One hand clapping for the Deficit Commission Co-chairs' powerpoint

It is not much of a report, but it emphasizes two things that do matter:

(1) Tax expenditures are about $1.1 trillion, and deficit reduction requires scaling them back.  While there has been gnashing of teeth about a proposed top marginal tax rate of 23 percet, the powerpoint contemplate this only in the context of full elimination of tax expenditures.  This would surely be more efficient--it is also possible that it would be more progressive, as the biggest tax expenditures (exclusion of the employer contributions for health care, exclusion of employer contributions to pension contributions, and the mortgage interest deduction) tend to go to those with higher incomes.  It is an empirical question as to how these things net out, but it is an empirical question worth answering (a similar analytical exercise was done in the middle-1990s, but the world is now different).  If someone can create a tax code that brings in more revenue under static assumptions (i.e., is not projecting revenue based on Voodoo economics), is more progressive, and has lower rates because of the phase out of tax expenditures, I am all for it.  FWIW, as someone who has a California mortgage and pays California state income taxes, this is probably not in my personal self-interest.

(2) I do think we need to do something about the retirement age, but it should somehow be linked to occupation.  I have a cushy job, and there is no reason why I can't keep doing it until I become demented.  But those who do physical labor just wear out, and it is not reasonable to ask a 60 year old lineman (the telephone kind, not the football kind) to "retrain."   

Will E-Readers Eat the Tablet Computer?

The consensus prediction in the tech industry is that tablet computer sales will swamp sales of ebook readers. The Huffington Post is taking bets on which e-readers are dead meat (link), and Informa predicts that e-reader sales will start declining in 2014 as tablets out-compete them (link). I've seen similar (and more pessimistic) private forecasts from other analysis firms. They all argue that it's just a matter of time until general-purpose tablet computers displace more limited e-readers.

Yes and no. I think tablet features will eventually take over, but it would be very premature to assume that tablet computer companies will be the long-term winners. They're actually at a huge disadvantage that almost no one is talking about.

What brought this home to me was a brief hands-on experience I had last week with the Barnes & Noble Nook Color. I usually think of Nook as the poor stepchild to Amazon Kindle, and in unit sales it certainly is. But Nook Color isn't just an ebook reader. It's a full tablet computer, or at least it will be if Barnes & Noble allows it to be. And it sells at a great price.

The easiest way to explain my reaction to Nook Color is to compare it to the Samsung Galaxy Tab. The first thing I noticed was basic ergonomics. As I wrote recently, when I first picked up the Galaxy Tab it worried me because it was hard to hold -- its slick plastic surface felt like it was going to slip out of my hand, and so I couldn't hold it comfortably without putting my thumb on the screen (link). The Nook Color is almost identical to the size and weight of the Galaxy Tab, so I expected to have the same problem. But the Nook has a brushed metallic-feeling surface that's much easier to grip. Attention to detail has a huge impact on mobile products, and Nook Color shows far more attention to detail than the Galaxy Tab.

The Galaxy Tab definitely has more features than the Nook: two cameras, 3G options, and an accelerometer. But Nook Color has all the basics, including Android OS, a touchscreen, and very nice color display that I think is the equal of Samsung's. And it has one important feature that The Galaxy Tab lacks -- an affordable price. A Nook Color with WiFi is $249, literally half the price of a similarly-equipped Galaxy Tab.

That's a stunning difference, especially considering that Samsung usually tries to be a price leader in new technologies. At $499, I think the Galaxy Tab will be a very difficult purchase for the average consumer. At $249, Nook Color isn't cheap, but it's a mainstream consumer product.

So how in the world does a book-seller get a 50% price advantage over a major consumer electronics company?

The difference isn't mostly due to features. I bet the accelerometer and cameras in the Galaxy Tab don't add more than $20 to its cost, probably less. The Tab probably has a faster processor as well, but no way does that justify the cost difference. I think two other factors are involved. The first is that B&N owns its own retail stores, and so it doesn't necessarily have to mark up the price of the Nook with the full traditional retail margin. In contrast, Samsung will be expected to fork over the usual 20 points or so of margin to its dealers, plus additional comarketing dollars to buy shelf displays and Sunday newspaper ads. Second, since B&N makes money from the content it sells to Nook users, it can afford to sell the hardware at lower cost.

