Fixing the Federal Budget

Although there are countless "pundits" who pretend otherwise, it's astonishingly simple to repair the U.S. federal budget:

1. Restore corporate and personal income taxes to early Reagan Administration levels.
   
2. Treat capital gains exactly the same as any other income, albeit with capital gains indexed to inflation.
   
3. Treat estate transfers exactly the same as any other income, with $3 million (indexed to inflation) and spousal exemptions.
   
4. Eliminate the "carried interest" and related loopholes.
   
5. Introduce a 40% tax rate plus time limitations on non-repatriated corporate earnings, less credit for foreign taxes paid.
   
6. Offer states and localities centralized federal collection of their corporate and personal taxes. They could set a single percentage based on federal taxes owed. Residents of states that choose not to participate would default to 3%, which the federal government would keep. Whether participating or not, states and localities would still be free to levy their own taxes.
   
7. To reign in healthcare spending (and improve outcomes), open up the Veterans Affairs and Medicare health insurance programs to all Americans.
   
8. Extend Social Security contributions so that there's no income cap and so that all forms of income are included. Also exempt the first portion of income (e.g. the first $15,000, indexed to inflation).
   
9. Cap defense spending at 4.0% of GDP for 5 years then 3.5% of GDP thereafter, with exceptions only permitted if the U.S. Congress passes a formal declaration of war against a specifically named country, if the excess funds are dedicated to that narrow purpose, and if Congress renews that declaration every 24 months.

Family Security: Society's Choice

I don't generally pine for the "good old days" which really weren't so good. However, I am profoundly concerned about the persistent attacks against social insurance in all its forms around the world. (The exceptions, ironically, can be found in the Middle East.)

Let's start with some basic principles. Freedom is good. However, poverty and infirmity are antithetical to freedom. Serfs living 1,000 years ago in Europe weren't free mostly because they were poor and constantly at risk of utter destitution and starvation, not because the lords cared much about which songs they sang.

So why, 1,000 years later, in the developed world, do I worry about much the same problems? Why are so many people one illness away from bankruptcy? One spouse's untimely passing away from poverty? One lawsuit away from financial ruin? There are myriad risks, and many governments seem hell bent on dismantling what little social insurance exists. The private insurance market is flawed in many ways, and it's difficult or impossible to insure against these calamities without government.

As one example, consider disability insurance in Singapore. If your employer is typical, and if you have a job of course, you would receive a maximum of two years' salary if you become disabled and cannot work. If you're disabled for 10 years or for a lifetime, tough. You had better hope that someone in your family or a charity takes pity on you. And that's in Asia's most developed economy excluding Japan.

But "we can't afford social insurance." Rubbish. This is a world in which Mark Zuckerberg is a billionaire , but he will pay a far lower tax rate than his company's employees. Developed countries are comparatively wealthy. Decent social insurance is an affordable choice. It also happens to be consistent or even essential to upward mobility and entrepreneurship.

America: The Not-So-Grim Truth

A relative e-mailed me a link to this blog post by Lance Freeman: America: The Grim Truth.

I take issue with several of the author's assertions. As examples, many developed countries don't have single-payer healthcare systems, and, while a lot of tax dollars go to the Pentagon, it's not 70% of them. The factual mistakes make it harder to take the author seriously. Also, people simply have different preferences. If you love musical theater, or skiing, or recreational aviation, or somebody of the same gender, you aren't going to choose, say, Singapore if you have a choice. Different countries have different attributes. The United States isn't everybody's favorite, but nor is Switzerland.

That said, I agree with the author in one narrow respect: the United States (and its government) are generally headed in the wrong direction. In the U.S. there's growing inequality, decreasing financial security, and increasing threats to civil liberties. Those disturbing trends tend to make the United States relatively less attractive as a place to live, work, and vacation, if you have other choices and other things being equal.

I'm an optimist, and I wouldn't bet against the United States yet. The world's oldest democracy has shown an amazing ability to correct its course.

R.I.P. Nokia

My first mobile phone more than 15 years ago was a Nokia. So was my second. And I've had some other Nokias along the way. I preferred Nokias. Most recently I had a Nokia E55, but it couldn't handle Japanese. So I switched to an iPhone 4 which could.

Nokia has now announced a new partnership with Microsoft. Nokia's new smartphones will run Windows Phone. Since the entire mobile phone market is moving to smartphones — today's smartphones are tomorrow's dumbphones — that really means Nokia is betting the company on Windows Phone. Unfortunately Nokia won't have any Windows Phone products available until the end of this year, and also unfortunately Windows Phone has completely failed to ignite any interest in the market. Google's Android, RIM's Blackberry, Apple's iPhone, and even HP/Palm's webOS and Samsung's Bada platforms are all doing better than Windows Phone.

Nokia's stock took a big hit immediately after the announcement, and the stock market is correct. It's hard to see how the affiliation with Microsoft will rescue Nokia. What has to be scary for Nokia is that Microsoft has been trying to crack the mobile software market for more than a decade, and Microsoft has literally been stuck in reverse. Microsoft's earlier efforts had higher marketshares than today's Windows Phone.

