Intrade liked McCain's VP pick ...

Looks like Intrade Prediction Market has McCain up 2.5 points after his pick. Granted he still trails Obama by around 18%.

McCain picks Sarah Palin; what the ...?

Sometimes I think McCain lets his advisers get the better of him; and in the case of choosing his running mate, this was clearly the case.

He decided to overlook much more experienced candidates like Tom Ridge, Mitt Romney, and Tim Pawlenty (my personal favorite); and choose a relatively inexperienced far right governor. It makes me wonder, does McCain not realize how old he is?

Does he really think Palin could take over on day one? It's like a female Dan Quayle.

Worse yet, he somehow thinks that by picking a woman he'll automatically get the Hillary vote ... apparently he doesn't think that female Hillary supporters will mind that she's been a life-long NRA member, that is anti-choice, and pro-drilling. It really makes me question just how smart McCain is.

One of my favorite lines from Obama's speech

"Washington's been talking about our oil addiction for the last 30 years, and John McCain has been there for 26 of them."

I guess he forgot that Joe Biden (his running mate) has been in Washington for 10 years longer than McCain. During Biden's 36 years, the Democrats controlled Congress for 18 years. They even controlled the Presidency during the last oil crisis; and the first two years of Bill Clinton's Presidency.

Back of Envelope Math

I keep hearing Obama talk about creating 5 million new green jobs; and was curious about how he planned to do this. I Googled it and found this article.

He plans to spend $150 Billion dollars over 10 years to create 5 million green jobs.

Doing the math on this, shows he'll spend about $3,000 a year over 10 years per new job.

I'm wondering what kind of jobs he plans to create for $3,000 a year; maybe he plans to reduce the minimum wage to $1.25/hr.

Also, are these jobs 'net new' jobs, or will they simply be jobs that replace those jobs that are lost due to higher energy costs, making US products less competitive with other countries who are producing products using cheaper energy?

Case in point: Butterball just laid off 250 people, as they put it: "feed costs are soaring because ethanol production is driving up the price of corn". I'm sure someone has a new job at an ethanol plant, but not sure that's doing much good for these folks; so much for helping out those blue collar workers at Butterball.

“Lies, damned lies, and statistics” - Part 1

I just heard Hillary Clinton utter it again last night, “47 million people without health insurance”. All too often statistics get thrown around, and at some point take on a life of their own; this would be one of those cases. As Disraeli lamented about statistics, all too often they are misused to bolster inaccurate arguments.

This blog posting will analyze the ‘47 million uninsured’ number, not for the sake of discussing the health care issues confronting the US, rather to provide an approach to analyzing statistics presented in articles.

Step 1)

The most important thing to do, is to understand what the specific criterion for any statistic is; in this case, what does it take to be counted as one of the 47 Million people who ‘don’t have health care insurance’?

To qualify as uninsured, a survey respondent must have claimed that in the previous year they did not have any insurance coverage. There is no reduction made for people who qualified for programs but did not enroll, estimated in 2004 to be 14 million. No reductions are made for illegal immigrants who would not technically qualify for any universal program, estimated to be 10 million. Lastly, no reductions or 'qualifications' are made to reflect whether the individual 'could have' afforded health care insurance, it's estimated that 18 million of the 47 million had household incomes of over $50K/year.

So, is the real problem the 5 million who don’t fall into one of these three buckets? Note, there is likely little overlap between the three groups outlined, as $50K disqualifies you from most government programs, and more illegals don't make over $50K.

Step 2)

Always be weary of absolute numbers, more times than not, they are too large to comprehend, and are often used because they don’t give the reader a perspective of relevance. As such, the first thing you should do when presented with an absolute number is to convert it into a percent.

In this case:

• The % of the US population without health care insurance, 47M out of 301M = 15.6%

Sometimes inverting the number helps also:

• The % of US population with health care insurance, 100% - 15.6% = 84.4%

Now, re-evaluate both statements:

A. 47,000,000 US citizens do not have health care insurance
B. 84.4% of US citizens have health care insurance

Does one seem more dramatic than the other? When was the last time you were concerned about something that ‘only’ 84.4% of people had? Why do people use the 47,000,000 statistic instead of the seemingly smaller 15.6%?

Step 3)

Reevaluate the policy prescriptions in light of the new ‘re-framed’ statistics.

