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Forbes reports that Texas has three of the best cities to work in the nation.  Dallas, Houston and Austin are among the top cities to earn a living while also keeping living costs down.   Being a native Texan for many years it has never been lost on me how inexpensive Dallas is compared to cities like Seattle, New York and L.A.  The cost of living in those cites has been a game changer for me at least twice during my career. 

There are some interesting things to think about and perspectives to ponder.

• If I were a policymaker in a competing state I would probably want to take a close look at my home state and how it compares to to Texas.  I would be interested in finding ways to attract more employers and job hunters.

 

• Which came first? The chicken or the egg?  Did these employers setup shop here because of a good stock of skilled talent or whas the initial move a cost-benefit one where taxes and state provided incentives were offered?

 

• Forbes did not publish (or at least I did not see it) their data tables but I would be interested to see how each city in their list ranked in terms of transportation options.

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The Times reports today that France has obtained a list of 3,000 account holders at Swiss banks.  This is only days after France and Switzerland reached an agreement to exchange information on French citizens who hold Swiss bank accounts. 

Just last week the U.S. Department of Justice and the I.R.S reached a deal with Switzerland to get the names of 4,450 U.S. account holders who may be suspect of hiding income and assets from Uncle Sam.

And the week before that Britain and Liechtenstein inked a new tax cooperation agreement to allow British account holders the opportunity to disclose their hidden accounts.  British citizens must disclose their accounts to get some leniency for tax evasion and those who do not will be forced to move their money out of Liechtenstein and face the full consequences – back taxes, penalties and possible legal action.

These three events are not coincidental and clearly indicate a growing trend among nations to shore up badly needed tax revenues.  The question is what will happen when the global economy picks up again.  There are hundreds of millions, if not billions, of dollars at stake for countries like the United States, Britain, France, Germany and Italy.

Once the tax coffers begin to rely on an increased taxpayer participation rate it would be hard to notice any dramatic reduction.  But that is where I think we could see an eventual pullback to the traditional tax evasion scheme.  It is always that slow and gradual change that proves to be the hardest to see.  A slow but sustained effort to chip away at these new rules and agreements could be just what the banks ordered.

The motivations behind hiding assets from tax authorities can vary from the outright criminal to well justified.  For those parties that use offshore havens to sustain their criminal activities I share no sentiment with you.  Those activities include money laundering, tax evasion and fraud.

In the case of tax evasion I take additional exception, as I liken it to you living under my roof and refusing to help pay the rent.    Regardless of the extent to which one may agree or disagree with the tax code, the fact should not be lost that citizenship has its privileges AND responsibilities.  One of those responsibilities being that of helping to pay for the government that protects you, defends your way of life and makes it possible for you to create any wealth in the first place.  Grievances with tax rules should be funneled through the appropriate channels – call your senator not your offshore banker. 

If you are one of those 4,450 lucky winners on that UBS list then you might want to call your local I.R.S agent too, as the Sep. 23 deadline for disclosing those secret accounts is getting close.

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The Federal Reserve Bank of San Francisco has posted a “Fed Chairman Game” on their website.  It lets you set monetary policy for 16 quarters.

The game starts you off with the fed funds rate set at 4.50%, unemployment at 4.75% and inflation at 2.14%.  I played a few times and got hit with events like energy price spikes and stimulus programs.  I lost the first two tries but on the third go-round I decided to keep the fed funds rate around 3% ahead of inflation while also keeping an eye on th unemployment rate.  I am happy to say that I got to keep my job at the end of the game.

Give it a go and see how you do.  Click here to access the game.

Fed Chairmain Game

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Technology Review reports today about a new energy aware internet routing process.  Some folks at MIT, Carnegie Mellon and Akamai looked into energy price fluctuations and data center loads across the country to see if there could be any cost savings to rerouting data from high cost data centers to lower cost ones.  Their results have shown that large Internet companies like Google, Microsoft and Amazon could save up to 40% on their electricity bills – millions of dollars in savings.

They don’t mention any details as to how the ’smart routing algorithim’ works but my guess is that they are using decision tree learning with a heuristic algorithm like ID3 or C4.5.  Their model would probably need some way to factor in arbitrage opportunities within the electricity markets on a real time basis while simultaneously tracking data-center loads.  One of the problems they mention that holds this technology back is that most data-centers today lack the ability to throttle power usage with loads – in other words, the servers need to be able to consume a fraction of their full load power when idle.

What are some potential implications for the future?

New market opportunities for those firms that can offer the hardware solutions to make servers ‘energy elastic’.

This could be a boon for the software cloud, as network computing could take advantage of these routing systems to find the least costly resource.  Remember back in college when you had to use one of the computer labs?  It was basically a room full of computer stations made available for everything from creating presentations to developing software applications.  Now imagine if each of the computers in that room costs a different amount to use.  The ideal thing to do would be to walk around the room to find the cheapest one – of course making sure that it has the needed capabilities.  I can imagine a situation where cloud software would locate the least costly computing resource for a given task anywhere around the country or world just as I would walk around that computer lab searching for the cheapest available station.

