Global Warming Tiger - Data Bias

This is the second of the series Global Warming - Tale of the Tiger.

Read the Tale and a description of the figure to the left. I believe the apparent 0.8ºC increase in Global Temperature over the past 150 years is due to three major causes and one minor one, as indicated by the parts of the "tiger".

DATA BIAS

This posting is about DATA BIAS which I think is responsible for about 30% of the apparent warming. In other words, 0.2ºC to 0.3ºC of the apparent 0.8ºC temperature increase is not actual warming.

(However, the remaining 0.5ºC to 0.6ºC is actual warming, and needs to be addressed.)

NASA/NOAA GISS MODIFICATION OF THEIR OWN BASE DATA

The figure below is a "blink comparator" of the official NASA/NOAA GISS (Goddard Institute for Space Studies) USA temperature anomaly (from http://wattsupwiththat.com/2008/11/14/the-evolution-of-the-giss-temperature-product/. Credit for the graphs goes to http://zapruder.nl/images/uploads/screenhunter3qk7.gif.)

More about the above graph near the end of this posting!

CLASSES OF OFFICIAL MEASUREMENT SITES

NASA/NOAA specifies measurement sites in five classes, with the best at least 100 m (over 300 ft) from any source of artificial heating or land development and the worst located right on an occupied building. According to a 2009 survey, only about 3% of official sites in the US are at Class 1. About 8% are in Class 2, at least 30 m from a source of artificial heat. About 20% are in Class 3, between 10 and 30 m. The remaining stations are closer than 10 m to an artificial heat source (58%) or right on a heat source (11%).

Thus, only about 11% are in the best two classes, reasonably distant from artificial sources of heat, while 69% are in the worst two classes, easily affected by nearby heat sources. Over 2/3rds of the official reporting stations in the US are close enough to artificial heating sources to be affected. We have no idea if the situation is better for foreign stations, but it is likely even worse!

Of course, since Global Warming has to do with changes in temperature, if a station has been at the same location for decades, any change in reported temperature should be consistent with actual trends in that area, right?

WRONG! Stations in urban areas, even if they have been in the exact same place, have been affected by lifestyle changes, such as installation of air conditioning in buildings that had none fifty years ago, more auto and truck traffic, and construction of nearby buildings. But, many stations have been moved from time to time and thus have not been in the same place all this time, and most have been affected and encroached by civilization and changes in land use.

Why are the stations so close to artificial heat sources? Well, fifty or more years ago, all the readings were taken manually by volunteer observers twice a day. They were not about to walk the length of a football field to do so. Even as automatic reporting stations were introduced, the stations had to be close to buildings so the telephone and power wires could be run to them.

ANECDOTAL EVIDENCE (Source)

"One swallow doesn't make a spring." (Aristotle). Even two doesn't prove it is spring. Likewise, the following anecdotal evidence does not prove the case for measurement bias. However, human beings seem to be moved more by specific examples than by statistical evidence. So have a look at these two stations about 50 miles apart in north-central California with very different temperature plots.

Orland, CA has a well-located station that has been in the same place for 100 years. The period from 1880 to 1900 shows a precipitous dip in mean annual temperature of about 2ºC. Mean temperatures have been in the same approximate range since 1900, with a small dip in the 1940's.
Marysville, CA, around 50 miles away, has seen considerable encroachment by development. The shelter that houses the MMTS temperature sensor is close to air conditioning exhaust fans and you can see their effect in the 2ºC mean temperature rise from 1940 to the present.

Sadly, the second example is far more representative of reporting stations than the first.

How could two temperature measurement stations, only 50 miles apart, experience such large differences in annual mean temperature trends? The only explanation is measurement bias due to encroachment of development at the second station.

THAT IS WHY NASA/NOAA GISS CORRECTS THE RAW DATA

Indeed, NASA/NOAA has retroactively corrected the data to account for measurement error. Here is that "blink comparitor" again.

Remember, this is OFFICIAL published data from NASA/NOAA GISS in 1999 and then in 2008. They have adjusted the data by about 0.3ºC which is more than 30% of the apparent Global Warming over the past 150 years.

Since the data has been biased by proximity to artificial heating sources which tend to increase over time, you would expect them to adjust the data to show less actual warming in later years. However, they seem to have made the "correction" in the wrong direction!

Check the blinking graphs! For data before 1970, they have REDUCED the temperatures by up to 0.1ºC. For the years after 1970, they have INCREASED the temperatures by up to 0.2ºC. This retroactive "correction" has added 0.3ºC o the apparent warming.

CONCLUSIONS

I have only scratched the surface on reasons to suspect data bias. There are dozens of photos showing official temperature measurement sites that are clearly too close to artificial heat sources that have obviously encroached relatively recently. There is evidence that painting the sensor enclosures with modern, longer-lasting latex paint rather than the old method using whitewash has increased temperature readings in the warm part of the summer.

What if I suggested that all official sites in Class #4 and Class #5 should be abandoned and replaced by new sites that met the requirements of Class #1 (or at least Class #2)? Well, the Global Warming alarmists would be up in arms, and for good reason, because that would wipe out most of the apparent temperature increase.

I agree with them! Since much of the data from years ago came from stations that were in very close proximity to human development, the old data is biased towards higher readings.

