Economic ignorance is an expensive thing

It appears that economic ignorance will cost the American people hundreds of billions if not trillions of dollars. The NY Post explains:

In the depths of the financial crisis last year, people like Morgan Stanley's John Mack, BlackRock's Larry Fink, Greg Fleming (then of Merrill Lynch), JP Morgan's Jamie Dimon and Goldman Sachs' Lloyd Blankfein were telling everyone that candidate Barack Obama was a "moderate," and moderation was what this country needed.

What a difference a year makes. They won't admit it in public -- but in private conversations, the top guys on Wall Street are feeling burned.
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I'm told that Treasury Secretary Tim Geithner and chief economic adviser Lawrence Summers have both complained to senior Wall Street execs that they have almost no say in major policy decisions. Obama economic counselor Paul Volcker, the former Fed chairman, is barely consulted at all on just about anything -- not even issues involving the banking system, of which he is among the world's leading authorities.

At most, the economic people and their staffs get asked to do cost analyses of Obama's initiatives for the White House political people -- who then ignore their advice.
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As one CEO of a major financial firm told me: "The economic guys say that when they explain the costs of programs, the policy guys simply thank them for their time and then ignore what they say."

In other words, the economic people feel that they have almost no say in this administration's policy decisions.

Columnist Charles Gasparino contrasts this to the relatively economically savvy Clinton administration.

After the Berlin Wall fell, and Clinton defeated once of the most experienced foreign policy presidents ever, the political establishment suddenly took economics seriously. If the Federal government didn’t have to fight the Russkis or Nazis or otherwise keep Americans safe, then what remained was to assure the economic well-being of its citizens. In the pantheon of American politics, instead of the “guns and butter” campaign issues, only butter mattered.

Bill Clinton ran on the (internal) slogan “It’s the economy, stupid” and latter bragged about achieving historic levels of economic growth. He had smart liberal economists working for him, he appointed one of his highest profile supporters as Commerce secretary, he staked his political capital on key trade policies and (as Gasparino argues) listened to the advice that he got. Except for taxes, Clinton was a moderate on economic policy (although perhaps after 1994 he didn’t have a lot of choice).

As a consequence, political science and international relations schools started paying more attention to economics, trade, economic development. Even if the faculty didn’t catch the trend, the students certainly did, and economics or business minors became common among poli sci or IR majors.

Now Gaparino implies that a bunch of economically illiterate lawyers are in charge of economic policy. Are they too old to have learned about economics as students in the 1990s? Or does law school emphasize controlling society through legislation and the courts — rather than the traditional role of government in a market economy as defining the rules of the economic game.

Whatever the reason, let’s hope that the lawyers and political scientists in future generations actually paid attention during economics class and will realize the futility of fighting the invisible hand.

iPhone wins access to more dumb pipes

The handset may not be God, but the JesusPhone has certainly won another zero-sum battle for customer loyalty over the owners of dumb pipes.

Today both Orange and the Vodafone announced they will carry the iPhone in the UK. Virgin Mobile is also said to be “desperate” to carry the phone, while the only uninterested carrier is 3 (the commodity 3G operator) uninterested.

This ends the two year exclusive of O2 in Great Britain and Ireland. Exclusives were the norm for the 2007 rollout and the original iPhone rev share model, but not for the 2008 rollout where multiple carriers rolled out the iPhone. This explains how Apple plans to grow its market share, and also points to non-exclusive sales in its home market — presumably with Verizon, the largest carrier. Presumably the rest of Europe and Japan will eventually follow.

It also marks a retrenchment of Vodafone from its policy of promoting commodity handsets. Perhaps it has something to do with the iPhone's new status as Britain’s “coolest brand” — well ahead of YouTube, BlackBerry and anything by Sir Richard Branson.

The benefits of high supplier power

From today’s Merc:

At the heart of the European antitrust case against Intel are a series of once-confidential memos that provide a rare glimpse into the intense and at times acrimonious negotiations between the world's biggest chip maker and Hewlett-Packard, the world's biggest computer company.

Even a company as powerful as HP, the documents suggest, had to make business decisions based on how Intel would react. The Palo Alto computer company reportedly was so worried about threats from Intel that it dramatically scaled back its plans earlier this decade to sell computers powered by chips from Intel competitor Advanced Micro Devices of Sunnyvale.

And when AMD offered HP 1 million free microprocessors, saying it was a gift "no reasonable business partner could refuse," HP took only 160,000 to avoid Intel retaliation, according to the report unveiled last week by the European Commission.
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HP declined a Mercury News request to be interviewed and Intel insists it did nothing illegal, calling the commission's findings "wrong as a matter of fact, law, economics and elementary fairness."

Of course, HP is not the world’s largest computer company — which has remain unchanged since the System 360 in 1963 (if not before). But it is the largest PC maker, and the rest of the story is pretty convincing.

Still, the allegations suggest that our local chip designer (no longer making chips here) is as predatory as Microsoft under Bill Gates.

Still too big to fail

Former Fed chair Paul Volcker is reiterating his argument for the need to bifurcate the banking industry: commercial banks that are important to the economy, and risky speculators who are on their own.

From Volcker’s speech Wednesday in Los Angeles, the WSJ emphasized limits on the acceptable activities for the former.

Mr. Volcker, who currently is chairman of the White House's Economic Recovery Advisory Board, suggested banks should be restricted to trading on their client's behalf instead of making bets with their own money through internal units that often act like hedge funds.