I’m speculating here but could this lead to a normalization of electricity prices across the country as data centers compete for locating and using lower cost centers?  I was only able to find one 2005 article mentioning that data centers consumer about 1.5% of all U.S. electricity.  I think it would be a fair guess that today’s number might be closer to 2% or higher.  If so then how would that impact states that currently have lower electricity rates?  Lots of potential externalities here to contemplate.

The article also mentions that energy companies could negotiate with large internet firms in advance of expected peak loads to mitigate potential outages or problems.  Energy companies could essentially ’shape’ their loads to prevent failures or outages.

A problem I see with this technology is that if it is used extensively in a decentralized manner then most of the cost savings could evaporate quickly.  I know what you are thinking here, “but that is to be expected.  Its simple supply and demand here – increase the use of product x over product y until the marginal cost reaches marginal benefit”. 

Here is my problem:
If every party acted independently and outside of a central market or clearinghouse then the anticipated savings would be lost to transactions costs.  These transactions costs being those associated with moving data from one place to another and doing so with incomplete information. Take for example if an underutilized data center pops up on the radar of ten or so Internet companies.  They each, independently and unbeknownst to the others, make the move to the new data center.  This surge in load may lead to an increase in costs and therefore mute any cost savings.  There could even be a potential for some Internet companies to have to move yet again - further increasing the cost of the move.

I think that a centralized market or clearinghouse for this type of transaction would facilitate this form of intelligent routing.  Of course, I am no expert in data center economics or how or if some of these problems or opportunities are realistic.  But with my limited knowledge they would be questions I would ask.

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I’ve been tossing a notion around for some time now and it is something that comes up in the public discussion every now and then.  Up until this point I had really limited it to the food industry but after reading an article about small local banks experiencing very healthy increases in deposit customers I realized that there must be something more profound going on.

Big business, big risks
For decades we have talked about the impact globalization has had on society, political affairs and economics around the globe.  The range of opinions about this phenomenon are as varied and numbered as the impacts.  Often Globalization gets tied to outsourcing and, depending on whether you are a savvy business person or an ambitious politician, it signifies the creation of competitive advantage or the loss of many jobs. 

It has also found itself as the centerpiece of a merger or acquisition strategy for a large business that needs to ‘compete on a global scale’.  Globalization also receives credit, rightfully so, for the creation of a new more advanced global economy where integration and a shared sense of fate are its underpinning.  But there is something else that Globalization has done which may bring with it a new set of risks.

Only as strong as the weakest link
Globalization has, at least in the public discussion, subordinated the importance of the local economy and small business to macroeconomic initiatives and large enterprises.  I have no intention of meaning this as a blanket statement but only to describe the extent to which we have operationalized globalization into our social, political and economic models.  The risk of glazing over the details and focusing on the forest is that we are unable to see if the trees are rotting from within.

Take our current situation, where one large institution after another has failed, gone under or is in the process of going under.  We can also ponder over the real estate crisis and whether California, Florida and Nevada where signs of a distressed forest.  The inherent risk of this flawed perspective is that risk itself is magnified.  Whereas mergers and consolidations were viewed as positives for the customer and business the unintended consequence and therefore risk to society was that a failure would sting that much more. 

All economics is local
I think ‘Tip’ O’Neill was onto something when he said that “all politics is local”.  That statement could easily be tweaked to say the same for economics and evolution – I will get back to the evolution part later.  There are some products and services that just have no business being brought in from anywhere other than the local community. 

Take for example food from the grocery store.  With the exception of those foods that require specific geographic characteristics most fresh foods could be produced within close proximity to its customer base.  There are several advantages to the customer, business and economy from maintaining a close relationship between the food we eat and our community.  This form of food patriotism is among other ways to achieve better sustainability. 

Another trend that is becoming prevalent in today’s economic climate and ties back to the local economy is community banking.  Local banks are benefiting directly from the lack of confidence in large banking institutions.  In fact many are seeing double digit increases in new deposit accounts as a result.  Local banks, which tend to have more established and personal relationships with their customers, have the advantage of knowing their customer and what their needs are.  The risk of lending can be further reduced because the banker has a more intimate knowledge of the business, its risks and, most importantly, the principal asking for the money. 

Survival of the fittest
This is an aside but I mentioned evolution earlier and wanted to take this opportunity to throw organized labor under the bus.  The fundamental idea behind organized labor has always irked me, as it seems to fly in the face of evolution.  There are some things in life that we simply cannot control and must either adapt to or die from it.  Organized labor, for the most part, has fought progress only to stave off the inevitable.  Not only does this intransigence make it difficult for a business to operate competitively but it poses a significant risk to a community when this mentality pervades its labor force.

