Tuesday, November 29, 2011

American Airlines, Then and Now

So American Airlines is bankrupt. That's bad news, I suppose, for the economy as a whole. And it's unfortunate for any AA employees who lose their jobs as a result. But in some larger sense, this seems like just desert.

Back in the mid-1990s, when computerized airline booking was pretty new, I once made a somewhat complicated reservation via CompuServe (there's a blast from the past, and gives you an idea of how many computer eons ago this took place). But I screwed up somehow. I meant to book a ticket from Newark; instead I booked one to Newark. Furthermore, I didn't even realize my error until I arrived at Newark Airport the day of travel, bags in hand, wondering why there was no line at the ticket counter.

Can you guess what happened? If you've traveled in the past ten years you might not believe this, but I swear it is true: They fixed it for me at no charge. The error was purely mine, and they just fixed it.

I can report another episode that happened a few years later. Again, flying out of Newark. This time, however, I was late for my flight because - and again this is difficult to fathom in today's world - my taxi broke down on the New Jersey Turnpike and the driver had no way to communicate with his dispatcher. So we ended up stuck on the Turnpike waiting for a police car, and then a tow truck, and then for the tow truck to take us to some service center, and then for another cab to arrive. By that point, of course, my flight was somewhere over Kentucky. When I got back home I called American to see what they could do: I needed to make the next possible flight out. They wanted to charge me a full last-minute fare at first - after all, I had missed the flight without warning them - but I managed to talk them into converting my ticket to a stand-by the next morning, at no charge.

Compare that to my recent return flight from a Thanksgiving trip. I booked the flight six weeks in advance. I selected seats: row 17, three together. The day before the flight I went online to check in and print my boarding passes. But my seats were now listed as "unassigned"! Imagining my wife, pre-schooler and I having to sit separately, I quickly tried to select new seat assignments, but naturally the only ones available were for an upcharge. I called AA customer service, and they patiently explained that, while there was nothing they could do, they would be able to seat us together when we checked in the next morning at the airport.

Well, that seemed a little crazy to me. I had had a seat assignment, which had been somehow erased without telling me. The customer service representative couldn't tell me why. Shouldn't I be able to get a new seat assignment, at least over the phone? No way, she said. Has to be in person, because they keep some seats in reserve for families with small children traveling together. (Are airlines beset with scammers pretending to have small children in their party in order to check in over the phone? Did they need visual proof that we had a small child with us? Maybe the truly savvy scammer could bring one to the ticket counter as camouflage.)

With no alternatives at hand, we showed up bright and early a bit before six in the morning to get our seat assignments. Sure enough, they did have three together! In the last row: row 33. Which, on an MD-80, turns out to be the loudest place on the plane, and the only row for which the window is entirely blocked by the engines.

I suppose I should be happy that we got to sit together at all. But consider the inversion in customer experience. In my first anecdote, I made an error and they took me at my word that it wasn't my fault and corrected it for me. In my second, the fault was not mine but also certainly wasn't theirs, and they still did their best to fix it. But in the third, I did everything by the book and properly, they screwed up, and then they wouldn't fix it.

I understand that at some point American Airlines eliminated one olive in each salad offered in the in-flight meal. This supposedly saved them several million dollars a year. The thought of having a salad during a flight - or a meal of any sort - is laughable today, but far more worrisome is that they have taken cost-cutting to its natural limit, and the customer experience is now seriously impacted. The economy has been bad for airlines for years, but surely this attitude to their customers contributed to the failure of American to remain profitable. Here's hoping they learn a valuable lesson.

UPDATE (12/9): An alternate view. Some good points...

Wednesday, November 23, 2011

People Who Can't Plan Shouldn't Run Businesses

Just ran across a story about a "businesswoman" who was nearly ruined by a deep-discount coupon deal.
Rachel Brown, who runs the Need a Cake bakery in Reading, Berkshire, launched an offer via the money-saving website in the spring in which she offered a 75 per cent discount on 12 cupcakes, which normally cost £26.

