When your only tool's a hammer ...

... all the world looks like a nail.

The above quote is attributed to Abraham Maslow, and it rings true time and time again.  In this particular case, I think it applies to The Federal Reserve.

News flash for those who have been living under a rock: housing prices have NOT been rising indefinitely (as many investment products were designed to take advantage of), and when this pyramid scheme began to unravel (I love mixed metaphors), a ton of things happened very rapidly.  Credit markets dried up; countless business plans that were based on aggressive growth failed; countless more projects dried up or did not get funded in the first place, and unemployment shot up above 10%.  The Fed pulled the biggest lever it could, and dropped its lending interest rates like a rock:

Source: http://www.tradingeconomics.com/Economics/Interest-Rate.aspx?Symbol=USD

Look again.  The interest rate has been almost ZERO since January 2009.  Twenty months and counting.  Historically, it's usually around 5%, but was as high as 20% in March 1980.  Banks and other major financial institutions can borrow money for free.

This is a slightly indirect way of pumping money into the economy.  Allowing borrowers (big banks, in this case) to borrow money on the cheap is an attempt to loosen things up a bit in the financial markets, and hopefully stimulate new projects, new industries, and new jobs.

But it just hasn't been enough.  And here's the point of this post: the Fed is considering new ways of pumping more money into the economy.  They've got their hammer, and they're lookin' for nails.

What has been the result of the absurdly low interest rate over the past 20 months?

1. It has probably stemmed the loss of jobs in this country.  Sorry, I don't have a definitely source to cite for that; it's just my opinion.
2. It has not turned the economy around.  (See current unemployment rate.)
3. Large companies, given the opportunity to borrow large amounts of money basically for free, have been investing in themselves and buying back their own stock.

Let me underscore that "buying back their own stock" point: there has been $258 billion dollars in stock buyback this year, compared to $52 billion at this time last year.  And they're getting the money to do it from Uncle Sam.

Imagine the corporate boardroom discussions, happening all around the US:

Chief Financial Officer: "Hey, we can get a loan from XYZ financial institution for $2 billion at 0.1% interest per year.  That's the lowest cost of money, ever."
Chief Executive Officer: "Sounds like a good deal.  I want each of my division leaders to examine what they could do with an extra $500 million this year."

---THE NEXT WEEK---

Chief Financial Officer: "Boss, all of the divisions say they can start some projects, but can only estimate a return of 3-4% in the next year on our investment."
Chief Executive Officer: "What??!?  3-4% return on investment?  That's a miserable deal for our stockholders!  I expect our stock price alone will go up 10% this year!  Why would I invest in R&D at a 3-4% return when I can invest it in myself and make at least 10%?  The stockholders will be happier, too."

Hopefully I've made the point pretty clear by now.  The Fed has a hammer: the interest rate it sets when loaning Fed money to banks.  It's a really big hammer.  It can be very effective when the economy is chugging along.  But when it's sputtering, it's not a very effective hammer.

The road to recovery is not paved by giving money to corporations so they can buy their own stocks back.  That doesn't create new jobs, and it really only helps those people who already own vast amounts of stock.  It doesn't put bread on anyone's table that isn't already covered in filet mignon.  Instead, I think the Fed needs to find new ways to *directly* create new jobs, or provide better incentives that will push industry to create new jobs.  If the Fed can't do it, then stand back and let another government organization stimulate the economy.  This kind of "new thinking" isn't the message we've been getting from the Fed.

I'm worried about the "quantitative easing" measures that are bandied about now -- another fancy way of pumping money into the system.  They don't address the problem at hand, and they have a cost that we'll have to pay off (specifically, my generation) in the future.  And it didn't really work for Japan when they tried it before, but they're trying it again anyhow.

A hammer is a very poor choice of tool for a screw.  And the economy looks screwy to me.

The Singularity

There's a concept among futurists and science fiction folks known as The Singularity.  While there is no formal definition, it goes something like this:

Mankind's progress and rate of learning so far has been limited by the ability of our brains to process, assemble, and assimilate information.  There may come a time in the future when we build a robot or a software computer program that is, effectively, smarter than we are.  At that point, the pace and progress of learning is no longer bound by our brains.

That moment is known as the singularity.  After that moment, it becomes impossible for us to predict the future, because it grows faster than we can comprehend.  Vernor Vinge wrote about this in a 1993 article, but it was really first coined in an article from way back in 1965: "Speculations Concerning the First Ultimate Machine."  Since then, many books and articles have been written about it.  Business Week even had a blurb on it back in 1999, as they were making predictions for the 21st century.

