Monday, February 18, 2008


With teacher unions in control of the US education system and with Obama and Hillary pushing socialist agenda, it is time to repeat the words of Winston-Churchill.

"The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery." Hillary and Obama profess to believe in capitalism. We must hope that they will move toward the middle for the general election and that they will meet their match by congress if elected.

The good news is that governments around the world are generally moving away from socialist policies. Ironically, it is the United States that operates a government controlled monopoly school system. Even so, the seeds of improvement have been planted in the US. Milwaukee will pay out over 100 million dollars in school vouchers this year. Sweden has shown that once the population enjoys the taste of school choice, it is hard to turn back. In the US, more and more charter schools are being attended. New York has made news by improving schools through choice and, indeed, improvements are showing up around the country. No less than 7 North Carolina High Schools made the Newsweek top 100 list. The list included 3 Greensboro schools, 2 from Raleigh and 2 from Charlotte. Chapel Hill almost made the list. NC has spent a lot of money while making education a priority. The government could save money and give satisfaction to citizens by offering more individual choice.

While Obama is to the left of Hillary on war, his willingness to push for charter schools and even for vouchers is unusual among democratic presidential candidates. His support reminds me of the philosophy of top management at Legg Mason, which is that economics wins in the long term. Politicians usually see the light but it often takes a long time. A wise old democrat once said that you are entitled to your own opinion but not to your own set of facts. Obama says the middle class is paying more in taxes while corporations are paying less. He needs to check his facts. Exxon, the firm that Hillary seems most "out to get", only paid 30 Billion Dollars in taxes! The sad thing is that common sense has been lost in the political shuffle. Common sense says that the right of individual choice is the solution to improved school performance and improved health care.


Unfortunately, people like to be told what is common sense and what is not. One of my pet peeves, for 30 years or so, has been seat belt laws. I am like most other people in that I don't like to be forced into doing anything. On the other hand, I am all for saving lives and if one is going to be forced to surrender liberties to the state, it should be for a good reason such as saving lives. The problem is that mandatory seat belt laws have actually caused an increase in death rates!

This is one of those topics where it makes good political hay for the government to pump out statistics that say x number of lives have been saved. As usual, the best way to mislead is to start out with an element of truth. While it is true that the number of people killed in cars where the occupants wore seat belts has gone down, it is also true that the total number of deaths went down more in the countries without mandatory seat belt laws. The problem is that drivers who wear them tend to feel safe and to drive less carefully. The number of pedestrians, cyclist and passengers in other cars killed has gone up in countries where seat belts are required.

I have thrown out controversial words, not to wage a campaign to repeal mandatory seat belt laws, a more productive accident prevention campaign might be to encourage smart cars and smart highways. My point here is that, as lovers of freedom, Americans should strongly resist any new government mandates, with mandatory government health care being the prime example.

The billions and billions of dollars spent on seat belts over the last 30 years are like a drop in a barrel to what is proposed in regard to health care. A government funded health care program will cost trillions of dollars and many of those dollars will be wasted. If education and health care are rights, the citizens should have the right to choose how the funds should be spent.

In Vietnam, I used common sense when I accepted a position as a supply Sargent in relatively safe city of Da Nang. My alternative was to demand a position at an unknown and perhaps very dangerous location as company communications specialist. I quickly learned the ins and outs of Army Supply and soon became a valuable "employee" of my Captain. He came to know that by giving me leeway to trade what we could get for what we needed, we could get almost anything, including rib eye steaks, Thai beer, a ten ton air conditioner and a $750,000 crane. Our motor pool Sargent built extra jeeps and trucks from the scrap yard, the air force furnished all the lumber we could use, special forces offered AK-47's and "extra" munitions and the Navy had the best food around. Believe it or not, my ability to get all the red, green, yellow and white paint I wanted turned into a valuable currency. Those who knew how to work the system got what they wanted while those who waited for the proper paperwork to clear, waited and waited and waited. My view of government health care is wait, wait, wait.

Advocates of government mandated health care find systems with good health results and suggest similar systems for the US. Of course, every system includes trade offs and advocates suggest that a tweak here and there will improve the "other guys system" without adding much to the costs. Generally, the average person has no concept of the complications or the range of unintended consequences. We know from experience that socialist systems lead to inefficiencies and high costs. We know that markets allocate resources efficiently but often need sensible regulation. We also know that abundant information is key. The public will not pay too much for a service if they can easily see when a lower price is offered by others.


One never knows where the market will take you. The game machine, WII, offers the latest health care solution. Patients who need to be rehabilitated after strokes, surgery, broken bones or combat injury no longer toil away at boring exercise routines. Now they play WII games. Bowling, golf or tennis include a lot of movement that is not boring. Patients who experience pain while doing rote exercise often forget about the pain while they try to win a match. I can hear the complaints about tax increases for the purpose of buying video games! Private enterprise can buy these games if they save time, effort and money.


In the past week, Iraqi forces have captured 212 weapons caches. Over in Syria, a terrorist involved in air plane hijackings 30 years ago, Mungniyah, was blown away. It seems like a major terror leader or two are killed or captured each month.

