of repeatedly skipping school, stealing money, and running away from home. Fed up, her mother then decided to put her into a detention home. As luck would have it, there were no openings in the home – and so she was sent to live with her father in Nashville. She became pregnant when she was 14, and gave birth to a dead baby.
Raped, humiliated, without any future, she was devastated, but she swore to herself that she would never give. Her father somehow aided her financially, and through sheer gut-wrenching effort, she became an excellent student at school and participated in the drama and debate clubs. The following year, she won a full scholarship to Tennessee State University (TSU) – and the following year, she was invited to a White House Conference on Youth. Subsequently, she was later given a job to read afternoon newscasts by a local Nashville radio station. When she became Miss Black Nashville and Miss Tennessee during her freshman year at TSU, Columbia Broadcasting System (CBS) offered her a job. And all this while she was still nineteen. She worked at various TV channels and got her biggest break in January 1984, when she became the anchor on a morning talk show called A.M. Chicago. Given the popularity of the show, 20 months later, it was renamed to ‘The Oprah Winfrey Show’. The black, poor, loser had been noticed and was already on her way to becoming a global celebrity. Today, she runs a production house (Harpo Inc.), is the richest black billionaire in the world (worth $2.7 billion) and most importantly, the most powerful celebrity in the world (as per Forbes 2010 ranking). And all because she never gave up!
The third loser in my list was born to Elias and Flora d’Isigny in Chicago’s Hermosa community area. His father was a farmer and a worker at a railroad company. As a young man, he was fired from the Kansas City Star newspaper. Reason: his boss claimed that he lacked creativity. To fulfil his desire to become a full-time cartoonist, he started an animation company called Laugh-OGram Films in 1921. Though the start appeared bright (as he was able to raise $15,000 for the company), the New York distributor, with whom he had tied-up, went bankrupt. Result: end of Laugh- O-Gram. With a mountain of debt in his name, emotionally drained and financially broke, he barely earned a few dimes to pay his rent. Not able to afford proper food, this loser started eating dog food. But despite all that, there was one objective that the man nurtured all along, and that was to never give up.
By missing out on a few meals, he saved his last few dollars to buy a train ticket to Hollywood. And here, in 1926, he created an effervescent cartoon character named Oswald the Rabbit. When he tried to strike a deal with Universal Studios, without his knowledge, Universal went ahead and patented the Oswald character. Of course, the studio paid him nothing. He created more characters; but there were other rejections too. His Three Little Pigs concept was rejected for lack of more characters; filming of Pinocchio was stopped during production; his others creations like Bambi, Pollyanna and Fantasia were utterly disliked by viewers during those times. Fighting against all odds and bankruptcy, the man went on to make the animation film Mary Poppins in 1944, which became a blockbuster hit.
Today, we all know this loser more because of Steamboat Willie, a cartoon character he made – a character that came to be later known as Mickey Mouse. Walt Disney was the name of this loser, who fought failure and sketched his road to success. Although he died in 1966, he left behind a legacy of never giving up. The company he co-founded, The Walt Disney Company, is worth $71.4 billion in the stock market!
The fourth loser in my story is a woman, whose life went into a massive disarray at an age when most of us are well settled. An English teacher in Portugal, she married a TV journalist. But just four months after the birth of her daughter, her husband separated from her. At wits’ end, she left her teaching job in Portugal and decided to be with her sister in Edinburgh, Scotland. Recovering from the divorce was still too painful and the lady kept struggling to make ends meet for herself and her year-old daughter. She had only government subsidies for support. She thought of teaching in Scotland too, but was soon rejected as in order to teach in Scotland, she required a ‘PGCE’ (postgraduate certificate of education). And then, she was diagnosed with clinical depression, and even thought of committing suicide.
Through all this, her one unwavering lighthouse was a book she was writing; a book which allowed her to escape all her miseries; a book which encompassed her spirit of fighting against the worst that life could offer and never giving up. Despite her miserable real life existence, she continued writing the book, spending time in many cafés. After completing the book, when she presented it to publishing house Bloomsbury in 1995, the owner asked her to “get a day job.” Twelve other publishers rejected the book; yet, she continued resolutely. A year later, the same publisher that had rejected her initially, Bloomsbury, offered her a measly £1500 advance for publishing rights in UK.
Although that money wasn’t enough at all, she didn’t give up. In 1997, she applied for grants from the Scottish Arts Council to enable her to continue writing. She received £8000 in return. And then, in 1998, Scholastic Inc. bought the US rights to publish her book for $105,000. The book came to be known as Harry Potter and the Philosopher’s Stone. And she is Joanne K Rowling, the world’s richest author, worth $1 billion. Following are the excerpts from a speech that Rowling delivered to graduates at HBS two years back – “A mere seven years after my graduation day, I had failed on an epic scale. An exceptionally short-lived marriage had imploded, and I was jobless, a lone parent, and as poor as it is possible to be in modern Britain, without being homeless... By every usual standard, I was the biggest failure. Failure meant a stripping away of the inessential. I stopped pretending to myself that I was anything other than what I was, and began to direct all my energy into finishing the only work that mattered to me... And so rock bottom became the solid foundation on which I rebuilt my life. I was the biggest failure I knew. Failure gave me an inner security that I had never attained by passing examinations. Failure taught me things about myself that I could have learned no other way.” Her books have so far sold more than 400 million copies and her last four titles of Harry Potter have consecutively set world records as the fastest selling novels in the world. Today, the Harry Potter brand is alone worth $15 billion, with the seven Potter films having grossed close to $5 billion! All because the loser Rowling decided to not give up.
Finally, I come to the fifth loser – and that is you! Every person in this world has had failures, some small, some big. There is no individual on this planet who has been a born winner and one who has never experienced any failure – from Steve Jobs to Bill Gates to Mahatma Gandhi to Nelson Mandela, all legendary icons have been as legendary in being failures at some point or the other in their lives. But the one common quality amongst all of them has been, that they’ve never given up. The resolve to fight each failure – however harsh it might be – with conviction is the attitude that these losers have had. And that’s exactly the attitude that you should cherish for the new year of 2011.
May you not be the biggest example of success ever, but be the biggest example of how to fight the worst failures. May you succeed in inculcating the right loser’s attitude. May you always be the loser that I wish you to be. Wishes for a fantastic new year, my dear losers!
Loser! If that word stings you to the core of your heart, yet is the exact word that describes you completely, in every aspect, then this editorial is for you. Hello losers! Let me usher in the new year 2011 for you hoping that you never forget the feeling of being a loser, and that you always hate every moment of it. Before you start cursing my ten generations and beyond, let me quickly take you through the story of five losers who, for me, embody the spirit of despondent losers.
This boy from Syracuse (New York), was labelled a dyslexic when he was just seven. His friends would harass him, and his school teachers would humiliate him. This is how he describes his early days, “I’d try to concentrate on what I was reading, then I’d get to the end of the page and have very little memory of anything I’d read. I would go blank, feel anxious, nervous, bored, frustrated, dumb. I would get angry. My legs would actually hurt when I was studying. My head ached.” He went to three different high-schools and each time, he would try to hide his disability. Soon it would be discovered, and he would be sent off to remedial reading. He raised his hands very often in class, only to ensure that his teachers noticed him and gave him extra points so that he could just about make the passing grades. Even when he had to complete his homework, he would first dictate it to his elder sister, make her write it down, and then copy it word to word.
His parents got separated when he was just 12, and he along with his sister Lee Anne, moved with his mother to New Jersey, where she had to work in three jobs simultaneously to earn enough to feed the family. Everything in his life, besides playing baseball, soccer and football, seemed hopeless. He finally managed to clear high school but failed his undergrads as he was a “functional illiterate”. He loved to learn, wanted to learn but the dyslexia was debilitating (Many times, he would even forget that when the fuel gauge in the car falls to ‘E’, it needed refuelling). He decided to move to LA to become an actor. Even then, the loser in him found it hard to pass auditions, because he simply could not read the script. He started requesting others during the auditions to read the script and the directors to talk about the characters and the film. He wanted to give it all up many times, but whenever he did, all he remembered were his mother’s words – “You’ve got so much potential. Don’t give up.” In 1983, he landed his first starring role in the film Risky Business. He got noticed. Three years later, Top Gun was released, which grossed $343 million and made him a millionaire (he earned $2 million from the film)! Thomas Cruise Mapother IV is his name; Tom Cruise is how we know him – the winner of three Golden Globe Awards (and nominations for three Academy Awards). Tom Cruise, then a dyslexic with poor memory, and today, a certified-flying pilot, a millionaire- producer and one of Hollywood’s most powerful stars! And all that because the loser never gave up!
The second loser in my list was born to unwed, teenage parents at a farm in Mississippi. Her mother was an 18- year-old housemaid (named Vernita Lee), while her father was a 20-year-old freshman in the US army (named Vernon). Soon after she was born, her parents decided to part ways, and she was left in the care of her grandmother, with whom she stayed till she was 6. Her childhood days could simply be described in three statements – she was a female, she was black, and she was very poor. As a child, she used to “playact” before an “audience” of farm animals. She was a bright kid though. On her first day at school, she left her kindergarten class after writing a note to her teacher, where she expressed her intent to study in the first grade. She was promoted to the third grade the very next year.
At the age of 6, she was sent to a very poor and dangerous neighborhood in Milwaukee, where she lived with her mother and two half-brothers. There, she was repeatedly raped by her cousin, her uncle and her mother’s friend. And her mother, because she worked odd jobs during odd hours, and because of their massively disadvantaged background, could frustratingly do nothing. The girl’s sufferings did not end there. She disintegrated into a habit of repeatedly skipping school, stealing money, and running away from home. Fed up, her mother then decided to put her into a detention home. As luck would have it, there were no openings in the home – and so she was sent to live with her father in Nashville. She became pregnant when she was 14, and gave birth to a dead baby.
Raped, humiliated, without any future, she was devastated, but she swore to herself that she would never give. Her father somehow aided her financially, and through sheer gut-wrenching effort, she became an excellent student at school and participated in the drama and debate clubs. The following year, she won a full scholarship to Tennessee State University (TSU) – and the following year, she was invited to a White House Conference on Youth. Subsequently, she was later given a job to read afternoon newscasts by a local Nashville radio station. When she became Miss Black Nashville and Miss Tennessee during her freshman year at TSU, Columbia Broadcasting System (CBS) offered her a job. And all this while she was still nineteen. She worked at various TV channels and got her biggest break in January 1984, when she became the anchor on a morning talk show called A.M. Chicago. Given the popularity of the show, 20 months later, it was renamed to ‘The Oprah Winfrey Show’. The black, poor, loser had been noticed and was already on her way to becoming a global celebrity. Today, she runs a production house (Harpo Inc.), is the richest black billionaire in the world (worth $2.7 billion) and most importantly, the most powerful celebrity in the world (as per Forbes 2010 ranking). And all because she never gave up!
The third loser in my list was born to Elias and Flora d’Isigny in Chicago’s Hermosa community area. His father was a farmer and a worker at a railroad company. As a young man, he was fired from the Kansas City Star newspaper. Reason: his boss claimed that he lacked creativity. To fulfil his desire to become a full-time cartoonist, he started an animation company called Laugh-OGram Films in 1921. Though the start appeared bright (as he was able to raise $15,000 for the company), the New York distributor, with whom he had tied-up, went bankrupt. Result: end of Laugh- O-Gram. With a mountain of debt in his name, emotionally drained and financially broke, he barely earned a few dimes to pay his rent. Not able to afford proper food, this loser started eating dog food. But despite all that, there was one objective that the man nurtured all along, and that was to never give up.