Some communities in Michigan are looking how to offset the effect of job lossess as a result of failing auto companies.  In deed some of these small cities face serious problems as their largest employer is on the brink of failure.  Their precarious situation presents an opportunity for adaptation to the reality of the marketplace for labor.  While some communities are working to bring other major employers to the area they will face a major obstacle.  Until the business community sees a fundamental capitulation in the trend for labor to organize these communities will face an uphill battle – let me rephrase that, they will have to scale a near vertical mountain on a rainy day with only a tattered old 1/4 inch nylon rope.  Good luck, I am sure that you all can organize into a tall human chain with the prospect of getting at least one of you to the top, but then you will spend an eternity arguing why YOU should not be the one on the bottom.

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I am sure others have noticed by now that the discussion about bailing out our Big 3 auto firms reliably ends up with GM being the focus of attention.  I think there is something to be said about this.

It has always been my opinion that GM is the embodiment of poor management, lack of vision and a stubborn proclivity to rely on excuses in the face of adversity.  The public apprehension towards bailing out the Big 3 seems to be a manifestation of the same sentiment.

What I find unfortunate is that Ford, while equally responsible for its current situation, has been more responsive to the realities of the marketplace and yet seems to be getting dragged down with GM’s bad reputation.  Ford has brought in a new CEO, it has been in the process of painful but necessary steps to restructure and it has quickly begun to adapt.  If any of these firms should be bailed out it should be Ford.  GM should be forced to restructure under Chapter 11.

What many do not seem to understand is that allowing GM to fail could be a blessing in disguise.  With the anticipated growth of the alternative energy industry (wind, solar, etc…) we will need workers to man these jobs.  Where will they come from???  Look at the unemployment rate as it stands in the midst of a considerable economic  downturn – 6.5%.

Let’s look past the trees for a moment and see the forest.  The next decade will see baby boomers leaving the job market en masse – creating an industry that caters to them in the process.  Energy will be an ever increasingly important industry that will require imagination, talent and huge amounts of capital.  There is opportunity on the horizon, but we need to recognize it and prepare ourselves for it.  Americans have always shown their ability to take a bad situation and thrive on it.  Let’s keep that tradition alive.

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Just pondering here… my ability to articulate these thoughts in a clear and comprehensive way are lacking right now but bear with me – these are interesting things to consider..

Let’s talk about the current financial situation going on globally – particularly this ‘credit crisis’.  Perhaps I am just too simple to understand the ‘complexities’ of the global financial markets and how credit is a fundamental component of it.  But perhaps I do.  Perhaps I do understand that credit is the grease that keeps the gears of our economy moving smoothly.  That credit is THE way in which risk is spread out among all of the market participants.  Perhaps it is the large banks and the Federal Reserve and our celebrity politicians who do not understand these complexities.  Robert Reich, a former Secretary of Labor, is on to something in one of his recent posts where he asks the question ‘maybe too big to fail is just too big’.

What I find interesting even now is how banks continue to make poor decisions that only seem to aggravate the current situation.  Only now are banks beginning to mobilize to keep families in their homes instead of putting them on the street.  Where was the foresight? Now of course we will get excuses about how much red tape must be navigated in order to take those steps, but I consider them just that – excuses.  Action requires only one real ingredient – a desire to make it so.

This ‘credit crisis’ is also a function of banks choosing to hide under a rock instead of taking a leadership role and managing the situation.  They are choosing to hoard their cash and refusing to lend it out and keep those ‘gears’ turning.  This morning I read another article showing banks’ counterproductive efforts, this time dealing with public transportation.  Banks are using technical legal language in their financial dealings with mass transit companies to require lump sum repayments – hundreds of millions of dollars – within weeks!

It feels like we are all stuck in a canoe paddling furiously against a current that is taking us directly towards a deadly waterfall.  The strongest and most capable paddlers are the banks, but unfortunately they are jumping ship en masse and forcing us to work ever harder.

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Stiglitz offers a compelling account of his experiences with the IMF, the World Bank, and the U.S. Treasury. By combining his experiences with his economics background, he gives a vivid account of how globalization has been mired with failure after failure and economies in transition have suffered widely as a result of poor global economic policy. His first hand accounts are illustrated by evidence of how international institutions of global integration, like the IMF, the World Bank, and the WTO have pursued narrow interests at the expense of those who needed the most help. (more…)

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I cannot help but notice the unending stream of repetitive news reports commenting about how housing prices are falling and sales are declining.  Every time I read one of these reports I find myself asking, “Who writes these things?  Are they serious? (more…)

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I seem to be the odd one out on this one but I’m sticking to my guns… interest rates can only go up.  This week should be a defining moment in this subprime mess… just as soon as the Fed makes its decision.

I’m expecting the rates to be held while the market is doing otherwise.  Have you ever seen a spoiled child react when they get that rare rejection?  We might be seeing a market ‘fit’ sooner that later.

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