The President redefined the terms of the ongoing debate over Social Security reform last night by proposing the progressive indexing of Social Security's retirement benefits. For low lifetime income earners, this proposal provides no change in how their basic retirement benefit, also called the Primary Insurance Amount (PIA), is determined by Social Security. Middle and upper income earners however, will find that their basic retirement benefit will be reduced, less for the middle income earners and more for the upper income earners, since the inflation rate used to adjust lifetime earnings in computing the benefit will be progressively reduced from the higher rate of inflation in wages to the lower rate of inflation measured by the Consumer Price Index (CPI). All benefits, once the basic level is determined, will continue to be adjusted for future inflation according to changes in CPI.

Those wanting to learn more about what the President has in mind for the actuarial reform of Social Security would be well served to read this post, written by an actual actuary, at The Dead Parrot Society describing how the technique would work.

To get a good ballpark estimate of what your retirement benefits with Social Security would look like under the President's refined proposal, the only tool that accurately models the proposed reform on the web is at the Heritage Foundation. Use their calculator today!

Labels: social security

I see from my server logs that there's a new RSS aggregator in town - at least one that's pegged Political Calculations^(TM) as a contributor! RGE Monitor, an outgrowth of Roubini Global Economics, itself a joint effort between Nouriel Roubini and Brad Setser, has recently launched the service in beta. If you found your way here from there, welcome aboard! And if you're Nouriel Roubini or Brad Setser, thank you!

Drip. Drip. Drip.

Did you ever wonder how much you pay in fuel taxes each year? When the Democrat-controlled legislature of the State of Washington recently passed the largest fuel tax rate increase in the state's history, I wondered just how much more the state's residents would be paying at the pump. The calculator below, which you may modify with the appropriate federal, state or local fuel taxes for your neck of the woods, is set up with the data for what Washingtonians will be paying each year once the newly increased tax rate is fully implemented:

Of Tolls and Taxes

In looking at a competing suggestion that would avoid imposing large increases upon gas taxes statewide by instead placing tolls upon access to bridges or certain roads in Washington to fund their maintenance, Josef of Josef's Public Journal argues that the distinction between tolls and taxes may be meaningless:

I think that's a GREAT idea. But, woops, isn't a gas tax another version of a toll and isn't that a scheme to move the toll booth from the highway to the gas station? Tell me if I'm onto something or not.

The difference between a tax and a toll (or user fee) is that one is compelled to pay a tax while a toll may be avoided. For example, when it comes to transportation, a toll may be easily avoided by selecting an alternate route. In Seattle, for instance, a hypothetical toll for traveling across the Alaskan Way Viaduct may be avoided by driving the city's surface streets [But what about downtown traffic and all the potholes? -ed. I didn't say it was a better option, and at least there isn't a toll, yet....]

By contrast, it is difficult to avoid a tax. Looking at transportation again, even those who don't drive cars will find themselves paying a tax on fuel consumption indirectly. This indirect taxation may take the form of the fare for a taxi, bus, train, airplane or other means of transport, a portion of which will be directed to covering the vehicle's operating expenses, which include fuel taxes. Likewise, businesses will pass along the costs they incur from their own fuel consumption (including fuel taxes), as well as the costs passed on to them by their suppliers (who are covering their own transportation expenses), to their customers. This transfer makes it nearly impossible to avoid paying fuel taxes in some fashion. And let's not forget about the government's own transportation requirements, where an individual's income, property or other taxes may be directed in some small part to filling the government's gas tanks where, you guessed it, fuel taxes get paid. It's one of those vicious cycles that never end.

Drip. Drip. Drip....

Labels: gas consumption, tool

After last week's episode, we're down to the final four contestants for Season 3 of The Apprentice. If you missed the last episode, here's a teaser for Suzanne Condie Lambert's weekly recap, Office-clutter Task Sweeps Out Bren:

Previously on The Apprentice: Net Worth continues its brilliant strategy of getting valuable face time with Donald Trump by cleverly losing. Kendra runs for president of the I Hate Craig club. And Craig uses words, but can't seem to string them together in a way that produces actual "meaning."

There's more, of course, but let's get to the analysis of this week's task and how well the show's contestants did in making it to the show's final rounds.

Design for Success

The task for the week was to design and build a prototype of an office supply product for this week's product-placement derby winner Staples who, oddly enough, sells office supply products. To the company's credit however, and especially its marketing savvy, the task for this week's episode dovetails nicely with the company's annual Invention Quest contest, where it seeks ideas and designs for new products from the inventor community.

Team Magna, consisting this week of last week's project manager Kendra, this week's project manager Craig and the consumately evil Tana, overcame the obstacle that no one on the team works really well with one another to sweep to victory. The secret to their success? Well, given that this week's project manager was Craig, you know there has to be some sort of box involved. The team's winning design essentially consisted of four plastic stackable organizers arranged like a box and glued together on top of a lazy susan, making it a spinning box with lots of little boxes. The judges liked it so much, you can now get your own, more professional-looking version at your local Staples for $34.99 USD (supplies limited). It's name: The Desk Apprentice:

The product is, at once, simple and surprisingly versatile. Plus, it spins, an improvement over the team's previous box! In short, it's everything you could reasonably expect from a box you can put on your desk and more.

