The Internet Tax

I see that the LA Times is really, really upset about the lack of enthusiasm exhibited by Internet retailers when it comes to collecting sales or use tax. Their opinion piece for July 3rd makes the claim that the State of California is owed about a billion in spare change. It's an interesting claim in a recession, that people should pay an extra 9.5% in California for everything they buy from out of state retailers. What for? It's called the use tax. Everything you use is subject to the use tax.

The use tax and the sales tax are nearly synonymous. The sales tax is something you're already very familiar with - it's what you pay when you buy something at at brick and mortar store, like Target or Sears. The use tax is the same thing, except that you are required to pay it directly to the state when it's required to be paid. Instead of the retailer computing, collecting and paying it to the state, you do it. You usually pay the use tax when you buy something from out of state. At least, that's what the Times is saying people are required to do, but they don't.

The article points out that since about 1992, The Quill ruling from the U.S. Supreme Court has been a roadblock to the collection of sales or use taxes on Internet and out of state sales. Quill, Inc. is a corporation based in Delaware that was conducting interstate commerce with the people in the state of North Dakota. The state of North Dakota determined that Quill should have collected use taxes on the merchandise sold in that state. Quill refused, so the state of North Dakota sued.

In that case, the court rejected the notion that states could collect taxes on interstate commerce for a variety of reasons. Not just sales or use tax, they excluded *any* tax in their language. The decision runs through a number of issues relating to the due process and commerce clause of the Constitution. The ruling can be summarized as simply saying that Congress has exclusive power to regulate commerce among the states, and that no matter how the court thinks about it, they must defer to Congress.

I've seen discussion of state taxation of Internet sales since I've started using the Internet in 1994. Every few years or so since then, there has been grand talk of a unified tax code that all states can use to tax Internet sales. But it never happens. They need unification so that there can be no discrimination between in-state sales and interstate sales, as required by numerous court rulings and the Constitution. This is important because the framers of the Constitution recognized that if the states started charging tax on commerce between them, trade wars would emerge.

Even in the LA Times opinion piece, they discuss the California Board of Equalization. Why does the BOE even exist? The agency exists because the various counties within the state collect tax at different rates. They "equalize" the tax by collecting all of the sales tax due to the state from all of the counties and redistribute that tax among all the counties. Even the state of California has some concern for economic stability by regulating commerce among their counties. Apparently, some editors fail to see the need for equalization on a national level.

The Supreme Court also recognized that unless there was a physical nexus, and a minimal contact between the taxing state and the retail business, that the state couldn't impose a tax on commerce with another state. Just because the product is available through a mail order catalog, or a common carrier (the phone company or US Mail, and nowadays, the Internet), doesn't make it subject to a state's power of taxation. The reason for this is that taxation of this kind could become an undue burden on interstate commerce. This is also important in a recession, as we were in 1992. Take note that the lack of taxes on interstate commerce is what makes our economic system so strong as a union of states.

The Times article has noted a trend among the states, that several states are advancing their efforts to find some way to tax Internet sales. As if taxing more would fix their problem. The Times noted that Amazon has terminated affiliations with New York to remove their physical presence from that state so as to avoid in personam jurisdiction for sales tax liability. Overstock.com has terminated affiliations with 4 states, including California, to avoid being required to collect the sales/use tax, as well. They are terminating these affiliations even before a law is passed. This push for Internet tax legislation is disruptive to the economy and will only alienate the various state governments from their constituencies. And since only a few states at this time are bold enough to do it, a trade war among the states could ensue.

Some people have noticed that the State of California, like many other states, is in a constant battle regarding their budget, since there never seems to be enough money. Their budget dramas have been relatively constant since the late 70's, save for the rise in property tax revenue during the real estate bubble and the collapse of it. Notice that the bubble states were happy, sated and silent during the bubble. Now they want more money. I dare say that more money is not the solution to their problem. And imposing this tax, the use tax, in the manner that they seek to do, will only damage their economy further. They are again, attempting to circumvent the commerce clause of the US Constitution.

Even if all the states were to get their act together now, and come up with a uniform plan of taxation of interstate sales, I doubt very much that Congress would cede that jurisdiction to them anytime soon, if at all. This would create another level of bureaucracy, killing hundreds of trees in the process, and contribute to global warming.

This union of states has been together now for well over 200 years, and in all that time, the states could never cooperate enough, or have incentive enough, to put together a consistent plan of interstate taxation. If they haven't done it by now, I can't see it happening in the near future. I also find the timing of the LA Times article rather ironic. They are calling for more taxation a day before Independence Day, the American Revolution, with taxation without representation being one of the motives for declaring independence. As if we don't already have enough taxation.

Get over it, California, and any other state daring to traverse this path alone. Imposing taxes on Internet commerce may not be the answer, and could even become a problem. It's not going to happen in time to fix your budget, maybe not even in our lifetimes. So relax and find some other tax to collect.

About those patents...

I've been following the case of In Re: Bilski since it hit the headlines last October. What came out of that court last year was no less than astounding: business ideas cannot be patented unless they transform an article or are attached to a particular machine. Finally, we see a crack in the wall of entrenched interests against competition. Now that Bilski, et. al., have managed to get a willing ear from the Supreme Court next fall, the legal news and blogosphere is agog with all kinds of predictions.

What Bilski and his friends did was to patent nothing more than an idea. Not really an invention, just an idea about how to hedge risks in commodities trading related to weather. As Bilski describes it, they conceived of a series of mental steps used to mitigate risk in commodities trading in response to and in anticipation of changes in weather patterns. Such a series of steps could be implemented in software as a computer program. When his appeal was denied in the federal circuit court of appeals, patentees all over the country realized that tens of thousands of their patents and patent applications were at risk. This decision is said to threaten not just business method patents, but also software patents. Undeterred, Bilski has been granted certiorari in the US Supreme Court. But even in the Supreme Court, there are some rumblings that Bilski will be even less welcome there.

On the side of the patent holders, we see so much concern for all that investment and how a decision against Bilski could "stifle competition" and destroy the value of existing patent portfolios. But not a single tear is shed for the humble consumer, faced with an ever limited choice of products, manufacturers and vendors to choose from. Add to that the reduction of investment in research and development in the software industry, as found by James Bessen, et. al. Patents are monopoly power and can be used to wipe out any encroaching competition. As we have seen with Amazon's one-click patent, the fighting over intellectual property land grabs is reaching the heights of pettiness. All this for 20 years of royalties.

On the side of the rest of us, people who don't own any patents and have little power to sway the proceedings, other than to voice our concerns, we see people extolling the virtues of a freer market. Try the Free Software Foundation. Or Against Monopoly. To them, a market unconstrained by patent barriers, is a market free to innovate.

The book "Against Intellectual Monopoly", makes some very pointed observations about the relationship of patents to maturing industries. When an industry is young, innovation proceeds at an amazing pace, as innovators rush to get their products out in front as first movers. Young industries are also under the radar when it comes to regulation. Governments tend to move slowly to develop a regulatory regime in response to new technology.

But when an industry matures, the incumbents start to run out of ideas and think that somehow, they need more encouragement. I know, lets dangle patents in front of their noses! That should keep them moving. But the sad reality is that patents only hinder and stifle innovation, protecting the incumbents.

As someone who works with software, I have noticed another trend. You are all aware of the concept of the computer virus, or, in more general terms, "malware." Malware is what you get when you click on links from people you don't know. They could be in email or on a web page, it doesn't matter. It's out there. Subprime mortgages, health insurance, MLM, male enhancement advertisements, and the whimsical, the Nigerian treasure chest from a recently deceased leader. Malware is not just about advertising, it's also about stealing your personal information, taking down websites and storing child porn on your personal computer without your knowledge.

Now look at the malware industry. No court will protect them. They seek no copyright or patent protection. They are quite simply an unfettered market that has adapted to the conditions surrounding it. Since they are not busy applying for patents or copyrights, nor are they suing anyone to grind them into dust for want of a licensing fee or injunction, they are very busy innovating. Please note, I'm not saying they are right in what they are doing, I'm just making an observation.

Now look at the antivirus industry. They are collecting patents by the hundreds if not thousands. They are suing each other. They copyright their works. They seek government protection in what is supposed to be a free market. How are they succeeding? I wonder, if the product they offer is so superior, why would they need patent protection from competition?

