Floods in Thailand Impact Street Prices for Western Digital Drives

For a quick check on the health of the computer market, take a look at hard disk prices at your favorite retailer. In the past month quoted prices for certain Western Digital hard drives moved from near $90 to over $180, a very unusual price pattern. The cause, of course, has been flooding in Thailand, which will shut a major Western Digital plant for many months. Take a look:

Inside WD's flooded Thai Factory (Forbes)

PC shortages 'inevitable' says Gartner (Channel Register)

Inside WD's flooded Thai factory [photos] (Channel Register)

Flood-hit WD could lose HDD leadership

[2TB "Elements" drive, now scarce and expensive]

Seagate has been less affected, and its prices seem to be lower.

Shortages of hard drives are expected to impact supplies of personal computers in the fourth quarter. If you are in the market for other components, however, the shortage of hard drives may create temporary surpluses of non-hard drive devices for personal computers. Could lower prices of RAM, CPUs, mother boards, and video displays emerge?

Surging Tax Receipts Bode Well for Government Budgets in Coming Years

Recent tax receipts in the U.S. have been below the historic trend of 18% of GDP, as shown in this chart at the Heritage Foundation site. Projections show tax revenues rebounding from a recent low below 14.9% to above 19% of GDP by 2015.

Confirming this predicated trend, Conor Dougherty reported in the Wall Street Journal on 10/27/11 that state tax revenues jumped 10.8% in the second quarter this year, a remarkable rebound. Among the largest increases were taxes paid by corporations to the states, which rose 19.1% in the second quarter.

Dougherty's article cites a number of sources who downplay the gain in tax receipts as unsustainable, citing various special levies that will soon expire. Certainly, there is no reason to expect such year-over-year gains to be sustained indefinitely, but these numbers indicate a much greater probability of a snapback to normalcy than has been expected during the recent market correction.

Vanity Fair: Will California Sink the United States?

Michael Lewis has an insightful article in the November 2011 Vanity Fair analyzing the health of U.S. state and local governments. Although the article never answers the question posed at the top of the cover, Lewis unearths some interesting tidbits we can use to predict the future economy.

Because there are so many moving parts to this analysis, I will go directly to the main points.

State governments are not informed about the financial health of their municipalities.

Lesson: State and local governments don't communicate. They don't have time, and they don't care.

California has perhaps the worst finances of any U.S. state, according to Meredith Whitney.

Lesson: Lewis' implied point is that the rest of the U.S. will suffer the same fate. I disagree with this thesis, as we will see below.

Meredith Whitney's prognostication about municipal bankruptcies was far off the mark.

Lesson: She wasn't actually interested in making that prediction at the time, she was interested in identifying states that would survive the financial crisis best. The publicity was, perhaps, accidental.

Arnold Schwarzenegger doesn't look where he is going, even in traffic, on a bicycle, without a helmet. Is that the way he tried to run California?

Lesson: No, it wasn't. His attitude may have seemed classically Californian--bold and direct, while irresponsible and rash--but his tenure in office was directed by voters who refused to vote for better government. The legistators that opposed his attempts at reform were following the dictates of their constituents.

Lewis see a kind of "vicious cycle of contempt" for politicians, in which failure to make progress causes voters to be more disgusted with them.

Lesson: Mixed. Although there may be contempt from various corners, the voters continued to vote for specific policies that their public officials carried out. Both may be irresponsible, but they are in harmony. The debt and finances of the State mirrors that of the people, with average incomes of $43,000 and debt of $78,000 per capita.

San Jose, a city in Silicon Valley that should be well-off financially, is nevertheless in dire straits.

Lesson: Municipalities in California acceded to demands that public sector workers share in the "boon" generated by California's high tech workers. The promises made greatly exceed the cities' ability to pay.

Even worse off is Vallejo. The city manager there sees the problem as one of attitude, not finance.

Lesson: Municipalities in California have poor finances because of values among their citizens and city workers. This cause is barely recognized among citizens in California, and is barely elaborated on by Lewis.