In other words, the Nook is a subsidized product, like a cellphone. So is Kindle.

I think the people predicting that tablets will swamp e-readers haven't thought through the economics of the situation. As long as e-readers are based on e-ink displays, they can't compete directly with tablets, because the displays are grayscale and are too slow to display animation and video. But an e-reader with an LCD display is physically a tablet, at a much more attractive price.

Subsidized products usually beat unsubsidized ones. Even Apple had to move the iPhone onto subsidies after it first launched it without.

The only thing stopping Nook Color from competing directly with tablets is software. Although Nook Color runs the Android OS, same as Samsung, Barnes & Noble is reportedly planning to severely restrict the applications that will run on Nook Color. The idea is to keep the device focused as an e-reader rather than allowing it to become a general-purpose tablet.

It's unusual for a company to artificially restrict what you can do with a computing product, but there is a perverse logic to what Barnes & Noble is doing. If someone buys Nook Color as a tablet and doesn't buy any books or other content for it, Barnes & Noble will make less money. By restricting the apps, Barnes & Noble can chase away those lower-margin customers who aren't hardcore readers.

But I think that's a very short-sighted policy, for two reasons:

First, as a dedicated e-reader, Nook has important drawbacks. Its battery life is much shorter than an e-ink device, and it's a lot more expensive. If the apps are restricted, Nook Color is a tweener. It's inferior as an e-reader and as a tablet.

Second, B&N is missing a huge opportunity. It's not like they're losing money on Nook Color sales (the hardware cost is probably in the $150 range, or lower). As long as you're making some money per unit, I think it makes sense to grab as many customers as you can now, while you have a structural advantage in the market.

The ultimate payoff for an ebook distributor like B&N is to displace the publishers and start selling ebooks (and other content) directly to the public. To get to that goal, B&N should be trying to grow the e-reader installed base as quickly as possible. Instead of restricting Nook Color to people who already want ebooks, B&N should sell it to everyone and then entice them into becoming e-reading users.

Historically, some of the most successful computing products were sold first as single-purpose devices that then blossomed into multipurpose devices. PCs were first adopted in volume to run spreadsheets, and the first successful PDAs were sold as electronic calendars. Nook Color could be the e-reader that ate the tablet market.

And it's easy to do -- all B&N has to do is say yes to all types of third party apps. Get out of the way, and the customers will take care of the rest.

Paul Willen says self-amortizing mortgages were abundant before the 1930s

He sends me the following table:

It has long been "established" that self-amortizing mortgages were rare before the existence of the Home Owners Loan Corporation, whereas this source suggests they made up 40 percent of loan originations between 1925-1929.  What this table doesn't tell us is how long the amortization period was.  So the importance of the HOLC may have been the establishment of long-term self-amortizing mortgages.

I would love to get actual mortgage contracts with their terms from the 1920s.

A really nice paper on the Home Owners Loan Corporation

This morning I read a July 2010 NBER paper from Charles Courtemanche and Kenneth Snowden.  The abstract:

The Home Owners’ Loan Corporation purchased more than a million delinquent mortgages from private lenders between 1933 and 1936 and refinanced the loans for the borrowers. Its primary goal was to break the cycle of foreclosure, forced property sales and decreases in home values that was affecting local housing markets throughout the nation. We find that HOLC loans were targeted at local (county-level) housing markets that had experienced severe distress and that the intervention increased 1940 median home values and homeownership rates, but not new home building.

Unfortunately, the paper is behind the NBER firewall, but if you belong to a subscribing university, you can get a link to a downloadable version sent to you.

The change in time today reminds me of one of the many things I learned from William Cronon's Nature's Metropolis

Until the railroads came to prairie towns after the Civil War, each town set its clock using the sun.  It was  impossible to run railroads under such circumstances, and so railroads developed "standard time zones," for the United States.  They became the standard well before they were codified into law.

I comfort myself with the opening of Adam Smith's Theory of Moral Sentiments

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.

I have started a classical music blog

It is here:

http://richardsmusicblog.blogspot.com/

This is just fun for me--we will see how it works.