Malware is a very profitable industry. Estimates of how many computers are infected, or get infected vary, and no precise number can be found. Reliable estimates hover around 15% of computers worldwide. But it is fair to say that the number is large enough to support an opposing antivirus software industry who's primary purpose is to protect the rest of us for a fee. Many pundits say that we are losing the war against malware. Why? It's hard for me to say without pointing the finger at the lust for monopoly power in patents and copyrights.

While these antivirus companies are "innovating", their lawyers are trying to make sure their products don't infringe on someone else's patent. Or they are trying to make sure their patent claims cover every other product that could compete with theirs. There are so many software and business method patents that we have what is known as a patent thicket. It is now widely acknowledged to be impossible to write software without infringing any patents.

There is also the issue of customer service. A company with a stack of patents doesn't have to worry about competition. They don't have to smile when they meet you. They don't have to be friendly when they greet you on the phone, either. A patent holder could be the sole supplier of the product you seek. Lucky you. Customer service? The estimated wait time for this call is 20 minutes, please hold and listen to some advertising.

Here are some things that have patents. You use them every day. All of them are software patents and all of them use math. You might have heard of the book, "Math You Can't Use." This case is just about that. The patenting of logical expressions.

MP3 music file format
MP4 a video file format
DVD encoding
encryption
one-click for amazon
certain features of the Microsoft Office Open XML file format (OOXML)
The FAT32 file system from Microsoft (using long file names to substitute 8.3 filenames)

This court case, In Re: Bilski, has the potential to clear the field and make way for real innovation. Hopefully, the court will see that the social surplus provided by software and business method patents is completely overwhelmed by the costs of these patents. What costs? Narrowing of and/or lack of consumer choice, reduced R&D investment, vendor arrogance and grandiosity, litigation, litigation contingency planning, trees, trees and more trees.

It is my hope that, over the next few years, the power of business method and software patents will be decimated so that all of us can innovate, copy ideas, improve on them and pass them on to the next generation or even the next person we share it with, without a single encumbrance.

Credit Bias

I'm in the market for a house. I'm resolved to not incur unsecured debt in any form, intent on saving money for the rainy day or the house that I want - or both. Is this the right way to go? Common sense would say "yes". But conventional wisdom says "no".

There is some anecdotal evidence to support this contention. I've heard a few stories that go something like this: I know this guy see, he pays cash for everything and has no debt. He works as an employee and he's saved up enough for a down payment on a house. But he doesn't have a credit history, so he couldn't qualify for a loan - any loan. He had otherwise sterling credentials, but since he never borrowed money, he was an unknown credit risk and didn't present the possibility for a profit for a lending institution. Can you say "FICO"?

So I've been talking to loan agents to see what I could qualify for in terms of a loan for a house. And what I've learned is that, essentially, unless we're willing to pay the banker interest, we cannot build a good credit score.

Never mind that I pay my bills on time. Never mind that I keep a prudent reserve. No, good behavior doesn't count unless it pays interest.

What were those economists and policy wonks saying again? "We need to get the banks to loan money again." Do you think if we had money in savings, that the banks would have money to loan?

There are huge systemic problems in our economy, and this is one of them: the need to use debt financing to generate profit. I used to work retail. How that happened when my trade is IT? I decided to do it just as an experiment to see if I could do sales. It was in an upscale home improvement store that was a subsidiary of a much larger corporation.

When I started there, I had to go through training. The training had a strong emphasis on the requirement to ask every single customer the following question: Would you like to put that on your (name of company here) credit card? And the follow up, "Oh, you don't have one? Would you like to open one? It will only take a few minutes."

The reason for this is that the company I worked for relied upon debt financing to make up for the low margins on the products they sold. The numbers were rather startling. For every $100 sold, they would earn $1-2 if paid in cash, $2-3 if paid by a third party credit card, and up to $8 by a company issued credit card.

The widespread use of credit cards has transformed capitalism in the US. Remember the traditional method of making a profit? (Maybe you don't because you can only read about it in history books.) You know, buy supply, or manufacture and deliver products efficiently at a cost below the sales price of your product? Instead, multinational corporations buy a huge amount of inventory to sell at a very low margin on their own lines of credit, usually in the form of commercial paper. Then they sell that inventory to their customers with a higher rate of finance. It seems that the art of selling a product for a profit is almost completely lost on the ability to use financing as a means of increasing or sustaining margins.

Or maybe that's a sign of globalization. If we can't compete domestically with imported goods, then it's a race to the bottom on price with debt maintenance payments creating the margins necessary to sustain the business.

Setting that aside, here's an interesting question: why isn't financial behavior, like paying the bills on time reported and/or given the same weight as making payments on a line of credit? Probably because the money isn't there, there's no incentive if you're not paying debt maintenance charges - you know, like interest. Which means that unless you get into debt, you can't get the credit rating needed to qualify for a home loan at a reasonable rate based on your perceived risk to the bank.

We've all heard about the meltdown and the Federal Government's effort to help out. Most of the help has strings attached. Some bank officials are worried that the compensation caps required by acceptance of this help would prevent banks from attracting real talent. With thinking like that, I'd hate to think of what real talent could do to the country.

I guess they're not that worried now. It seems that the major credit rating agencies want to be lenient on AIG. They're worried that if the rating cuts for AIG are too big, then AIG will have to put up a lot more collateral and pay a lot more in financing costs. It's nice to see how members of the financial industry can be so helpful to each other. What about the rest of us? When was the last time your health insurer gave you a break? Or your bank?

There is also the question of lobbying. The bank and finance committees in both houses took in well over $26 million in campaign finance contributions last year. Nice. So, really, what the banks want is firm control over the economy:

• You don't get a credit history unless you borrow money and pay interest.
• If banks make a mistake, taxpayers get to pay for or assume the risk for it, while executives get bonuses.
• Banks can use interest rates to manage the economy in their favor.

Basically, what we're looking at is the top of the kleptocracy created by the banks. They get to sit on their bum and collect principal with interest while the rest of us work for our money.

It's clear to me at this point that public policy must change with regard to standards used for assessing risk for secured loans, such as for a home. A person or company that seeks to borrow money for a secured loan is a far lower risk than for an unsecured loan. Yet, the measurements used to assess the risks rely almost completely on the record of payments for unsecured loans, usually credit cards. In other words, you have to start with unsecured credit first before you can qualify for the really big stuff like cars and houses, which are used as collateral in a loan.

This is so totally wrong. The weight of emphasis should be on payment of day to day bills, not payments on credit cards. We need to reverse the emphasis and place it on paying the bills on time and saving money as the basis for assessing the risk for secured debts like houses or cars.

This just in: Now Experian doesn't want you to get access to your credit score. It's bad enough that we have to pay for our own information (if we want it more than once a year), collected by agencies that will sell the same information to other companies. But it could get to the point where ordinary people cannot get access to their credit files. Gone is the time where you could dispute information on Experian's files because you can no longer see it. Seems like I should be paid everytime my information is disclosed to someone.

I want to leave you with one last thing. This is courtesy of NPR. Go to this page and you will see a chart. Here, we see the comparison of Debt vs GDP. There are only two years in the last century to date that debt was 100% of GDP: 2007 and 1929. Can you sense the sea change?

What does "stimulus" mean, anway?

So it has come down to this, a stimulus plan. Everyone is talking about it.

All this after an economic calamity that resulted in shriveled retirement accounts, deflated property values, and diminished expectations for employment. Estimates of losses in real estate and stocks amount to the trillions.

And there is plenty of news about how the financial industry, in recognition of their superior advice, talent and transparent management, gave themselves $18.4 billion in bonuses last year. There are some who are saying that the bonuses and compensation paid could not be justified by technology or experience. Who could've known? They're lucky they aren't in China - for they surely would be doing hard time in prison for their mistakes, instead of getting a handout.

More recently, we saw the story of Bernie Madoff, who ran the biggest Ponzi scheme in history. Harry Markopolos had been telling the Securities and Exchange Commission about Madoff for many years. But the SEC was unwilling to look at the scam and chose to remain willfully ignorant for as long as possible until it could not be ignored any more. That was when Madoff finally admitted to it in public. This is the free market at work. And for all you Southern California people, remember that former Senator Chris Cox, that great free market champion, failed to catch this on his watch. The free market will regulate itself, right?

