Red State Blue State, Poor State Rich State

Much has been made of the apparent contradiction that the richer states tend to be blue, while richer individuals tend to vote red. For example, E. J. Dionne goes on about this in today's Washington Post.

The resolution of this paradox is obvious. Rich people tend to vote for Republicans, but states where people tend to vote for Democrats tend to get richer as a result of Democratic wealth building policies. If you study the history of the income tax in the United States, there is nothing like an income tax increase to make everybody richer. Consider the 1870s boom (Civil War taxes), the 1920s (WWI taxes), the 1930s and to a greater extent the 1940s (WWII taxes), and the 1990s (the Bush and Clinton tax increase).

Why does it work? That's easy. It was all worked out in the 1930s. Rich people spend less of their income than poor people. That's why they are rich. If they spent more, they would no longer be rich. Rich people are smart, and have figured out how to efficiently provide goods, services and organization for poorer people, and they take their cut. Unfortunately, they just don't spend enough, so this kind of system tends to run down as poor and middle class people get spent out.

If the government taxes rich people, and spends the money, then a good bit of it goes to the undeserving poor and middle class, and they spend it. The rich get richer. The poor get richer. The middle class gets richer, and tax revenues continue to increase. Then, someone gets the idea that budget surpluses are a bad idea, as happened in the mid-1920s and the start of this century, and there comes a tax cut, and then the economy slows down and the surpluses go away.

This works on a state by state basis, as well as at a national level, so you get states with disatrously high taxes and robust economies, and states with good solid, pro-business tax systems and economies barely limping along on federal handouts. If you started out with a bunch of states and had a big election, you'd always get the richer folks wanting to cut their taxes. Where they got their wish, the state economy would lag in growth. Where they got shafted by higher taxes, the state economy would grow briskly. Since most voters aren't rich, you'd see the pattern you see today. Blue states are rich, red states are poor, even though rich people tend to vote red and poor people vote blue.

What's wrong with the cell phone business

The New York Times had an article today on the slow adoption of 3G services in the cell phone business:

http://www.nytimes.com/2006/02/20/technology/20cell.html

Wow, are those guys clueless, and, as you might expect, there author doesn't seem to have a clue either. (This may be a rhetorical device, however).

Take a look at what the analyst gets away with saying:

"The biggest impediment is not pricing or technology, but consumer behavior," said Charles S. Golvin, an analyst at Forrester Research. "Most people still look at these things as phones."

1) Actually, the biggest thing is pricing, followed by technology. Does anyone remember the slow crawl out adoption of DSL that only took place when cable companies got into a price war? Does anyone remember ISDN with the standard, initiate call as voice option, to get around the ridiculous data pricing?

Right now, I'm stuck with a $35 dollar a month cell phone plan for 100 minutes a month. Once or twice a year I go a few dollars over. As of the last time I checked, this is the cheapest plan available. Where is the $30 or $25 plan? I've called about new plans, but the best offer I get is $40, but they take away my free incoming minute for the extra money. Great, pay more, get less - what a deal.

Of course, what is really killing them is their pricing fantasy in which they charge different amounts depending on whether you are transmitting voice encoding bits or non-voice encoding bits, or rather, whether you are using plain old telephone service or some new fangled (at least to them) data service. The regulated Bell System, which had to meet people's needs, gave everyone "local unlimited", and people insist on that today, but ever since ISDN in the 1980s, the phone companies have wanted to get back to unit charging, and they hoped that data calling would be their ticket.

Needless to say, it never happened. Modems and all you can eat ISPs got there first, and set the standard for plain old internet service. Even now, phone companies are fantasizing that video streaming and video downloading will somehow allow them to get back their old per unit charging. Give up guys. Unit charging died in the 1960s. Men are not going to wear hats again.

2) The second biggest thing is technology. Right now, in my house, I have several extensions phones, some wired, some wireless. Whether I am dialing out or answering a call, I can answer from any phone in any room, and if there is more than one person interested in the conversation, any number of the phones can be used to join in. Really! Try doing that with cellphones. It isn't even LEGAL to have extension cellphones.

