Asymmetrical Information

From the desk of Mindles H. Dreck:

The Meaning of MoDo

Wheee! The new Dowd is up!

But what does it say?

If Clinton was a talky Stephen Soderbergh feature, W. was a fast-cut Jerry Bruckheimer trailer.

Beats me, but the cattiness is non-partisan today. A new Dowd character: "Holy Joe Lieberman".

From the desk of Mindles H. Dreck:

Last Word on Options

Some guy offers the last word on executive stock options.

From the desk of Mindles H. Dreck:

Spherical View

Very Cool - A spherical panorama from the South Tower of the WTC.

From the desk of Mindles H. Dreck:

Emergent Stupidity Update

No sooner do I finish the Brendan O'Neill-baiting (i.e., way over 250 words) opus on The Committee Effect , than the new August post-Wetlaufer Harvard Business Review arrives.

In "How to Kill a Team's Creativity" (nice title), authors Sethi, Smith and Park confirm my "consensus values" theory:

Highly cohesive groups focus more on maintaining relationships an thus, tend to seek concurrence. Our study found that as social ties among members of a cross-functional team intensify, the innovativeness of its new product diminishes.

Later in this issue (dedicated to "Innovative Enterprises") Scientist-turned-executive Danny Hillis describes how Alexander Fleming was studying bacteria when a mold intruded on his microscope slide. Instead of throwing it away, he watched for a while and discovered this mysterious mold inhibited bacterial growth. The antibacterial properties of Penicillin were revealed. Hillis continues:

Everyone knows that innovation is risky, and it's rare that you arrive at your expected destination. But maybe that destination isn't so important. Maybe what you should be paying attention to are the little detours you take along the way: It's down those back roads and byways that the real payoff usually is found. Maybe, in fact, the biggest risk in innovation lies in sticking too closely to your plans.

That's what I say. Don't tie your project to a 200 page requirements analysis and a cast of thousands. Design a flawed prototype and make decisions on the fly.

From the desk of Mindles H. Dreck:

This week on wall street

Brought to you by Partisan Finance Weekly.

From the desk of Mindles H. Dreck:

Mistreated

I just received a copy of an article I wrote for a publication in my field. Even though this supposedly professional monthly journal has had the text for two months, they managed a) not to incorporate graphical & price updates I sent them last month and b)shortened the title. The effect of the latter change is to make me seem an imbecile.

To demonstrate how badly mangled I've been, I'll present an analogy: Imagine you are writing a golf instructional article. You send it in titled "Score Lower by Swinging Slowly". When the article is printed the title says -

Score Lower by Swinging!

Get my lawyer on the phone.

From the desk of Mindles H. Dreck:

"Emergent Stupidity" or How a Bunch of Smarties Can Be Dumb as a Bag of Rocks

Rand Simberg's mischevious mind wandered in similar directions to my own when he read Malcolm Gladwell's latest article, The Talent Myth. Rand contrasts the intelligence of a committee or group as compared to its component individuals, demonstrating how groups of simple things can perform intelligently (ants, for instance), but groups of highly intelligent beings can underperform even the simplest individuals. Using the analogy of calculating cumulative electric resistance, he determines the net cumulative I.Q. of a government agency....

Assuming for simplicity that everyone in a government bureaucracy has the same I.Q....the net I.Q. will be that I.Q. divided by the number of agency employees.

If you add the number of lobbyists and interest groups to the mix, you can drive it down another order of magnitude in value, to the point that it has the intelligence of a lobotomized fern (only slightly smarter than Joe Biden).

I once saw a sign posted on a laboratory door that said "DANGER: 10,000,000 OHMS!". Silly me, I thought it was a just joke until I read Rand's article.

Dreck is no stranger to committees, unfortunately. If you are similarly afflicted, or simply a masochist, you may wish to read one or both of the two sections below. In the first, I look at the competing values that give rise to group-think, and in the second, I examine how these competing values operate in that bane of corporate life - the big-budget technology project.

Competition of Values
A committee's marginal tendency to achieve its mission is a function of the relative weights of four competing considerations:

consensus values;

group values;

individual values; and,

project or mission values.

Nominally, one forms a committee to perform a task. "Project" or "Mission" values should therefore supercede most other considerations. Committees are also formed in order to obtain buy in as much or more than to perform a task. Thus obtaining consensus may be a mission value. However, even if consensus is not a mission value, it often becomes the prime directive. Without resolution, usually achieved by consensus, the committee cannot complete its work. Reaching a solution on which all agree will be more important than the quality of that solution.

In addition to the function of bringing different expertise to the committee, committee members may function as representatives of their various groups (i.e. departments in a corporation, disciplines or "schools" in a scientific or academic committee, agencies in a government commitee). The more animosity or dysfunction between the groups, the more "group values" will intrude. Surely you have all been on a committee where the optimal solution circumvented, overburdened or otherwise offended a particular group. At that point the offended group becomes the sphincter in the committee G.I. track, shaping the conclusion through uncomfortable resistance.

Individual values are, by definition, unique to individuals. However, certain common human foibles emerge in a committee setting. For instance, there is always one member for whom the appearance of committee success is an important career objective. By definition, there will be another on the committee who wishes to see that person fail, for career competitive reasons. Some values are individual but common: Individuals typically like to see their imprint on a project and they generally prefer to play solitaire or even go to the dentist rather than sit in committee. Committee members often have an axe to grind. Whether to make themselves look good, make their dissatisfaction known, or just show the other committee members who's who, committee members have agendas. Individual values usually interfere with mission values. Unfortunately, the more intelligent the individuals, the more individual value baggage they tend to bring. Add a high-pressure environment to a lot of brainiacs and "One Flew Over The Cuckoo's Nest looks like a Quaker meeting.

Human tendencies lean towards avoiding not only work, but also conflict. The degree to which people avoid conflict is directly proportional to their physical proximity. Think about group behavior in an elevator, where people hardly interact as a way of avoiding conflict. Conference rooms can be only slightly less confining. This is true in cyberspace as well. Compare, for instance, how you speak directly to your blog detractors in email relative to your tone when you "fisk" someone with whom you have no connection. For a..um...professional example, look at Maureen Dowd's reaction to the editor of a magazine she panned (as recounted by Blow and cited in a book review by Russ Smith of The New York Sun):

The single most fascinating nugget in "American Son" is Mr. Blow's recollection of New York Times columnist Maureen Dowd panning the first issue of George (Blow was Senior Editor of George). Incensed, Mr. Blow wrote her a note and received the following response: "Don't be mad at me, I'm paid to be a baby curmudgeon, and it's no fun. I'd go back to reporting in a minute. I've subscribed and I promise only plugs from now on."

It's a gas to be a "baby curmudgeon" on the editorial page, but not so much fun when your victims materialize in person, and they turn out to be funny, affable and sensitive, or at least human. But if MoDo hated the magazine so much, why promise "only plugs from now on"? It sounds like her editorial mission just got subsumed by a need to make nice. Either that or she runs a men's hair replacement business on the side.

The point is that consensus values increase in importance when people are forced to interact directly. When you put people together in a committee, the premium on getting along skyrockets - except for the people who don't care about getting along, who gain tremendous power, but only temporarily. Sooner or later, those people are simply removed from power by an ex-committee action of the other committee members, or the committee begins to function behind their back. Being the committee asshole is what we call a high-beta strategy.

While this is all abstract, I suspect you recognize most of the behaviors above. One of the most measurable examples of "Emergent Stupidity" through competing committee values is:

The Big-Budget Technology Project

(DISCLAIMER: Nothing written below describes any project I've been involved with recently. It's all long ago and far away, and the individuals I'm thinking of no longer exist in this universe or any accessible parallel universe)

A large technology projects creates all kinds of hideous pressures. Substantial amounts of money are typically at stake, and management will penalize budget and time overflows. The project in question may involve mission-critical processing (such as re-routing factor workflow or electronic transactions) or it may effect how the entity is viewed by the outside world (a new website, for instance). Furthermore, several constituencies are involved.

Important technology project-specific values include the following: line executives and marketers want a say in how the system looks and feels and its key features, management needs to weigh costs vs. benefits and what additional risks the system may incur, and technology needs to be able to maintain and support it.

Group values include the following: Line executives and marketers want to minimize effort - they don't have a lot of time to spend on a system as they are measured by their production performance. Managers need to minimize surprises to senior management, and have little incentive to allow any new risks from a technology project. Technology professionals want to prioritize workflow to keep their in-house resources working and leverage the technologies with which they are already familiar. These group priorities are not at all likely to be consistent with mission values.

I'm extremely sympathetic to technology professionals. Day in and day out, they are asked to estimate the inestimable, build systems that do nothing in particular, and resolve the contrary phobias of the technologically-challenged. As a people-intensive function, technology professionals are hit hard in a lay off, and the pace of work is unpredictable, resulting in all-nighters, sudden calls during free-time, and just generally a lot of screaming and hurrying. There are few thanks when things go right, and when things go wrong, the line people have righteous hissy fits.

