Ad Blockers and the Future of Internet Publishing

There is a debate about ad blocking on the Internet every so often, and the release of iOS 9 with its support for content blockers has reignited it.

I am sympathetic to both sides. I don't block ads, but I do block both Flash and ad trackers. I block Flash because it slows down browsers, and I block the tracking because I don't think it's appropriate for any single entity to know by default what I do when interacting with completely separate entities. It's fine for Google to know what I do on YouTube since it owns YouTube. It's not fine for it to know what I do with every site I visit that runs Google Analytics.

That said, I also make a small amount of money from writing on the Internet, and that money ultimately comes from advertisers. I don't get paid anything close to a living wage for how much time I spend on it, but I'm blessed to be in a position where that doesn't have to matter if I don't want it to. Many people are not.

Right now, proponents of ad blocking list all the abuses of online ad technologies and say, "adapt or die". They might also point to focused (and non-abusive) ad networks like the Deck or point out that advertisers barely know anything about the effectiveness of their spots on TV or spreads in magazines. Those media can't track ad targets like online advertising can, and it was fine. Maybe just take that attitude online.

Those arguments are fine for a certain set of people who have audiences that skew affluent, but it's bad for everyone else in the short to medium term. If you tell advertisers that they will have less targeting, they'll pay lower rates. They already pay next to nothing, so it'd be a financial bloodbath.

It's tough for publishers. The hard fact of the matter is that the supply of content creators far outstrips demand. Internet technology makes publishing content of all kinds easier than it's ever been. A laptop is far cheaper than a printing press. A webcam is far cheaper than a TV studio. The upshot of that fact is that more people want to make a living by writing or making videos or whatever on the Internet than the market can possibly support. Take away the easy avenue of super intrusive ads and some publishers will go away because every other option is really hard.

I know this. I've been writing consistently, year-round on the Internet since mid-2007. By now, I think I've gotten pretty good at it, but "pretty good" isn't good enough to justify me doing it full time. The market has spoken by now. It says I'm not special enough to warrant a full-time gig. I am far from alone.

This is where it gets tough on the publishing side. A lot of new people appear on the Internet every year trying to make it by creating content. Sturgeon's Law says that most of them won't.

But everyone produces a lot of crap when they first start. Everyone who writes a lot says they look back on their early work and cringe because it's so awful compared to where they are in the present. A ruthless world where only the largest publications make it and it's mostly impossible to make any money without being a part of one of them means that only the people who can afford to write a lot for no money to prove themselves to those publications will make it. Only people who are decently well off will be able to break into the business, and that's not an appealing future. I realize it's kind of like that now in a lot of ways, but it has room to get worse.

I don't know what the answer is. Maybe it's micropayments, although I'm not bullish on them. Maybe it's some kind of scheme to essentially pay people to read sites and look at ads, although I'm not bullish on that either. If I did know, I'd be going and doing that instead of writing this essay. The long term good news for Internet content creators is that the future will have no TV or radio or magazines and only data flowing on the Internet. The ad dollars that go to old media now will go to online media in the future because they'll have to. That'll mean more ad money to go around. Its just that no one knows when that future will arrive, and many creators won't survive financially until then.

I hope there is something between the near privacy-less Internet we have today and the dystopian future without journalism. If it's out there to be found, iOS 9 and content blockers are giving the people searching for it a new sense of urgency.

Disney’s Frozen Has a Secretly Ominous Ending

I saw Disney’s Frozen recently, and it’s a really good movie for the most part. It does exist a bit in a Catch-22 though.

The most interesting character is by far Elsa, the only one who actually goes through a proper character arc. The other people in the movie largely are the same person at the end as when they’re introduced (one of the trolls even sings that “people don’t really change”). It could be a stronger movie if it focused more on Elsa, but it’d be a darker movie for it and probably too dark to be a children’s movie. They also couldn’t just go for it and jettison the children’s movie aspect, as so much of it relies on the viewer not overanalyzing it thanks to it being a children’s movie.