A thousand years ago, when men still wore hats, there was only one company licensed to make and sell telephones in the United States, and that was the phone company. Every 10 or 20 years a new model would roll out, and now and then, someone with big bucks would put in an extension phone. Then, the system was deregulated, and you could plug in any phone that met a certain specification. Needless to say, the price of phones plummeted and the extensions popped up everywhere.

Unfortunately, cell phones are still stuck in a closed system. There is no standard platform model one can use to build a cell phone that operates on a particular network. The various phone companies make a point of only allowing specially licensed equipment. This keeps costs up. In fact, the cost of manufacturing a cell phone are so high that most folks buy the loss leader special when they sign up for a two year plan. The cell phone companies KNOW this. Surely, they look at their sales numbers. They just can't put two and two together and realize that phone costs are much higher than they should be.

The more serious problem is that only authorized cell phones are allowed on cell phone networks. Worse, these authorized phones are closed platforms. Only certain software is allowed to run on them. In the 1980s, there was a popular business fantasy that computers could be developed that would only run certain software. I was once almost involved in a design software company under the delusion that they were going to be selling hardware! In certain niches, this is largely true. It is illegal to modify the software running on your car's computer if you want to drive your car on public streets. When IBM opened its platform and turned over its operating system monopoly to Microsoft, the die was cast. Personal computers were to be open platforms. If you want to keep certain software off your machine, you have buy a virus protection package.

This restriction on the platform is driven by the "we sell telephone services", not "telephones and bandwidth" attitude that is so pervasive. The modern supermarket probably stocks 10 or even 50 times more items today than it did 40 years ago, but most of this has been a move from "we sell food" to "we sell meals".

In the old days there would be a can of beans on the shelf. Nowadays, you can buy a can of beans, a can of beans with one shake of salt, one shake of salt and one shake of pepper, one shake of pepper, no salt, and so on. If you just want to buy a can of beans, you may not even be able to find it, and just try taking out all the salt or pepper.

Part of this has been driven by the acceptance of material feminism, but that should probably be addressed in another post. More seriously, the success of this model at the supermarket has convinced the phone companies that it can be applied to phone service. Why not have special birthday call rates to take advantage of the custom of calling someone on their birthday? Surely important calls should be charged at a different rate from casual conversations. Does this sound ridiculous? Sure, but it wouldn't if you worked at a phone company.

If the phone companies want to build their market, they should recognize the technology they are selling. They are selling network access for a small computer with certain bandwidth and latency characteristics. They should let the technologists develop the applications. It would not take long for a must-have application to require certain improved network access that people would be willing to pay extra for. What they are betting on now is that they have already discovered this application. They are wrong.

Right now their big bet is on video. But as Netflix has shown, people will put up with fairly high latency for video on demand. One big battle in the business involves the annoying latency between box office release of a film and video purchase. After all, who would buy a picture of a place they are even now visiting? (Yes, I've heard of the picture postcard business, but this is still as secret to the folks in the media). Sure, there is information that has a higher time value - weather, traffic, sports, news and the like, but, as countless web sites with multimedia Flash fantasies have discovered, those are essentially text services. Our minds have internal dialogs, not internal Flash presentations.

If the telephone companies are interested in moving more people to multimedia, they need an open platform so that some inventor can come up with right application. If they are really serious, they will do what Steve Jobs has done with his iTunes Music Store and negotiate with the media companies so that every platform phone has an ASCAP/BMI type license. We KNOW that people want to be able to clip and share other people's copyrighted media. They do it all the time. I am possibly not typical, but there are probably hundreds of millions of people who play the guitar better than I do, and let's not go on about my singing voice.It is rather sad to think that serious telephone business analysts are so clueless. The business is obvious. It is not consumers who think that telephones are only telephones, it is the people running the telephone business who think this, and it is they who are actively repressing the development of their own business to satisfy a bizarre fantasy.

12/23 - Fruitcake Is Illuminated - A Special Report

Wow, have we been busy. It is definitely time for an update. What have we been doing? Well, we illuminated our fruitcake. Read our special report for more on this. That's just a close up on the right.

We've also been decorating the cookie tree. We have some pictures of last year's cookie tree here.