I think it's also worth noting that during these hard times, CEO's aren't going to bed hungry. The vast majority in the financial industry aren't going to be out on the street anytime soon. They will try to find smaller firms to work for so that their bonuses don't make the news. And by the way, if you're looking for a good advisor that doesn't do Ponzi, check this out.

President Obama has made it clear that the middle class has been subject to plenty of abuse by the upper class. Those losses discussed above, were the most painful for the middle class. The middle class can't afford to lose half of their retirement account. For the upper class, they'll make it back in a few years. Even if they don't, they can probably take some time off to make a better plan while living in a house they still own.

The point of this post, is that for at least the last 8 years, the middle class has received a beating like none other since the great depression. And what the uppity class seems to have forgotten is that they really need the middle class. You see, when the upper class thinks of Mexico, they don't think of going there for vacation. No, they think of that great, captive employment market and yearn to bring it here. Just ask Gore Vidal.

The stimulus plans being discussed mean one thing, plain and simple: Ooops. We just beat the living daylights out of the middle class and we're so sorry. If we don't give them something to work for, they will stop working for what we are willing to pay them. We need to make sure they keep working until we can find a way to ship their jobs overseas.

Just how are we going to fix this? We can start by making the bailout plans god-awfully painful for executives who come to the government hat in hand after making really dumb mistakes. We can put an end to the conservative nanny state. This is the land where conservatives get their government intervention into the economy without the headlines the way progressives get it.

I used to consider myself a conservative, but I noticed over the years that I felt more and more uncomfortable with that association. At one point I was a libertarian, and I still hold some libertarian values (but I don't eat any books). The nanny state conservative is what the extreme "Right" has become: theologically dominant, morally "superior", belligerent, paranoid, and above all, self-righteous (just one ego fills a typical aircraft hangar when uncompressed). To the nanny-state conservative, economic policy is great if it drives income up and grants advantages to people who already have money and power. But somehow, it's really bad for the economy if the middle class gets to make more money.

Notice that the conservative Republicans are again pushing tax cuts. They're really, really worried that we're spending too much money on this stimulus plan. Gosh, we just spent $350 billion on banks who aren't even telling us how they spent their TARP money (though there is substantial evidence that domestic banks are buying other banks around the world rather than making loans at home). And we're getting ready to unload another $350 billion on them. Only this time around, we're going to make them accountable. Yeah, right. I didn't see anyone floating a tax cut to fix that problem. Notice that there was "bipartisan" support for that measure, too. And I didn't see any Democrats holding their breath in a pouting contest before that measure got passed.

I don't like the idea of spending, and I would prefer that we did nothing when it came to bailing out the banks. But if we have to choose between spending and tax cuts to save the economy, I'll take spending. Why? There is empirical evidence weighing against tax cuts. One really obvious clue is that tax cuts aren't going to do you any good if you're not making money. With many people out of work, and many more fearing for their jobs, people just aren't going to be making any discretionary spending decisions in favor of spending money. And let's not forget that we have eight long years of nothing but tax cuts for the benefit of the top 5% who saw their income grow at a much faster rate than the rest of us. Did they spend their money? If they did, would we be in a recession now?

For any of your doubters out there, here's an interesting quote to consider:

"As I've often said... this [increasing income inequality] is not the type of thing which a democratic society—a capitalist democratic society—can really accept without addressing." - Alan Greenspan, June 2005

...that subtle, yet discernable admission is from a fierce capitalist, a really big fan of Ayn Rand (see also, the libertarian link above), and an acknowledged expert on economic policy who was in charge of the Federal Reserve Bank for about 20 years.

So what is the return on investment when comparing a tax cut vs. spending? The simplest explanation put forth by Robert Reich, the former Labor Secretary in the Clinton Administration, is this: giving tax cuts to people who already have money doesn't make them spend more money. They've already spent the money they want to spend and so they only save more of it with tax cuts. On the other hand, giving money to people who have none guarantees they will spend it since they live paycheck to paycheck if they have one.

Here is one example of how a tax credit (which is a synonym for tax cut) didn't work. According to this article, between 1994 and 2004, the telecommunication companies, like AT&T, Verizon, and Comcast, were given an opportunity to improve their Internet access services with $200 billion in tax credits. What they did instead is cut costs, jobs, and increased prices for their services. So instead of remaining at No. 1 in the world for high-speed Internet access market penetration, we're No. 15 and falling. Oh, and they also gave the executives bonuses. Yeah, tax cuts are really great if you're making money.

By now, you may have noticed that I've been citing Dean Baker here and there. I like him because he's the only economist I've seen who is willing to go on camera and say what he really means. Dean points out another reason why spending is better than tax cuts. If the government doesn't spend the money, NO ONE ELSE WILL.

So let's look at the stimulus plan as a way to say "Sorry, my bad," all around, from those wonderful free-market conservatives. Who could blame them for having faith in the market.

And lets hope that the current administration is and continues to be mindful that we can make a meaningful change here for the better. Kudos to President Obama for making the effort to reach out to the other side. This is the first President I've ever seen that is actively seeking ideas from around the country instead of just inside the beltway. Perhaps the conservatives, noticing some of their ideas didn't work last time around, will wait their turn and give this new president a chance, too.

What a relief

For 8 long years, we have been politically constipated. I say that because I can remember how when GW Bush arrived to office, he was greeted by 10,000 protesters on the way to the White House. Both of his elections were tainted by cries of foul play, one went all the way to the supreme court for one election.

During the last election, we had none of that. Obama ran a straight campaign, taking all the lessons from history and putting together what was needed to win.

And now that he's in office, he's got a job to do. I watched him during the inauguration ceremony, and though I saw him smile, I also saw that he knows his job is cut out for him. I watched the justice stumble on the oath, and Obama stumbled too. But they regrouped and finished the oath, together. They may not agree on the issues, but they worked together to finish the ceremony.

The problems we face in this crisis are too big for one party, one faction, to solve. This requires all of us to cooperate and to work towards a greater goal than narrow interests would support.

Obama said more than once that open, spirited debate, with a mind towards the common good will be required for all so that economy recovers and that we can all prosper together. Such debate includes putting everything on the table for consideration, and avoiding the framing of such debate in a way that gives an advantage to one group or faction.

As Obama said, we must ask what is good for me and my children, going forward.

Amen

PC Security

A little history is in order here. I have had the opportunity to watch the Internet grow from the early days in 1992. I got my first email address that year with a BBS (Bulletin Board System) called the 0x0 Republic. Some of you are old enough to remember those days of the BBS, Compuserve and the 14.4k Modem.

Back then, I had a humble Amiga 500 and 3000 computer. No, it didn't run DOS, it ran the AmigaOS. As you can see from the screen shot for the Amiga 500, this didn't run Windows, either. The AmigaOS drew it's roots from Unix allowing for command line and GUI operation (windows and icons) of the computer. Their user interface was very advanced compared to the Mac and the PC at the time. Unfortunately, through their own management errors, the company eventually went into bankruptcy.

Around that time, computer security wasn't really an issue. Most personal computers were still single user, general purpose computers and apparently, only a few people bothered to write a virus for the Amiga.

Eventually I got an Apple PowerBook 140b. It was with this computer that I first got a taste of the World Wide Web around 1994-5. It was a slow, stodgy, black and white experience. But I used it to do my research at the time. Back then, Alta Vista was the search engine of choice and they were considered to be the fastest search engine of the time.

And then I got a Windows laptop in 1997. When I first saw the software available for Windows, I laughed and realized what I had been missing on the Mac. I found a nice dialup ISP to work with, too. From there, I started to really get a sense of what could be found on the Internet. For years, I went without antivirus, not completely oblivious to the dangers - but just being careful not to open attachments from strangers.

In 1999, I got a computer with Windows 2000 Professional. And then I moved into a place with cable access to the Internet. I went from a 56k modem to 1.5 Mbs in speed. I had taken some classes on Windows and learned something about the security built into it. I started to read the tech news every day and noticed that more and more, viruses and trojans were making the news. So I got some Antivirus software.

I started out with Norton Antivirus and eventually moved on to Eset's NOD32. I also figured out something that my Dad taught me in terms of strategy: no defense can anticipate all attacks. So I found a good combination of tools along the way. This combination is what I'd like to share with you. It is built from years of experience and through about 12 years of running Windows. Because of this training, learning and vigilance, I've only had to rebuild a computer once due to a virus.