Anyway, keeping in mind that this is just a fantasy children’s movie, it’s notable that it’s the most business-focused Disney movie yet. The Duke of Weselton is obsessed with international trade, shopkeeper Oaken gives a quick lesson on supply and demand, and concern for Kristoff’s ice business is a running theme throughout.

Warning: spoilers ahead.

On that note, the ending of the movie is actually pretty ominous from a business perspective.

Elsa’s unintentional winter spell in the middle of summer would have disrupted the economy of Arendelle considerably. What little crops there are in the area would have largely died from the deep freeze, some of the livestock could have died too from exposure thanks to farmers being caught off guard, the frozen fjord would be awful for the fishing industry, and the logging of the area certainly would be set back a bit. From that alone, Arendelle is probably headed for at least a sharp recession as a result of the movie’s events. We know from the Year Without a Summer that winter-like conditions in the summer would be devastating to an early-to-mid 1800s European state like Arendelle.

However, that’s not all. Just before the end, Elsa issues a decree that Arendelle will no longer do business with Weselton, it’s largest trading partner. That’s understandable given that the Duke of Weselton sent people to assassinate her, and this preindustrial fantasy land wouldn’t have some kind of UN to settle the dispute.

It’s also the last thing the kingdom needs. With the local agriculture and industry severely stunted, Arendelle needs trade now more than ever. Cutting off relations with the kingdom’s largest trading partner will only make the recession that much deeper.

Some of the downturn might get offset by an increase of government spending. When the king shut off the castle from outsiders to protect Elsa early on, he reduced the staff. With Elsa’s new open-gate policy, government employment will rise. There also will be more social functions, of which there’s been one (the coronation) in the last 10-15 years, which will lead to more spending in the local area. The royal treasury likely can sustain this deficit spending for a while since it would have built up considerably during the decade plus of reduced staff and few expenditures. Having a few more castle servants and some fancy parties wouldn’t come close to offsetting the entire consequences of the week of winter, though.

Elsa would need to act quickly to repair the situation. She would need to send someone, perhaps the regent who ran the kingdom in the three years between her parents’ deaths and her coronation, to find new trading partners. She could also become Europe’s first entrepreneurial monarch. She might be able to bring in tourists from the region’s nobility by doing public demonstrations of her magic powers and setting up tours of her mountain ice palace. She could also travel to nearby kingdoms to create ice art for their special occasions. That money could then go to subsidize the rebuilding of the kingdom’s economy from the damage she unwittingly caused. I don’t know the extent of her powers, which seem considerable, but she might even be able to forestall the year’s coming winter to give her kingdom a chance to produce a few more goods to sell without competition.

Arendelle is probably in a better situation for the long haul with an open and confident monarch ruling it, but in the short run, there will be a struggle to fight off famine. For a seemingly happy movie that is actually the darkest Disney animated feature yet, a seemingly happy ending that is actually quite foreboding is only appropriate.

Addendum

This all assumes that Elsa doesn’t just create automatons from ice and snow to perform all economic tasks. They could work all hours of the day and dramatically expand Arendelle’s economy.

They also would put everyone out of work, creating a one of those utopias where everyone can live a life of leisure that philosophers once dreamed of. That would work, to whatever extent it can given that people generally prefer to work rather than do nothing all day, until Elsa dies. Presumably all of the automatons would then cease to function.

At that point, Arendelle would plunge into a dystopian situation where the entire infrastructure of the economy fell apart all at once. It would be a long, slow slog out of the depression as the populace would have lost all experience with actually running agriculture and industry.

It would be tempting to go the automaton route given the immediate economic crisis that is coming to the land not long after the credits roll. However if Elsa allowed her automatons to take over the whole economy, it would be far worse in the long run than accidentally plunging the kingdom into winter ever was.