Ask yourself:

• Why do advocates of a certain position keep using numbers like ‘47 million uninsured’ to make their point, even though the number is neither an accurate representation of the current situation; given that the majority of uninsured could either afford to buy it, or be insured through state plans?
• Why aren't people focused on trying to get more people to a) enroll in programs they already qualify for or b) to prioritize spending in health care above other expenditures? It seems that the 47 Million masks three (or more) problems.

In Summary:

This post is not disputing the ‘47 million’ number, rather it’s simply pointing out that readers need to be willing to dig deeper into statistics that are presented to them to understand what they really mean.

When thinking about statistics, a better adage than Disraeli’s may be … “Statistics don’t lie, people do”
_____________

UPDATE

• Beyond Those Health Care Numbers
• Paul Krugman, Your Doctor Is Calling
• Beyond Those Health Care Numbers: US Looks Good
• Crisis of the Uninsured 2008

My take …

So where do I stand? After a lot of reading on this topic, I’m most shocked by how little is actually known about this problem. Compared to things like unemployment numbers, where you can track details like short-term unemployed versus long-term unemployed, changes in pay and benefits as people take new jobs; voluntary vs. involuntary changes; health care statistics very rudimentary.

Why does this matter? Without the data, it’s difficult to really know what the problem is. If 18 million of the 47 million are without health care insurance could afford some sort of health care; then passing a law that requires you to buy health care might seem like a good idea ... except, almost every state 'requires' people to get auto-insurance, yet in CA it's estimated that over 25% of drivers don't carry auto insurance; I'm not sure why a similar law requiring health care would have any different results ... in fact, the % of people without health insurance is already less than 25% without auto insurance, even though auto insurance is legally required.

Similarly, if 14 million people are eligible for health care plans (Medicare, Medicaid or SCHIP) today, but don’t enroll, making it a law won’t seem to address this problem either, unless you think these people will be motivated by a law more than their health. Generally, it's a lack of knowledge about the programs, that causes the low enrollment; perhaps funds would be better spent on education than enforcement.

There are undoubtedly millions of Americans who go without health care, that don’t qualify for government plans, and can’t afford health care insurance. It seems that these uninsured people are so, because of high health care costs; meaning that any solution would need to address these costs. Passing a law that requires someone to buy health care, doesn’t address this problem, especially if they can’t afford it in the first place. Worst of all, we don’t exactly know how many people are in this situation.

Without a more accurate holistic picture of the situation based on accurate data, you can’t begin to understand the problem, let alone start proposing solutions.

Do secret ballots really matter?

In which of the following situations would you be more inclined to vote your true intentions and be free of intimidation?

a) Your vote will be shared openly, everyone will know how you voted
b) Your vote will be kept secret, no one but you will know how you voted

It would seem impossible for someone to intimidate you, if they didn’t know how you voted; whereas, if your vote was made public, you could be intimidated.

Despite this seemingly obvious truism, labor unions are claiming the opposite; that secret ballots actually enable companies to intimidate employees (who are voting on unionizing). How could companies possibly intimidate someone, if they don’t know how the person voted? This completely defies logic.

The fact that people vote differently on card checks (which are public) and secret ballots, only validates the point that people feel pressured to alter their vote when the vote is open to the public. The bottom line is this: even if you didn’t need to shield voters; there is no harm in doing so, people will only be more honest with their votes, not less.

Why do I bring this up? Two reasons: First, this runs completely counter to the direction unions should be going if they want to grow membership; as I discussed in a previous post, unions stand a much better chance of growing by aligning the value of the employee and the employer. Trying to change laws to allow more intimidation is a gigantic step backwards. Secondly, Senator Barack Obama voted to support the Employee Free Choice Act; which should more aptly be named the “Allow Union Intimidation Act”.

H-1B Visas Hurt US Tech Industry Competitiveness in the Long Run

How many times have you heard tech industry luminaries like Bill Gates or Intel’s Craig Barrett lament about the shortage of engineers in the US and the need for more H-1B visas?

The truth is that these guys are really complaining about something else … the lack of cheap engineering talent. There is ample evidence that we don’t have a shortage of engineering in the US.

If the US does have a shortage of engineers, the best way to get more people into engineering is to increase their wages; not to decrease them, which is the net effect of allowing more H-1B visas (in their current form).