Keep in mind also, that no software can stop you from doing something stupid. If you open an infected attachment, from someone you don't know, you're only asking for trouble. If you click on a link in a spam message that takes you to a site harbouring malicious software, you're likely to be toast, even with the best defense available. Such a site is just waiting for you.

First and foremost, if you're running Windows, you're likely to be running as an administrator. An administrator account can do *anything* to your computer, and that includes damaging it. On the other hand, you can also use a "limited" account. This is a regular user account that can do very little, if any damage to the computer. To put it simply, admin accounts should only be used for maintenance, upgrades and software installation/removal. Limited user accounts should be used for everything else. A limited user should only be used for your daily computing tasks: Internet access, email, writing correspondence, playing games, etc.

When you start Windows up for the first time, you're prompted to provide at least one user name and additional names for other people who might use the computer. Windows XP doesn't give you much of an explanation for the differences in user accounts, either. So, unless you're informed, you create one or more admin accounts to use on your computer.

As a rule, you should never be running as admin unless you need to install a printer, software, remove software and the like. For anything else, run as a limited user.

The reason for this is simple. Many of the latest viruses and trojans install on your computer silently. Virus writers realize that most people will trash emails with attachments from people they don't know. So they use stealth. When your computer is being attacked, you will get no clue that new software is being installed - when you are running as an admin. Windows Vista can help this in some ways, but Vista also has a very similar programming philosophy to XP: convenience over safety. Yes, you can still get warnings that a software is trying to install, but a determined piece of malware can work around that and trash your computer. You won't really notice much other than your computer is running a bit slower than before. Malware tends to change the computer for its own benefit at the expense of other functions.

Now if you're running as a non-admin or limited user, and you click on a drive by download, you're going to get a message indicating that you do not have permissions to install this software - please contact your administrator! If, at this point, you were not planning on installing any new software, it's time to leave, quietly and never come back to that site. Ever.

So, if you have not done so already, create another admin account. Give it a password. Take the account that you're using now and turn it into a limited account. Whenever you need to add something to the computer or to do maintenance, log in to your admin account. For everything else, it's Visa, er, Vista, I mean...um...your limited account.

So that's the first step. Just changing the type of account you use for daily computing is a big step towards preventing infection from a virus or trojan.

Windows Update. Whatever you do, once a week, run it. Yes, they do make mistakes once in a blue moon, but I've never had any problems with their updates. Most malware is designed by reverse engineering the latest updates to find the security holes and then attacking there. Running updates for Windows on a regular basis, (and any other operating system for that matter) will further limit your chances of infection.

And now for antivirus. This is part of what is known as the Windows Tax. You pay for the license and then you pay for the antivirus and other security software. Most good antivirus suites are going to cost $40-60 for the first year, and 20-30 bucks thereafter for maintenance. The best antivirus will do a complete update of signatures without admin intervention. I heartily recommend Eset's NOD32 simply because the updates occur Automatically without you being an logged in as admin. Version upgrades will require admin access, but that is a fairly rare occurrence (once or twice a year).

I don't recommend Norton for a couple of reasons: they are a big, fat, complacent company with a huge market share. Try getting a hold of customer service there. On the other hand, Eset is hungry for your business. I can easily get a hold of their techs without cycling through their music on hold playlist.

Yes, there are others to consider, such as the free version from AVG. But you do, in a sense, get what you pay for. Caveat Emptor.

Remember what I said about how no defense can anticipate all attacks? Well, even NOD32 isn't perfect. So I strongly recommend antispyware as well. SuperAntiSpyware or AdAware are both great products that can find a lot of stuff just, you know, hanging around waiting for an innocent click to come by. They make a good complement to your antivirus software. It's worth noting here, that a fellow IT guy told me the following: Eset (NOD32) recommended SuperAntiSpyware as a complement to their own product. They acknowledged that their product won't catch *everything*. That is a very humble and honest statement to make, and heartening for me to hear. I've had similar experiences first-hand myself, so it's nice to hear it from someone else. That is why I like Eset.

So, we've covered the user accounts, the antivirus and the antispyware. You're also going to want a firewall. This is useful for software that is trying to call home, you know, to the Mother Ship. I have experience with two products for this purpose: ZoneAlarm and Eset's Security Suite w/NOD32. They are both highly recommended with full acknowledgement of other products out there.

They both provide security for those loose cannons known as "open ports". You can learn something about this, here. Gibson Research Corporation has helped me to understand the open ports issue and inspired me to try ZoneAlarm. Personal firewalls allow you to see when software is trying to call home and gives you a chance to block transmission of sensitive information to the Mother Ship!

There's another kind of firewall known as a router. You will know this as a device that allows you to share the Internet connection with more than one computer. Common brand names for routers include Linksys, Netgear, and D-Link. These are all top brands and they all provide an extra level of security. But that security only works if you enable it and configure it properly.

All routers require some form of administration to enable security. Nowadays, all consumer routers come with a CD you can run to walk you through the steps of configuring the router. This is especially important if you're using a wireless router. On any router, you want to make sure that remote administration of the router is disabled - this is usually the default setting. You will also want to reset the admin password which is "admin" usually, by default. If you do not reset the password, someone else can do it for you, as well as reconfigure the router to their liking rather than yours. Check the CD and the online manual for your router for details.

If you're using a wireless router, you must also set the passcode for access to your wireless network. Otherwise, your network will be "open" and anyone can freeload on your cable or DSL Internet access. They can also see your computer and the resources on it. It's important that you use very strong passwords to secure your devices and accounts. Words that are easy to remember are also subject to the dictionary attack on passwords. A strong password is a series of characters that doesn't make any sense. You should also use non-alphanumeric characters (i.e., !@#$%^&*(_+) as part of your very strong password.

I know this stuff is hard to remember. Well, fear not. You can save your passwords in an encrypted file by using KeePassX. This is a portable, cross-platform password manager that uses very strong encryption to protect your passwords. The program uses a master password to provide access to the encrypted contents. Once the master password is set and the password file is opened, you can start to create a set of credentials for every website or application that you use.

I like to use at least a different password for every website that I go to that will involve finances. And I use a very strong password that is created by the password generator built into KeePassX. KeePassX also allows me to copy the username and password into a website. And it allows me to automatically enter the username and password into a website. Don't worry, KeePassX will automatically erase the contents of the Windows and Linux clipboards after 5 seconds for security.

Remember the news about how Sarah Palin's Yahoo account was hacked? She was hacked because she used answers to secret questions that were easy to guess by someone who knew her or her history. A secret question or security question is a question that only you know the answer to, so that if you forget your password, you can recover your password by answering the questions. So, instead of using the secret question to answer a question only you know, this is another chance to use a strong password to further secure your accounts if need be.

But I digress. Back to the router. Once you have set up the router, you will also want to set up DNS on the router, too. DNS is Domain Name Service, which is a service that translates the internet address you know, like www.google.com, into an IP Address, like 208.67.219.230 (verified with the ping command). DNS is part of the backbone of the Internet. Without this service, you would have to remember the IP address of all your favorite websites. This service creates the convenience of allowing us to use names rather than numbers.

Most computers set up your IP address and DNS automatically when they start up. They will get that information either from your ISP or from your router, depending on your setup. In Windows, it's fairly easy to setup your own DNS, too. And most routers will allow you to use another DNS other than the one provided by your cable company.

The alternative I like to use is OpenDNS. OpenDNS provides a great safety service for your Internet connection. OpenDNS does a lot of research to see where the malware is coming from and helps you to steer clear of it. I use the service so that if I should happen to type the wrong address, I can be safely routed away from rogue sites that are serving malware.

And now here is one of my favorite tools: The Netcraft Anti-Phishing Toolbar. This toolbar provides information on every website you visit. First, they give you a risk rating with a colored bar that indicates the risk associated with a website. If it's red, you'll want to go elsewhere. If it's green, then you should be fine. They also tell you how long the site has been there, the rank in terms of popularity. Along with that, you get the location by country with a nice little flag to denote the nation and the name of the hosting service where the site is maintained.

To give you an example of how this works, imagine for a moment that you've received an email from Bank of America. They're telling you that you need to update your account information because it has not been updated in a while and they're concerned about the accuracy. They kindly provide you with a link to their site. So you click on it. The Netcraft Toolbar reveals that the site is located in Russia and was only created a month ago. Hmmm. Time to close the browser.