However Mrs. Brown vastly under-estimated the popularity of the deal and was besieged by 8,500 people who signed up for the £6.50 bargain.

Naturally, Mrs. Brown is accusing Groupon of nearly ruining her business. But isn't she really to blame here? You can limit the number of deals you will accept via Groupon. Sure, Groupon's salespeople are supposedly pretty cut-throat and want businesses to make pretty steep discounts to maximize Groupon's profits.

But you know what? Sure they are. Groupon's in business for Groupon, not for the Need a Cake bakery. I feel bad for Mrs. Brown, who was evidently taken to the cleaners here while Groupon made a tidy profit. But she should've thought this through. Hmmmm, she might have thought, what's my worst-case scenario? What actually happened probably wasn't far removed from that.

The Groupon business model offers a quick buck, since they pay upfront based on coupon sales. But somehow businesses seem to forget that each coupon sale is a promise to provide some service which they have already been paid for. This could be a problem for Groupon going forward. I wonder how many repeat customers they get? My guess is: not many. Then again, the depths of human gullibility and greed seem endless.

Wednesday, November 16, 2011

The Iron Lady

I was briefly super-psyched to see that there will be a major motion picture about Margaret Thatcher in January 2012:

Hmmmm, Meryl Streep as Maggie Thatcher? That's ominous. Then I looked more deeply. From the first reference:

What was it like to work for Margaret Thatcher? What sort of woman was she at the height of her powers? You might think that if you were setting out to make a so-called "biopic" about such a dominant figure on the political stage of the late 20th century, your researchers would have sought out those who were closest to her in those years and asked them.

I do not know whom the makers of the Meryl Streep film talked to. Perhaps Michael Heseltine or Geoffrey Howe, but certainly not me. To judge the film from its trailer, they confined their inquiries to the Daily Mirror and perhaps Tim Bell's public relations firm.

From the second:

"Sir Mark and Carol are appalled at what they have learnt about the film," says a friend of the family. "They think it sounds like some Left-wing fantasy. They feel strongly about it, but will not speak publicly for fear of giving it more publicity."

Oh, boy. At least the hard Left is also a bit upset:

That's all fine, but that narrative trajectory risks skewing the story. This was not just a time of one woman's assault on a male bastion, but an era of rage about what Thatcher, economy destroyer and warmonger, was doing to Britain.

Here's what Maggie had to say about being an "economy destroyer", by the way:

I guess I'm still psyched. But prepared for a hatchet job.

Thursday, November 10, 2011

Perry Bites the Dust

I have to admit I was one of the hopers when Rick Perry threw his hat in the ring. Supposedly he's an excellent campaigner, and there's no doubt that he's presided over a very good Texas economy while the coasts slide into the ocean. It's hard to get excited about Romney. Cain's sexual allegations have caused him to implode. And none of the others seems serious. With Ryan and Christie sitting it out, that left a huge gaping whole for someone to fill. Perry seemed like he might be that person.

But really. He tries to make a point about eliminating agencies and can't even remember his own talking point. That's not a guy we can have debating Obama if we expect to win. I'm afraid this seals the deal: it's going to be Romney, and we might as well accept it and make the best of it.

Wednesday, November 9, 2011

Income Mobility

There's been a lot of talk lately about income mobility in America. The Pew Economic Mobility Project (EMP) has done yeoman's work in this area. Scott Winship has a good summary of its findings in the latest issue of National Review. The quick takeaway can be summarized by these two points: first, absolute income mobility is still widespread — about 80% of people are better off than their parents were; second, however, relative income mobility is lower in America than in other industrialized countries — for example, people born into the bottom income quintile have only about a 60% chance of escaping it, while the average for most industrialized countries is closer to 70%. That's not a vast difference, but it's measurable.

But, as is his wont, Thomas Sowell steps up with some thoughtful counter-observations. His main point has to do with following actual people over their lifetimes, instead of simply looking at the history of an income bracket.

The Internal Revenue Service can follow individual people over the years because they can identify individuals from their Social Security numbers. During recent years, when "the top 1 percent" as an income category has been getting a growing share of the nation’s income, IRS data show that actual flesh-and-blood people who were in the top 1 percent in 1996 had their incomes go down — repeat, down — by a whopping 26 percent by 2005.