Discussion

If you read enough internet articles about California's financial crisis, eventually you will find comments from readers saying things like "we're the 8th largest economy, so pay attention" and "what happens to us will happen to you." Why is this?

In 1982 John Naisbitt published a bestselling book titled "Megatrends" in which he claimed that trends occuring in a few states, of which California featured prominently, seemed to presage national trends. His method, based on content analysis of major newspapers, seemed sound, and mostly matched our intuition about trends. Nearly 30 years later, it seems that the California collective subconscious is still stuck with this conclusion. How can a voter in California mess up their vote when whatever they do will be a harbinger for the rest of the U.S.?

But California is no longer a harbinger. The attitudes and decisions made there don't reflect the values of the rest of the country, don't supply leadership, and the rest of the U.S. recognizes it. Hence, to understand the state of the world as an investor you can no longer use California trends quite the same way, and that includes the data in this article.

U.S. Housing Prices Have Bottomed

Here's an indicator that we've seen the bottom of the U.S. housing market: Companies are beginning to sell insurance against price declines. Home Value Insurance, licensed just last month in Ohio, sells insurance against a decline in value of the customer's home. If the customer sells the house below its purchase price and the S&P Case-Shiller indices show a decline, then the customer may make a claim against the policy, subject to a deductible and other conditions.

If the housing market were clearly headed for further losses, companies wouldn't begin offering this insurance now. Therefore, this seems to be a strong indicator that in most U.S. metropolitan areas the decline in housing values is at an end.

Will Steve Jobs' final vendetta tarnish his legacy and hurt Apple?

After not copying anything from Xerox PARC for the Macintosh, was Jobs right to start a vendetta against the creators of Android, the most open and developer-friendly cell phone operating system? NDTV quotes Jobs as saying "I will spend every penny of Apple's $40 billion in the bank, to right this wrong."

Uh oh. It sounds like Jobs was willing to violate his fiduciary to Apple shareholders, since Apple's $40 billion of cash is company and shareholder money, not Job's.

In the long term, purveyors of closed systems, such as Apple's, must innovate continuously, relentlessly, and for the benefit of their future buyers if they want to stay ahead of obsolescence. It is a very tough job, and history shows that eventually even the best will slip up. Look at Microsoft: Its proprietary Windows platform is no longer innovating fast enough to present a compelling value over Linux. Windows evolution plateaued with Windows XP, and although there are a few technical innovations in Windows 7, most of the changes are internal, where end users can't see them.

And trees don't grow to the sky. Market penetration of the iPhone and iPod is already quite deep. Are there any compelling reasons to buy shares of AAPL now? I can't see any, but the downside risk of a flat market and richly-priced stock shows that there may be reasons to take some money off the table, if you do own AAPL. You might keep some for sentimental reasons.

What I am Reading Now

Recently, I seem to have a lot of books that I'm reading in parallel. Some fiction, some non-fiction, some for programming, some art and design.

Starbound by Joe Haldeman

Shadow and Claw by Gene Wolfe

It Is What It Is by 2 x 4 (http://2x4.org/work/)

Game Theory by Drew Fudenberg and Jean Tirole

The Tipping Point by Malcolm Gladwell

Programming Python by Mark Lutz

Books I recently finished:

Chesapeake by James Michener

Forever Peace by Joe Haldeman

Destroyer of Worlds by Larry Niven and Edward Lerner

I also have a "near future" queue. These are books on my nightstand, literally or figuratively, awaiting their turn to be read:

The Python Standard Library by Example by Doug Hellmann

Juggler of Worlds by Larry Niven and Edward Lerner

The Doomsday Book by Connie Willis

Self-Portrait Photography by Natalie Dybisz

Four Dragons (Stargate SG-1) by Diana Dru Botsford

Still deeper in the queue are these books waiting for me to buy them:

Moving Mars by Greg Bear

Coming Out of the Ice: An Unexpected Life by Victor Herman

Juggler of Worlds by Larry Niven and Edward Lerner

Spin by Robert Charles Wilson

Pro C# 2010 and the .NET 4 Platform by Andrew Troelsen

A Fire Upon The Deep by Vernor Vinge

Accelerometers in Smart Phones Might Be Useful for Spying

Georgia Tech researchers have paved the way for spy agencies and dark world hackers to obtain keystroke information from smart phones lying on user's desks next to their computers. As the user types the phone bounces on the desk just enough to be detected by the smart phone's accelerometers. This information is then used to deduce keystrokes. The system isn't perfect, but under certain conditions about 80% of keystrokes are deduced correctly. With repeated data collection, passwords can then be obtained.