Let’s be real, could you see Bill Gates standing up in front of Congress to testify that engineers cost too much, and the best way to drive down wages would be to increase the number of H-1B visas?

Long-term danger

There are two major problems with continually increasing H-1B visas: the temporary nature of H-1B visas causes a brain drain, and the decrease in engineering wages leads to a decrease in enrollment in engineering programs.

First, since H-1B visas are temporary, foreign engineers receive great training for a period of time, after which they take their acquired knowledge capital with them, and return to their home country; they aren’t given the option of staying and keeping that knowledge in the US.

Second, and more importantly, these temporary workers drive down the wages of permanent workers; the biggest impact of which is to decrease the number of people choosing to study engineering. College students aren’t dumb (especially those who could complete an engineering program), they do the math, and if the salary isn’t there, they’ll pick another more lucrative field (like law or finance).

The best way to get more people into engineering is to increase the wages.

The measurement problem

One of the biggest problems with trying to increase wages for engineers is that companies do a poor job of determining the quality and output of engineers. Companies can’t afford to pay all engineers more and remain globally competitive; however, they could afford to pay the best more and the worst less.

In computer programming, your top programmers are 2-3 times more productive than your average programmer, and 5+ times more productive than a bad programmer. Yet, there are very few companies that have a wage differential that reflects this. Say your average senior programmer makes $85K a year, how many companies pay their top programmers $250K a year? Very few!

Ironically, one of the biggest impediments to ‘judging’ programmers is the programmers themselves. They claim (as do most other professionals), that you can’t measure their productivity and quality adequately. However, with today’s technology this simply isn’t the case. While there is no perfect algorithm yet (although I’m sure Google is working on it), there are numerous metrics available to measure performance against; yet they are seldom deployed.

If engineers want more money, they should insist on being measured. I hear many US engineers lament about the poor quality of code created by 'H-1B visa holders', with few, if any metrics, to back up their claims. If these engineers hadn’t stood in the way of tracking quality metrics in the first place, they’d have a much easier time making the case that while being more expensive they are actually cheaper for the company in the long run, because of higher output & quality. It’s time for engineers to embrace this change and ask to be measured.

Short-term policy solutions

One of the reasons H-1B visas drive down wages so much is that they are tied to a particular employer. This means that a guy coming over from India on an H-1B visa, who has a job at Microsoft paying $24K a year, can’t take another job at Intel that pays him $50K a year. The net effect of this is to keep wages depressed, as H-1B visa holder are essentially indentured servants.

An easy solution would be to modify H-1B visas to remove the employer dependency, and let visa holders take the highest paying job. Wages will still be decreased, since you're increasing supply of labor, but by much less. (Many companies will complain that they wouldn’t go through the cost of acquiring H-1B visas unless they could guarantee that the employee stay with them; the reality is, there’s another way to accomplish this, pay your visa holders market wages!)

To address the brain drain problem, H-1B visas should be starting point for US citizenship (or permanent residency); who better to have as future citizens than well trained engineers?

There may very well be a need for more H-1B visas in the US, but how do we expect homegrown talent to be able to compete with indentured servants?

In summary

Solving our ‘engineering shortage’ by simply allowing more H-1B visas in their current form will drive down costs in the short run and allow tech companies to remain globally competitive, but in the long run it will only serve to increase the long term decline of engineering in the US.

Companies need address this problem over the long run, by tracking the output of their engineers more effectively, and paying salaries based on that output. How serious would the current engineering shortage be if companies regularly paid their top performing engineers $250K year or more?

Legislators should reach a compromise with tech companies to allow more H-1B visas, but only if their format changes to make them company independent, and a path to permanent residency or citizenship.

Finally some truth in advertising ...

Wow ... this surprised me.

Check it out yourself: www.reelect-carter.com

Analysts Miss the Mark on Predicting Oil ... Again

I saw this post on Seeking Alpha, and thought these must be the same analysts that are predicting that more drilling won't affect oil prices.

I also find it interesting that ever since the talk of lifting the ban on offshore drilling has started, the price of oil has declined dramatically. After all, 'experts' predict that it would take at least 5 years for any new oil from offshore drilling to start flowing. I guess these 'experts' don't realize that you can buy a futures contract TODAY, for oil in 5 years from now, so just the prospect of future drilling affects futures contracts now.