How can both sets of statistics be true at the same time? Because most people who are in the top 1 percent in a given year do not stay in that bracket over the years.

Something Sowell doesn't mention, and that I'd like to see, is relative income mobility by age group. Statistics show very clearly that young adults are much less wealthy than older adults (which makes the current structure of Social Security all the more absurd, but I digress). So it isn't really fair when looking at relative wealth to compare a 25-year-old college graduate to a 60-year-old executive. The bottom quintile will necessarily have a disproportionate number of 25-year-olds, many of whom will climb to higher quintiles through the natural process of wealth accumulation. But suppose we followed a 25-year-old from the bottom income quintile among 25-year-olds? It would be interesting to see what income mobility would look like then. Worse, no doubt. But by how much?

Monday, November 7, 2011

A Solar Moore's Law

A friend of mine sent me an interesting article about a "Moore's Law of solar cell efficiency" this morning. The main takeaway is this:
Averaged over 30 years, the trend is for an annual 7 percent reduction in the dollars per watt of solar photovoltaic cells.

This is all to the good, of course. Even a solar skeptic like myself wants to see more power options: I'd love for my skepticism to be mistaken. But that's not what interested me.

When you read that article you'll see a graph, showing the cost per watt of solar cells from 1980 to the present. It's a steady downward march. Is there any correlation between that trend and government subsidies or research grants into solar power? I was unable to find any good historical data on that kind of spending: solar is often lumped in with "renewables" that would include wind, hydroelectric and geothermal power.

There's big bucks to be made in solar if the efficiency improves enough, and the recent Solyndra scandal shows that the government isn't so good at allocating research and development dollars. Maybe it's time to see if this solar Moore's Law can sustain itself without throwing tax dollars at it? Just a thought.

Friday, November 4, 2011

What Separates Us From the Animals: Trade?

This is an enjoyable and enlightening talk on the history of trade and why it is the key to human success.

Wednesday, November 2, 2011

9-9-9 vs 20%

I'm enjoying the GOP's jousting flat tax proposals. Isn't it nice to be debating the best ways to limit government, instead of the best ways to expand it?

We have two real proposals on the table here. Herman Cain's 9-9-9 plan would tax personal income at 9%, corporate income at 9%, and levy and national sales tax at 9%. Rick Perry's 20% plan would create an optional 20% flat tax, with exemptions, that taxpayers could choose as an alternative to paying existing taxes.

Of the two systems I prefer Perry's, for a few reasons.

First, it's less radical. Cain's plan radically cuts income taxes and replaces the revenue with a sales tax. This would require the United States to create a system for administering a national sales tax, and would create uncertainty both for government revenue and businesses affected by the sales tax. State sales tax policies are extremely varied: some have few exemptions, while others have various carve-outs in an effort to make such taxes less regressive. In New Jersey, there are "enterprise zones" in which sales taxes are halved. The negotiations necessary to bring about a 9% national sales tax - higher than most states' - would be complicated to say the least.

Second, it's more politically feasible. Such a major change is going to engender lobbying efforts from industries that may be negatively affected. Take an inexpensive clothing retailer - Old Navy, say, just to pick one. In many states there is no sales tax on their products because clothing is exempt below some limit. Would a national sales tax also exempt them? You can be sure they would prefer it does, and would lobby to bring about that outcome. Remember the rent-seeking behavior that went on during the negotiations for Obamacare.

True, the Cain plan is simpler. Perry's plan has been attacked as "more complicated than the existing tax code", because it adds yet another layer onto an already complicated tax system. That is true. But the end result will likely be simpler for large numbers of people. My judgment is that total hours spent calculating income tax will be lower under the Perry plan than under the current plan, and that's what really matters. If large numbers of people choose the 20% flat rate, that provides a path to simplifying the rest of the tax code, as parts of it will be rendered irrelevant.

I wish I had more confidence that either plan would ever be debated by Congress.