Obviously, the phone must first be compromised, but any downloaded app could contain the key logging code.

Steve Jobs Thought He Owned Ideas

A biography of Steve Jobs will be out next week, and journalists with advance copies are punching out blog entries and news stories about some of the contents. In one newsworthy bit at Ars Technica, Ken Fisher reports that Steve Jobs said at a meeting with Eric Schmidt about Google's Android operating system for smart phones, "I want you to stop using our ideas in Android, that's all I want."

Well, now, we'd all like for our competitors to stop using our ideas, and leave us with a monopoly. But I think that would leave Apple with problems of its own, because a lot of the ideas used in their devices have been used by others, and invented or conceived of by others, even though those ideas may not have appeared in a smart phone. It is highly unlikely that the iphone component ideas were not thought of by someone, somewhere else. So to be fair Apple would have to stop using most of the ideas embedded in the iPhone.

For example, I am reminded of the hand-held computers used by the characters in Larry Niven and Jerry Pournelle's classic science fiction novel The Mote in God's Eye. If we were to use this principle of Job's, the their phone should be called the Niven-Pournelle phone, and Apple would be paying royalties.

JSTOR Prosecutes User for Downloading Too Much

This tidbit is from Ars Technica. Aaron Swartz, a former co-owner of Reddit, was arrested on computer fraud charges for overusing his JSTOR account.

Emergence of the Real Chronoscope

In 1956 a story by Isaac Asimov was published in Astounding Science Fiction, titled "The Dead Past". The story, ostensibly about Government control of acadamic research, is also a horror piece in which privacy is effectively destroyed through the invention of the chronoscope, a device that can look into the past. And since five minutes ago is the past, that means the chronoscope can see everything.

We are quickly headed toward that future, in which there is no privacy because all of the details of anyone's life, actions, beliefs, acquaintances, and shortcomings can be known by anyone else, anywhere in the world, at any time. Exhibit #1 is Facebook, which is suspected of or has been discovered keeping "shadow profiles" on pretty much everyone on the planet. It doesn't matter whether you have a Facebook account or not. They have a file on you anyway.

And it is a very, very deep file indeed. People who have used a legal option to obtain copies of the data Facebook maintains on them have received 1000-page documents, and that is after redaction of data that Facebook claims is trade secret. Typically, when these Facebook-is-up-to-no-good stories appear, there is a rash of people who defend Facebook, saying that it was the fault of the Facebook users for using the service, but this time the tenor of the dialog is different.

While internet stalking, by neighbors, ISPs, criminals, police, or whoever, is creepy, there have been proposals in the United Kingdom to make the contents of all computer subject to police inspection at any time. Separately, EU MEP Tiziano Motti of Italy has proposed that black boxes be installed on all computers so that police can detect criminal activity automatically. Clearly, given the nature of computers that means that each hard drive would be an open book. And given the nature of mankind, that means the contents of each hard drive would then be available for sale on the black market.

Exhibit #2 is the evolution of face recognition algorithms that can attach names to faces in a photo of a crowd. Depending on which software, company, interest group, or programmer you speak to the current rate of success is anywhere from poor to scary. Google has built facial recognition into Picasa, and claims to have backed off on some uses of the technology on the web because it was scary. The Carnegie Mellon lab that developed PittPatt has been acquired by Google. Facebook has put facial recognition into its software to help people tag others in their photographs. Governments use face recognition at customs to save time spotting terrorists and miscreants. With the proliferation of cameras on city streets, the low price of cameras, and the rapidly declining cost of processors to perform facial recognition on video streams, it is conceivable that real-time citywide monitoring of citizen locations is not very far off.