"Extensive participation in the impersonal, transaction-oriented capital market does not seem to me an intrinsic part of commercial banking," he said in a speech to the Association for Corporate Growth in Los Angeles.
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Mr. Volcker said banks should be banned from "sponsoring and capitalizing" hedge funds and private-equity firms, which are largely unregulated. He also said "particularly strict supervision, with strong capital and collateral requirements, should be directed toward limiting proprietary securities and derivatives trading."

The Bloomberg account explicitly linked Volcker’s proposed control on activities to the availability of bailouts:

In his speech, Volcker renewed his call for a limit on the activities of banks that are considered “too big to fail,” going beyond what other officials in the Obama administration have advocated.

“I do not think it reasonable that public money -- taxpayer money -- be indirectly available to support risk-prone capital market activities simply because they are housed within a commercial banking organization,” Volcker said.

Since January, Volcker has advocated that regulators should prohibit financial companies whose collapse would pose a risk to the economy -- those considered “too big to fail” -- from engaging in certain types of trading and investing activities.

Presumably there is a third group of banks — smaller commercial banks that (as with most of the bank failures of 1980s and the past 18 months) — that can fail and be acquired through normal market processes.

Libertarians and fiscally conservative Republicans would argue one of the biggest mistakes of the Bush administration was to perpetuate the idea of “too big to fail,” an idea that certainly continued into 2009. If the (eventual) financial reforms don’t fix this ongoing moral hazard problem, the bailouts next time will be even worse.

When it comes to financial regulation, the current administration seems to have a quandary. On the one hand, bankers are rich and greedy capitalists worth bashing at every opportunity. On the other hand, many of those based in NYC are very close financial and political supporters to leading Democrats such as the president's chief of staff and the senior senator from NY.

However, right now the assumption is that the administration (and Congressional majority) are uninterested in financial reform, because they want to leverage the president’s (shrinking) electoral mandate to pass a national healthcare plan and cap-and-trade.

If the problem remains unresolved before the GOP retakes one or both houses of Congress, then it will be both an opportunity and a trap for the GOP. This time, the GOP must prove that they really believe in free markets — rather than act as shills for Wall Street — by carefully limiting (and regulating) those firms “too big to fail,” while marking the less regulated segments a truly “bailout free” zone.

Who owns communities?

While online communities are an important source both for innovation and also for Internet users to gain value from Web 1.0 and Web 2.0 websites, many of the rules for such communities are still up in the air.

Physical communities have a lot of rules and conventions. Certain forms of political activity are legal on private property. Newspapers like the New York Times doesn’t print every letter critical of the newspaper, but it (and its local counterparts) will normally print some critical letters of the sort it deems appropriate.

Wednesday, Yahoo’s chief marketing officer Elisa Steele proclaimed the new Yahoo! will be much more customer focused. (Frankly, I can’t tell yet whether this is a real change or just marketing hype). It pointed to the new website design as demonstrating this principle.

In response, Thomas Hawk (a hardcore Flickr user with 29,000 photos and counting) wrote a response asking whether Flickr (and thus Yahoo) planned on ending various forms of overt and covert censorship. This is part of his ongoing fight against Yahoo/Flickr censorship.

Other websites such as MSNBC and Silicon Alley Insider have remarked on examples of Flickr censorship. A few have even claimed that the photos site is helping the Obama administration in exchange for a recent government contract that also included YouTube.

At one level, I want to say “If you don’t like the terms, don’t use them.” However, with 29,000 photos uploaded, the switching costs are pretty high.

This also reinforces my observation (as noted more eloquently by others) that Web 2.0 is a lot less open than Web 1.0, if for no other reasons than the high switching costs of proprietary SaaS systems. In Web 1.0, you can upload and download HTML and JPEG files to any ISP that you want, whereas for Web 2.0 — and other SaaS — your data is often more captive than in a Microsoft Word proprietary file format.

But in the end, I think this points out the immaturity of online communities — or the arrogance of dot-com community owners — in setting the rules of community engagement. The newspapers (and usually TV and radio stations) realize that the presumption must be for openness and free speech to have any sort of credibility and legitimacy among public participants.

Some websites also recognize such a need for openness. Google provides free web hosting for blogspot, which allows me to call out Eric Schmidt’s hypocrisy, its lobbying efforts and its ongoing push for total world domination. Yes, my blog doesn’t have the Google brand but still this is a form of openness that Flickr appears unwilling to provide.

There is also the huge concern (near the bottom of Hawk’s list) that photo site users have for how reliably their content is stored. If people use a free service, then of course they get what they pay for. But if they do pay for the freemium upgrade, then users have a reason to respect a certain level of reliability that seems to be disclaimed in the Terms of Service.

Perhaps I’m just atypical, i.e. this freedom stuff is more important to me than the average Internet user. I spout off on a blog and used to spout off as a newspaper reporter and columnist. In my choice of residence, I’ve made a point of never buying (and only briefly renting) any home that has CC&Rs, Mello Roos or other HOA-type restrictions — so that I can raise a flag or hang out my laundry without fear of micromanagement by the HOA nazis.

However, I think even the average American will expect a certain amount of transparency and due process if they are to participate in a privately-controlled online community. Major companies have gradually developed real processes for DMCA takedown notices, and other issues deserve a similar balanced approach that’s more fair than, say, stockbroker arbitration.