That being said, the still nascent science of "systems project management" has provided several coping mechanisms which allow the technology people to ride herd over committees. The first, of course, is the strict codification of the methodology itself:

1. A whole new set of people ("business analysts") who must be included on the committee, thereby at least doubling the number of technology professionals, increasing the sheer bulk of the IT department and lending tremendous new power to that group. Business analysts don't code, and they aren't users - they are the methodology police.
2. Together with the methodology police, users must complete and sign off on a "Requirements Document" (or "RD"). In effect, the RD is an attempt to create a contract between users and technology describing in the most minute detail the functioning of the system prior to commencing any development. Since the line professionals have neither any idea what can and can't be done with computers, nor any clue as to what it might cost, nor the time or training to produce a 200 page systems specification, this usually stops a large project dead in its tracks for months. Finally, after the project has been gathering dust in the RD phase for a while, the CEO will say "do it at all costs" and all are released from the responsibility of delivering it within budget limits. Whatever goes wrong after this is, by definition, nobody's fault, or everybody's, or just the CEO's. This is committe nirvana- every individual on the committee is served at the expense of the mission.
3. If the project somehow gets beyond the requirements phase without senior management absolution, the project tracking process is invoked. This involves producing an inscrutable project timeline ("GANTT", "PERT" or some variant) that shows the simultaneous chronologies of various initiatives. These can include such crystal clear sub-projects as "eval. of prelim. UAT - test debug", with a pretty colored bar covering several weeks. The civilians on the committee might as well be reading heiroglyphics. Once they get used to these strange colored markings they marvel at how the individual parts of a project are all on time, but the overall project has been extended six months! Truly, the project is more than the sum of its parts, even as the committee is not.
4. Exceptions and enhancements come next. If they are very lucky, the non-technology people involved in the project will now somehow get a sense of how the final deliverable might look. They will suddenly realize it isn't quite right, or that their needs have evolved during the two years the project has been germinating. Worse still, some interoperative system has been replaced, and the system must be redesigned to work with it. Technology must now estimate the costs of each of these exceptions. We discover that the "help" buttons the marketers want cost $10 million and an extra seven months to implement, while the change to a completely different underlying hardware platform (that the new senior project manager happens to be familiar with) is mandatory but inexpensive, incurring only contingent delays to another project.
5. The line people finally fight back. They hire their own commitee padders - the technology liaisons (if they have already been through this process, they are already involved). Now the line has personnel on their own team fluent in RD negotiation and at ease with project methodology. They are able to assert their knowledge of "how things are done" right back at the technology group. Group and individual values become too numerous to count at this point, as the liaisons and analysts compete to demonstrate expertise, have unproductive arguments about their pet technologies and how the "used to do it at their former employer" and generally behave like rats in a garbage can.
6. This is typically when the consultants are called in...

Once all the competing agendas have been beaten to death, the committee starts to suffer fatigue. The project has gone on indefinitely, resources are expended and line attention has moved on out of sheer frustration. Or, perhaps, the line has adapted around the project requirements, typically through an informal system design by an individual working as a stop-gap without a committee. If the project remains critical, the aforementioned "senior management absolution" may be forthcoming, allowing the project management to cease and the project itself to begin, with most of the work concentrated in a small group of developers and interested parties unbeholden to GANTT charts.

Although not a huge technology project, builfing a corporate website for a multi-line company is a good example of a committee assignment from hell. Virtually every group in the company needs a say in the website. God forbid users on the net should see one particular service before the others. God forbid the legal and compliance police should not vet every single word on the website and make sure it poses no legal problem in every single jurisdiction around the world. As for appearance, everyone has an opinion. Furthermore, from day to day it has been very difficult to conceive of all the things the company might want to do on the internet, let alone just how they might be done. The committee is not going to start with a website that works for just one constituency and then move on to the next because then they would have to choose one group over the others. That would be a violation of group and consensus values.

Of course, that might be the best way to go. I have experience programming and writing for marketing. I know that most innovations come with trial and error. If you want to design a good program, you create a prototype of some sort and evaluate it to produce successive more effective versions. When you write for an audience, you get your thoughts down on paper, seek feedback and revise extensively. It's very hard (impossible?) to get it right on the first try. The first version will be far from optimal. Yet the right outcome is extremely difficult to imagine without producing an outcome. Success comes from successive drafts, seeking input from others and individual perspiration. The dominant committee values of a large technology project are entirely antithetical to this process.

No wonder, then, that these technology projects tend to blow up - producing either terrible outcomes or no outcome at all. And no wonder so many corporate websites look like shit and produce no traffic, thereby immeasurably enhancing the reputation of technology in the minds of technophobes in positions of influence.

UPDATE: A colleague writes, rather pessimistically:

All software projects I have seen fall into two camps;

• Run by geeks - All the time spent on coding w/o any direction. A lot of nice codes, but no purpose. The project never ends or delivers


• Run by suits - All the time spent on requirements w/o any coding. A lot of documentation, but not product. The project never ends or delivers

It is a lose-lose situation. We would always chose a model that didn't work.

From the desk of Jane Galt:

Martin Devon gives an excellent

Martin Devon gives an excellent example of just how increasing transparency can transform a market.

From the desk of Jane Galt:

Oh, and if you haven't

Oh, and if you haven't read Mike Hendrix's explanation of the realities of driving near big rigs, you should. Right now. I worry about you guys, you know. Safety first.

From the desk of Jane Galt:

Skippy the Bush Kangaroo says

Skippy the Bush Kangaroo says that we've discovered a new speices of centipede in Central Park.

Meanwhile, Equatorial Guinea's GDP apparently grew by 65% last year, which may be a world record.

Will wonders never cease?

From the desk of Jane Galt:

John Braue takes down NATO.

John Braue takes down NATO. Go ahead. It's all right to snicker.

From the desk of Jane Galt:

Jessica's rant on hyperstylism is

Jessica's rant on hyperstylism is causing me to drag out one of my pet theories, which applies to the current crop of modern novelists thus: almost none of these folks will be remembered in 100 years.

Why? They're all hat and no cattle, a long run for a short slide. There's no there there. They're all politics and prose, no plot or character. And that may sell to people in English departments who read enough literature to get bored with compelling characters and deft plotting, but in fifty or a hundred years, no one except those confined within the walls of an English department will bother to read them. Oh, sure, we all love a well-turned sentence or biting satire. The problem is that social commentary is deadly dull once you're out of the immediate environment that produced it, and well-turned sentences tend to lose their luster after a hundred years or so, when the literary fashion or the language has changed. The only things that endure are character and plot.

Ever read Gulliver's Travels? Not careful excerpts or adaptions; the whole thing. I have, about eight times. I wrote my senior thesis on it. Actual enjoyment of the work is left for people who can learn to read early 18th century English well enough for it to feel natural, painstakingly wade through all the references, immerse themselves in the history of the era -- and then get a belly laugh when Swift skewers Walpole. Now, how many people are going to do that? And that's Swift's easiest work, outside of his verse. Try to read Tale of a Tub sometime. After about three pages you'll be too tired to look at all the footnotes. After ten, you'll decide that it's really long past time you got to regrouting the tile in the guest bathroom.

Yet we still rever Gulliver's Travels, Robinson Crusoe, and Pamela not for their social commentary, but for their prodigious invention, their compelling imagery, their plot. Shakespeare is still read today not only because his language was vivid, but his characters are real. King Lear is as fine a piece of human drama as has ever been written. The Taming of the Shrew may be un-PC, but it's still hilarious after more than 400 years. A good stage production of the Merchant of Venice or Macbeth can keep you on the edge of your seat for the entire four hours. Hamlet is -- well, frankly, a little uneven, but what great soliloquies! He is not read today because he had something compelling to say about rampant consumerism at the Elizabethan Court, but because he had something compelling to say about the nature of man.

In a hundred years, when the current political winds have died down and the literary fashion has altered, who will care to read Dom DeLillo? His work has flashes of sublime prose, but they are interleaved with a great deal of dross. And his characters? Yawn. His plot? 'Scuse me, did I miss something? I can find twenty trendy authors from the 1920's with the same mix of characteristics who will be remembered not even by most graduate students in English literature today.

And even the more famous authors from that era -- how are they faring? In inverse proportion to how many circus tricks and social themes their authors piled into the work. Compare Hemingway to Dos Passos. I've been re-reading ol' John recently, and I'm afraid I spend less time thinking "How brilliant!" than "My, what a lot of work he put into all those passages everyone skips over because they're hopelessly out of date."

Now take Infinite Jest. I read rather more of it than I would have liked trying to find out what, exactly, everyone was talking about. Going back to the reviews, I found out: his sprawling, silly plot with its one-dimensional characters, stiff dialogue, and exuberant use of extremely obscure words. I could have gotten the same experience, in other words, by watching Buffy the Vampire Slayer and reading a dictionary.

[As a side note, I am more than a little shocked by the number of reviewers who talk about his incredible vocabulary. You would think that his books had been written under the same conditions as the SAT. Given the extreme obscurity of the words used, and the sheer number of them, I have a hard time believing that these were words he came across in the course of his regular reading. His "singular achievement" is open to anyone with time on their hands and access to a library with an O.E.D and a Roget's.]

Our current crop of literary wunderkinds will be little noted nor long remembered. Yet I think that probably Robert Heinlein and Isaac Asimov will still be around in a hundred years, much as we still read Wells and Verne. I think I've just formulated Jane's Rule: The longevity of one's work is inversely proportional to the pomposity of one's proclamations about one's Art.

Of course, that seems to indicate that this blog will be around forever. And doesn't it feel like it already?

From the desk of Jane Galt:

Tee-hee! Ted Barlow on how

Tee-hee! Ted Barlow on how Americans rank as tourists.

I had an interesting experience the other day.

Someone in the office said "French people use their forks funny."

And I said, "It's not funny, it's the European way."

My European co-worker said "Thank you! I've been saying for years that Americans use their forks wrong."

Wrong? 'Scuse me? Wrong? My ancestors were using forks when yours were still digging it out of the bowl with their fingers, my little serf. Exactly who are you calling wrong?

Which led, inevitably, to a discussion between the Europeans of the Horror of the American Tourist.

Now first of all, American tourists may have their drawbacks, but at least we don't send out our middle aged men in Speedos or flourescent short-shorts to terrorize the denizens of foreign lands. Nor do we gather our entire tour group 'neath the hotel window at 6 am to sing all 87 verses of the company song before trouping off to photograph every inch of the country, including the public restrooms and highway underpasses. Our sports fans and other assorted loonies do their rioting at home, on their own tax-payer dime, rather than travelling to someone else's home in order to destroy the property of none-to-rich citzens and commit felonious assault upon the native gendarmes. And as for not speaking the language, it isn't American women you find at every local watering hole terrorizing a busboy who speaks no English with the invocation "Excuse me! I need to go to the loo!", repeated louder and slower after each of his attempts to communicate the fact that he doesn't understand a word she's saying.

