How Important Is the Stock Market for the Average Retiree?

Contrary to most of what you hear on the radio and you read in newspapers and magazines the typical American retiree is not as dependent on the performance of the stock market as many people think. The following is a table of the sources of income among the second quartile of older Americans, that is, from the 50th to the 75th percentile:

Social Security benefits....... 54.60%
Pensions....................... 22.00%
Earnings....................... 11.70%
Assets......................... 09.00%
Other Income................... 02.60%
Public Assistance.............. 00.30%


As the above table illustrates very clearly this group — which is above median, although not at the top — is highly dependent on Social Security benefits for more than half of their income.Asset income is, on the other hand , is rather small. Obviously as one moves down to the third quartile and then the fifth quartile then the share of income derived from the stock market disappears.

Of course the portion of income derived from pensions is affected by the stock market but for most Americans the day to day fluctuations in stock prices are not as seminal as those on Wall Street would like us to believe that they are. What do you think?

HDI 2009 CPI components

Although the GDP was not developed to measure the level; of welfare of a society it has been often used to imply that a larger GDP/Capita means a better quality of life. There have been many efforts over the years to adjust the GDP and/or modify it is such a way as to make it responsive to some of the criticisms leveled at it.

One of the most successful efforts at creating an alternative measure of welfare is the Human Development Index (HDI) that was introduced 20 years ago. The HDI is a relatively simple index that combines the money measure of the GDP/Capita, life expectancy at birth and degree of literacy to rank countries relative to the combined score that they attain. Obviously the highest possible score is 1. This kind of ranking raises the importance of heath care services in addition to education but it deemphasizes the role of money income as the most important factor in determining the quality of life. The final rankings demonstrate clearly that it is possible to have a relatively low GDP/capita and yet enjoy a high quality of life if the access to health care results in longer and healthier life combined with a high degree of literacy.

Those among you who are interested in the latest such report by the UNDP should visit the following web site for the full report and all its data:

http://hdr.undp.org/en/statistics/



Components of Consumer Price Index

The Bureau of Labor Statistics provides the following description of the major eight categories and 200 categories that are currently used in computing the CPI.
"
Major groups and examples of categories in each are as follows:

* FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)

* HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)

* APPAREL (men's shirts and sweaters, women's dresses, jewelry)

* TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)

* MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)

* RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);

* EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);

* OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses)."

Eight out of Ten Ain't Bad.

No one can doubt that the economic meltdown that started in the United States a couple of years ago and then spread all over the globe has been a wrenching experience. Tens of millions have lost their jobs, retirement plans had to be adjusted, poverty has increased, malnutrition has become more widely spread and governments have had to bailout banks, automobile manufacturing giants, subsidize agriculture and mortgages. Besides all the painful current adjustments that individuals and households have had to make, the future does not look to be very clear either, considering all the additional borrowing that governments had to undertake. As of this writting the US national debt is 12 Trillion dollars ( $12,000,000,000,000)and is slated to keep on increasing. What would be the effect of such a high level of indebtedness on both the domestic and ultimately the world economy is still not clear.

As a result of the severity of the global economic contraction many are questioning the viability of capitalism as it is currently structured. One inevitable result of these discussions is the emergence of the view that the US dominance is ending and that the unipolar moment has already come and gone. All of the above might prove to be true but as Mark Twain once said" The report of my death has been exaggerated".

American military power has been challenged in Iraq and Afghanistan, its political power is being challenged in Iran, the Arab world, parts of Latin America and in Eastern Europe. All of that while the value of the dollar sets new lows on the foreign exchange markets on a daily basis and its moral leadership is often questioned in the halls of the United Nations and in the Climate Change negotiations.

Yet inspite of all the above "negativism" eight of the top ten Global Brands according to the rankings by Business Week are common American household names. The results of these rankings come close to an unprecedented sweep and a recognition of American ingenuity and ability to innovate but it is also a clear demonstration of interdependence and a growing integration of the world economy.

