With all the publicity about the greed in the financial and auto industries, everyone’s asking how it all happened, and pointing the finger… but very few are pointing it in the right direction. I’d like to suggest where the finger belongs can be determined by looking at a few numbers and what they represent… and what they don’t.

To begin with, the “real” U.S growth rate over the past half century has seldom exceeded 3.5% annually. Over the past 20 years or so, productivity growth has generally been around or slightly below 10%. Over the 1900-2005 period, corporate profits averaged around 5%., yet since 2002, corporate profits were running more than 50% above that average, and in 2007, they were almost 60% above that average, yet inflation was reported as “nominal.” How could this possibly be? Productivity wasn’t up that much, nor were costs down. In fact, until 6 months ago, energy costs were skyrocketing. What caused the reported profit increases was leveraged liquidity, since the costs of all those derivative-based funds weren’t shown as costs on anyone’s books, and even turned up as assets on many companies’ accounting ledgers.

Yet, the stock market kept climbing, largely because the analysts kept pointing out that the P/E ratios [price/earnings ratio] of stocks were far below historic highs and at a 10 year low. The only problem with that was that the earnings were in all too many cases deceptively inflated.

Housing prices continued to inflate, based on demand-fueled, statistically flawed lending models that resulted in far too many people being given loans that could never be repaid.

Add to that the feeling that inflation was low and under control, based on government statistics. According to those figures, except for a period in the 1970s, inflation has been below 4.0%… except… the measurements for inflation, as I noted in an earlier blog post, have been changed to eliminate such key aspects of daily living as housing, food, and energy, and including those would increase the number by as much as 40%, and be far more realistic. What this meant was that Americans on the lower side of the income scale were getting squeezed, because so many of their benefits, from Medicare to Social Security, weren’t keeping up with real price increases, since those benefits were indexed to the “core” inflation numbers. Then, just before everything turned sour, consumer debt peaked at an all-time high.

Throughout this entire situation, I doubt that any number produced by anyone was essentially accurate, or that, no matter how hard any analyst tried, any statistical assessment could be more than an approximation.

For various reasons, ranging from out-and-out greed to misguided altruism, we’ve created a system where few if any of the metrics industries and government use are accurate, and some are so far from such accuracy as to be laughable… if the results weren’t so tragic. Yet, in case after case, when those few analysts who did understand and had the nerve to speak out tried to point this out, they were ignored, if not pushed out, because the deception was so much more comfortable to so many people. Just look at the analyst who tried for years to get the SEC to investigate Bernard Madoff. He couldn’t “prove” through evidence; he only knew that such reported returns were impossible in practical terms, just as the returns on all the derivatives turned out to be.

No one can save us from our own self-deceptions… except us.

A recent edition of The Economist graphed popular belief in the theory of evolution on a country by country basis and noted that, with one exception, belief in evolution tended to follow prosperity. The exception to this finding was, of course, the United States. While the Scandinavian nations were listed as those with the greatest percentage of the population [75% and over] believing in evolution, believers in evolution in all of the western European nations surveyed exceeded 60%, while only 38% of Americans believed in evolution as a true description, and over 45% of Americans surveyed believe in Biblical versions of human creation, as opposed to evolution.

I looked at the numbers slightly differently. To me, it appeared that, in those nations where belief in evolution was highest, the social and political infrastructures were more “socialistic,” in that health care and income security were near-universal, whereas in the United States, there is greater variation in both income and in health-care security than in all the other industrialized nations surveyed. Put more bluntly, this suggests that people turn to religion when they perceive their lives as less certain or economically secure.

This correlation might well suggest that the more “free-market oriented” and less economically regulated a nation’s economy is, the more religious its population tends to be. This might well lead to other disturbing corollaries. Do the arbitrary nature of most deities and the rules of their faith come from a culture’s economic inequality and social uncertainty? Or does the arbitrariness of religion essentially justify income inequality? Certainly, there seems to be a correlation, because the nations where the people have democratically rejected gross income inequality also seem to be the ones who have turned most from religion.

Could it be that religion is really a covert apologist for inequality? And that Marx just might have had it right?