So whether you are an introverted stay-at-home computer user, or an extroverted on-the-go social butterfly, the future is clearly heading in the direction of keeping close tabs on everything you are doing, whatever its religious or political leaning.

In July, my comment about reputation shredding mentioned a reliance on anonymity for bad actors to cause damage to people falsely accused. With sufficient surveillance and the preponderance of public opinion on your side, however, you wouldn't need to be anonymous at all, because you would have the approval of the majority, and being mean to people isn't against the law.

-------------

For those who are interested, here are some links to materials about The Dead Past.

Wikipedia article on The Dead Past

IMDB entry about the BBC dramatization of the short story (part 1 of 7):

The Role of Personal Knowledge in National Growth

It is a well-established fact, known at least to economists, that long-term growth of an economy depends on new technology rather than changes in labor or capital. Robert Solow was awarded the Nobel Prize in Economics in 1987 for showing this.

Technology is knowledge. Newer machines and more efficient business processes are the result of active, practical knowledge. Therefore, U.S. national growth is directly influenced by how much each of us participates in increasing our practical knowledge.

By practical knowledge, I mean understanding of things that result in changes of efficiency. Reading literature may make you feel smarter, but unless it reduces fuel consumption, increases solar energy collection, reduces material usage, and streamlines or simplifies the business of living in this world, it has no value. As Mark Twain said, never let schooling get in the way of your education. Knowing proper use of the English language may make you a more effective communicator, and that is efficient. But knowing what a particular author wrote, for the sake of knowing it, will not change the U.S. GDP one cent.

But you already knew this, right? When we go to college, or high school, or graduate school, only part of what we learn is the material described in the syllabus. Some of the most valuable lessons are about managing time and money, meeting people, and exploration of new ways of thinking and new ideas. It is the same after college. In addition to getting your work done, it remains important to continue exploring new things, learning, changing and adapting yourself. Because the world changes, and it offers new deals all the time. If you are not paying attention, important customer profits may pass you by.

Of course, I am not talking about indulgences. I am referring to investments. If you can spend $10 now to save $30 later, and the $30 savings is real and not just a fictitious discount "off list price," then you need to strongly consider that investment. As I wrote last year, consumer spending doesn't save the economy, but savvy decisions by each and every one of us can and will impact the economy significantly.

An "investment" doesn't have to be a stock, bond, or real property. We're almost indoctrinated into thinking that investments must be big and complex, but in reality your highest returning investments are small and firmly in the realm of your personal life. Here are some examples:

You buy an air pump and tire gauge and keep your tires inflated about two to three psi above their formerly under-inflated state. Your gas mileage increases by 0.5 miles per gallon, from 20 to 20.5 mpg, and you save 15 gallons of gas each year.

You put new insulation in your attic, doubling the amount of effective insulation. Your heating and cooling costs drop by $150 per year.

Instead of buying your lunch out each day, you make salads the night before and take them to work. You save $20 and two hours of time per week, and you feel better because your calorie intake is down while you are eating healthier food.

You buy an inexpensive GPS for your car. In the first 12 months it saves you from driving 200 unnecessary miles; helps you recover from almost being lost four times, saving 4 hours in the process; and allows you to refine a route that your formerly thought was the shortest. In short, it paid for itself twice, just in the first year.

After watching a friend use a paint program you've never seen before, you realize that you don't like the paint software on your computer. You test out a half dozen new paint applications and find a new one that saves you 10 hours of time on your Christmas card mailing.

I'm taking a risk on sounding like Hints from Heloise, but I hope that you see the difference. I am suggesting policy changes, not activities. Using coupons is an activity, and depending on the way you approach it, it may save you money, or it might waste your time. Once you have invested time in finding new software, you will then use the more efficient package over and over, and the return on your original investment of time is automatic.