The following is the list of the Top Ten:

1. Coca Cola (KO)
2. IBM (IBM)
3. Microsoft (MSFT)
4. GE (GE)
5. Nokia (NOK)
6. McDonald’s (MCD)
7. Google (GOOG)
8. Toyota (TM)
9. Intel (INTC)
10. Disney (DIS)

Do we need another stimulus?

The following is the full transcript of A Conscience of a Liberal of Oct. 3, 2009. Please read very carefully. Paul Krugman, the Nobel laureate, is not pleased with the latest unemployment report. What does the future hold?
**************************************

Obama’s Anzio

I’m late on this, due to festschrifting. But another bad employment report yesterday. I’m feeling pretty bleak about this.

And the worst of it is that it was more or less predictable. I went back to my first blog post — January 6, 2009 — worrying that the Obama economic plan was too cautious. I wrote:

This really does look like a plan that falls well short of what advocates of strong stimulus were hoping for — and it seems as if that was done in order to win Republican votes. Yet even if the plan gets the hoped-for 80 votes in the Senate, which seems doubtful, responsibility for the plan’s perceived failure, if it’s spun that way, will be placed on Democrats.

I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”

Let’s hope I’ve got this wrong.

Alas, I didn’t have it wrong — except that unemployment will, if we’re lucky, peak around 10 percent, not 9.

There was a lot of talk about health care being Obama’s Waterloo. It won’t, I think and hope. But stimulus is starting to look like Obama’s Anzio — the battle in which the American commander got himself into terrible trouble by being too cautious.

And right now Obama is pinned down in his too-small beachhead, taking heavy casualties.

Green Shoots

As has been expected this prolonged period of economic decline has been the most severe and the longest downturn in the last 80 years. Unemployment is approaching 10 %, the Federal deficit is setting new records and so is the projected national debt. But many economists, including Mr. Bernanke of the Federal Reserves have been talking increasingly about “green shoots”.
The fact of the matter is that there have been many “green shoots” sightings but most have proven to be almost as elusive as the UFO variety. Although home sales of both existing and new homes have been on the increase for a few months they seem to have stalled during August and durable good orders were below expectations. Add to the above the fear generated from what are the long run implications of the massive amounts of money that has been printed (read inflation and weak dollar) and the high prospects for a jobless slow rebound and the greenness of these shoots start to pale. They are not dead yet but the short term expectations should be tempered until the quality of the “sighting” improve.


I would be interested in your opinion of the movie "Capitalism: A Love Story" if you have seen it.

Would You Buy American Iron?

As difficult as it might be to believe,at one time, American made cars used to account for over 90% of the cars on the road in the US of A. Actually at times, GM's share alone was close to 60%. Fast forward to last year when GM and Chrysler filed for bankruptcy under chapter 11 and were able to avoid liquidation only with massive help from the federal government. Ford fared better but could not avoid receiving some major body blows that left it gasping for air.

Most analysts seem to think that Ford has learned its expensive lesson and is on the road to recovery but the jury is still out regarding the prospects for GM and Chrysler. Many think that GM will survive and possibly prosper but as a much smaller company than it used to be. GM had to shed Saab, Hummer, Pontiac, Saturn and they had to sell their stake in Suzuki and most of Opel. Chrysler on the other hand is eliminating marginal models such as the Pacifica and the Viper. The real question is whether GM and Chrysler will survive or whether all the tens of billions of dollars spent by the feds were for naught.
The next two years will be instrumental to the industry. Ford is planning to become profitable late next year or by early 2011 by the latest as a result of its new line of cars. GM hopes to break even when the market for new cars climbs back to 11.5 million units a year. They are hoping to ride the buz from from the plug in Volt next year while Chrysler is counting on the Fiat cars that could start appearing in the show rooms in a year from now.

A quick review of some of car magazines and car reviewers for the new model year seems to show that the American car companies have a fighting chance. Four of the most important new cars are :

Buick Lacrosse

Ford Taurus especially the SHO

Ford Fusion Hybrid

Chevrolet Equinox

Have you looked at any of these models and if so would you buy any of them? It is going to be your purchasing habit that will decide the fate of Detroit over the next 3-5 years. What do you think, would any or all of the 3 American car manufacturers survive and prosper?