By missing out on a few meals, he saved his last few dollars to buy a train ticket to Hollywood. And here, in 1926, he created an effervescent cartoon character named Oswald the Rabbit. When he tried to strike a deal with Universal Studios, without his knowledge, Universal went ahead and patented the Oswald character. Of course, the studio paid him nothing. He created more characters; but there were other rejections too. His Three Little Pigs concept was rejected for lack of more characters; filming of Pinocchio was stopped during production; his others creations like Bambi, Pollyanna and Fantasia were utterly disliked by viewers during those times. Fighting against all odds and bankruptcy, the man went on to make the animation film Mary Poppins in 1944, which became a blockbuster hit.
Today, we all know this loser more because of Steamboat Willie, a cartoon character he made – a character that came to be later known as Mickey Mouse. Walt Disney was the name of this loser, who fought failure and sketched his road to success. Although he died in 1966, he left behind a legacy of never giving up. The company he co-founded, The Walt Disney Company, is worth $71.4 billion in the stock market!
The fourth loser in my story is a woman, whose life went into a massive disarray at an age when most of us are well settled. An English teacher in Portugal, she married a TV journalist. But just four months after the birth of her daughter, her husband separated from her. At wits’ end, she left her teaching job in Portugal and decided to be with her sister in Edinburgh, Scotland. Recovering from the divorce was still too painful and the lady kept struggling to make ends meet for herself and her year-old daughter. She had only government subsidies for support. She thought of teaching in Scotland too, but was soon rejected as in order to teach in Scotland, she required a ‘PGCE’ (postgraduate certificate of education). And then, she was diagnosed with clinical depression, and even thought of committing suicide.
Through all this, her one unwavering lighthouse was a book she was writing; a book which allowed her to escape all her miseries; a book which encompassed her spirit of fighting against the worst that life could offer and never giving up. Despite her miserable real life existence, she continued writing the book, spending time in many cafés. After completing the book, when she presented it to publishing house Bloomsbury in 1995, the owner asked her to “get a day job.” Twelve other publishers rejected the book; yet, she continued resolutely. A year later, the same publisher that had rejected her initially, Bloomsbury, offered her a measly £1500 advance for publishing rights in UK.
Although that money wasn’t enough at all, she didn’t give up. In 1997, she applied for grants from the Scottish Arts Council to enable her to continue writing. She received £8000 in return. And then, in 1998, Scholastic Inc. bought the US rights to publish her book for $105,000. The book came to be known as Harry Potter and the Philosopher’s Stone. And she is Joanne K Rowling, the world’s richest author, worth $1 billion. Following are the excerpts from a speech that Rowling delivered to graduates at HBS two years back – “A mere seven years after my graduation day, I had failed on an epic scale. An exceptionally short-lived marriage had imploded, and I was jobless, a lone parent, and as poor as it is possible to be in modern Britain, without being homeless... By every usual standard, I was the biggest failure. Failure meant a stripping away of the inessential. I stopped pretending to myself that I was anything other than what I was, and began to direct all my energy into finishing the only work that mattered to me... And so rock bottom became the solid foundation on which I rebuilt my life. I was the biggest failure I knew. Failure gave me an inner security that I had never attained by passing examinations. Failure taught me things about myself that I could have learned no other way.” Her books have so far sold more than 400 million copies and her last four titles of Harry Potter have consecutively set world records as the fastest selling novels in the world. Today, the Harry Potter brand is alone worth $15 billion, with the seven Potter films having grossed close to $5 billion! All because the loser Rowling decided to not give up.
Finally, I come to the fifth loser – and that is you! Every person in this world has had failures, some small, some big. There is no individual on this planet who has been a born winner and one who has never experienced any failure – from Steve Jobs to Bill Gates to Mahatma Gandhi to Nelson Mandela, all legendary icons have been as legendary in being failures at some point or the other in their lives. But the one common quality amongst all of them has been, that they’ve never given up. The resolve to fight each failure – however harsh it might be – with conviction is the attitude that these losers have had. And that’s exactly the attitude that you should cherish for the new year of 2011.
May you not be the biggest example of success ever, but be the biggest example of how to fight the worst failures. May you succeed in inculcating the right loser’s attitude. May you always be the loser that I wish you to be. Wishes for a fantastic new year, my dear losers!
My colleague Lisa Schweitzer gently scolds me, and then teaches me something about LA Metro project management
In response to my post, she starts by writing:
First off, it’s a bad idea to conclude anything about work effort based on what you observe by walking by. That’s like the people who judge professors by saying we “only teach two hours a week.” It’s not a valid sample, and it’s very had to evaluate other people’s work effort when you have never done the job yourself— and that’s particularly true of white collar workers passing judgment on blue collar workers engaged in dangerous and often tiring work–during a recession, no less, where anything that extends their work hours has direct implications for their family’s ability to eat and pay rent (unlike salaried work).It is worth reading the whole thing.
More to the point, Richard is mistaken when he concludes that people are not upset. The LA Weekly recently published a story called L.A.’s Light-Rail Fiasco which eviscerates the CEO of the Exposition Metro Line Construction Authority, Rick Thorpe, for salary and his conduct. Rick Thorpe is exactly the sort of transit guy who becomes a free agent and CEO: relentlessly self-promotional and confident, any previous successes get attributed to his leadership. So he picks up stakes, gets recruited away, commands an enormous salary, and builds a brand for himself that he delivers projects on time and on budget.
Suddenly, some members of the GOP realize they actually will be part of the government
Alan Zibel writes in the Wall Street Journal:
The conservative complaint about Fannie and Freddie is that they privatized profit while socializing risk. This is doubtless true. I just don't see how it is any less true for banks.
[update: just to be clear, I am all for FDIC, and I think on net TARP left the country better off. The point is that we will always rely on the public sector to some extent, whether some people like it or not].
Earlier this year, leading House Republicans proposed to privatize mortgage giants Fannie Mae and Freddie Mac or place them in receivership starting in two years.I actually don't think the mortgage market will ever be truly a private sector enterprise. Suppose Fannie and Freddie were to go away: the most likley entities to step into the residential finance market would be banks. Would this be privitization? Not really. Banks receive explicit guarantees (FDIC) and, as we know from recent events, implicit guarantees as well (TARP was nothing if not the execution of an implicit Federal guarantee).
Now, as Republicans prepare to assume control of the House next week, they aren't in as big a rush, cautioning that withdrawing government support in the housing market should be gradual.
"We recognize that some things can be done overnight and other things can't be," said Rep. Scott Garrett (R., N.J.), incoming chairman of the House Financial Services subcommittee, which oversees Fannie and Freddie. "You have to recognize what the impact would be on the fragile housing market as it stands right now."
The conservative complaint about Fannie and Freddie is that they privatized profit while socializing risk. This is doubtless true. I just don't see how it is any less true for banks.
[update: just to be clear, I am all for FDIC, and I think on net TARP left the country better off. The point is that we will always rely on the public sector to some extent, whether some people like it or not].
Senin, 27 Desember 2010
Keynes on the "Psychology of Society"
My wife gave me a Kindle for Christmas. The first thing I should say is that it is really great: my eyesight isn't what it once was, and I find it very easy to read.. The second is that I will continue to buy books at Vroman's (a Pasadena bookstore), because I want them to stay in business. Third, I downloaded the Economic Consequences of the Peace, which I hadn't read in four or five years. It has a section early on that really struck me:
Europe was so organized socially and economically as to secure the maximum accumulation of capital. While there were some continuous improvements in the daily conditions of life of the mass of the population, Society was so framed to to throw a great part of the increased income into the control of the class least likely to consume it. The new rich of the 19th century were not brought up to large expenditures, and preferred the power which investment gave them to the pleasures of immediate consumption. In fact, it was precisely the inequality of the distribution of wealth which made possible those vast accumulations of fixed wealth and of capital improvements which distinguished that age from all others. Herein lay, in fact, the main justification of the Capitalist System. If the rich had spent their new wealth on their own enjoyments, the world long ago would have found such a regime intolerable. But like bees they saved and accumulated, not less to the advantage of the whole community because they themselves held narrower ends in prospect.
The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war [WWI], could never have come about in a Society where wealth was divided equitably. The railways of the world, which that age built as a monument to posterity, were, not less than the Pyramids of Eqypt, the work of labor which was not free to consume in immediate enjoyment the full equivalent of its efforts.
Thus this remarkable system depended for its growth on a double bluff or deception. On the one hand the laboring classes accepted from ignorance or powerlessness, or were compelled, perusade or cajoled by custom, convention, authority, and the well-established order of Society into accepting a situation in which they could call their own very little of the cake that they and Nature and the capitalists were co-operating to produce. And on the other hand the capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice.
Rabu, 22 Desember 2010
Is the Mortgage Interest Deduction a "Middle-class" benefit?
Yesterday, I was on the Larry Mantle program on KPCC debating Lawrence Yun about the merits of the mortgage interest deduction. Lawrence is the chief economist of NAR, and is, as such, not disinterested about the issue, but he is an honest advocate (full disclosure: when I was a graduate student, I worked for Wisconsin Realtors, and I consulted on benchmarking the Existing Home Sales series in the late 90s and around 2002 or so ).
He said a couple of things, however, that bothered me. He sort of dissed renters, by saying they pay only five percent of federal income taxes, ignoring the fact that they pay FICA, state and local taxes. One would think Realtors would like renters, since they do, after all, pay rent to property owners. But he also characterized the mortgage interest deduction as being a "middle-class" deduction. This all depends on the defintion of "middle-class."
Let me turn to Eric Toder and colleagues:
He said a couple of things, however, that bothered me. He sort of dissed renters, by saying they pay only five percent of federal income taxes, ignoring the fact that they pay FICA, state and local taxes. One would think Realtors would like renters, since they do, after all, pay rent to property owners. But he also characterized the mortgage interest deduction as being a "middle-class" deduction. This all depends on the defintion of "middle-class."
Let me turn to Eric Toder and colleagues:
The percentage reduction in after-tax income from eliminating the deduction would be largest for taxpayers in the 80th to 99th percentiles of the distribution. These upper-middle-income households would be affected more than tax units in the bottom four quintiles because they are more likely to own homes and itemize deductions and because the higher marginal tax rates they face make deductions worth more to them than to lower-income taxpayers. The very highest income taxpayers, however, will experience a relatively small drop in income (about 0.4 percent on average) because, at the very highest income levels, mortgage interest payments decline sharply as a share of income.So it is probably correct to characterize the mortgage interest deduction as an "upper-middle-class" deduction. The very rich don't benefit that much from it, because they don't really need mortgages. The bottom 80 percent don't benefit much, because their marginal tax rates are low, they are more likely to be renters and perhaps don't itemize their tax deductions. My guess is that people between the 80th and 99th percentile don't need a lot of encouragement to become homeowners.
Selasa, 21 Desember 2010
RIM's Q3 Financials: A Tale of Two BlackBerries
People have been asking for my take on RIM's latest quarterly earnings, which were reported last week (link). The short answer is that I am both less worried and more worried than I was before. I am less worried because the company has more strength than I realized internationally, and I am more worried because the situation in North America is worse than I thought.
