Political Calculations
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August 31, 2005

The Way the World Works Jude Wanniski, the former Wall Street Journal editor who invented the term "supply-side economics" and reinvigorated classical economic theory and practice, passed away on Monday, August 29 at the age of 69.

One of the least publicly well known, yet highly influential people of the twentieth century, Jude Wanniski's book The Way the World Works is essential reading for any student of U.S. economic history. For those who would like to learn more about the supply-side economic theory for which Wanniski was instrumental in advancing, a trip to the online Supply-Side University is highly recommended.

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Gerald Dwyer of the Federal Reserve Bank of Atlanta has written an excellent overview (available as a 557KB PDF document) of the risks associated with Social Security reform, focusing on the risks to individuals whether the current system reformed to add a personal account option or if the current system is never reformed.

Dwyer begins by correcting a misconception that Social Security retirement benefit program, as it is presently structured, has no risk, which is frequently

While the existence of risk may seem like a difference between Social Security and private accounts, it is not. All plans for the future involve risk, and the further out the plans, the greater the risk. Private accounts and Social Security are no exception to that rule. Private accounts just have difference risks than Social Security...

Dwyer proceeds to note the risks of private accounts and the risks of the current Social Security system. The risks of private accounts to individuals include the following:

  1. The private account may not have enough funds to pay for planned expenditures, depending on the amount of gains or losses over time.
    • The investment options that would be available for individuals would not have the idiosyncratic risk of owning individual stocks, but would have the possibility of recessionary risk, which affect diversified stock portfolios.
    • Inflation may reduce the effective rate of return on a private account.
  2. Money set aside in a private account as part of Social Security could only be used to finance retirement, and could not be withdrawn for other purposes.

On the other hand, there are inherent risks in Social Security that face the program's individual benefit recipients, of which many are unaware, which include:

  1. Participants in Social Security do not have ownership rights.
    • Congress may change the level of benefits at any time, without any restriction regarding the level of benefits previously provided in the law.
    • The recipients of Social Security benefits have no recourse in the courts if benefit levels are reduced.
  2. The possibility of never receiving any retirement benefits.
    • The individual benefit recipient must live to retirement age.
    • The U.S. Supreme Court has ruled that Congress may deny Social Security benefits to people who would otherwise be eligible (Flemming v. Nestor, 1960).
  3. The level of taxes to support Social Security may change, as might the level of benefits.
    • Congress has acted to reduce retirement benefit levels in the past, including having scaled back the benefit formula in 1977, making benefit payments taxable in 1983, increasing the retirement age from 65 to 67, and increasing the amount of benefit payments that may be taxed from 50% to 85% in 1993.
    • The Social Security Administration has projected that it will begin running annual deficits as early as 2017, which will lead to the depletion of the trust fund supporting retirement benefits in 2041. At that time, the level of benefits will be automatically adjusted to meet the level of money coming into the program, reducing the level of benefit payments by 26%.

Dwyer concludes that in adding personal accounts as part of reforming the current Social Security system is really trading one kind of risk for another:

A private account trades the risk of future reductions in Social Security benefits and the risk of dying before retirement for the risks associated with holding financial assets.

Dwyer notes the risks of holding financial assets is already known to roughly 60% of the working households of the U.S., who already have access to such investment accounts. For the remaining 40%, the option to have private accounts would make the opportunity to accumulate assets possible for the first time. These accounts would allow these families to "diversify their retirement plans away from reliance on scheduled payments from Social Security, especially for those with relatively little in the way of likely retirement income other than Social Security."

Isn't the opportunity to have true ownership of a portion of one's lifelong contributions from their work combined with the reduction of risk to the individual that comes with diversification reason enough to support having personal retirement accounts within Social Security?

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August 30, 2005

One of the neater blogs I've recently encountered is The Real Returns, which offers a wealth of investing, market and economic data. Earlier this month, The Real Returns posted data related to the recent history of U.S. median house prices over the period from 1963 to 2004. The original source of the housing data is the U.S. Census Bureau.

Well, that kind of data deserves some curve-fitting and a calculator to estimate what the future U.S. median house price might be, so Political Calculations has extracted the data from 1973 onward to create the following chart:

U.S. Median House Prices Since 1973

The corresponding tool that may be used to estimate the future level of Median House Prices in the United States follows:

Year
Input Data Values
Calendar Year


Estimated Median House Price
Calculated Results Values
Median House Price

About the Tool

Originally, Political Calculations used the entire dataset from 1963 to 2004, but found that including the earlier 10 years shifted the curve too far upward to correspond well with the actual data in more recent years. Omitting the ten years from 1963 to 1973 tended to minimize the discrepancy, but setting 1973 as the starting year was done arbitrarily - it may be possible to find a better fitting curve through more trial and error.

Overall, the median house price in the U.S. appears to have grown at an average annual rate of 5.5%, at least since 1973.

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August 29, 2005

Not long ago, Poltical Calculations presented a dynamic table that ranked the economic freedom of individual U.S. states and the individual provinces of Canada according to the size of their governments, the magnitude of their levels of taxation and other takings, the freedom of their labor markets, as well as their overall level of economic freedom. But, in doing so, Political Calculations left two huge questions unanswered: "What Is Economic Freedom?" and "Why Is Economic Freedom Important?"

What Is Economic Freedom?

In the Fraser Institute's original report "Economic Freedom of the World, 1975-1995," the report's authors defined economic freedom, as well as what an index of economic freedom should measure:

Individuals have economic freedom when:

  1. property they acquire without the use of force, fraud, or theft is protected from physical invasions by others is protected from physical invasions by others and
  2. they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others.

Thus, an index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.

Why is Economic Freedom Important?

A free economy provides the greatest degree of choice possible to the individuals who live within it. Free economies allow individual personal choice and the complex interaction of individuals in markets to answer basic economic questions of how scarce resources will be produced, valued and distributed. An economy becomes less free through government interference and restrictions, which limit the ability of individuals to conduct economic transactions without restraint.

Economic freedom is also a key factor in determining economic prosperity. Within a national economy, there is a well-documented "convergence" effect that, over time and under normal conditions, sees poorer regions grow faster than richer regions within its borders. As a result, the measure of economic production per capita within the various internal political regions of a country will tend to equalize over time.

Differences in the amount of economic freedom available to individuals living in the various political regions that make up a country can prevent this convergence effect from occurring. The Fraser Institute study of the "Economic Freedom of North America" demonstrated that those states and provinces that had a high degree of economic freedom clearly outperformed the states and provinces that had lower degrees of economic freedom, and maintained this level of outperformance over time. Here's an excerpt from the report (emphasis mine):

Most US states have maintained a high degree of economic freedom and only a handful have consistently not done so. West Virginia has the worst record but Hawaii, Maine, Montana, New Mexico, North Dakota, and Rhode Island also have consistently low levels of economic freedom in both the all-government and sub-national indexes. Their average per-capita GDP was nearly US$4,700 below the US average in 2002 and their total growth from 1981 to 2002 is 13 percentage points below the US average of 39% total growth in real terms.