If I were a frustrated online community member, I’d take my gripes to TRUSTe and try to convince them that they should include some sort of standards for due process in removing content from registered members, and notifying them of the reasons why and a mechanism for appeal.

Net neutrality to preserve the status quo

Holman Jenkins is right. The big industry money fighting to get the FCC to impose net neutrality comes from powerful incumbents who want to preserve the status quo:

Google has been one of the most influential net-neut proponents. It recently secreted its top lobbyist, Andrew McLaughlin, into a White House job as deputy head of telecom policy. But Google also understands, as its chief Eric Schmidt recently put it, "It's very, very important that the telecom operators have enough capital to continue the build-outs."

Google's trick will be to lobby for the optimum of Internet socialism—"tiered" pricing may be OK, in which some consumers pay extra for a bigger pipe. But usage-based pricing that would give consumers a reason to think twice before clicking on a Google-sponsored ad? It would be the end of Google's business model.

And Google has allies. The greatest fear of Microsoft, Amazon, eBay and Yahoo is having to plumb their deep pockets and offer competing payments to broadband carriers to speed their bits to consumers. They much prefer spending their money to sprinkle server farms around the globe, assuring fast, reliable access for their customers in a way that no newcomer can easily replicate.

What if some startup Google sought to achieve the same goal by outsourcing its data management to the telecos, say, by mounting servers in their premises to help deliver Web applications more quickly? This would be a win-win for both parties. Data that travels within a carrier's system is cheaper to deliver than data that must be handed off between two or more carriers.

I often disagree with Jenkins, but today I think he’s right on the money. The successful dot-com incumbents are quite happy with the current Internet distribution and cost structure, and want to avoid any change that might threaten their power of incumbency.

Another point he alludes to only in passing: the dot-com winners don’t want to change an allocation of spoils between their high margin, highly scalable (network effects) business to give more to the capital-intensive operators that supply the essential last mile infrastructure they must have.

Both GOOG and T have gross margins of 60%. However, Google’s operating profit (EBIT) is 26.7%; AT&T (due to high SG&A plus depreciation) has an operating profit ratio of 18.6% and Verizon a mere 11.9%.

Latest in a series of outsourced economic policy criticism as a cost-cutting move during difficult times.

iPhone in Korea

The iPhone has been approved for sale in Korea by the local operators. KT is known to be interested, while SK and LG are not clear.

The WSJ account makes it sound like a temporary suspension of protectionist barriers to protect Samsung and LG:

[In allowing the sale of the iPhone,] The Korea Communications Commission made an exception to a rule that requires cellphones sold in the country to use domestic technology for location-based services such as GPS. The commission's action comes after months of consumer pressure. South Korea has long stood out as one of the few technically advanced countries that doesn't allow the iPhone.
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The iPhone is likely to shake up price competition for cellphones in South Korea. The market is dominated by domestic producers Samsung Electronics Co. and LG Electronics Co. Both companies typically report that average prices for phones sold in South Korea are about double the average prices they get outside the country.
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South Korea's telecom regulators have long used technical rules to protect its domestic industry, which now has some of the world's most advanced manufacturers and service providers.

In general, Korea continues to use the protectionist measures that Japan was forced to abandon decades ago when it achieved per capita GDP parity with the West.

Now that they’re #2 and #3 in the world, however, it doesn’t seem as though the Korean mobile phone vendors need any more protection. Or will the trade barriers remain in place until one of them (presumably Samsung) passes Nokia? Think of the lesson that would teach the Chinese about telecommunications trade barriers.

Aren’t free markets great?

I just saw the latest Mac ad, “Top of the Line”, which is a response to the latest “Lauren” ad of the “laptop hunters” series — the HP ad, not the original Microsoft ad.

Both ads are mostly true — perhaps a little more accurate when talking about their rivals than themselves. Windows machines are complex and prone to viruses, while Macs have limited options available, particularly under $1000. (There is the minor matter of whether or not “Lauren” is a paid actress.)

The Microsoft ads have gone a long way to revitalize the brand, but they still have a long way to catch up with Apple’s ads. Another contributors has been the ad with the precocious 5-year-old (“Kylie”) who discovers that Windows 7 is a heck of a lot better than Windows Vista.

Competition is good. We have competition in PCs, in mobile phones, in movies, videogame consoles, cable news networks. We have lots of competition in higher education and once had competition in local newspapers. Where we have competition, we get choice, efficiency, accountability. With monopolies — whether from private firms, public firms, nonprofits or government — we get none of these.

Klunky clunker plan

From the Boston Globe:

It has been nearly a month since the car-buying frenzy of the Cash for Clunkers program ended, and many area auto dealers are longing for the good old days of July and August.
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Manager Adam Silverleib said business was “pretty intense’’ as a result of the federal stimulus program, with the dealership hustling to accommodate customers and handle the piles of paperwork required for them to receive reimbursement on vouchers. “Now we’re kind of back to where we were in the spring,’’ he said.
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Nationwide, customers snatched up 700,000 new cars, most of them foreign-made, and the government ended up paying out nearly $3 billion toward the purchases. But from the start, analysts predicted that Cash for Clunkers would not boost sales for the year. September’s sales swoon seems to be making their case. Car sales are usually slow after Labor Day, but because of the recession consumers this year are especially reluctant to say yes to major purchases. To make matters worse for dealers, most are still waiting for voucher reimbursements.