Design for Failure

Team Net Worth. What can you say about a team that consisted of two lawyers, Alex and Bren involved in a creative design task? If nothing else, this week's episode showed that people who become lawyers lack that creative design spark and should not be employed in either creative design or the marketing of creative products. Then again, maybe it's just these two guys.

Alex and Bren, despite that they get along very well together, came up with a product that would be the last thing any office would need - another large piece of furniture to go alongside your office's other furniture for holding papers and office supplies. Worse, the "Pack Rat," (I did mention the lack of marketing skill here, didn't I?) actually was designed to make it harder to get those papers and office supplies by placing them under a hinged glass lid that would have to be cleared of papers and office supplies just to get at the ones you really wanted. Bad design, bad marketing, bad lawyers (okay, that last one was gratuitous, but I enjoyed it!)

In the board room, it came down to which of Alex or Bren had more competitive spark, and sadly, the lawyer with the bow tie was fired.

Handicapping the Final Four Apprentici

The series will come down to a final choice of either Alex or Tana. I believe Craig lacks sufficient communication skills to make it further in Donald Trump's corporate environment and Kendra lacks sufficient people-reading skills to survive in Donald Trump's corner of the business jungle. How else can her lack of response to the previous week's backstabbing by Tana be explained? Kendra is far too focused on her ongoing communication meltdown with Craig to appreciate how deeply Tana is sinking the knife into her future. At least we now know from this episode that evil can enjoy a sandwich while conflict goes on around it....

Between Alex and Tana, Alex will be the likely winner. Of the two, Alex has been executing an end game - he's been building strong relationships with the members of his teams, which should pay real dividends in the show's final task. Tana, on the evil hand, will be on her own, as I doubt the other contestants would even consider going the extra mile on her behalf.

[Editor's note: To be fair, on the scale of evil it's doubtful that Tana ranks as highly as first season contestant Omarosa, but we'll see after the latter's upcoming appearance on Dr. Phil.]

Labels: business

So, what is the average wage in the United States? And what will it be five, ten or fifty years from now? Today, Political Calculations^(TM) is mining historical data for the purpose of modeling the current and future level of the U.S. National Average Wage Index (NAWI) so you don't have to!

The data being used for the formula extraction is provided by the Social Security Administration, who tracks the data from 1951 and uses it to index an individual's lifetime earnings for the rate of inflation in wages in determining their Primary Insurance Amount (PIA), or rather, the basic level of one's Social Security retirement benefit.

The following chart shows the change in the National Average Wage Index over the number of years since 1951, as well as the formula extracted using Microsoft Excel's regression analysis capability:

Click the image for a larger version.

The formula indicates that the annualized rate of increase with continuous compounding in the NAWI index is 5.23%. The following tool allows you to select any year from 1951 to 2100 in order to estimate the value of average wages in the United States using the generated formula, assuming that the level of its future growth is similar to that of the past 54 years:

Other Data Sources

If you're interested in what people get paid for what they do in various locations throughout the United States, some excellent resources on the web include Salary Expert and Salary.com. Both feature easy-to-use interfaces for quickly getting to basic salary information for given metropolitan areas. If you're looking for more comprehensive information, the U.S. Bureau of Labor Statistics has the most comprehensive breakdown of job statistics across the United States. But then again, what else would you expect from the mathematical statisticians who are paid $38,767 - $58,366 USD per year to compile the data!

Labels: earnings, education, income, tool, wages

When it comes to investing, are you more prone to suffer Lemony Snicket's Series of Unfortunate Events than you are to have the Midas Touch?

Today, in honor of the DVD release of the Lemony Snicket movie, Political Calculations^(TM) offers a fun tool, in which you may safely see what the future value of your investment might be if you were to experience the financial misfortune that surely come at the hands of your investment advisor, Count Olaf, or the incredible wealth you would obtain if your investment advisor was none other than King Midas.

The calculator below allows you to enter a fixed amount that you would invest each year for the number of years you specify. You will be invested in the entire U.S. stock market, which may be fairly represented by today's Wilshire 5000 index. For each year a deposit is made in your investment account, the amount of money you place in the hands of either King Midas or Count Olaf will, for the length of time that the money is invested, have either the corresponding best or worst case inflation-adjusted rate of return as outlined by Political Calculations' post Best and Worst Case Stock Market Investing.

For example, the money that would be deposited for a period of one year will have two future values calculated, one based upon the best historical rate of return for a one year period and the other based upon the worst historical rate of return for a one year period. This process would be repeated for the money placed with these "advisors" for two years, five years, twenty years and so on, until the entire term of your investment period is covered (up to fifty years.) The respective future values for each investment term are added together and provided in the calculator's results below:

Investment Data
Input Data	Values
Annual Amount Invested ($USD)
Investing Period (years)	0 12345 678910 1112131415 1617181920 2122232425 2627282930 3132333435 3637383940 4142434445 4647484950

Investment Returns
Investing Scenario	Returns ($USD)
Total Amount Invested
Lemony Snicket (The Absolute Worst Case)
King Midas (The Absolute Best Case)

Using the calculator, we can find some surprising results, particularly in the Lemony Snicket scenario (of course, we expected good results from King Midas!)

