American Priorities

Despite the fact that most talking heads on TV will ignore it, inflation is becoming a problem for the American consumer. Although the prices of "core goods" might only be up nominally, the prices of other important goods, like food and energy, are increasing at double digit pace. The Economist recently pointed this out on its cover.

According to CNNMoney, milk prices alone are up 23% this year. So what would you expect a reasonable consumer to cut back on? Discretionary goods? Gasoline? They would never cut back on staples, like milk, right? The CNNMoney article goes on to give a slightly disturbing anecdote:

John Norris' family is drinking a lot less milk these days. He said he considers the higher prices and has cut back on his kids' milk consumption. But between work and family obligations, he still drives almost as much as he used to. "That's the reason I cut down on milk consumption - so I can drive my car," said Norris. And Norris should know. He's the director of wealth management for Oakworth Capital Bank and a food price expert.

The Norrises aren't the only family getting pinched at the grocery store. Prices of food and non-alcoholic beverages rose 4.7 percent since the beginning of the year through November, outpacing the 4.3 percent increase in the overall cost-of-living, according to the federal government's Consumer Price Index. Everyday foods like fruits and vegetables, beef, poultry and cereals are on the rise. The price of milk is the biggest culprit, with a staggering increase of 23.2 percent through November. And with basic foods like dairy and wheat driving up the cost of other groceries, almost everyone is feeling the squeeze.

Unfortunately, I wouldn't be surprised to find that many families are cutting back on consumption of goods like milk and other wholesome foods in order to maintain their perfect suburban lifestyles. And some wonder why America has such an obesity problem...

Get Out of My School!

I recently came across two articles on the topic of higher education that I felt the need to share with everyone. The first is a column by Thomas Sowell in the Detroit News. Sowell currently works for the Hoover Institute at Stanford, but has held many jobs in higher education over the years. His argument is simple: there are too many kids going to college, many of whom probably don't belong there, and it is ruining the quality of education for those who really want to learn. In his own words:

Wanting to be in college is not the same as wanting an education. Among the other reasons for wanting to be in college is that it is a social scene with large concentrations of people of the same age and the opposite sex. In college, immaturity is the norm, accepted not only by peers but even to a large extent by those in charge. An academic campus can be a refuge from the realities of the world, not only for students but even for members of the faculty.

Even if you disagree with Sowell and think everyone deserves the chance to be in college and make the best of themselves, his column is extremely though provoking and worth the read.

The second piece comes from Jon Morrow, the author of www.onmoneymaking.com, who has a brilliant post over at another blog titled: Why I Regret Getting Straight As in College. I've personally seen the obsession a lot of students have with getting the perfect GPA. They care more about grades more than learning, and in this end it seems like a huge waste to me. College is supposed to be about learning and preparing yourself for what the future will bring. If what Morrow says is true and grades really do not matter, then sadly, a lot of people are wasting and a lot of time and money. According to Morrow:

I nearly killed myself in college to get straight A's. Well, almost straight A's. I graduated with 37 A's and 3 B's for a GPA of 3.921. At the time, I thought I was hot stuff. Now I wonder if it wasn't a waste of time... if you want to get a job and make as much money as possible, then good grades aren't going to help you as your teachers and parents might have you believe. You're better making powerful friends, building a killer résumé, and generally having the time of your life on your parent's dime.

Even though these two pieces may seem to be in opposition to each other, I think they paint a nice picture on how to maximize the time spent in college. First, focus on learning whatever you think will be most useful in life; thats what you're paying for, after all. If you're signing up for classes you know will teach you virtually nothing useful because you just want to spend your time screwing around then you're missing the point. At the same time, if you're so obsessed with grades that you're overlooking the big picture and not learning anything in your classes then you're still missing the point. Obviously what works for some people won't work for everyone, but there is hope, as long as you can figure it out in time.
One of my biggest gripes with higher education is the use of multiple choice exams. In September I first laid out my case against multiple choice exams and have since continued to build my case. Today I typed out some additional arguments against these exams and laid out a few recommendations to solve the many problems they present. Rather than keep the argument fragmented I decided to combine all my arguments into one piece, which can be found here.

Digg... Buried

I used to be an avid reader of social bookmarking sites like Digg and Reddit. The idea behind these types of communities is seemingly ingenious: let a democratic community decide what content makes it onto the front page and allow the community to control discussion of said content by masking troll posts and other garbage frequently found on internet chat boards. In theory, Digg and Reddit should help eliminate the media bias that seems to be more rampant than ever since readers should be able to see only the stories that are democratically elected as the best of the best.

Unfortunately, I read these websites less frequently now for a simple reason: they've deviated from what I described above. I'll contend that Digg and Reddit are now significantly more biased than any mainstream media source and that the garbage the community is supposed to control is as rampant as ever. For instance, on Reddit, at any given time I guarantee you can find stories that are pro-Ron Paul, anti-George Bush, anti-government, pro-Apple, anti-Microsoft, anti-religion, pro-atheism, and for some reason Reddit users seem to have a fetish with stories about people getting unfairly tazered. The content has gotten so biased and so predictable that it doesn't even seem worth my time any more. If someone went into a coma 50 years ago and woke up today, and their only source of information about the world was Digg and Reddit, their perception of the world would be so off the mark it would be unbelievable.

It seems that the underlying problem lies in the fact that Digg and Reddit are dominated by a niche audience and that the "democratic" system actually ends up scaring off everyone else. For example, on Digg, users have the ability to "bury" comments that they don't find worthy of being shown, effectively masking the comments from view. The original intention was to eliminate the garbage posts that pop up on internet message boards and to discourage trolls from wasting their time spamming the discussion. At first the system seemed to work great... but now the bury feature seems to be used primarily to mask opinion contrary to the Digg/Reddit mainstream. For instance, if you look at any given Digg submission on the main page, lets say one about Ron Paul... the comments will all appear to support the original submission, and a lot of the garbage you'd expect to be getting buried are actually getting "dugg," which basically means the community supports it. And forget about finding a decent discussion on Digg or Reddit; the comments section of these sites are just as bad as what you'd expect to find on Youtube or Yahoo Message Boards.

Sorry Digg and Reddit, the idea behind these websites is admirable, but they fail to deliver, and have certainly been a disappointment recently.
Every year Thanksgiving rolls around, followed by "Black Friday" and finally by my blog post poking fun of the outrageousness of such rampant consumerism. Last year I posted video footage of carnage at a Wal-Mart where shoppers, eager to get their hands on the latest electronics, toys and other unnecessary junk, literally trampled a woman and ended up sending her to the hospital on an ambulance. And a year later, it looks like people have learned nothing.

In Orlando, a person was punched in the face by another shopping trying to cram into Macy's for a 1 in 200 chance of winning a Macy's gift card. In New York, two men brawled over a cheap pair of shoes, which then drew in a crowd of hundreds of other shoppers apparently eager to witness the scuffle. Fortunately, police were able to break up the crowd, and the fight, without any major injuries (although who knows what happened to the shoes). Any my favorite... footage of the Boise Idaho Town Square at 1am on Friday Morning. The way these people are pushing and shoving you'd think they were starving and desperately trying to get some food for their families.



Turns out they were just trying to get 10% off on some merchandise... Sad.

Green PR

It looks like another "supermajor" oil corporation has jumped on the green bandwagon. I honestly feel like I've seen this commercial on TV a dozen or more times tonight.



Granted, Chevron is one of the better oil companies when it comes to investing in alternative energies, but I can't help but wonder what these companies are trying to accomplish with these advertisements? Less anger from consumers as oil and refined product prices go through the roof? Less pressure from the government as they try to crack down oil windfall profits? Or just to say "we care"? Honestly though, I think consumers are smarter than this PR. Its one thing to say "we're investing in alternative energies" but if the only way consumers know about it is by watching TV, I don't think it goes far enough.