And second of all, Europeans get no sympathy from me because I have never, ever seen an American, upon finding out that someone to whom they were speaking hailed from another country, say, "Oh, I hate your country!" and regale the guest to our shores with a half-hour litany of why the foreigner's country, culture, and customs are utterly repulsive. Yet I have not only repeatedly met with this treatment on each of my trips to Europe, but also found, when I repeated them to a native of whatever country I was in, that my putative host defended this behavior with some variation on "Well, you have to admit they're right."

I know that some of the more lackwitted and boorish citizens of my country say similar things to some of the guests on our fair soil, but when such incidents are related to a crowd of Americans, the universal, instantaneous reaction is horror. I have never once heard an American say, "Well, you have to admit -- France is a horrible little country and pretty much everyone in it is a cowardly crypto-fascist. Of course, it was very rude to say it like that when you'd only just met. But still, he had a point."

Even more interesting was that when I required my interlocutors to actually list the things that Americans did that were rude, they were either wild exaggerations, or not actually rude. One person mimicked an American sitting in a cafe with his feet on the table, drinking and waving his arms wildly around. But I've been to Europe. I have eaten in cafes there. I have never, ever seen an American walk into a restaurant and put his feet on the table, at home or abroad. My interlocutors had lived here and there for many years; they conceded that perhaps Americans didn't do that, but they did slide down farther in their seats than Europeans, which looks sloppy.

They wear sweatshirts with the names of their colleges on them.

They tip too much.

They talk loudly. Annoying, yes -- but rude? Inconsiderate, if people around you are trying to carry on a conversation. But my interlocutors said that no, the Americans didn't talk so loudly that you couldn't carry on a conversation -- they were just louder than the Euros.

They spend too much money.

They brag.

They don't learn anything about the country they're in and don't speak the language. Except that according to the survey Ted Barlow is talking about, they do. And in my experience, unless the country they're in is England, Spain, Italy, France or Germany, the Europeans don't either. Of course, they may be under the impression that these five are the only other countries.

In short, Americans have a different style. The Euros find that aesthetically displeasing -- I can live with that. I feel the same way about European plumbing. But having a different style is not rude.

Of course, individual Americans are rude. Horribly rude. I know, because all the rude Americans seem to commute to New York n in order to share my subway car each day. But so aren't individual Englishmen, Frenchmen, Germans, Spaniards, Italians, Portuguese, Belgians, etc. etc. etc.

As a group, we're getting a bum rap. And you can have my wardrobe of Univeristy of Pennsylvania athletic gear when you pry it from my cold, dead fingers.

From the desk of Jane Galt:

Absolutely terrific article on the

Absolutely terrific article on the history of the dismal science.

From the desk of Jane Galt:

Now, the next topic I

Now, the next topic I want to address is this ridiculous Princeton/Yale thing. For those of you with better things to do than watch Fox News at 3 am, the Princeton admissions office was apparently logging into the Yale admissions office's server to check whether desireable candidates had been admitted.

It makes me ashamed to be in the Ivy League, even in its outer suburbs.

Not, mind you, because I expected higher moral standards at the Ivy League. If you want moral standards, go to the University of Virginia. The Ivy League long ago abandonned any attempt to inculcate virtue into its charges in favor of nurturing their delicate little psyches. Judeo-Christian values are so, you know, middle class.

But the entire thing is so mind-bogglingly dumb.

Of course, I shouldn't expect that high a level of mental acuity in the Ivy League either. After all, I was there. After you've had an argument about the future of capitalism with an honors Poli-Sci student who can't:

1) Define capitalism
2) Define imperialism
3) Understand why the Roman Empire shouldn't be classified as a capitalist society, given its imperialistic history
4) Define communism
5) Define the difference between communism and socialism
6) Understand when you tell him that the Soviet Union, while embracing the communist ideal, was not actually living under a communist system, since the state hadn't yet withered away.
7) Define the difference between a libertarian and an anarchist. (I don't mean come up with a perfect definition; I mean come up with something more accurate than 'Libertarians just don't want the state to do anything because they hate taxes)

. . . you begin to suspect that the much-vaunted system for separating the wheat from the chaff may have broken down somewhere.

Probably in the admissions office. As in most colleges, the admissions office is a refuge for graduates who haven't found themselves positions elsewhere. They do get traded around, but the Ivies being the Ivies, the admissions office at an Ivy League school is generally staffed mostly by graduates of one of eight Eastern schools founded by people who wore wigs and knee breeches and prayed a lot.

And yet when they were caught, the best lie that the Princeton admissions folks could come up with is that they were checking the security of the Yale system? This is a brow-furrowing, ear-cupping, head-shaking, "did he actually say that?" concrete-buoy of a lie. This is Richard Nixon going public to tell the nation that his Secret Presidential Task Force had just been making sure that the door locks at the Watergate met federal safety standards.

Which begs the question: how did the folks in the admissions office get through four years of an Ivy League education without learning that the proper response to a crisis like this is to blame it on the guy that no one in the office likes?

This level of stupidity is matched only by the soul-searing idiocy of the folks at the Yale Admissions office and their friends in the Yale Information Technology Department. Such a system should never, ever have been accessible through the web. If it was, it should never, ever have used something as stupid as a student's name and social security number, sans password, to access the files. And if it had to use those things because the heads of the fun folks in the Yale Admissions Department's were too full of plans for Newport weekends and the release date of the latest Moby album to cram in a new password, one would think that elementary common sense would tell one to deny access to anyone whose request emanated from any IP address range assigned to rival institutions of higher learning that might conceivably have interest in the information. Papers keep describing Yale's system as having been "hacked". Hacked? No self-respecting hacker would stoop to that kind of entry; it's like breaking into a house that has the door unlocked, a welcome sign out, and a cooler full of icy beverages awaiting the burglar when he deigns to step inside.

Of course, no burglar would. Because if you saw such a house, you would probably suspect that it was a trap set by the police. If, that is, you had sense enough to come in out of the rain.

One begins to suspect that the Yale admissions folks weren't quite as stupid as they're letting on.

From the desk of Jane Galt:

The Weissblog has a fine

The Weissblog has a fine rant about the Salon blogging initiative. Personally, I haven't much of an opinion on the matter, but I do enjoy a good rant now and again.

What I was really struck by, however, was one of the new salon bloggers in the comments section who thinks that the publicity is worth the price. Honey, you're barking up the wrong tree. I say this as someone who has really quite a lot of readers. More than I ever in my wildest dreams imagined. And I love each and every one of you. I have absolutely no idea why you all come to read me every day as opposed to any of the other outstanding blogs out there, but I'm deeply grateful that someone wants to listen to me. I had a difficult childhood, you know. But I digress.

The point is, that my entire publicity effort for this blog consisted of one (1) letter to Glenn Reynolds and one (1) letter to Rand Simberg. It's not that I mind other people publicizing their blog to me -- we've all got to get started somehow. But other than Pej and Jim Treacher, I can't think of blogs where this approach has actually been successful, and with Jim it only works because he's got funny cartoons to back it up, and with Pej it only works because he's an outrageous flirt, and also, he threatens to kidnap your family members and kill them if you don't link to him. I'm very fond of my family members.

Ads? Worthless. Indiscriminate emailing? Pretty much worthless. The only thing that will drive traffic to your page is getting people to link to you. And the only publicity I've seen that really works is making insightful comments on other people's blogs and leaving your URL -- or doing the same over email. "I'm Here" is not a workable ploy -- so are 100,000 other people, sweetie.

No, the only thing that will drive traffic to your page is -- well, clearly not brilliant content, because in that case what are you people doing here? No, clearly what sells is bullmastiff pictures. Well, I'm going to meet that demand with more, and better bullmastiff pictures. From now on, Sunday will be Bullmastiff Snap of the Week, starring my own beloved baby, Finnegan.

See, friend? That's how you drive traffic.

From the desk of Jane Galt:

Excellent piece in Salon asks

Excellent piece in Salon asks why, if tech CEO's are too busy running their production lines to pay attention to the accounting, the stuff they sell us doesn't work so good.

From the desk of Jane Galt:

Apropos of yesterday's item on

Apropos of yesterday's item on real estate prices, the Wall Street Journal informs us that while new home sales are up, existing home sales are way down, which means that consumers may be more overextended than we thought.

From the desk of Jane Galt:

Excellent, excellent post on antibiotic

Excellent, excellent post on antibiotic resistance from Paul Orwin. My exposure to biology education pretty much ceased after 10th grade. (Jane really, really doesn't like dissecting things. Another great medical career ruined.) So if I can understand it, you definitely can.

From the desk of Jane Galt:

Meanwhile, MedPundit and MedRants have

Meanwhile, MedPundit and MedRants have come back at me to say that pharma marketing is excessive.

But I think that we're arguing two different things. MedPundit and MedRants would like to see marketing dollars spent on other things. In the case of much of it, so would I. But I accept that the money spent on marketing is the cost of attaining something I think is more valuable than the money lost: a pretty good market, and pretty efficient research system, for pharmaceuticals. I think that practically, the only way to eliminate the marketing would be to nationalize research, and I think that the cure would be much, much, much, much, much, much, oh, very much worse than the disease. And just as MedPundit and MedRants can undoubtedly explain to you the many unattractive ways in which health care would suffer if medical care were nationalized and physician salaries were to top out at around 100K (the top rank of the federal civil service) for a doctor with 20+ years in, they can probably understand my belief that we could expect the same fine results from nationalizing the pharmas.