On the other hand, I think everyone should agree that encroachment of measurement sites by human development, especially over the past 40 years as air conditioning and vehicular traffic became more common, has biased recent data towards higher readings.

I don't have the power to correct the measurement stations that have been encroached, nor do I have the base data to make exact corrections. However, I think it is clear that a substantial portion of the apparent Global Warming increase is definitiely due to data bias. I estimate this bias as about 30% (+ 0.2ºC to +0.3ºC). Does anybody agree or disagree with that estimate? On what basis?

(However, I hasten to repeat, the remaining 0.5ºC to 0.6ºC is actual warming, and needs to be addressed.)

Ira Glickstein

Cap and Trade

Apparently not signing the Kyoto treaty wasn't such a blunder. The objections to exemptions for China appear to have been valid (see http://www.carbonoffsetsdaily.com/top-stories/carbon-credit-dollars-to-flow-through-china-dams-but-may-do-little-for-climate-3984.htm). Cap and trade provisions enrich China at the expense of Europe. Considering how much of our debt the Chinese already hold, it seems insanity to give them yet another opportunity to take our wealth away. With respect -Joel

The Female-Mind vs the Male-Mind

Here is a hillarious video by Mark Gungor on how male and female brains are different! PLEASE CLICK AND VIEW IT - YOU WILL ENJOY!

It seems male brains are composed of separate boxes that never touch while female brains are totally interconnected and wired with emotion.

We've discussed the Liberal/Conservative-Mind on this Blog and this video may help to explain why men seem more likely to be C-Minds and women L-Minds according to political polling data.

We have a couple of women Authors on this Blog and, most probably quite a few women Lurkers, and I would especially like to see comments on this video from them.

Ira Glickstein

Global Warming: Tale of the Tiger

Once upon a time, long ago and far away, a tiger was terrorizing a village and four brave young men decided to do something about it.

The first approached the tiger's head and whacked it with a stick. The tiger ate him!

The second approached the tiger's fore quarters and struck out with a knife. The tiger clawed him to death.

The third approached the rear quarters with the same result.

The last brave young man decided to sneak up on the tiger from behind and he managed to snip a piece out of the tiger's tail and get away.

Of course, nipping the tiger's tail didn't do much to solve the problem. Nevertheless, the villagers celebrated his pluck and luck and everybody felt quite satisfied - until the next tiger attack.

This is the first of five postings about the causes and cures for Global Warming. There is no doubt the Earth has warmed significantly over the past 150 years. The IPCC claims the warming trend is mainly (over 50%) due to rising CO2 levels caused by human burning of formerly sequestered carbon (coal, oil, natural gas). They demand immediate action to reduce carbon emissions by 75% within the coming decades.

I believe they are right about our being in a global warming trend. I believe continued warming will affect our way of life. However, I think the IPCC will be proven to have been wrong about the percentage of global warming due to human activities and, especially, about our ability to stabilize and reduce carbon gas production.

LET'S LOOK AT THE "TIGER" OF GLOBAL WARMING

Let’s imagine Global Warming as that tiger, and let us divide it up into three large sections, leaving 10% for the tiger’s tail. The sections represent the causes of the 0.8 ºC (about 1.4 ºF) apparent temperature rise.

I say apparent because around 30% is due to bias in measurements, due to encroachment of local development and land use on temperature measuring stations. (The second posting is about Data Bias.) An additional 40% is real warming, due to natural cycles, mainly variability in the Sun’s activity and the Earth’s orbit. About 20% is due to "greenhouse" warming effects of the carbon gases that have fizzed out of the oceans due to natural cycle warming, especially over the past fifty years.

The remaining 10% is due to human activity generating greenhouse gasses. I suggest we are attacking the “tiger’s tail” –that last 10%- because we really cannot do much about the other causes and we need to find some satisfaction! I also suggest that efforts to reduce carbon footprints, some of which I support (Carbon Tax), are unlikely to have much practical effect.

After celebrating the successful, but futile, attack against the tiger's tail, the villagers had to face reality. They had to adapt to living with the tiger by fencing their village and being extremely careful when venturing out. They also prayed the tiger would go away.

Ira Glickstein

Earmarks and pork

[from JohnS]

A few days ago, I listened to Neil Cavuto, Fox News, rant at a Congresswoman about earmarks in the budget submitted by Congress. When she could squeeze a word in, she tried to explain that earmarks endorsed by her were justified. She had no opportunity to argue her point. Cavuto simply talked over her implying she was trying to justify the unjustifiable.

My curiosity was aroused. What are earmarks? What is pork? Are earmarks and pork the same? Are they justifiable?

Wikipedia encyclopedia gave me the best definitions I could find of both earmarks and pork as follows:

Earmarks
Despite the lack of a consensus definition, the one used most widely was developed by the Congressional Research Service, the public policy research arm of the U.S. Congress:
"Provisions associated with legislation (appropriations or general legislation) that specify certain congressional spending priorities or in revenue bills that apply to a very limited number of individuals or entities. Earmarks may appear in either the legislative text or report language (committee reports accompanying reported bills and joint explanatory statement accompanying a conference report)."[2]
In the United States legislative appropriations process, Congress is required, by the limits specified under Article I, Section 9 of the United States Constitution, to pass legislation directing all appropriations of money drawn from the U.S. Treasury. This provides Congress with the power to earmark funds it appropriates to be spent on specific named projects. The earmarking process has become a regular part of the process of allocating funds within the Federal government.