I want to summarize all this by pointing out that I'm using layers of protection, with each layer providing protection in different ways. Here is a point list summary:

• Never run as admin on your computer.
• Install and maintain antivirus that updates without admin support.
• Install and maintain some sort of anti-spyware.
• Install and mainain a personal firewall.
• Install and configure a router (not much maintenance is required for this).
• Use a secured password manager to manage your passwords (don't leave them on pieces of paper or in a spreadsheet on your computer).
• Use OpenDNS for a safer browsing experience.
  
• Use the Netcraft Antiphising Toolbar so that you can find out if the site you're on is safe.

Here, I have 7 layers of security to prevent my computer and/or my identity from being compromised. You may want to implement a few or all of them depending on your security needs and desires.

If you are in the unfortunate position of having to reload Windows to your hard disk due to infection, then you will want to re-install Windows and image your hard drive. I'd like to expand upon that list with some of my own ideas in a future blog.

If you need help setting any of this up, call me. You can find my website for PC assistance here:

www.ezcomputercoach.com

Have a safe shopping experience while you prepare for Christmas. Be well.

Scott Dunn

The cost of individualism

Here in America, we tend to favor the individual rather than the collective in a philosophy known as individualism. We covet and admire the lifestyle of the self-made man, the millionaire who did it all himself, the Madonnas who created their independent fortunes and the rugged individualist. Few can attain such a status, fewer still can actually walk the talk for all their "independence."

So how has that been working out for us? Like many of us, I read the news everyday. Everyday, there is a new problem to be solved. But what is the source of the problem, individual or collective? Are individuals really capable of solving the problems we face, all by themselves?

There are three examples to explore today, in this blog: cyber-security, health care, and the environment. In each case, I attempt to demonstrate the cost of individualism vs. the collectivist culture.

I bring this idea up for several reasons. I had the good fortune to have visited Vietnam a little more than a year ago, twice. While I was there, I noticed something quite striking, in contrast to America: the Vietnamese value cooperation over competition. They seem to have recognized that although it's possible for one man or one woman to solve a problem or attain great achievements, everyone needs to get involved to overcome a challenge. What I hope to demonstrate here is that we need to heed the example of Vietnam and others like them.

In contrast to Vietnam, this country is in a state of hyper-competition. Everyone here is looking out for number one. Anyone who has taken the time to study the example of Microsoft will see that they are constantly at "war" with others. When Steve Ballmer does one of his pep-talks, he is literally boiling over with enthusiasm for his company, his products and his plans. There is nothing wrong with enthusiasm such as his. But many companies have partnered with Microsoft only to become the latest litigation carcass left over after Microsoft has accomplished their goal. Microsoft is the perfect example of competition at any cost as a corporation.

This one-man show, go-it-alone example doesn't do so well in the context of cyber-security. By now, some of you have heard of "botnets", a group of computers that have been infected by a virus or trojan and turned into a "zombie" computer. A botnet can contain hundreds of thousands of computers as a group commonly known as a herd. A zombie computer is a computer that, unbeknownst to the owner, has been turned into a servant of a secret network of computers. This network will send spam, distributed denial of service attacks and collect credit card and other personal information to be used for stealing money. All the known botnets run on Windows computers.

For many years, Bill Gates, one of the founders of Microsoft, has preached the virtues of proprietary code. Creating proprietary code requires a significant level of secrecy, and that requires independence. Yes, they are the biggest software firm in the world. And they have a nice chunk of liquid cash to prove it. But contrary to the image of independence they promote, they are supremely dependent on developers. So they create developer tools that increase dependence on Windows. And They create products that depend on Windows. A case in point is Silverlight, a competitor to the Adobe Flash software so commonly used in places like YouTube. Microsoft makes a point of making Silverlight only for Windows so that people will buy Windows. Yes, there is a version that will run on Mac and Linux (Moonlight), but as Steve Ballmer likes to say, it will run better on Windows.

Microsoft was basically asleep at the wheel when the Internet came up behind them and passed them by in the 1990s. Along came Netscape which scooped up 80% of the marketplace before Microsoft could blink. So what did Microsoft do? In order to buy time, they changed the programming interfaces for Windows without telling Netscape so that the Netscape browser wouldn't work properly on Windows. At the same time, Microsoft got to work building their Internet Explorer browser to compete with Netscape and gave Internet Explorer away for free with the operating system. Netscape is now only a shadow of what it once was. Netscape has been resurrected as open source software in products like SeaMonkey and Mozilla Firefox because the only way they could compete is as a free product.

As someone who works in IT, I've learned something about the "monoculture" in computers. Microsoft has created a huge monoculture of computers with a 95% market share for desktop computers. The weakness of a monoculture is that when all computers act the same, one weakness will affect all computers with the same program. This explains the success of viruses on Windows computers. And who is providing the updates to these computers? One lone source: Microsoft.

This monoculture might explain the problems discussed in this article, which states we are losing big-time in the cyber war against the rest of the world. Windows is turning out to be our biggest liability when it comes to security in government and corporate infrastructure. There is a long and rich history to explain why this is that I can't get into it here, but if you'd like to read more on the subject, go here (scroll down to Security for more).

On the other hand, with Linux, there are many distributions of Linux. Many features of Linux actually comes from Unix. It was created in 1969 by AT&T with the notion that no single user should be able to destroy the work of another user on the same machine. Security was baked in from the start. That is one reason why you won't see many viruses running on Linux. For a virus on Linux, propagation is very difficult, and death is very quick. This not to say that Linux is impervious to virii. Linux is just a lot harder to break.

All software comes from source code. When a programmer writes source code for software, he will include notes in the source that provide documentation on the action of a section of code. When the programmer is ready to test, run or distribute the software, he will run the code through something called a compiler. This strips out the documentation known as comments, and converts the source code into binary code that the computer can understand and run. This binary file is what you get with Microsoft. With Linux, you get the source code and the binary, free and open source software (FOSS).

Instead of being developed by one company, Linux is developed by volunteers all over the world. Instead of closing the source code for the software, as Microsoft does, the source code for Linux is free for all to see and licensed under the General Public License. Everyone, including programmers, is free to run the software for any purpose they desire. They can also look for bugs and fix bugs and to make improvements. They are also free to distribute the binary code as long as they make the source code available to the community. This sharing of the code is what makes Linux so powerful.

As Eric S. Raymond said, "A thousand eyes makes all bugs shallow."

I offer this example to show the contrast between competition, as embodied by Microsoft and cooperation, as embodied by Linux. Microsoft tries to feign independence while mooching off of the rest of world for support of it's operating system and while charging for it. Free software communities acknowledge the complexities of the software and the need for collective review, repair and upgrades of the same software. Their effort to create better software is shared. The result is used like a utility. It is any wonder that the fastest computers in the world are running Linux?

Now lets turn to healthcare.

We're in the worst recession in 75 years and we're fervently looking for a way out of the mess we created. 5 years of war, a bass-ackward tax policy going strong for eight years, and lax regulation of securities have contributed to the mess. All of them are based on the premise that the individual is more important than the collective. We did the war, essentially alone (sorry, England doesn't count), prompted by little or no evidence that the war was necessary. The tax policy was based on the idea that rich individuals would spend money rather than hoard it. And the lax regulation of securities (securitized mortgages, credit default swaps, etc.) was based on the notion that the securities industry would regulate itself. On all of these fronts, we have been proved wrong.

I saw this very interesting opinion article in BusinessWeek. The statistics cited in the article are disquieting if not downright alarming. Here's a sample from the article:

• The country (US) spends a world-beating 16% of gross domestic product on health, yet in international comparisons it lags behind a number of key measures.
• The U.S. ranks 29th in infant mortality and 48th in life expectancy.
• The number of people without health insurance was 38 million in 2007, and that number is guaranteed to have risen in the meantime with the recession that began a year ago.

A lot of this stems from severe mismanagement of the insurance companies. Take AIG, for example. The excesses of that company has been well documented with their lavish parties and executive bonuses. Were they thinking of their customers? Probably not. Perhaps they were a bit too focused on the next tax cut. Evidently, the largest insurance company in the world was busy making insurance more expensive for the rest of us. And that includes health insurance.

The health insurance industry is so focused on profits that the list of pre-existing conditions will only grow longer. As more and more people are excluded from health insurance due to pre-existing conditions, the cost will continue to increase for those that can participate. And so on as more and more people are excluded on costs alone. I thought that the whole point of insurance was to distribute risk among a large population.