Another example: Replacing incandescent bulbs with fluorescent, if you can stand the light, will provide a profit on your investment over time, because fluorescent bulbs use about 25% of the electricity that incandescent bulbs use for the equivalent amount of light output.

These are just the simple examples involving cash savings. Many small investments you could make impact your skills and your impact as a person, hence your future income. The more your expand your exploration, learning, and personal technology, the greater your personal growth rate.

More:

Gas mileage tips

Light bulb savings calculator

'Twist'counting the Future

Today's Wall Street Journal Cynthia Lin writes Debt Does a 'Reverse Twist'. Fed Chairman Ben Bernanke explained earlier this month that the Fed's goal with Operation Twist was to narrow the gap between short term and long term interest rates, bringing long rates down by about 0.2%, thereby giving a boost to business by reducing long-term borrowing costs. As Lin points out, however, long-term rates have risen 45 basis points (an increment of 0.45%) rather than fallen.

So what is going on? Let's go back to basics. Interest rates exist because people prefer present consumption over future consumption. We don't live forever, so if you wait too long you might not get to enjoy the benefits of that dollar. So, you'd rather have a dollar today, say, than two dollars ten years from now. The greater your uncertainty about your future, the higher the interest rate you need to receive to compensate for the risk you are taking of dying before you get your money back.

The credit markets are saying that either inflation will increase or that uncertainty has increased. I see both happening. The spread between 2-year and 10-year rates has increased as well, indicating that the market is anticipating a stronger economy looking forward. A stronger economy will increase inflation pressures, so bond markets need more yield to be persuaded to hold debt.

Although it is tempting to think the Fed had something to do with the reverse twist effect, I don't see any reason for assigning causation there. The Fed was attempting to flatten the yield curve, which in my opinion, if it had happened, would be more likely to reflect contractionary tendencies already occurring in the market. Instead, the market has done what it wanted to, regardless of the Fed's plans. If the Fed has had any role, it could be said that tending to depress the markets in the short term (with a flatter yield curve) would then set up the economy for an inflationary bounce back later.

So far, the moves are slight. Some of the experts Lin quotes are convinced that 2-year Treasuries will eventually rally from here, sending yields as low as 1.5%. My contention is that Operation Twist would have triggered a move in that direction if such events were going in that direction, and therefore that Treasury yields will rise.

PIMCO has had a rough year because it bet heavily against Treasuries in March, around the time that market expectations and economic activity was peaking. Since April, equities have fallen, bond yields have fallen, and bond prices risen as the markets digest Greece's slow, agonizing fall into default. I think PIMCO mistimed its bet, but mainly it was too early. 2012 could see very significant inflation as pent-up demand and economic activity roar back to life.

I am not predicting that any gains in equities or general economic activity will be sustained. It will be characterized more by fits and starts of high demand, accompanied by shortages of raw materials, high oil prices, and inflationary pressures.

The mood in markets is fairly gloomy. Articles are beginning to appear saying that both bulls and bears see stocks as highly priced. With so much pessimism already in the market, the most contrary event would be a sudden rise in stock prices.

Another factor: If the Fed were to err and cause deflation or inflation, which event would be excusable? Before you answer, consider that general inflation would hit the housing market and increase prices. That wouldn't be so bad, would it? The Fed would get a lot more sympathy for "accidentally" causing inflation than it would for a deflation. Housing would recover, homeowners would be above water again, and new buyers would view the housing market with a differnt perspective. Clearly, Bernanke's incentives are to create a little inflation. Even better, if he does so in 2012, and the resulting economic boost occurs as would be expected, then he tends to cause his boss to be re-elected President. (Now that's never happened before, right?)

All in all, I look for increases in 2-year and 10-year yields that will anticipate and maybe keep pace with inflation occurring in 2012 and 2013. It isn't too late to sell your 2-year Treasuries, as some stocks will do much better than Treasures of any duration in the coming 12 to 18 months.

Social Media Websites are Designed to Spill

And when they spill, what they spill is their users. As in, dumped on the sidewalk, dumped in the street. Because what people really want from a social network is dirt on other people. And who better to supply than the individual to be dirted upon?