Before I get into my comments, I should point out that I don't think you can use a single quarter to declare a company either dead or saved, especially when it's as big and prominent as RIM. In the last couple of years, attitudes toward RIM have gone through a couple of cycles in which negative coverage about the company builds up, the company has a good quarter, and the coverage dies down for a while again. I think it's more useful to look beyond the individual quarters and try to see the long term trends.
In that spirit, I think RIM's earnings were good, but I was more interested in the things management said about moving toward new products and services, and by the very rapid changes happening in RIM's international sales. Overall, I wouldn't say the company is out of the woods at all, and 2011 will be a decisive test of its viability. Here's an overview of the earnings, followed by some comments on international and the new products.
Updating the charts
I plugged the latest numbers into the charts from my post on RIM in October (link). They generally look like good news:
Total BlackBerry Subscribers
(Quarters are RIM fiscal quarters)
Continued nice growth. But we'll come back to this one in a minute.
Net New Subscribers Per Quarter
This one is encouraging: additions went up compared to the quarter before. But it's only one quarter; over the year, the rate of additions is flat. Watch the next several quarters to see if there is a trend.
New Subscribers Per Unit Sold
Continuing to decline. If you're looking for bad news on RIM, this is probably the chart you focus on.
Device Gross Margins
Good news, they were stable for the quarter. This is another statistic where you want to look at the trend rather than just a quarter's results. And the trend for the last year looks stable, which ain't bad. (Remember, I have to estimate this number because RIM doesn't report device gross margins separately.)
Device Average Selling Price
Also stable for the last couple of quarters. Good news.
Service Revenue Per User
I didn't chart this one last time, but it's interesting. RIM currently gets about $15 in service fees per quarter per BlackBerry subscriber. That's the money operators pay to RIM per user for the email service. This revenue has been declining slowly but steadily for years, and I don't completely understand why. RIM says it's due in part to a shift toward prepaid customers, which would fit with the international growth they're seeing. But I wonder if also the operators are becoming less willing to share revenue with RIM. Anyway, I think it's a warning sign -- as your market matures you want to find ways to make more money per user, not less.
Adding up all of the results, it looks like a very nice quarter. But remember, one of my main points was that good short-term numbers can mask long-term problems. And in this case, the way RIM reports its numbers hides some challenges.
Looking ahead: A Tale of Two BlackBerries
Two issues really stuck out to me as I looked at the RIM announcement: International sales, and the comments by RIM's management.
In the post I wrote in October, I missed the importance of RIM's international growth. It was a significant oversight. Several people, starting with mobile analyst Dean Bubley (link), pointed out in comments on my blog that BlackBerry has become very popular among young people in many parts of Europe and elsewhere as a messaging phone. RIM also claims it is the number one smartphone platform in Latin America. Its appeal was explained by analyst Horace Deidu, who notes that the BlackBerry Messenger app is more attractive than generic texting because it's free, and because you can see when your messages have been read (link).
Deidu looked at RIM's most recent quarterly financials, and concluded that RIM's revenues had actually declined in North America, a fact masked by the company's rapid growth in other parts of the world (link). That surprised me, because it wasn't featured prominently in most of the reports on RIM's quarter. It was also pretty alarming. All of the charts above look relatively reassuring, but they're a blend of the international business and the North American one. Since the signs of an impending platform collapse are subtle (something I explained in my October post), it's possible that the international growth is disguising big warning signs in North America.
Unfortunately, RIM doesn't report early indicators like gross margin by region, so I had to look for whatever data I could find. I managed to dig out the numbers on the RIM subscriber base in North America vs. elsewhere. RIM doesn't report this directly, but you can calculate it from the quarterly reports. Here's what I found:
BlackBerry Subscribers
Total subscribers in millions
About half of RIM's subscribers are now outside North America (the crossover will probably happen this quarter). Growth in North America looks pretty slow. Here's what the subscriber growth rate looks like:
Quarterly Growth in Subscribers
Percent growth from quarter before
The BlackBerry subscriber base outside of North America has grown rapidly, increasing 15%-25% every quarter for the last three and a half years. North American growth was also strong until about 18 months ago (the second quarter of FY 2010), when growth softened. In the last two quarters, subscriber growth in North America dropped to almost zero.
Yikes. That sure smells like market saturation to me, and the process is a lot further along than I thought.
(Note: I had to interpolate the numbers for a few quarters in fiscal 2008 and 2009, because RIM didn't report them every quarter.)
So at the risk of oversimplifying a bit, the data and the anecdotes from around the world paint a picture of two RIMs: A consumer messaging phone company that has tapped into a new demographic and is growing fast in various parts of the world outside North America, and a prosumer e-mail phone company that has hit the wall in North America and needs very badly to re-ignite its growth through new products and services. It is the best of times, it is the...oh, you get the idea.
This explains a lot of the confusion we're seeing in attitudes toward RIM online. Like blind men feeling the elephant, we see the RIM that's in front of us -- either the consumer RIM that's growing well, or the prosumer RIM that has stalled out. Who's seeing the real RIM? We all are. The phone market is heavily segmented, and it's common for a company to do well in one region and poorly in another (just look at Nokia).
I have to give a lot of credit to the folks at RIM for managing to crank up the growth internationally just as its North American business faltered. I don't know if they were lucky or good, but it's a very hard balance to hit. On the other hand, I don't think RIM is doing any favors to investors by playing down the regional data in its financial reports. That creates a lot of confusion.
What it means for RIM. It looks like the North American business may be closer to a platform collapse than I realized. I think urgent action is needed to keep the company's North American users loyal. The silver lining in that dark cloud is that RIM's growth in other regions can help fund the changes needed. But time is short, and I still worry about RIM's ability to quickly focus on new differentiators and create compelling user experiences.
There's another path RIM could choose to follow -- it could milk its North American prosumer base for profits while accelerating its growth with young people overseas. But if you can trust the comments of RIM's execs, that is not their direction. They seem to believe they are on the verge of succeeding everywhere, in all segments. RIM co-CEO Jim Balsillie was effusive when he took questions in RIM's recent quarterly conference call (you can read a transcript here).
His message boils down to this:
--PlayBook will be a huge hit.
--The new QNX operating system is great.
--Unlike other companies (Apple and Google), RIM will work in cooperation with mobile operators, content providers, and banks to produce services for customers. RIM will not bypass them, so they will steer customers to RIM.
--Don't worry about the iPhone and Android app base, because mobile applications written to a particular OS will become less important in the near future, as users and developers look to support web standards and intermediate development platforms like Flash.
--RIM provides the sort of reliability and security that enterprises want, so it will be the leading B2B mobile provider.
--RIM is growing very fast, and has a lot of plans for 2011 that have not been fully revealed yet. Adding these all together, the company has tremendous opportunities in the coming year.
I was surprised by how relentlessly upbeat Balsillie's comments were -- most CEOs usually hedge their statements to avoid saying something that could be quoted in a shareholder lawsuit. Balsillie sounds like he's either extremely optimistic or extremely anxious to convince people not to write his company off. But I checked some of the previous calls, and it turns out he's always like that.
It's important that you understand the breadth and depth of RIM's ambition, so here are extended excerpts from his comments:
This is called tying yourself to the mast.
Maybe Balsillie is right. Maybe RIM's on the verge of enormous opportunity and explosive growth. I hope it is (seriously; I like RIM and I'd like it to succeed). But RIM is fighting on an enormous number of fronts, and that scares me for a company that has problems creating high-quality knockout products and is transitioning to a new operating system. The effect could be like flooring the gas in a car with a bad transmission -- you might get a surge of power, or you might leave half the engine on the highway. Restoring momentum to a stalled-out platform is a very difficult task, and it rarely goes smoothly, or succeeds in a single year. With all the hype the company is putting into PlayBook and the rest of its strategy, anything less than stellar success in all regions and all product lines in 2011 is going to be seen as a big disappointment. And that sort of disappointment could be the signal that causes users to turn away from its platform in North America.
As I said two months ago, I think RIM's future depends on its ability to focus, differentiate, and execute. I think the latest earnings just reinforce that.
[Note: This post was revised Dec. 22 to add a paragraph and clarify some explanations.]
Before I get into my comments, I should point out that I don't think you can use a single quarter to declare a company either dead or saved, especially when it's as big and prominent as RIM. In the last couple of years, attitudes toward RIM have gone through a couple of cycles in which negative coverage about the company builds up, the company has a good quarter, and the coverage dies down for a while again. I think it's more useful to look beyond the individual quarters and try to see the long term trends.
In that spirit, I think RIM's earnings were good, but I was more interested in the things management said about moving toward new products and services, and by the very rapid changes happening in RIM's international sales. Overall, I wouldn't say the company is out of the woods at all, and 2011 will be a decisive test of its viability. Here's an overview of the earnings, followed by some comments on international and the new products.
Updating the charts
I plugged the latest numbers into the charts from my post on RIM in October (link). They generally look like good news:
Total BlackBerry Subscribers
(Quarters are RIM fiscal quarters)
Continued nice growth. But we'll come back to this one in a minute.
Net New Subscribers Per Quarter
This one is encouraging: additions went up compared to the quarter before. But it's only one quarter; over the year, the rate of additions is flat. Watch the next several quarters to see if there is a trend.
New Subscribers Per Unit Sold
Continuing to decline. If you're looking for bad news on RIM, this is probably the chart you focus on.
Device Gross Margins
Good news, they were stable for the quarter. This is another statistic where you want to look at the trend rather than just a quarter's results. And the trend for the last year looks stable, which ain't bad. (Remember, I have to estimate this number because RIM doesn't report device gross margins separately.)
Device Average Selling Price
Also stable for the last couple of quarters. Good news.
Service Revenue Per User
(Dollars per quarter.)
I didn't chart this one last time, but it's interesting. RIM currently gets about $15 in service fees per quarter per BlackBerry subscriber. That's the money operators pay to RIM per user for the email service. This revenue has been declining slowly but steadily for years, and I don't completely understand why. RIM says it's due in part to a shift toward prepaid customers, which would fit with the international growth they're seeing. But I wonder if also the operators are becoming less willing to share revenue with RIM. Anyway, I think it's a warning sign -- as your market matures you want to find ways to make more money per user, not less.
Adding up all of the results, it looks like a very nice quarter. But remember, one of my main points was that good short-term numbers can mask long-term problems. And in this case, the way RIM reports its numbers hides some challenges.
Looking ahead: A Tale of Two BlackBerries
Two issues really stuck out to me as I looked at the RIM announcement: International sales, and the comments by RIM's management.
In the post I wrote in October, I missed the importance of RIM's international growth. It was a significant oversight. Several people, starting with mobile analyst Dean Bubley (link), pointed out in comments on my blog that BlackBerry has become very popular among young people in many parts of Europe and elsewhere as a messaging phone. RIM also claims it is the number one smartphone platform in Latin America. Its appeal was explained by analyst Horace Deidu, who notes that the BlackBerry Messenger app is more attractive than generic texting because it's free, and because you can see when your messages have been read (link).
Deidu looked at RIM's most recent quarterly financials, and concluded that RIM's revenues had actually declined in North America, a fact masked by the company's rapid growth in other parts of the world (link). That surprised me, because it wasn't featured prominently in most of the reports on RIM's quarter. It was also pretty alarming. All of the charts above look relatively reassuring, but they're a blend of the international business and the North American one. Since the signs of an impending platform collapse are subtle (something I explained in my October post), it's possible that the international growth is disguising big warning signs in North America.