Even with the worst historical inflation-adjusted rates of return, after 29 years of investing, an investor will at least break even (an effective rate of return of 0.0% for that investing period.) In 38 years, the investor would have an effective rate of return of at least 2.0% for their investment, outperforming such "safe" investments as government bonds. After 46 years, the investment account would be worth more than twice what had initially been invested, with an effective rate of return over the entire period of roughly 2.9%. In fifty years, the maximum for the calculator, your effective rate of return on your entire investment in the Lemony Snicket scenario would be slightly over 3.4%. And also notice that at no point in this exercise did the investment lose its entire value.

More than anything else, the Lemony Snicket scenario shows the power of investment diversification and compounding interest over time when it comes to investing. Even with Count Olaf's horrible timing encompassing the worst stock market performances in history, provided the investment is suitably diversified and combined with the compound nature of long term investment growth, even Count Olaf could come out ahead!

Labels: best case, investing, tool, worst case

Will Franklin has graded the AARP's suggested options for reforming Social Security to ensure its long-term solvency. Needless to say, none of the increasingly irrelevant lobbying group's nine alternatives are pretty, and Will does a good job in marking up their deficiencies.

Let's take a closer look at the AARP's preferred choices:

1. Raise the payroll tax cap.

As noted by Robert Robb in his commentary Lifting Wage Caps Dooms Real Reform, lifting the payroll tax cap on income that may be taxed for Social Security does not do much to make the system more solvent:

According to Social Security actuaries, lifting the wage cap only delays the date at which current taxes are insufficient to pay current benefits, now projected at 2018, by six or seven years.

It would do more to delay the point at which trust fund reserves are exhausted, currently projected to be 2042. But that's in large part because it would increase Social Security surpluses in the short run.

That would increase the trust's reserves, held in the form of special treasury notes. But that exacerbates the already considerable problem of financing the redemption of those notes as they are needed to pay benefits.

2. Raise the payroll tax rate.

For more support of Will's argument pointing to the history of Social Security taxes, see this brief overview of their history.

3. Raise taxes on benefits.

Already, up to 85% of the income from Social Security retirement benefits that a beneficiary may receive from program is taxable. This taxation comes despite the fact that the typical individual earner has already paid income taxes on at least half of the contributions they made to the program over their working careers was drawn. In addition, these taxes go to the U.S. Treasury's general fund, and not toward Social Security, so they would have zero impact on the program's sustainability.

4. Preserve tax on estates over $3.5 million.

Like income taxes, the money collected by the government as estate taxes goes toward the U.S. Treasury's general fund and not toward Social Security. This suggestion is absolutely irrelevant to the Social Security program's long-term solvency.

5. Extend coverage to newly hired state and local government employees.

Don't you just love when a lobbying group advocates for two sets of rules for everyone? Why penalize new state and local government employees? Why bother when many have their own, much better plan?

6. Invest a portion of the trust funds in indexed funds.

Let's get this straight. The AARP is opposed to Personal Retirement Accounts (PRAs) for individuals, whose investment options would be limited to index funds, but it's okay for the government to invest money from taxes directly in the stock market? It's a good thing the AARP supports some kind of investing to provide for retirement, otherwise their Investment Program might seem somewhat cynical, although you might suspect they would prefer Uncle Sam run that program as well to satisfy their inner socialist.

7. Adjust the COLA.

No, they're not talking about putting a lime in the Coke^(TM), you nut.... That's COLA as in "Cost Of Living Adjustment", or rather, the changes in benefit payments to account for increases in inflation. The AARP probably means adjusting the COLA downward, below the rate of inflation, making it more and more difficult to make ends meet as time goes by for those who solely rely upon Social Security for their income in retirement.

8. Increase normal retirement age to 70.

Increasing the normal retirement age at which one may receive full Social Security benefits is another way of cutting benefits, as individuals must wait longer to be able to receive their benefits. As noted by Herman Cain, the greatest cost of this suggestion would be borne disproportionately by ethnic minorities, whose life expectancy at retirement is shorter than average.

9. Index benefits to prices, not wages.

Will gave this option a B+, his highest grade for any of the AARP's suggested options. It has the advantage of being able to make the program wholly solvent, but the disadvantage of reducing the basic level of one's basic retirement benefit as the rate of inflation in wages has historically averaged slightly over 1% more than the rate of inflation in prices. [Side Note: The basic retirement benefit set this way has its future annual COLA increases set by the Consumer Price Index, which adjusts future benefit payments for price inflation.]

Will notes that this option would be best if matched with a PRA option that would allow the individual to make up the difference, but since the AARP is opposed to such ideas, it deserves a lower score.

Finally, Will notes the:

AARP is engaging in a classic case of misdirection. They are throwing out a series of "vegetable" proposals they know people won't eat; meanwhile, they don't even mention dessert. Any good faith effort to reform Social Security will include an honest discussion on solvency issues, but it will also include ways to offset benefit government-paid reductions through personal accounts. Meanwhile, there is no good reason to raise taxes.