Why Government Austerity Isn't a Good Idea Right Now

The practice of government austerity, defined as the raising of taxes and lowering of spending to improve the government's balance sheet, is not what the United States needs right now. Here's why.

The economy can basically be summed up as the total number of goods and services produced in the country. The measure for that is GDP. At present GDP is growing, but at a very slow rate.

Also at present, private American citizens are deleveraging in aggregate, or paying down their debt loads together. They're doing it at a faster rate than the citizens of many other developed economies with high private debt.

In the economy, one person's spending is another's income and vice versa. The banker who buys a latte at Starbucks helps pay for the barista's salary, while the interest paid on the barista's credit cards helps pay for the banker's salary.

The economy grows from year to year as people produce more (and more valuable) goods and services. Some people spend less than they make and save the rest, while some others spend more than they make. It's not all spendthrifts who do the latter; retirees, for instance, spend more than their incomes as they live off of their retirement savings. An entrepreneur bootstrapping a new business would also be expected to spend more than his or her income.

Under normal circumstances, there will be a good mix of people spending less than they make and spending more than they make. We don't have that now. Far more people are looking to spend less than they make than the opposite as they pay down their debts and/or increase savings. The large number of people who are behind or underwater on mortgages are a significant part of those net savers. Their preference will be to pay down that debt no matter how alluring increased consumption becomes. This state of affairs has become known as a balance sheet recession.

Due to the deleveraging, economic activity in the private sector is lower than it otherwise would be. Due to high unemployment, it's really lower than it otherwise would be. Only two things could compensate for it. One is running a trade surplus, but the country hasn't done than since the 1960s.

The other is if the government steps in and spends more than it takes in by running a deficit. It does that already, of course, and has for many years.

Now let's think about government austerity. The government would roll back its economic activity by spending less, and it would further inhibit private sector activity by raising taxes. Some people claim that an austerity program would help the economy by unleashing a flood of economic activity currently held back by people worried about a potential sovereign debt crisis in America. I don't see it.

If regular people were only just saving money, I might believe that. They're not. They're paying down debts, and they will continue to do so until their overall level of debt is sustainable. Most regular people also pay no attention to current events, have no idea what the state of the government's debt is other than "it's big", and do not think about future tax rates when planning purchases.

Cutting back government economic activity right now will just hurt the economy. That will just put more people out of work, thereby slowing economic growth. Growth is already slow right now; cutting back on government spending might cause the economy to shrink as it has in some European countries. Austerity in a bad economy is self-defeating in that way. If the economy shrinks, the government collects fewer taxes and can't reduce its deficits as quickly as it had intended to (or at all, if it's a severe case).

The government can try to jump start the economy by doing more spending, but it must do it smartly. Passing out tax rebate checks probably won't get the job done, as many of them will just go to paying off debt. That might bring the ultimate end of the deleveraging cycle a tiny bit closer, but $400 or $800 is peanuts compared to a mortgage.

It'd be better to use it to directly employ people and invest. Have state and local governments re-hire teachers, police officers, and firemen who have been laid off. The government could fix the nation's infrastructure and put construction workers back to work, something that will benefit everyone. High unemployment takes a toll, and long term unemployment takes an even larger one.

I am still working to understand economics better and figure out what is the best way forward. I'm not sure of a lot of things, but that austerity would be bad for the US is one thing I'm certain of.

Two Charts That Illustrate Why Unemployment Is So High Still

The answer to why the employment part of the recovery has been so slow is a very simple one. I'll use two charts to show why: private sector employment and public sector employment. The data is seasonally adjusted and comes from FRED, and the public sector figures have temporary census workers removed (because they're just that: temporary) thanks to data published by Veronique de Rugy of George Mason University.

First up, the private sector:

Click the image to make it bigger. The X-axis is months after the official end of the recession.

Compared to the last two recessions, the rate of job growth from the official end of the recession (June 2009) is actually doing OK. The public sector is by no means "fine", as it lost nearly 8.9 million jobs from its peak of employment (January '08) to its trough (February '10) and it's still about 4.5 million jobs below that peak. That deficit in jobs doesn't even account for the number of jobs needed to keep up with population growth either.