Unfortunately, RIM doesn't report early indicators like gross margin by region, so I had to look for whatever data I could find. I managed to dig out the numbers on the RIM subscriber base in North America vs. elsewhere. RIM doesn't report this directly, but you can calculate it from the quarterly reports. Here's what I found:
BlackBerry Subscribers
About half of RIM's subscribers are now outside North America (the crossover will probably happen this quarter). Growth in North America looks pretty slow. Here's what the subscriber growth rate looks like:
Quarterly Growth in Subscribers
The BlackBerry subscriber base outside of North America has grown rapidly, increasing 15%-25% every quarter for the last three and a half years. North American growth was also strong until about 18 months ago (the second quarter of FY 2010), when growth softened. In the last two quarters, subscriber growth in North America dropped to almost zero.
Yikes. That sure smells like market saturation to me, and the process is a lot further along than I thought.
(Note: I had to interpolate the numbers for a few quarters in fiscal 2008 and 2009, because RIM didn't report them every quarter.)
So at the risk of oversimplifying a bit, the data and the anecdotes from around the world paint a picture of two RIMs: A consumer messaging phone company that has tapped into a new demographic and is growing fast in various parts of the world outside North America, and a prosumer e-mail phone company that has hit the wall in North America and needs very badly to re-ignite its growth through new products and services. It is the best of times, it is the...oh, you get the idea.
This explains a lot of the confusion we're seeing in attitudes toward RIM online. Like blind men feeling the elephant, we see the RIM that's in front of us -- either the consumer RIM that's growing well, or the prosumer RIM that has stalled out. Who's seeing the real RIM? We all are. The phone market is heavily segmented, and it's common for a company to do well in one region and poorly in another (just look at Nokia).
I have to give a lot of credit to the folks at RIM for managing to crank up the growth internationally just as its North American business faltered. I don't know if they were lucky or good, but it's a very hard balance to hit. On the other hand, I don't think RIM is doing any favors to investors by playing down the regional data in its financial reports. That creates a lot of confusion.
What it means for RIM. It looks like the North American business may be closer to a platform collapse than I realized. I think urgent action is needed to keep the company's North American users loyal. The silver lining in that dark cloud is that RIM's growth in other regions can help fund the changes needed. But time is short, and I still worry about RIM's ability to quickly focus on new differentiators and create compelling user experiences.
There's another path RIM could choose to follow -- it could milk its North American prosumer base for profits while accelerating its growth with young people overseas. But if you can trust the comments of RIM's execs, that is not their direction. They seem to believe they are on the verge of succeeding everywhere, in all segments. RIM co-CEO Jim Balsillie was effusive when he took questions in RIM's recent quarterly conference call (you can read a transcript here).
His message boils down to this:
--PlayBook will be a huge hit.
--The new QNX operating system is great.
--Unlike other companies (Apple and Google), RIM will work in cooperation with mobile operators, content providers, and banks to produce services for customers. RIM will not bypass them, so they will steer customers to RIM.
--Don't worry about the iPhone and Android app base, because mobile applications written to a particular OS will become less important in the near future, as users and developers look to support web standards and intermediate development platforms like Flash.
--RIM provides the sort of reliability and security that enterprises want, so it will be the leading B2B mobile provider.
--RIM is growing very fast, and has a lot of plans for 2011 that have not been fully revealed yet. Adding these all together, the company has tremendous opportunities in the coming year.
I was surprised by how relentlessly upbeat Balsillie's comments were -- most CEOs usually hedge their statements to avoid saying something that could be quoted in a shareholder lawsuit. Balsillie sounds like he's either extremely optimistic or extremely anxious to convince people not to write his company off. But I checked some of the previous calls, and it turns out he's always like that.
It's important that you understand the breadth and depth of RIM's ambition, so here are extended excerpts from his comments:
"We have real differentiation and we have real opportunities for extension of the business in a whole bunch of ways. I mean, just the pent-up interest in the PlayBook is really overwhelming, and then you know the whole aspects of carrier billing and value-added services -- you're just going to see a litany of things happening in that area, both for the BlackBerry tablet and the BlackBerry smartphone over the year....
"We're laying in the pieces here to sustain really exciting growth for a long, long, long time....we'll have some pretty pleasant surprises in what we're doing throughout the calendar 2011....
"We're selling lots...We have good products. Our engagement is good. I feel very, very good about U.S. I mean, we're meeting with the guys that run all the carriers, we've got plans, our carrier partners are in place. There is a real desire to do a lot of things and a lot of these things are locked in and new things are being planned....
"I feel great about where we're sitting for 2011 in the carriers in North America, and we've held our base and we've had growth in shipment and we've had okay net adds, but we're positioned to grow very, very strong. We've really knocked the cover off the ball in so many other markets around the world and yet our penetration in those are still very, very modest....We fell very, very good about the future....
"The product roadmap looks great and the application extension B2B and B2C is so strong.... You're going to see a lot of the stuff come out, really over the next month. So it should be very, very interesting....
"The interest in PlayBook in the B2B is uniformly strong....I can't think of an account that isn't just beating down to get units....Overwhelming interest and overwhelming pressure to get units are a pretty fair characterization. So we're very confident just what it's going to do for businesses....
"The core essence of the business is still just moving along so well and growing so fast. So if you layer in this tablet category, and then you layer in advanced services strategies and then you layer in leapfrog future-proved architectures, I feel very, very good about where we are in the U.S. I feel very good about where we are around the world.... Do I think we're in a position to really take where we are and extend it further in a sustained basis in the U.S. and abroad? In my view, without a doubt....Just watch the year unfold and watch 2011 unfold and you should know. I'm fine just letting the proof being in the deliverables. We do keep delivering and we're going to keep delivering, so we're just going to keep it up....
"I think the PlayBook redefines what a tablet should do. I think we've articulated some elements of it and I think this idea of a proprietary SDK and unnecessary apps -- though there is a huge role for apps, I think it's going to shift in the market and I think it's going to shift very, very quickly and I think there's going to be a strong appetite for web fidelity and tool familiarity. And I think there's going to be a rapid desire for high performance, and I think we are way ahead on that. I think, CIO friendliness is...we are way ahead on that....So I think the PlayBook clearly sets the bar way higher on performance and you're going to see more. I think the enterprise stuff, we're seriously extending. I think the BlackBerry is still number one in social collaboration. And I think with the PlayBook and that environment we're going to set the new standard on performance and tools, very powerful tools and we're growing very, very fast."
This is called tying yourself to the mast.
Maybe Balsillie is right. Maybe RIM's on the verge of enormous opportunity and explosive growth. I hope it is (seriously; I like RIM and I'd like it to succeed). But RIM is fighting on an enormous number of fronts, and that scares me for a company that has problems creating high-quality knockout products and is transitioning to a new operating system. The effect could be like flooring the gas in a car with a bad transmission -- you might get a surge of power, or you might leave half the engine on the highway. Restoring momentum to a stalled-out platform is a very difficult task, and it rarely goes smoothly, or succeeds in a single year. With all the hype the company is putting into PlayBook and the rest of its strategy, anything less than stellar success in all regions and all product lines in 2011 is going to be seen as a big disappointment. And that sort of disappointment could be the signal that causes users to turn away from its platform in North America.
As I said two months ago, I think RIM's future depends on its ability to focus, differentiate, and execute. I think the latest earnings just reinforce that.
[Note: This post was revised Dec. 22 to add a paragraph and clarify some explanations.]
Senin, 20 Desember 2010
Small reasons that government drives people crazy
A light rail line going by USC--the Exposition Line--has been under construction for some time now. For a considerable time, the site featured a sign that said the line would open in 2010. Now the estimates are that it will open some time in 2011 or 2012. At the same time, when I walk by the project, I can't say that the workers building it show a great deal of, shall we say, urgency about getting the thing done.
At the same time, I don't hear a lot of people who are upset about how far behind schedule the project is. Maybe this is because no one is planning to take the Expo Line. Maybe it is because peoople have such low expectations of LA Metro that they are not surprised, and therefore not outraged. Either way, it suggests a problem.
I continue to believe that we need government to do certain things (rail tunnels under the Hudson and a more modern power grid, for starters) for the economy to perform well. But when government doesn't perform well, it turns positive NPV projects into negative NPV projects, and it undermines political consensus for the necessity of government.
At the same time, I don't hear a lot of people who are upset about how far behind schedule the project is. Maybe this is because no one is planning to take the Expo Line. Maybe it is because peoople have such low expectations of LA Metro that they are not surprised, and therefore not outraged. Either way, it suggests a problem.
I continue to believe that we need government to do certain things (rail tunnels under the Hudson and a more modern power grid, for starters) for the economy to perform well. But when government doesn't perform well, it turns positive NPV projects into negative NPV projects, and it undermines political consensus for the necessity of government.
Kamis, 16 Desember 2010
Bethany McLean on the GOP "primer" on the financial crisis
She writes:
Second, to say that the Affordable Housing Goals were major contributors to the crisis is silly, because as people like Wallison liked to point out, the GSE's continually lagged the market when it came to advancing mortgages to low income borrowers and underserved areas. Wallison specifically said in 2006 that GSEs were "not doing the job they should for low income borrowers. Finally, the Community Reinvestment Act did not cover many of the financial institutions that originated the most toxic loans.
What bothers me about the entire Republican narrative is that it continues a pattern of argument that suggests that when it comes to finding fault, borrowers are always more culpable than lenders; low income people are always more culpable than high income people; and underrepresented minorities somehow have gotten an unwarranted good deal.
Update: Barry Ritholtz has 10 questions for the GOP members of the commission.
This narrative isn't completely wrong—but it is shockingly incomplete, which makes it, in the end, a ludicrous distortion of what happened.Three points. First, I have never, ever, seen Peter Wallison suggest that banks are ever anything by morally upright and wise, despite lots of evidence to the contrary (I would welcome a correction on this point).
Second, to say that the Affordable Housing Goals were major contributors to the crisis is silly, because as people like Wallison liked to point out, the GSE's continually lagged the market when it came to advancing mortgages to low income borrowers and underserved areas. Wallison specifically said in 2006 that GSEs were "not doing the job they should for low income borrowers. Finally, the Community Reinvestment Act did not cover many of the financial institutions that originated the most toxic loans.
What bothers me about the entire Republican narrative is that it continues a pattern of argument that suggests that when it comes to finding fault, borrowers are always more culpable than lenders; low income people are always more culpable than high income people; and underrepresented minorities somehow have gotten an unwarranted good deal.
Update: Barry Ritholtz has 10 questions for the GOP members of the commission.
Senin, 13 Desember 2010
Jonathan Weinstein on Fairness in Tax Policy
It is worth reading the whole thing; here is the conclusion:
As a 1st approximation, someone in a highly scalable profession would keep roughly(Full disclosure: Jon is my cousin).
half their income, since they enter the game with, on average, half the population
present. (See a more carefully worked out example in the appendix.) There are
many possible adjustments to this estimate; for one, if the inventor or entertainer
is extracting rents from network e ects and they are not actually much better than
a replacement, their Shapley value might be much less than half their income. On
the other hand, someone in a non-scalable profession creates roughly the same value
regardless of the size of society, so they would keep more of their income. Whether
these considerations re
ect fairness is, of course, ultimately a value judgment, but a
50% top marginal tax rate is well within the historical range, so such an outcome
would not be radical.