The AARP's effectiveness as a lobbying group has been declining in recent years, despite significant demographic growth in the number of elderly Americans. This decline has come about largely as the result of a change in focus of the group's leadership, as they have largely replaced the group's previous practice of advocating balanced positions that appeal across the political spectrum with hard-line lobbying efforts in support of policies dictated by left-wing partisans. The AARP's members would be much better served in ongoing public policy debates by encouraging its leadership to return to a much more effective moderate balance.

This week's Carnival of the Capitalists is up, and is hosted by Pieter Dorsman of PeakTalk, one of the best blogs out there - well worth reading beyond this week's Carnival. Speaking of which, here are some of the more interesting contributions for this week's edition:

Aunty Goob at Goobage notes the inflationary quality of stupidity. The bad news: "Stupidity compounds geometrically!

Want to know what's driving oil prices lately? Read Mover Mike' take in Higher Oil Prices, Inflation or Demand?

Joe Kristan at Roth & Company Tax Updates points to computer technology as an aiding and abetting accomplice to the growing complexity of the U.S. tax code.

Patri Friedman of Catallarchy reviews an article from Mother Jones and finds its author is really trying to say America is rich. There are all sorts of statistics and rankings flying around for this one, so perhaps one of the cool applications I recently discovered will get some traction in the blogosphere.

Brian Gongol is looking at the rules of resources where the world's food supply is concerned. Hands down, the best post of the week.

As both an analyst and as a coder, I'm always on the lookout for new and interesting applications being put online. On occasion, I come across some really incredible or just plain neat tools that are well worth sharing. Recently, in looking at a comparison of the economic performance of the older countries of the European Union (EU) versus individual states in the United States (US), I came across a neat tool from the U.S. Bureau of Economic Analysis, which allows you to create maps showing how much economic activity is generated in various industries in each state.

The following image, which was generated using the tool with some very minor editing to fit the Political Calculations^(TM) site layout, shows the states divided into five groups based upon their 2002 Gross State Product (GSP) - the state equivalent of Gross Domestic Product (GDP):

The application is really neat because you can also produce maps showing the contributions of various industries in the states to their Gross State Product. Want to create a map showing the state-by-state output of the textile industry in the US? Oil and gas extraction? Government spending? Try it out!

The weak point of this tool is that it doesn't necessarily offer the data you want. In this case, I was looking for data related to Gross State Product per Capita for each state. That meant some number crunching using an offline spreadsheet application. So after taking the individual GSP data for each state from the previous application, collecting the estimated state population data from the U.S. Census Bureau, and doing the math (dividing the GSP data by the population for each state), I produced a table that looked something like the table below.

The problem though is that if I wanted to rank the individual states by their raw GSP or their per capita GSP and present it online, I would have to create several different tables, which would make for some serious scrolling for the reader. Unless, of course, I used another cool application that would dynamically do the job of ranking the data from richest to poorest or vice versa. Try it out with the table below - you may rank the data either from least to greatest or greatest to least in the table below by clicking the individual column heads:

2002 U.S. Gross State Product and Population Data

State	GSP ($USD Millions)	Population	GSP per Capita ($USD)
Alabama	125567	4486508	27988
Alaska	29708	643786	46146
Arizona	171781	5456453	31482
Arkansas	71929	2710079	26541
California	1367785	35116033	38950
Colorado	179410	4506542	39811
Connecticut	165744	3460503	47896
Delaware	47150	807385	58398
District of Columbia	66440	570898	116378
Florida	520500	16713149	31143
Georgia	305829	8560310	35726
Hawaii	43998	1244898	35343
Idaho	38558	1341131	28750
Illinois	486139	12600620	38580
Indiana	204946	6159068	33275
Iowa	98232	2936760	33449
Kansas	89508	2715884	32957
Kentucky	122282	4092891	29877
Louisiana	131584	4482646	29354
Maine	39039	1294464	30158
Massachusetts	201879	5458137	36987
Maryland	288088	6427801	44819
Michigan	351287	10050446	34952
Minnesota	200061	5019720	39855
Mississippi	69136	2871782	24074
Missouri	187543	5672579	33061
Montana	23773	909453	26140
Nebraska	60962	1729180	35255
Nevada	81182	2173491	37351
New Hampshire	46448	1275056	36428
New Jersey	380169	8590300	44256
New Mexico	53515	1855059	28848
New York	792058	19157532	41344
North Carolina	300216	8320146	36083
North Dakota	19780	634110	31193
Ohio	388224	11421267	33991
Oklahoma	95126	3493714	27228
Oregon	115138	3521515	32696
Pennsylvania	428950	12335091	34775
Rhode Island	36988	1069725	34577
South Carolina	122354	4107183	29790
South Dakota	25003	761063	32853
Tennessee	190122	5797289	32795
Texas	773455	21779893	35512
Utah	72974	2316256	31505
Vermont	19604	616592	31794
Virginia	287589	7293542	39431
Washington	232940	6068996	38382
West Virginia	45518	1801873	25261
Wisconsin	190650	5441196	35038
Wyoming	20285	498703	40676

One item to note - in the table above, I originally used commas to separate the hundreds, thousands, millions, etc. in the format of the numbers presented. The table sorting function had problems with properly sorting the data with the commas in place, as well as any other separator I tried (spaces, periods, etc.), so the numbers are therefore presented without them.