By contrast, here is the report's assessment of the performance of the U.S. states with the greatest degree of economic freedom:

The states that have consistently strong records in both indexes are Colorado, Georgia, Delaware, North Carolina, New Hampshire, Tennessee, and Texas. Their GDP per capita was US$4,400 above the US average in 2002 and their growth from 1981 to 2002 nearly 20 percentage points higher....

Just How Bad is West Virginia?

I'll end the post with the Fraser Institute's assessment of the state:

If there is an economics version of life support, it’s time to put West Virginia on it. Let’s start with the good news: in labor market freedom, the state has bulled its way to 47th all-government and 46th subnational. Now that we’ve dispensed with the good news, West Virginia’s overall rankings for economic freedom were 53rd all-government and a record low 56th state and local. Takings and taxation were 50th and 53rd. The size of government ranking, always bad, is now last at 60th in both categories. West Virginia is the eighth most taxed with a state and local burden of 10.6%, although it dodges the federal bullet to fall to the 38th most-taxed. The state sales tax is high at 6%.

The next generation of leaders in West Virginia definitely have their work cut out for them.

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August 26, 2005

Political Calculations(TM) has looked at the cost of owning a hybrid versus a standard vehicle previously, but JLP of All Things Financial has asked a good question with respect to the new hybrid versions of larger automobiles now coming into the market (at least with regard to their fuel consumption): "Are Hybrid Vehicles Worth It?"

JLP's launch point for his post is an article written by Sarah Breckenridge of Smart Money magazine, who compared her experience in driving both the standard and hybrid versions of the Ford Escape, the Honda Accord, the Toyota Highlander and the Lexus RX. JLP took the article a step further and ran some numbers comparing the annual fuel and cost savings one might have using the hybrid version of the standard vehicles presented in the article.

But why should JLP have all the fun? Political Calculations has put the following tool together for everyone to be able to do JLP's hybrid versus standard vehicle math!

Driving Data
Input Data Values
Distance Driven Annually (Miles)
Percentage of Highway Driving (%)
Average Fuel Cost per Gallon ($USD)
Standard Vehicle Mileage Data
City Mileage (Miles per Gallon)
Highway Mileage (Miles per Gallon)
Hybrid Vehicle Mileage Data
City Mileage (Miles per Gallon)
Highway Mileage (Miles per Gallon)


Estimated Fuel Use and Savings
Calculated Results Values
Fuel Used Annually by Standard Vehicle (Gallons)
Fuel Used Annually by Hybrid Vehicle (Gallons)
Annual Fuel Savings of Hybrid over Standard Vehicle (Gallons)
Estimated Costs and Savings
Cost of Fuel Used by Standard Vehicle ($USD)
Cost of Fuel Used by Hybrid Vehicle ($USD)
Cost Savings of Hybrid over Standard Vehicle ($USD)

About the Tool

The default data in the input table above is that for the standard and hybrid models of the Lexus RX, which you may change to compare the vehicles of your choice.

The tool above also only considers the fuel cost of the vehicles. It does not take into account other factors that may influence the lifetime costs of owning or operating a vehicle, including its pricing, insurance costs, maintenance expenses, etc.

August 25, 2005

All too rarely, airline crews make an effort to make the in-flight "safety lecture" and their other announcements a bit more entertaining. When they do, it's really rewarding. Here are some real examples that have been passed on to me from our friends in the sky:

On a Continental Flight with a very "senior" flight attendant crew, the pilot said, "Ladies and gentlemen, we've reached cruising altitude and will be turning down the cabin lights. This is for your comfort and to enhance the appearance of your flight attendants."

On landing the stewardess said, "Please be sure to take all your belongings. If you're going to leave anything, please make sure it's something we'd like to have."

"There may be 50 ways to leave your lover, but there are only 4 ways out of this airplane."

"Thank you for flying Delta Business Express. We hope you enjoyed giving us the business as much as we enjoyed taking you for a ride."

As the plane landed and was coming to a stop at Washington National (now Ronald Reagan International), a lone voice came over the loudspeaker: "Whoa, big fella. WHOA!"

After a particularly rough landing during thunderstorms in Memphis, a flight attendant on a Northwest flight announced, "Please take care when opening the overhead compartments because, after a landing like that, sure as hell everything has shifted."

From a Southwest Airlines employee: "Welcome aboard Southwest Flight XXX to YYY. To operate your seat belt, insert the metal tab into the buckle, and pull tight. It works just like every other seat belt; and, if you don't know how to operate one, you probably shouldn't be out in public unsupervised."

In the event of a sudden loss of cabin pressure, masks will descend from the ceiling. Stop screaming, grab the mask, and pull it over your face. If you have a small child traveling with you, secure your mask before assisting with theirs. If you are traveling with more than one small child pick your favorite.

Weather at our destination is 50 degrees with some broken clouds, but we'll try to have them fixed before we arrive. Thank you, and remember, nobody loves you, or your money, more than Southwest Airlines."

"Your seat cushions can be used for flotation; and, in the event of an emergency water landing, please paddle to shore and take them with our compliments."

"Should the cabin lose pressure, oxygen masks drop from the overhead area. Please place the bag over your own mouth and nose before assisting children, or other adults acting like children."

"As you exit the plane, make sure to gather all of your belongings. Anything left behind will be distributed evenly among the flight attendants. Please do not leave children or spouses."

And finally, here's a comment from the pilot during his welcome message: "Delta Airlines is pleased to have some of the best flight attendants in the industry. Unfortunately, none of them are on this flight!"

August 24, 2005

Patrick Ruffini has been taking a straw poll to sort the wheat from the chaff of potential 2008 GOP Presidential contenders, which has put former New York City Mayor Rudy Giuliani and Virginia Senator George Allen at the head of the pack of all-but declared contenders and Secretary of State Condoleeza Rice as the main fantasy league pick. But, that's not the real news!

The real news would be that for the first time that I can remember, dynamic tables have been used in a blog not named Political Calculations to provide the reader with control over how the data is ranked! Patrick has used the data to provide insight into where each candidate performed the best or the worst, which has uncovered some surprises.

For example, Senator John McCain, who we are constantly reminded is *the* leading GOP candidate by the mainstream media, scored poorly in his home state of Arizona, being outpolled by Rudy Giuliani, former House Speaker Newt Gingrich and Massachusetts governor Mitt Romney. Likewise, Senator Chuck Hagel, also performed very poorly in his home state of Nebraska.

By contrast, Senator George Allen easily commanded the lead of his home state of Virginia, where he has previously served at the governor. Likewise, Senator Sam Brownback also commanded a strong lead in his home state of Kansas, and Senator Bill Frist performed strongest in his home state of Tennessee, coming in second to Giuliani.

What does this all mean? At the very least, it indicates that both Senators McCain and Hagel have a surprising level of weakness among the people who participated in the straw poll in their home states. This weakness does not bode well for their presidential aspirations, since it indicates that the people who know them best, their consituents, who are motivated enough to participate in a political poll years ahead of the next presidential election, do not find them to be worthy of serious consideration.