“It was probably, in the end, a complete waste of taxpayer money,’’ said John Wolkonowicz, a senior auto analyst at IHS Global Insight, Lexington forecasting firm. “The dealers, who were supposed to be the primary beneficiaries, many were forced into cash flow problems because the government didn’t pay them in a timely fashion.’’

Hat tip: Economist John Lott

Prize-making innovation strategies

Today’s news includes two examples of using contests with large cash prizes as a way to spur innovation.

Netflix today held a press conference to announce the winner for the $1 million winner-take-all prize. The NYT account notes the last-minute maneuvering by runners-up hoping to dislodge the winner.

I suppose (as the NYT argues) this fits under the rubric “crowdsourcing,” even though compared to many models (like Threadless) the potential “crowd” of contributors across the world could fit in a large college classroom (or perhaps a high school football stadium).

Certainly it counts as open innovation — or, as Hank Chesbrough wrote in his pathbreaking book of the same name “Open Innovation is based on a landscape of abundant knowledge.” Later that same year, he wrote (borrowing from Bill Joy)

Not all the smart people work for us so we must find and tap into the knowledge and expertise of bright individuals outside our company.

Prizes work for a number of reasons. As Netflix did, at least until prizes become commonplace the sponsors can milk the contest for free publicity, both reducing search costs and increasing visibility of the brand. Also, the sponsor only has to pay one winner, not all the losers who (like most lottery ticket buyers) spent a lot of money and end up with nothing.

In this vein, the folks who administer prizes for space exploration — the X Prize Foundation — brag about all the free labor by losers:

In its first three years, the Northrop Grumman Lunar Lander Challenge has helped to demonstrate why NASA’s prize program – Centennial Challenges – is one of their most innovative and efficient programs. To date, only $350,000 of the initial $2,000,000 in prize money has been awarded, yet a dozen teams of spectacular engineers and innovators have already devoted more than 70,000 working hours toward building new technologies to win the competition. The Challenge has also demonstrated the connection between first generation lunar exploration, including the Apollo Lunar Modules built in the 1960s by Northrop Grumman, and the next generation vehicles being designed today.

NASA is putting up $2 million in prize purses for the Centennial Challenges, while Northrup Grumman (whose predecessors built the original Apollo lander) and a New Mexico spaceport are giving operational support.

According to stories today, Armadillo Aerospace is the first team to qualify before an Oct. 31 deadline to demonstrate a credible 21st century lunar lander. The team is led by John Carmack of id Software (best know for the Quake shoot-em-up videogame).

After the NGLLC is awarded, Armadillo and others hope to win the Google’s $20 million prize for landing a robot on the moon by 2012. Unlike others, Google will give a second prize.

Younger people forget that NASA was once an energetic, can-do government agency — before endless budget cuts and tragic deaths made it a lumbering risk-averse bureaucracy. Prizes are among the most efficient ways for the government to spur innovation, and so I have to hand it to whoever at NASA came up with this approach. As the NASA website explains:

Centennial of Flight
In December 1903, Wilbur and Orville Wright, two bicycle mechanics working with no government support, initiated the age of powered flight with their success at Kitty Hawk. NASAs Prize Program honors the spirit of the Wright Brothers and other independent inventors by acknowledging the centennial of the first powered flight in 2003. The NASA Centennial Challenges program also recognizes that the rapid and dramatic progress in aeronautics in the early years of the first century of flight was often driven by prize competitions.

So in that regard, crowdsourcing technological innovations is an example of back to the future — a decidedly 18th century idea. Suzanne Scotchmer’s faith in prizes as an incentive for innovation is being born out.

Not so evil insurance companies

As happened 15 years ago, the insurance companies are being demonized in the healthcare debate as greedy, evil bloodsucking profiteers. (As John Lott points out, the dominant health insurance company is often a not-for-profit entity like Blue Cross or Blue Shield).

People sometimes forget that insurance companies play an important role in enabling the market to self-regulate: because of their role, they have knowledge and scope and foresight that ordinary consumers do not. In many cases, the insurance company’s goals — of reducing claims — are well-aligned with those of consumers and broader public policy.

Exhibit A is Underwriters Laboratories (underwriters as in insurance underwriters) and the crucial role in played in reducing the fire hazards of appliances and other household goods.

Exhibit B would have to be the Insurance Institute for Highway Safety. They are the ones who buy cars and crash them to make recommendations about which ones are safer than others — ratings that are widely disseminated and certainly impact consumer choices.

The most fun video I’ve seen in months is the video released this week by the IIHS, showing a 2009 Chevy crashing head-on at 40 mph into a 1959 Chevy. The YouTube video is here. Commentary from IIHS is in the NYT account, which followed up with additional details about the 1959 test vehicle.

Industry will often do the right thing, given proper incentives — aided by a high emphasis on transparency and other information in the market. That’s what the government role is in a free market: not to pick winners or prop up losers, but to make sure both parties have fair and accurate information (and enforcement mechanisms to assure honesty and follow-through).

Palm undiversifies platform strategy

While multiple mobile platforms allow a firm to serve different target groups and also to hedge their bets, they are also expensive to support and defocus a company, particularly one that’s struggling.

Eleven months ago, in the face of a $400m quarterly loss, Motorola announced it was cutting from six (or seven) platforms down to three: Android, Windows Mobile, and its own proprietary platform.