Worse still, a recent study suggests that about half of all doctors would quit their practice given the chance for an alternative. This is symptomatic of insurance and government policies driven to cut short-term financial costs of health care. Paperwork is being used to exclude treatments in the same way that pre-existing conditions are being used to exclude people from access to health care. It seems that not only are people being encouraged to go it alone, they are being forced to do so.

I've never really been a big fan of socialized medicine. I see the "other people" gorging themselves to oblivion on fast food, alcohol and tobacco. I see them raising my insurance rates, even though I try to take good care of myself. Why should I have to pay for their stupidity?

Some of you have probably heard of NASE. They have a very interesting concept: allow the premiums to accumulate as savings for each subscriber. When they turn 65, refund the balance after subtracting the costs for service. This is a great idea, since it encourages people to take good care of themselves so that they have a nice retirement fund when the time comes. But in practice, it hasn't worked so well for the company, probably also due to poor management. There have been some horror stories that paint an unflattering picture of the company. In an ideal world, I'd like to see something like this really work.

So, unfortunately, the facts do not bear out any clear successes for capitalist style health care in terms of distribution. Sure, we have the best health care in the world, but who can really afford it? Socialist countries seem to be getting along fine with lower mortality rates and lower customer costs for care. A recent New York Times op-ed article is making a very strong case for Universal Health Care where no one is denied and everyone pays in one way or another. This guarantees complete distribution of risk and funding at the same time. And there appears to be a way to reduce the paperwork by focusing on preventive treatment rather than exclusion.

Health is inextricably tied to the environment. Some of you might be old enough to remember that President Nixon of the Republican Party proposed and helped to create the Environmental Protection Agency. But for some reason, over time, two Republican presidents surnamed Bush, have lost their way and tried to emasculate the EPA. Our current president has done the most damage by restricting or eliminating the power of the EPA. Apparently the neo-cons forgot that they are stewards of the earth, and their creator may not look so kindly upon their achievements. In the last few years, I have read of their second thoughts about passing legislation that would limit or remove power from the EPA.

It's easy to see the schizophrenia of the Republican Party these days when it comes to the environment. They want to gut the EPA and let the market decide how to care for the environment. The market on the other hand, is not satisfied by a clean environment, it's satisfied by money. Obviously, polluted land doesn't have much value, even if you live in Palos Verdes, California. Since the neo-cons took control of the Republican Party, they seem bent on consuming and destroying as much of the natural resources as possible, you know, before the second coming.

For the last eight years, the United States has been loathe to sign any treaties that would help the environment, in particular, the Kyoto Protocol, citing potential for serious harm to the economy of the United States. Here again, the economy rules supreme above the environment. Apparently, there was no discussion of the green collar jobs that would be created given the constraints of the Kyoto Protocol.

And now there is a new treaty designed to replace the Kyoto Protocol. And again, the United States will not participate, yet. It appears that with a new administration on the way, there could be significant change in attitude and action. As a nation, we have an opportunity to demonstrate leadership in protecting the environment, despite what other countries do.

As the world looks to us for leadership, they must be wondering aloud as to what we're thinking. Three countries, the US, China and India produce the majority of greenhouse gases. The US by itself uses 25% of the energy produced worldwide. And under the guidance of the Bush Administration, the US has proven to be unwilling to cooperate with other nations to limit greenhouse gases.

Global Warming and the consequences thereof, whether induced by man or not, is a problem we all face. The US cannot hope to solve the problem on their own without cooperation from other nations, and vice versa. Going it alone is not an option, particularly when we look at the amount of landmass we stand to lose from rising sea levels.


In the realms of cybersecurity, healthcare and the environment, we will need to work together to solve our common problems. I offer the foregoing as examples and incentive to work with each other, and to reason things out. We must work with others internationally, nationally, and locally to solve the problems we face.

Whether it's capitalism, communism or soclialism, no system seems to work perfectly for everyone. But one thing is certain: so long as we continue the idea that it's "every man for himself" and that men and women continue to pursue advantages and control over one another, no system will work. Under those conditions, people will continually game the system to assert an advantage or to attain a sense of security.

As soon as we realize and live as if we're all in it together, then we can solve all the problems we experience together. It is my hope that under the new administration, cooperation will be valued over competition.

Zero Sum Game

The zero sum game idea says that when I win, you lose. In the economic sense, as I make more money, there is less money for you to make, too.

Now consider the trends of the last 20 years or so: as executive compensation reaches stratospheric heights, the top 10% of the earners in this country are earning almost 50% of the available income in the economy. And the top 1/2% are pulling far away from the rest of the top 10%, too. That means it's getting really tough for everyone else to earn money.

What will people do when faced with the problem of trying to feed their children, themselves or just have a place to live? There is a tendency for people to turn to crime when the economy gets hard and cold. And with advances in technology, the opportunities for low risk, non-violent economic crimes increase. Take spam, for example. Who among us has not received spam? Any women out there *not* getting emails proffering male anatomical enhancements?

Just who are these people who ship spam with their assortment of products and malware to boot? Are they trying to put braces on their kids' teeth? Sending their kids to college? Or are they just trying to make it big in an already crowded market?

The point I want to make here is this: when the wealthiest earners are already taking close to 50% of the economy, and they need to feel like they're achieving something, they're only going to hoard more. That means the rest of us have to work a lot harder just to make ends meet. If you don't believe me, ask Robert Reich, a former official in the Clinton Administration. To paraphrase, "giving wealthy people tax cuts to get them to spend more money isn't going to work; they've already spent all they want to spend and they could easily save the rest."

"Wait," you say, "those wealthy people will invest in the economy with their money!" No, they will buy Credit Default Swaps.

In the current financial meltdown, some very smart people took a huge risk with credit default swaps (CDS). A CDS is basically insurance on a debt, such as a bond, or a mortgage. A bondholder gets nervous about his investment, so he buys a contract that allows him to share the risk with someone else. A CDS says, "I'll pay you 2-4% to share the risk of the debtor on this bond in the event that the debtor defaults on his payments." The reason for the meltdown? More than one institution or entity bought a CDS on the same credit obligation for the same debtor, the companies who sold them did not make the contracts known to the public or the government, and there were no requirements for the seller to maintain reserves to pay off the people who called their option on the CDS. Like I said these investments were created by really smart and wealthy people.

It would seem that this is the free market economy in action. But when these same investors saw that they could lose their investment, they went to the government to get help. So, on the one hand, they didn't want regulation of their investment, and on the other hand they created a situation that required government involvement and financing to fix it. Now regulators and legislatures are waking up to the need for adult supervision of CDS transactions.

But I'm afraid we're in a catch 22. Wealthy people can always pay for the legislation they want. Which means, if they're "too big to fail", they can make the government pay for their mistakes. Being too big to fail means they can take the economy down with them. That means the rest of us will pay for their mistakes in taxes.

Some have commented on the incentives to take such risks. Imagine that you're making $2 million a year as head of an investment firm and you manage $20 billion or so. You want to feel like you're really spending money when you go shopping, so you go to Needless Markup...I mean, Neiman Marcus, to shop for some new clothes. The amount of money you spend will tend to scale with the amount you make. But the amount you save will just be a lot more than the rest of us, unless you're Michael Jackson.

The same is true for making money. If you're making $2 million already and you want to get a raise, the chances are pretty good that there isn't much more room for a raise if 50% of the gross income in the country is already spoken for. Finding a legitimate means of making more money becomes harder and harder as the money supply is consumed by the uber wealthy. This is even worse if the Fed shrinks the money supply, you know, M3. Wait. They don't publish M3 anymore. What's up with that?

Now don't get me wrong here. I believe in capitalism to a certain extent. If you're doing good work, you deserve to earn money from it. But notice how everything came together to create an organized catastrophe. People wanted to buy homes before they got locked out of the market. Real estate investors wanted to make money so they encouraged home buyers to hurry up and buy before it's too late. To help those tardy home buyers, really creative financiers wanted to make more money, so they created wacky mortgages with adjustable rates with payments that increased 50% or more after a set period of time. People who bought CDS instruments could see this coming and $65 trillion of domestic and international investment money was diverted to betting that *other* people would default on their loans. Ha, ha. Did somebody say "infrastructure"?