Edit: I just saw the full version of the Chevron commercial. Everything else aside, this is a brilliant advertisement. Props to advertising firm McGarryBowen for putting it together.

MicroFaceSoftBook

Now that Microsoft has acquired a small stake in the $15 billion company Facebook, the impact on both companies seems to be hotly debated in the business community. On the one hand, some tech industry analysts say that buying a small stake in Facebook will make Microsoft "cool" - improving its image as the old, senile dinosaur in the tech industry. On the other hand, some say that the deal will make Facebook "uncool" since it is now associated with such a lame tech company.

The reality? 99% of the people who use Facebook will probably never know that Microsoft even has a stake in the company, and if they do, it is extremely unlikely that they will decide to increase or decrease their time on the website because of it. When McDonald's started acquiring a stake in Chipotle Mexican Grill many years ago, it alone neither improved the image of McDonald's nor hurt the image of Chipotle. The fact is that main street simply doesn't care about which companies are investing in each other, so long as the end product remains the same. When are Wall Street analysts finally going to figure this out?

Give Al Some Credit

On Friday it was announced that Al Gore would win this year's Nobel Peace Prize. Over the weekend there have been a lot of criticisms of Gore and the process of choosing the winner of the prize. Without getting into that, I think there are two commendable things that Al Gore did for which he deserves some credit.


First, rather than accepting the award exclusively for the work he has done, Gore said he would share the award with members of the United Nations Panel on Climate Change. After all, Gore may be a politician and talented speaker, but his efforts are backed up by research from some of the world's most respected scientists. Without the efforts of the UN scientists, Gore would virtual have no message to get out to the world.

Second, Gore is giving 100% of his $1.5 million award money to the Alliance for Climate Protection, which demonstrates that Gore isn't necessarily doing what he does to make a buck. Most critics point out Gore's tremendous wealth, but they tend to forget the huge sums of money that Gore has given back to climate change efforts.

So for those who are too busy politicking to see the big picture of what happened this weekend, I give a round of applause to Al Gore.
Originally posted on: September 26th, 2007
Updated on: November 27th, 2007

One thing that has greatly disappointed me about college undergrad courses is the reliance many professors place on multiple choice (MC) exams. This semester, all five of the classes I'm taking have used multiple choice questions on exams. This is unfortunate because, as I will attempt to make the case, multiple choice exams have many flaws and are a poor metric to determine a student's knowledge on a given subject. Many of the arguments here have been borrowed from the National Center for Fair and Open Testing and examples are from my own experiences with multiple choice testing.

Below are my objections to multiple choice exams:

MC exam results are mathematically skewed - say I sit down at a 500 question multiple choice exam for a class I never attended, never read the textbook, and know nothing about: when I receive the grade for my exam, I'll have received a score of 25% (within some standard deviation) if I filled in all the bubbles randomly. Clearly, I do not understand 25% of the material, I understand 0% of it. My score significantly misrepresents my knowledge on the topic. Of course, this only works if all bubbles are filled in randomly, but there are other mathematical problems with multiple choice...

MC exam questions are all or nothing - since every question only has one right answer, I can receive 0% (completely failure) for a question, even if I have some amount of knowledge on the subject. Consider the following example question: Q: Was the infantry invasion of Japan a viable alternative to the use of the atomic bomb to end World War II? Is so, why? If not, why not?

A. Yes; transport ships were available in sufficient numbers.
B. Yes; island defenses in Japan were minimal.
C. No; estimated casualties would have been much greater.
D. No; Japan was on the verge of having an atomic bomb.

Lets say I think the answer is "No" and I can make a great case to justify that answer. Perhaps I would argue that Japan's military was more powerful than the U.S. believed and that our military would have lost in an infantry invasion. Unfortunately, that isn't a choice; and now I am forced to guess between answers C and D. The "wanted answer" in this example is C. Had I guessed D, I would have received 0% credit and failed the question, even though I had a strong grasp of the subject; statistically, I have a 50% chance of getting the answer correct, which is unfair if I understand, say, 80% of the subject.

Mutiple choice exams often employ misleading or poorly worded questions - rather than ask a question and allow the student to answer it as he/she chooses, MC exams force students to try to decipher the meaning of a question and think "what does the professor want me to say". Consider this example from a recent psychology exam I took: Q: Smoking during pregnancy is most likely to cause which of the following birth defects?

A. Low birth weight
B. Autism
C. General Anxiety
D. Smoking will cause many birth defects

I look at this question and think... "well, the most common birth defect from smoking is low birth weight, BUT I know that smoking causes other birth defects as well." So now I'm torn over whether I should pick A or D. I know that smoking causes a number of birth defects, including preterm birth, cerebral palsy, mental retardation, learning problems, withdrawal symptoms, etc. So even though I know more about this subject than the question is asking, my goal is to decipher what the professor means by the terms "most" and "many". Some of my professors in the past have used "most" to refer to one or more correct answer, but this particular professor wanted it to mean "the number one statistical birth defect, excluding the number two, three, etc. defects". I have also had professors who use the word "many" as an inclusive term; so to me, so I interpret choice D as "low birth weight, preterm birth, cerebral palsy, etc." I chose answer D and received 0% (complete failure) for the question because I thought too deeply into the question and misjudged the intent of the professor. Had this been a short answer question, I could have identified that low birth weight is the statistically most common birth defect, but included that there is still a risk of developing other problems. Since it was multiple choice, I failed the question and have no way to prove what I was thinking at the time.

Multiple choice exams discourage learning outside of a narrow curriculum - when studying for multiple choice exams, I often find myself memorizing vocabulary terms or cramming in concepts I know will be on the exam. Rarely do I look at the big picture, and often I forget the material hours or days after the exam ends. The very nature of MC exams discourages learning broad concepts because you are often punished (as in the above example) for knowing too much. On a multiple choice economics exam, for example, it is more important to memorize the metrics used to measure GDP than it is to know the connections between GDP and other important aspects of economics. Critical thinking is discouraged; mindless memorization is the priority.

The concept of a "best answer" makes MC questions confusing and frustrating - MC questions often have many choices that could be "plausible" answers but they force students to choose the "best answer." This is problematic because "best" answer is a vague concept and because choosing the "second best" answer might still demonstrate some understanding of a concept. Unfortunately, since multiple choice is all or nothing, this often creates extreme frustration for students. Consider this example from a recent philosophy exam I took: Which of the following can be known using a posteriori knowledge (a posteriori = empirical evidence or use of human senses):

A. Triangle have three sides
B. Martians live on Mars
C. All bachelors are unmarried
D. Descartes wrote Meditations on First Philosophy

At first glance I choose B, because obviously if there was life on Mars I would have to see pictures with my eyes or hear about it from someplace. But wait, choice D also seems correct, because in order to know what Descartes authored I'd have to read his works or learn about it from someplace else. So whats going on? Apparently there are two correct answers here. I pick B and am wrong. The professor says the answer is D because Descartes really did write Meditations on First Philosophy but there is no known life on Mars. After trying to argue my case I'm told that even though B might be a plausible answer, D is the "best" answer and that I should have picked D. Forget the fact that B is a plausible answer and forget the fact that I understand the concept of a posteriori knowledge and can justify my answer... I get 0% and fail the question.