Now it’s Palm’s turn to slash its platforms, from three down to one. In the earnings call that confirmed its widening loss ($161m on sales of $68m), on Thursday CEO Jon Rubinstein made clear that both Windows Mobile and (as expected) Palm OS are history:

Due to importance of webOS to our overall strategy, we've made the decision to dedicate all future develoment resources to the evolution of webOS. Which means that going forward, our roadmap will include only Palm webOS-based devices

(Moconews has the quote slightly differently: “So while there are still Centros and Treo Pros, our future engineering efforts are based on webOS.”)

That seems to suggest a US-only, consumer-only focus — and it’s a lot of eggs in the webOS basket. So far, Palm won’t say how many of the 810,000 phones sold last quarter were the Pre, but speculation puts it at the 400,000-500,000 range — a good weekend’s sales for the iPhone. The predictions of a Palm Pre blowout by investor Roger McNamee appear to have been overly optimistic.

Is Palm’s problem the product? (Not if you believe the reviews). The immature ecosystem? Its limited marketing clout to launch a new platform? The fact that it’s only on a weak carrier?

Only the latter is easily fixed, but rumor has it that the webOS phone for Verizon is not until 2010. Lord knows, Verizon desperately needs better phones, as this Wired story makes clear:

"They lack the star products that their competitors have," says Avi Greengart, research director, consumer devices for Current Analysis. "They recognize they don't have compelling devices right now but feel they can make up for it with network quality."
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"Verizon doesn't have too many options," says Michael Mace, a former executive with Palm and Apple and currently a principal at strategy and marketing consulting firm called Rubicon Consulting.

"They can't get the iPhone right now and they can't take Nokia devices and start promoting them. All they can do all they can do is push the BlackBerry as hard as they can and hope for a new Motorola phone."

The Wired story (also available on CNN) notes that Verizon is promoting a HTC Windows Mobile phone at $200, less than the $350 that Sprint and T-Mobile charge.

I realize Palm is resource constrained, but clearly beating Motorola to Verizon would make a huge difference to the bottom line. Is it that Palm can’t ship another phone in time? Or is it that the 2009 exclusive that it gave to Sprint was for the entire webOS and not just the Palm Pre?

Either way, this is not a lot of runway to turn things around.

Bypassing a disappearing media

As the traditional news media shrink, it’s no secret that “frills” — science, religion, world news – are falling by the wayside. (Even here in the Bay Area, several days a week business news doesn’t manage to have its own section.) The trend seems to be that in a few years, most of the newspapers will be running wire service copy, with original reporting only on the easy news to find and cover: fires, government press conferences and sporting events.

Science has always been an especially difficult thing for the media to cover, since journalists are typically very weak in math and science — and a lot of science majors can’t write. MIT and the Knight Foundation have been running a mid-career program for 25 years that helps science journalists strengthen their skills, but today there are few places for them to work. Soon, science journalism will consist of TechnologyReview.com, ScientificAmerican.com and PopularScience.com, with their respective dead tree glossies only a memory.

Now Duke, Stanford and Rochester have created a university science news service to publicize their science breakthroughs directly to the public, bypassing the disappearing science media. Their website is Futurity.org (catchy domain) and a total of 35 members of the Association of American Universities have joined the effort thus far.

The member university press releases are screened by Futurity and then distributed via e-mail, RSS feed, Twitter, Facebook and YouTube. The news is supposedly picked up by Yahoo and Google (among other sites), although I haven’t been able to find evidence of that so far.

From reviewing the Futurity website, the pace of articles has picked up from one a day in the spring to about two dozen a week right now. On the website, articles are formatted to look like news articles rather than the press releases that they are.

The service was in beta since March, but got a press writeup Wednesday in the Mercury News that was widely reported around the web. (Inside Higher Ed covered it on Tuesday). A few highlights of the Merc story:

“We've been really concerned. Our preference would be to have the level of coverage of science and research that we enjoyed for decades," said Lisa Lapin, assistant vice president for university communications at Stanford.

"But the major news organizations haven't had the resources to provide that independent, objective look at what we are doing. It's been declining."

In recent years, newspapers have seen eBay, Craigslist and other online sites lure away huge amounts of advertising dollars, and they have responded with significant cuts. Whereas 20 years ago nearly 150 U.S. newspapers had a science section, today fewer than 20 do, and those are often dominated by health and lifestyle coverage.

Reporters covering medicine, space and environmental issues have taken buyouts or been laid off across the nation. In December, for example, CNN eliminated its entire science and technology team. In February the Boston Globe closed its science section, an action the Mercury News and San Francisco Chronicle had taken several years earlier.

Lapin said without as many science reporters, the universities were looking for new ways to keep the public informed.

Merc reporter Paul Rogers got a reaction from Charles Petit, whose concern about direct university PR would be the absence of any skepticism of university “breakthroughs.” (Gary Schwitzer expressed similar concerns about medicine coverage). I think the problem is only slightly worse on Futurity, since science reporters often have to hype their stories to get space and few are qualified to spot the flaws in the studies anyway.

Petit edits a blog for the MIT/Knight program called Knight Science Journalism Tracker, and cited the Merc article (quoting him) in his blog Wednesday. Petit (apparently sarcastically) quotes a Duke press release that says “There are no ads, no interruptions, and no agenda.”