The great intellectual advances that illuminated the enormous bene ts of the free
market, starting with Adam Smith and continuing into the 20th century, have long
since been assimilated into our political discourse. The danger is that in some circles
the lessons have been learned just a bit too well. The free market then becomes a
21st-century deity whose dictates are perfectly fair and should not be questioned,
lest its manna of prosperity cease to rain down upon us. Warning about this is, of
course, unnecessary for economists, who, whatever their political stripe, understand
perfectly the limits of core equivalence and welfare theorems. Keeping any nuance
is very di cult when intellectual advances are distilled for a larger population, so
responsible academics always have to be very careful in how they discuss the practical
impact of abstract results.
Yves Smith gives Five Rules for Private Label Mortgage Securitization
They are:
1. Mortgages must be seasoned 12 months before they can be securitized
2. The originator must retain at least a 5% interest in the credit risk of the assets sold
3. The interest of all parties to a transaction must clearly be disclosed, along with their fees
4. Re-securitizations (meaning CDOs) are severely restricted (note a disconnect here; the e-mailed and verbal reports suggested they were banned entirely; the language at the FDIC website seems to indicate that they are allowed in limited circumstances, but any use of synthetic assets, meaning credit default swaps, in a asset-backed CDO is verboten)
5. Compensation to servicers will include incentives for loss mitigation
The mortgage securitization industry apparently opposed this, which is odd, in light of the fact that it is doubtful securitization will return in the absence of such rules.
Yesterday's NYT: A Secretive Banking Elite Rules Trading in Derivatives
In the aftermath of The Big Short, one would think we would try to stop this kind of thing. It is one thing to be OK with some people making a lot of money; it is another thing to think it is OK for people to make lots of money because of a rigged game in their favor. I worry that the extraordinary increase in unevenness in wealth is not the result of merit, but the result of the game being more and more rigged.
Minggu, 12 Desember 2010
Density and the use of public transportation
I am grading papers from students in my Advanced Urban course, and a number are reviewing literature on density and use of public transport. The literature suggests that doubling density is associated with something like an eight percent increase in public transit use, but of course, it is difficult to tease out cause and effect: I suspect those who like living densely are also more likely to want to use public transportation.
I can't help but think about a trip I made to a UN conference on urban issues. The conference took place in Barcelona, which has among the easiest to use transit systems in the world--more than half the people there live within walking distance of a metro stop. As it happens, I went to dinner with some officials from the Bush Administration, and when I suggested we use the metro instead of cabs, my companions were, well, stunned at the very idea. I pursuaded them to go, and learned that a bunch of people who lived in a city which has an excellent metro, Washington, never used public transportation.
I could be wrong, but my sense was that taking the metro in Barcelona was a foreign adventure for them in all kind of ways, and one that they did not particularly wish to repeat at home.
I can't help but think about a trip I made to a UN conference on urban issues. The conference took place in Barcelona, which has among the easiest to use transit systems in the world--more than half the people there live within walking distance of a metro stop. As it happens, I went to dinner with some officials from the Bush Administration, and when I suggested we use the metro instead of cabs, my companions were, well, stunned at the very idea. I pursuaded them to go, and learned that a bunch of people who lived in a city which has an excellent metro, Washington, never used public transportation.
I could be wrong, but my sense was that taking the metro in Barcelona was a foreign adventure for them in all kind of ways, and one that they did not particularly wish to repeat at home.
Jumat, 10 Desember 2010
Senin, 06 Desember 2010
I see that the Adminstration's deal on taxes is being characterized as a "compromise"
It is not a compromise. It is a capitulation.
Jumat, 03 Desember 2010
The Residences at LA Live may become LA's icon
After the Hollywood sign, of course. I heard Victor McFarlane give a talk last night; MacFarlane Partners did the Residences at LA Live:
The picture comes from the LA Architecture Awards web site. I drive by this building every day, and enjoy it every day. The place still needs to stand the test of time, but I love the fact that the building is distinctive and doesn't relay on mass or extreme height to be striking.
The picture comes from the LA Architecture Awards web site. I drive by this building every day, and enjoy it every day. The place still needs to stand the test of time, but I love the fact that the building is distinctive and doesn't relay on mass or extreme height to be striking.
Selasa, 30 November 2010
Should house prices still be falling?
I'm not sure. According to the National Association of Realtors, the median house price in the US is $170,500. The most recent American Housing Survey data from 2008 shows median rent at $ 808 per month, and the CPI-Rent index is essentially flat since 2008. This means the cash flow cost of renting is $9696 per year.
If we assume the mortgage interest rate on a 30-year fixed rate mortgage is 4.5 percent, the cost of home equity is 10 percent, a buyer puts 20 percent down on a house, property taxes are one percent of house value, marginal income tax rates (state and local) are 25 percent, maintanence costs are one percent per year, and amortized closing costs are another one percent per year, the cash cost of owning is $12,162 per year.
But the median rental unit is 1300 square feet and the median owner unit is 1800 square feet, so owning the median owner unit costs about 10 percent less per square foot than renting the median rental unit. This means house prices could fall and, in some places at least, still leave the owner better off than renters.
Neither renter nor owner markets are national, but I am hard pressed to think of a time when owning on a cash-flow basis looks so reasonable relative to renting.
If we assume the mortgage interest rate on a 30-year fixed rate mortgage is 4.5 percent, the cost of home equity is 10 percent, a buyer puts 20 percent down on a house, property taxes are one percent of house value, marginal income tax rates (state and local) are 25 percent, maintanence costs are one percent per year, and amortized closing costs are another one percent per year, the cash cost of owning is $12,162 per year.
But the median rental unit is 1300 square feet and the median owner unit is 1800 square feet, so owning the median owner unit costs about 10 percent less per square foot than renting the median rental unit. This means house prices could fall and, in some places at least, still leave the owner better off than renters.
Neither renter nor owner markets are national, but I am hard pressed to think of a time when owning on a cash-flow basis looks so reasonable relative to renting.
Senin, 29 November 2010
Ingrid Ellen, John Tye, and Mark Willis on Covered Bonds replacing GSES
They write:
Covered bonds have three potential advantages over MBSs as a method of mortgage finance.
First, they have the potential to reduce principal-agent problems, because the banks themselves
would hold the loans underlying covered bonds, giving them an interest in originating better
loans. Second, because the mortgage loans would simply remain on bank balance sheets and not
be put into special trusts subject to the incentives of servicers, banks could modify failing loans
far more easily than MBS trusts can. This could reduce foreclosures and maximize loan value.
Third, depending on how they are implemented, covered bonds also hold the possibility of
improving the options available to homebuyers who find themselves underwater. In Denmark,
covered bonds operate according to the “balance principle.” The balance principle requires a
match between each mortgage written and every bond issued. It permits homebuyers two options
for paying off their debt: they may either pay off their mortgage at par, or they may repurchase
their lender’s bonds on the open market, in an amount corresponding to the size of their
mortgage, and return those bonds to the lender. Falling house prices will often depress the
corresponding bond prices (though this may not always happen). When house and bond prices
fall together, homeowners can sometimes refinance their homes at the new, lower house price,
by buying back their bonds at the lower bond prices, and surrendering the bonds to the original
lender. This new option for refinancing could reduce foreclosures in the event of a widespread
decline in housing prices.
There is uncertainty, however, in the extent to which covered bonds would deliver the same level
of liquidity as GSE MBSs, because in a covered bond system, mortgage loans remain on bank
balance sheets. Moreover, it may be difficult for covered bonds to achieve the minimum efficient
scale to compete with government-backed GSE MBSs. As in Denmark, an effective covered
bond market would require standardized bond forms, and a high-volume market that could
demonstrate liquidity to potential buyers. If covered bonds were issued by hundreds of banks
across the country, each with different underwriting standards and bond structures, the extensive
market fragmentation would seriously reduce trading volume and liquidity for any particular
covered bond issue. The Danish covered bond system is effective because the market is highly
structured and homogenized, with only a few participating banks.
Me again: one of the selling points of covered bonds is that they remain on bank balance sheets, and, in Denmark anyway, have no explicit of implicit backing from the government. But do they really lack such backing? If the government is willing to inject liquidity into banks (and in Denmark, it is), do the bonds really lack a guarantee? I am not so sure.
Sabtu, 20 November 2010
A thought experiment on airport screening and jobs
As noted in earlier posts, my students and I discussed Bill Cronon's Nature's Metropolis this past week. One of Cronon's explanations for Chicago's extraordinary growth was its role as a distribution center: railroads had both eastern and western terminals in Chicago, and so lots of stuff got collected and moved in the city. Chicago is not the only city whose development came about in part because of transshipments; one could tell such stories about Hong Kong and Singapore as well.
Coincidentally, Nate Silver had a blog post this week where he estimates that extra post-9-11 security screening reduced air travel by 6 percent. This begs the question as to how much impediments to movement are also impeding the broader economy.
I wrote a paper a few years back that linked passenger traffic at airports to employment. The finding was that an increase of one passenger per capita per year produced a 3 percent increase in jobs. A typical large city has four boardings per year per capita, so let's run the math: -.06*4*.03 is a .72 percent reduction in jobs. The US has about 139 million jobs, so a .72 percent reduction is about a million jobs. So it is possible that impediments to travel mean we have a million fewer people working than we otherwise would.
This is very much a first cut, rough kind of number, but it does give one pause. Is what we are doing at our airports worth sacrificing a meaningful number of jobs? Perhaps. But we should still think about the trade-offs explicitly.
Coincidentally, Nate Silver had a blog post this week where he estimates that extra post-9-11 security screening reduced air travel by 6 percent. This begs the question as to how much impediments to movement are also impeding the broader economy.
I wrote a paper a few years back that linked passenger traffic at airports to employment. The finding was that an increase of one passenger per capita per year produced a 3 percent increase in jobs. A typical large city has four boardings per year per capita, so let's run the math: -.06*4*.03 is a .72 percent reduction in jobs. The US has about 139 million jobs, so a .72 percent reduction is about a million jobs. So it is possible that impediments to travel mean we have a million fewer people working than we otherwise would.
This is very much a first cut, rough kind of number, but it does give one pause. Is what we are doing at our airports worth sacrificing a meaningful number of jobs? Perhaps. But we should still think about the trade-offs explicitly.
Kamis, 18 November 2010
Is US success a product of bailouts?
Hamilton "cemented" the Union by getting congress to agree to assume the states' debts from the American Revolution; in exchange, he gave up his desire to have New York be the federal capital. Ron Chernow's recounting of Hamilton's genius at getting assumption done.
These thoughts cross my mind as I hear people say that the solution to our mortgage problems is to get rid of non-recourse loans. We have long been more generous about bankruptcy than Europe, and it may explain why our economy is more dynamic and innovative. The US is a country about second chances in so many ways (including education); it is a country where it is OK to fail and then come back. We need to be careful about messing with that.
These thoughts cross my mind as I hear people say that the solution to our mortgage problems is to get rid of non-recourse loans. We have long been more generous about bankruptcy than Europe, and it may explain why our economy is more dynamic and innovative. The US is a country about second chances in so many ways (including education); it is a country where it is OK to fail and then come back. We need to be careful about messing with that.
Senin, 15 November 2010
More BIll Cronon
I just finished my third reading of Nature's Metropolis, which I am teaching tomorrow. It is among the best works on central place theory and aggomeration that I know.
He also paints vivid pictures of wheat being harvested and shipped to the White City's great grain elevators, the lumbermills of Marquette and Marrinette, of timber sliding down ice flows and floating down rivers and lakes; we can smell the entrails from the slaughtered cattle and pigs, and imagine how the Chicago River South Branch bubbles with potions not even the Weird Sisters could have imagined. He established how it became a metropolis by not becoming a new center of the center, but rather the center of the periphery.