Sources and Acknowledgements:

Gross State Product (GSP) Data: U.S. Bureau of Economic Analysis
2002 Population Estimate: U.S. Census Bureau
Table Sorting Function: The Daily Kryogenix

Labels: economics, gdp, tool

Instapundit recently pointed to Brian Anderson's commentary in the Los Angeles Times Why the Liberals Can't Keep Air America From Spiraling In, in which he outlines the reasons he believes the "left-wing and proud of it" radio network will ultimately fail. The business junkie in me thought it might be fun to look at the strategic planning alternatives that the radio programming network's brass might now be seriously considering for its seemingly troubled enterprise.

For this kind of big-picture analysis, one of the most useful tools available to analysts is the business strategy matrix that was developed by General Electric, the Boston Consulting Group and McKinsey & Company. The matrix allows the analyst to lay out the selected organization's relative competitive strengths against the overall attractiveness of participating in a given market or industry. Where a company or organization falls within the matrix suggests certain strategic alternatives that may be appropriate for planning the enterprise's future. A similar matrix exists for non-profit entities.

We'll start this "bird's eye" analysis by looking at Air America's competitive strength. Anderson notes Air America's ratings in key markets:

And look at Air America's ratings: They're pitifully weak, even in places where you would think they'd be strong. WLIB, its flagship in New York City, has sunk to 24th in the metro area Arbitron ratings — worse than the all-Caribbean format it replaced, notes the Radio Blogger. In the liberal meccas of San Francisco and Los Angeles, Air America is doing lousier still.

Anderson's article incorrectly attributes Radio Blogger for the ratings comments. The comments are actually those of Brian Maloney, who published them on March 31, 2005 at his blog, Radio Equalizer. [Does the LA Times actually have four layers of fact checking? - ed. Mickey Kaus doesn't believe it either....]

Not wanting to take this editorial comment at face value, I looked into the Arbitron ratings for the Air America affiliates in the Top 20 national radio markets, which I've presented below:

¹ Chicago affiliate WAIT is expected to begin broadcasting Air America programming in April, 2005. Reference: Wikipedia, and Radionewsweb.com.

As may be seen in the Arbitron ratings, Air America's affiliates rank either in or near the bottom of nearly every market in which they broadcast. In looking at the ratings in detail, there are a few markets where Air America has gained audience share over the past year, but more often than not, they have either lost significant share or have not improved. This drop in ratings may be partially attributable to the recent national election, which would have tended to attract more listeners before the election and lose them afterward, but the ratings at other stations broadcasting politically-oriented talk shows have not decreased as much as Air America's has in the same local markets.

Air America has also had difficulty in recent times in meeting its cash flow requirements, which impacted its ability to broadcast in both Los Angeles and Chicago, leading to both ownership and management shakeups in the middle of last year combined with changes in the network's business model. Air America has also recently replaced its CEO and president again within the last two months. When taken together with the network's low ratings in nearly all its markets, Air America's enterprise strength may be considered to be LOW.

The next question that must be answered is "how attractive is the radio broadcast market?" At present, the trend within the radio broadcast industry is one of consolidation. This trend is largely driven by relatively recent regulatory changes that have increased the number of stations that may be owned by a single entity within a given radio market. This trend toward increasing consolidation may be seen by looking at the ownership of stations within various major radio markets across the country, with many stations within many markets owned by large corporate entities such as Infinity, Clear Channel, etc.

As a general rule, the presence of consolidation within an industry indicates a high degree of maturity with little organic growth occurring. This state precludes a high level of Industry Attractiveness. This trend toward consolidation also indicates that outright withdrawals from the marketplace are not occurring, which would be the case if the Industry's Attractiveness was low. Consequently, the Industry Attractiveness factor is MEDIUM.

Air America's competitive position within the Business Strategy Matrix is indicated in the following diagram:

Air America falls into the cell indicating Medium Industry Attractiveness and Low Enterprise Strength. As such, the Business Strategy matrix indicates that the organization's leadership should pursue a strategy of withdrawing from the market in phases. According to the Boston Consulting Group's online strategy matrix, Air America's executives should:

1. Act to preserve or boost cash flow as the business is exited.
2. Seek an opportunistic sale of the business.
3. Seek ways to increase the business' strengths.

It should be interesting to see what steps Air America's executives will pursue to deal with the radio network's business. As noted above, Air America is still adding stations to its network and has recently signed a new satellite broadcast deal, and has inked another deal to bring television talk show host Jerry Springer to its airwaves, which indicates that the third option is the preferred alternative at this time.