Will it stop them? That's more a question of ego than of reason, and when U.S. Senators have mainstream media fawning over their every statement, I think we all know what the answer to that question might be.

The Milken Institute recently released its 2005 Cost-of-Doing-Business Index (available online as a 43KB PDF document), which provides a frame of reference for finding out the relative costs of different basic components of business expenses throughout the United States. (HT: Division of Labour.)

Now, the Milken Institute's table is a nice, static display of the relative costs of doing business in the United States, at least as compared to the U.S. national average in each of it's categories. But is that good enough in this day and age? Political Calculations(TM) believes that data in tables presented online should dance on command, rearranging itself to show the relative rankings of each state for each category listed! We also think that indices built on cost data should include the raw cost information, in case the reader might want to crunch some cost numbers of their own.

That's why Political Calculations has mined the data behind the Milken Institute's 2005 Cost-of-Doing-Business Index (available as a 33KB PDF document) to provide the following dynamic table, in which you may click any of the column headings to rearrange the data in the table according to its ranking within that category (details about each of the categories is provided below the table):

2005 U.S. Cost of Doing Business Index
State Wage per Employee Tax Burden Electricity (cents/kWh) Industrial Sq. Ft. Cost ($) Office Sq. Ft. Cost ($) Overall Index
Alaska 37851 57.0 9.18 12.7 15.0 101.9
Alabama 31561 55.7 5.42 4.0 18.2 85.0
Arkansas 28335 78.8 4.79 3.0 16.1 76.3
Arizona 34738 58.8 6.23 4.1 20.1 93.5
California 41811 68.2 11.02 6.6 25.9 112.5
Colorado 38378 42.5 5.85 4.3 18.1 103.3
Connecticut 47262 64.7 8.96 5.6 22.7 127.2
Delaware 40044 79.8 6.23 4.8 21.1 107.8
Florida 33221 56.2 6.27 5.8 21.7 89.4
Georgia 36160 54.9 5.34 3.7 19.7 97.3
Hawaii 34135 94.8 13.61 13.8 24.8 91.9
Iowa 29922 56.9 5.20 2.8 14.4 80.5
Idaho 28243 70.1 4.86 3.7 14.0 76.0
Illinois 39925 58.4 6.07 5.0 25.5 107.5
Indiana 32735 63.7 5.02 3.9 17.1 88.1
Kansas 31028 62.7 5.52 4.4 18.6 83.5
Kentucky 31382 73.7 4.29 3.3 16.1 84.5
Louisiana 30219 64.4 6.49 3.9 16.9 81.4
Massachusetts 45179 62.3 9.80 6.7 30.7 121.6
Maryland 40110 56.5 5.92 4.8 22.0 107.9
Maine 30267 71.9 8.35 4.0 16.8 81.5
Michigan 38664 74.5 6.26 5.1 18.6 104.1
Minnesota 37797 80.6 5.24 6.4 20.9 101.8
Missouri 33284 51.8 5.14 4.1 18.7 89.6
Mississippi 27078 71.6 5.87 3.5 13.9 72.9
Montana 26830 65.3 5.55 3.4 13.3 72.2
North Carolina 33180 66.4 5.72 3.7 17.6 89.3
North Dakota 27370 61.7 4.80 2.7 12.5 73.7
Nebraska 30456 66.5 4.99 3.6 19.0 82.0
New Hampshire 36519 41.7 9.91 6.0 15.4 98.3
New Jersey 45545 58.4 8.36 7.3 23.4 122.6
New Mexico 30467 80.3 6.15 5.0 15.3 82.0
Nevada 35852 60.8 8.04 5.2 25.0 96.5
New York 46577 62.4 10.03 7.5 34.7 125.4
Ohio 34476 62.6 6.19 3.7 18.0 92.8
Oklahoma 29414 64.9 5.49 3.7 14.7 79.2
Oregon 33844 56.7 5.51 5.1 20.5 91.1
Pennsylvania 36157 61.3 7.10 4.7 21.2 97.3
Rhode Island 35555 66.1 9.53 3.3 19.4 95.7
South Carolina 30325 59.6 5.40 3.2 18.7 81.6
South Dakota 26877 44.7 5.27 2.6 13.8 72.3
Tennessee 32868 53.9 5.48 3.5 17.4 88.5
Texas 36421 45.2 6.56 4.5 18.2 98.0
Utah 30829 65.9 4.69 3.9 19.2 83.0
Virginia 38152 53.8 4.99 4.6 18.7 102.7
Vermont 31166 86.8 9.67 4.8 14.3 83.9
Washington 39283 63.5 5.42 5.3 24.8 105.7
Wisconsin 32779 70.7 5.84 4.8 18.4 88.2
West Virginia 28688 79.8 4.63 3.0 17.5 77.2
Wyoming 29772 86.6 4.70 6.1 11.6 80.2
US Average 37154 61.4 6.56 4.8 19.0 100.0

Definitions of the Categories

Here are the definitions of the various categories, along with their relative weighting in creating the Milken Institute's overall index:

Wage per Employee
Measures the average annual wage per employee in all industries (receives 50% weight).
Tax Burden
Measures the annual state and local tax revenue as a share of personal income as of 2004 (receives 20% weight).
Electricity Cost
Measures the 2003 cost of commercial and industrial electricity cost in cents per kilowatt-hour (receives 15% weight).
Industrial Square Footage Cost
Measures the 2005 cost of renting industrial (warehouse) space on a per square foot basis (receives 10% weight).
Office Square Footage Cost
Measures the 2005 cost of renting office space on a per square foot basis (receives 5% weight).

The overall index applies the weightings for each of the categories above, and measures it against the U.S. average. An index score of 100 indicates that the state is at the U.S. average for the overall cost of doing business. An index score of 125 indicates that the cost of doing business in the state is 25% above the U.S. average. Likewise, a state with an index score of 75 is 25% below the U.S. average.

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August 23, 2005

U.S. One-Dollar Coin
The U.S. One-Dollar Coin (aka "The Golden Dollar")

The U.S. Treasury has spent many millions of U.S. dollars in developing, manufacturing and promoting the use of coins to replace the one-dollar bill in U.S. currency over the years. Invariably, Americans from nearly all quarters have rejected the Treasury Department's efforts to popularize first the one-dollar coin featuring Susan B. Anthony in 1979 (below, right), and now the so-called "Golden Dollar" which features a likeness of Sacajawea (shown above.)

Susan B. Anthony U.S. Dollar Coin While the reasons for the failure of one-dollar coinage to gain acceptance by U.S. consumers for common use are predictably complex, a solution for the Treasury Department's dilemma may be at hand. Instead of foisting more coins issued by the U.S. Mint on the American consumer, perhaps they should adopt a new form of currency gaining popularity in Cameroon: the tops of beer bottles. The BBC reports on the trend (via the World Bank's Private Sector Development Blog):

Beer bottle caps are being used as currency in parts of Cameroon, which is in the grips of a promotion frenzy by rival breweries.