It Is Time To End GDP Fetishism

Most common discussions, by all kinds of media outlets all over the world, of the concept of social welfare of a particular society never fail to mention the state of the Gross Domestic Product, the GDP. This all popular macroeconomic variable has grown, despite its enormous shortcomings, to become a metric of what it was not designed to be in the first place. Very simply stated, the GDP is a money measure of the value of final goods and services that are produced by a particular society. Note that the concept does not pretend to say anything about the level of welfare but is only the summation of all what is produced without even deducting the damage that ensue from such levels of production and consumption . A simple common example might help illustrate this absurdity. If during a particular year, the number of expensive medical procedures undertaken in a state increases then the overall size of its GDP increases also. So if the GDP is such a good indicator of the social level of welfare then why not promote cigarette smoking in order to increase the incidence of lung cancer which will keep the surgeons busy and lead to a large rate of growth in the GDP? Of course such a policy would be rejected by all. But isn’t this exactly what we do when we allow firms to dump their toxic wastes into rivers and when we encourage workers to commute long distances from where they reside to their place of work. The concept is rife with problems that are too many to list and that economists and environmentalists have been pointing out for decades chief among them is the inability of GDP per capita to say anything about the all important income distribution. Wouldn’t it be more important to learn who had access to the increased output rather than to just say that output went up? It has often been the case that the all the growth in the GDP accrues to a small group of privileged economic class when ¾ of the population has in reality lost ground.
Environmentalists in general and environmental economists in particular have been in the forefront of an unremitting attack on the method of assembling national income statistics and in particular the GDP. These efforts have been helped over two decades ago by the work of Amartya Sen, the Noble laureate in Economics, through his pioneering work on how to measure poverty and social well being. His work has led, among other things, to the increasingly popular Human Development Index by the United Nations. The HDI ranks countries by creating an index that takes into consideration the level of GDP per capita but combines that with measures of literacy and life expectancy. As a result it becomes possible to rank a country with high literacy rate and a high life expectancy above one that enjoys a higher GDP per capita but lags in the other two indicators.
Two days ago Joseph Stiglitz, another Noble laureate in Economics, a Professor of Economics at Columbia University and an ex Chief Economist of the world Bank has joined ranks with the above group of advocates for a change in National Income Accounting. He called, in his capacity as a member of a group advising president Sarkozy of France, upon world economic leaders to “avoid GDP fetishism and… to stay away from that.” What a welcome message during these perilous economic times in a world that is clearly not sustainable. Bravo Dr. Stiglitz.
So what are the implications of such a change? You tell me. Is a growing GDP, accompanied by a growing poverty rate, inequitable distribution of income , larger public debt, higher unemployment, less electric power, a construction boom for the super wealthy, privatized public beaches, low minimum wage, environmental degradation in all fields and rampant corruption a sign of social justice and better social welfare?

Latest Income Statistics

The following are some of the highlights from the most recent study released by the US Census:

Real median household income fell between 2007 and 2008,and the decline was widespread.
Median income fell for family and nonfamily households, native- and foreign-born households, households in 3 of the 4 regions, and households of each race category and those of Hispanic origin. These declines in income coincide with the recession that started in December 2007.

The poverty rate increased between 2007 and 2008.

The percentage of uninsured in 2008 was not statistically different from 2007, while the number of uninsured increased between 2007 and 2008.

These results, though widespread, were not uniform across groups. For example, between 2007 and 2008, real median income was statistically unchanged for households maintained
by a person 65 years old and over but declined for households maintained
by people of all other age group categories. Additionally, the poverty rate increased for children under 18 and for people 18 to 64 but remained statistically
unchanged for people 65 and over.

Income Distribution

The lowest quintile of households had incomes of $20,712 or less; those in the second quintile had incomes of $20,713 to $39,000; those in the third quintile had incomes of $39,001 to $62,725; those in the fourth quintile had incomes of $62,726 to $100,240;
and those in the highest quintile had incomes of $100,241or more.