Now, Facebook and Google+ realize that if you believe that your dirt will be publicized, then you might hold back your dirt. So they go to some length to make you believe that your information is in control. Yes! You control your information! Just move the magic slider or click the magic button, and your dirt will be carefully contained where only your friends and acquaintances out to two degrees of separation will see it.

Ah, so when I spotted this item, I knew I had to make the point here at Vorpal Trade that social media is a complex beast and that it will burn a great many people, such as those who develop it.

Whoops. Google Engineer Accidentally Makes His 'Plus Sucks' Rant Public.

If a Google engineer can't keep his settings straight, then why would all the rest of us be able to?

Software is complex. Unlike physical reality, the landscape in a software application, and especially web-based applications that Google prefers, changes at the whim of the developer. A "user" of the physical world gets used to things: gravity, light, physical obstacles, the need to eat. Adults are experts at knowing how things work. They aren't surprised when rocks are heavy, trees block your view, or wood rots when exposed to water.

But place mortal humans inside the shifting landscape of a social medium, and they aren't quite so capable. And since it is a matter of competitive advantage to continually evolve the social media applications, to add to them and rewrite them to make them more capable, more complex, richer, better, happier and cleverer, it is unlikely that their users will be able to stay on top of the settings changes and small rules they need to master to keep their dirt in the places they last put it.

Even if Facebook and Google+ really do intent to help you keep your dirt straight, the deck is stacked against them. And since they really don't have any incentive to keep your dirt straight, the probability is zero that it will be.

There are defenses against dirt-spilling social media sites. That is a topic for another post later.

Richard Stallman's War on Software Users

It can be argued that advocating GNU products is tantamount to advocating poor user interfaces. The adoption rate of open source software under the GPL license is very poor among new and novice computer users, as the primary focus on FSF-philosophy software has never been about user satisfaction. It has been about programmer satisfaction.

When this problem collides head-on with memories of one of the greatest user interface advocates on the planet, Steve Jobs, then it isn't surprising that Richard Stallman would have nothing good to say about his competitor. Aside from Richard Stallman's poor sportsmanship, juvenile thinking, and poor attitude towards Jobs, which has caught a lot of peoples' attention, what is really galling is that Richard Stallman expects all the rest of us to discard our "impure" commercial and not-so-free software and take up GNU products.

In short, Richard Stallman wants to be dictator, and Steve Jobs was in his way. No wonder he wrote what he did.

http://www.stallman.org/archives/2011-jul-oct.html

This business of wanting to be king of all software by poisoning the well for everyone else has been a Stallman agenda for a long time. I've often wondered if he would still be an advocate for free software if the world were to require that his name be removed from everything in the FSF and GNU projects, and from all past news articles, so that he got no credit for any GNU or GPL work. Considering the massive efforts by other developers, and lack of much useful software written by Stallman, if he were to erase himself from the history books it would be a recognition of true reality, which is that being an a##h### is not something that should result in credit. But then, Joseph Stalin is still famous for his small role in Soviet Russia, so I guess that sometimes a##h###s get their notoriety whether or not they deserve it.

I really really doubt that Stallman would be willing to give up his fame. After all, what he wants is to ruin all the other software developers financially, then claim most of the fame (a kind of payment, after all) for himself.

End users deserve good software, and sometimes the shortest path to that reality is commercial software that winds up being closed source. It may stick in Stallman's craw, but, hey, I'm willing to live with that.

(Oh, and Richard, that OS is called "Linux", not that other thing you claim but which is a prevarication.)