What is yet to be seen is whether or not Air America will be able to sustain the ongoing cost of its operations based solely upon the revenue generated by those operations. Currently, the network primarily obtains revenue from operations by selling its programming to distributors, such as Clear Channel, who then seek to recoup their expenses and make a profit by selling advertising slots for the broadcasts. Air America also sells some of its own advertising.

The question of whether or not Air America is viable as an ongoing business may then only be answered by looking at three additional questions:

1. What "critical mass" of stations or ratings is needed to generate the operating revenue required for the network to become self-sustaining without additional investor capital infusions?
2. Can the network grow fast enough to reach that level of self-sustainability before having to fold?
3. If the network cannot achieve operational profitability, can it convince its current or new investors to provide more capital to keep it afloat?

As Air America does not make its financial statements public, the answers to these questions are only known to the network's major investors and its senior management. For the rest of us, the clock is ticking toward the ultimate answer.

Labels: business

Arnold Kling has been doing arithmetic in looking at the cost of risk versus it's benefit as it affects health care decisions, and when there's math to be done, we here at Political Calculations^(TM) believe that there ought to be a tool to do it!

The tool below is based on the math described in Arnold's look at Costs, Benefits and Health Care, excerpted below:

Suppose that a medical test costs $1000, and 98 percent of the time it fails to turn up anything that would affect treatment. The other 2 percent of the time, it results in a treatment choice that extends life by 5 years. How much does a year of life have to be worth in order for the test to have an expected value that exceeds its cost?

The answer is that the "expected number of life-years saved" is .02 times 5, or one-tenth of one year. If one year is worth more than $10,000, then one-tenth of one year is worth more than $1000, so that the test is worthwhile.

And now, here's the tool for performing the math, which I've tried to make more generally applicable for more decisions than just the health care problem above that provides its default values:

Users of this calculator should pay close attention to the limitations inherent in the assumptions behind the math. For instance, can you really know how much a year of life is worth? Or have you fully accounted for the costs of the test - labor, materials, overhead, etc.? There's a lot of stuff that goes into the numbers you enter, and the usefulness of the tool will be proportionate to their quality....

More Fun Uses

It does seem to me though that this tool is ideal for figuring out whether or not you should play the lottery. With that in mind, here is a table of odds for the Powerball lottery:

For reference, here's an example of how to enter these odds in the tool above:

This simple formula will convert the odds entered this way into the percentage format used by the calculator. For prizes other than the grand prize, enter "1" for the time that the benefit will be enjoyed, and the amount of the prize for the value of the benefit per year. For the grand prize, enter the number of years that the prize will be paid out for time, along with the amount that will be paid out each year to add up to the grand prize. Good luck!

Labels: tool

As a manager, one of the keys to developing a successful team is to give credit where credit is due. It's one of the fundamental steps that you need to take in building loyalty and trust with your employees. The atmosphere of respect that results can even become a competitive advantage, as this environment may be a key component to your being able to get things done with your staff in less than ideal circumstances, whether it be meeting tight deadlines, hitting challenging cost or sales targets, or just maintaining a pleasant work environment under enormous pressure.

As an employee, it is just as important to give credit where that credit is due. Here, it's not so much a matter of meeting a goal, as it is one of gaining the respect of both your management and your peers. Last week's edition of The Apprentice saw the near absolute dissolution of the trust between manager and employee when Apprentici Tana took over Magna team project manager Kendra's presentation to Pontiac's executives in presenting the team's brochure for the new Pontiac Solstice that was the focus of this week's project.

In doing so, Tana gave the false impression that she contributed far more to the design of the team's promotional brochure for the car than she actually had. In reality, the brochure's design, from concept through completion, was the nearly single-handed result of Kendra's creativity and hard work, which required her to pull an all-nighter to ensure the brochure was complete before the project's deadline.

The event provided one of the more compelling moments in the history of "reality" television, at least as far as The Apprentice goes, as we could see Kendra's pained reaction as it happened. You know the expression I mean - the hurt and anger that only comes from that sharp, stabbing pain in your back as someone slips a knife into it. Suzanne Condie Lambert describes the situation in her weekly Apprentice recap:

Kendra's internal rage only increases when the fully rested Tana hijacks the presentation. She is cheery, articulate and evil incarnate. Just like Kelly Ripa.

Sadly, this conduct falls under the category of managing difficult people, which I covered for last week's episode. I really can't add anything more, beyond the importance of building trust in the workplace. Frankly, I'm curious to see how Kendra handles the aftermath in the next episode.

In the meantime though, Patrick Ruffini has suggested that Donald Trump might make an admirable appointee to be the next U.S. Ambassador to the United Nations. Such a move seems logical to me, as it would put the author of The Art of the Deal together with the architects of all sorts of artful deals. This is a man, after all, who recently sailed through bankruptcy court for his casino properties and was personally unaffected, financially speaking. This also is a man for whom a cruise line was willing to skirt a major storm for the sake of satisfying.

My humble opinion: he'd eat them alive.

It would appear that the U.S. federal government has solved the problem of what to do with all the vaccines for childhood diseases it is required to stockpile for emergencies - it can regulate the stockpile right out of existence! (Reference: Washington Post, Sunday April 17, 2005 Pediatric Vaccine Stockpile at Risk.)