Pork or Pork barrel
Typically, "pork" involves funding for government programs whose economic or service benefits are concentrated in a particular area but whose costs are spread among all taxpayers. Public works projects, certain national defense spending projects, and agricultural subsidies are the most commonly cited examples.
Citizens Against Government Waste outlines seven criteria by which spending can be classified as "pork":
1. Requested by only one chamber of Congress;
2. Not specifically authorized;
3. Not competitively awarded;
4. Not requested by the President;
5. Greatly exceeds the President’s budget request or the previous year’s funding;
6. Not the subject of congressional hearings;
7. Serves only a local or special interest

Reading these definitions, my conclusions are that earmarks are appropriately authorized by congress in the legislative process. Pork, on the other hand is inserted into legislation without being appropriately authorized by Congress.

I think we can agree that pork is a misuse of the legislative process. Is it illegal? Not being a constitutional lawyer, I don’t know, but I think it is. I would like to see it tested before the Supreme Court. Apparently, both the legislative and executive branches intend to keep sneaking pork to into legislation.

What about earmarks? We can probably agree that they are a permitted part of the legislative process, however, are they an appropriate part of the process? I’m not sure. In a bill to improve our road and bridge infrastructure, earmarking certain sections of road or certain bridges would be appropriate if there was a justifiable necessity to expedite these repairs. On the other hand, in a defense bill earmarking a project in favor of one of two equally qualified contractors wouldn’t seem appropriate even though one might argue that there was a justifiable reason such as the preferred contractor was located in a depressed area where the project would have benefits broader than just the project. This would worry me. There is too much opportunity for favoritism however, my concerns are immaterial earmarks are a part of the system, providing a necessary function.

Is it appropriate to return some of the tax money to a congressional district through earmarks? I think so as the Congresswoman was trying to explain to Neil Cavuto. A representative is just that, she represents her constituents. She should receive a fair proportion of the funds returned to the states and congressional districts and be allowed to specify where this money will be spent through earmarks.

Bottom Line, as Ira would say.

Earmarks are an authorized and appropriate part of the legislative process. Pork, on the other hand is a misuse of the legislative process, is probably illegal and corrupts the system.

Carbon Tax YES! - Cap&Trade NO!

According to an AP story today:

"Eight Senate Democrats are opposing speedy action on President Barack Obama's bill to combat global warming, complicating prospects for the legislation and creating problems for their party's leaders.

"The eight Democrats disapprove of using the annual budget debate to pass Obama's 'cap and trade' bill to fight greenhouse gas emissions, a measure that divides lawmakers, environmentalists and businesses. ..."

"'Enactment of a cap-and-trade regime is likely to influence nearly every feature of the U.S. economy,' wrote the Democratic senators, mostly moderates. They were joined by 25 Republicans. 'Legislation so far-reaching should be fully vetted and given appropriate time for debate.' ...

"The Democrats who signed the letter, addressed to the chairman and top Republican on the Senate Budget Committee, were: Robert Byrd, W.Va.; Blanche Lincoln, Ark.; Mary Landrieu, La.; Carl Levin, Mich.; Evan Bayh, Ind.; Ben Nelson, Neb.; Bob Casey Jr., Pa.; and Mark Pryor, Ark."

This Blog avoids partisan politics but this issue cuts across party lines and is somewhat "philosophical".

Although I am not a Global Warming "alarmist" and I do not believe human burning of previously-sequestered carbon (coal, oil, natural gas) is responsible for most Global Warming or most of the rise in atmospheric CO2, I am concerned about rapidly rising CO2 levels. I do believe we (humanity) should take action to reduce carbon footprints. I do not believe that action should be precipitous or extreme, but I do believe action is necessary. The sooner the better!

HOW TO REDUCE CARBON FOOTPRINTS ?

There are two general approaches:

1) Cap & Trade Carbon Permits and

2) Revenue-Neutral Carbon Tax.

Both approaches will have the effect of raising the price of energy derived from sequestered carbon as a way to reduce demand and encourage more use of alternative energy sources.

CAP & TRADE CARBON PERMITS is a complex scheme where industrial concerns estimate the amount of CO2 they are currently spewing into the atmosphere and how much they could reduce those emissions by adopting new technology. Each country adopts a "cap" on the total amount of CO2 that may be emitted and imposes shares of the cap, as carbon permits, on individual companies. Companies that can reduce their emissions below their caps may sell the excess allocations to companies that cannot. The idea is that this will encourage companies to adopt new emission-reducing technology and use the money for the resultant sale of their carbon permits to pay for the costs of the new technology. This is an idea that is great in theory, but an invitation for cheating and scheming and massive government regulation and political influence.