"All of the above" and "none of the above" remove the "choice" from multiple choice - my Psychology professor justifies multiple choice exams by stating that they are easier than any other exam formats because they require the tester only to "recognize" the correct answer from a list of choices rather than recall some information. To understand this theory, think of it this way: say you've watched a few football games in your life but know virtually nothing about the game. If someone asks you what it is called when a player runs the ball into the end zone, you would probably have no idea. But what if you could choose between the following choices: run, basket, touchdown, goal. Ah ha! Now you remember that its called a touchdown. So isn't that proof that multiple choice is easier? Maybe for very basic questions, but not when you throw in "all of the above" or "none of the above" answers into the mix. Consider this example from the same professor's exam: If you occasionally attend a rock concert without wearing ear protection, chances are good that you would suffer:

A. Total hearing loss after a few years
B. Damage to hair cells
C. Damage to eardrum
D. All of the above

This question suffers from many of the downfalls of multiple choice exams. First, it uses many misleading words, like "occasionally", "good" and "few". Second, it relies on a "best answer" since A, B and C are all theoretically plausible. And finally, it offers a choice to choose "all of the above." This question goes way beyond simply recognizing the correct answer, it can only be solved by playing mind games and trying to figure out what the professor wants you to say. I pick choice D, figuring that since all of the above are plausible answers, chances would be "good" that all of them would occur. Plus I figure that since the D choice is inclusive of the best choice, it would then become the best choice. I'm wrong (again) since there isn't a "good" chance of damaging the eardrum or developing total hearing loss (even after a "few" years) and therefore the answer which includes those choices is also wrong.

True/False exams are multiple choice in disguise - some people believe that true/false is the easiest style of testing because for every question there is a 50% chance of getting it correct, even without knowing the material! Fair enough; but when you "do" know the material, these questions can be a royal pain, since its often possible to justify both the true and the false choices in your head. Take this example from a recent management exam I took: True or false: honesty is absolutely essential to leadership? The obvious answer to the question would be "true" but for a few seconds I might contemplate a scenario where honesty would not be essential to leadership. After all, if there is just one exception to that statement then the "false" answer would seem plausible, making this a matter of picking which is better, a tricky task.

Multiple Choice is not more "objective" than other exam formats when applied to a single class - one of the arguments some people use to justify multiple choice exams is that they can be graded more objectively than other forms of testing. For example, on the SAT, the essay section is graded by hundreds of different people across the country... in theory your score could be completely different depending on who is reading your exam. You might write a very similar essay to the person sitting next to you during the exam but she might get great marks and you might not do well at all. On the other hand, multiple choice, which is graded by a machine, can't succumb to such subjectivity. While I give some credence to this argument for huge nation-wide standardized tests, the argument fails to hold up when applied to exams in individual classes. Since one professor will be grading all the exams, there is little risk of grading discrepancy between individual students.

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So with all the problems multiple choice exams have, why do professors use them? One reason I already noted above, they have the faulty belief that multiple choice relies on "recognition" rather than "recall" and therefore are easier for students; but this line of thought seems fairly rare. In many instances, it turns out that professors use multiple choice because students actually prefer them to any other test format. How can this be? I thought about it for a few days and asked people who prefer multiple choice exams and came up with a theory.

All of the reasons I am opposed to multiple choice exams are predicated on the assumption that I understand the material and that multiple choice exams hinder me from demonstrating what I know. If, however, I didn't know the material, or didn't know it well, then I might be led to believe that I'd be better off with a multiple choice exam. After all, with multiple choice exams, at least there would be a chance I could "recognize" something and at least I have something to pick from. On a short answer exam, if I don't know the material I'll end up sitting there staring at blank sheets of paper for the entire exam period. Psychologically I think being able to pick an answer to a bunch of questions (even if the answers are wrong) is more comforting than having a bunch a bunch of blank spaces. A 50% is a 50%, regardless of whether you filled in all the bubbles and missed half or if you had a bunch of blank space on a short answer test. But while taking the test, the student will feel more confident filling in the bubbles than anything else.

Does this mean professors should still use multiple choice if a lot of students prefer it? I don't think so. The ultimate goal of any professor should be to teach as much useful material as possible and the ultimate goal of students should be to learn as much as possible. As I hope I've demonstrated, multiple choice exams do a poor job helping students learn important material but instead encourage them to "beat the test". If professors truly care about teaching students material that they can use in the future, they should shred their multiple choice exams and not look back.

After all this negativity about multiple choice, do I have a solution? Well, nothing is perfect and no one will ever be fully satisfied, but there are two exam styles which are both fair and encourage students to learn and retain material. The first consists of a series of short answer questions where students are instructed to answer some percentage of them. For example, the professor could give 5 questions and ask students to answer 4 or give 10 questions and ask students to answer 7. This style of exam ensures that students have a fair opportunity to demonstrate what they know about a topic and also gives students a confidence boost, knowing that they only have to answer those questions they know the most about.

The second style of testing is rare but seems both fair and reasonable. The professor will hand out several short answer questions 3-7 days before an exam, and 70%-80% of them will appear on the actual exam. This guarantees that students study the concepts that professors deem to be most important; the element of randomness ensures that the student prepares for all the questions, since they don't know which will be on the exam, preparing for only some would be nothing more than a roll of the dice; and having the questions beforehand gives students confidence and relieves some test anxiety.

I think if more students had the opportunity to experience these types of exams they would become increasingly negative on multiple choice. I think multiple choice could seem attractive when compared to short answer exams where students have to answer every single question; but I think the two exam styles I've proposed can solve many of the problems students currently face. Ultimately, nothing will be perfect, but we can do a better job of making sure that expensive college courses are worth it - alternatives to multiple choice exams can help.

Oil Buys a Lot of Stuff

Only about 20 minutes ago the Associated Press ran a story indicating that the Nasdaq, the electronic stock exchange in the United States, has agreed to sell a 20% stake in itself to the Borse Dubai, a government controlled company in the Middle East. Borse Dubai is also purchasing a 30% stake in the London Stock Exchange, and once the deals are done, will own the controlling stake in two of the world's biggest financial exchanges. Unsurprisingly, congress, both Democrats and Republicans are up in arms over this deal. How could we let a foreign government (and one from the Middle East no less) control two western financial exchanges? After all, hasn't Al Quida made it clear that they intend to use the US economic system as a conduit to wreak havoc on our country?

The problem is that Congress is asking the wrong questions. Its easy to understand why Nasdaq would be willing to Borse Dubai: money. In a capitalist system the almighty dollar trumps everything else - and if Borse Dubai is willing to pay a pretty penny for Nasdaq, then how could the American company say no?

The question that Congress needs to ask is why the government of Dubai has so much cash to begin with? The answer is one that politicians don't like the answer to, which is probably the reason why they're so unwilling to ask in the first place. Dubai, and the rest of the Middle East, is literally sitting on top of cash, in the form of oil; and the United States, the largest consumer of crude oil in the world (see statistic here) refuses to give up the oil habit. George Bush and all his minions in Congress are wasting time throwing dead money at ethanol, a smokescreen that is doing nothing to reduce America's demand for oil; unfortunately, they are doing very little else. To realistically reduce our dependence on foreign oil, America needs to combine conservation (a political issue congress won't tough with a ten foot pole) and tech that actually works (like solar and wind power, which angers voters in the politically crucial and corn farmer haven, Iowa).

If you don't like a particular retail store, for example, and are sick of their outrageous profitability and damaging expansion, you don't keep shopping at that store or for that product - you look for alternative products and retailers. When it comes to oil, the United States is doing a pretty pathetic job of this.

Goodbye John

For those of you who were hoping John McCain would become the 44th president of the United States, you might want to start looking for a new candidate. When a high school student challenged McCain for being too old to run for president, the Senator gave a decent response about how he has campaigned his opponents for many years...



Then for some reason, decided it would be a good idea to end on this line: "Thanks for the question, you little jerk. You're drafted." Was this supposed to be a joke? If so then it was one of the most poorly executed jokes I've ever seen. Get ready to start seeing this clip non-stop if you live in Iowa or New Hampshire; it may single handedly destroy John McCain's political future. On the bright side, McCain's poll numbers don't have that much lower to drop anyways.

iCar?

If Detroit didn't already have enough problems... now one of the most popular high tech companies is rumored to be jumping into the business. Well, not really; but there is a lot of chatter online that Apple is going to team up with Volkswagen to offer a hip-looking compact car themed to Apple's line of iProducts and featuring lots of cool Apple gadgets.