It is safe to assume that the data for 2009 would show the same trend i.e. a drop in median income and an increase in the poverty rate. Some even fear that the jobless recovery might even be with us at least for a portion of 2010.

wtsrpvbx86

And The Beat Goes On

It is at times like these that we need to be reminded of what Alexander Pope once wrote:"Hope springs eternal in the human breast". As difficult as it might be we need to know that adversity carries within it the seeds of an equal or greater benefit. It all depends on how we react to the challenges that are facing us.

Unfortunately most observers think that the current economic crisis has not hit bottom yet. Whether it is the stock market or whether it is the real economy the daily deluge of news point to some more rough times ahead.

What does the future hold?
It is difficult to see any uplifting indicators besides the "leak" that both Citi and Bank of America have had two profitable months so far in2009 , on an operating basis. Besides that our only hope is that the stimulus will kick in within the next few months and that its effects will be sustainable. But realism demands that we take a look at the real financial and macro economic indicators. Once we do that then what do we find:

(1) The over 600,000 monthly job loses will not come to a sudden halt. They would continue for some time to come. Unemployment rate is already at 8.1%

(2) The factory capacity utilization for the month of February was at a historical low of 67.4%. This simply means that we have 1/3 of our factories mothballed.

(3)Home prices have fallen a lot so far but they have not hit bottom yet. That carries negative connotations for both consumers and the balance sheets of the large banks.

(4) Many on Wall Street are raising the argument that the current Price to Earnings ratio has not fallen as much as it usually does in major crisis , such as the 1981 recession or obviously the great Depression. Is there a 500 Dow Jones Industrial average in our future?

(5) And last but not least China is already voicing its serious concerns about the value of the dollar. A loss of confidence in the greenback will be disastrous.

The meltdown picks up speed

Fourth Quarter GDP, was revised down to -6.2%, the worst quarter since Q2 1980 when economic "growth" was -7.8%. The revision is a significant move from the -3.8% that was originally reported.

Here is a breakdown of where the economy is shrinking, and growing, most.
Gross Domestic Product: -6.2%
Personal Consumption: -4.3%
Durable Goods: -22.1%
Nondurable Goods: -9.2%
Services: +1.4% (Driven by a 13% increase in Electric & Gas use)
Private Investment: -20.8%
Net Exports:
Exports: -23.6%
Imports: -16.0%
Government Consumption: +1.6%
Federal: +6.7%
State 7 Local: -1.4%
(The above data is from CNBC)

This will have to come to an end , eventually. Unfortunately I do not see yet a potential catalyst to turn this ship around besides the stimulus package.

25 most responsible for the financial meltdown

If you are interested in viewing a list of the 25 individuals who are thought to have played a major role in the current financial debacle then copy and paste the following URL into your browser. The list is interesting , informative and well done.



www.time.com/time/specials/packages/article/0,28804,1877351_1878509_1878508,00.html

How Low Can It Go?

The official unemployment figures for the month of January were released earlier today and they do not look good. Actually, the 598.000 jobs lost last month ranks as the highest single month job loss in over 35 years. And if that is not enough bad news the recent job losses have increased the official rate of unemployment in the US to 7.6%, which is the highest that we have experienced since 1992. On the relatively bright side, there were two private sectors that did not experience any job losses; Education added 32600 jobs and Health Care saw an increase of 20700 jobs.

This recession is already 14 months old/young and it shows no signs of slowing down yet. Although the total jobs lost over this period has already amounted to 3.6 million some predict that we might have another 2-3 million to go. Unfortunately these prognosticators might turn out to be right. If one is to examine the historical record of the last 6-7 recessions then what becomes very evident is that unemployment peaks towards the end of recessions; that is why it is called a lagging indicator. If that is so then fasten your seat belts for a rough ride.