I tell you all this as background, for it appears we're one step closer to this point: Carnegie Mellon has devised a computer that can read, and learn from, the internet.  Called NELL, for Never Ending Language Learner, it can browse and parse the internet, and form "beliefs" based on what's out there.

I freely grant that the internet is not the Paragon of Truth, and based on volume, NELL is more likely to emerge as a whiny teenager with a penchant for anarchy than it is to become a wise oracle.  But still: it can learn and process, and it can browse and internalize a whole lot more of the internet than you or I can.  With a few more years and a few more terabytes of memory, we could be in for a heck of a ride.

Google Day!

In about two weeks, we'll have an important date that I want to celebrate.  And I want the internet to help celebrate it with me:

10/10/10

That's right ... in about two weeks, Sunday, October 10th, 2010, will be all ten's.  The perfect score on Dancing With the Stars.  A unique manifestation of our base-10 counting system.  And, with a little mathematical manipulation, we can make it come out to a unique number:

Guess what that is?  It's a googol, which is an astoundingly large number. (I know I had to fudge it a little, but 10^[10^(10)] is just absurd.)  There aren't even a googol atoms in the universe.  But our dear friend Google stems from this number, in an attempt to convey how much information Google hopes to store.

There have been a few attempts to stage a Google Day in the past, but they didn't achieve the viral, internet-phenom level of something like, say, Boobquake.  I think this one is different than past Google Days because it has such significance on the calendar.

So on Google Day, pick your favorite Google-hosted website:

• This one
• The official Google blog
• Other blogs
• Google Labs

And visit it 10 times.  Or a googol if you're really patient.  Google will love the traffic.  And, oh, to celebrate, I might click on a few ads along the way.  --->

Failing Gracefully

The internet is broken.  I blame cascading style sheets.

To explain the above (somewhat inflammatory) comment, I need to explain something common to engineers.  A key attribute in almost any well-designed system is known as "graceful degradation" or that the system "fails gracefully."  In practice, this means designing the system such that, in situations where the inputs aren't 100%, the system notices this, and adjusts its output accordingly.

For instance, many laptops (in close coordination with the processors that run them) have different levels of output: when plugged into the wall, the computer will crank out as much performance as it can.  When on battery power the CPU will slow down a bit, and the screen might dim slightly to ease the power draw from the battery.  When the battery level gets below 10%, the CPU might go into a slower, power-saving mode -- slow, but still functional to allow you to get your work done and hopefully save your work.  It's at about this time that the computer starts throwing warning messages at you, along the lines of

"FEED ME."

Then, once battery power gets to around 1% or 2%, the computer will put itself to sleep (since you're apparently incapable or untrustworthy), in a last-ditch attempt to husband the tiny amount of juice left in the battery while it patiently waits for you to plug it back in again.

This is graceful degradation: decreasing output for decreasing input.

The internet, in its modern form and for the average user, does not fail gracefully.

This was brought to my attention recently when I was suffering through a bad wireless router.  Our computers would download the first part of a web page, then hang indefinitely.  *Very* frustrating.  The below picture is a screen shot where I've cut out the middle section (it was all white anyhow; you're not missing anything):

In this case, I was looking up what "aGPS" is, or "assisted GPS."  The fact that I'm using Safari on a mac is irrelevant; this malady affects all computers and all browsers.

Now look at the bottom: it says, "Loading," and that it's completed 70 of 85 items.  That seems like a lot; 70 of something should imply some level of content.  And yet, the screen is completely blank!  There is no information to display yet.

And here's where the internet doesn't fail gracefully: you have to load almost all of the content, almost all of the time, regardless of your connection speed and regardless of the quality of your connection.  I would think, in any intelligently designed system, the content would come first -- in this case, some text explaining the details of aGPS.  But, no, with the construct of Cascading Style Sheets, you have to load tons and tons of format first -- and the content comes last.

This is a shame, because the whole idea of CSS is to separate content from presentation.  But the internet doesn't prioritize the order in which it sends it to you.

This would happen all the time with our faulty router: it would load the first sections of a web page, then hang indefinitely.  Incredibly frustrating, and I'm sure I'm not the only one who's suffered from this.  Sites designed for mobile viewing (on your cell phone or iPad, for instance) don't really get around this: they just cut down on the amount of formatting, but they still rely heavily on cascading style sheets.