However, its growth is similar to that after the 1990-91 recession, and it's doing better than after the 2001 recession. It would be great if it was growing jobs at a higher rate, but its current rate is not out of the ordinary for a post-recession economy.

Now, the public sector:

There's your problem. Overall public employment has done just about nothing but fall since the end of this recession. The terrible recent jobs numbers can mostly be blamed on the decline of the number of government workers. It's less a federal problem than a state and local problem, but that's your explanation for why unemployment isn't lower.

What Mitch Hedberg Teaches Us About Tax Rates

The late Mitch Hedberg was one of the best one-liner comics who has ever lived. In this clip, he explains the concept of marginal utility more concisely than anyone I've ever heard attempt it. The first pancake is great, the second pancake is good, but the fifth pancake brings you almost no benefit whatsoever.

What does this have to do with tax rates? Think of dollars instead of pancakes. For someone who doesn't have much in the way of assets or income, each additional dollar that person acquires is of more value to him or her than someone who has lots of assets and income.

Consider Herman Cain's cartoonish 9-9-9 plan. Under it, everyone would pay 9% income tax. Someone making $20,000 per year would pay $1,800 to the federal government, leaving $18,200 left over for everything else. That could be the difference between having a car or not, or having an important medical procedure done or not.

Now think about someone making $200,000 a year. That person would pay $18,000 per year to the federal government, leaving $182,000 left over for everything else. This person may or may not even miss the income tax given the abundance left over depending on how closely that person manages his or her finances. The tax rate for both people is the same, but the amount paid is more precious to the first person than the second.

That's one reason why we have a progressive tax system where the rich pay more than the poor. It goes beyond non-quantifiable things like "fairness". It's better for the rich to pay more because the amount of marginal value they lose with each additional dollar assessed in taxes is much lower than that of people who have much less.

tl;dr crowd, thanks for coming. You're dismissed.

Apple Being Singled Out Over Foxconn Isn't Fair, but That's Fine

The Nightline special on Foxconn and Apple was an interesting look inside the world of electronics manufacturing in China. It's interesting to me to see how the issue has exploded of late, as it seems to come and go as various issues crop up. I'm not sure what the catalyst was this time, but here we all are looking at it.

It's a weird thing for most Americans, I expect. Despite the very real issues with things like too much overtime and underage workers, most reports say that Foxconn's factories really are among the best in China. I've likened factories with dormitories to the phenomenon of company towns in America. It's not a perfect analogy, but having company towns is a phase that this country went through during its industrial development. They weren't great for workers, but they're better than subsistence farming. The same goes for Foxconn in China.

It's not that dissimilar from the sweatshop scandals that plagued Nike in the '90s. The Nightline piece had someone bring that up, though the reference was about a different point. A number of economists have argued that sweatshops are a good thing in comparison to subsistence farming, which does make them a net positive. That's certainly not to say that industrial development should get to the sweatshop stage and stop. The existence of sweatshops and cramped factories could overall be a good thing for a country, provided things continue to progress from there.

The point about Nike from the show was that the industry leader will take the most heat for industry-wide problems. I'm sure that's a factor in Apple getting most of the negative publicity for Foxconn's abuses when plenty of electronics firms use its factories for assembling devices. Apple is also fantastically profitable, far more than the rest of the companies that have contracts with Foxconn. It has the best capacity to do something good for the workers there.

At one point, a Foxconn executive says he'd gladly double the pay of the workers on the lines assembling Apple products if the company asked for it. Using Horace Dediu's numbers, the iPhone has a 55% profit margin on an average selling price of $650. He estimates that the labor cost for each phone is somewhere between $12.50 to $30. If labor costs doubled (corresponding to a doubling of worker pay), the profit margin on each device would fall to somewhere in the 50% to 53% range. That's still an incredible margin, even for a company with typically high margins on all its products as Apple tends to have.