Many years ago I spent two years as a Congressional staffer who, among with my other duties, followed the deliberations of the House Appropriations subcommittee dealing with the U.S. Post Office [yes, that long ago]. I tried to get my boss to push for a change in the way the Post Office calculated costs, because from what I figured then, and what I still figure with the U.S. Postal Service, the cost model they used and continue to use undercharges for bulk and pre-sorted mail because it doesn’t take fully into account the need for extra capacity created by lower rates on huge volumes, but priced the costs of bulk mail on the marginal costs. I never had a problem with magazine rates, but I’ve always had a problem with catalogues and advertising or “junk” mail, which has a far greater volume than do magazines. That Postal Service model doesn’t take into account the additional capital and equipment investment required for all that bulk. Now, as a result of current and projected deficits, the Postal Service is recommending that mail deliveries be reduced to five days a week, yet the bulk advertising mail rate is low enough that all too many mail order operations can still afford to send my household multiple copies of their junk rather than clean up their mailing lists. Anytime it’s cheaper to print and send excess copies than to streamline internal mailing lists, the “distribution costs” are too low.

I may be unusual, but I’m more than willing to pay more for a paper copy of the periodicals I value, and if their prices go up, I still pay for them [so far, at least] because the paper copies allow me more efficient time-allocation in a crowded day.

Now… over the past week, it has come to light that Anderson News unilaterally decreed a seven cent a copy surcharge on magazines and books it distributed. Since Anderson serves as the wholesale distributor for something like half the magazines distributed in the United States, as well as half the paperback books that aren’t sold to the bookstore chains directly by the publishers and book wholesalers such as Ingram, this surcharge represents an enormous additional cost to the publishing industry, and some publishing companies, notably Time, Inc., reportedly refused to pay the surcharge. As a result, Anderson “temporarily suspended” its entire distribution business and informed the bulk of those employees that they were on personal or vacation time… if they had any.

While I confess that I don’t know all the details of the Anderson finances, I do know that some twenty years ago, the wholesale magazine and book distribution business imploded from more than 1,000 local and regional distributors into an increasingly consolidated distribution system that now essentially consists of less than a handful of national distributors and leaves most of the country with no effective choice of distributors. This system has also resulted in an increasing restriction of choice for those accounts serviced by the major distributors, while generating a surfeit of waste paper in terms of magazines and paperback books being pulped, rather than being returned.

So, with Anderson, we have a service that, over the years, has gotten more and more centralized, with less and less competition, offers less and less choice, and creates significant wastage because consumers do have less choice. Yet, I’m told by those in the business that the magazine side, which has even more wastage than pulped paperback books, is the most profitable, and that any attempt to create greater choice on the book side is highly resisted.

In the case of both Anderson and the Postal Service, effectively, those who depend on their services are faced with monopolies. In the case of the Postal Service, first class users, no matter what the economists claim [and having been one, I don’t buy their number crunching], pay more than they should while advertising usage pays too little. In the case of Anderson, there’s effectively no alternative.

Economic history has shown, time and time again, that monopolies have serious drawbacks… as these two cases illustrate. So… why are all the banking bailout plans concentrating so much on reducing the number of banks?

From the time I was very small, when the opportunity arose, I built sand castles, and always just above the wave line of the ocean. And always, eventually, they succumbed to the tides and the water… as I knew they would, even as I built them to attempt to withstand the oncoming water as well as possible. Occasionally, I just happened to build one at high tide and above the high water mark, yet, invariably, if I came back to look at it the next morning, someone had always stomped it flat. Over all the years… and on all the beaches, those that the water didn’t get, humans did.

Then there are the hunters, and there are essentially two kinds, those who like or need the meat and hides and use most or all of the animal and those who trophy hunt. I understand and respect the first type, but I don’t respect or really understand trophy hunting. It’s a form of destruction to prove that the hunter can do it. To me, that’s a lose-lose game. After a million years of evolution and sophisticated tool-making, if you can’t eventually kill an animal that has no high-powered weapons, no clothing to conceal itself better than natural camouflage, and no concentrated food-stuffs to allow itself to hunt [or evade hunters] continuously, you’ve wasted your evolution. And if you do kill the animal, it’s dead, and you really don’t have any use for it, except to prove that you’re not a failure. Destruction to prove you’re not a failure? But isn’t that failing?