We can see how the city raised living standards--standards that 130 years later we would (rightfully) deem appalling. His picture of Chicago, warts and all, is far more entralling than Sinclair's picture.
Couldn't we get him to do Tokyo now? Mexico City? How about Los Angeles? Kevin Starr has written a great history of California, but Cronon's angle would be different.
He also paints vivid pictures of wheat being harvested and shipped to the White City's great grain elevators, the lumbermills of Marquette and Marrinette, of timber sliding down ice flows and floating down rivers and lakes; we can smell the entrails from the slaughtered cattle and pigs, and imagine how the Chicago River South Branch bubbles with potions not even the Weird Sisters could have imagined. He established how it became a metropolis by not becoming a new center of the center, but rather the center of the periphery.
We can see how the city raised living standards--standards that 130 years later we would (rightfully) deem appalling. His picture of Chicago, warts and all, is far more entralling than Sinclair's picture.
Couldn't we get him to do Tokyo now? Mexico City? How about Los Angeles? Kevin Starr has written a great history of California, but Cronon's angle would be different.
Minggu, 14 November 2010
Is Symbian dead? And if so, who killed it?
"We should declare victory and go home."
--Apocryphal quote attributed to George David Aiken
I hesitate to write anything about Symbian, because it's a great way to get branded a parochial American, or an Apple fanboi, or a "member of the US-protectionistic mobs braying for blood," to paraphrase a comment from a tech discussion forum in the UK this month.
But there's been a huge cloud of smoke and very little light in the recent online discussions of the changes at Symbian. Is Symbian dead? Is it stronger than ever? What's really going on? I wanted to see if I could make sense of the announcements. Besides, there are some important lessons from the Symbian experience, and I'd like to call those out.
Here's my take on what's happened: The business entity called Symbian was originally designed to prevent Microsoft from controlling the mobile OS standard, without having Symbian itself seize control over the mobile phone companies that funded it. In that task it succeeded. However, as a company run by a consortium, Symbian's governance was politicized and inefficient. This left Symbian woefully unequipped to compete with Apple and Google. A different approach was needed, and Nokia's new management has finally come to terms with that. As a result, Symbian as an organization is now defunct, and Symbian as an OS is becoming background infrastructure that has little relevance to the mobile platform wars.
To explain why I reached that conclusion, I have to start with a quick refresher on Symbian's history, for readers who haven't been following it closely...
There are two things named Symbian: Symbian the company and Symbian the OS. Some of the confusion this month was caused by people mixing up the two things. Symbian OS began as EPOC, the operating system used in Psion's handheld devices. EPOC was spun out of Psion in 1998 as a separate company called Symbian, co-owned by Psion and most of the leading mobile phone companies of the day, led by Nokia. The idea was that all of them would use the renamed Symbian OS in their smartphones, enabling them to put up a unified front against Microsoft, which they feared would rule the smartphone market.
Over time Nokia came to be the dominant manufacturer of Symbian OS phones outside of Japan, largely (in my opinion) because the Symbian phones made by other mobile phone companies didn't sell well. Eventually the other mobile phone companies no longer wanted to pay for a joint venture that was mostly just supplying software to Nokia. Linux was gaining momentum as a free, open source mobile OS, so the Symbian partners, led by Nokia, decided in 2008 to convert Symbian OS into an open source project. Nokia hired most of the Symbian engineers, and gave away their code through the foundation.
Symbian the company was replaced by the Symbian Foundation, a nonprofit tasked with managing the open source process and encouraging other companies to sign up to use the software. The idea was that Nokia, the other Symbian licensees, and a growing hoard of academics and developers would work on various parts of the OS, contributing back their modified code to the shared base. The move to open source kept some level of engagement from several other mobile phone companies, most notably Samsung and SonyEricsson.
But both companies continued to have poor sales for their Symbian phones, and this fall they announced that they had no further plans to use the OS. That left DoCoMo in Japan as the only other major user of Symbian. Nokia was stuck with an open source foundation that mostly just supplied its own software back to it. That wasn't going to be viable. So earlier this month, Nokia and Symbian announced three significant changes:
--The Symbian Foundation is being dramatically scaled back to "a legal entity responsible for licensing software and other intellectual property, such as the Symbian trademark." (link). In other words, it's just a shell. Symbian is now truly Nokia's OS. Nokia will plan, develop, and manage the Symbian code base, and distribute it directly to anyone who still wants it (presumably DoCoMo). You can read a biting commentary on the changes here.
--At the same time, Nokia reaffirmed an announcement it made in October that it is focusing all of its application development support on the Qt software layer that it purchased several years ago (link). Qt will now apparently be Nokia's one and only application layer, deployed on both Symbian and the upcoming MeeGo OS being codeveloped with Intel (link).
--The EU is putting 11 million Euros into a new organization, called Symbeose (which stands for "Symbian – the Embedded Operating System for Europe"), which will help fund the development of advanced Symbian OS features, including asymmetric multiprocessing, dev tools, memory management, image processing, video acceleration, speech to text, mobile payment, multimedia formats, and embedded systems beyond mobile. There are two semi-conflicting explanations of what Symbeose is all about. Some people say it's aimed at turning Symbian into an embedded OS that can run in all sorts of devices (why Europe needs that instead of Linux is unclear to me, but you can hear some discussion of the wrongheaded North American mobile paradigm here). Others say the intent is to resurrect Symbian OS as a smartphone OS used by companies other than Nokia. In a presentation, Symbian Foundation said the investment is intended to "combat mobile device and service homogeneity exemplified by Android and iOS" (link). Apparently taxpayer support is needed because Nokia isn't willing to pay for some infrastructure needed by other phone companies (link). A Symbian Foundation employee explained: "I would say that the main focus of the developments will be advancing existing, as well as building new tools and services relevant for smartphone manufacturing at the beginning of the manufacturing process. We want to make it easier for any manufacturer to take the Symbian codebase and develop new smartphones" (link).
What it means
Symbian isn't dead. It's just irrelevant. After the announcement, Nokia professed its strong support for Symbian OS (link). Nokia has no choice but to support the OS because it's built into the whole middle to top end of the Nokia product line. Given all of the legacy Nokia code written in Symbian OS, the Symbian-based phones still in development, and all of the Nokia development teams who are used to working in Symbian, it would probably take years to flush all of the Symbian code out of Nokia's products even if it wanted to. Symbian at Nokia is kind of like Cobol at IBM -- you're going to go on tasting that particular meal for a long time to come.
But the decision to focus on Qt for applications means that Symbian OS is effectively no longer an app development platform. It's embedded software; the background plumbing that powers Nokia's smartphones (and maybe other embedded systems, if the EU has its way). There's nothing wrong with that, but it makes Symbian irrelevant to most of the folks who talk about mobile technologies online. We don't spend much time online debating which OS kernel a device should use, and that's now the world Symbian lives in. The real competition for developer and smartphone user loyalty in most of the world is now Qt vs. iOS, Android, and RIM. Plus that Windows thing.
What it means for Nokia: Hope. Nokia's app recruitment efforts have been hamstrung for years by what I think was an incoherent software platform story. What should developers write their software on? Symbian native, S60, Silverlight, Qt, Adobe Air, Java...at one time or another Nokia romanced just about every mobile platform on the market. Nokia said that was a strength, but actually it was a sign of indecision and internal conflict. Developers crave predictability; they want to know that the platform they choose today will still be supported five years from now. By flitting from platform to platform like a butterfly, Nokia sent the unintentional signal that developing for it was dangerous.
Many developers did support Nokia anyway, especially in places where the Nokia brand and market share were so dominant that the decision was a no-brainer. But I think their loyalty did a disservice to Nokia in some ways, because it blinded the company to the shortcomings in its developer proposition. When Nokia had trouble recruiting developers in places like Silicon Valley, it seemed to think they were just biased against it. Time and again, I attended Nokia developer events in California where Nokia concentrated on telling people how big its installed base was, and showing off its latest hero device (N97, anyone?). I can see Nokia's logic -- after all, developers in Europe seemed happy. But the reality was that developers in Europe had given it the benefit of the doubt, despite its poor overall proposition.
So the decision to focus on Qt (pronounced "cute," get used to it) is a positive one, in my opinion. This is one of those cases where making any decision is better than the status quo. Qt isn't perfect, but if all of Nokia aligns behind it, any problems in it can be ironed out.
Unfortunately for Nokia, this is just the beginning of the changes it needs to make, rather than the end. Nokia's Qt development tools still reportedly need work (link). And app developers don't just need a coherent technical story, they also need a coherent business story. How do they make money? Although Nokia sells a huge number of Symbian-based smartphones, most of their users seem blissfully unaware that they can add applications. That's why Nokia has a much smaller base of applications than iPhone, even though its customer base is far larger.
To attract more developers, Nokia will need to do a lot of marketing, both in advertising and on the device, to make sure Qt users know they can get apps, and are stimulated to try them out. Nokia has the resources to do this, but once again it'll need consistent and well coordinated execution to make it happen, something that the company has failed to deliver in the past. (For example, spamming people with SMS messages telling them to try other features is probably not the right approach (link).)
To give you an idea of how much ground Nokia needs to make up, Apple iOS has 60 million users and 225,000 applications, a ratio of about 3.75 applications per thousand users. Android is close behind, with 3.5 apps per thousand users. In contrast, Symbian has 390 million users and 7,000 native apps, a ratio of about .02 apps per thousand users. (link). Yes, I know, there are additional Nokia apps written in Java, but that kind of proves the point that Symbian is plumbing rather than a platform.
All of these changes need to be carried out against a backdrop of cost cutting, as Nokia brings its expenses in line with its revenues. One of these days when I get the time I'll write more about Nokia's overall situation, but for now suffice it to say that Nokia is working off the after-effects of several years of growing expenses while revenue was stagnant. Nokia's circumstances aren't quite as bad as the California state budget (if you are in Europe, think Greece), but it's ugly enough to distract from all of the other things the company needs to fix.
What it means for developers: Wait. First, the bad news: The switch to Qt means that current Symbian OS developers who aren't already using Qt will need to rewrite their applications. This is the latest in a series of rewrites that Nokia and Symbian have forced on developers over the years. If they had more developers it probably would be causing a big ruckus right now. The fact that you don't hear a lot of screaming speaks volumes.
The good news is that Nokia may be getting its act together for developers at last. But if I were working on a mobile application today...wait a minute, I am working on a mobile application today. So here's what I'm doing about Nokia: I'm waiting. If Nokia creates a great business proposition for developers and sticks to it, our team would be delighted to support Qt aggressively. Who wouldn't want to sell to a base of 400 million users? But given Nokia's history of whipsawing its developers, we won't take anything for granted. In particular, we want to see if Qt is actually the exclusive development platform for MeeGo, rather than just a secondary option. You've got to show us the consistency, Nokia.
Oh, and ignore Symbeose. I don't know exactly how the Symbeose initiative got started, but to me it looks like the Symbian Foundation lobbied for it for a long time, prior to the recent changes in the Foundation. For the old Foundation, Symbeose made sense, because it was a clever way for a nonprofit to get some OS development done in areas that Nokia didn't care about. But with the Foundation mostly gone, Nokia has no incentive to turn Symbian into a general embedded OS, and in fact it says MeeGo is its OS for use in non-phones. In that situation, I can't picture a lot of other companies committing to build Symbian OS into their products.