The trends are even more ominous for Nokia. According to IDC, and looking at the entire mobile phone handset market (including smartphones), Nokia's unit share fell from 37.2% in 4Q2009 to 30.8% in 4Q2010. More importantly, Nokia's revenue and profit shares fell even faster. Apple, with only about 4% unit share, collects about half the industry's profits. ZTE (who?), a Chinese manufacturer, came out of nowhere, primarily at Nokia's expense, and shipped 4.2% of all handsets in 4Q2010.

Another problem Nokia has is that its developer community is, understandably, incensed. Nokia is abandoning its own Qt, a cross-platform application environment which is widely popular with developers. Now developers who might want to create applications for Nokia's new handsets will have to learn a completely new development environment for Windows Phone, and the applications they've already created won't be portable. If developers have to re-learn and re-program their applications, why wouldn't they just move to Apple's iOS and/or Google's Android? It appears that's exactly what they are doing.

Nokia had to do something to change course. But if this partnership is Nokia's best remaining hope, Nokia is in big trouble.

Japanese on a Mobile Phone?

Did you know that the vast majority of mobile phones sold in the world cannot even display Japanese characters, never mind allow Japanese text input? It's shocking, really, that devices built to foster communication cannot cope with most Asian languages without some serious hacking at best. You cannot even read Japanese or Korean text messages! This serious shortcoming applies to Blackberries, Symbian devices (Nokias), Android, and even the latest Windows Phone devices.

There's one notable exception: the iPhone. The iPhone has fantastic Asian language support, out of the box. Bravo, Apple.

Back to the Mac

If the rumor sites are to be believed, Apple is going to introduce a new MacBook Air next week. I was quite interested in the first MacBook Air, but Apple compromised that system in ways I didn't like. There isn't enough hard disk space (or equivalent) available, the single USB port is too limiting, and the 2GB RAM limit is also a big problem. But it's thin. So what?

I'm still a good candidate for a lighter, easier to carry Mac. But I don't want to see too many compromises. Here's what I'd like to see in this baby Mac:

1. At least 200GB of hard disk space (or equivalent);
2. At least 2GB of RAM standard, expandable to at least 6GB;
3. A pair of USB ports, one of which is USB 3.0;
4. Mini DisplayPort;
5. 12.1 inch screen preferred;
6. A lock slot (to secure the machine to a desk);
7. Under 3 pounds.

Almost goes without saying: Bluetooth, 802.11n wireless, iSight, and fixing the headphone jack so that there's an iPhone-style microphone-in channel in the same connector. Nice to have: a memory card slot and a built-in ethernet port. (Road warriors still use ethernet.) Maybe Apple can do something funky-but-smart like put the ethernet port on the power brick. I'd also like to see Apple add a little functionality to the Air's bootstrap code to allow installing Mac OS X from Apple's cloud in addition to installation from a local shared network drive.

Apple could use SSD, but it's still expensive. How about the new 7mm high 2.5 inch hard disks from Hitachi and/or Seagate? Those are available up to 320GB in size, and they would allow Apple to keep the costs down and the machine profile thin.

UPDATE: So how did Apple do? Not well enough, so I'm not going to be buying one of the new MacBook Air machines:

1. A 256GB flash drive is an option only on the 13.3 inch model, and it's expensive. The 11.6 inch model tops out at 128GB.
2. Memory is only expandable to 4GB, and only at the factory.
3. No USB 3.0 yet.
4. Yes.
5. Apple bracketed the 12.1 inch screen size with 13.3 and 11.6 inch screen models.
6. Still no lock slot.
7. Yes, under 3 pounds.

The "almost goes without saying" parts are all there. The 13.3 inch model got a memory card slot, but neither model got a built-in ethernet port (or ethernet on the power brick). Both models come with a flash card containing Mac OS X for recovery.

Then there's price. To buy a MacBook Air with the attributes I want (if I could tolerate 4GB RAM maximum) would be $1699 list price (and another $29 for the ethernet dongle cable). That's quite steep. Too steep.

Got the iPhone 4, and Labor Mobility

I got a 16GB iPhone 4 yesterday from M1 in Singapore. Although economically I'd be better off selling it on eBay, I'm keeping it. There's undoubtedly some attenuation and detuning when touching an iPhone 4, and it's way too fragile and demands a case anyway, but otherwise Apple did well.

Changing the subject, normally in a recession (especially a deep one) many people in the labor force relocate to areas with better job opportunities. U.S. workers may not necessarily pack up and move to, say, Singapore, but enough of them move to help the labor market adjust. That isn't happening in the current Great Recession, and the lack of labor force mobility is a major concern because it means the economic downturn will be more prolonged and more harsh than otherwise. The apparent reasons why people are not moving are myriad and probably include recent trends toward home "ownership" rather than renting (a trend I never understood), record numbers of home buyers who are "underwater" (owe more to the banks than their homes are now worth), and the fact that there are no particularly "hot" employment areas in the U.S. right now. (There are only "less cold" ones.)