I am, of course, being facetious. The depletion of the stockpile did not come about as the result of a carefully designed plan to achieve this goal, but rather as the unintended consequence of government regulations that seek to combat potentially deceptive accounting practices.

The Backstory

Prior to 2000, vaccine makers were allowed to recognize the revenue from the sale of their vaccines to the government at the time they completed their production. The manufacturers would then hold the stockpile vaccines on behalf of the government in their own warehouses and deliver them when required. In December of 1999 however, the Securities and Exchange Commission (SEC) issued new regulations that changed when all companies could recognize revenues from the sale of their products, seeking to eliminate the potential booking of "phony, theoretical or incomplete sales," the "revenues" from which could make companies appear to be more profitable in their financial statements than would actually be the case.

The new SEC regulations affect when companies may claim the proceeds of the sale of their vaccines to the government as revenue. According to the rules now in place, as applied to the producers of pediatric vaccines, the companies that are contracted to produce the vaccines may not claim the revenue from the sale of their drugs until the government calls for them to be delivered in times of emergency. In the meantime, these companies must bear the costs of their manufacture as well as the costs of storing the vaccines in their facilities, while not being able to offset these costs on their books with the actual revenue they earn by having sold them to the government in the first place. As a result, the regulation of when the companies may claim the revenue from the sale of their vaccines has created a powerful disincentive to produce and maintain the stockpile at mandated levels. The Washington Post article describes the current state of the stockpile:

Created by Congress in 1983, the stockpile is supposed to contain enough vaccine to supply the nation's needs for six months. Its virtual collapse is an acute embarrassment to the Department of Health and Human Services, the Centers for Disease Control and Prevention, and the vaccine makers.

The stockpile has never reached its full target amounts, but its depleted state now means the nation could not easily weather another big vaccine shortage, potentially putting the health of millions of children at risk. Only two vaccines -- measles, mumps and rubella (MMR), and varicella (chickenpox) -- are warehoused in the desired amounts.

The situation is so bad that support for regulatory relief is coming from unlikely quarters. Representative Henry A. Waxman (D-CA), someone not known as a booster for reducing burdensome regulations, has proposed selectively loosening the accounting requirement for the drug makers:

The ranking Democrat on the Committee on Government Reform, Waxman said he is willing to sponsor legislation to carve out a legal exception that would allow companies to "recognize" revenue from sales to the vaccine stockpile -- if such a radical step becomes necessary.

The Real Solution

Representative Waxman's suggested selective approach to regulatory reform is wholly inadequate. This approach will only lead to the further complicating of the already complicated existing regulations, which have led to the present situation and will also do the following:

1. Lead to more unintended consequences.
2. Create market distortions by picking "winners" and "losers" through the cherry-picking of who is affected by the government's regulatory power.
3. Spur lobby groups from other industries to pursue similar benefits.

When it comes to regulations, the government should not be in the business of picking winners and losers - that's the function of the government's contracting process. Regulations should instead be designed to apply to businesses across the board and should also seek to mitigate their costs of compliance. In the case of the pediatric vaccines stockpile, a more carefully considered approach to developing the government's accounting regulations could have avoided the depletion of this essential emergency resource.

For those following the continuing saga of the 2004 Washington state governor's race, political science professors Jonathan Katz of the California Institute of Technology and Anthony Gill of the University of Washington have confirmed that if illegal votes counted in the race were removed from the candidates vote totals, Dino Rossi would be the state's governor today, rather than Christine Gregoire, who benefitted disproportionately from the illegally cast votes (HT: WILLisms.)

No word yet on when Governor Rossi may expect to assume office....

Are you looking to project the value of your investment portfolio at some point in the future? The good news is that if you're starting from scratch, this is the tool for you! Now you can break down your regular contributions to your investment account by percentages in up to five different investment options, assigning a unique rate of return for each one, as well as its unique compounding period (if applicable.) If the amount you invest is fixed to a percentage of your income, such as for a 401(k) or 403(b) defined contribution plan, you can even project what the average of your future raises might do for your investment portfolio.

As kind of an unexpected bonus, instead of entering percentages of the amount regularly deposited into the portfolio below, you may enter actual dollar values for the amount being directed into each investment. The calculator will take all the values, add them together, then compute the percentage contribution for each investment. (The calculator doesn't know the difference, it does this math for the sake of ensuring that the percentages add up to 100%!) Just remember that the dollar amounts will need to add up to the amount of the regular deposit, and that you cannot mix and match dollar amounts and percentages in the table to get correct results.

This week's Carnival of the Capitalists is being hosted by Brian Gongol at the aptly named Gongol.com. The table below containing this week's picks was generated using the spreadsheet Brian put together to automate the creation of this week's Carnival.

Random Thoughts from a CTO	Rolling the Dice		Gambling is entertainment, but risk-taking is a necessary way of life, especially in business
Free Market Project	Government Sponsored Enron		The Fannie Mae scandal is almost 20 times the financial disaster Enron was, so why has it garnered just 3% of the same attention?
Chocolate and Gold Coins	Magic in the Marketplace		To keep your Hydrox idea from being sold as someone else's Oreo, put a little magic into your process
Marketing eYe	How To Make Your Business More Efficient		Running a one- or two-person shop? Write an operations manual for everything you do.