End of rant.  This is a small detail that probably only affects a few people.  But for an entity that seems to take such interest in picayune things, when the website is down, it's incredibly frustrating and I'm surprised someone hasn't already done something about it.

Sometimes I use a text only browser, like Lynx or Lynxlet, just for fun.  Maybe we can overthrow the CSS overlords.

Driving in DC #5

The Borg is coming, and this is what it looks like in Washington, DC:

Yes, that's right, it's the Department of Defense's Mark Center, located just off of Exit 4 of Interstate 395 in Alexandria, VA.  If anyone hasn't seen it yet, the building is big and imposing.  Even as it was going up as just a steel skeleton, I would think, "Holy moly, that thing is huge."  It's only 17 stories, which by New York City standards is actually pretty low, but it's designed to hold over 6,400 employees and the site itself is 16 acres -- enormous by NYC standards.

And it's the impending influx of those 6,400 employees that makes this the "Driving in DC" entry.  The nearest exit for this building is off of Seminary Road, and that already isn't pretty around rush hour.  The Army's Traffic Plan (pdf) says they plan for 3,840 parking spaces and that 20% of employees will use the shuttle buses.  Other reports say the shuttle buses will shuttle to the Mark Center from the King Street, Ballston, Franconia/Springfield, the Pentagon, and West Falls Church metro stops.

I sincerely applaud the traffic engineers' efforts to tackle this really, really difficult problem.  Obviously, military planners want a centrally-located auxiliary office building that's near the Pentagon, but not AT the Pentagon. That means inside the Beltway ... and there just aren't very many locations within the Beltway.  But, aaugh, I don't think and extra 3,800 cars coming in and out of the Seminary Road exit are going to make for a more pleasant experience on I-395 at 5pm.  And no matter how you slice it, there is some serious left-turnage involved for those coming in from the south:

(The Google Maps photo is old and doesn't reflect the new construction over the past two years.)  Add to this the other 15,000 or so workers who are being relocated to Fort Belvoir, and I-95 becomes nearly impassable.  Ouch.

I'm not the only one who's concerned.  In May, Virginia representative Jim Moran stuck language into the 2011 Defense Spending Bill that would reduce the number of parking spaces available for the new Mark Center to 1,000, unless the Army could "fully mitigate the impact on local traffic."  I'm not sure that's a productive way to go about doing things, but I'm sure it got people's attention.

As for me, I plan to watch traffic snarl on the webcam when the site opens in a year or so.

The State of Living Today

OK, back on the blogging horse, this time with a sobering look at how much it costs to live, on average, today.

A few weeks ago, there was a lot of news when the US Department of Agriculture released new figures on how much it costs to raise a kid in the US today, from age 0 to age 18:

$222,360

The cost is before college, and is for 1 kid.  The report notes that families with 3 or more kids spend 22% less per kid.  That makes a lot of sense.  As the youngest of 3 in my family, I was the recipient of lots of hand-me-downs.  And I liked it that way, gosh darn it!

But that got me thinking: if the cost of raising a kid is that much, and the median household cost in the US is now $176,900, how much does it all add up to, annually?  I mean, how much do you have to earn to account for all those things they say you should be doing, like saving for retirement?

So, let's break this down.  I'm going to make a ton of assumptions, but I think they're within the ballpark of reasonable.  And the point of this exercise is really to get down to an order-of-magnitude estimate of what it costs, not to quibble about the third-decimal-place of accuracy.  So here we go:

• The average family has 2 kids.  And, let's assume that the second kid gets a 15% discount.  $222,360 per kid, minus a 15% discount for the second kid, results in a cost of $1904 per month.
• The median house in the US is $176,900.  If I assume a 20% down payment on the house, a 30 year fixed mortgage loan at 5% interest, and $1,000 property tax per year on the place, those monthly payments are $843 per month.
• I'm not counting on Social Security to bail me out for retirement, so let's say you and your spouse want to retire with $1 million. (That's actually pretty low by many estimates.)  And let's say you have 35 years left to save, and your current retirement nest egg is $50,000.  At 5% interest per year (yes, conservative, but who likes to play aggressively with their retirement?), you need to save $8,000 per year, or $667 per month, for retirement.
• As I blogged about before, college is expensive.  If each kid is going to squander over $200,000 on college, I'd better start saving, fast.  To get to $200,000 in 18 years, again at 5% interest, that's $500 per month, per kid -- or $1000 per month.  