Personally, I would love to see this happen and I'd like to see these cars run on diesel (or at least have the option for it). Despite the chatter about hybrids, fuel cells, electric cars and the like, diesel engines are the cheapest and most reliable of all the technologies. In Germany, over 50% of all cars on the roads are diesels; and it makes sense since the environmental regulations are so high. Diesel has a terrible reputation in the United States that needs to be changed - if anyone can do that, Apple can. Not that I can afford to buy new cars right now; but if I was, something like this would probably go to the top of my list.

No Revolution Necessary

A few days ago Barbara Ehrenreich, the author of Nickel & Dimed and Bait & Switch, wrote an extremely interesting article detailing how the proletariat in America has managed to severely cripple capitalism, without throwing a single punch. A lot of what has happened over the past few weeks have been things I've been harping about for years, and up until recently, I've been wondering how I could have been so dead wrong on these issues. But before I go there, here is a recap of how the revolution occurred.

A few years ago Mr. Alan Greenspan decided it would be a good idea to cut the federal funds rate to a measly 1% (historic lows). This prompted an era of cheap credit and a housing boom! In the state of the union addresses in the early 2000s, George Bush made proud references to the record number of Americans who owned homes; unforuntately, they didn't actually own much of anything, the banks had a lot of control over their assets. Fast forward to the present, interest rates are up over 5% and many Americans who took adjustable rate mortgages a few years ago are getting gouged. So what do they do? Quit paying! It can take months for a bank to repossess your house if you stop paying the mortgage, so a lot of Americans are taking advantage of this "grace period" before they have to switch back to renting.

Many of these loans were given to people who are economically illiterate and have poor credit. In theory, these people should not have qualified for a loan in the first place, especially one that would increase in price over time as the value of the underlying asset it paid for decreased... But bankers and Wall Street firms were making out like bandits, selling record numbers of shady loans and taking their huge bonuses straight to the bank (and hopefully investing in something other than housing). Now the jig is up and the banks are in a big pickle, trying to figure out what to do about all the money they gave out that isn't coming back. If this story sounds familiar to you, its because something similar happened at the now defunk company Enron. The Texas energy company commonly booked terrible deals that made no economic sense, simply because they were paid bonuses based on closing the deal, not on the deal actually being profitable for the company. Can you say, oops!?

So after sabotaging the banking system by throwing in the towel on their loans, the proletariat proceeded to stop buying cheap junk at places like Wal-Mart. Something that never quite made sense to me was how economists could talk about the US consumer driving the economy, when consistently we spend more money than we earn (the current savings rate in the US is -1%, compare that to 50% in China); the model is not sustainable. When Henry Ford started building cars many years ago, he realized that if he didn't pay his employees well, they weren't going to go out and buy the cars they were building. Thus back in the day, building automobiles was one of the most lucrative jobs in the economy (it still is, but becoming less so by the day).

Today, Wal-Mart has more influence on the US economy than any other company; but unlike Ford, Wal-Mart pays its employees among the worst wages in business. So should it really come as a shock to us that people working for the biggest employer in the country can't afford to buy a lot of stuff? Proponents of Wal-Mart always argue that the company helps consumers by providing them super cheap goods; opponents argue that Wal-Mart devastates wages when it moves into an area (among other things). Simple mathematics would suggest that for Wal-Mart to be a good influence on an area, the net-decrease in the price of the goods it sells must be greater than the net-decrease in the wages it's employees make. Based on the fact that Wal-Mart CEO Lee Scott recently said that "it's no secret that many customers are running out of money at the end of the month," we should probably re-consider whether those terrible wages are worth the low low prices on all that cheap junk.

Karl Marx wrote about the ultimate downfall of capitalism, when the proletariat gets fed up with their lives and leads a revolution to communism. More than 100 years after Marx's death, communism is yet to be attained on a broad scale, and only time will tell if the crazy bearded German guy was right or not. What I find most fascinating is that even though the radical, violent revolution that Marx predicted has never succeeded, we might get to a point where such violence is unnecessary, because capitalism will simply implode and collapse on itself. It might not happen for another 20 years, 100 years, or never; but the fact that a truly non-violent revolution is happening in this country right now is absolutely amazing.

Health Care Sniffles

Even though this video of Glen Beck attacking Michael Moore's movie is only four minutes long, it is one of the most painful things to watch. I'm pretty sure that Mr. Beck doesn't make any actual arguments in this rant. He points out Michael Moore's weight several times... he makes arbitrary assertions about Cuba that are obviously not backed up by any fact... and honestly, I think this little tirade actually makes Michael Moore look more legitimate (on a relative basis).



If you made it to the end of the video, Glen Beck asks: "What i don't know is how anybody can dispute America has the highest quality of health care this planet has ever known?" Well, about two minutes of due diligence told me that the World Health Organization thinks there are 36 countries that have a higher quality of health care than the US. It's too bad that Beck didn't spend two minutes on Google before he taped this segment; he might have saved himself a lot of humiliation.

Last Ditch Effort

On Monday the board members of Dow Jones and Company will decide whether or not to sell journalism's last gem to the sleaziest man in media - Rupert Murdoch. The outcome of this story will finally answer the age old question, does everyone have a price?

Of course, I'm hoping Dow Jones doesn't sell out because I think the paper is good for journalism. As for the op-ed page... its never been quite as highly regarded. This comic really makes me laugh:

Global Politics Summary

This was published in the most recent issue of The Economist. Not especially shocking but still highly disturbing...


On Monday, Sprint Nextel kicked its 1000 most annoying customers off of its network. While it's no surprise cell phone companies have the most complaints filed against them at the BBB, it's also not surprising to find out that "professional complainers" are trying to take them to the cleaners. According to sources, these customers made 50 times as many complaint calls to Sprint help-lines as the average customer. I applaud Sprint Nextel for doing what every company dreams of doing but rarely does. I fact, I give Sprint a standing ovation.



Having worked in customer service for many years I know how these professional complainers operate: they complain that there are too many pepperonis on their pizza; they complain because the volume at the movies is too loud; they complain that the lines are too long at the grocery store; and they want to be comped for everything. These people have a flawed perception of reality and believe that the world is perfect, and anything less than perfection is somehow a hindrance to them. They believe the they're holding the cards, because, after all, you wouldn't want to lose their business.

Sprint has figured out something important: they do want to lose their business, because these professional complainers cost the company time and money. What good is it to have your customer support team spending hours on the phone with these people and neglecting the honest customers? What good is it to comp the complainers when they don't intend to pay for anything anyways? Don't get me wrong, I think good customer service is critical to these types of businesses. But what Sprint is doing isn't poor customer service, quite the opposite, actually! Professional complainers will never be satisfied; now Sprint can devote more of its resources to helping the honest customers looking for honest help.

This isn't even the first time I've heard about something like this being done. In a book about my favorite company, Southwest Airlines, there is a story about a woman who was a professional complainer. She literally complained about everything she could think of: she didn't like the boarding process, she didn't like the casual uniforms the employees wore, she didn't like the fact that Southwest didn't offer first class. Southwest, being the best airline in the business, responded to this woman every time, explaining the reason for these policies: unassigned seats made for quicker boarding, many customers felt relaxed with the casual uniforms, and not offering first class allows the company to offer low cost tickets to everyone. Nevertheless, this woman was relentless, yet always flew on Southwest (quite a divergence in my opinion). Eventually the CEO at the time, Herb Kelleher, personally wrote this woman and said something to the effect of: "We're sorry that Southwest cannot suit all of your needs, we hope you find what you are looking for at another airline." - Thank you, Herb!

The funny thing about professional complainers is that they somehow believe that being a huge jerk and making big empty threats will somehow motivate a business to give them better service. I think anyone who has ever worked in customer service will agree with me here - the bigger of a jerk you are as a customer, the worse your service will be. I guarantee professional complainers have had their food spat in far more than your average customer.