This unregulated and under-reported investment system gave rise to risk that investors were not willing to finance themselves. So the rest of us are financing it, and that is the zero sum game. No wonder health insurance is so expensive. I say this because AIG, formerly the largest private insurer in the world, was hip-deep into CDS investments. And it turns out that the government will start to report on it so that we know who did what and when with these instruments. AIG is just the tip of the iceberg. On November 4th, we're going to see just how deep the other insurance companies got into it, if they still are.

Oh, and by the way, I hear that John McCain is really worried that Barack Obama will "spread our wealth around." He must be talking about the maintenance payments the rest of us will be making, as taxes, to repay the debt that will have to be sold to finance the bailout. A bailout for McCain's most ardent supporters, really big corporations who bought into this mess in the first place. So, who exactly will be paying for this? People who can buy the legal counsel wise enough to limit their exposure to taxation? Hmmm, probably not.

Perhaps spreading the wealth around might just be the best thing we could do to get the economy going again.

Casting the Winning Vote

In the last two presidential elections, there were some spoilers from third parties. For example, many of you have heard of Ralph Nader, who has run his campaign from a variety of parties and platforms. As he ran against Bush and Kerry, he received a lot of criticism for dividing the Demcratic vote. But he had every right to run.

I also remember Richard Boddie from the Libertarian party when he ran against an Orange County Republican Bob Dornan for a seat in the House. He drew enough votes from the Republicans to allow a victory for Loretta Sanchez. Not only that, but he went to the local Republican Convention to pass out fliers promoting himself for office while bragging about what he did to split the Republican vote from Dornan. Ha, ha. For this year, here's an interesting story about Bob Barr that you might like, too.

Yesterday, I went to the registrar of voters to verify my registration to vote. And while I was at it, I saw that there was early voting, so I voted, too. There is good news and bad news. The bad news is that Diebold voting machines are still in use. The good news is that they are running a paper ticker that records each vote for verification later. Hopefully, there won't be any lost votes, changed votes, or other such controversies. But I can now say that I have voted in Utah, I have a Utah license plate, registration, and drivers license. I'm a Utahn...I guess.

I'm kind of libertarian, liberal and conservative. I take what works for me and I leave the rest. I used to be Republican when they were the party of freedom. Now the Republicans would prefer that I am not able to bring my own water aboard an airplane. They want to have ready access to my email (PGP, anyone?), my phone calls, my bank statements - pretty much everything - just in case I happen to have dinner with a terrorist. We used to have "probable cause" now we have "the police state". This from a political party bent on wining an unwinnable war, making enemies around the world and then acting insulted when their authority is questioned. Perhaps they have forgotten what it means to have faith.

But I digress. Back to the voting thing.

I've talked to many people over the years about voting for third parties. When I mention someone like John Hagelin, who ran for the Natural Law party in the 2000 election, I say that I would have voted for him if I had known more about him. He's a particle physicist who can bring an entirely different point of view to the office of president.

When I look in the eyes of the people who wanted to vote for a third party but didn't, I see the real tragedy of American politics: the desire to be on the winning side. I can remember debates about whether or not to show the news relating to precinct reporting of votes on the east coast to the west coast. The debate centered on this very issue. The concern was that if people on the west coast knew how people on the east coast were voting, they'd change their vote so that they could be on the winning side. Sure enough, millions of people changed their vote over the years just to be able to say "Yeah, I voted for the winning guy!" How stupid is that?

There is a similar issue afoot in this and every election. We know now that there are a plethora of third party candidates, and there are quite a few of them on the ballot for president this year. Will people vote for them? Somebody will. But my conversations with people who had a desire to vote for third party candidates reveal something else, and they go something like this:

Me: So who do you like for President this year?

Hiim: Oh, I like Ralph Nader. He says that every child who graduates high school should know how to use the Freedom of Information Act and the Privacy Act to get documents about themselves from the government. We need open government laws and I like that.

Me: Are you going to vote for him?

Him: Are you kidding? That would be a wasted vote! I'm voting for Obama!

Me: So how will your guy ever win if you don't vote for him? I mean, if you're not voting for the guy you want, aren't you just wasting your vote, anyway?

Him: Doh!

See what I mean? The two major parties are depending on the heard instinct to deter us from seeking alternatives. And they know we want to be on the winning side. We want to make sure our vote isn't wasted. So we get two political parties that can pretty much act like one, by precluding any meaningful choice in the elections.

There is one more element in American politics that hasn't been discussed much on national television: equal time. When we watch Meet the Press, or the debates, do we *ever* see a third party candidate get into an argument with either a Republican or a Democrat? I know I sure haven't. Have you? Those debates can get really messy. Does anyone remember what happened with Jesse Ventura?

How can people even get to know the third parties if network television isn't even willing to give them the air time - FREE airtime - that the two incumbent parties get? I guess the greatest fear of network television corporations is that we might actually get a chance to compare Democrats and Republicans against third parties. Hey, if we're watching network television, we're probably not paying for the advertising.

So ask yourself, are you feeling lucky? Are you willing to cast your vote for the guy you really want, or do you just want to be on the winning side?

The Cash Society

As we stand before the precipice and look down, we need to take inventory to see how we got here. The 30 year mortgage has been around for a long time, and recently, within the last 30 years, it has gone through some permutations. As some may recall, around 2003, the Adjustable Rate Mortgage (ARM) became wildly popular.

The decision to create, market and finance ARMs turned our fortunes. Think about the brokers who sold them. Where are they now? Some could see this current crisis coming, but few were willing to openly answer the obvious questions: what happens when the rates start to adjust? As payments on these loans began to increase, so did late payments, defaults and eventually, foreclosures.

Setting that aside, lets look at the 30 year mortgage on its own. A simple calculation reveals that a mortgage paid at 7% annual interest, assuming 10% down, will more double the cost of the home you buy over 30 years.

The pattern is similar for auto financing. The interest costs are significant for autos and they can increase the cost of the car often by 50% or more over time.

Now lets look at credit cards. Some people are lucky enough to have 0% or a low 5-6% interest rate on the balance. This makes the cost seem negligible relative to the benefits and convenience of credit. If you miss a payment, however, the fine print says that your rates could go up significantly. The rates for credit cards held by teetering payers can shoot as high at 30% or more.

The bottom line is that all forms of credit make everything more expensive. Everyone has heard of inflation. We see it all the time in the news. And there are so many ways to measure it, too. Inflation is defined as an increase in the cost of goods over time. While the cost of a broom may rise over time at a constant rate, the cost of food and fuel can fluctuate wildly.

Credit is a hidden form of inflation in the sense that we aren't really trained to see how much it costs. This concept gets some lip service when we go to school. But instead of being taught how to avoid it, we're taught that the cost of credit is the cost of doing business. It's assumed to be unavoidable. This leaves an indelible impression upon a young mind.

For many Americans, credit cards have been used to maintain a standard of living. It is not unusual for people to accumulate $10-20,000 in personal debt through credit cards. This debt is often accumulated through the use of credit cards to pay for living expenses when the economy is slow. Many will use credit cards to purchase vacations and luxury items they couldn't otherwise afford. But few if any can imagine a life without using credit.

 I know at least one man (whom I admire deeply for his business savvy) who doesn't need credit in the sense that most people are familiar with. He built his business on cash. He pays his invoices early for the discounts he receives from the vendors who offer early payment discounts. He owns all of his equipment, and the building from which he runs his business. And since he has no debts, he doesn't panic when the trade gets slow. He just lays people off and reduces purchasing until the level of employment and the need for materials matches the rate of business that he's doing. When business picks up again, he hires and buys.

Without loan payments to make, which are constant over time, he can adjust his cash flow with the business instead of with the bank.

Credit doesn't just make everything expensive due to the interest paid on the loan. Credit is used in this country to create artificial demand. This demand increases prices. That's why the crowd goes wild every time the Fed drops their rates. And I dare say that credit also creates a pool of cheap, skilled and willing labor, tied to the ball and chain of debt. Whichever came first is still in debate.

Let's look at the hidden costs of credit at the checkstand in simple terms: if you don't have the money, you can't buy it. But if you have credit, you can just pay it off over time. This increases demand for goods and services. And demand creates inflation.