So while it's not completely fair for Apple to catch a lot of the heat for the issue of labor in Asia, I'm OK with it. Apple responded to getting singled out by Greenpeace by taking real actions to make its products better (or less bad, really) for the environment. Now, few companies talk about their green initiatives as much as Apple does. It's been a good thing.

Apple now seems to be doing something about the labor issue. It has publicly released factory audit results in the past couple of years and now has released a report detailing all of its suppliers. Last month, it became the first tech company to join the Fair Labor Association, and it has funded the biggest audit ever of Foxconn (currently underway).

If Apple is able to get real change for the better in Foxconn, it's even better than its green initiatives in one way. The latter only affect Apple products, but if Foxconn gets better, that affects people who make many other firms' products too. I'd like to see those other firms step up in the way Apple has, but we'll see if they do in the coming months. Pressure from multinationals that make things in China is the only way things are going to keep progressing there, as no real organized labor movement is allowed by law there.

It's not ideal if the only forward progress is due to American companies pushing the Chinese companies while themselves being pushed by media scrutiny and popular outcry, but it's at least some forward progress.

Consumer Credit Jumped in December

Consumer credit was up—way up—in December:

Consumer credit expanded by $19 billion in December. That's far more than the $7 billion that was expected by economists.

Revolving consumer credit (credit cards) grew by $4.1 billion sequentially, and is basically flat from last year again (up barely).

This is very good news as we work towards ending the balance sheet recession. Nonrevolving credit was the big driver, as revolving credit (mostly credit cards) was flat as mentioned above.

If this larger-than-expected expansion was driven by revolving credit, it'd be easy to hand-wave it away as holiday gift spending. It wasn't. People generally don't play Santa by first taking out a personal loan from the bank.

Instead, longer-term credit fueled the rise. That reality, combined with the fact that it continues a trend, means that people more and more think they are able to take on bigger, more serious loans. Add on top of it the good jobs number from December (and even better jobs number from January), and it's looking like we just might be in the beginning of a real recovery.

It's certainly a fragile recovery, as bad policy from Washington or large shocks from Europe could torpedo it, but it's probably a recovery nonetheless. This is very good news.

The Ambiguity of Hope

Last week's January job report was largely good news on nearly every level. It wasn't unequivocally good news, but we're not going to get any just yet in this economy.

It surprises me that Republicans were so dour in response to it. Granted an improving economy hurts their ability to defeat President Obama in November, so you've got that backdrop to all the grousing.

However, Americans tend to be an optimistic bunch even in the bad times. Listening to morose politicians sound unhappy after a great jobs report is not what they like to hear, generally. I'm sure the part of the G.O.P. base that is dead-set against the president nodded right along, but they're not going to vote to reelect the incumbent anyway.

It's especially surprising to me given that the current conditions allow for a really easy positive spin for the Republicans. The reason is because they have successfully blocked a lot of the president's agenda for the past year or so.

The Obama administration will no doubt claim that the president should be reelected because, despite the opposition, he's led the country towards more job growth. The converse could be easily argued, though. They could argue that the economic improvements stem directly from that opposition by Republicans. In other words, we'd be worse off if they let the president have his way. I don't think any actual numbers would bear that out, but politics has never been known for a strict adherence to the facts.

The Democrats tried to damage the G.O.P. by branding it "the party of no", but that's something Republicans have embraced to a degree by continuing to denounce the president and stall his agenda. It worked for them leading up to the 2010 election for sure.

What they're in danger of becoming, however, is the party of Debbie Downer, the buzzkills who greet even good news with furrowed brows. Regular people probably aren't looking closely at these numbers just yet, nor have they made their final choices on the November election. The Republicans can keep doing this now.

However if the economy keeps improving and they don't change their tunes to capture some of the growing optimism, they'll really find reason to be unhappy on Election Day.