To have found 212 weapons caches in one month must have required human intelligence, satellite reconnaissance and perhaps "electronic sniffers". It only takes a tiny trace, measured in parts per billion, for today's electronic equipment to track weapons.

The foot print of active terrorist cells continues to shrink. Countries no longer openly support terrorist. Of course, there could be any number of sleeper cells in any nation.

WAKE 86 DUKE 73 hehehe


The site suggests that the airline combos will be DAL-NWA, CAL-UAUA, and AMR-LCC. Another report is that Air France-KLM will buy into DAL-NWA and that AMR will work out an expanded deal with British Airways. Air France-KLM is the largest carrier in the world but the combination of AMR and British Airways would be bigger.

The question arises, that if DAL-NWA is going to be a non cash, share swap, why would they need to sell a share to Air France-KLM? The answer has two parts. First of all, to fund the purchase of the new generation of fuel efficient planes. The second is that the boom in international air traffic is not from and two the points of old. The dramatic expansion of business includes relatively small cities around the world. The company that makes swimming pool parts in Clemmons, NC might have a "sister" facility in Montenegro. The flight to and from will probably involve a change over to another carrier. The range of new planes make direct flights to and from major cities common. One of my reasons to like CAL is because it continues to add long distance direct flights. However, cooperation with others carriers is the way to lock up the "other half" of flights to smaller cities.

Low cost discounters in the USA seem to be stuck at a 30% market share. Hubs provide the edge for the international carriers.


Hillary is disliked as a person by 78% of republican voters. Obama is disliked by only 17% of republican votes. McCain is well liked and his service to the country is widely appreciated. The current surge by Obama is partly due to the polls that show him as winning against McCain. Democrats and Republicans know McCain and Hillary. Obama is the new face. Between now and the general election, Obama's negatives will go up as Americans get to know him better. Most political observers believe that the democratic nomination is now Obama's to lose. I still believe Hillary will win Texas, Ohio and Pennsylvania and that she has a better than even shot at winning the nomination. Obama will win Wisconsin Tuesday but the with big numbers out of big states, Hillary can retake the lead. Low and behold, the delegates pledged to John Edwards could put John in the cat bird seat!

By the way, 81% of democrats strongly disapprove of the job performance of George Bush. Only 7% of republicans believe Huckabee has a chance to win but 26% wish that he could win.


The US auto business has joined the US housing market in recession. Auto sales are down about 9% from last year. On the other hand, the steep decline in short term interest rates in the US is the equivalent to spiking the international punch bowl. Countries like China, Saudi Arabia and Hong Kong, which all have their currencies tied to the dollar, are seeing an inflationary boom, boom, boom.

The International Monetary Fund (IMF) projects that world economic growth will slow from 4.9% in 2007 to 4.1% in 2008, however, China's CPI just came in at 7.5%. Kuwait at 7%, Qatar at 14%! Oman just hiked government workers pay by 43% and gave the people a wheat subsidy. India keeps bumping up minimum wages for contract workers. Indians who contract to work in Bahrain must be paid at least $265 per month. The current rate for Indians in the UAE is at $170 per month but this rate is expected to increase to $230 soon. Qatar has such a labor shortage that it has set up training schools in other countries with jobs waiting for those who pass.

The fastest growing telecom market in the world is India. The country added 83 million mobile subscribers in 2007! The USA added 20 million and China added 76 million. India should pass the US in total subscribers by May of 2008. Current subscribers in China 534 million, in the US 257 million and in Russia 172 million. Pakistan added 26 million. The US is right at 90% market penetration. When India passes us by, the country will be at 25% market penetration.

THE BOOM, BOOM, BOOM WILL CONTINUE. The fear of recession is over done. The world wide boom is showing up in US production. Billions of hand held computers will be designed, built, sold and used in the next several years.


The China miracle means that China will likely become the biggest economic power within 10 years. No need to worry!

The more developed China becomes, the more it will need products from the USA. In the old "ignorant days", people believed that a country could be an "Island to Itself". As I recall, Adam Smith published "The Wealth of Nations" in 1776. I believe it was not too many years later when David Ricardo gave us the law of comparative advantage. The simple summary of the work of Smith is: markets work! The Ricardo summary is: it pays to trade!

Even if China gains the technical know how to make all the stuff we make and even if China were able to make all the stuff we make cheaper than we can make it, it would still pay China to trade with us. China was a great nation a long time ago. One thousand years ago, China had technology that was not "invented" in Europe until centuries later. As I recall, around the late 1,200s, a new political regime took the country back into the "dark ages". Knowledge was purposely destroyed. Mao deserves credit for getting the health and basic welfare of the people lifted back on track about 60 years ago. The current miracle is likely to continue for some time. In any event, I do not see the people of China shooting themselves in the foot and deciding once again to become isolated. The fact is that no matter how good they become at any task, they will always be better at some task than others. It will always make sense for them to concentrate their energies and to trade with the US for the things that we do best.


Some important events will take place over then next two or three weeks. This coming Wednesday or Thursday could be a big day in the airline business. DAL and NWA boards will discuss merger on Wednesday. What will be will be!