REVENUE-NEUTRAL CARBON TAX is a simple scheme for taxing coal, oil and natural gas at the source (or at entry to the country) on the basis of carbon content. The money raised by that tax would be immediately refunded to the population, perhaps by reducing the payroll tax or by simply mailing a check to each holder of a social security card. The carbon tax will raise the price of energy (for example by about $1/gallon of gasoline and proportionately for coal and natural gas) and provide an economic incentive for industries and consumers to reduce their usage of fossil fuels and products that are manufactured using fossil fuels. Rather than have the government regulate and check on estimates of CO2 emissions, the carbon tax will allow industries and consumers to adapt according to their own benefit.

ALL IN FAVOR - SAY "AYE!"

Those in favor of a revenue-neutral carbon tax include a broad range of people, including:

James Hansen of NASA (who I said has gone overboard in his dire predictions regarding human-caused Global Warming) wrote:
"In my testimony [to Congress] I noted that a 'Cap' raises the price of energy, just as does a simple honest carbon tax on oil, gas and coal at the first sale at the mine or port of entry. 'Cap' is a pseudonym, disguising the fact that it is a tax, assuming that the public is a bunch of dummies, who will never catch on. With all its hooks and eyes, Cap&Trade will allow a lot of funny business. At least we would get a few Wall Street millionaires back in business, via speculation and gaming the Cap&Trade system (funded by John Q. Public, of course). ...

"A Carbon Tax & 100% Dividend would not let Congress enrich their favorites or divine winning technologies. Instead, the winners would be innovators who invent products with improved energy efficiency or develop carbon-free energies, which allow people to reduce their carbon tax."

Charles Krauthammer (Right-winger, writing in The Weekly Standard):
"The Net-Zero Gas Tax - A once-in-a-generation chance. ... High gas prices, whether achieved by market forces or by government imposition, encourage fuel economy. In the short term, they simply reduce the amount of driving. In the longer term, they lead to the increased (voluntary) shift to more fuel-efficient cars. They render redundant and unnecessary the absurd CAFE standards--the ever-changing Corporate Average Fuel Economy regulations that mandate the fuel efficiency of various car and truck fleets--which introduce terrible distortions into the market. As the consumer market adjusts itself to more fuel-efficient autos, the green car culture of the future that environmentalists are attempting to impose by decree begins to shape itself unmandated. This shift has the collateral environmental effect of reducing pollution and CO2 emissions, an important benefit for those who believe in man-made global warming and a painless bonus for agnostics (like me) who nonetheless believe that the endless pumping of CO2 into the atmosphere cannot be a good thing. ...

"Today we are experiencing a unique moment. Oil prices are in a historic free fall from a peak of $147 a barrel to $39 today. In July, U.S. gasoline was selling for $4.11 a gallon. It now [Jan 2009] sells for $1.65. With $4 gas still fresh in our memories, the psychological impact of a tax that boosts the pump price to near $3 would be far less than at any point in decades. Indeed, an immediate $1 tax would still leave the price more than one-third below its July peak. ...

"What to do? Something radically new. A net-zero gas tax. Not a freestanding gas tax but a swap that couples the tax with an equal payroll tax reduction. A two-part solution that yields the government no net increase in revenue and, more importantly--that is why this proposal is different from others--immediately renders the average gasoline consumer financially whole."

Others in favor: The Wall Street Journal, Ralph Nader (pardon the expression :^), Exxon-Mobil, and me (July 2007, May, October, and November 2008).

Ira Glickstein

Prediction: Big Market Recovery This Year!

[Double-click graphic for larger view]

My neighbor is not a racist. He is a Democrat who would vote for the proverbial "yellow dog" if it was a candidate of his party. Yet, back in May when Sen. Barack Obama appeared to be headed for the Democratic Party nomination, he told me "the country is not ready for a Black president." Of course, the country proved him wrong - we have a Black President, elected by a substantial majority of the population, including a near-majority of whites.

As I looked at the highlights of last year's presidential campaign and the precipitous fall of the Dow Jones Industrials (DJI) amid the current economic collapse led by the popping of the housing bubble, I began to wonder what contribution racism -and in particular the unjustified fear of racism- might have had.

My conclusion is that racism and what turned out to be unjustified fear of racism had a substantial effect on the market decline, along with what turned out to be an unjustifiably bloated valuation of the market and of real estate.


The good news is that the market will probably recover nearly as fast as it dropped. I predict we will see it around 9,000 or more by year end and over 10,000 in a few years. The bad news is that the high levels of the last decades, and in particular the peak of 14,000 in 2007, were unjustifiably optimistic and will not be seen again for many years.

LET'S LOOK AT THE GRAPHICAL RECORD



The base graph above shows the actual DJI from 1930 to the present (jagged blue line). It also shows my estimate of the "true" value of the corporations represented in the DJI (green dotted line), based upon the idea that the stock market, an imperfect instrument, seeks to find the "true value"as it oscillates above and below, overshooting and undershooting on its merry way. It is nearly impossible to project the future course of the "true" value, but, given the actuals from 1930 to the present it is possible to draw a smooth curve, called a "regression line", that approximates the "true" value.



As you can see, the period from about 1995 to last year saw the market 2000 to 4000 points above the "true" value. I believe it is now around 2000 to 3000 points below the "true" value. My projections for the future (the fan of red dashed lines) indicates the market will soon go up sharply, most probably matching the "true" value by 2012. Optimistically, it could overshoot the "true" value by 2012 or 2013 (upper dashed red line). Pessimistically, it could undershoot the "true" value for decades (lower red dashed line). But, even my most pessimistic prediction shows the DJI on a steep incline for the coming few years.