The Shrinking Economy

Are we living in interesting times or what? So many of the economic news, released over the last 1-2 years, are either the worst that we have seen in 3 decades or the absolute worst ever recorded. Can our frayed nerves withstand much more excitement?
Although the government figures, issued late last week , show that during the year 2008 the level of economic activity managed to eek a 1.3% rate of growth the estimates for the fourth quarter were abominable. The decrease in the GDP of 3.8% was the largest decline in over a quarter of a century and the weakness appears to be spreading. No one is expecting a quick reversal of this downward spiral. Actually, the economic consensus seems to expect the contraction in the US economy to accelerate over the foreseeable future. It is against such grim expectations that the new proposed stimulus package will be voted upon by the Congress. Passage of this package by February 17, 2009 is not in doubt, what is in doubt is the margin of victory. Does the opposition to an “imperfect” measure provide sufficient grounds for doing nothing when conditions are so dire?

Whats' In The new Stimulus Package?

Did this new team in the White House hit the ground running or what? In only eight days they have closed gittmo, reversed the stand on the international family planning gag order, asked the EPA to look into state fuel efficiency standards, strengthened the Clean Air Act and passed a new stimulus package through the House by a vote of 244 vs 188. This has been an exhilarating week. What a breathtaking performance it has been.
That plurality was along party lines but I expect that when the final bill is ready to be sent to the President for his signature in two weeks that more than a few Republican House members would be lending their support.
This massive stimulus package that has something for everyone was cheered today by the financial markets because it is the only hope that more focused government spending and a healthy household sector could start to pull this economy out of this severe recession.
The currently proposed new stimulus amounts to $819 billion divided into an additional $544 billion in Federal spending and another $275 in tax cuts. The new government spending covers the gamut of additional health care expenditures, more unemployment benefits, help to the individual state governments in addition to renewable energy projects and highway spending.The tax cuts are also broadly base. Almost a third; $90 billion; goes to Business expensing while payroll tax holiday amounts to $99 billion while renewable energy tax credits accounts for $20 billion while Tuition tax credit gets $10 billion.
Is this prescription sufficient to restore the patients health? Only if unemployment is not to go above 8-8.5 %. If that threshhold is crossed then an additional stimulus will be called for.

Who Should be Laid Off ?

It is easy to be in support of welcoming labor from other countries when the rate of unemployment is low and when the economy is creating new jobs at an acceptable rate. The real test of our attitude towards “foreign” labor, however, is to be judged by our acts during difficult economic times. And this is such a time. Would we maintain, in the face of double digit unemployment, our advocacy of “openness “ or would we change course by adopting policies that are geared to protect the national labor force . Do we have a moral responsibility to take care of the near and dear that can supersede our responsibility to non nationals?
Unfortunately such questions are no longer confined to the field of the hypothetical. As the economy slows down even such juggernauts as Microsoft have announced plans to lay off 5000 workers. But Microsoft is one of the primary beneficiaries and major supporter of the special H1 visas that allows companies to hire non-American workers. As expected, many, in and out of Government are calling on Microsoft to give priority to US citizens during these difficult times. Senator Grassley has already sent Microsoft a letter in which he stated unequivocally that “Microsoft has a moral obligation to protect these American workers by putting them first “.during these difficult economic times."
What do you think?

Put Your Money Where Your Mouth Is

Official unemployment in the US has surpassed the 10 million mark and according to some estimates it is on its way to 12 million. As any student of economics knows, or should know, the official publicized figures of unemployment understate the real number by a wide margin. If one is to add the number of the discouraged workers and those that are forced to work part time then what we get is an unemployment rate that is easily in the low double digits. And that is scary.

What makes the current situation even worse is the fact that no one can yet point to any encouraging signs of a potential turn around. Most prognosticators do not expect a meaningful pick up in economic activity until the third quarter of 2009 at the earliest. Unfortunately these tough economic circumstances of economic contraction, decreasing employment, plummeting prices in the housing sector, frozen credit markets and low consumer confidence have spread to most countries. This is an especially ominous development because there are no players that can pick up the slack ,if you will.

It goes without saying that the above mentioned harsh economic conditions are being felt by all members of society. This high level of anxiety and unease are reflected in practically all fields. New all-time lows are being recorded almost on a daily basis in the housing industry, financial transactions on Wall Street, the volume of steel production, the sales volume in electronics or that of new cars, to name just a few major areas.