So I agree with them that there's a problem; I just don't think that there's a good solution. And when it comes to sweeping market interventions, I've got a memorable motto:

First, do no harm.

From the desk of Jane Galt:

Okay, I've been meaning to

Okay, I've been meaning to blog this outstanding article by Joanne Jacobs on economics education, but I kept forgetting. Anyway, go read it; it's a fine, very scary story -- you have to turn all the lights in the house on and check the doors and your bond portfolio, and you still get that crawly feeling in your spine.

From the desk of Jane Galt:

Some guy is suing the

Some guy is suing the fast food companies for making him fat.

That's right -- you heard it here first.

No word yet on whether the ten greasy fingers that unwrapped the food and lifted it to his mouth are listed as co-respondants.

From the desk of Mindles H. Dreck:

So Quoth the Sage

Today Warren Buffett preached on the topic of options and pension surplus, suggesting the former should be included in the P&L and the latter should be excluded. There is something distinctly nutty about arguing both these positions, as they are essentially contradictory. This may be a cunning plan, a quiet ruse by the canny sage from Omaha to distract Congress from meddling elsewhere. More on that later.

An option is a future contingent liability whose present value can be estimated with a series of probabilistic and economic assumptions. Likewise the surplus over a defined benefit pension plan liability can be estimated using probabilistic and economic assumptions. There are problems, as I have noted, with putting both types of estimates into the P&L, as real experience is virtually guaranteed to vary from these estimates. It is nonsensical to allow this practice with negative numbers (options) but disallow it with positive numbers (surplus in the pension).

Well, you ask, isn't it just conservative to take the expense and forego the income? Not really. Another amazing facet of the public debate on this topic is that no pundit I've seen has considered what happens after the options have been expensed and they expire (as they sometimes do). Let's imagine we have expensed $25 million of options and given them to our CEO. The option term has expired, the options were worthless. Now we get to take the expense back (the books don't balance if you don't!). Companies could have a lot of fun with that by issuing a series of complex, long-dated deep out-of-the money options with impossible employment contingencies in order to create a reserve during flush times. Talk about managed earnings! Indeed, because pension earnings can be put in the P&L, they are a source of earnings distortion as estimates change and experience varies from assumption. Buffett accurately points this out, but then fails to note that expensing options might produce the same result.

Let's return to my earlier point about option expense being sensitive to volatility and consider a concrete example. Take, for instance, General Electric. Rolling 60 month annualized volatility in GE common stock has ranged from a low of about 14% to a high of 30% over the last decade. Within this range, a $30 strike option with a term of 3 years (and GE trading at $27) would be worth somewhere between $2.50 and $5.37 per option (consider the full range of values presented here (55K). Now consider Tyco, where the corresponding volatility range is 18% to 55%. A strong new executive team may be necessary to revive this company. If the board grants an executive 2 million options at the current price, they could be worth anywhere from $7 million to $18 million under Black Scholes. None of that money goes out the door, but the company is forced to expense the entire amount in order to attract talent. The volatility bug bites at precisely the wrong time.

Buffett himself has conceded this point on assumptions, and also makes the well-founded observation that it is "normally unwise for Congress to meddle with accounting standards".... before making an exception just this once.

If the market uses the reported earnings figure to value the company, inclusive of both the ex post and the ex ante option accounting, we find ourselves in a truly strange situation. The market price and behavior of the stock has determined company performance instead of company performance determining the market price. This is not a situation anyone should desire. In fact, it sounds like Enron, where the rising stock price propped up off-balance sheet liabilities.

Buffett also implies that surplus pension assets never "deliver a dime to their companies". This is demonstrably false. If a company truly has pension surplus in a defined benefit plan, they can buy annuities to cover their DB plan obligations and pocket any excess. Other avenues for realizing surplus pension assets are available in a change of control, where plans are combined and/or terminated for a new plan. Of course, if they are using 11% earnings estimates to estimate the plan's funding level, they are unlikely to realize the surplus they estimated. That's the ultimate test of a plan's funding level.

The sage of Omaha appears to have been a skillful value investor, but his public politics and moralizing leave something to be desired. At least reading this diatribe was not as depressing as watching him attempt to defend large, arbitrary and redundant taxes for the express purpose of social engineering. (i.e., the estate tax his heirs won't be paying). Of all people, Buffett must be keenly aware of how much faster inherited wealth is redistributed to the worthy when it's not tied up in government or a dynastic foundation employing all the cousins.

I don't particularly like estimations in the P&L. Both items should be left out. In case you are wondering, I favor fully diluted earnings per share, which is already reported, as the best proxy for determining P/E ratios and ridding ourselves of the supposed depredations visited upon us by the option-wielding demons of the go-go '90s.

The ugly and sad fact remains that if the market ignored the cost of options, it was our own fault. Anybody with a little experience reading financial statements (let alone Warren Buffett) can take a current annual report and determine the options grants and the impact of pension earnings on a P&L. These expenses are already all there for everyone to see. Critics like to say they are "buried in the footnotes", but every financial analyst knows the cash flow statement and the footnotes are where the accounting rubber meets the road. Changing the accounting conventions won't make any difference at all, and certainly shouldn't have an impact on the market or the likelihood of future corporate scandals. In the rush for reform, option expensing is a non-event.

Hey...that's it! Buffett is creating a distraction to keep Congress from doing some real damage! And here I am going on about it.... D'oh!

The Man Without Qualities is providing excellent coverage on the logical aspects of the arguments referenced above here and here.

And you heard me right about "appears to have been a skillful investor." At some point we need to talk about the role of randomness in investment success. The fact remains that if investment success were 100% random (which I don't believe), there would still be a Warren Buffett and a Peter Lynch to worship. As Victor Niederhoffer says, everything that can be disproved should be.

From the desk of Jane Galt:

There is a theory, which

There is a theory, which I basically buy, that a bear market will only end when investors have capitulated, which is to say that they believe, really believe deep in their greedy little hearts, that the market is going down.

Professionals are thus waiting for capitulation so they can buy.

But capitulation is a lot like Santa Claus: everyone waits for it, but no one ever sees it when it's there, only when it's gone. As the inestimable Max Jacobs said, "Every time people I work with tell me they think the market's capitulated, I say 'No, no! The fact that you're saying that means it hasn't capitulated yet!". (Max speaks with a lot of exclamation points. It's a trip.)

I was ready to believe, after yesterday, that capitulation was finally on the horizon. But not now. It's too soon. The indices are still too high for my taste -- when you've been in a boom as long as ours, the market should overcorrect on the way down as well as the way up. If it doesn't, it means years of doldrums in the market while we wait for valuations to catch up. And I really mean years. The 60's bubble didn't correct far enough -- and the Dow was at approximately the same level in 1982 as it was in 1968.

I think that the "buy on the dips" folks went back for one more go. This time, they thought, it had to be over.

And I think that over the next few days, the profit takers are going to sell out again. And the indices will fall, again.

Of course, I never saw Santa Claus either.

From the desk of Jane Galt:

What a kid. Take a

What a kid. Take a minute to deliver some well deserved applause for this kid, whose gumption we should all long to emulate.

From the desk of Jane Galt:

This is interesting. Today I

This is interesting. Today I was reading a US News article on the collapse of the bubble, in which the author claimed that the only thing saving us from worse malaise was the rising housing market -- but that's okay, because the incredible rises in housing prices are perfectly sound. A bell went off in my head -- doesn't this sound a lot like arguments I heard in 1998-99 for why Yahoo was really worth $200 a share? -- which was not helped by the incredibly thin reasoning behind the authors' assertion, which basically boiled down to "You know, tight zoning restrictions make housing worth more". You out there in Kansas with the house that's appreciated 50% in 4 years -- don't worry. You're just like that Dutch guy who bought Manhattan for $24.

And then I find that the chief economist for Morgan Stanley has been saying pretty much the same thing, except, you know, smarter.

By any standard, this is an aging housing cycle. For starters, it is the longest upswing of new home construction of the post-World War II era. It’s now in its eleventh year, more than double the length of the typical upleg of a homebuilding cycle. Yet the latest numbers on the supply side of the housing market are starting to look a bit toppy. As of June 2002, total housing starts are off about 6.5% from their February 2002 high. However, they have a long way to go on the downside if this is indeed the turning point. At an annualized rate of 1.7 million units in June, housing starts remain 10% above the long-term average (1.5 million units from 1959 to date) and more than double their 1991 lows. Even so, the demand side -- as gauged by trends in home sales -- remains firm. Since early 1995, sales of new and existing homes combined have risen by 36%, well in excess of the 27% cumulative rise in real GDP over the same period. At the same time, house-price appreciation is now beginning to edge off -- a classic end-of-cycle early warning sign. House-price appreciation moderated to a 6% YoY rate in early 2002; while that’s a discernible slowing from the heady 9.3% peak rate of price appreciation in 1Q01, it is still a relatively vigorous increase in an otherwise low-inflation climate.

A downturn in the housing cycle could prove to be a formidable problem for the American consumer. That’s because individuals have become overly reliant on property wealth. Currently (1Q02), the value of household real estate assets stands at 159% of disposable personal income; while that’s down slightly from the record 162% in late 2001, it’s still equal to the prior peak hit during the housing bubble of the late 1980s. Moreover, since the popping of the equity bubble, there has been an important shift in the mix of household sector wealth. At Nasdaq 5000 (1Q00), household equity holdings of $9.4 trillion were nearly double the net equity of $5.6 trillion in residential real estate; by contrast, only two years later (1Q02), household equity holdings had fallen by nearly 40%, to $5.7 trillion, whereas net property wealth increased by 20%, to $6.7 trillion. Once again, the home is the average American’s most important asset.