WHY WAS THE MARKET OVERVALUED?



Government policies, starting in the 1990's, overstimulated the housing market. Fannie and Freddie, quasi-government organizations, assumed increasing responsibility for mortgages. This created the government-backed "moral hazard" that allowed -even encouraged- local banks to hand out mortgages to marginal borrowers, knowing they could offload these mortgages to Fannie and Freddie. As these mortgages were sliced and diced and "securitized", the SEC failed to properly regulate the securities and companies like AIG that insured them.


Everybody believed (or pretended to believe) that real estate could not go down. Well, maybe it could go down in some local geographic area, but it could never go down all over the country at the same time. Thus, "securitizing", by creating "diversity", was a way to insure stability and growth of "affordable housing".


The constituents of both political parties loved these policies. Republican developers and housing material corporations saw their businesses boom. Democratic workers got good paying jobs in the factories and building trades and the lower middle-class got affordable housing. Home ownership was preferable to renting because it gave people a stake in the community and a path to the middle-class. OK so far, but then the banks started giving loans to people who could never pay them off -even in good times- and some lenders even helped borrowers phony up their applications to get them approved. ("Countrywide is on your side!")


WHAT ROLE DID FEAR OF RACISM HAVE IN THE MARKET CRASH?


Investors hate uncertainty. The inset graph above shows the actual DJI track from April 2008 through March 2009. (It is to the same vertical scale as the base chart for ease of comparison.) The DJI was around 13,000 when McCain became the presumptive nominee for the Republicans and a bit lower when Obama appeared to have a clear lead over Clinton in the Democratic race.


After McCain and Obama were nominated by their parties (end of August, beginning of September) the DJI was down to around 11,500. As it became clear that Obama was likely to win, the market dropped precipitously (777 points on September 29th), and by a month before the elections, with Obama 6 points ahead of McCain, it was in free fall, crossing below the 9,000 level.


From election day, with Obama's big win, to his taking office on Jan 20, 2009, the market tumbled down to around 8,000. Two months into his term it hit a low around 6,500.


I believe only a relatively small number of people (genuine racists) pulled their money out of the market or cut back on their workforce because they did not think a Black president could do a good job. On the other hand, I believe a much larger number pulled their money out because of their unjustified fear that the actions of the racists would cause the market to go down. That accellerated the fall.

OTHER REASONS FOR THE MARKET CRASH

As I mentioned above, the market was ripe for a "correction" down to 10,000 or so. There were fundamental problems in the housing market caused by government-backed "moral hazard" policies and lack of proper regulation.

There may have been some organized effort by some leftish-oriented members of the moneyed class to take advantage of these weaknesses and push the market down temporarily to guarantee an Obama victory. I have no proof of this allegation and only mention it in case further investigation shows that some hedge funds were manipulating the market in the September-October time frame last year.

Also, some rightish-oriented members of the moneyed class might have been worried that an Obama victory would bring about more "socialistic" policies that would hurt the economy and pulled their money out for that reason.

Finally, the major media, nearly all of which supported Obama, always like a crisis story. They jumped on the highlighted phrase when McCain said: "... Our economy is in crisis ... there's been tremendous turmoil in our financial markets and Wall Street ... people are frightened by these events. ... still the fundamentals of our economy are strong. But these are very, very difficult times. And I promise you, we will never put America in this position again. We will clean up Wall Street. We will reform government."

I believe the fundamentals -American workers and industry- are strong and will recover almost as fast as we went down. Markets tend to over-react in crisis -both on the way up and the way down- so, hold on to your hats for the ride up!




BOTTOM LINE


I believe President Obama is very smart and intellectually flexible and basically honest.

I hope he can overcome his work experience in an activist law firm, as a community organizer, and on the left in the Illinois legislature and the US Senate. His entire career has been based on pushing policies that take money from those who earned it and give it to those who (for whatever reason) did not. On the other hand, he has demonstrated that he, personally, is a very hard worker. At Harvard, the law firm, in Chicago communities, and the legislatures, he has demonstrated tremendous intellect and industry and work ethic.


I want President Obama to succeed because I want to see our country emerge from this economic crisis stronger and more "mean and lean" to compete better in the globalized marketplace. This "correction" in our economy was overdue but perhaps it has been overdone.


I see hope in the availability of more affordable housing (due to the foreclosures), the reduction in energy prices (due to the economic slowdown), the elimination of some unproductive factories and wasteful union work rules (due to bankruptcies and threats thereof) and people willing and anxious to work harder and smarter (due to the reduction in job availablity).


I do not want all of President Obama's stated policies to succeed. For example, I am worried that the printing of a few trillion (thousand-billion) "stimulus" dollars will inevitably lead to roaring inflation a couple years from now. Much of this money will go to politically-connected states and cities and companies and unions and will probably be wasted (think of Boston's "big dig" on steroids and spread over our entire Nation).

But, I remain optimistic.