Of course, these experts also probably don't know about efficient market theory; which asserts that "prices on traded assets, e.g., stocks, bonds, or property, [or oil], already reflect all known information". Hence, if the rational expectation is that oil supply will increase in 5 years, it will affect prices today. In this case, the primary reason is that long-term supply constraints help protect speculators from a long-term correction; take away that protection, and speculators can only bet on short term supply & demand imbalances; a much riskier proposition.

Reinventing Unions ... Can it be done?

Unions Past

Few people would argue that unions played an important role in improving the working condition of millions of American’s at the end of the 19th and early 20th century. Of course, few people today would argue that Unions have “outlived their usefulness”.

Unions’ recent successes include making US auto manufacturers completely uncompetitive internationally, and having union membership in the teachers’ union negatively correlate with student test scores.

An interesting thing about the decline of unions in the US is that their wounds seem to have be mostly self inflicted; namely thru their lack of innovation. Just like all service organizations, they need to constantly evolve to serve their customers (union members are people who pay a fee to receive a service from their union; as such, members are a union’s customer). Additionally, the lack of innovation has made unions much less appealing as partners to companies who employ their members.

Aligning Customer and Partner Objectives

Beyond the initial agreements for a shorter work week, safer work conditions, and eliminating child labor, Unions worked to establish a ‘career path’ for its members. This career path was closely tied to seniority, the longer you worked at a place, the more you earned.

The outcome of this arrangement was that employees gained more income the longer they worked on the job, and employers got employees who were incened to stay longer at their jobs and presumably improve their skills over time.

Initially, both employees and employers gained from this arrangement; even if employers were reluctant to reach said arrangement.

Failure to Innovate

As the US economy evolved to be less manufacturing focused, people moved into service jobs where seniority is poor indicator of productivity or performance. While this is obviously bad for employers, it is equally bad for employees as they are no longer being rewarded for being more productive or higher performing, rather simply by the length of service to that employer. This in turn leads newer more productive and better performing employees to seek jobs in non-unionized fields of work where they will be rewarded for their output, not simply based on their time at the job. What remains are either older employees who have climbed to the higher pay scales, newer employees that can’t or don’t want to compete based on their productivity or performance, and certain fields were non-unionized workforces simply don’t exist (government jobs, nursing, etc.)

Becoming Relevant

At one point in time there was a lot of talk about trying to unionize service jobs, even higher paying ones like programming; but they never seem to pick up much steam. The lack of enthusiasm for unions in these service sector jobs is largely due to service sector employees realizing that the seniority model is broken and won’t work for their industry; yet unions haven’t come up with alternatives. As such, here are some suggestions that could help unions provide value to both employees and employers in the service sector:

1) Establish metrics that are reflective of the employees output; better, smarter, more productive employees should get raises, not those who have been at a company the longest. With the evolution of business intelligence tools, these metrics are not only abundant, but cheaply captured and measured.

2) Provide career paths based on training to make employees more productive; establish rigorous testing that ensures those who test highly correlate with those who have a high output.

3) Negotiate on behalf of workers for more training to improve their output, and maintain their skills; this benefits employers too, it’s cheaper to keep current employees current and productive than having to hire and re-hire every few years as skill-set demands change.

4) Provide value added services that to improve the well-being of your members: the two obvious ones are retirement planning and healthcare. Maybe it’s time to stop fighting the employer for these benefits and look at providing these benefits yourself to members.

These suggestions would help re-align the objectives of unions with those of their customer-members as well as the employer-partner.

The Win Win

Item #1 above is probably the most contentious item, and is currently being debated in the education realm, namely in the form of rewarding teachers based on test results. Leaving aside the arguments about the efficacy of test results as an indicator of teacher performance, more strides need to be made in all lines of work to establish meaningful measures by which to reward employees, the time for ‘time’ to be the measure has passed.

Conclusion

Most (under 40) Liberals I know don't seem to think there's much chance of Unions surviving; in fact, they go so far as to suggest they've outlived their usefulness. Unless unions can dramatically change their value proposition for both employers AND customers (students, patients, etc.), I don't see much chance of their survival either ... outside of perhaps the public sector, where things like efficiency & value propositions don't seem to matter.