There's some pretty good evidence that the stock market was effecting the real economy in 2000 through the wealth effect. The wealth effect is the tendency of consumer demand to increase when they perceive themselves to be richer -- as when, for example, their 401(k) increases by 50%, and they decide that since they're going to be able to retire rich at 50, they might as well take out the plastic and spend some of that money right now. This helps to explain the massive increase in consumer debt in the last half of the 90's.

Well, even after the bubble burst, housing prices continued to rise. This seems to have mitigated the bursting of the wealth effect bubble (as did the fact that investors still don't seem to realize that 10% real returns year-on-year aren't coming back); people's 401(k)'s were going down, but they were able to tell themselves "Well, there's always the house." It also allowed people to borrow in order to continue the standard of living they'd learned to enjoy back when we were all going to be millionaires any day now: home equity loans, bigger mortgages, even credit card debt fueled by the knowlege that you could always consolidate.

What Roach is saying is that this is the last piling standing in the flood -- and it's about to come down. So it may be time to get out on the roof and holler for help.

From the desk of Mindles H. Dreck:

Excuse me..

I'm working on an article to be published elsewhere....

From the desk of Jane Galt:

Brad DeLong links Robert Rubin's

Brad DeLong links Robert Rubin's assessment of the Bush economic team. He says that it's "unsurprisingly" negative, although I don't know if that's a slur on Bush or Rubin. But looking at Rubin's prescriptions, which are very fixated on capital markets, it got me thinking about the top folks in the Bush economic team, and the top economic players for the Dems. This is a question, not an answer, so Democrats please avoid jumping down my throat but: is part of the 90's bubble do to the fact that Clinton's economic team was obsessed by the market?

THose enamored of the New Democrat model have made much of the Clinton administration's connections to Wall Street. Not that this is a bad thing; I'm just thinking about the reforms they tout as the Clinton revolution, and most of them revolve around the Federal debt markets. Now, don't get me wrong, I'm all for deficit reduction, but the benefits claimed from deficit reduction are all out of proportion to what could actually be achieved with such a primitive tool. And the Clintonistas seemed to judge the health of the economy primarily by the health of the stock market -- which makes one suspect that their lower-level policies focused on keeping valuations high, and not bursting the bubble.

Of course, I thought the market was in full bubble back in 1998, so I'm probably not the person to trust on this issue. But I'm curious what other people think: did the Wall Street connection cause Cliinton economic policy to focus too hard on the markets?

From the desk of Jane Galt:

All right, I've gotten enough

All right, I've gotten enough emails on the subject that it's time to explain something about pharmas. I'm afraid the explanation may be a snooze, since it's complicated, but hey -- I had to give it the old college try.

Question: But why can't the pharmas just cut their marketing budgets instead of R&D? Marketing is an even bigger expense than R&D is!

Answer: Because they're mean heartless bastards who want all of their potential customers to die so they can't buy pharmaceuticals from rival companies.

Ha-ha, just kidding. Well, the answer is in two parts. First of all, marketing isn't a much bigger number; its the same as, or less than, R&D. All those figures you see showing how marketing is twice R&D or more are using a figure called SG&A -- Selling, General, and Administrative expenses. This isn't just marketing, it's everything that takes place outside of a factory or a lab. Finance. Accounting. HR. Payroll. Sales. Purchasing. Distribution. IT. Internal auditors. Retarded children on Arthur Anderson's payroll who need to be kept well supplied with Tootsie rolls less they disallow the company's treatment of capital expensing. Hotlines to deal with customers calling to find out if going on Ortho-TriCyclin will really make their skin clear up. Lawyers to deal with customers who think that Ortho-TriCyclin made them gain eighty pounds and kill their mothers. And regulatory compliance officers to make sure the Feds don't shut the place down.

Actual marketing figures are somewhere in the neighborhood of half that -- whether they live next door or on the other side of the 'hood, we can't tell, because pharmaceutical companies keep a tighter reign on these figures than fathers of thirteen year old girls do on their daughters. Anyway, marketing expenses are either the about the same as, or less than, R&D expenses. They certainly aren't more -- even Qualcomm, which has no regulatory overhead and doesn't do anything but R&D, has SG&A about equal to R&D.

However, of that marketing figure, about half consists of free samples given to physicians. While that could potentially be cut, it wouldn't save the consumer much money, since drugs they don't get for free are drugs they have to buy on a trial basis. Since many drugs are packaged by the month, this wouldn't help us in our goal of lowering consumer drug costs through allowing drug reimportation. But we're getting off the topic, which is "Why can't drug companies cut marketing expenses instead of R&D".

The second answer is to do the math. The average savings on on-patent drugs, by my survey, is about 40%. The entire SG&A budget is 30%. Even if they shuttered the headquarters and somehow managed to operate without any of the services enumerated above, that still leaves 10% of revenues to be saved somewhere else. Either they stop making the pills, they tell the stockholders to go hang and thus cut off their access to capital -- or they cut R&D.

But the most interesting answer is this: R&D is not a budgeting question. It is an investment question.

What does that mean?

The people who are asking the question are looking at the static budget from a one-year perspective: prices have been cut, so we need to cut costs. Do we cut marketing or R&D? Since they know that pharmaceutical companies currently rely on innovation to drive future profits, and they have absorbed folksy aphorisms about not eating the seed corn, they are therefore assuming that the last thing pharmas will want to do is to cut R&D. That's not an unreasonable assumption, but it is ignorant of the way that companies make investment decisions.

How Companies Decide What to Invest In
When a pharmaceutical company decides whether to fund a project, the executives on the budget committee don't say to themselves "Well, can't eat the seed corn -- this year we're putting $2 billion into R&D". R&D is funded on a project-by-project basis. And each project that is funded goes through a valuation process that estimates the potential cash flows from a drug, and then discounts those cash flows by the risk that the drug will never make it to market. In pharmaceutical companies that risk is extremely high: 999 out of every 1000 compounds they explore never make it through the development, patent, and regulatory approval processes.

Now, when a project that you want to put, say, $1 million into only has a .1% chance of producing a successful drug, the size of the potential market for that drug has to be, in a totally risk free environment with no interest, $1 billion just to break even. Are we clear so far?

Okay, it gets more complicated still. Because pharmaceutical companies don't live in a risk-free environment. Nor can they borrow money without interest. So the market has to be even bigger. Assuming that time from initial research on a compound to a drug hitting the market is about fifteen years, and assuming a real interest rate of 5%, the market would have to be over $2.5 billion just to break even.

But of course, pharmaceutical companies don't just want to break even; if they did, they'd just park their cash in inflation-indexed bonds and go home. They need to make a profit. And they have a fiduciary duty to their shareholders to make the best profit possible. The rate of return on an investment therefore has to be better than the best alternative to making that investment: plunging it into the stockmarket, say, or buying a fur-bearing trout ranch in Iowa. Call it another 5% they need to make per year. Our $1 million investment now needs a potential market of $5 billion just to make the bare minimum profit that will induce the pharmaceutical company to invest.

But the pharmaceutical companies don't expect to earn back all their money in one year; they expect to earn it in the 7-10 years after it clears the FDA and before it goes off patent, using a complicated formula that takes into account the time it's been on the market and a host of other things. Based on the figures above, your $1 million investment would need to generate expected revenue of approximately (very approximately) $2 billion a year for seven years.

But these are just numbers for example. For one thing, pharma investment isn't quite that simple; put small amounts of money into a lot of things, and then when they see what looks promising, they put a lot of money into a few. But while these figures are jackleg, you can see the principle in operation: Investments are not priced on a budgetary basis. They are priced relative to the next best alternative for the money.

That is why the R&D budget now exists independantly of the marketing budget: this year's marketing budget was already priced into old projects.

Why Can't We Just Cut Marketing In the Future?
Now you're going to ask me why we can't factor out the marketing budget in the future on the assumption that doctors and patients will just find out about our product by word of mouth and drive over in their cars to pick some up. Let me 'splain.

First of all, if a lot of that marketing budget was gravy, companies wouldn't do it. Oh, there are junkets for the doctors. But most of the budget is getting the drugs to the doctors, and telling the doctors about them. Doctors need to find out about the drug somehow. Doctors will tell you how useless most of the marketing budget of a pharmaceutical company is. This is because doctors have absolutely no idea what the relative cost is of, say, doing a mass mailing or advertising in the AMA journal, vs. taking doctors to dinner, taking them to a hotel, or giving them free samples. Doctors in what I like to call the "lifestyle professions", such as dermatology or podiatry, are also quite vocal about the uselessness of free samples. Free samples, however, ease the transaction costs of taking a new drug for people with serious illnesses, who often have much less disposable income than someone spending time and money at the dermatologist's. For example, I'm now on Singulair. But Singulair only works at all for 65% of asthma patients, and it comes packaged as a one-month supply. Who wants to spend money on 30 pills to find out that you don't need 28 of them because the drug is useless? Fewer samples mean fewer sales to people who don't want to spend $200 to find out if that new blood pressure med works.

So let's assume that we can cut a wildly unrealistic 30% out of the marketing budget in the future. This amounts to, by current budgeting, 5% of revenue.

More importantly: Marketing is not an expense subtracted from the potential profits of R&D. It's a different investment.

Viagra didn't need marketing. Tell people it's there and they'll line up for hours in the rain to get their hands on it.

A project is generally anticipated to make most of its money in three or five years of its patent life; that's when the planners anticipate recovering most of the initial investment, before newer better drugs come on the market, or the patent expires. Much of the marketing happens outside of those 3-5 years, generating additional revenue that wasn't factored into the investment equation. This revenue is important as a source of profits to generate more capital for research -- but it is not factored into the initial calculation of the profits required to recover the initial investment, and therefore cannot be factored back out again.