Facebook IPO Stock Is Basically a Gambling Bet

There are only three reasons to buy a company's stock. One is to get an income in the form of dividends. The next is if you plan to have a say in the company's governance as a part owner. The third is if you believe the stock will go up in value, allowing you to make a profit on the sale of the stock.

Facebook's IPO is coming up, meaning people will have to weigh those options when deciding if they want to buy it or not. However, one of those three reasons is entirely negated by the way the stock ownership has been structured:

The shares of Facebook will be divided into two classes. The Class A shares you will get if you buy shares in the market have one vote per share. The Class B Shares, which are almost all of the shares that have previously been issued and all of the shares owned by [founder and CEO Mark] Zuckerberg, get 10 votes per share.


Zuckerberg only owns about 28% of those super-voting Class B shares, so where does his control come from? He has voting agreements with many of his fellow shareholders that give him a proxy to vote enough additional shares to give him voting rights to a total of around 57% of the super-voting stock, the S1 shows. More than enough to give him control over the company.

Mark Zuckerberg has complete control of the company. Read the article to find out all the ways that he can stay in power if people try to change that fact. He personally can do whatever he wants because he holds over half of the stock voting power. He can even hire and fire the board of directors, who are supposed to be his bosses. You literally will have no power to change anything as a part-owner of the business unless Zuckerberg also goes along with it.

Of course, the first reason is likely to be moot as well. Growth companies don't tend to pay dividends, and that's what Facebook is. Apple is another tech growth company that famously doesn't pay a dividend, but it at least isn't controlled by a single person having the majority of the voting power.

For the foreseeable future, Facebook stock will be good for only one thing: trying to buy low and sell high. You're gambling on Zuckerberg's ability to guide the company and the hope that the collective hive mind of all stock investors will drive the stock price higher.

You're placing a bet, basically. Good luck with that.

Ending the Balance Sheet Recession Is a Big Task

I mentioned yesterday that I think we're in a balance sheet recession. Further credence, besides that post and the materials linked to in it, comes from the fact that total consumer credit fell during the Great Recession for the first time in the span that such data has been collected:

This graph from the St. Louis Federal Reserve shows consumer credit outstanding. The red line is revolving credit, which includes things like credit cards that are expected to be paid off monthly. The green line is non-revolving credit, which includes debt with specific time periods and payment plans like auto loans (but doesn't include mortgages). The blue line is the two put together.

The blue line only falls twice: very slightly after the savings and loan crisis and then quite a bit during the Great Recession. Non-revolving credit largely only stalled for a bit, while revolving credit plunged. Americans have been working hard at paying down their credit card debt.

The task of ending the balance sheet recession is incredibly big. Here's an idea of the scale.

The website LendingClub.com is a peer-to-peer finance service. People apply to get loans from the site, and it chooses whether or not to approve the loans and what terms to issue loans at. The loans are then funded by users, rather than the site itself. About two-thirds of the borrowers use the money to pay off credit card debt, usually consolidating it into a single loan with a lower interest rate than what credit cards charge. For them it's a way to transform revolving debt into non-revolving debt, which always carries a lower interest rate.

As far as I see it, arrangements like these are great. People with excess cash can make far better returns on it than the interest that savings accounts and CDs pay, while people with high interest debt can lower their rates. Of course there are risks for investors greater than the risks associated with deposit accounts; there has to be for it to pay out higher returns. Still though, both sides of the transaction benefit greatly. The intermediary in the form of the website itself charges lower fees than banks do for similar services because it's just a website. It has no branches or ATMs to maintain. It's a win-win-win for regular people.

As great a deal as this is, and it is growing rapidly, it has lent out just short of $500 million. Using the stats provided at the time of writing, $331.6 million of that went to helping people pay down credit cards. That's a heck of a lot of money. It's also a mere drop in the bucket.