Intense competition between beer companies has seen 20 million bottles given away since the start of the year.

The prizes, which are revealed beneath the bottle top, include mobile phones, luxury cars and of course more beer.

With a beer costing $1, some punters are using their winning bottle tops to pay for taxi rides.

The bottle tops are being used for more that payment for transportation, as noted in the BBC article by Martin Etonge, a local journalist based in Cameroon's capital city of Yaounde:

"Taxi drivers are also using the caps in their fishy deals with the traffic police," adds Mr Etonge. "So they can get off by giving one or two caps to the officers."

Success in introducing a new form of currency into circulation is solely determined by the acceptance of the new money by the public. When the U.S. Treasury goes back to the drawing board to design the next one-dollar coin, they should perhaps take a moment to consider whether they ought to be offering another coin in the first place. At the very least, they should explore marketing relationships with Anheuser-Busch, Miller and other U.S. brewers!

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August 22, 2005

Not that long ago, Political Calculations mapped the extremes of the calendar year to calendar year performance of the S&P 500 stock market index over 105 years from 1900 through 2004. What Political Calculations didn't do was to find the average rates of return for the S&P 500 index for each given holding period over that interval. So, it was back off to the data mines, and what we found is remarkable: the average nominal rate of return for the S&P 500 is essentially flat for any stock holding period, whether it be 1 year, 50 years or 105 years!

S&P 500 Extreme and Average Returns, 1900-2004
Click for a larger image.

That's right! With vary little variation, the average of average rates of return for each investment holding period from the beginning of 1900 through the end of 2004 is 7.78%. So, if you're interested in calculating the future of your investment in the S&P 500 based on average annual rates of return, just plug 7.78% into Political Calculations' Investing: Future Value calculator for your results!

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August 19, 2005

The U.S. Census Bureau recently announced its release of its report on 2003 County Business Patterns, which is chock full of data on a "variety of information on businesses in more than 1,000 industries from the national level down to states and more than 3,100 counties."

The dynamic table below presents the top ten counties in the U.S. according to the number of business establishments contained within their boundaries. You may select any of the column headings below to rearrange the presented data according to their rank according to the column category. The categories include number of business establishments, number of employees, annual payroll and the average payroll per employee.

Top U.S. Counties for Business Establishments
State - County Business Establishments Employees (as of March 12, 2003) Annual Payroll ($1000 USD) Average Payroll per Employee ($USD)
CA - Los Angeles 235085 3806184 147357105 38715
IL - Cook 127727 2356581 102208068 43371
NY - New York 103313 2022669 147720341 73032
TX - Harris 85528 1707646 70345122 41194
CA - Orange 83164 1412657 57025051 40367
AZ - Maricopa 76629 1380697 47848314 34655
CA - San Diego 72564 1122335 42274388 37666
FL - Miami-Dade 70687 829774 27763891 33460
TX - Dallas 62223 1321071 58336365 44158
WA - King 59521 1046681 51739093 49432

It would take a little more data mining, but an interesting statistic might be found in the ratio of businesses to metropolitan population for each of these counties.

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August 18, 2005

Today's generation of lawsuit-happy tort lawyers have driven many manufacturers to place warning labels upon their products to avoid potential future lawsuits. Here's a selection of the kind of labels that have appeared in recent years:

On a bag of Fritos: "You Could Be A Winner! No Purchase Necessary. Details Inside." (Certainly a contest that a shoplifter could enjoy! - Ed.)

On a bar of Dial soap: "Directions: Use Like Regular Soap." (As opposed to?... - Ed.)

On Tesco's Tiramisu dessert, printed on the bottom of the box: "Do Not Turn Upside Down." (D'oh! - Ed.)

On a Korean kitchen knife: "Warning: Keep Out Of Children." (But adults are okay.... - Ed.)

On a string of Chinese-made Christmas lights: "For Indoor Or Outdoor Use Only." (I'm glad they narrowed that down.... - Ed.)

On a Japanese food processor: "Not To Be Used For The Other Use." (Which is?... - Ed.)

On Sainsbury's peanuts: "Warning - Contains Nuts." (Umm, so, what did people think were actually in the package? - Ed.)

On an American Airlines packet of nuts: "Instructions: Open Packet, Eat Nuts." (But were they Sainsbury's peanuts?... - Ed.)

On a Swedish chainsaw: "Do Not Attempt To Stop Chain With Your Hands or Genitals." (No comment. - Ed.)

Source: JumboJoke.com

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August 17, 2005

When the U.S. Supreme Court issued its decision in the Kelo v. City of New London case, little did anyone suspect that the city officials of New London, Connecticut would seek to punish the homeowners who stood in the way of their plans to transfer the land on which their homes stand to a private developer in the name of redevelopment and the hope of higher tax revenues. At least, not beyond forcing the homeowners off the property being taken under the city's use of its newly expanded power of eminent domain.

Today, officials of the City of New London are now going after the homeowners who stood in the way of their grand "redevelopment" plans by only offering to purchase the homeowners' property based upon the market rates in the year 2000. Worse, the City of New London is seeking to charge back rent for the years the homeowners fought the confiscation of their property in the courts, further rubbing salt in the wounds of the taking of their property.

Johnathan O'Connell writes the following in the July 14, 2005 issue of the Fairfield Weekly:

The New London Development Corp., the semi-public organization hired by the city to facilitate the deal, is offering residents the market rate as it was in 2000, as state law requires. That rate pales in comparison to what the units are now worth, owing largely to the relentless housing bubble that has yet to burst.

"I can't replace what I have in this market for three times [the 2000 assessment]," says Dery, 48, who works as a home delivery sales manager for the New London Day. He soothes himself with humor: "It's a lot like what I like to do in the stock market: buy high and sell low."

And there are more storms on the horizon. In June 2004, NLDC sent the seven affected residents a letter indicating that after the completion of the case, the city would expect to receive retroactive "use and occupancy" payments (also known as "rent") from the residents.

In the letter, lawyers argued that because the takeover took place in 2000, the residents had been living on city property for nearly five years, and would therefore owe rent for the duration of their stay at the close of the trial. Any money made from tenants, some residents' only form of income, would also have to be paid to the city.

With language seemingly lifted straight from The Goonies, NLDC's lawyers wrote, "We know your clients did not expect to live in city-owned property for free, or rent out that property and pocket the profits, if they ultimately lost the case." They warned that "this problem will only get worse with the passage of time," and that the city was prepared to sue for the money if need be.

So, how bad could paying these "use and occupancy" payments be? O'Connell reports the bottom-line impact to the homeowners whose property is being confiscated by the City of New London:

An NLDC estimate assessed Dery for $6,100 per month since the takeover, a debt of more than $300K. One of his neighbors, case namesake Susette Kelo, who owns a single-family house with her husband, learned she would owe in the ballpark of 57 grand. "I'd leave here broke," says Kelo. "I wouldn't have a home or any money to get one. I could probably get a large-size refrigerator box and live under the bridge."