(Unfortunately, I'm not going to even remotely touch the rate of college tuition increase, even though it's a freaking huge deal and makes this estimate painfully low.  In this case, the kids will have to scrape up some of their own money and make up the difference.)

• Lastly, there's the living expenses of, well, me.  Let's say that's $1000 per month.

The above comes to $1904 + $843 + $667 + $1000 + $1000 = $5414 in spending, per month.

So assume a 28% federal tax rate, and you get about:

$90,000 per year

That's a household income of $90,000 per year, required to do the "average" American things like own the median cost house, raise 2 kids, save for college, and save for retirement.  I freely admit that I've probably double counted in there somewhere -- I did not read the entire USDA report, and they may already have included the "kid portion" of the larger house that's required; I didn't account for tax deductions on the mortgage interest; et cetera -- but it sure is eye opening to get a value that is approximately 80% higher than the median US income.

Obviously, something has to give, and I think in middle part of this decade, it was the absurdly low savings rate in the US:

We'll see what happens in the future.  For now, I've gotta get back to work.  Looks like I've got some earnin' to do.

The State of Education, Redux

Sorry for the absence lately; we've been moving and I've been tied up with the rest of life.

I just wanted to point out that it appears Bill Gates agrees with the sentiment about (higher) education becoming a more web-centric experience in the future:



Or, there's a text summary here.

In any event, stay tuned for more postings in the next few days.

The State of Education

Sooner or later, I fear that there's another bubble that's going to burst, and it's the private education system in the US.  I don't claim to know how it's going to burst, or (more importantly) when it's going to burst, but the cost of a private, higher-level education is simply becoming untenable.

Cost to attend one academic year at Harvard (including tuition, room, board, and fees) for 2010:

$50,724. 

The median household income (for 2008, the latest data I could find):

$52,029.

Tuition costs have been rising at about twice the rate of inflation since 1995.

The above image is borrowed from the FinancialAid.org site, a great repository of information like this.  Wikipedia also has a discussion about the inflation of college tuition, although it's a little harder to digest.

I could rant for hours about how the system of financial aid is fundamentally flawed (it's treating the symptom, not the problem, and it's just using taxpayer dollars to extend the joyride), but maybe that's better saved for another post.  This post is actually meant to have a positive note to it.

So, in that light, this guy is my hero.  Sal Khan has endeavored to place over 1,400 "lectures" on a website, all in 10 minute chunks that can be downloaded via YouTube.  The topics over everything from biology (Adenosine Triphosphate; The Kidney and Nephron) to Chemistry (Gibbs Free Energy; Galvanic Cells) to Finance (Collateralized Debt Obligations; Treasuries).  I've watched a few on LaPlace Transforms and on Probability and the binomial distribution, and they Don't Suck.  The writing is a bit like chicken scratch, he sounds like my friend Jamie, and I'm pretty sure I would go at LaPlace transforms a bit differently, but the message is there, clear, unambiguous, and readily digestible by the unwashed masses.  For free.  And if you didn't follow something, it's easy to rewind and go back.  This is appealing, and I know I need to brush up on my statistics.

The advantage that universities provide today is that you get a certificate of completion, otherwise known as a diploma.  If an interviewee is in front of me who has just graduated from Penn State University with a degree in aerospace engineering with a 3.4 GPA, I have a pretty good clue of his abilities, his work ethic, and his ability to learn.  I have no such insight into someone who has "completed 700 courses of the Khan Academy."

But I would love to be like Sal: take a few subjects, spend an hour or two brushing up on them from various (unintelligible) textbooks, think on it for a bit, and then assemble a few 10 minute lectures.  To me, that sounds like a tremendous amount of fun, and would be rewarding .... although, there wouldn't be much personal interaction.  I'm pretty sure I could do better than most (but not all) of my college professors.  But to do 1,400 of them?  Wow; that's an impressive feat.

So, with the increase in popularity of sites like Khan's, Bureau 42's lectures on quantum physics, The Teaching Company, and MIT's Open Courseware, perhaps there's a new niche: the college graduate exam.  This could well be the internet education of the future: you do you own learning and studying, and then take an industry-accepted competency exam.  Then, as an employer, I would be able to see your entire transcript and your overall GPA.  It's not perfect, but compared to a $200,000 Harvard education, it's pretty tempting.