The current administration has already taken a number of major initiatives to steady the financial hemorrhaging and the incoming Obama-led team has already prepared a massive stimulus package whose aim is to revive the economy and create new jobs. The question that I would like to raise at this juncture is simply this: Does each of us as an individual consumer bear a special responsibility towards other members of the community that are less fortunate than we are? I am not talking about donations of food , old clothing and battered furniture. In a market economy our values and mores are being constantly revealed through our allocation of income i.e. through our consumption decisions. Now let me ask you this: How sincere is your concern for your fellow automotive worker when you decide to purchase a vehicle; that is of comparable size and quality as that made in the US; but that was built by say French labor? Are your concerns for the rubber workers genuine when you proceed to buy tires made in Germany? Do you really have the right to complain about low wages when you persist in giving most of your business to those retailers and manufacturers that abuse their labor? Should you have the right to make an issue of government deficits when you willingly under report your income or fail to report a barter transaction? Does any one have the right to raise a raucous about global warming if one happens to live in a 4000SF home; drive 15,000 miles a year;go skiing across the Atlantic ; own large flat screen TV sets in addition to a large variety of electronic gear. Is it fair to rely on government and the sacrifice of others in order to resolve a problem that each of us has helped create?

Economic Consequences of the George W Bush Presidency

The following is an excerpt from an article by the Nobel laureate in Economics Joseph Stiglitz. You are encouraged to read the full article in Vanity Fair of December 2007.


When we look back someday at the catastrophe that was
the Bush administration, we will think of many things:
the tragedy of the Iraq war, the shame of Guantanamo
and Abu Ghraib, the erosion of civil liberties. The
damage done to the American economy does not make
front-page headlines every day, but the repercussions
will be felt beyond the lifetime of anyone reading this
page.

I can hear an irritated counterthrust already. The
president has not driven the United States into a
recession during his almost seven years in office.
Unemployment stands at a respectable 4.6 percent. Well,
fine. But the other side of the ledger groans with
distress: a tax code that has become hideously biased
in favor of the rich; a national debt that will
probably have grown 70 percent by the time this
president leaves Washington; a swelling cascade of
mortgage defaults; a record near-$850 billion trade
deficit; oil prices that are higher than they have ever
been; and a dollar so weak that for an American to buy
a cup of coffee in London or Paris-or even the
Yukon-becomes a venture in high finance.

And it gets worse. After almost seven years of this
president, the United States is less prepared than ever
to face the future. We have not been educating enough
engineers and scientists, people with the skills we
will need to compete with China and India. We have not
been investing in the kinds of basic research that made
us the technological powerhouse of the late 20th
century. And although the president now understands-or
so he says-that we must begin to wean ourselves from
oil and coal, we have on his watch become more deeply
dependent on both.

Up to now, the conventional wisdom has been that
Herbert Hoover, whose policies aggravated the Great
Depression, is the odds-on claimant for the mantle
'worst president' when it comes to stewardship of the
American economy. Once Franklin Roosevelt assumed
office and reversed Hoover's policies, the country
began to recover. The economic effects of Bush's
presidency are more insidious than those of Hoover,
harder to reverse, and likely to be longer-lasting.
There is no threat of America's being displaced from
its position as the world's richest economy. But our
grandchildren will still be living with, and struggling
with, the economic consequences of Mr. Bush.

Unshackle the Cell Phone

Telecommunications
Free My Phone

Cellphone carriers tell us what phones we can use, and what software and services can be offered on those phones. Consumers deserve better.

By WALTER S. MOSSBERG
October 22, 2007

Suppose you own a Dell computer, and you decide to replace it with a Sony. You don't have to get the permission of your Internet service provider to do so, or even tell the provider about it. You can just pack up the old machine and set up the new one.

OPINION

Now, suppose your new computer came with a particular Web browser or online music service, but you'd prefer a different one. You can just download and install the new software, and uninstall the old one. You can sign up for a new music service and cancel the old one. And, once again, you don't need to even notify your Internet provider, let alone seek its permission.