Now, I need you to make another assumption: to wit, that most current projects in the pharmaceutical area are projected to return very close to the minimum needed for a company to fund them. Why should you assume this? Because economic theory tells us that if it weren't so, there would be tons of new entrants into the market, attracted by juicy profits. In fact, there have been just such entrants -- that's the biotech sector. And they have competed down rates of return -- that's those "me-too" drugs you hear everyone complaining about. Guess what? Those me-too drugs are making you pay less for your pharmaceuticals, not more. Now, if a compound looks like it will generate an especially outsized return, you can bet your bottom dollar that all the other companies are working on a compound for that disease too. Having two compounds on the market for the same thing will cut deeply into your expected return.

Okay, so most projects are expected to return very close to the minimum needed to make them a worthwhile investment. Now, let's assume that reimporation becomes law. Prices are expected to drop by 40%. What happens?

What Happens if We Drop the Price of Drugs?
Now, pharmaceuticals are different from, say, tube socks because there is an absolute limit to their market. Even if they're giving them away for free, healthy people aren't going to start taking Prozac or HIV drugs or blood pressure medication. In addition, a large portion of the people who are currently priced out of taking drugs will not start taking them even if you drop the price. Why? Because they can't afford the doctor's visit either. Dropping the price on a patented drug thus garners many fewer new users than doing so on a normal product. Losing 40% of the price therefore means that the firms also lose close to 40% of the revenue.

Let's say that they only lose 25% of the potential revenue. And let's say that they can cut their marketing costs by 30%, yielding a savings of 5-7% of total revenue. This cuts their total loss to 17-20% of revenue. Will the pharmaceutical companies invest in new R&D?

Not on most projects. The projects simply will not earn back the required rate of return to justify the investment of capital. Even though you may reason that pharmaceutical companies today could lose 25% of revenue and -- just -- survive, they still will not invest in projects in the future which do not return their cost of capital.

The projects that are invested in will only be for very large markets, where it is possible to remain profitable with volume, or lifestyle drugs where there is no downward political pressure on the price. Cancer is not a large market; there are many different kinds that respond to different things. AIDS is not a large market. Most markets, in fact, are not that big.

I know that those of you who wish, very deeply, to believe that we could make new drugs cheap if we just tried a little harder, cannot believe this. So let me explain why you can't, even with very deep cuts in the marketing budget, make R&D profitable at lower prices:

Time.

Because of the regulatory process, which eats 7-10 years of the patent life of drugs, Pharma has the longest development cycle of almost any industry -- the longest time between the initial investment and the payoff. The farther out things are in time, the higher the risks, the lower the time value of money, the longer the discounting has to work. So when the initial positive cash flows from an investment are very far out, the profit margin in the first years of positive cash flow must be very large to compensate for the length of time the capital is tied up. You simply cannot cut those revenues by 25% and still cover the profit margin, even if you manage to cut costs by the same percentage -- and you can't.

Think of it in terms of your own life. Imagine you currently make $100 K, and have living expenses etc. of $80K. You're offered a new job at $90K. When you point out that this is 10% less than you're making now, the interviewer replies that since you can live in a less expensive neighborhood close to your new job, you'll be able to generate savings of 10% on your cost of living, too. Do you do it?

Not unless you're stupid. If you do, you lose $2,000 of net income.

Even if the management of pharmaceutical companies wanted to take on projects the value of which doesn't exceed the value of the best alternative use of the capital, the shareholders wouldn't let them. They'll stop researching pharmaceuticals and invest in something else. Shampoo. Chemical solvents. Fur-bearing trout farms. Something that covers the cost of the capital required to make the investment.

Summary Explanation
So the reason that R&D dollars will be cut before marketing dollars is first of all, that it is mathematically impossible for most drugs to recover their cost of capital if their price is cut by 40%; and second of all, that cutting prices actually biases investment decisions towards marketing and away from R&D. Why? Because marketing has a very short time horizon. No discounting. So the dollar return required on an investment in marketing is lower by an order of magnitude than the dollar return on an investment in R&D. If you are faced with drastic cuts in prices and revenues, the first investments to go are going to be the ones that require a large revenue return for each dollar invested -- in other words, R&D. So while theoretically, it would be physically possible for pharma companies to substitute cuts in marketing for cuts in R&D, it would be irrational for them to do so.

It's a hard topic to explain, and I'm not sure I'm doing a good job. But this is why people doing back-of-the-envelope arithmetic are confident that they could still do R&D with the new pricing -- and investors and pharmaceutical analysts know that it won't happen.

From the desk of Jane Galt:

A couple of people have

A couple of people have emailed me to ask what's going to happen in the stock market this morning. Tee-hee! If I knew that, I would even now be on the phone with my broker placing the appropriate bets, and I would not publicize the results until I had made a killing. Unfortunately, I'm as ignorant as everyone else. To wit: I predict that it will either go up, go down, or remain flat.

Now, the most likely occurrence is that it will go down. As the head of the New York stock exchange, in a miracle of understatement, said, our experience with Monday markets after sharp Friday declines is not good. What he really meant to say is that our experience with Monday markets after sharp Friday declines is that they plummet like a fragment of a neutron star thrown from the top of that uber-tall building in Kuala Lampur.

You see, a lot of people got hurt on Friday. And they've had a lot of time to brood about it -- all weekend, in fact. They have envisioned their altered retirement plans, priced Friskies, started looking out for a nice refrigerator box they can pick up on the cheap. And then on Sunday night, after a long series of arguments with the spouse about whose idea it was to put all the retirement savings in tech stocks, along came the news that WorldCom is going bankrupt, reinforcing their belief that they'd be better off changing their money into singles and using it to economize on toilet paper than giving any of it to those crooks in Corporate America. All of those people are panicking and looking to sell at any price.

On the other hand, there are still people out there who believe in "buying on the dips" -- people, that is, who still haven't quite learned that the 90's are over. These people are busily subsidizing the day traders and panic sellers. While "buy on the dips" seemed like a genius strategy when the market was rising, these days it works like this: you buy on the dips. People who have been waiting to take profits or avoid losses sell as soon as the stock rises a little. This makes the stock fall further.

[Standard Jane rant about equity valuations: Right now, the S&P stands at 32 times earnings. While the P/E ratio usually does rise at the bottom of a recession because earnings are very depressed, this is still nearly 50% higher than the historical highs for S&P P/E's. We used to think that the abnormal ratio meant that the risk premium on equities, the higher rate of return that investors demand on stocks compared to risk-free treasury bills, had gone down. Oops. Turns out that the risk premium was only lower when investors thought that stocks could only go up, or in other words, were mispricing the actual risk. Now it looks like the S&P et. al. have to get back somewhere near that 20 mark for the market to have actually bottomed. Maybe earnings are so depressed, and the risk premium is sufficiently altered, that it will bottom at 25. But probably not at 32. Remember, the spectacular rises before were fueled by everyone pouring all their spare cash into the market. That's not coming back. Even if the market bottoms now, it probably won't go anywhere much for a couple of years yet; people simply are not going to come back at the previous volumes. People are scared, and they're diversifying out of equity. Sensibly so. But it's hard to see how they can support P/E's of 32.]

Anyway, the point is not to make fun of people who buy overvalued stocks in the mistaken (IMHO) opinion that they are undervalued; the point is to note that they are a countervailing force against the market falling, and if there are more of them than panicky investors, the market will rebound. However, I personally think that any rebound will be what's known as a "dead cat bounce", which refers to a trading axiom that even a dead cat will bounce -- once -- if it falls from a sufficient height.

Or the market could do nothing much. This will happen if there are about as many "buy on the dips" people as there are panicking people.

But there's no way to know how many people are panicking, vs. how many are plotting to stake out new equity holdings, because there's millions of them all sitting in their offices, livingrooms, or cars, right now, and they haven't phoned me to let me know what they're thinking. The only thing to do is wait.

We'll know soon enough.

From the desk of Jane Galt:

Last post before I go

Last post before I go out:

I don't want to hear one more Brit proclaiming that what they speak is "Proper English" and what we speak is that debased tongue, "American English".

We speak American English. Brits speak British English. On what basis do the Brits claim superiority? They spoke it first? You're only allowed to make that claim if you speak Shakespearean English, that being the last rev. before Plymouth Rock. Population? Umm. . . well, I guess if you include people who learn it in school and speak it about as well as I speak French. Avez-vous la plume de ma tante?

Besides which, I've been informed that the closest thing to a Shakespearean London accent can be found in -- North Jersey. North New Jersey, that is. Still want to cling to those roots?

From the desk of Jane Galt:

I just saw the most

I just saw the most extraordinary thing.

A Con Ed transformer blew downtown; there's no power south of 14th street. They're saying it's not a terrorist thing, though of course we're all a little jittery since they don't really know how it happened.

Anyway. One of the guys gave me a ride to Penn Station, since there are no trains running downtown. There are no traffic lights.

Now, it's common for anarcho-capitalists to argue that systems will spontaneously arise to deal with such voids in a stateless society. And I saw it happen.

The large arteries running uptown/downtown had completely blocked off traffic running East/West on some large streets; the sheer number of cars on big streets like Broadway meant that there was always a sufficient number of selfish drivers to prevent a space from opening up to let traffic flow East/West. And suddenly, people started appearing at the corners. These were not cops, but ordinary people who'd seen what was going on and jumped in to help. One guy I saw was carrying a starbucks and a bag from Virgin Records; clearly, he'd just decided to help out on the spur of the moment. Another guy was wearing his Navy uniform, but looked too old to be in active service; I presume he went and got it out of the closet to give him some authority. All of these people had started directing traffic, stopping the big arteries so traffic could flow on the side streets. People, presumably knowing that they had been acting like selfish bastards, obeyed them. And as we moved uptown, they got better, coordinating with the guy on the next corner with hand signals in order to let the traffic flow smoothly. It was absolutely extraordinary.