Woefully Ill-Informed

In April I blogged about a Pew Research study which showed that viewers of the Daily Show and Colbert Report and significantly more up to date on current events that viewers of Fox News. Now Wired is using that same research to make another interesting point: even though the internet provides us with more information than we could ever dream of, Americans are still less informed about current events now than they were in 1989. Sad.

Internet Inequality

BBC News has a very interesting article about the differeneces between Myspace and Facebook users. I know a lot of people have high hopes that the internet will bring economic, social and racial equality to the world; after all, the barriers to entry are so small that everyone should be able to interact with each other, right? Unfortunately, the results speak for themselves.

Fans of MySpace and Facebook are divided by much more than which music they like, suggests a study. A six-month research project has revealed a sharp division along class lines among the American teenagers flocking to the social network sites. The research suggests those using Facebook come from wealthier homes and are more likely to attend college. By contrast, MySpace users tend to get a job after finishing high school rather than continue their education...

The conclusions are based on interviews with many teenage users of the social networking sites by PhD student Danah Boyd from the School of Information Sciences at UC Berkeley. In a preliminary draft of the research, Ms Boyd said defining "class" in the US was difficult because, unlike many other nations, it did not map directly to income. Instead, she said, class in the US was more about social life and networks - how people define themselves and who they define themselves with. "Social networks are strongly connected to geography, race, and religion; these are also huge factors in lifestyle divisions and thus 'class'," she wrote. Broadly, Ms Boyd found Facebook users tend to be white and come from families who are keen for children to get the most out of school and go on to college.

Characterising Facebook users she said: "They are in honors classes, looking forward to the prom, and live in a world dictated by after school activities." By contrast, the average MySpace teenager tends to come from families where parents did not go to college, she said. Ms Boyd also found far more teens from immigrant, Latino and Hispanic families on MySpace as well as many others who are not part of the "dominant high school popularity paradigm". "MySpace has most of the kids who are socially ostracised at school because they are geeks, freaks, or queers," she said. Teenage users of both sites have very strong opinions about the social network they do not use, she noted...

Million Dollar Question

There was an interesting blurb in today's Investors Business Daily that really caught my attention. According to a study by the London School of Economics, 33% of people aged 16-24 in the UK wouldn't give up the ability to use a cell phone if offered one million pounds (two million dollars). Are these people crazy!? I admit, cell phones are useful and it's hard to imagine a life without them, but for one million pounds I'd give up my cell phone in a second.

Even though the study is specific to Europe, I can't imagine the results being any different if Harvard ran the same experiment here. The part that amazes me most is that people aged 16-24 are the least likely to have ever seen one million pounds and most likely to be influenced by the lure of free money. Even though the London School of Economics doesn't say it explicitly, the conclusion of their study is that cell phone addition is becoming a serious problem. I think it would be extremely interesting to do this study ten years from now and see if more than 33% of people 16-24 would rather have a cell phone than one million pounds. If I had to guess, I'd bet that they'd pick the phone.

Journalistic Jokers

MSNBC ran a story a few days ago about journalists who donated to political campaigns. According to their findings, of the candidates studied, 125 gave to Democrats, 16 to Republicans and 2 to both. Unsurprisingly, the conservative media is having a field day with this story, confirming their theory that the media is heavily biased to the left.

I have two major problems with this silly theory. The first is that the average annual salary of journalists is just about the lowest for college educated adults. According to the Wall Street Journal, newspaper journalists make $28,000 per year and cable TV journalists make $30,000; donating any amount of money to make a difference in a campaign is logistically impossible. Of course the conservative media argues that it isn't about the amount they give but by the fact that they openly endorse liberal candidates. While I will not deny that these journalists are probably liberal, the fact is that they have little to no say as to what goes into the final newspaper or TV program. Rather, the corporations which control news networks (GE, CBS, Disney, News Corp, Time Warner, etc.) ultimately decide what is news and what is not. They decide whether a story is too conservative or too liberal. And these corporations, along with their executives, donate millions of dollars each year, mostly to conservative, pro-business candidates; this is the side of the story CNBC and Bill O'Reilly won't tell you.

The perfect example of corporations controlling what their journalists can do and say took place in Florida almost 10 years ago. Award winning journalists Jane Akre and Steve Wilson of FOX News wrote a story about the potentially dangerous effects of rBGH, a growth hormone given to cows and found in milk sold throughout the state. Days before the story aired, Monsanto, a chemical conglomerate told FOX that if the story aired they would pull advertisements from the network. FOX quickly responded by telling Akre and Wilson to alter the story, making it favorable to Monsanto; the journalists refused and FOX fired them without justification. Ultimately, it was corporate executives and their wealthy lawyers who wrote the story which later aired on FOX.

So conservatives can criticize journalists all they want for leaning to the left; but as long as they donate so little, and as long as they don't even get to decide what goes into the paper or on TV, does it even matter?

Airline Imposion

I've been hearing a lot about the new low coast carrier, Skybus, a lot lately because of the absurdly low prices. If Wal-Mart started an airline, you could say that this would be it.


Skybus advertises flights for only $10 to anywhere in the country. Sound too good to be true? It's because it is. Ever since Southwest Airlines proved that selling cheap airline tickets could make you the most popular and most profitable airline in the industry, everyone has tried to rip off the business model. I'll be honest, I love Southwest and would not want to fly on any other airline unless I absolutely had to. Its not just the cheap tickets - Southwest has built a culture and a very loyal following that no other airline can match. The problem is that all of the rip-off airlines try to emulate only some parts of the Southwest model and that alone isn't enough to succeed.

Back to Skybus. The company flies a fleet of 8 Airbus A319s; these planes can accommodate 156 passengers. Remember those awesome $10 fares? Well, only the first ten customers get that fare, everyone else has to pay regular (though competative) prices. Need to check a bag? That costs extra. Want some peanuts? All food and drinks cost extra. Want to take a nap? Pay up for that pillow. Need to make a connection for another flight? We forgot to mention that the $10 fare only applies to the first leg of the flight, the second leg will cost extra. Want a quick non-stop flight? Don't count on it since all flights are routed out of the Columbus airport.

In order to keep your costs so low, Skybus pays their flight attendants only $9 per hour. This is significantly lower than the competition pays, and quite frankly, about on par with what Starbucks pays. To cut down on costs of uniforms the company just hands out t-shirts with Skybus logos on them; and training can be quite expensive, so they pretty much half-ass that too. The flight attendants are paid commission on top of their $9 wage, so they'll be pushing food and drinks on you the entire flight; but lets be honest, anyone so cheap they're traveling on Skybus as opposed to any other low cost carrier (Southwest, Airbus, JetBlue, US Airways, Frontier, Virgin) probably isn't going to be buying a lot of cocktails anyway. The company has zero customer service since call centers would be far too costly; so if you lose a bag, you might as well forget about getting it back. Oh and by the way, Skybus has been notoriously bad at losing bags in its short life as an airline.

All reviews of the airline that I have read are very negative and I am don't believe this is a sustainable airline. JetBlue was set to be the first truly successful Southwest knock-off until they had a complete meltdown last winter, stranding passengers and canceling hundreds of flights. Unfortunately for Skybus, they operate out of Columbus, OH and I will not be surprised, in fact I expect to see reports of delays, cancellations and customers wishing they wouldn't have tried to travel on the cheap.

Skybus has so little going for it that I do not think it will last any significant period of time. Starting an airline is not like opening a coffee shop and why anyone would want to get into the least-profitable business in America is beyond me. Anyone remember Hooters Air? How about Eastwind Airlines, Southeast Airlines, Independence Air, Tower Air, Vanguard Airlines, National Airlines, or Midways Airlines? Probably not, because they are all Southwest rip-offs that were dismal failures. I expect to add Skybus to the list shortly.
After seven years of nonsense, this doesn't even surprise me anymore. The Associated Press recently ran a story about George W. Bush's trip to the Czech Republic to give a speech about freedom in the region. I'll let the Associated Press tell the rest...