Such are the rewards of standing against the unrestricted ambitions of the alliance of politicians and the plutocrats who finance their campaigns. All thanks to the Supreme Court Justices who ruled in favor of the city government in the 5-4 decision ending any restraint on the taking of private property by government. I wonder if Steven Breyer, Ruth Bader Ginsburg, Anthony Kennedy, David Souter and John Paul Stevens really gave any thought to what their ruling would truly come to mean?

HT: Coyote Blog and Reason's Hit and Run.

Related Posts at Political Calculations

August 16, 2005

Previously, Political Calculations(TM) looked at the Federal Reserve Bank of San Francisco's research into the correlation between an individual's level of education and the likelihood of their being unemployed. That same research also found a strong correlation between age and the likelihood of their unemployment, revealing that the young are far more likely to be jobless than older members of the workforce.

The following chart from the San Francisco Fed's research illustrates the level of unemployment by age group from 1976 through 2004:

Level of Unemployment by Age Group

Clearly, the young jobseeker is at a disadvantage, having a significantly higher rate of unemployment, through both boom times and busts, than older groups. The authors note that (emphasis added):

... the difference is most striking for teenagers (age 16-19), whose unemployment rate typically is about three or more times that of people aged 35 and over. Informal observation and systematic analysis both point to high rates of job turnover among young workers as an explanation for higher equilibrium unemployment rates among these groups.

The high rate of job turnover for those aged 16-19 would be expected since this age range corresponds with the later years of high school and the beginning years of college in the United States, which would impact the ability of members of this age group to be consistently employed on a full time basis.

In addition, this age group would also be the most unskilled of the workforce (as measured by experience or by education), further limiting their employment opportunities.

The Fed's researchers also mapped the percentages of the labor force by age over the period from 1976 to 2004:

Percentage of Workforce by Age, 1976-2004

This chart allows us to see the effect of the aging of the workforce as the disproportionately large baby boom generation shifts the levels of employment for each age group.

Overall, the aging of the workforce provides a partial explanation of why the level of unemployment for all age groups has tended to decline over the period from 1976 to 2004. The Fed's researchers conclude that combined with education, the aging of the workforce only explains "about one-half or less of the decline in the unemployment rate over the past few decades."

The other half or more of the explanation will likely keep the Fed's researchers well employed....

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August 15, 2005

Do you remember the lyrics for the Beverly Hillbillies? Just in case I haven't just stuck the theme music in your head for the rest of the day, here is the first verse of "The Ballad of Jed Clampett":

Come and listen to a story about a man named Jed
A poor mountaineer, barely kept his family fed,
Then one day he was shootin at some food,
And up through the ground came a bubblin crude.

Oil that is, black gold, Texas tea.

Source: Lyricsbox

The reason why I've firmly lodged the Beverly Hillbillies' theme music in your head is because the ever watchful eyes of bubble-obsessed economic analysts have detected a bubble in crude oil prices. With the housing sector of the economy appearing to be cooling off at last, the increase in crude oil prices provide the hand-wringing set with ample opportunity to, well, wring their hands while complaining that the housing bubble was hiding the oil bubble all along. Then again, if they weren't complaining, would we even notice they exist?

On the other hand, the rapid surge in oil prices over the $65 USD per barrel level may indicate better things to come. David Smith of EconomicsUK offers his thoughts (emphasis mine):

While the futures market suggests that oil prices will head gently lower, many market participants are not so sure. Options markets suggest that the chances of a big rise in prices are greater than those of a big fall, with a 1-in-20 chance of prices being $100 a barrel or more in a year.

I’m not so sure. This is a nervy time for the global oil market, but the surge in prices has all the characteristics of a classic bubble. The International Energy Agency, in its latest oil-market report last week, said: "The unfolding statistical picture increasingly reveals that fear of the unknown and the consequent desire to make forward oil purchases is behind oil’s higher price path."

It also warned that while the emphasis now was on the risks of higher prices, "as stocks and spare capacity increase, it must not be forgotten that the downside price risks will eventually emerge as well". It predicts a rise in oil demand of 1.75m barrels a day in 2006, but a bigger increase in supply, split between Opec and non-Opec countries. Opec’s margin of spare capacity, currently a wafer-thin 1m barrels a day, will rise to 3m.

That does not mean oil prices are going to collapse. It does mean they are likely to return gradually to earth — which probably means a sustainable $40 a barrel — when geopolitical worries subside.

Barry Ritholtz of The Big Picture agrees that oil prices will come down substantially, but will do so as part of reduced demand stemming from the next trough in the business cycle:

My B-in-L Bob, a very senior BP exec (now retired), is the one who initiates the "Oil is a bubble" discussion. All the inflation adjusted charts seem to only go back to include the 1970s --- and that's not far enough to show the true price trend of oil. Bob argues that Oil has been in a very long downtrend, and the 1970s price spike was an aberration. So too, the 2003-05 run up. A longer, inflation adjusted chart would reveal that the present spike is aberrational, and unlikely to be sustainable. I am somewhat incredulous of this claim.

His point however, is well taken. While he is expecting an eventual mean reversion, simply base dupon price, I have a similar expectation based upon market cycles. The next recession (there's always a next recession, just as there's always a next recovery) will see reduced demand for Oil, and that will allow prices to fall.

Finally, to make up for starting this post by quoting lyrics from the Beverly Hillbillies' theme song, here's some Shakespeare to make up for it:

"Double, double toil and trouble;
Fire burn, and cauldron bubble."

- William Shakespeare, Macbeth

Undoubtedly, the Bard was concerned with skyrocketing oil prices....

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August 12, 2005

It is now nearing time for the leadership of Air America Radio's parent company, Piquant LLC, to make some hard decisions regarding the future of the enterprise. Ever since the current company was formed in May-June 2004 by the core group of Air America's original investors following the blowup of the network's first parent company, Progress Media, Air America Radio (AAR) has avoided making payments on its obligations to the Gloria Wise Boys and Girls Club of New York. As a result of the fallout of the scandal surrounding how the money came to Air America, that bill has now come due, and the New York Post (free, registration required) has reported AAR on-air personality Al Franken's statement that company's management has decided it must now begin making payments on this obligation.

Piquant's obligation to the Gloria Wise Boys and Girls Club is substantial, totaling $875,000 without interest. According to the New York Post's report of August 6, 2005, Piquant paid $50,000 into an escrow account managed by the company's lawyer as the first step toward repaying its obligation on Friday, August 5, 2005. This move came despite the New York City Department of Investigation's request that AAR pay the full $875,000 into an independently managed escrow account that would allow payments to be made to the charity only with the approval of the Department of Investigation while under investigation. The failure of Air America's parent company to set aside the full amount is an clear indication that they do not have this kind of cash in the bank, and their failure to place funds into an independently managed escrow account suggests that it is important to the company's management that the money remains in their control.