Oh, and the developers of such computers, software and services can offer you their products directly, without going through the Internet provider, without getting the provider's approval, and without giving the provider a penny. The Internet provider gets paid simply for its contribution to the mix: providing your Internet connection. But, for all practical purposes, it doesn't control what is connected to the network, or carried over the network.

WSJ's Walt Mossberg discusses the problems caused by the restrictions wireless companies place on customers' phones.

This is the way digital capitalism should work, and, in the case of the mass-market personal-computer industry, and the modern Internet, it has created one of the greatest technological revolutions in human history, as well as one of the greatest spurts of wealth creation and of consumer empowerment.

So, it's intolerable that the same country that produced all this has trapped its citizens in a backward, stifling system when it comes to the next great technology platform, the cellphone.

A shortsighted and often just plain stupid federal government has allowed itself to be bullied and fooled by a handful of big wireless phone operators for decades now. And the result has been a mobile phone system that is the direct opposite of the PC model. It severely limits consumer choice, stifles innovation, crushes entrepreneurship, and has made the U.S. the laughingstock of the mobile-technology world, just as the cellphone is morphing into a powerful hand-held computer.

Whether you are a consumer, a hardware maker, a software developer or a provider of cool new services, it's hard to make a move in the American cellphone world without the permission of the companies that own the pipes. While power in other technology sectors flows to consumers and nimble entrepreneurs, in the cellphone arena it remains squarely in the hands of the giant carriers.

The Soviet Ministry Model

That's why I refer to the big cellphone carriers as the "Soviet ministries." Like the old bureaucracies of communism, they sit athwart the market, breaking the link between the producers of goods and services and the people who use them.

To some extent, they try to replace the market system, and, like the real Soviet ministries, they are a lousy substitute. They decide what phones can be used on their networks and what software and services can be offered on those phones. They require the hardware and software makers to tailor their products to meet the carriers' specifications, not just so they work properly on the network, but so they promote the carriers' brands and their various add-on services.

QUESTION OF THE DAY

How would you rate your cellphone carrier? Cast your vote and join the discussion.

Let me be clear: Any company that spends billions to build and maintain a wireless network deserves to be paid for its use, and deserves to make a profit and a return for its shareholders. Not only that, but companies like Verizon Wireless or AT&T Inc. should be free to build or sell phones or software or services.

What Is Needed

But, in my view, they shouldn't be allowed to pick and choose what phones run on their networks, and what software and services run on those phones. We need a wireless mobile device ecosystem that mirrors the PC/Internet ecosystem, one where the consumers' purchase of network capacity is separate from their purchase of the hardware and software they use on that network. It will take government action, or some disruptive technology or business innovation, to get us there.

CUSTOMIZING YOUR PHONE

PODCAST: The mobile phone has become much more than just a portable communication device. WSJ's Jessica Vascellaro explains some of the ways we personalize our phones both functionally and aesthetically.

• Listen Now | iTunes Archive | RSS Feed | More Info

To my knowledge, only one phone maker, Apple Inc., has been permitted to introduce a cellphone with the cooperation of a U.S. carrier without that carrier having any say in the hardware and software design of the product. And that one example, the iPhone, was a special case, because Apple is currently the hottest digital brand on earth, with its own multibillion-dollar online and physical retail network.

Even so, Apple had to make a deal with the devil to gain the freedom to offer an unimpaired product directly to users. It gave AT&T exclusive rights to be the iPhone's U.S. network for an undisclosed period of years. It has locked and relocked the phone to make sure consumers can't override that restriction. This arrangement reportedly brings Apple regular fees from AT&T, but penalizes people who live in areas with poor AT&T coverage.

Apple has also, so far, barred users from installing third-party programs on the iPhone, though the company announced last week it will open the phone to such programs early next year. (Web-based iPhone programs -- those that run inside the Web browser -- have been available from day one.)

These restrictions have rubbed some of the luster off the best-designed hand-held computer ever made.

A few other "smart phones" sold primarily to businesses have been freer of carrier restrictions on third-party software and services than typical cellphones. But even these handsets, such as Palm Treos, Windows Mobile devices, and BlackBerrys, have been partly crippled by carriers in some cases.