I would agree with Petit: of course there’s an agenda — to make universities look good. That’s what PR departments do. I’m not clear whether the effort is calculated to improve college rankings, to support tuition increases, to help researchers get industry and nonprofit grants, or merely to make the taxpaying public more positively disposed to paying for science research. But even (relatively) low cost efforts like this have some purpose.

Petit’s recommendation is that the articles should have the byline of the university PR person to make clear the source. I’m skeptical that this will happen — the goal of PR is to make PR look like news, as has been happening for decades.

One other thing that is somewhat troubling is the elitism of the group, which seems as though it would be capped at 62 (the members of the Association of American Universities).

Brown Carnegie Mellon Case Western Cornell Duke Emory Iowa State Johns Hopkins McGill Michigan State New York Stony Brook

Northwestern Penn State Princeton Rice Rutgers Stanford Tulane UC Berkeley UC Irvine U. Chicago U. Colorado Boulder U. Iowa

U. Kansas U. Michigan UNC Chapel Hill U. Pennsylvania U. Rochester USC UT Austin U. Washington Vanderbilt Wash U St. Louis Yale

AAU is intentionally elitist, an intentionally small group that has added only two new universities in the past decade. Interestingly, the nation’s two most prestigious science schools — Caltech and MIT — are not part of the initial 35 Futurity members, nor are a few leading universities like Harvard, Michigan and UCLA.

Top ranked peer review journals are elitist too — but they screen (mostly) based on the quality of the specific research, rather than the status of the researcher or his/her employer. Thus, the peer review process provides more of a meritocracy (allowing access to quality research from obscure locations like teaching schools) that fits the Mertonian ideals of open science. The journals (and their professional societies) are also issuing their own press releases, although not with a dedicated Twitter® feed (let alone a TwitterFeed).

Google Scholar is even more meritocratic, since it measures the impact of a specific article rather than using the publication venue quality as a proxy for article quality. But then using that as a way to track science would go back to the cacophony of the Internet, rather than the orderly release of selected PR favored by the elite university news managers.

Comcast: Charging more for less

Monopolies are bad for consumers and society (and of course death to competition). To my mind, telecom monopolies are the worst, particularly now that they’re fighting the threats to their core business.

Our local cable TV provider, Comcast, is pushing a double whammy to try to raise revenue, and hiding behind misleading (and most likely untrue) claims as to why it needs to charge customers more in a down economy.

First, without notice last month it dropped 11 channels (including TV Land and SyFy) from its cheapest service — “Limited basic”. When I called to ask, the switch was attributed to the digital switchover. (It dropped a 12th channel last year). As best I can tell, it dropped the channels not because it needs to drop them, but because now it has the technology to more finely control channel choices — and wants to force consumers off the basic service to more expensive plans.

The Mercury-News this morning reported that Comcast plans to raise rates 1.5-9% on the three least expensive services — priced at $15, $46, and $60. Its honesty here is even more suspect. (Ironically, the Merc and its sister papers won a full-page of “tombstone” legal notices by Comcast announcing the price hikes in 9 separate jurisdictions.)

According to the Merc,

Comcast attributed the price hike to rising costs, including an increase in the cost of TV programming, and investments in new technology.

"These investments make it possible to deliver continued innovations such as more high-definition (HD) networks and video-on-demand (VOD), converged services, multi-platform content and new services that consumers demand," the company said in a statement.

The problem with this claim is that none of these new services are going to the basic cable customers who are paying the 9% rate increase. It’s a smokescreen for using its monopoly power to raise profits — presumably because it can’t extract the money from its most expensive plans.

The Merc continued

Mindy Spat, communications director of The Utility Reform Network, a San Francisco-based consumer advocacy organization, said Comcast appears to be taking advantage of its lower-end customers.

She noted that many Bay Area consumers who were unable to tune in the new digital broadcast signals signed up for limited basic cable to continue to get the local channels after the old analog ones were switched off earlier this year. With the increases, Comcast also appears to be trying to push customers into higher-tier packages, she charged.

"If consumers had choices, they certainly would not choose Comcast," Spat said. "But they don't, and Comcast is taking advantage of the fact."

TURN is an activist group to the left of Consumers Union and to the right of ACORN. This may be the first time in my life I’ve agreed with TURN, perhaps suggesting the degree of the company’s naked assertion of monopoly power.

Great healthcare blog

Prof. Scott Harrington of Wharton is an expert on healthcare economics. I learned of him from his detailed op-ed in Monday’s WSJ, and then used that to find his website and blog.

Harrington’s blog provides the best and most detailed economic analysis I’ve found for the current healthcare debate. There have also been excellent heathcare posts at EconLog (a joint blog of several economists). (Econlog, Cato and Heritage are good places to track economic issues more broadly.)

Harrington’s blog pointed me to a dynamic column in Forbes about last week’s latest presidential salvo over transforming the healthcare system. Here are excerpts from the column by David Gratzer, MD:

Before a tense and packed House, the President told Congress:

"Millions of Americans are just a pink slip away from losing their health insurance, and one serious illness away from losing all their savings... And in spite of all this, our medical bills are growing at over twice the rate of inflation..."

That's President Clinton, sixteen years ago almost to the day, in a speech about a complex health-care plan built on government expansion, with billions in hidden costs. Last night, a President--who was only 32 then--is now in the White House, out to prove that nothing has changed in the minds of the Democratic leadership since the Clinton debacle.