One of the latest aspects of destruction to prove one isn’t a failure seems to be the hackers, or whatever the latest term is for individuals who go to great lengths to invade and destroy other people’s computers and networks. Exactly what’s the point? Destruction is far, far easier than construction. Look at all the effort it takes to develop the hardware and software for computers and networks, and with a bit of skill and cleverness, or theft of codes and ideas, millions of computers get crashed. Again… for what? To prove that you can destroy something? To ruin people’s work and lives? To cost them time and money?

I’ve always wondered why so many human beings have such a fascination with destruction. Is it instinctual on some primal level to want to destroy anything anyone else built? Is it an instinct to prove one is stronger by destroying someone else or their creation?

One could argue that destruction forces greater achievement by the doers. It does, but so much of that “achievement” is wasteful. How much in resources do societies spend on security? On multiple levels of computer systems? On home-security systems? On guards and police?

To me, willful destruction is the mark of the second-rater, or of the failure. Those who can’t build, or who don’t respect those who do, resort to destruction, character-assassination, back-biting, and all the lesser forms of destruction.

Compared to creation and building, destruction is easy… and, one way or another, all the rest of us pay for it.

While movies often are inspired by a book, and once in a great while a book is written based on a movie, they’re very different creatures. Now this is clearly obvious on the surface, but the implications go far beyond the easily apparent.

For one thing, there are far fewer movies released each year than books. I won’t even try to get into all the figures, but some comparisons are indicative. There might be twenty F&SF-related movies released in one year, and less than a handful in an off year, but according to the latest Locus survey, over 1,600 new F&SF titles were released in 2008, and that total was down slightly from 2007. Major studios release somewhere between a hundred and a hundred-fifty “significant” pictures, those with production and marketing budgets over $100 million, and perhaps another three hundred “lesser” films every year, compared to 50,000 new fiction book titles released every year.

Then there’s the complexity. Most movies have a plot line that’s the equivalent of either a short story or a very simple graphic novel. Books range from age-two cardboard picture books to the incredibly complex multi-volume series.

Movies, obviously, are visual, and that means that no visualization or imagination is required of the audience, unlike a book, which requires far more effort on the part of the reader. What’s more interesting is that the growth of CGI and other special effects has further reduced the “imagination quotient” of movies. In turn, this tends to reduce subtlety and/or to replace it with easily recognized visual hooks that tie into easily recognized cultural tropes and references.

One of the greatest differences lies in the marketing. The average major studio picture costs around $110 million, and approximately a third of that is marketing and advertising. In effect the marketing budget for two week’s worth of new film releases is most likely more than the total annual marketing budget for the entire fiction publishing industry. The vast majority of books receive essentially no publicity, except in the publisher’s catalogue and in a few targeted “trade” publications, if that. That’s why so many writers not only do, but must, resort to self-publicizing, going to conventions, blogging, etc.

There is one similarity. Reviews, either of movies or of books, play a minimal role in determining the success of either a film or a book. Movie-makers aren’t interested in the views of 50 year-old critics when most movies are emotionally targeted at the under-25 audience. On the book side, however, I suspect that reviews play a small part because there are so few compared to the number of titles published every year and the diversity of the reading audience, and the number of “official” review outlets is dwindling, although online reviews, by pros, semi-pros, and everyone else are increasing rapidly.

Another interesting comparison is market segmentation. Essentially, cinema marketers see their market in four quadrants plus one: men under 25, women under 25, women over 25, and men over 25… and children. I suspect those quadrants refer more to emotional ages than chronological ages, but that’s still the targeting. Needless to say, in general, males under 25 prefer action and more action, neat gadgets, and sex, while women prefer romance and only hints of sex. A movie needs to appeal to at least two quadrants to be guaranteed of a chance at profitability, but… men over 25 don’t go to nearly as many movies as the viewers in other three quadrants, and women over 25 tend to be much more choosy about what they see. So… guess what audiences most movies are designed to attract? By comparison, books have a wide range of genres, which in turn have great numbers of subgenres.

In summary… we have in books thousands and thousands of titles on every subject for every taste at every level of literacy, but in a form that requires a certain amount of thought, concentration, and imagination and with numbers of individual titles that preclude wide-scale and intensive marketing and result in overall low profit margins, while movies are a high profile, exceedingly heavily advertised and marketed, visually in-your-face medium released in limited numbers and largely marketed to the least sophisticated under-25s.

And people ask, why are movies profitable and books struggling?