As a technology reviewer, I have met with multiple small companies that had trouble getting their programs onto consumers' phones without the permission of the carriers; getting that permission often requires paying the carriers. Sure, there are some clumsy workarounds that can evade the carrier barrier, but it's nothing like the ability small software companies have had for decades to offer their products for installation on Windows or Macintosh computers.

THE JOURNAL REPORT

Take a look at various blogs that focus on triathlons and board games. Plus, as online advertising matures, so does the job of measuring results.

See the complete Technology report.

We also need much greater portability of phone hardware. Because the federal government failed to set a standard for wireless phone technology years ago, we have two major, incompatible cellphone technologies in the U.S. Verizon Communications Inc. and Sprint Nextel Corp. use something called CDMA. AT&T and Deutsche Telekom AG's T-Mobile use something called GSM. Except for a couple of oddball models, phones built for one of these technologies can't work on the other. So that limits consumer choice and consumer power. If you want to switch from AT&T to Verizon, you have to swallow the cost of a new phone.

But the problem is even worse. The government didn't require the CDMA companies to include a removable account-information chip, called a SIM card, in their phones. So, unlike people with GSM phones, Sprint and Verizon customers can't keep their phones if they switch between the two carriers, even though they use the same basic technology. And, the government allows the GSM carriers to "lock" their phones, so a SIM card from a rival carrier won't work in them, at least for a period of time. Techies can sometimes figure out how to get around this, but average folks can't.

The carriers defend these restrictions partly by pointing out that they subsidize the cost of the phones in order to get you to use their networks. That's also, they say, why they require contracts and charge early-termination fees. Without the subsidies, they say, that $99 phone might be $299, so it's only fair to keep you from fleeing their networks, at least too quickly.

But this whole cellphone subsidy game is an archaic remnant of the days when mobile phones were costly novelties. Today, subsidies are a trap for consumers. If subsidies were removed, along with the restrictions that flow from them, the market would quickly produce cheap phones, just as it has produced cheap, unsubsidized versions of every other digital product, from $399 computers to $79 iPods.

The Federal Communications Commission is selling some new wireless spectrum that will supposedly lead to fewer restrictions for technology companies and consumers, but it's far from certain that the carriers, with their legions of lobbyists and lawyers, will allow such a new day to dawn. Google Inc. is making noises about trying to bust open the cellphone prison, with new software and services, but that's no sure bet either.

Remember Landlines?

We've been through this before in the U.S., though many younger readers may not recall it.

Up until the 1970s, when the federal government intervened, you weren't allowed to buy your own landline phone, and companies weren't able to innovate, on price or features, in making and selling phones to the public. All Americans were forced to rent clumsy phones made by a subsidiary of the monopoly phone company, AT&T, which claimed that, unless it controlled what was connected to its network, the network might suffer.

Well, the government pried that market open, and the wired phone network not only didn't collapse, it became more useful and versatile, allowing, among other things, cheap connections to online data services.

I suspect that if the government, or some disruptive innovation, breaks the crippling power that the wireless carriers exert today, the free market will deliver a similar happy ending.

Subprime and the Role of Government

"The government that governs best is the government that governs least" appears to have become the singular dictum of the current administration. Even the war in Iraq has become the most privatized war in history. Many have even argued that the Federal Government's response or lack of response to hurricane Katrina was in essence a reflection of this ideological shift that questions the role that the Federal government is supposed to play in promoting the welfare of the nation.
So here we are again facing a new Katrina disaster, the subprime debacle where millions of families have to graple with foreclosures on their homes. The new Katrina is promising to be much more overwhelming than the old one. Actually the current debacle carries within it the seeds of a national recession not to mention the real human sufferings and stress that will ensue. Yet the government has failed to come up with a comprehensive plan to help avert the impending torrent of foreclosures on the grounds that government assisstance should not replace personal responsibility. It was more than acceptable. however, for the government to bail out the hedge funds and Wall Street from their misguided investment decisions. And I always thought that government is supposed to protect the weak and the poor.