President Clinton's health-care legislation didn't fail in 1994 because people didn't want better health care. The White House plan failed because it was too bureaucratic, too complicated, and too expensive.
…
The President (yes, Obama this time) told Congress that "our collective failure to meet this challenge--year after year, decade after decade--has led us to a breaking point." Has it really? When President Clinton conjured similar fears about pink slips and millions losing coverage to Congress in 1993, 15.3% of Americans were uninsured. In 2007, the percentage of Americans without insurance was...15.3%. A solution to this problem is needed, but the fact that it hasn't grown worse is a sign that Congress has time to think, and little reason to panic.

Since President Clinton spoke of health inflation in 1993, health costs continued to rise faster than wages, but President Obama refuses to acknowledge years later that the U.S. health inflation rate is almost identical to rates in government-run systems. Rising costs must be attacked, yes, but if rationed health management can't stop health inflation in Britain or Ireland, will a rush to President Obama's version of HillaryCare do any better?

The entire column (and both blogs) are strongly recommended.

Latest in a series of outsourced economic policy criticism as a cost-cutting move during difficult times.

Monetizing Twitter

Michael Arrington of TechCrunch remarks on Twitter’s dilemma for starting its revenue model. To reword his points:

• Many firms are acquired pre-revenue and thus their valuation is made without proof of its revenue model.
• Before a startup has a revenue model, its revenues are anyone’s guess.
• Once a firm has revenues, the range of guesses will be much narrower — and often lower than the most optimistic predictions.

Of course, I’ve long been skeptical of Web 2.0 companies and their ability to create viable business models.

Cross-posted to Engineering Entrepreneurship.

Dick Tracy phone in London before NYC

Some 60 years after it was imagined by Chester Gould, and more than six months after the product was pre-announced at CES, LG recently released its “GD910” watch phone. Dick Tracy never heard of 3G networks or touch-screen LCDs, but he did sport the world’s first (albeit fictional) wrist-mounted videophone.

Priced at £500, the first 50 phones that went on sale in London sold out in 10 minutes, although more are coming. The phone is also available in Dubai but not the US.

The FT reviewer raved about the phone in this morning’s “How to Spend It” conspicuous consumption supplement. However CNET UK was more restrained.

However, FT reviewer Jonathan Margolis notes the main value delivered by the phone is status:

Will you find it useful? Absolutely not — unless it’s to impress people in offices, bars, airport lounges and everywhere else on the planet. … It’s the Bugatti Veyron of gadgetry: pointless, impractical, sublimely silly but impossibly desirable. Could it be a rebirth for the most unwanted technology in gadget history, the video phone call? Of course not, don’t be silly.

If it’s available for sale without a required data plan, then at $834 actually quite a bit cheaper than the iPhone. Also more exclusive — a few hundred vs. 30 million — even if it’s not nearly as useful.

First shoe on Motorola's Android strategy

Motorola today announced their first Android phone, to be available in time for Christmas on the Android T-Mobile network. As a piece of hardware, the Motorola Cliq is a touchscreen with slide-out keyboard. This is the same phone as the previous leaked Motorola “Morrison” model.

Motorola’s main claim to fame (other than the brand and distribution) is Motoblur, a new skin that integrates social networks, contact management and email similar to Synergy under Palm webOS.

There are two curious things about the announcement. The first is starting with T-Mobile, the smallest and least important of the major US operators, and the one that has all the installed based of Android phones. Aren’t there Sprint, Verizon or AT&T users that also want Android? (Supposedly the Motorola Sholes will be available on Android later this year).

The second curious thing is Motoblur, which is not quite a GUI but more than an application. Obviously it’s an attempt to create differentiation within Android (and perhaps fix some of its usability problems). Is it also an attempt to create switching costs between Motorola and other Android handset vendors? If not, then when a user drops his Cliq in the pool he’s just as likely to buy an HTC or Samsung as a Motorola.

If Motoblur is about switching costs, then Motorola will have to commit to offering a family of Motoblur phones over the next few years -- and that Motorola hopes that such phones will be a big part of its business.

This sort of semi-platform strategy strikes me as neither fish nor fowl. Motorola doesn’t have its own smartphone platform, but it wants some of the benefits of doing so. Sony Ericsson and Nokia tried this with custom GUIs on Symbian and eventually gave up, although the cost of maintaining a full GUI would have to be more than maintaining what appears to be a grouping of applications (or an integrated app suite) on Motoblur.

Right and wrong

Steve Jobs announced the new line of Apple iPods today, and my predictions were both right and wrong. (I was in class and then meetings and so only now have been able to catch up with the video broadcast).

Of course, the big news was that Steve Jobs is not dead yet — as he said “I’m vertical” — publicly admitting to the liver transplant from a donor who died in a car accident. He did look haggard, 10 years older than his last public appearance, and was on stage less than 15 minutes.

Before he stepped away from the pdoium, he made a few announcements:

• iPhone: 30 million sold
• iPhone App Store: 75,000 apps, 1.8 billion app downloads (not including updates).
• iTunes 23 countries, 8.5 billion songs, 100 million customers, #1 retailer in the world
• iTunes LP: “Some of us here are old enough that we actually bought LPs. It was great, because you not only got the music but you got great photography, you got liner notes, you got essays. Who could forget some of these classic albums?”