On a day when he trumpeted democracy, President Bush noted the vital nature of a free press. Then he got a laugh when the press got stiffed. Bush joined Czech Prime Minister Mirek Topolanek and President Vaclav Klaus on Tuesday for a joint statement at Prague Castle. They stood at podiums, in a grand hall, before the media. A Czech moderator quickly kept reporters' expectations in check.

"This press conference is going to be without questions," he said. "Thank you for your understanding." That brought a hearty chuckle from Bush, who gave a mock apologetic shrug toward the U.S. press corps. At the microphone, Bush ticked through a host of international topics. Then he thanked his hosts for "a chance to discuss these issues with the media" _ apparently a one-way discussion.

Bush did have other chances to field queries. He turned them down. In two separate sessions to pose for pictures with the country's president and prime minister, Bush ignored questions about whether the U.S. is on the brink of another Cold War. He merely kept smiling and chatting with his hosts against the backdrop of the castle's gilded fixtures and sweeping views of mountains and the city below.

Half-Baked Hedges

For those of you absolutely convinced that oil companies are manipulating gasoline prices and stealing all of your money, I want you to consider the following.

If you were sitting in early March thinking, "hey, these gasoline prices seem suspiciously low right now," and had a feeling they were going to go up during the summer (again) you could have gotten free gasoline from that moment until the end of summer. Lets say you buy gasoline once a week at an average cost of $50 (which I think is reasonable unless you drive a monster). Given that number, your gasoline bill from March - August will be $1200. Now lets say at the moment you had that insight about the suspiciously low gas prices you bought an out of the money call option for Valero (one of the biggest gasoline refining companies in the world) expiring in September at a price of $400. If you sell that option when the stock market opens on Monday morning you would make a total profit of, drum roll... $1200. And who knows, the value of the option could continue to appreciate and you could get free gasoline well into the fall.



I still don't think oil companies are colluding to rip off the consumer; but I know there are some people who believe deep in their hearts that such is the case. To those people I say: invest in the oil companies so that when they make money, you make money! Its all about thinking ahead and planning for the worst. Simple hedges like the one I mentioned are a great way to put a little more spending money in your pocket if things get more out of control than the mainstream wants to accept.

Thank You Lisa

One thing that I love about The Simpsons is that the writers aren't afraid to take jabs at Fox. Yesterday night's season finale had one of the best Fox News slams I have seen on the show yet. Thank you, Lisa Simpson, to opening the eyes of the mainstream to the silliness of Fox.

Relative Price Models

So I was thinking about the price we pay for stuff these days, and it dawned on me. We are willing to pay a lot of money for luxury items but refuse to accept that staple items are subject to inflation just like everything else. Take a look at this graph of the relative price of certain goods:


How many people do you know who must have their Starbucks coffee every morning? Or who guzzle down can after can of Pepsi. Ever take a trip to Cedar Point, a Major League Baseball Game or the zoo? If you have, you better enjoy that bottled water, because you are paying over $15 per gallon of it. When you think about it, you'd be hard-pressed to find any liquid product that you can buy for less than $3.20 per gallon.

We don't mind paying so much for luxury goods because we get some sort of immediate gratification from them. Pepsi goes great with pizza and chicken wings; bottled water at the ball game quenches our thirst; and a Starbucks Java Chip Frappuccino is the most delicious way to wake up in the morning. We want our cars to go but don't want to pay to make them go. In retrospect, it could be a lot worse. Imagine what the world would be like if cars ran on Starbucks lattes instead of gasoline...

More of Moore

Michael Moore's new documentary Sicko is coming out this summer and like his other films, I plan to see it upon release. As just about everyone knows, Moore is considered one of America's most outspoken liberals, and he makes people like Bill O'Reilly cringe; which is why I am confused as to why Fox News is endorsing his new movie. According to their film critic:

Filmmaker Michael Moore’s brilliant and uplifting new documentary, “Sicko,” deals with the failings of the U.S. health care system, both real and perceived. But this time around, the controversial documentarian seems to be letting the subject matter do the talking, and in the process shows a new maturity.”


Has an editor at Fox accidentally let an endorsement of Moore's new movie leak out? Has Moore changed his ways and become born again? Or is America's health care system in such bad shame that even Fox News gives two thumbs up to Michael Moore's criticism of it? Make the situation even more suspicious is an article written in The Guardian. According to the British newspaper:

The film has already caused Moore - who won the Palme d'Or at Cannes in 2004 with Fahrenheit 911 - to clash with the American authorities. Now, according to movie mogul Harvey Weinstein, whose Weinstein Company is behind the film, the US government is attempting to impound the negative. According to Weinstein, the US Treasury's moves meant "we had to fly the movie to another country"- he would not say to where. "Let the secret service find that out - though this is the same country that thought there were weapons of mass destruction, so they'll never find it." He added that he feared that if the film were impounded, there might be attempts to cut some footage, in particular the last 20 minutes, which related to a trip to Cuba. This, said Weinstein, "would not be good."


What is going on here? Fox praises Michael Moore... US government tries to censor a documentary about health care... I think there are still a lot of questions left to be answered.

The Gasoline Paradox

Happy National Gas Out Day Eve everyone! I plan to fill up tomorrow morning to protest the silly protest which is going on; and plus, if I am wrong, the prices should be dirty cheap since all the stations will be hurting for business (or so the theory goes). On an inflation-adjusted basis, gasoline is no more expensive now than it has been before, and is certainly nowhere near its peak; say what you like, but the numbers don't lie.

So here is my theory about why all this gasoline protest nonsense is going on and why we are barking up the wrong tree. First, take a look at the real price of gasoline over the past 50 or so years. The general trend is downward and only in the past few years have we seen a little spike; still, the real price is lower than in the 1950s and the 1980s.



No, the problem isn't with the cost of gasoline... the problem is with the wages Americans make today. Consider that the people most likely to be hurt by the price of inelastic goods like gasoline are low-incomer earners. Now look at the graph of the real federal minimum wage in the United States over the past 50 years.


Low-income workers are now earning less, on an inflation adjusted basis, than at almost any other time since 1950. Here is the implication: both gasoline and no-skill labor are economic goods which are tradable on a market. In the case of gasoline, the market is very liquid and is volatile because there is no government imposed price ceiling or floor. Minimum wage, on the other hand, is heavily restricted by a price floor set by the government. So theoretically, all of the protesters angry about the price of gasoline shouldn't be wasting their breath trying to teach the oil companies a lesson, they should be lobbying for the government to increase the minimum wage! The government already has its hands tied up in the labor market, so using the state to increase wages would be much more beneficial than using it to subsidize energy; and both would have the same end result. Lets start a new revolution - every time you get an email, text message, myspace comment, or whatever, telling you to boycott Exxon stations, send along a rallying call for the government to increase the minimum wage in this country. At least there is some hope for wage change if we exert our energy correctly.
When people used to ask me what I thought about the British oil company BP, I used to respond that I thought it was probably the least shady of the oil companies (if that means anything). At least BP was bold enough to run a series of advertisements basically conceding that global warming is a real problem and that we can do something about it. Regardless of whether BP cares about the environment, at least they went out and told consumers that something is wrong and we can do something about it. These are two examples of these advertisements:





About a week ago I saw new BP advertisements running on TV. The new commercials feature cute little cartoon characters looking for a fun gas station to fill up an empty tank. In this rather distrubing ad, toddlers are on a road trip and need gasoline; they spot the happy BP station and the dancing iPod fills their car up with gas. How wonderful!