---

Some of the articles posted about Stallman's disrespectful, parting dig at Jobs:

http://www.readwriteweb.com/enterprise/2011/10/why-fsf-founder-richard-stallm.php

http://www.forbes.com/sites/briancaulfield/2011/10/10/leave-it-to-richard-stallman-to-go-there/

http://latimesblogs.latimes.com/technology/2011/10/steve-jobs-stallman-dissenting-view.html

http://tech.slashdot.org/story/11/10/10/1227229/Richard-Stallmans-Dissenting-View-of-Steve-Jobs?utm_source=rss1.0mainlinkanon&utm_medium=feed

http://gizmodo.com/richard-stallman-steve-jobs/

http://www.neowin.net/news/richard-stallman-says-he-is-glad-steve-jobs-is-gone

http://www.itbusinessedge.com/cm/blogs/tennant/what-richard-stallman-s-hateful-eulogy-to-steve-jobs-really-means/?cs=48799

http://www.macgasm.net/2011/10/07/richard-stallman-steve-jobs-glad/

http://www.zdnet.com/blog/hardware/richard-m-stallman-on-steve-jobs-im-not-glad-hes-dead-but-im-glad-hes-gone/15275

In Hayek vs Keynes Debate, No One Advocates the Investment Process

Over at Bloomberg Nicholas Wapshott is stirring up things among the micro vs. macro dismal scientists. (Keynes and Hayek, the Great Debate (Part 4))

In order for Keynes to be right, he would have to be lucky. Only if the increment in Government spending is a true investment (with continuing payoffs that in total exceed the expense) would there be a lasting impact on the economy. In many cases, including the 2009 surge in U.S. spending, the investments are poorly selected and will not return a surplus. Fast spending, desperation spending, indirect spending, and spending by the Government on behalf of the rest of us are highly likely to fail to be effective or have investment returns, for the same reason that fast spending, desperation spending, indirect spending, and spending by an individual on behalf of another person is likely to fail to be effective.

It is necessary that the spending be an investment for a Keynesian expansion to work. Otherwise, the money is wasted, and the economy may even shrink afterward.

What happens in real life is that politicians spend money because it looks like they are doing something. It doesn't mean that Keynes was right when Bush or Obama request spending. It only means that the entire country is making a mistake, which the entire country will pay for later. It reminds me of the story about the fellow looking for a lost object at night under a lamppost because the light is better there.

Hayek also made the mistake of failing to indicate more directly the problem with mis-investing. Although he did correctly describe that individuals knew where to put the money better than government, he was not active enough in suggesting ways that the investment decisions that citizens make could be improved or increased in their efficacy.

An Introduction to Nanoeconomics

Many years ago I had a heated discussion with a person who lamented the high profits made by some businesses. The implicit assumption made by my opponent was that the seller's profit was at the expense of the buyer, and that it should be curtailed, perhaps even by legislation.

That got me thinking, and I countered with this proposition: That the buyer made a profit as well, and that instead of the seller gouging the buyer, the buyer might even be making so much profit that they were gouging the seller instead.

That conversation eventually became an academic paper and a fairly straightforward formulation of the dynamics of single transactions. It was easily proved that the buyer profits. The buyer has an opportunity cost, which establishes the value of the transaction to the buyer. The three numbers cost, value, and price are different and the differences between them establish the social surplus, seller profit, and customer profit for the transaction. The existence of the profits for both parties makes intuitive sense; if either party were no better off after the transaction, then they would have no incentive to engage in it.

If you draw a picture of the transaction, it looks something like the diagram at left. The seller profit is price minus cost, the buyer profit is value minus price.

For those readers who have been exposed to supply and demand curves in microeconomics, this single transaction diagram will match up fairly well to what you might see if you take a vertical slice from a supply/demand diagram. The customer profit is part of the consumer surplus. The advantage to putting this on a single transaction diagram is that you can see the real profits in the transaction, whereas the supply/demand curve aggregates many buyers and sellers together in one vast undifferentiated mass.

Nanoeconomics diagrams become very useful when analyzing monopoly, monopsony (single buyer), and monopoly/monopsony situations.

Even the U.N. is full of Overspenders, Says Obama

If you spend more than you take in, you will eventually go bankrupt. We've beaten the drum in this blog for everyone to get their acts together and stop overspending, and now we're gratified that even the current Administration agrees with our principles. (U.S. Decries Salaries, Staffing in New UN Budget)