Of my product predictions, the major one was clearly wrong: I’m not buying the new iPod Touch this week because (despite my prediction) there is no new iPod Touch. Rumor has it that a product is planned but has been delayed due to component problems.

One minor prediction was more on target: Users hate the proprietary headphones on the iPod Shuffle so much that there is now an adaptor to allow third party headphones. It sounds like the main plan is to license rights to the proprietary controls to headphone makers (presumably royalty bearing, raising consumer prices), so it’s not clear this really solves the problem. As they say, the devil is in the details.

Four deficits of the Apocalypse

From the WSJ:

David Walker sounds like a modern-day Paul Revere as he warns about the country's perilous future. "We suffer from a fiscal cancer … Our off balance sheet obligations associated with Social Security and Medicare put us in a $56 trillion financial hole—and that's before the recession was officially declared last year. America now owes more than Americans are worth—and the gap is growing!"
…
He became president and CEO of the Peter G. Peterson Foundation, a group seeking to educate the public and policy makers on the need for fiscal prudence. … Last year, it released a documentary "I.O.U.S.A.," … [I]n its diagnosis of the problem the film scores a bull's-eye. Among the fiscal hawks featured in the film is Rep. Ron Paul, who memorably tells Alan Greenspan that if doctors had the same success rate in meeting his goals as the Fed has had, patients would be dead all over America.

Mr. Walker's own speeches are vivid and clear. "We have four deficits: a budget deficit, a savings deficit, a value-of-the-dollar deficit and a leadership deficit," he tells one group. "We are treating the symptoms of those deficits, but not the disease."

Mr. Walker identifies the disease as having a basic cause: "Washington is totally out of touch and out of control," he sighs. "There is political courage there, but there is far more political careerism and people dodging real solutions." He identifies entrenched incumbency as a real obstacle to change. "Members of Congress ensure they have gerrymandered seats where they pick the voters rather than the voters picking them and then they pass out money to special interests who then make sure they have so much money that no one can easily challenge them," he laments.
…
As I prepare to go, Mr. Walker returns to the theme of economic education. Poor schools often produce young people with few tools to help them realize the extent of the fiscal trap their generation is going to fall into.

One way the Peterson Foundation wants to change that is to bring big numbers down to earth so people can comprehend them. "Our $56 trillion in unfunded obligations amount to $483,000 per household. That's 10 times the median household income—so it's as if everyone had a second or third mortgage on a house equal to 10 times their income but no house they can lay claim to."

So instead of conquest, war, famine and death we have “a budget deficit, a savings deficit, a value-of-the-dollar deficit and a leadership deficit” — a different form of judgement day.

Latest in a series of outsourced economic policy criticism as a cost-cutting move during difficult times.

Never too big to fail

From a Financial Times editorial Tuesday arguing for policy reforms in the U.K. financial sector:

Second, banks must also be made safe-to-fail. … "Living wills” — pre-arranged plans for taking apart banks safely should they become insolvent — should be drawn up.

The goal should not be to restrict business, to cap the size of companies or to vindictively cut profit margins. Rather, it should be to prevent growth in the financial sector if it occurs in ways that rely on implicit public guarantees. Rewards should accrue only to people who take risk on their own account. The UK government must take action to create a genuinely private financial system.

Normally the FT’s editorials on government economic policy read like a manifesto for New Labour (pre-Gordon Brown), so it’s nice to see the newspaper discover its Libertarian side. Perhaps these ideas will catch on on this side of the “pond.”

Latest posting as part of an ongoing cost reduction via outsourced economic criticism.

Welcome back, RCR

I got started on cellphone research back in 1996, when my advisor said that if I wanted to study standards, I should study cellphones. Since then I’ve done a fair amount of research indirectly or directly related to the wireless industry, mostly around mobile handset platforms and of course the CDMA wars.

I quickly discovered three invaluable publications for follow the industry: RCR News and Wireless Week in the US, and Mobile Communications International for Europe and the GSM world more broadly. I subscribed to all three, and I still have paper copies of these precious trade journals in my files from my research a decade ago.

Alas, publishing a magazine (like newspapers) is not as financially viable as it once was. The paper and online version of RCR (now RCR Wireless News) died on March 3. It had almost 100,000 readers a month.

Fortunately, RCR has been sold and the new owners have brought back two RCR veterans to act as editors. They plan to relaunch it as an online-only publication starting today.

I look forward to reading the new RCR as an invaluable resource for mobile phone research.

iPhone beats Android 250:1

Matt Hall on his Larva Labs blog laments lousy sales on Android Market, both for his apps and those by other companies. For one application, the iPhone App Store is outselling Android Market 250:1, while (as a commenter notes) the iPhone installed base advantage is only 15:1.

The conclusions are based on AdMob data, which notes that iPhone/iPodTouch owners are 2x as likely to buy paid apps as Android users. (That would only suggest a 30x discrepancy between the two platforms).

Hall laments several aspects of the Android Market shopping experience. It’s not clear whether these decisions are just implementation errors that are easily fixed, or systematic choices, perhaps (as Hall suggests) reflecting a bias towards free apps.

The latter point I don‘t quite follow: Google is making money off of Android (through increased use of its ad-supported online services), so what’s wrong with the software developers making money? Google has already so commoditized mobile phone software — and Apple has established a standard $1 price point for most paid apps — that smartphone app developers already face a considerable challenge in monetizing their creative efforts. Why force a zero price rather than a near-zero price?