Buying a Defective Product

The iPhone 4 hasn't quite arrived in Singapore yet, although all three of the local mobile carriers are requesting e-mail addresses from people who might be interested in buying one. Unfortunately the iPhone 4 has some problems with its antenna design. AnandTech has some terrific original research documenting the problem, a problem which Apple's software update will not fix.

But I might still buy one.

iPhone 4: Decisions, Decisions

As I think I mentioned before, I signed up for a no-contract basic mobile phone plan when I moved to Singapore in early April. My intention was to see what promotions and new phones would be available before signing a contract.

Good thinking. Now here comes the iPhone 4, although it'll be an extra 30 days or so before Singapore gets Apple's latest magical device. I've run the numbers many different ways, using reasonable estimates, and basically I'm a fool if I don't sign a mobile phone contract and take delivery of a new iPhone from one of Singapore's carriers. But I may be a fool (economically speaking) to keep the iPhone. Essentially, selling a new iPhone 4 (through eBay, for example) would net funds sufficient to pay off the entire minimum spending flow for the entire two-year service contract, by my calculation. Or at least come rather close. In other words, right now I'm paying SGD 15 per month for basic service, which is quite a bargain. But that's SGD 270 over the next 18 months. Instead, I could be paying approximately SGD 0 (net) per month for better service for 24 months, as long as I don't keep the iPhone 4. Wacky, isn't it?

So that first decision would seem easy: sign a contract. But do I then keep the iPhone? Or do I stick with a more basic phone, something like a Nokia 2730 for example? Or split the difference and go with something like the Motorola Milestone XT720, an Android-powered smartphone?

U.K.'s "First Past the Post" to Perish?

I've always been fascinated with parliamentary elections in the United Kingdom, for a variety of reasons. This most recent election has been especially interesting. The U.K. elects Members of Parliament (MPs) from about 650 geographic constituencies (districts). In each district the candidate with the most votes wins and goes to Westminster. This system is known as "first past the post," and it's a common democratic formula.

However, the U.K. has three major parties that are relatively evenly balanced in their share of the national popular vote, and there are also several secondary parties which together hold about 28 seats. In that sort of environment FPTP has some fairly significant disadvantages. In particular, the Liberal Democrats, the third of the three major parties, has agitated for electoral reform for many years. Last week the LibDems increased their vote share by about 1% but they actually lost seats in Parliament. FPTP sometimes yields weird results like that.

Fortunately the U.K. has an excellent alternative voting system to put to voter referendum. In October, 1998, an independent commission chaired by Lord Jenkins issued a report favoring the "Alternative Vote Plus" system. AV+ is a hybrid voting system consisting of two groups of MPs to form the House of Commons. The first group, about 80 to 85 percent of MPs, is elected from individual constituencies (which are slightly larger than today's) but through ranked voting (called "Alternative Vote," known as "Instant Run-Off Voting" in the U.S.) Instead of marking a single "X" on their ballot papers, voters rank all the candidates (or as many as they wish) in their order of preference: 1, 2, 3, etc. When the votes are tabulated, all the ones are counted and assigned to each candidate. If one candidate wins a majority of the votes cast, that candidate is elected. If not, the candidate with the least number of 1s is struck, and then that candidate's voters' second choices (2s) are distributed to the remaining candidates. If one candidate then has a majority of the vote, that candidate wins. Otherwise, the candidate with the least number of votes in the second round is struck, and the process repeats until there's a winner. This run-off/second choice process assures that the final winner commands majority support but also encourages voters to express their preferences most accurately, without so-called tactical voting. The Scottish and Welsh parliaments already use AV.

The second group of MPs, about 15 to 20 percent, is elected nationally from party lists. These are called "top-up" MPs, and they are designed to give some proportionality to parliamentary representation. To simplify a bit, let's assume the Tories get 36% of the vote, the LibDems 30%, and Labour 34%. There'd be a formula that then adds top-up MPs to bring the House of Commons into somewhat closer alignment with those national voting percentages (though not necessarily exact alignment). Voters would choose their favorite top-up MPs from the national party lists. Top-up MPs would be assigned starting with the highest vote getter on a particular party's list, then the second highest, and so on until the required number of top-up MPs from that party is chosen. The top-up MPs also help secondary parties have their voices heard in Westminster, provided they meet a reasonable minimum threshold.

The Tories hate the idea of voting reform because their party has been the primary beneficiary of FPTP. Or, said another way, they've traditionally been the "largest odd man out." Pretty much everybody else likes the idea, and AV+ is a particularly good formulation. Lord Jenkins did some great work. I very much hope in the current post-election inter-party negotiations to form a new government that the Liberal Democrats (in particular) insist on putting AV+ to a binding public referendum by a date certain. It's long past time the U.K. reformed and modernized its electoral system to make it more democratic and more representative.