Additional evidence that AAR has insufficient cash reserves is also apparent in the company's recent delay in making deposits to support the company's payroll. Late on Thursday, July 28, 2005, Air America Radio's employees were left to face a weekend of uncertainty as the company was unable to deposit funds in time to support the direct deposit of the employees' paychecks the next day. Fortunately, the company made a sufficient deposit with the company's payroll management service in time to provide the employees' paychecks on Monday, August 1, 2005.

From a business standpoint, the sudden reemergence of AAR's obligation to the Gloria Wise Boys and Girls Club couldn't have happened at a worst time. Looking at the factors that drive the company's revenue, the ratings for Air America have continued to be anemic over the most recent reporting periods, with the few signs of strength it has shown recently in small markets being outweighed by continued sliding in its larger radio markets. Since ratings directly affect what AAR's affiliates may successfully charge advertisers, this indicates that revenues from AAR's broadcast operations will be essentially static for the foreseeable future.

Assuming that the company's revenues will not be significantly changing in the near term, the additional cost of repaying AAR's obligation to Gloria Wise will hit hard on management's ability to grow AAR's business. In a nutshell, money that has to go to repaying the Gloria Wise Boys and Girls Club is money that cannot be applied to other business needs, whether it be advertising, developing new programming, or simply paying regular operating expenses, such as the company's payroll. That's not to say that the doors are in imminent danger of closing; it does however suggest that some serious restructuring may soon be in the works to reduce AAR's costs.

Added to these financial woes, AAR's direct competition in providing programming for the leftist-oriented political talk radio audience, Democracy Radio has become stronger in recent months. This growing strength may be seen in the recent purchase of "The Ed Schultz Show" by Randy Michaels, the former CEO of Clear Channel Radio. The move is significant since Michaels was responible for syndicating Rush Limbaugh's show nationwide.

Given what's currently known about Air America Radio's financial situation and the stronger competition it faces within its niche in the radio programming industry, which makes the industry less attractive from AAR's perspective, the radio network's position within the business strategy matrix has shifted to be in the lower right corner:

Air America Radio - Business Strategy Matrix - August 2005 - Lower Right Corner

This sector of the business strategy matrix suggest that the company's management team would best consider a strategy of harvesting its remaining resources or divesting in part or in whole from the business altogether. Ideally, harvesting would take the form of an opportunistic sale to another party, but given the network's history of troubles, this option appears unlikely. More likely, the company's management will opt to begin divesting from the business by pruning back the least valuable parts of its product line or by withdrawing altogether in its current form through bankruptcy.

AAR's management might pursue the divestment option by adopting a two-pronged strategy. In the first part of such a strategy, the network would discontinue its lowest rated programming, but the real basis for deciding what programming to cut would be based on a measure of what shows generate the greatest revenue for the least total cost. Here, the deal the company recently negotiated with KSCO-AM to carry only Al Franken's and Randi Rhodes' shows on KSCO's sister-station, KOMY-AM in Santa Cruz, California suggests the form this portion of AAR's strategy might take, as the network was only able to convince the station to carry these two shows from its product lineup.

The second part of the strategy AAR's management might implement would involve discontinuing the company's strategy of pursuing additional broadcast affiliates and instead opting to emphasize the network's broadcasts through its Internet and satellite venues. AAR enjoys strength in the Internet broadcast arena given the involvement of left-wing political financier Rob Glaser with the network. Glaser's influence as the CEO of RealNetworks and interest in the network as the current chairman of the Piquant LLC likely plays a large role in making the company's Internet broadcast operations viable. This strength in the company's Internet broadcast operations compared to the company's traditional radio broadcast operations through its affiliates may be seen in the list of its online advertisers, which includes General Motors' Onstar service. By comparison, GM has stated that it will not provide advertising for any of the network's regular broadcast outlets.

In a late-breaking development, which supports a strategic move by AAR to emphasize its Internet operations, the network announced that it will bring former Clear Channel official Russ Gilbert to the network as Vice President of its Interactive operations. In this position, Gilbert "will oversee all Web initiatives for the company, including multiple revenue streams, premium services, content administration, alliances with other progressive Web sites and integration of Air America’s Web presence with its affiliate radio stations."

In terms of satellite broadcasting, the network enjoys the benefits of having recently negotiated a long-term contract with XM radio in April 2005 to provide its programming over XM Radio's satellite system. Like the network's Internet broadcast operations, the satellite venue provides a more revenue efficient means of delivering Air America's programming, offering substantially greater broadcast coverage area and access to the growing numbers of XM Radio subscribers.

While not an impossible situation from which to recover, Air America Radio's management has its work cut out for them. The overall ability of the network to sustain its operations will be challenged unless the network is able to increase its revenue (unlikely given its current circumstances) or reduces its costs to make its operations viable. Still, another option would be for AAR to find another "white knight" to come in and provide a new infusion of capital to keep the business afloat, much as RealNetwork's Rob Glaser did when AAR nearly failed in 2004. Without such a savior, many hard decisions lie ahead for the radio network's leadership.

Previous Analysis of Air America Radio's Business

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August 11, 2005

Some claim that these are real answers to real questions on real science tests. Personally, I have my doubts, but here is the list of answers anyway....

When you smell an odorless gas, it is probably carbon monoxide.

Water is composed of two gins, oxygin and hydrogin. Oxygin is pure gin. Hydrogin is gin and water.

Nitrogen is not found in Ireland because it is not found in a free state.

When you breathe, you inspire. When you do not breathe, you expire.

Three kinds of blood vessels are arteries, vanes, and caterpillars.

Before giving a blood transfusion, find out if the blood is affirmative or negative.

The moon is a planet just like the Earth, only it is even deader.

The pistol of a flower is its only protection against insects.

A fossil is an extinct animal. The older it is, the more extinct it is.

For fainting: Rub the person's chest, or, if it's a lady, rub her arm above the hand. Or put her head between the knees of the nearest medical doctor.

Equator: a menagerie lion running around Earth through Africa.

Rhubarb: a kind of celery gone bloodshot.

The skeleton is what is left after the insides have been taken out and the outsides have been taken off. The purpose of the skeleton is so that there is something to hitch the meat to.

To remove dust from the eye, pull the eye down over the nose.

The body consists of three parts - the brainium, the borax and the abominable cavity. The brainium contains the brain. The borax contains the heart and lungs, and the abominable cavity contains the bowels, of which there are five - A, E, I, O, and U.

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August 10, 2005

After looking at what would be considered to be a "bad" job in a recent report by the St. Louis branch of the Federal Reserve, the question naturally arises as to what a "good" job is, and how much it pays. Today, we're going back, again, into the Fed's report because it also has this vital data!

As noted on Monday, the Fed's report defined a "good" job to be a high-paying one, one that shows a "strong" association between their prevalance and whether a given community has lower rates of crime, higher property values and rising education levels compared to communities where low-paying jobs predominate.