Now, I'm not a convert to anarcho-capitalism; I like traffic lights, and I'm well aware that one of the reasons there weren't more traffic cops out is that they'll be needed tonight to stop the looting; there are now no burglar alarms south of 14th street. Nonetheless, it was an extraordinary example of self-organizing phenomenon. We're a resilient country, we are.

From the desk of Jane Galt:

John Ellis says short the

John Ellis says short the New York Times. I tend to agree. Particularly, I think that Punch Salzberger suffers from a misconception common to those who inherit empires: that the rule of the emperor is a law of nature.

Salzberger and Raines think that they can use the New York Times as a platform for their political views without degrading the value of the platform. They are, I imagine, encouraged in this by the fact that everyone they socialize with is either liberal, or has a lot of experience not riling liberals with their political opinions. They thus believe that the Times can move significantly to the left without alienating readers or losing its reputation.

But while the Times has a large bank of goodwill and respect built up, that is not an inexhaustible well. I've already subsituted the Sun for local news, the Washington Post for national, and while of course I am remarkably conservative for Manhattan, I know more and more people who feel that they can skip the morning ritual of reading the Times. Their business coverage is uneven. Their political coverage is nearly editorial in tone and content. And their editorial pages are only readable if you occupy the same political space as the editors. Contrast this with the outstanding mix at the Washington Post. Hell, even the Wall Street Journal does a better job of giving space to the opposition, and their news reporters actually lean liberal.

I think that unless this course is reversed, the Times will end up as the voice of the middle-left still mourning the demise of the Big Government Democrats; a high-end Village Voice. At this, Raines and Salzberger will no doubt do a good job. But it will no longer be The Paper of Record. And the platform will be useful only for preaching to the converted.

From the desk of Jane Galt:

Well, I'm back, and spoiling

Well, I'm back, and spoiling for a good argument, and here's one ready made: Andrew Sullivan is talking about prescription drug reimportation, as is Glenn Reynolds. Reynolds thinks that reimportation promotes competition. This is true, but in the same way that stealing cars and chopping them up for the parts puts downward pressure on the prices for auto parts in your area. Not having to actually manufacture the parts cuts down on a lot of overhead.

But a common belief, particularly in communities whose focus on Intellectual Property law centers around media content providers, where the incentive and pricing structures are really quite different, although the pricing model is superficially the same.

For now, I am going to ask you to stipulate that, plus or minus 10%, drug prices represent about what the drug companies need to make in order to recover the costs of developing the drugs they made, and get the capital to research more drugs. If this were not the case, my friends, the pharmaceutical industry would be swarming with new entrants. So let's argue about profits another time and cede me the point that, given that pharmaceutical companies sell drugs to Canada for close to what it costs to make and distribute the pills, without including the R&D costs, they cannot sell everyone in the entire world their drugs at this price without ceasing to invent new drugs. Since we all want new drugs, I think most of us can agree that it would be a bad thing if this happened.

So: Pharmaceutical reimportation -- yea or nay?

Let's look at pricing in the two markets. Right now, pharmaceutical companies sell into the Canadian market at a price far below the average cost of each unit of the drugs: the cost you get by taking the total costs of, say, Pfizer, and dividing it by the number of pills Pfizer sells. (I am going to assume that Pfizer sells the same mix of drugs in every country so that we don't have to start doing complicated overhead allocations, 'kay?) In fact, they sell to pretty much every major country in the world at below the average cost of making the drugs; they price very near marginal cost, which is the cost of making one additional pill. Because major pharmaceutical companies do a lot of research and such, the marginal cost of a drug is far, far below the average cost; that's how you can get such a steep discount by buying drugs over the internet from Canadian pharmacies.

Why do they do this? Because they like moose-hunting and Molson? Tee-hee, no; it's because they are dealing with a single buyer for their product in that market; the Canadian government. They can either price low, or forgoe all sales to Our Neighbors to the North. Since they're still making more than the actual cost of making the drug, it's pretty much gravy for them. They sell at the low price.

Can you spot the problem with this arrangement? Yes, that's right -- someone has to pay for all the capital that was tied up in the R&D. And guess who that someone is? Got a mirror handy?

In America, the drugs are priced far higher than average cost -- higher, probably, than they would be if all the other countries allowed prices to float. Not in the short term, of course. But over the long term, the profits would attract other entrants into the market, and prices would fall. You're subsidizing some neurotic Canadian woman with 50 cats every time she pops a Valium and drives to the pharmacy for more Prozac.

This is what's known as the Free Rider Problem. We have a free market that pays for drugs to be developed. Other countries use their legal and economic power to force the price of the drugs their citizens consume down below the average cost of producing the drug, thus appropriating the benefits of the research without paying for it.

The Free Rider Problem is all around us. Take, for example, this web site. Every so often, someone puts money in the tip jar in order to keep the site going. Yet, the other 1599 of you who read this site each day do not. You have chosen to enjoy the many benefits of Live from The WTC without paying for them, secure in the knowlege that someone else, someone with a conscience who cares enough to ensure that they get the finest in political, economic, and bullmastiff-related commentary seven days a week, will do it for you. So you can see how tempting it must be for Canada to do the same thing to us.

Now, let us assume that Senator Wellstone's little foray into Fabian Socialism is actually passed by the house, and drug reimportation becomes legal. (It's not right now, and you'd better hide those Viagra pills before your friend the Sheriff comes over for dinner.) What happens?

Well, first of all, people could start purchasing their drugs from Canada in droves, or they could pay extra for the Made in the USA label. Which will they do?

The difference between prices is large; the price for shipping them is very low. And people hate the pharmaceutical firms, whose products are not only outrageously expensive but often come with nasty side effects, and who have no desperate unions to make commercials touting the "Made in the USA" label. The reason that there is not currently widespread transshipping is that it's illegal; an operation of any size would be noticed and shut down. Economics tells us that arbitrage opportunities, otherwise known as "Free money", do not last long in the absence of government intervention. I think it is likely that prices would, to a large extent, equalize between the two countries over the medium term.

Assuming that they do, in fact, equalize, there are two ways the prices could go: Canada's prices could drift upwards towards ours, as one of Sullivan's readers thinks they will, because drug companies are unwilling to sell at a low price in order to secure the paltry Canadian market. Canadian consumers will be forced to pay the same price we do, and all those people who have been screaming about the wonders of single payer health care are going to find that their fact sheets suddenly look a lot less attractive.

Or our prices could be forced down to Canadian levels, which is what Wellstone hopes.

Which do I think? Well, from a competitive strategy standpoint, Sullivan's reader is absolutely correct; the pharma companies will not underprice themselves in the Canadian market if it threatens their US profits. In a model, the company would do just what he predicts: charge the Canadian government what it charges US citizens, with the same sort of volume discount they offer all large health insurers. (A health care analyst once told me that the Canadian government insures fewer people than Aetna. So in a sense, we have a single payer system. We have dozens of them. ;-)

Only there's one little problem with the model: the government is not a normal market. Aetna may be bigger, but Canada can beat it even fighting out of its weight class. Why? Not, thank you my little lefties, because the government is efficient or just or thrifty or just a better negotiator. But because Canada has an unbeatable hand.

It can break the patent.

If drug companies try to charge the Canadian government what they charge Aetna, the Canadian government can do what Aetna can't: authorize companies to legally produce generic substitutes. All the instructions are on file in our patent office and with our FDA; it wouldn't be hard. This is, in fact, what many third world countries do.

And actually, the companies don't really mind. Contrary to propaganda, Pfizer et al. would be happy to sell into the Indian market at below average cost -- it's gravy to them. What prevents them is not The Evil Corporate Overlords Trying to Make All the Third World People Die, it's the US government. Drug companies used to, in fact, do exactly this, but this gave grandstanding Democratic politicians a platform to decry the drug companies who were Profiteering Off the Backs of Hard Working American Citizens. Now the drug companies don't sell many drugs to the third world, and less developed nations get crappy generics made in often questionable conditions. Everyone wins.

Now, Canada doesn't want to break the patents; among other things, it would put a damper on business growth, as the risk premium on R&D goes up and cutting edge firms seek other locations where their property rights are assured. But I think that it would be politically impossible for the Canadian government to pay full freight on drugs; their health service is already hemorrhaging money. They would simply have to break the patents, or be forced out of office.

In other words, drug reimportation, by my analysis, puts the pharma companies between a rock and a hard place. They can sell to Canada at close to marginal cost and cannibalize profitable sales in the US; or they can let Canadian generic manufacturers do it for them. Companies are not suicidal. They will sell into the US market at the Canadian price plus whatever it costs to ship drugs from Canada, thus making a small premium, but nowhere near enough to cover R&D.

Now, it is possible that the Canadian government, recognizing that we all have an interest in new drugs being developed, will allow the price to rise, or forbid shipping to the US. I think the former is infinitely unlikely, given that allowing prices to float would be political suicide now in exchange for an unrealized public good ten or twenty years down the line. The latter seems slightly more likely, but only slightly; the citizens of Canada who elect them will perceive it as sacrificing a Canadian interest (the generics manufacturers) for an American one (the drug companies).

In the end, I think that reimportation would kill the last profitable large drug market. R&D would, for all intents and purposes, stop. Now, advocates will say that the government can pick up the slack. Come again? First of all, you're talking about a massive budget increase; each drug, remember, takes an average of $800 million dollars to bring to market. (That's just R&D, not sales or what have you.) Second of all, the government does not efficiently allocate research priorities. Pharmaceutical companies look at the size of the market; the government looks at how loud it is. Thus the government spends 10 times as much per victim on breast cancer research as colon cancer, even though the latter is far more likely to kill you; breasts, thank God, are expendable and easy to examine.

Yes, there are all those lifestyle drugs. Like. . . Rogaine and Viagra and . . . oh, shut up, you Nazi, I'm sure there are more.