My wife and I "hung on" during the stock market downturn and saw losses of about 50% in our stocks and 401K accounts, as well as a substantial drop in the value of our home. But, even counting these substantial declines, we are still above our cost basis in both stocks and our house, so all we have lost is some "paper profits". Let us all hope for a substantial recovery in the market this year and next.

Ira Glickstein

Health Costs

[from JohnS]

Rather shocking information regarding the markup from the cost of active ingredients to the retail price on some prescription drugs has been circulating via e-mail lately. I checked it out on Snopes and found the numbers to be true. Snopes editorializes that the information while valid is of dubious value because of the many other factors that go into the cost of manufacturing and marketing a product. Still my curiosity has been raised.

Here are three examples:

Claritin:10 mg.
Consumer Price (100 tablets): $215.17
Cost of general active ingredients: $0.71
Percent markup: 30,306%

Lipitor:20 mg
Consumer Price (100 tablets): $272.37
Cost of general active ingredients: $5.80
Percent markup: 4,696%

Prozac:20 mg
Consumer price (100 tablets): $247.47
Cost of general active ingredients: $0.11
Percent markup: 224,973%

I take Lipitor, a common cholesterol drug once daily, so let’s examine the numbers.
The daily cost is $2.72, a yearly cost of $990.80 vs. a yearly active ingredient cost of $21.17, giving a gross profit of $971.63 per year.

I have no way to calculate the other costs, R&D, manufacturing, distribution and retail costs, however others have estimated the manufacturing costs approximate the cost of active ingredients. I would place the distribution costs at a similar number. The retail cost would be more because it must be stocked, counted and bottled at a yearly cost estimate of $50 for a total of $113.50. Thus, a net profit of $877.30 on my purchases of Lipitor each year not counting R&D costs. Before calculating R&D costs let’s look at some further numbers.

Lipitor is a common cholesterol drug, so I will estimate that one million people take the drug worldwide; it is probably higher. That would provide a net profit of $877 million dollars a year. I have been taking the drug for years so let’s say the drug has been on the market for 10 years providing a net profit of 8 billion, 773 million dollars. Now, let’s say R&D cost is 1 billion dollars giving a net profit of 7 billion 773 million, not bad to share between the manufacturer and retailer, but, let’s say I underestimated the costs by a billion or two. A net profit of 5+ billion over ten years, 577 million per year, isn’t bad for a single drug.

Look at the markup of Prozac! A chart listing other drugs can be obtained from Snopes.com. Lipitor is one drug amongst hundreds and the fourth least in markup in the Snopes sample.

This may be the capitalistic way; however, with the concern about the costs of health care and knowing that many drugs can be purchased more cheaply overseas, one cannot help but wonder.

Does Segway Ownership make Sense?

FAIR AND BALANCED RIDING

I got to ride a Segway self-balancing personal transporter at the Outdoor Expo here in The Villages, FL. It was very quick and easy to learn and a fun experience overall. The control handle was quite intuitive: you push it left or right to turn in place and lean on it (not push!) to go forward. We were cautioned not to lean back except to stop the device because backing up could lead to accidents for inexperienced riders.

More Segway rides are in store for me, however, I don't expect to buy one any time soon. Say what?

At the current cost (over $5000) Segway ownership only makes economic sense for narrow market segments: mall guards, city police, emergency services, warehouses, urban postal and other delivery services, college or business campuses, military, and so on.

As for personal ownership, I could imagine that someone who lives and works in town might buy one for commuting (SEE VIDEO) over relatively short distances. Beyond that, they would be a great playtoy for the well-to-do and the adventurous who might use them for sports such as Segway polo (SEE VIDEO).

According to Wikipedia the legal status of the Segway is mixed. It may be too slow for use on roadways and even bicycle lanes and too fast for use on crowded sidewalks. Like everything else legal, this has provided a field day for lawyers on both sides. It appears, however, at least in the US, that Segways may be legally used in most towns on sidewalks and, under certain conditions, on bicycle paths. It may be used inside federal buildings and some other facilities by persons with mobility impairments.

WHY DO YOU AND I CARE?

So, where do you I come in? Well, we are candidates to rent Segways at theme parks, museums, national parks, and so on. Segway tours are offered at various locations for about $48/hour. There is a Segway Riders Club here in The Villages that organizes tours and arranges for an outfitter to supply the Segways.

That free demo at the Outdoor Expo is likely to be quite costly for me!

Ira Glickstein

Madoff: Social Security for Fat Cats Goes Bust

HOW MADOFF DID IT AND WHO BENEFITTED

Uncle Bernie Madoff allegedly had a great social security program for the financially well-off. While they were earning the big bucks they'd give millions to him. He'd report growth on these investments of twelve percent a year or more. Every reporting period he'd check which stocks and options went up a lot (or down a lot) and pretend to have bought puts and calls and shares of them. Even a fool can pick the winner after the game! But Madoff was no fool. He had his own brokerage firm and could easily create the trade tickets, after the fact, to document the gains.

If you saw CBS 60 Minutes last evening, you have a better idea of what he did and how.

Madoff and his family, and the network of financial advisors and feeder funds who earned big fees steering eager clients and funneling investment money to him, spent their share of the money on the good life.