As to the labor pool, here's the big picture: You are employed. You have a home loan, an auto loan, and maybe a few college loans, a few credit cards and a family to support. But you have no savings. A vacation is a far off fantasy without a credit card or a line of credit on your house. Worse, you can't choose the job you want or the pay that you want because you have to keep working to keep making payments.

Imagine a parallel universe where you have a year of expenses saved up. Now you can kiss your boss goodbye (ew!) on good terms, and take your time finding the job you want. Or you can take a month off to reassess your direction in life. Whatever. You have a contingency fund to handle most small emergencies, too. With a year of expenses in the bank, the bank wants you to stick around. Like I said - it's a parallel universe.

Now there's a study in contrasts. Why didn't we do this from the beginning? Maybe most Americans are masochists who need someone like a banker to help them.

Remember how much fun we were having as we watched home prices double in Southern California (and spike unreasonably fast elsewhere)? That was due to increased demand for homes created by "creative financing" mortgages. By creating easy money loans, people suddenly had the money to get into the housing market. That is the kind of demand for homes we saw then that could never have happened without ARMs.

Without ARMs, people who wanted to sell their homes would have had to either lower their prices or wait. And that is exactly what is happening now. The ARMs are gone. Prices are falling and people are waiting rather than selling.

Without easy credit, prices will have to fall. There is no way for the economy to quickly correct itself. But from a practical standpoint, we are not completely powerless over inflation. If we live within our means and buy what we need or want with cash, we can keep inflation in check. Confused? Let me explain.

If people refused to borrow money and instead chose to save their money, what would happen to the economy? Producers and sellers would have two choices: lower their prices, or wait.

Now consider this: saving money and only using cash is not just a choice, this way of life creates choices. When you use credit, you are dependent on someone else to make the decision for you. In a credit - I mean, debt economy - the bankers make the choice for you. They decide if you will buy something or not.

But if you have the money in the bank, it's yours to spend. And the banker is going to pay you interest if he wants you to keep your money there. It's not so much that you're in control. You simply have more choices available to you. And by tempering your demand with the amount of money you have on hand instead of borrowing, you help to keep prices down.

A cash society lives on the cash they earn, and has more control over prices by controlling demand and can make spending decisions that are relatively unencumbered by the interests of bankers. Remember, a banker is only your friend to the extent that you are willing to pay him back on the loan, or to the extent he is willing to pay you interest on your deposits.

The choice is yours. Where do your interests lie? Pay or be paid?

Power and Money

A man has only as much power as other men are willing to give to him. Seems obvious, right? But how many people actually think of that and put it into practice?

Here's an interesting thought experiment. The richest man in the world goes to a small town on a road trip. We'll call him Bill. Before he arrives, the whole town is abuzz about his arrival and they learn that Bill has been pushing legislation that is contrary to the interests of the town.

When Bill arrives, he checks into a hotel. He talks to the clerk and asks about a room. The clerk looks and says, "Sure we have a room for you." Bill gives the clerk his name and hands him a credit card. Suddenly, the clerk announces that there is no longer a room available, and returns the card.

Bill is surprised and suspicious. So he leaves to try another hotel. When he gets there, he encounters the same result. A room is available until he introduces himself. He repeats this until he begins to become hungry.

He heads to a local restaurant to eat. But the restaurant knows who he is. He gets a seat, sure enough and the waitress comes to him to take his order. When he finishes giving his order, the waitress asks for his credit card. Bill is surprised by this, but he complies. She comes back to say they're out of food and that he will have to eat somewhere else.

Bill repeats this a second, and a third time. He sees that he needs gas. He worries that something isn't right so instead of trying to use the ATM directly, he goes to the little snack shop to pay there. He is instantly recognized by the proprietor as word has gotten around. While other people are filling up their tanks, the proprietor announces that "We're out of gas, sorry."

Bill confronts the proprietor with this crazy-making reality. "Excuse me, but people are still pumping! I'll give you cash!"

"No you won't!" says the proprietor. Bill is flabbergasted as the proprietor points to a sign above the door. It says, "We reserver the right to refuse service to anyone".

Bill is stuck. No food, no room, no gas. Bill gets really worried when he discovers, after a few phone calls, that this isn't the only town. It's worldwide.

This is the worst possible result of the social contract. When we refuse to acknowledge a man's power by refusing his money.

When we look to our leaders and wonder why they do what they do to the rest of us, we must also look to ourselves and wonder "Did we ask for this? Did we somehow give them permission to do this?" The most probable answer is, "yes."

Holding the Bag

Okay, lets say that they do eventually pass this bill (based on the latest news, it's not exactly a certainty). I heard on NPR that the Fed has $800 Billion in the bank, just looking for usury. So they lend this money to the government. And the security for the loan? Bonds. Lots of bonds.

How do these bonds get paid back? With taxes. For many people the connection between the federal debt, which is now limited to around $10 Trillion, and taxes doesn't appear so easily. The government has to sell debt when it runs out of money. And that happened a long time ago, long before many of us were born. So now we live in a debt economy.

Who buys the bonds? Other than the Federal Government with more than half the outstanding debt (I know, it's weird), foreign governments are the biggest customers taken together. China and Japan come most readily to mind. And then there is the rest of us. Many people have openly questioned what will happen if China and Japan decide to unload their bonds. The net effect is a weakening of our own currency.

When our currency grows weak, foreign goods, like oil, become more expensive, even if demand is low or flat. And one thing that the Bush Administration has been consistent about is weakening our dollar. That's a big part of what makes gasoline expensive to us. And they seem to think it's a plus. When oil was selling at $140 per barrel, there was a bit of press about how high oil prices are bringing jobs home. Nice. Here's one bizarre example.

It's easy to get lost in the details of the situation. Most people are very focused on the details of the pending legislation to fix the Wall Street crisis. But the big picture looks more like this:

• If you work for someone else, you're not going to be able to charge more for your products and services like a business can when the dollar loses its value.
• If you work for someone else, you're not going to be able to use your expenses to limit your tax liability like a business can.

Regardless of who you work for, if you don't have money to pay for the best in tax preparation and legal tax planning, you're not likely to be able to avoid the taxes that are coming to pay for this debt.

And that is the main problem with this proposed $700 billion bailout. The executives of Fannie Mae, Freddie Mac, AIG, Bearn Stearns, etc., all sang the song of free-market capitalism. Whether or not it's really a free market is open to question. And when it came down to owning up to their own mistakes, they want YOU to pay for it. It's only fair.

To put it another way, they privatize the benefits of capitalism while socializing the risks. Remember socialism? You know, the little brother to communism? That's what they're talking about. Big business works better if you privatize the economic benefits and socialize the risks. To put it in layman's terms: Executives keep getting paid even when you lose your job.

Since 1994, Republicans have been doing what they can to "de-regulate" the investment industry. Yeah, they de-regulated it alright. Anyone remember the failed experiment of de-regulating the power industry in California? I do. Power tripled in cost so that people like Enron executives could put their money in the Grand Cayman Islands as a safe investment.

The Bush Administration is really worried that the Democrats will load up the bill with restrictions, such as the restriction on executive pay for companies that get assistance from the government. I guess means testing is okay for poor people seeking welfare or unemployment, but for executives, that would be humiliating!

This week, they're "negotiating" on the terms of the aid. What I find interesting is that the negotiations are in secret. Why all the secrecy? It's our money too. Seems like they want to come up with a plan and spring it on the rest of. You know, like it's "now or never". At least Republicans are starting to speak up and point out alternatives other than handing the banks a big wad of money all at once. And then there is the insurance plan. Hmmm. Don't people buy mortgage insurance anyway? Now that I'm thinking about it, where are those insurance guys? The plan was submarined without informing Treasury Secretary Paulson. Some have characterized the effort behind this plan as a way to divert attention to McCain's "leadership skills".

I see also that the FBI is getting involved. It seems that there are four firms at the heart of the matter and they want to know why. And now they're letting people know that investigating the same companies for wrongdoing will be hampered when we give them a wheel barrel full of money to pay for their mistakes.

At the beginning of this week, we were talking about a huge bailout of the financial industry with almost no oversight or accountability. Democrats have been negotiating with the Bush Administration to require oversight. Many House Republicans still seem to insist that relaxing the regulations could help the situation. Even if there is some oversight, it will only be administrative oversight by unelected officials. Whether it's a handout of money, insurance or some other cooperative put together by the financial industry, one thing remains clear: control of the process is not in the hands of the people who are paying for it.