We can all probably agree that curing baldness is not as pressing a need as, say, curing cancer. But when you start talking about "lifestyle drugs", watch out -- you might find out that your idea of a crippling illness is someone else's idea of a "lifestyle" -- probably the taxpayer who's picking up the check, which is why in Canada heart bypass surgery is "elective". And in fact, political factors already sway pricing -- if you look at drug prices, you'll see that the more optional a drug is, the higher its price over its average cost. Pharma companies have no fear that a coalition headed by Jason Alexander is going to descend on Washington to demand that the Senate do something about the high price of Monoxidil.

The point being, we are not going to save an enormous amount of money by getting rid of those useless "lifestyle" drugs; if they really are inessential, they're subsidizing the drugs that save lives. And if they aren't, a loud group somewhere is going to demand that we do something about the problem, double quick -- and we're right back where we started.

So I think that reimporation would, yes, pretty much eliminate the development of new drugs. And I think that that would be a bad thing. And I hope to God that we elect a Senate with some sense come November, before they can legislate away my chances for a healthy old age.

From the desk of Jane Galt:

All right, computer geeks out

All right, computer geeks out there: who wants to suggest a good firewall for a small business?

From the desk of Jane Galt:

I just got this little

I just got this little treasure via email. I have no idea whether it's real or not, but it is entertaining:

1943 Guide to Hiring Women:

The following is an excerpt from the July 1943 issue of Transportation Magazine. This was written for male supervisors of women in the work force during World War II.

Eleven Tips on Getting More Efficiency Out of Women Employees

There's no longer any question whether transit companies should hire women for jobs formerly held by men. The draft and manpower shortage has settled that point. The important things now are to select the most efficient women available and how to use them to the best advantage. Here are eleven helpful tips on the subject from western properties:

1. If you can get them, pick young married women. They have these advantages, according to the reports of western companies: they usually have more of a sense of responsibility than do their unmarried sisters; they're less likely to be flirtatious; as a rule, they need the work or they wouldn't be doing it -- maybe a sick husband or one who's in the army; they still have the pep and interest to work hard and to deal with the public efficiently.

2. When you have to use older women, try to get ones who have worked outside the home at some time in their lives. Most transportation companies have found that older women who have never contacted the public, have a hard time adapting themselves, are inclined to be cantankerous and fussy. It's always well to impress upon older women the importance of friendliness and courtesy.

3. While there are exceptions, of course, to this rule, general experience indicates that "husky" girls - those who are just a little on the heavy side - are likely to be more even-tempered and efficient than their underweight sisters.

4. Retain a physician to give each woman you hire a special physical examination - one covering female conditions. This step not only protects the property against the possibilities of lawsuit but also reveals whether the employee-to-be has any female weaknesses which would make her mentally or physically unfit for the job. Transit companies that follow this practice report a surprising number of women turned down for nervous disorders.

5. In breaking in women who haven't previously done outside work, stress at the outset the importance of time -- the fact that a minute or two lost here and there makes serious inroads on schedules. Until this point is gotten across, service is likely to be slowed up.

6. Give the female employe in garage or office a definite day-long schedule of duties so that she'll keep busy without bothering the management for instructions every few minutes. Numerous properties say that women make excellent workers when they have their jobs cut out for them but that they lack initiative in finding work themselves.

7. Whenever possible, let the inside employe change from one job to another at some time during the day. Women are inclined to be nervous and they're happier with change.

8. Give every girl an adequate number of rest periods during the day. Companies that are already using large numbers of women stress the fact that you have to make some allowances for feminine psychology. A girl has more confidence and consequently is more efficient if she can keep her hair tidied, apply fresh lipstick and wash her hands several times a day.

9. Be tactful in issuing instructions or in making criticisms. Women are often sensitive; they can't shrug off harsh words the way that men do. Never ridicule a woman - it breaks her spirit and cuts her efficiency.

10. Be reasonably considerate about using strong language around women. Even though a girl's husband or father may swear vociferously, she'll grow to dislike a place of business where she hears too much of this.

11. Get enough size variety in operator uniforms that each girl can have a proper fit. This point can't be stressed too strongly as a means of keeping women happy, according to western properties.

Well, I'm one of those flightly singletons and unfortunately not husky (or at least, so I devoutly hope), so this may be why I'm having a hard time finding a job. But if anyone's hiring, consider the fact that with me you won't need to buy all new uniforms -- as long as you've got something that fits a really skinny 6'2 guy, I'm your man.

From the desk of Mindles H. Dreck:

On the Third Hand has

On the Third Hand has a Farsi translation of the Iran support letter. Various forms of the Farsi can be found here.

To show our support for the Iranian people, we each have agreed to display this letter, in English and—if possible—in Farsi, on our pages from sunrise to sunset today, Tehran time; some are displaying it longer.

We are not politicians, nor are we generals. We hold no power to dispatch diplomats to negotiate; we can send no troops to defend those who choose to risk their lives in the cause of freedom.

What power we have is in our words, and in our thoughts. And it is that strength which we offer to the people of Iran on this day.

Across the diverse and often contentious world of weblogs, each of us has chosen to put aside our differences and come together today to declare our unanimity on the following simple principles:

That the people of Iran are allies of free men and women everywhere in the world, and deserve to live under a government of their own choosing, which respects their own personal liberties
That the current Iranian regime has failed to create a free and prosperous society, and attempts to mask its own failures by repression and tyranny
We do not presume to know what is best for the people of Iran; but we are firm in our conviction that the policies of the current government stand in the way of the Iranians ability to make those choices for themselves.

And so we urge our own governments to turn their attention to Iran. The leaders and diplomats of the world's democracies must be clear in their opposition to the repressive actions of the current Iranian regime, but even more importantly, must be clear in their support for the aspirations of the Iranian people.

And to the people of Iran, we say: You are not alone. We see your demonstrations in the streets; we hear of your newspapers falling to censorship; and we watch with anticipation as you join the community of the Internet in greater and greater numbers. Our hopes are with you in your struggle for freedom. We cannot and will not presume to tell you the correct path to freedom; that is for you to choose. But we look forward to the day when we can welcome your nation into the community of free societies of the world, for we know with deepest certainty that such a day will come.

From the desk of Jane Galt:

Eric Raymond asks an interesting

Eric Raymond asks an interesting question: why don't the best of regional foods percolate across the country?

In some cases, I think that what one region considers superb may be too much of an acquired taste. For example, having gone to school in Philadelphia, I am aware that the provolone cheesesteak with fried onions, mushrooms, and salt and pepper is one of the finest foods known to man, especially if it is accompanied by an order of cross-cut spicy fries with cheese whiz, and a bite of your companion's Italian Hoagie with mayonnaise and oil and vinegar. Yet some of you are already blanching at the thought, and not just heart surgeons, who are in fact probably enthusiastically figuring me into their plans for early retirement. It has been suggested to me more than once by people who were not fortunate enough spend their college years in the City of Brotherly Love that there may be an age beyond which a taste for such cuisine cannot be successfully acquired, and that this age is the same one which marks the end of a taste for drinking one's own weight in tequila.

And though my mother hails from the midwest, and I was raised on such delights as Jello Molds and Ham Salad, I am pretty confident that a taste for salads composed of three disparate ingredients and enough Miracle Whip to drown one of those small towns that's always getting flooded and rebuilt is not going to catch on outside the Land of the Ladies Aid Potluck. And no one is ever going to like Ambrosia.

Then there are the differences in natural resources. For example, you cannot get a good bagel outside of New York. People who think that they have access to good bagels merely because they happen to have a couple of Jewish professors at the local college who support a bagelry that is one step above the dietary atrocities committed at Einstein Bros. and its ilk, are wrong. If they will come to New York, I will direct them to H&H bagels, with a stern warning that after they eat there, they will never be able to consume one of those round pieces of stale bread that passes for a bagel outside of New York. However, even in places with a large Jewish population that would support some good bagelries, such as LA, the bagels are not as good as New York's. This is not local prejudice; it's the mineral content in the water. For some reason, it's ideal for making bagels.

You can't get San Francisco sourdough bread outside of San Francisco because nowhere else has the humidity, temperature, and barometric conditions to produce ideal San Francisco sourdough bread. You can't have good clam chowder outside New England because clams don't age well, and the kind they get elsewhere aren't right for New England Clam Chowder.

Some things are simply differences in taste. People who were born in New York, and are thus actually allowed to call themselves New Yorkers, know that good pizza has a thick, floppy bottom crust with a nice big hunk of soft crust to grab onto at the wide end. It does not have a thin, crispy crust that tastes like matzoh. It is not eight inches thick and drowned in tomato sauce sweet enough to rot your teeth, either. And it does not have barbequed chicken or arugula on it, thank you very much Mr. Puck. Yet unaccountably, people in other cities continue to do these bizarre things to their pizza, and actually seem to prefer it to the Real Thing. And I have only scratched the surface of the regional variations -- not to mention such unholy national creations such as Dominos, the Pit of Ersatz.

But then there are things you would think would translate. Philly Soft Pretzels. Texas Barbeque. Carolina Barbeque (yes, I swing both ways.). The outstanding pie you can get in every Iowa diner, and nowhere else. Why don't they percolate? I don't know. But I think someone should find out. I wouldn't mind a slice of pie right about now.

From the desk of Mindles H. Dreck:

Dead Russian Composer Personality Test

Dead Russian Composer Personality Test

If I were a Dead Russian Composer, I would be Dmitri Shostakovich

I am a shy, nervous, unassuming, fidgety, and stuttery little person who began composing the same year I started music lessons of any sort. I wrote the first of my fifteen symphonies at age 18, and my second opera, "Lady Macbeth of the Mtsensk District," when I was only 26. Unfortunately, Stalin hated the o