Meanwhile, his clients, when they were no longer earning the big bucks, were able to draw whatever money they needed out of their bloated accounts to continue their posh life styles. On their death beds they'd advise their wives (and girlfriends :^) to leave their money with Madoff and draw millions a year for the rest of their lives. The inflow of cash from new investors was more than enough to pay off those who cashed out. Many of the early clients probably received far more from Madoff's social security program than they ever put in. Much more than had they put their money into CDs.

Of course it all came to an end with the recent market crash. Lots of his clients need to cash out and few new ones had the cash to put in. OOPS!

WHAT DOES THIS REMIND YOU OF?

Uncle Sam has a similar program for us ordinary folks. Social Security was great for my grandfather who was near the end of his working career when it started. The rates were low because there were over 150 workers putting in for each beneficiary taking out. He told me he put a few hundred bucks in and collected thousands by the time he passed away at a ripe old age.

My mom and dad also did well. He worked for the post office and, at the time, did not pay into Social Security because the government had their own pension plan. After he retired at an early age and started drawing his post office pension, my dad took a job in the private sector and put enough money into Social Security to qualify as a "double-dipper" when he finally retired for good. My mom worked most of her life "off the books" in my grandma's knitting shop. Then, in her last working years she took a job and paid into the Social Security system to qualify for benefits when she retired for good. During the few years my mom and dad were paying in, the rates were low because there were over ten workers for each beneficiary. Mom and Dad lived long lives and took way more out of Social Security than they ever put in.

My wife and I paid into Social Security our whole working lives. During that period there were a bit over three workers paying in for each person collecting, so the rates paid by us and our employers out of our real earnings were high. We've put over $300,000 into the system. Had that money been invested in CDs they'd be worth about three times as much now. Had we used that money to directly pay our grandparents and parents Social Security benefits the CDs would have still been worth around twice what we and our employers put in.

But, the government took all that money from us and our employers and almost immediately paid it out to beneficiaries. It is unlikely my wife and I will ever break even with Social Security.

Our daughters and sons-in-law, and their employers, have been paying in at high rates since they've been employed. During that time the rates have gone up as has the age to qualify for payouts. I do not think they will ever get their money out. It is a sucker's investment and I doubt anybody in his or her right mind would pay into it if it was voluntary.

WHY DIDN'T THE SEC CATCH MADOFF BEFORE HIS SCHEME WENT BUST?

On the 60 Minutes program last evening, you saw Harry Markopolis recount how he had alerted the SEC multiple times. While working for a competitor firm to Madoff's, he said he figured out Madoff must be a fraud in "five minutes". It only took him a few hours using math models to confirm his hunch. Of course, now -after the game and we know Madoff was a fraud- it is so obvious!

According to the Markopolis 2005 Statement to the SEC, he had alerted the SEC early as 1999 (on Clinton's watch). On the CBS progam, he mentioned alerting them several times between 2000 and 2007 (on Bush's watch). I am no financial wizard, but, as I read the Markopolis statement, all he had was something called Mosaic Theory. In his SEC statement he raises a bunch of what he calls "Red Flags". I read through the Red Flags and none provide any evidence beyond statistical math model generalizations and speculation. Markopolis says (unnamed) senior managers and heads of Wall Street equity derivative trading desks privately agreed with him that Madoff was a fraud. However, Markopolis admits he has no "whistleblower or insider" contacts who would know exactly what was going on or have any documentary proof. He also gave his information to a reporter for the Wall Street Journal but his proof was not good enough for them either.

Of course, in retrospect, he turned out to be totally correct. Had someone at the SEC or WSJ followed through, they could have become famous and saved a lot of people lots of money, but they did not.

LET'S INVESTIGATE !

Imagine you are a civil service lawyer or accountant working for the SEC and you are put on the Madoff case after several tips come in that "it is too good to be true". (Remember you are a civil servant -your main job is to show up every working day and not make waves- if you were highly competent and aggressive you'd probably be working for more bucks in the private sector :^)

OK, so you go to investigate. You are welcomed into opulent headquarters and shown reams of (fake) data that looks good because Madoff has his own brokerage firm. You are shown audit reports from Friehling & Horowitz, a small CPA firm -not one of the big ones- but they have a good record, and, after all Enron was audited by big Arthur Anderson and look what happened with them! Madoff tells you he makes money when the market goes up and when it goes down, but he can't make money when it stays flat. Sounds like a good story.

You are shown a list of big time financial advisors, feeder funds and clients from the New York City area, Palm Beach Florida, Greenwich Connecticut; and all over Europe who vouch for Madoff. None of Madoff's clients have complained -not a single one- they are all deleriously happy with their investment results.

