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Quote of the day:

"When the Journal gets its Page 3 girls, we'll make sure they have M.B.A.s."

— Rupert Murdoch, on his attempt to purchase the Wall Street Journal

Bankrupt!

The Administration push for Social Security “privatization” is obviously a scam — since when is the Administration interested in something that will only be a problem long after Georgie is out of office? Global warming? Nope. Energy independence? Nope. Global competitiveness? Nope. Water shortages? Nope. Health care? Nope. Long- term structural deficits? Nope.

But what kind of a scam? Everybody who actually looks at the numbers seems to agree that it's a horrible idea; Brad DeLong (who has economic credentials out the wazoo) has been particularly energetic in tracking this piece of idiocy.

Well, the obvious answer is that they're paying off their Wall Street supporters and propping up the stock market. All those accounts will buy stocks and bonds, which will drive up stock and bond prices. They'll need to be managed, which means management fees. Big return on investment for Wall Street's campaign contributions. As with all “privatization” schemes, it “privatizes” only the profits for the Administration's friends, leaving the risks for the rest of us to deal with.

But there's another barb in this hook, and it also ties in with “personal medical accounts”, another little “privatization” oddity being pushed by the Bush administration.

One of the many potential train wrecks in our current economy is the consumer debt level. Far too many people are carrying far too much debt, especially unsecured credit card debt. American bankruptcy laws are by far the most liberal in the world, and the credit card companies are terrified of a wave of personal bankruptcies. They've been worried about this for a good number of years now.

Problem is, if a bank makes an unsecured loan (like on a credit card) and the person getting the loan goes bankrupt, the bank is simply out of luck. The creditors divvy up the assets as far as they will go, but they're not going to come anywhere near to covering the debts. Enough people declare bankruptcy and the banks are in Real Trouble. Doesn't seem to slow 'em down sending out “you have already been approved” credit card offers, though.

Now, there is a movement to tighten up bankruptcy laws. Personal bankruptcy is being portrayed as a way of simply writing off one's debt and starting over, with essentially no penalty. It ain't. It's a process that nobody in their right mind would go through voluntarily, but that's not the spin. I've even seen suggestions of bringing back debtors' prison. I dunno how serious they were; debtors' prison seems to be an ideal way of guaranteeing that you'll never get your money back.

Bush's “ownership society” generates a bunch of new “assets” that can be attached by creditors. Declare bankruptcy or lose a lawsuit, and not only are your savings gone, so are your future Social Security and medical benefits.

Now, Social Security is supposed to provide a minimum level of support. If somebody has their “assets” confiscated as the result of a bankruptcy or lawsuit, they no longer have that minimum level of support. So what are we going to do? Let them starve in the streets? (I get the impression from some of the more radical Neocons that that's exactly what they want to do.)

BushCo looks to be willing to spend a lot of political capital on this one. Best to pay off your credit cards now .... But that's good advice in general.

Paranoid Airline Conspiricy

Well, the airlines and their stupid security programs seem to be back into the blogosphere. Ted Kennedy getting stuck on the “watch list” seems to have a great deal to do with it. It took him, with all his connections (Homeland Security Secretary Ridge returns his calls) three weeks to get things unscrambled — and the name that was causing the problem was “T Kennedy”. I'd have expected it to be “E Kennedy”, at least.

Now, the usual explanation for this kind of nonsense is that the Homeland Security people don't have the foggiest idea what they're doing, but have to work really, really hard at looking like they're doing something. Bureaucracies want you to judge them by their input (“look at all the work we've done”) rather than by output (“look at what we've accomplished”). Reason is, oftimes, there isn't any output. This is probably true.

But it's fun to play Paranoid Conspiracy. Now, Once Upon A Time, the airlines were heavily regulated. Routes, fares, schedules, all had to be approved by the Government. People didn't fly much because the prices were high, but the airlines still made lots of money. Then came deregulation. Suddenly, the airlines were in control of their business. They could fly pretty much where they wanted and charge a market price. This was a disaster. Many airlines went out of business; the rest had to restructure their operations drastically. The result was the airline industry we have today -- low prices and full schedules to common destinations, coupled with incomprehensible fare structures, minimal “service”, and airlines on the verge of bankruptcy.

Airlines are selling a "commodity"; in other words, any airline is pretty much indistinguishable from any other airline. In this kind of market, the lowest- cost supplier wins and everybody else loses. If you want to fly to San Diego next Tuesday and Airline A wants $200 and Airline B wants $300, who are you going to fly? Well, you know that the main difference between Airline A and Airline B is the color of the planes. You'll go with A every time.

This is just what we see. Southwest Airlines and JetBlue are making money hand over fist and everybody else is on the verge of bankruptcy.

The traditional way of making money in a market like this is to differentiate your services. In the example above, suppose that Airline A has itchy, uncomfortable, narrow seats, and no food or drinks while Airline B has wide, comfortable seats and a nice meal. Now the choice is not obvious. Is the extra comfort worth $100? Your call. If you have to get off the plane and go straight into a meeting it almost certainly will be. Fly Airline A and you'll go into your meeting all twitchy and grouchy. As a matter of fact, Midwest Airlines has this extra level of service, and they're making money.

What would happen if the major airlines started going bankrupt? Well, they'd certainly have to keep flying. Equally certainly, they'd use the opportunity to wage- bust their hourly employees. Right now, United Airlines has stopped payment to its employees' pension plan and US Airways wants to.

It seems that this is the perfect opportunity for the airlines (other than Southwest and JetBlue) to get themselves re-regulated. Your trip to San Diego costs $400, no matter who you fly with. The airlines breathe a deep sigh of relief and give their CEOs big bonuses. Well, they'll get the bonuses anyway.

So in this scenario, the fewer people who fly, the better. Easiest way to keep people from flying is to make it as inconvenient as possible. Hence lots of stupid rules and regulations that accomplish nothing. This pushes the airlines closer to bankruptcy, without having to do obvious things like raise prices.

From the Manual of Business in the Twenty First Century — whenever possible, get somebody else (Government is ideal) to do your dirty work for you. Also try to get the Government to order you to do what you want to do anyway.