According to the Fed data, the peak of US revolving consumer debt was $972.2 billion in September of 2008. It fell to $798.3 billion in November of 2011, the most recent data point at time of writing. That's a drop of $173.9 billion. As great a deal as Lending Club is, it has contributed towards less than 0.2% of the fall in credit card debt. Its data goes back into 2007 when it started, so not all of that $331.6 million has gone toward people deleveraging since the financial crisis began.

Credit card debt is only a part of the story anyway. Mortgages are still on top, and until housing prices quit falling, there won't be much demand for newly built houses. That's doubly important because construction jobs weigh heavily in the current unemployment mess. Plus, student loans passed up credit cards for the No. 2 spot on the US debt charts.

Lending Club is an ingenious way to help people get out of credit card debt, but it barely registers on the overall scale of the problem. Credit cards themselves take a back seat to mortgages and student loans now in terms of total debt outstanding. As long as Congress is going to hold up progress towards debt relief and real effective jobs programs, it's going to take a lot of ingenious ideas to dig the economy out of the ditch its currently in.

A Balance Sheet Recession

The most compelling explanation to me for the shape of the US economy is economist Richard Koo's "balance sheet recession" idea. If you have the time, I encourage you to read his full paper [PDF] on the topic. Here is an hour-long lecture he has given on the topic. This video embedded here is a quick 10-minute explanation.

Monetary policy is insufficient to solve the current US economic problems, as the real interest rate has been near zero for years now with no dramatic turnaround. The reason, as given by Koo, is simple: providing even the cheapest possible credit won't make a dent when people have no appetite for borrowing whatsoever.

Demand among the citizenry will be depressed as long as the people, on the whole, are deleveraging. Increased saving and debt repayment rates necessarily mean that consumption rates will fall. Koo suggests that governments should run a deficit during times of balance sheet recessions, as a government running a budget surplus is basically doing its equivalent of saving.

This is paradox of thrift territory, and the concept is more compelling here than under normal conditions. Generally, saving doesn't necessarily have to be a bad thing; banks lend out deposits, which then gets those funds back flowing through the economy. Except that, remember in a balance sheet recession that the demand for credit is low. When you have wounded and vulnerable banks (who are facing stricter capital requirements to boot) as we have now, the supply of credit falls too. Declining private sector credit demand and supply would only be made worse by the government running a surplus.

Koo therefore warns against austerity by governments during balance sheet recessions. After all, governments with their own currencies have more options for dealing with debt than individuals and businesses do (and many of those that don't are causing the Euro debt crisis). The fact that the US, which went with stimulus in 2009, is doing better than European countries that went the austerity route lends credence to this prescription. An economy simply can't grow if everyone from consumers to businesses to the government all pay down debts at the same time.

Koo developed his balance sheet recession idea while studying Japan's problems of the last 20 years, he believes it describes the US in the Great Depressions well, and it seems to fit for the current US as best as I can tell.

What Will Disrupt Chinese Manufacturing

The New York Times' big article on why the iPhone is not made in America is a great example of why US manufacturing is losing its lead on manufacturing in Asia. The line that stuck out to me the most was:

“[Foxconn] could hire 3,000 people overnight,” said Jennifer Rigoni, who was Apple’s worldwide supply demand manager until 2010, but declined to discuss specifics of her work. “What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”

A US firm can't find 3,000 people overnight because the US population is so much lower than China's is. But beyond that, Rigoni sounds like she's saying with a straight face that factory workers living in dorms is a reasonable norm. That sounds unbelievable to my American ears.

Everything described about Foxconn's setup sounds like a company town, a concept this country did away with decades ago. The US has been there and done that, and it's not likely ever to go back. I would be shocked if that concept remains viable indefinitely in China. Rising wages are already making China less of a low-cost production center, and as things improve for workers there, the company towns will go away.

That's the slow way that China's manufacturing will get disrupted though. It will almost certainly out-produce the US at some point thanks to it having nearly four times the population and therefore more capacity. It won't always be what it is today though, especially if/when the government quits keeping the currency artificially low.