Look, there are nine accounts held by men named "Ira":

IRA LEE SORKIN 10 VANAD DRIVE EAST HILLS, NY 11576
IRA M RUBENSTEIN CPA MANAGING PARTNER ERE 5TH FL 440 PARK AVENUE SOUTH NEW YORK, NY 10016 08012
IRA PITTELMAN 1385 YORK AVENUE APT 29-B NEW YORK, NY 10021
IRA S SKLADER 6600 LYNDALE AVENUE SO #1307 RICHFIELD, MN 55423
IRA S SKLADER 8143 RHODE ISLAND CIRCLE BLOOMINGTON, MN 55438 01152
IRA SCHWARTZ C/O HAROLD SCHWARTZ 989 SIXTH AVENUE 7TH FL NEW YORK, NY 10018
IRA SCHY OR ROSE SCHY J/T WROS GUILDFORD E #3073 BOCA RATON, FL 33434
IRA SIFF 211 EAST 11TH STREET APT 9 NEW YORK, NY 10003
IRA SKLADER GAIL SKLADER JT WROS 6600 LYNDALE AVENUE SO #1307 RICHFIELD, MN 55423

One client even has a home in The Villages, FL, the retirement community where my wife and I live and that is well known for attracting the best and the brightest:

JOHN FOGELMAN AND ROSALIE FOGELMAN TTEES, JOHN & ROSALIE FOGELMAN RV LV TST 1556 LYMAN WAY THE VILLAGES, FL 32162

Fortunately, Uncle Bernie has not Madoff with any of my money, though I wish I had enough to have qualified!

And, what a list of clients! The cream of the crop of the rich, many are famous, and most of them are Jewish. Markopolis said Madoff was running an "affinity scam", preying on his own kind.(Archie Bunker famously said "Them people really know how to handle money." Well, he was wrong about some of us, at least :^)

You show the information about Madoff and the client list to your superior at the SEC. He checks and Madoff is a big time political contributor, as are many of his clients. Most to Democrats but a bit to Republicans as well. If we go after him will it look like we are on a political mission? And, he is well respected among business associates. For God's sake, he was formerly Chairman of the NASDAQ. The National Association of Securities Dealers Automated Quotations is an American stock exchange, the largest electronic screen-based equity securities trading market in the United States.

So, what would you do if you were at the SEC? (Or the WSJ?) I think I'd put the tips down to jealous competitors and apply manpower to more pressing matters. That is exactly what they did.

BOTTOM LINE

The government cannot do much right. I'm not sure I'd want to live in a country where the government had access to the internal data of every company that might be planning or executing a scheme. Even if they had access to all that information, I don't think the kind of people who tend to work as civil servants would recognize such a scheme even if it fell on their heads.

So, Madoff and probably some of his relatives and/or others who can be proven to have known they were running a Ponzi scheme will spend some time in jail and lose most of their wealth. Clients who lost big bucks in the scheme will sue the financial advisers and feeder fund managers for lack of due dilligence, gross negligence, failure of proper risk management, and so on, and some of them will probably have to pay up, at least a bit.

I have trouble feeling sorry for most of the rich victim clients and financial advisers and feeder fund managers. My sympathy is with the poor folks who depended upon the mainly Jewish charities that invested heavily with Madoff. Those charities have lost much of their money and their poor clients will have to do without, through no fault of their own.

Ira Glickstein

National Character

[from JohnS]

I wrote the following (slightly modified) to a friend who sent me an e-mail video of Muslims demonstrating here in the US because of Israel’s attack on Palestine. As part of the video, a woman was shown carrying a sign “Nuke Israel”. Another sign said Israel go to hell. The video can be seen at: http://tinyurl.com/7fekss

I believe we are a moral and ethical people. I believe our national government is moral and ethical in their foreign relations. However, I feel that nationally we are without the character to stand up to rogue peoples and nations without compromise as I discuss at the end of my e-mail.

Hi, ________, I am going to pontificate a little

I watched the video and came away with mixed feelings.
They have the right to express themselves in America.
We should be tolerant of other peoples.
It was a relatively small gathering. There was no damage.
It was filmed by amateurs and maybe, probably, not balanced.
They probably were not speaking for all Palestinians, rather a small group of rabble rousers.
With that said:
Why did I watch it? By doing so, am I buying into their goals?
What is hate speech? A Nuke Israel sign, an Israel go to hell sign?
Are we too tolerant, are we giving our freedom away?
I support Israel in this case.
If Cuban terrorists were shooting rockets into southern Florida, would we be so tolerant?
Would we allow such a demonstration in Ft. Lauderdale? I am afraid we might!
I ask again, are we giving our freedom away? I am afraid we might!
I cannot stay neutral, I cannot be fair handed, and I could not negotiate a cease-fire.
A cease-fire protecting people who were shooting rockets into Israel before they attacked.
A people who tolerate Hamas?
A people who allow Hamas to fire rockets from their residential areas so that retaliation will
cause causalities amongst innocents.
Innocent Palestinians, their own people, yet!
At some point, we as Americans have to stand up and be counted.
Not by employing our military overseas.
But by clearly stating to the world that:
We will give no support to any terrorist group or nation that supports terrorism.
We will fully support any nation in its fight against terrorism.
Religious ideology is no justification for hate, intolerance or terrorism.
Historical abuses, real or imagined, are no excuse for continued hate, intolerance or
terrorism.
Nations and peoples who engage in terrorism or support terrorism will have to accept the
bitter fruits of their actions and support.
We will not speak or act on their behalf in any form.

Those last two sentences are extremely important, the media, especially the Islamic media loves to show mothers weeping, dead and wounded children, homes destroyed. We as a civilized caring nation are horrified. We would love to ride and do ride to their aid without considering that in doing so we are aiding and abetting terrorism.

[from JohnS]