If the European Union were a state in the USA it would belong to the poorest group of states. France, Italy, Great Britain and Germany have lower GDP per capita than all but four of the states in the United States. In fact, GDP per capita is lower in the vast majority of the EU-countries (EU 15) than in most of the individual American states. This puts Europeans at a level of prosperity on par with states such as Arkansas, Mississippi and West Virginia.

Intrigued? The Swedish free-market think tank Timbro has released a report (available online as a 958KB PDF document) by Dr. Fredrik Bergstrom and Robert Gidehag that compares official economic statistics between the countries of the European Union and the states of the United States. (HT: Don Bordreaux of Cafe Hayek). Here are some individual European country comparisons with the United States from the report's Appendix, which I've ranked from best to worst:

Luxembourg

Luxembourg is one of the countries which can really vie with the USA in terms of per capita GDP. Luxembourg’s per capita GDP is about 40 per cent greater that the USA’s, and so as a state of the USA Luxembourg would not rank among the poorest.

Ireland

Ireland, as an American state, would come twelfth among the poorest. The Southern and Eastern regions are slightly better off but their per capita GDP remains on a level with the poorest states of the USA.

Denmark

Denmark, if it were one of the states of the USA, would come well below the American average for per capita GDP, ranking tenth among the poorest states.

The Netherlands

The Netherlands as a state of the USA would come ninth among the poorest. The West Netherlands come close to the US average for per capita GDP. Otherwise all regions have a per capita GDP equalling those of the poorest states in the USA.

Austria

Austria would rank eighth among the poorest states of the USA. [Comment mine]

Sweden

Sweden as a whole would be seventh poorest as a state of the USA. Even the Stockholm region falls short of the US average, and nearly all other regions have a per capita GDP below that of the very poorest state of the USA.

Belgium

If Belgium were an American state, it would be the sixth poorest in the Union. Only the Brussels region comes off well, with a per capita GDP some 50 per cent over the American average. Other regions have less per capita GDP than most of the poorest states of the USA.

Finland

Finland would come fifth among the poorest if it were an American state. The only region almost equalling the US average for per capita GDP is Åland. Other regions have a per capita GDP below that of the poorest states of the USA.

United Kingdom

As an American state, the UK would come fifth among the poorest. Only central London, with a per capita GDP some 18 per cent over the US average, comes off well in a comparison. All other regions, on the whole, have a per capita GDP approaching that of the poorest state in the USA.

France

France as a state of the USA would be fifth poorest. Only the Ile de France region exceeds by average US per capita GDP, by some 18 per cent. Otherwise all regions rank with the poorest states of the USA.

Italy

Italy as a state of the USA would come fifth among the country’s poorest. In a couple of regions of northern Italy per capita GDP comes quite close to the American average, but otherwise most regions would, by comparison, come low down among the poorest states of the USA.

Germany

Germany would be the fifth poorest state of the USA. The Hamburg region comes off well, with a per capita GDP 23 per cent over the US average. Bremen too comes close to the US average, but per capita GDP in the other regions either equals or falls short of the poorest states of the USA.

Spain

Spain would be one of the very poorest states of the USA. Even the region surrounding the capital, Madrid (which has the highest per capita GDP) would be number nine among the poorest by comparison with average per capita GDP in the USA.

Portugal

Portugal as an American state would be one of the poorest. All other regions, compared with the poorest states of the US, have less per capita GDP and would come far down on the list with Portugal as a state of the USA.

Greece

Greece has a per capita GDP which is less than half that of the USA, and as one of the states of the USA would come far behind the poorest of them today. The Attiki region has a slightly higher per capita GDP but still comes bottom.

Captain Ed at Captain's Quarters has been following the story of the events surrounding an incident involving Italian journalist Giuliana Sgrena, whose car was fired upon as it approached a U.S. manned checkpoint near the Baghdad airport shortly after she was freed from being a hostage. The incident claimed the life of Italian intelligence officer Nicola Calipari.

Sgrena's account of the incident, in which she claimed that U.S. troops at the checkpoint deliberately fired upon the vehicle without warning, has not withstood inspection. A joint American-Italian investigation, as reported in the New York Post, has cleared the soldiers at the checkpoint of any wrongdoing, as they were found to have acted prudently in using force to stop Sgrena's vehicle.

Given Sgrena's claims regarding the speed at which her vehicle was traveling (she has claimed her car was traveling at 30 miles per hour), I thought it might be useful to create a calculator that would indicate the elapsed time from when the official report indicates that the soldiers at the checkpoint went from signalling the car to stop to using deadly force to stop the vehicle.

The calculator above assumes the speed of the car is unchanged throughout the incident.

According to the Texas Education Agency's Driver Training and Education department, the average response time required for a sober individual to respond to an external signal requiring they brake is roughly 0.75 seconds. With this being the case, it's unlikely that Sgrena's account of the event is accurate.

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