However, there is a way that its manufacturing edge could get disrupted a lot more quickly, and that's with 3D printing. Primarily the technology is right now associated with rapid prototyping, but eventually it will get cost effective enough to use it to make many products on industrial scales. Injection molding is probably the first thing that would die off in that scenario.

As this TED Talk goes over, 3D printing can be used for anything from cheap, plastic pens up to high precision engine parts and medical implants. Imagine a situation where a company sets up 3D printing labs throughout the country, all pumping out different companies' products as demand rises and falls for them. A company that designs low sales volume products might never have to have inventory again, as its wares could be 3D printed nearby as customers ask.

We're a long way from that utopia, but we don't have to get to that utopia to cause serious disruption in global manufacturing. The rise of cheap Asian manufacturing came up quickly over the last 20 years, but it could drastically decline almost as quickly when 3D printing rises to its potential.

High Speed Rail Could Kill Some Airlines

One recurring theme of the Obama administration is the idea that the US should build a high speed rail network.

From a short term perspective, it could be a good thing. Building such a network would help revive the construction sector and do all sorts of other kinds of Keynes-approved economic stimulative activities. The catch is that after it has been built, it would need to actually be useful. While other potential transportation projects like roads and bridges have only periodic large maintenance costs, railways have daily costs in the people who conduct the trains and work at railway stations (and train maintenance, and a number of other things).

The problem with a high speed rail network connecting the major cities of the country is that it has limited usefulness as a replacement for cars. American cities as we know them today were built with cars in mind. Some of the major metropolises have good enough public transportation to get around reasonably, but the number of cities with truly useful public transit is small. Medium and small cities often have no public transit at all, and if they do, it's a bus system with questionable punctuality. In other words, cars are still a necessity there.

A lot of people would have to rent cars to get around after getting off of the train. If that use case sounds familiar, it's because it rhymes with something else we already do. A lot of people rent cars to get around after getting off of a plane.

Rather than take cars off of roads, a high speed rail network would likely take people out of airplanes. It's already about impossible to make money on air travel; imagine how difficult it would be if a lot of people suddenly started taking the train instead.

Obviously, areas of Europe and Asia have high speed rail and airlines too, so it's not impossible to have both. However those areas also developed differently than the post-WWII US did. The core assumption of the last 70 or so years in American urban development is that just about everyone has a car.

If the high speed trains are a part of a larger initiative to restructure American cities, they can be useful. Otherwise they'll either go underused, costing the government lots of money annually, or, if successful, initiate another wave of airline bankruptcies. Either way, I don't expect them to take too many cars off the roads.

How Get Rid of Your Pennies

I'm all for getting rid of the penny. It's time of usefulness has come and gone, and this video makes a pretty concise and compelling case for it.

The only problem I have with this video is that it contends that Coinstar machines are the only machines that accept pennies. Not true. In fact, the other machines that accept pennies are typically found in the same place that Coinstar machines themselves are.

Self checkout machines at grocery stores are common where I live, and among grocery chains that I am familiar with (just about all that operate in the southeast), only Publix does not have them. The self-checkout machines do, in fact, accept pennies. They also allow you to pay partially in cash and partially with a card, meaning that you can actually use pennies by dumping a few in the machine before swiping your debit or credit card per normal.

Of course, doing this fails the time test that the video mentions. It's almost certainly not worth your time while you wait for the self checkout machine to digest a large amount of pennies, especially since some will be rejected and will have to be submitted twice. I certainly wouldn't do something like this during prime time at the store either, as you will inconvenience people behind you in line.

However, the self checkout is the best place to spend your pennies. You don't lose a percent of them like with the Coinstar machine, and you actually do use them and keep them in circulation. It might not be the best use of your time, but if you maximized the value of every second of your time, you wouldn't be surfing blogs like this anyway.

Periodically filling your local self checkout machine with pennies is the best alternative of a lot of bad ones until the most useless of coins finally does go away for good.