The data in the table below is taken from Table A1 of the report's Appendix, and shows the industry of the low-paying job, as well as it's average hourly wage in Year 2000 US dollars. The table is ranked from lowest to highest:

"Good" Jobs
Industry Average Hourly Wage ($USD)
Pipelines (except natural gas) 24.43
Theaters and Motion Pictures 24.58
Air Transportation 24.72
Railroads 24.79
Legal Services 24.85
Guided Missiles, Space Vehicles and Parts 25.86
Petroleum Refining 25.91
Metal Mining 26.14
Business Management and Consulting Services 27.00
Security, Commodity Brokerage and Investment Companies 30.93

Following the tradition of yesterday's question of answering what the best "bad" job is, today, we seek to answer the question of: "What is the worst 'good' job?" According the the St. Louis Fed's study, it's found in the Machinery, Equipment and Supplies Trade, where one might expect to earn an average hourly wage of $19.94 in 2000 dollars!

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August 9, 2005

Yesterday, Political Calculations(TM) looked at where good jobs grow, by way of a recent study by the Federal Reserve Bank of St. Louis' research economist Christopher H. Wheeler. Today, we're going back into the report because it ranks jobs according to how "bad" they are on average!

As noted yesterday, Wheeler defined a "bad" job to be a low-paying one, one that shows a "weak" association in whether a given community with a lot of these kinds of jobs has lower rates of crime, higher property values and rising education levels. "Good" jobs, on the other hand, are high-paying jobs that are strongly associated with communities with these characteristics.

The data in the table below is taken from Table A2 of the report's Appendix, and shows the industry of the "bad" job, as well as it's average hourly wage in Year 2000 US dollars. The table is ranked from highest to lowest:

"Bad" Jobs
Industry Average Hourly Wage ($USD)
Sewing, Needlework and Piece Goods Stores 12.14
Lodging Places (except hotels and motels) 12.10
Knitting Mills 12.07
Gasoline Service Stations 12.00
Barber Shops 11.90
Bowling Alleys, Billiard and Pool Parlors 11.86
Apparel and Accessories (except knit) 11.72
Beauty Shops 11.38
Retail Florists 11.30
Eating and Drinking Places 10.85

The question might be asked: "What is the best 'bad' job?" According the the St. Louis Fed's study, it's one in the "Pottery and Related Products" industry, where one might expect to earn an average hourly wage of $14.69 in 2000 dollars.

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August 8, 2005

Given the importance of employment growth to the U.S. economy, and how seeking certain kinds of job growth affects public policy, the Federal Reserve Bank of St. Louis' Christopher H. Wheeler's recent study of Employment Growth in America: Exploring Where the Good Jobs Grow (available online as a 2.5MB PDF document) seeks to answer a very interesting question: "What kind of environment attracts better jobs?" To answer this question, Wheeler studied the growth of high-paying and low-paying jobs in a sample of 206 metropolitian areas in the U.S. for the twenty years covering 1980 through 2000.

Noting that "the growth of high-paying employment is also associated with lower rates of crime, higher property values and rising educational levels," Wheeler classifies these high-paying jobs as "good." Meanwhile, he notes that "low-paying employment or even employment in general tends to show a much weaker association with these outcomes," and therefore classifies these jobs as "bad."

Having noted Wheeler's distinction, here are his summarized results (emphasis mine):

  1. The growth of good jobs is strongly associated with the education level of the work force. Higher fractions of a city’s labor force possessing some postsecondary education, but particularly a bachelor’s degree or higher, correspond to significantly higher rates of good-job growth.


  2. Two measures of industrial composition display significant associations with rates of good-job growth: the share of total employment engaged in Finance, Insurance or Real Estate (FIRE) and the fraction of good jobs accounted for by manufacturing. Rates of good-job creation tend to be higher in metropolitan areas with a larger presence of FIRE, but lower in metropolitan areas with a larger fraction of good jobs in manufacturing.


  3. In recent decades, good-job growth has tended to be faster in markets with lower rates of union membership and low wage levels, suggesting that producers have flocked to labor markets with relatively low labor costs, broadly defined.


  4. There is some evidence that the presence of certain amenities — including bars, movie theaters, eating and drinking establishments, and live-performance venues - corresponds to faster rates of good-job growth, although the associations tend to be small. Similarly, cities with a large college or university community, quantified in terms of total employment in these institutions, also tend to display faster good-job growth. However, this association, too, tends to be small. The amenity that seems to be most important is a warm climate. Cities with higher average January and July temperatures grew faster between 1980 and 2000 than cities with colder climates.


  5. Employment growth does not show a strong association with some basic measures of local government finance and expenditure, including total tax revenues, property tax revenues per capita and per-resident expenditures for highways, education, public welfare and police protection.

Wheeler's study largely reinforces common sense. The growth of high-paying jobs tends to occur where more highly educated or highly skilled people live, where the cost of doing business is low, where people enjoy living (in warmth, apparently!) and where the cost of supporting government isn't burdensome. Surprisingly, Wheeler found the influence of the availability of entertainment options and universities to be small, at best, upon the growth of high-paying jobs.

Overall, it seems to be an easy lesson to learn. The question remains as to why so many civic leaders fail to do so - endlessly chasing new stadiums, light rail transit systems or other grandiose plans that never seem to deliver on their economic growth promises. Then again, perhaps that's why so many cities are failing....

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August 5, 2005

I recently came across stock market return data tracked and published by Crestmont Research. What makes Crestmont Research's presentation of data remarkable is the depth of information presented in the charts they've developed. Using their charts, you can quickly determine what the rate of return is for an investment made for any given full calendar year period, as well as whether or not the Price-to-Earnings (P/E) ratio ended higher or lower for the period. The charts available at Crestmont Research's web site cover the performance of the S&P 500 index from 1900 through 2004, including nominal, real (adjusted for inflation) as well as the impact of taxes upon investment returns.

The chart presented below, which you may select to link to the original 47KB PDF document, provides nominal rates of return for the S&P 500 index (including full reinvestment of dividends) for each full calendar year period from the beginning of 1900 through the end of 2004:

Crestmont Research Nominal SP500 Returns 1900-2004

All in all, a very effective way of presenting 105 years worth of stock market performance data, including what rate of return could have been obtained on an investment made at the beginning of a calendar year for any given holding period of interest. But, that's not all - the folks at Crestmont Research have provided more data than they realize!

If you follow the diagonals in the chart, which run from the upper left to the lower right, you can see what the S&P 500 rates of return are for given holding periods. If you follow the left-most diagonal, you will have 105 points of data showing what the S&P has historically returned for a one-year holding period. If you follow the black diagonal line on the chart, you can quickly see the 20-year long rates of return for the S&P 500. And if you take this pattern to the extreme, at the upper right corner of the chart, you will have one point of data showing the S&P 500 rate of return for the 105 year investment holding period!

Why is this important? If you want to map the historical extremes of best and worst stock market performance, reading the diagonals on Crestmont Research's chart is one way you can go about doing it! Political Calculations has been reading the chart's diagonals and has found that the best and worst rates of return for any given holding period from one to 105 years may be mapped as follows:

Best and Worst S&P 500 Index Performance
Click the image for a larger version.