In BP's press release from last month the company says it aims to change the negative perception of the "gas station experience" and make a commitment to be "a little better" than the other oil companies. These cute cartoony advertisements are a smoke and mirrors effect that ignores the realities of BP's problems. These new advertisements tell consumers that BP's top priority right now is making its filling stations fun. Instead of earning respect by actually doing something to clean up the environment or make an impact on alternative fuels, BP is trying to win the hearts of Americans with lovable characters. The problem with oil and gasoline isn't that the filling stations aren't fun, I mean come on. The problem is that we refuse to reduce our dependence on oil and instead prefer to focus our energy elsewhere. When someone asks me about BP today, I tell them that they are just like every oil company, and I don't know why I even thought they deserved a little more respect.

Certified Organic

Wal-Mart wonders why people who make more than $50,000 don't shop at their stores. Well, now this demographic has yet another reason not to go there. Wal-Mart started selling organic groceries recently to compete with upscale grocers like Whole Foods Market and Wild Oats Market, who cater to wealthy, upscale consumers. The thing about people who buy organic food is, they are extremely picky about what goes in their stomach; and why shouldn't they be?.. they're buying organic stuff after all. So when Wal-Mart mislabeled its groceries and tried to pass off the regular junk as organic, consumers were not happy at all. In quite a few stores months have passed since Wal-Mart has been asked to remove the organic label and nothing has been done. Naturally, angry consumers took to the blogosphere in protest.

Wal-Mart needs to figure out that when you try to branch out and bring in people outside of your core demographic that you have to do it right. The organic food disaster is just more proof that Wal-Marts attempts to bring in new customers "on the cheap" has just driven those customers away.
I could blog every day about how much the Christian right in this country annoys me. But sometimes the smartest show on TV does a much better job than me. Yesterday Stephen Colbert had a little something to say about intolerant people in this country. I have to say, this stuff is gold.



Fox Street Journal

When CNBC first announced that Rupert Murdoch's News Corp. offered to buyout Dow Jones & Company at a 50% premium I thought I could mark my calendar as the day mainstream media died. Fortunately, it looks like the Bancroft family, who control most of the voting shares at Dow Jones & Co. are not going to accept the offer. Did New Corp make an outrageously high offer that is probably way above market price? Yes. Anyone concerned about the bottom line would be a fool to reject offer like this; but sometimes there are things more important than money, and it looks like the Bancroft family is making that statement.

Dow Jones & Co. is probably best known for the Dow Jones Industrial Average, a stock index algorithm that calculates the average of the 30 biggest companies in the United States. The company also owns Barron's, MarketWatch, and most importantly, The Wall Street Journal. Dow Jones is a company with about a $5 billion market cap, which is peanuts compared to News Corp's $70 billion market cap. So why does Murdoch want Dow Jones? He wants the company as a trophy asset, and more importantly, he wants control of the editorial page in The Wall Street Journal. The WSJ's editorial page is obviously right of center, but at least the newspaper and its editorial page is respectable. Compare this to Fox News Channel and The New York Post (two conservative media outlets owned by News Corp) which are the laughing stock of mainstream media.

Murdoch wanted to use Dow Jones & Company to give credibility to his new Fox Business Channel, scheduled to launch later this year; but News Corp would have simply tainted a well respected media company. Dow Jones has talked in the past of merging with the Washington Post Co. and Wall Street has suggested a good match between Dow Jones and the New York Times company. Dow Jones is arguably the only remaining successful newspaper media company, maintaining a strong advertising base and consistently large circulation. It is one thing for a conglomerate to suck up struggling companies or companies that it is driving out of business; but it is another for a conglomerate to buy-out the most successful company in the sector. I hope for the best for Dow Jones & Company, a lot is on the line here.

The "Gas Crack"

Eric Bolling made a great point on Fast Money yesterday night. Gasoline prices are going higher, a lot higher. How does he know and why do I believe him? Because the fact is that we are facing a major supply shortage. Talking heads go on TV all of the time and say... its not that we're running out of oil, there is plenty! the problem is that the oil companies aren't refining enough of it. This is true.


However, these pundits always want to lead you to believe that since crude oil is readily in supply that gasoline should be as well; but the actual supply of crude is irrelevant. If the refiners can't produce gasoline at a pace that equals demand then we have a shortage of gasoline, its that simple! What congress and all these anti-oil activists want you to believe is that these oil companies are producing under capacity and gouging us with high prices. Not true. Refiners are operating at their maximum efficiency and pumping out as much gasoline as possible. The problem is that these refiners are old and as Dylan Rattigan said, "are pieces of junk." The result is that the wholesale price of gasoline is going up, a lot.


Gasoline futures traded on the New York Mercantile Exchange are now at their highest price EVER. Yes, they are now trading higher than after Katrina, and we know what happened back then. Since the May futures don't expire for a few more weeks, we still have a little bit of time to enjoy gas at $3.00. Enjoy it while you can, I think gasoline is going to $4.00.

So here's the bottom line. Demand for gasoline is high because Americans refuse to give up the SUVs and suburban lifestyle. We sure complain about gasoline prices a lot, but when it comes to taking action we prefer to complain some more. Supply of gasoline is low because refiners can't produce it fast enough to meet demand. No, oil companies are not under producing to rip you off. No, oil companies are not holding off building new refineries to rip you off. Think about it, oil refiners have every incentive to sell as much gasoline on the market as they can. Gasoline refiners aren't like hiking tents; you can't just decide to build a new one and have it operating withing a month. Refineries are expensive and take a long time to build. The problem with supply is a flaw in infrastructure. Instead of complaining about high gas prices and pointing the finger at oil CEOs, maybe we should learn how the industry operates and why we are stuck in the position that we are in.

And one final thought. All of the traders on Fast Money think that gasoline prices are too low (despite all of what I just said). Sound familiar? Maybe its time for the necessary gasoline tax.

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Bloggers for Gravel

A relatively old, white haired man from Alaska, who many people had never heard of one week ago, has become an instant hit with bloggers across the internet. Mike Gravel, former Senator from Alaska, made a fiery appearance at the Democratic primary debate on MSNBC last week. The difference between Gravel and all of the other candidates is that Gravel said what everyone deep down wants to say, but is scared of the negative implications. His speech was not pre-written by some elite public relations firm and he was not afraid to call out the other candidates for being fake tools of the political system. Go over to digg or reddit today and you'll see that members of these social networks have made a clear endorsement of Gravel for president in 2008.



Mike Gravel struck a chord with bloggers because he stands for everything that politics in the United States today is not. For example, during the debate he made this comment about getting the nomination:

What will make a difference in this campaign is not money, it's not celebrity,it is a person who is prepared to tell the American people the truth. The people are fed up and as president I will do a 180 and move this country in the opposite direction.


My experiences with politics would normally tell me that this is ridiculous, money and fame are just about the only things that matter in elections today. Nobody from California should be able to keep a straight face when they say that Arnold Schwarzenegger was the most qualified candidate for the governors office, for example. Nevertheless, the 2008 election will be the first presidential race since the advent of Web 2.0. Ten years ago a candidate like Gravel wouldn't have had a prayer of making it past the Iowa Caucus; sure the internet existed, but information moved slowly and too many people didn't understand the subtleties of the web.

CNN, who is scheduled to host the next Democratic primary debate, has not invited Mike Gravel to join in the fun. Petitions demanding that CNN let Gravel speak are making their way to the top of digg and reddit and links to email CNN are posted everywhere. Whether or not Gravel gets invited to the CNN debate in June is going to be the first real litmus test in determining how powerful Web 2.0 is in determining political outcomes. Howard Dean exploited the pre-web 2.0 internet in 2003 and 2004 and barring the noise he made, almost got the nomination. The internet is the only way to bring real democracy back to this country, so that we can start to elect candidates not because of their celebrity status or bank account, but because of what they stand for.

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Media Circus

Without a doubt, The Daily Show and Colbert Report are the smartest political shows on TV. Maybe its because the shows are hilarious... or maybe its because the hosts are fun loving guys. My opinion is that these shows tell stories in an entertaining, funny and accurate way. I was extremely happy to see John Stewart do a story about the media re-action to the Virginia Tech shooting and how poor their coverage really was.