Lessons from the Symbian Foundation's demise
I'm seeing a lot of interesting rationalization online about Symbian's fate. For example, Tim Ocock, a former Symbian employee, wrote a fantastic post (link) in which he argues that Symbian was very successful as an OS for phones with PDA features, but was never designed for running browsers and lots of applications. That's a pretty shocking statement, considering how many times I heard Symbian advocates boast about the sophistication of their modern, general purpose OS compared to clunky old PDA-centric Palm OS. Remember, this is a company that until very recently was bragging about its superior implementation of symmetric multiprocessing (link), hardly something you need for a PDA.
But I think Tim is dead-on in most of his analysis. He did a great job of detailing the technical and attitudinal flaws within Symbian itself, so I won't bother repeating them here. Instead, I want to talk about the flaws in Symbian's governance.
Did Symbian fail? The companies that founded Symbian had two goals in mind: to prevent Microsoft from dominating the market for smartphone software, and to prevent Symbian itself from becoming a power that could dictate to the phone companies that funded it. As a result, Symbian's governance structure was designed with a complex system of checks and balances that wouldn't apply to a normal company. To make major decisions, Symbian had to negotiate a consensus among its owners the mobile phone companies, who understood little about the management of a mobile platform and were suspicious of each other and of Symbian itself.
This bureaucratic, highly politicized oversight process repeatedly forced Symbian into blind alleys, and prevented it from doing things that a "normal" OS company would take for granted. When Symbian was founded, there was talk of an eventual IPO. The prospect of an IPO is an important recruitment tool -- it lets you use stock to hire ambitious engineers and managers. But the idea was eventually shot down by the owners; it would have made Symbian too independent.
Crippled by design. Once the threat from Microsoft receded, the owners' second goal for Symbian -- preventing it from competing with them -- seemed to dominate their treatment of Symbian. I'm not saying there was some central evil plan to hamstring Symbian; there wasn't. But everything the company planned to do had to be approved by the handset companies, and on a case by case basis they vetoed the things that sounded threatening to them. Over time, this forced Symbian away from initiatives and features that would cause users and developers to be loyal to the OS rather than the handset.
So Symbian didn't create an app store, and Symbian's developer relations were very confused because Nokia wanted to do a lot of that itself. But the most egregious example was user interface, which Symbian worked on from time to time, but was eventually forced out of by its owners. When I was at Palm, the Symbian project I feared most was "Quartz," the effort to create an icon-driven touchscreen UI for Symbian. Quartz looked very nice, and if it had survived Symbian would have had a dandy iPhone competitor on the market before the iPhone launched. But politics between Symbian's owners forced it completely out of the UI business, and Quartz was spun out into a separate company called UIQ, which went bankrupt in 2009.
You can get more details on the whole sad Quartz saga here.
Quartz circa 2001
An OS without a single consistent user interface is a nightmare for software developers, because they can't write apps that run across the installed base of devices.
Eventually, in the face of all the restrictions, the most ambitious, nonconformist people at Symbian -- the ones who drive innovation in any organization -- seemed to drift away in frustration or were forced out when they irritated the owners. Symbian itself retreated into focusing on technological esoterica like symmetric multiprocessing -- things that didn't really differentiate the platform to users, but that the licensees wouldn't object to.
From one perspective I guess you can say Symbian was a complete success, because it fulfilled the two negatives that its founders wanted: Microsoft didn't dominate mobile software, and Symbian itself didn't exercise any control over its founders.
However, the cumulative effect of the handset companies pursuing their short-term interest was that Symbian was utterly unready to respond when Apple and Google entered the market. I don't think either Nokia or Symbian really understood how the game had changed. Apple designs phones as integrated systems, with the software and hardware tightly coordinated. Nokia could never achieve that level of coordination with an operating system managed through standards committees.
And as for Android, Nokia apparently thought that open sourcing Symbian would create a level playing field with Google's free OS. But I think the structure of the Symbian Foundation made that impossible.
The fatal flaw of the Symbian Foundation. Although Android is a free product, it's supported by a for-profit corporation that has massive resources. The attraction of Android to phone companies isn't just its price, but its safety -- Google stands behind it with marketing and technical support.
In contrast, Symbian Foundation was designed as a rigorously noncommercial institution banned from any business activity. People at the Foundation told me Nokia was adamant about enforcing the ban on commercial activity because it was afraid the tax authorities might rule that the foundation wasn't a nonprofit, endangering the tax credit that Nokia got for donating its Symbian code base.
Most open source companies give away their software in order to make money from some other mechanism -- consulting, or support, or a for-fee version of the same code. Symbian Foundation was banned from making money on any of these activities, meaning it could never become financially self-supporting.
Forget about marketing support; Symbian couldn't even offer enhanced technical support to licensees who were begging to pay for it. That was especially crippling because Symbian OS is notoriously complex and difficult to program (link).
Consider this quote from Tim Ocock's article:
Picture yourself as a manager at a handset company, choosing an OS for your smartphone. The Symbian option has no advertising support, requires customization, is hard to program, has few third party consultants to support it, and the company licensing it won't help you do the programming. Meanwhile, Google Android is more modern, is based on Java and Linux so it's easy to find programmers, has lots of support, and has user-friendly features like an app store. Which one seems the safer bet?
How could the Symbian Foundation ever succeed in that situation?
Although people advocating for a "European" mobile OS often complain that Android had unfair financial advantages, the fact is that Symbian was ripe for the picking, a situation that was almost entirely self-inflicted.
The lesson for other tech companies: Open source is not magic pixie dust that you can sprinkle on a struggling product to turn it into a winner. Open source is a tactic, not a business strategy. It has to be paired with a business plan that says how you'll make money and drive innovation.
This is the end, my friend, of our elaborate plans
Like an army refighting the last war, Symbian was designed to defeat Windows Mobile, but never came to terms with its new adversaries Apple and Google. There's no shame in that for most of the folks who worked at Symbian; they did the best they could to navigate the politics of Nokia and all the other Symbian licensees. But radical change was necessary. I hope Nokia's Qt strategy will be successful. And I'm sure that Symbian code will continue to serve for years as the underlying technology for millions of Nokia smartphones. But except in the dreams of a few EU officials, Symbian OS is now just legacy plumbing.
It's time to move on.
--Apocryphal quote attributed to George David Aiken
I hesitate to write anything about Symbian, because it's a great way to get branded a parochial American, or an Apple fanboi, or a "member of the US-protectionistic mobs braying for blood," to paraphrase a comment from a tech discussion forum in the UK this month.
But there's been a huge cloud of smoke and very little light in the recent online discussions of the changes at Symbian. Is Symbian dead? Is it stronger than ever? What's really going on? I wanted to see if I could make sense of the announcements. Besides, there are some important lessons from the Symbian experience, and I'd like to call those out.
Here's my take on what's happened: The business entity called Symbian was originally designed to prevent Microsoft from controlling the mobile OS standard, without having Symbian itself seize control over the mobile phone companies that funded it. In that task it succeeded. However, as a company run by a consortium, Symbian's governance was politicized and inefficient. This left Symbian woefully unequipped to compete with Apple and Google. A different approach was needed, and Nokia's new management has finally come to terms with that. As a result, Symbian as an organization is now defunct, and Symbian as an OS is becoming background infrastructure that has little relevance to the mobile platform wars.
To explain why I reached that conclusion, I have to start with a quick refresher on Symbian's history, for readers who haven't been following it closely...
There are two things named Symbian: Symbian the company and Symbian the OS. Some of the confusion this month was caused by people mixing up the two things. Symbian OS began as EPOC, the operating system used in Psion's handheld devices. EPOC was spun out of Psion in 1998 as a separate company called Symbian, co-owned by Psion and most of the leading mobile phone companies of the day, led by Nokia. The idea was that all of them would use the renamed Symbian OS in their smartphones, enabling them to put up a unified front against Microsoft, which they feared would rule the smartphone market.
Over time Nokia came to be the dominant manufacturer of Symbian OS phones outside of Japan, largely (in my opinion) because the Symbian phones made by other mobile phone companies didn't sell well. Eventually the other mobile phone companies no longer wanted to pay for a joint venture that was mostly just supplying software to Nokia. Linux was gaining momentum as a free, open source mobile OS, so the Symbian partners, led by Nokia, decided in 2008 to convert Symbian OS into an open source project. Nokia hired most of the Symbian engineers, and gave away their code through the foundation.
Symbian the company was replaced by the Symbian Foundation, a nonprofit tasked with managing the open source process and encouraging other companies to sign up to use the software. The idea was that Nokia, the other Symbian licensees, and a growing hoard of academics and developers would work on various parts of the OS, contributing back their modified code to the shared base. The move to open source kept some level of engagement from several other mobile phone companies, most notably Samsung and SonyEricsson.
But both companies continued to have poor sales for their Symbian phones, and this fall they announced that they had no further plans to use the OS. That left DoCoMo in Japan as the only other major user of Symbian. Nokia was stuck with an open source foundation that mostly just supplied its own software back to it. That wasn't going to be viable. So earlier this month, Nokia and Symbian announced three significant changes:
--The Symbian Foundation is being dramatically scaled back to "a legal entity responsible for licensing software and other intellectual property, such as the Symbian trademark." (link). In other words, it's just a shell. Symbian is now truly Nokia's OS. Nokia will plan, develop, and manage the Symbian code base, and distribute it directly to anyone who still wants it (presumably DoCoMo). You can read a biting commentary on the changes here.
--At the same time, Nokia reaffirmed an announcement it made in October that it is focusing all of its application development support on the Qt software layer that it purchased several years ago (link). Qt will now apparently be Nokia's one and only application layer, deployed on both Symbian and the upcoming MeeGo OS being codeveloped with Intel (link).
--The EU is putting 11 million Euros into a new organization, called Symbeose (which stands for "Symbian – the Embedded Operating System for Europe"), which will help fund the development of advanced Symbian OS features, including asymmetric multiprocessing, dev tools, memory management, image processing, video acceleration, speech to text, mobile payment, multimedia formats, and embedded systems beyond mobile. There are two semi-conflicting explanations of what Symbeose is all about. Some people say it's aimed at turning Symbian into an embedded OS that can run in all sorts of devices (why Europe needs that instead of Linux is unclear to me, but you can hear some discussion of the wrongheaded North American mobile paradigm here). Others say the intent is to resurrect Symbian OS as a smartphone OS used by companies other than Nokia. In a presentation, Symbian Foundation said the investment is intended to "combat mobile device and service homogeneity exemplified by Android and iOS" (link). Apparently taxpayer support is needed because Nokia isn't willing to pay for some infrastructure needed by other phone companies (link). A Symbian Foundation employee explained: "I would say that the main focus of the developments will be advancing existing, as well as building new tools and services relevant for smartphone manufacturing at the beginning of the manufacturing process. We want to make it easier for any manufacturer to take the Symbian codebase and develop new smartphones" (link).
What it means
Symbian isn't dead. It's just irrelevant. After the announcement, Nokia professed its strong support for Symbian OS (link). Nokia has no choice but to support the OS because it's built into the whole middle to top end of the Nokia product line. Given all of the legacy Nokia code written in Symbian OS, the Symbian-based phones still in development, and all of the Nokia development teams who are used to working in Symbian, it would probably take years to flush all of the Symbian code out of Nokia's products even if it wanted to. Symbian at Nokia is kind of like Cobol at IBM -- you're going to go on tasting that particular meal for a long time to come.