Update 10 October 2009: Better yet, click here for the latest version of this chart and tool!

The chart and formulas above map the extremes of the S&P 500 index's raw performance from 1900 through 2004, neglecting the effect of inflation and taxes upon investor returns, and also assuming that dividends have been fully invested. The corresponding rates of return approximated by the formulas in the chart above may be found by using the following tool:

Investment Holding Period
Input Data Values
Time Investment is Held (Years)


S&P 500 Annualized Nominal Rates of Return
Approximated Results Values
Best Rate of Return for Holding Period (%)
Worst Rate of Return for Holding Period (%)

Anyone wishing to see the effect of having the historical best or worst case rate of return of the S&P 500 for a given holding period may use the values generated by the calculator above in projecting the future value of their investment.

Update (10 October 2005): But what about mapping average rates of return for an investment in the S&P 500 Index?

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August 4, 2005

Long-time readers are familiar with the business analysis and strategy matrix that Political Calculations has used on two occasions (the original analysis and an update) to evaluate the health of Air America Radio and to anticipate what options its senior management might pursue for the radio network. Given the current controversy where it appears that the network may have benefitted from the diversion of earmarked funds that were designated to support the Gloria Wise Boys and Girls Club of New York City, it seems appropriate to look at how the radio network obtained its primary funding. (Michelle Malkin has an excellent roundup of the major developments of the story to date, which has also been covered extensively at Brian Maloney's Radio Equalizer.)

The best single report that I've seen to date that bridges Air America's original funding, as well as it's bailout in May 2004 appeared in the May 27, 2005 issue of the Milwaukee Business Journal in an article by Rich Kirchen: "Madison investor weathered Air America's Storm."

The article follows the story of Terry Kelly, the President of Weather Central, Inc. who, along with his wife, was a principal investor in originally launching the network as well as a major player in its early bailout. As such, Kirchen notes that he was "one of a half-dozen investors in the startup network who lost their initial $7 million outlay to the mismanagement, if not outright fraud, of the original management team."

What follows is a major excerpt from the article, outlining the general history of Air America's financing from Kelly's point of view (links and emphasis added):

The Kellys became involved in Air America in late 2003, as a result of a conversation with acquaintances at the Oakcrest tavern in Middleton. Turns out that one of the organizers of Air America was David Goodfriend, the son of Dr. Theodore Goodfriend, a professor of medicine at the University of Wisconsin-Madison. In December 2003, the younger Goodfriend and Air America's then-CEO Mark Walsh visited Madison to present a pitch to the Kellys.

The couple decided to invest "a substantial amount of money" in the venture, Terry Kelly says. Based on press accounts on Air America, the Kellys believed they were joining such celebrity investors as television producer Norman Lear and Laurie David, the wife of comedian Larry David. However, the identity of the other investors was kept secret.

By the time Air America held a lavish kickoff party March 31, 2004, in New York City, Terry Kelly realized "something was clearly amiss" with the organization because then-chairman Evan Cohen said he "forgot the check" to pay the $85,000 bill. Cohen paid it with his American Express card, Kelly recalls.

Within one month, Kelly received a panicked call from David Goodkind, who had become Air America's general counsel, stating the company had no money and couldn't make payroll. The network lost its affiliates in Chicago and Los Angeles because it hadn't paid for the leases.

Kelly demanded a list of Air America investors -- Lear and David were not among them -- and the group met for the first time in New York. While Cohen and his partner, Rex Sorensen, had said they invested $12 million toward $30 million they had raised for the network, in truth, Air America had $7 million in initial investments, with little or none from Cohen and Sorensen. The investors learned that their $7 million "was gone" and the network owed another $2.5 million to creditors.

"It was a full day of shock and anger," Kelly says.

The vast majority of businesses would have filed for bankruptcy, but the Air America investors focused on whether it was conceivable the network could survive its quick crash, Kelly says. They agreed to make payroll and tax payments and keep the network running.

The investors dispatched an attorney to compel Cohen and Sorensen to resign immediately and sign over their stock to the investors. The entire startup crisis was captured on an HBO documentary appearing this spring called "Left of the Dial."

Behind the scenes Kelly does not appear in the HBO documentary but was instrumental in Air America's reorganization. He was assigned in May 2004 to lead the effort to rework Air America's finances, help raise more funds and rewrite the business plan. In June 2004, he was named chairman of the board, a post he held until late 2004.

Kelly and the other investors started a new company, Piquant L.L.C., agreed to pay off debts, downsized the staff, settled with Cohen and Sorensen, and raised another $19.2 million in private equity. The largest investor and now chairman is Rob Glaser, CEO of RealNetworks Inc., Seattle.

The new business plan calls for Air America to suspend its strategy of buying radio stations and focus on selling its programs, with hosts like comedian Al Franken and comedienne Janeane Garafalo, to radio stations. Kelly led the search committee for new top executives, recruiting recording industry executive Danny Goldberg as CEO and radio syndication executive Gary Krantz as president.

The story of how RealNetwork's Rob Glaser came to Air America's rescue also makes for an interesting study in the small world of political and celebrity links. Here's a short excerpt from Geov Parrish's interview with Al Franken that appeared in the May 4 - May 10 issue of Seattle Weekly:

Geov Parrish: "So I understand that your last visit to Seattle played a role in getting Air America off the ground, with Sen. Maria Cantwell introducing you to Rob Glaser of RealNetworks fame. Talk a little bit about that."

Al Franken: "Kenan Block introduced me to Maria. I was in Seattle. I think Seattle is like Minneapolis. It's essentially not that big a city, and people know each other. So Kenan [a public affairs consultant], who I know from his days as a producer at McNeil-Lehrer, is somebody I always see when I go to Seattle, and he wanted to introduce me to Maria. I met her, was delighted to, and she introduced me to Rob, who I was delighted to meet. We had dinner, and I sort of asked him to look at Air America and give me some advice on it. It was my clever way of luring him into it. I'm very clever. And extremely persuasive."

As we know from Terry Kelly's story, Rob Glaser's timely infusion of capital was a primary factor in Air America's survival.

Speaking of the small world of politicians and celebrities, Jim Miller of Sound Politics posted an interesting connection between Senator Maria Cantwell and new Air America on-air personality Jerry Springer (she worked on his 1982 campaign for Ohio governor!) The Cantwell-Springer connection appears at the bottom of the post, but you shouldn't miss the early part of the post as it reveals the close political and business connections between Cantwell and Rob Glaser.

Update (5 August 2005): A reader of Michelle Malkin has a list of questions that could be answered by the people named above.

Update (9 August 2005): The $19.2 million figure noted in the excerpt from Rich Kirchen's article above is incorrect - I believe this amount represents the total amount of investment capital raised by Air America Radio, which includes the original $6-7 million plus an additional $13 million that was raised by the investors in their second capital infusion that they announced on December 8, 2004. Kirchen's article should have referenced the $13 million figure for proper context.

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