There you have it. The perfect compilation of clips demonstrating exactly how bad cable TV news in the United States really is. The problem? They think they did a great job, and are likely to continue providing us with the same, terrible coverage far into the future.
Bill O'Reilly is up to no good again. On last night's episode of the O'Reilly factor Bill takes so cheap shots at acclaimed journalist Bill Moyers. O'Reilly claims that he was unfairly portrayed in a documentary Moyers made about the Iraq War and US foreign policy. The irony is that O'Reilly has little credibility to make the argument that he is being unfairly portrayed, since the premise of his show (and network for that matter) is to do exactly that. when journalism professor and Fox News contributer Jane Hall disagrees with O'Reilly he goes absolutely crazy.



My favorite part of the video is near the end when O'Reilly says, "you don't justify bad behavior by pointing to other bad behavior," because in essence, that is exactly what this little rant seeks to accomplish. O'Reilly is trying to boost his own credibility by making himself look like a victim of the "secular progressive far left." The truth is, Moyers is a respected journalist who wins writing awards because his books, columns, TV show, and movies are all well-written and well-produced and he makes intelligent arguments. O'Reilly, on the other hand, is a hothead who's books and TV show are about as professional as anything Michael Moore has ever done. Maybe O'Reilly found a single instance where his comments were taken out of context, but I could spend days blogging about all of the unprofessional things O'Reilly has done on his show. There is a good reason O'Reilly hasn't won any journalism awards - and that isn't likely to change.
Fox News has done a lot of outrageous things over the years, and when you think it can't get any worse, it does. Bloggers over at Think Progress broke this story yesterday morning and thanks to websites like digg and reddit it has proliferated like crazy. Last week in Maine middle school students students played a dirty prank on a group of Somalian Muslims by putting a ham steak next to them in order to offend them. The school filed a report calling the incident a hate crime since it was targeted toward a specific group of people based on religious and cultural grounds. Blogger Nicholas Plagman wrote a satirical parody about the situation which was posted over at Associated Content. He completely fabricated all quotes and details, changing the ham steak into a ham sandwich and discussing the school's plan to create "an anti-ham response plan."

On Tuesday morning Fox and Friends reported on Plagman's satirical article and presented it as real news, showing offensive pictures and making lewd comments. Obviously anyone with half of a brain (even Fox viewers) might think this story was a little out there, so the hosts remind us many times "we are not making this up." Take a look:



After the story aired, the school district received a barrage of angry phone calls and emails. People from across the nation accused the school district of over-reacting to the situation and demanding that they scrap the anti-ham response team. Fox's presentation of satire as news is usually a victimless crime, but in this case, an entire school district is under fire from the entire country. The real crime here is that Fox reported this story without doing a real fact-check. In fact, I find it hilarious that at the end of this story one of the hosts says it must be true because, "I've looked it up on a couple of different websites up there." This is not a situation that should be taken lightly. As long as Fox News is allowed to get away with garbage like this they will, so long as it boosts ratings and advances their political goals.

Everybody Loves Hillary


After seeing the first Democratic primary debate on MSNBC yesterday, it became clear why Hillary Clinton is the front runner in the Democratic primary and why she is a real force to be reckoned with. Not only does Hillary have a huge competitive advantage with Bill Clinton at her side, but she is picking up some extremely valuable endorsements from outside of the beltway. Consider the following, Brian Williams asked Clinton this question toward the end of the debate: Overall, is Wal-Mart a good or bad thing for the United States of America? And the Senator's response:

Well, it's a mixed blessing... when Wal-Mart started, it brought goods into rural areas, like rural Arkansas where I was happy to live for 18 years. And it gave people a chance to stretch their dollar further. But as they grew much bigger, though, they have raised serious questions about the responsibility of corporations and how they need to be a leader when it comes to providing health care and having safe working conditions and not discriminating on the basis of sex or race or any other category. Brian, this is all part, though, of how this Administration and corporate America today don't see middle class and working Americans. They are invisible. They don't understand that if you're a family that can't get health care, you're really hurting. But to the corporate elite and to the Administration and the White House, you're invisible. If you can't afford college, you're invisible. So I think we need to get both public sector and private sector leadership to start stepping up and being responsible and taking care of people.


Hillary Clinton probably didn't score any points with Wal-Mart's board of directors, but she certainly made a connection with labor unions and a growing number of Americans who have a negative view of Wal-Mart (In a 2005 Zogby poll, 56% of Americans agreed with the statement Wal-Mart is bad for America. It may provide low prices, but these prices come with a high moral and economic cost.). In the past, appealing to unions and appealing to Wall Street was a zero-sum game, and candidates had to pick one or the other; but Hillary seems to have succeeded in winning over both sides of the isle.

John Mack, CEO and Chairman of Morgan Stanley, officially announced he is endorsing Hillary Clinton for president in 2008. Mack is a lifelong Republican who raised at least $200,000 and endorsed George W. Bush for president in 2004. CNBC reported earlier this afternoon that Lloyd Blankfein from Goldman Sachs, Richard Fuld from Lehman Brothers, and Jamie Dimon from JPMorgan Chase are also leaning toward a Clinton endorsement for 2008. The significance off all of this is that Wall Street (traditionally libertarian by political standards) is making the switch from backing Republicans to backing Democrats. In a lot of ways, this makes sense. Republicans have traditionally been known as the conservatives, fiscal hawks, and tax cutters; and Democrats have been known as the liberal tax and spenders. However, over the past several years fiscal conservatives in the Republican party like Newt Gingrich and Grover Norquist have been replaced by Neoconservatives like Dick Cheney and Donald Rumsfeld and by the Christian Right nuts like Sam Brownback and John Ashcroft.

The reality is, our country was a whole lot more fiscally responsible when Bill Clinton was president than we are now under George W. Bush. The neocons in the Bush administration like to go on a lot of imperial crusades, which tend to be extremely expensive, and the Christian Right is so concerned with screwing around with other peoples lives and wasting time spewing about abortion and gay marriage that there isn't much fiscal conservatives can do anymore. Hillary Clinton has struck an important chord with both Wall Street billionaires and middle-class working folks. If she can continue to walk this fine line I have no doubt we will have the Clinton dynasty back in the White House next year.

Supply Squeeze

Wall Street has not been a fan of Wal-Mart over the past several years, and the company's poor stock performance reflects it. Maybe Lee Scott is a poor manager, maybe Wal-Mart has run out of room to grow, or maybe anti-Wal-Mart lobbies have caused the company to take a big hit. Regardless, investors have another reason to hate Wal-Mart. Doing business with the world's largest company is a double edge sword. On the one hand, Wal-Mart squeezes every penny out of its suppliers in order to pass the savings onto the consumer, so suppliers see their margins get crushed; but on the other hand, Wal-Mart is so massive that suppliers make up for the small margins through volume.

Research published by Forbes now confirms exactly how suppliers are affected by their relationship with Wal-Mart. Unsurprisingly, the more that a company does business with Wal-Mart, and the more Wal-Mart exploits that supplier, and the lower their average profit margins are. Based on the research from Forbes:

With this kind of squeeze, small companies with weak brand names are having a hard time finding investors who will tolerate their low profit margins and inability to do anything about it. People invested in Wal-Mart suppliers are losing money hand over fist, and the value of supplier companies is tanking. In fact, of the 333 suppliers that Forbes used in its research, only 25 of them beat its sector gross margin. In extreme cases (most notably Rubbermaid and Vlasic) Wal-Mart drove highly respected companies straight into the ground. With numbers like this, a smart investor is better off sticking his/her money in a retail tracking exchange traded fund, and I don't blame them - its much lower risk and higher reward. The debate over whether Wal-Mart is good or bad will go on forever. But when it comes to specific issues like the prosperity of suppliers, I think the verdict is out: be careful who you do business with, you never know what you might get.