But the decision to focus on Qt for applications means that Symbian OS is effectively no longer an app development platform. It's embedded software; the background plumbing that powers Nokia's smartphones (and maybe other embedded systems, if the EU has its way). There's nothing wrong with that, but it makes Symbian irrelevant to most of the folks who talk about mobile technologies online. We don't spend much time online debating which OS kernel a device should use, and that's now the world Symbian lives in. The real competition for developer and smartphone user loyalty in most of the world is now Qt vs. iOS, Android, and RIM. Plus that Windows thing.
What it means for Nokia: Hope. Nokia's app recruitment efforts have been hamstrung for years by what I think was an incoherent software platform story. What should developers write their software on? Symbian native, S60, Silverlight, Qt, Adobe Air, Java...at one time or another Nokia romanced just about every mobile platform on the market. Nokia said that was a strength, but actually it was a sign of indecision and internal conflict. Developers crave predictability; they want to know that the platform they choose today will still be supported five years from now. By flitting from platform to platform like a butterfly, Nokia sent the unintentional signal that developing for it was dangerous.
Many developers did support Nokia anyway, especially in places where the Nokia brand and market share were so dominant that the decision was a no-brainer. But I think their loyalty did a disservice to Nokia in some ways, because it blinded the company to the shortcomings in its developer proposition. When Nokia had trouble recruiting developers in places like Silicon Valley, it seemed to think they were just biased against it. Time and again, I attended Nokia developer events in California where Nokia concentrated on telling people how big its installed base was, and showing off its latest hero device (N97, anyone?). I can see Nokia's logic -- after all, developers in Europe seemed happy. But the reality was that developers in Europe had given it the benefit of the doubt, despite its poor overall proposition.
So the decision to focus on Qt (pronounced "cute," get used to it) is a positive one, in my opinion. This is one of those cases where making any decision is better than the status quo. Qt isn't perfect, but if all of Nokia aligns behind it, any problems in it can be ironed out.
Unfortunately for Nokia, this is just the beginning of the changes it needs to make, rather than the end. Nokia's Qt development tools still reportedly need work (link). And app developers don't just need a coherent technical story, they also need a coherent business story. How do they make money? Although Nokia sells a huge number of Symbian-based smartphones, most of their users seem blissfully unaware that they can add applications. That's why Nokia has a much smaller base of applications than iPhone, even though its customer base is far larger.
To attract more developers, Nokia will need to do a lot of marketing, both in advertising and on the device, to make sure Qt users know they can get apps, and are stimulated to try them out. Nokia has the resources to do this, but once again it'll need consistent and well coordinated execution to make it happen, something that the company has failed to deliver in the past. (For example, spamming people with SMS messages telling them to try other features is probably not the right approach (link).)
To give you an idea of how much ground Nokia needs to make up, Apple iOS has 60 million users and 225,000 applications, a ratio of about 3.75 applications per thousand users. Android is close behind, with 3.5 apps per thousand users. In contrast, Symbian has 390 million users and 7,000 native apps, a ratio of about .02 apps per thousand users. (link). Yes, I know, there are additional Nokia apps written in Java, but that kind of proves the point that Symbian is plumbing rather than a platform.
All of these changes need to be carried out against a backdrop of cost cutting, as Nokia brings its expenses in line with its revenues. One of these days when I get the time I'll write more about Nokia's overall situation, but for now suffice it to say that Nokia is working off the after-effects of several years of growing expenses while revenue was stagnant. Nokia's circumstances aren't quite as bad as the California state budget (if you are in Europe, think Greece), but it's ugly enough to distract from all of the other things the company needs to fix.
What it means for developers: Wait. First, the bad news: The switch to Qt means that current Symbian OS developers who aren't already using Qt will need to rewrite their applications. This is the latest in a series of rewrites that Nokia and Symbian have forced on developers over the years. If they had more developers it probably would be causing a big ruckus right now. The fact that you don't hear a lot of screaming speaks volumes.
The good news is that Nokia may be getting its act together for developers at last. But if I were working on a mobile application today...wait a minute, I am working on a mobile application today. So here's what I'm doing about Nokia: I'm waiting. If Nokia creates a great business proposition for developers and sticks to it, our team would be delighted to support Qt aggressively. Who wouldn't want to sell to a base of 400 million users? But given Nokia's history of whipsawing its developers, we won't take anything for granted. In particular, we want to see if Qt is actually the exclusive development platform for MeeGo, rather than just a secondary option. You've got to show us the consistency, Nokia.
Oh, and ignore Symbeose. I don't know exactly how the Symbeose initiative got started, but to me it looks like the Symbian Foundation lobbied for it for a long time, prior to the recent changes in the Foundation. For the old Foundation, Symbeose made sense, because it was a clever way for a nonprofit to get some OS development done in areas that Nokia didn't care about. But with the Foundation mostly gone, Nokia has no incentive to turn Symbian into a general embedded OS, and in fact it says MeeGo is its OS for use in non-phones. In that situation, I can't picture a lot of other companies committing to build Symbian OS into their products.
Lessons from the Symbian Foundation's demise
I'm seeing a lot of interesting rationalization online about Symbian's fate. For example, Tim Ocock, a former Symbian employee, wrote a fantastic post (link) in which he argues that Symbian was very successful as an OS for phones with PDA features, but was never designed for running browsers and lots of applications. That's a pretty shocking statement, considering how many times I heard Symbian advocates boast about the sophistication of their modern, general purpose OS compared to clunky old PDA-centric Palm OS. Remember, this is a company that until very recently was bragging about its superior implementation of symmetric multiprocessing (link), hardly something you need for a PDA.
But I think Tim is dead-on in most of his analysis. He did a great job of detailing the technical and attitudinal flaws within Symbian itself, so I won't bother repeating them here. Instead, I want to talk about the flaws in Symbian's governance.
Did Symbian fail? The companies that founded Symbian had two goals in mind: to prevent Microsoft from dominating the market for smartphone software, and to prevent Symbian itself from becoming a power that could dictate to the phone companies that funded it. As a result, Symbian's governance structure was designed with a complex system of checks and balances that wouldn't apply to a normal company. To make major decisions, Symbian had to negotiate a consensus among its owners the mobile phone companies, who understood little about the management of a mobile platform and were suspicious of each other and of Symbian itself.
This bureaucratic, highly politicized oversight process repeatedly forced Symbian into blind alleys, and prevented it from doing things that a "normal" OS company would take for granted. When Symbian was founded, there was talk of an eventual IPO. The prospect of an IPO is an important recruitment tool -- it lets you use stock to hire ambitious engineers and managers. But the idea was eventually shot down by the owners; it would have made Symbian too independent.
Crippled by design. Once the threat from Microsoft receded, the owners' second goal for Symbian -- preventing it from competing with them -- seemed to dominate their treatment of Symbian. I'm not saying there was some central evil plan to hamstring Symbian; there wasn't. But everything the company planned to do had to be approved by the handset companies, and on a case by case basis they vetoed the things that sounded threatening to them. Over time, this forced Symbian away from initiatives and features that would cause users and developers to be loyal to the OS rather than the handset.
So Symbian didn't create an app store, and Symbian's developer relations were very confused because Nokia wanted to do a lot of that itself. But the most egregious example was user interface, which Symbian worked on from time to time, but was eventually forced out of by its owners. When I was at Palm, the Symbian project I feared most was "Quartz," the effort to create an icon-driven touchscreen UI for Symbian. Quartz looked very nice, and if it had survived Symbian would have had a dandy iPhone competitor on the market before the iPhone launched. But politics between Symbian's owners forced it completely out of the UI business, and Quartz was spun out into a separate company called UIQ, which went bankrupt in 2009.
You can get more details on the whole sad Quartz saga here.
Quartz circa 2001
An OS without a single consistent user interface is a nightmare for software developers, because they can't write apps that run across the installed base of devices.
Eventually, in the face of all the restrictions, the most ambitious, nonconformist people at Symbian -- the ones who drive innovation in any organization -- seemed to drift away in frustration or were forced out when they irritated the owners. Symbian itself retreated into focusing on technological esoterica like symmetric multiprocessing -- things that didn't really differentiate the platform to users, but that the licensees wouldn't object to.
From one perspective I guess you can say Symbian was a complete success, because it fulfilled the two negatives that its founders wanted: Microsoft didn't dominate mobile software, and Symbian itself didn't exercise any control over its founders.
However, the cumulative effect of the handset companies pursuing their short-term interest was that Symbian was utterly unready to respond when Apple and Google entered the market. I don't think either Nokia or Symbian really understood how the game had changed. Apple designs phones as integrated systems, with the software and hardware tightly coordinated. Nokia could never achieve that level of coordination with an operating system managed through standards committees.
And as for Android, Nokia apparently thought that open sourcing Symbian would create a level playing field with Google's free OS. But I think the structure of the Symbian Foundation made that impossible.
The fatal flaw of the Symbian Foundation. Although Android is a free product, it's supported by a for-profit corporation that has massive resources. The attraction of Android to phone companies isn't just its price, but its safety -- Google stands behind it with marketing and technical support.
In contrast, Symbian Foundation was designed as a rigorously noncommercial institution banned from any business activity. People at the Foundation told me Nokia was adamant about enforcing the ban on commercial activity because it was afraid the tax authorities might rule that the foundation wasn't a nonprofit, endangering the tax credit that Nokia got for donating its Symbian code base.
Most open source companies give away their software in order to make money from some other mechanism -- consulting, or support, or a for-fee version of the same code. Symbian Foundation was banned from making money on any of these activities, meaning it could never become financially self-supporting.
Forget about marketing support; Symbian couldn't even offer enhanced technical support to licensees who were begging to pay for it. That was especially crippling because Symbian OS is notoriously complex and difficult to program (link).
Consider this quote from Tim Ocock's article:
"The difficulty of writing good Symbian code was hugely beneficial to Symbian as a business in the early days. For many years, 80% of Symbian's revenues were earned through consulting for licensees....Symbian’s licensees...each had their own proprietary telephony chipsets that needed to be integrated and their own customisations to the platform in mind....Despite talk of Symbian enabling differentiation, the reality was licensees' budgets were squandered on hardware porting and making the core platform fit for purpose."
Picture yourself as a manager at a handset company, choosing an OS for your smartphone. The Symbian option has no advertising support, requires customization, is hard to program, has few third party consultants to support it, and the company licensing it won't help you do the programming. Meanwhile, Google Android is more modern, is based on Java and Linux so it's easy to find programmers, has lots of support, and has user-friendly features like an app store. Which one seems the safer bet?
How could the Symbian Foundation ever succeed in that situation?
Although people advocating for a "European" mobile OS often complain that Android had unfair financial advantages, the fact is that Symbian was ripe for the picking, a situation that was almost entirely self-inflicted.
The lesson for other tech companies: Open source is not magic pixie dust that you can sprinkle on a struggling product to turn it into a winner. Open source is a tactic, not a business strategy. It has to be paired with a business plan that says how you'll make money and drive innovation.
This is the end, my friend, of our elaborate plans
Like an army refighting the last war, Symbian was designed to defeat Windows Mobile, but never came to terms with its new adversaries Apple and Google. There's no shame in that for most of the folks who worked at Symbian; they did the best they could to navigate the politics of Nokia and all the other Symbian licensees. But radical change was necessary. I hope Nokia's Qt strategy will be successful. And I'm sure that Symbian code will continue to serve for years as the underlying technology for millions of Nokia smartphones. But except in the dreams of a few EU officials, Symbian OS is now just legacy plumbing.
It's time to move on.
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