Monday, January 31, 2005

Does PR drive sales?

According to SWIFT Communications it does, SWIFT has an interesting piece of research that they have written up as an article. From that research sales decision makers are more likely to believe in PR than their counterparts in marketing.

Why the perception gap?

- First of all I would enter forth a paraphrased version of the Charles Arthur explanation of media relations: Most information, the journalist won't act on. They’re just content in the wrong context; they don’t make a story.

But who knows how useful it might be in a few days, or weeks, or months? journalists often archive their email, and search it on subjects; or read it and note the subject. That can come in useful later. However, how useful and when it will be useful a PR agency won't know.

The problem is that the clients demanding a metric for a dollop of information cast out like bread on the waters are doing it wrong. The initial report is: the bread got soggy and sank. Damn, say the clients, and decide this bread-throwing exercise is a bad idea. But in the end the bread feeds ducks that come along. Or it nourishes things in the water. It has a value - even though you can’t measure it at once.

This means that PR is a tricky deal to measure, hell as an industry we can't define the metrics ourselves. It is also very hard to separate the effect of PR from the rest of the marketing communications mix. So you can't really give PR a sales target and what you can't measure can't be trusted.

- The backbone is connected to the thigh bone. PR is about influencing BUT not directly affecting the media or other influencers. Because of this level of abstraction away from the generation of coverage with the best will in the world a PR success is a best try, held fortune to the whim of fate. In addition, publication deadlines which vary from six weeks on monthly magazines to six months on consumer glossies mean it is hard to change the impact of a PR programme overnight

- Sales distortion field. Sales is often about the here and now, nothing matters but the next quarter. Many other functions within a business may have a longer time frame. It is exceptionally hard to structure salesforce targets to take into account the long term good of the business. Were PR to be purely sales led, it can lead to a distorted view of the company as the positioning will change each quarter to help meet sales targets and will not be based on the longer term aspects of reputation management and brand positioning. If you took it further and had performance related payments in the PR budget, agency folk like me would focus on playing the system for the most lucrative path of least resistance. Lets look at an example from the world of advertising: if you look at the direct response approach in advertising were the end results are measured like the pots and pans adverts in the back of Sunday supplements, sales can be generated, but you are not likely to remember the name of the company and recommend it to a friend or make a conscious decision to purchase from them again

- PR can help in providing sales teams with materials that bolster their credentials with clients, writing case studies, being able to show their clients coverage including product reviews or thought pieces. Some of the tools that PR people use to create news like 'independent research' or securing opportunities to speake at industry events and shows can also be used as an excuse to open dialogue with prospects or continue conversations with existing accounts.

Dream Marketing Role on JOTW email list

Unfortunately I can't speak a word of Dutch.

Marketing Manager, Levi's Netherlands, Amsterdam, Netherlands
  • To develop and implement a consumer and a trade marketing plan for the Levi's(R) brand in The Netherlands.
  • To implement programs that support key retailers, in order to achieve country Annual Operating Plan financial and equity targets.
Critical Results
  • Implement the Levi'sR brand ATL pan-European promotional efforts in the Netherlands.
  • Define and implement BTL programs to support country goals:
  • Develop cooperative marketing activities with key accounts to drive equity and sell through.
  • Develop and implement local PR/Sponsorship and presence marketing plan.
  • Manage local agency relationships and monitor their performance.
  • Review impact of consumer facing activities in local market and ROI.
  • Provide youth market insights to influence European Brand Strategy.
  • Ensure sales team is fully aware and equipped to leverage marketing activities into sell-in arguments.
  • Partner with central Trade Marketing team to deliver optimal sell-in tools.
  • Optimize retail marketing resources through the successful implementation of provided retail and visual merchandising materials, through effective partnerships with Sales Team.

Required skills and competencies which could be an asset:
  • Bachelor or Master's degree in business management, marketing or similar.
  • 5 years experience in FMCG, preferably within an international environment.
  • Below-the-line agency experience a plus.
  • Clear understanding of brand strategy essentials, brand equity concepts and tools of the marketing mix.
  • Appreciation of the role of market research and analysis.
  • Strong affinity with Denim/Jeanswear and fashion.
  • Personal/Professional interest in youth products, and lifestyle.
  • Creative flair and technical skills to carry out local visual production tasks.
  • Analytical skills, both verbal and numerical.
  • Business planning experience.
  • Clear and persuasive communication skills
  • MS Office and internet proficiency
  • Fluency in written and spoken English and Dutch.
  • Working knowledge of French an advantage.

Please send CVs to Chris Brewer,, and cc.

St Bez patron saint of ravers

St Bez patron saint of ravers

Whilst not a great consumer of television, I was pleased to see that the Celebrity Big Brother media circus picked Mark 'Bez' Berry of the Happy Mondays fame as its winner. Bez was the space cadet that inspired a generation to dance with this loping plod and 'big fish, little fish,
cardboard box' hand movements that went well with ecstacy-fuelled clubbing. When not appearing on stage with Shaun Ryder and Co. you could often see him doing his thing at the Hacienda.

Bez was an ideal clown prince for the Celebrity Big Brother farce. If you read the Daily Star on Sunday you would have found out that Bez was saved by Cliff Richard's millenium prayer when he was hospitalised and had never had sex with more than two women at a time during the heightof his stardom. Then there is a keep fit video in the offing and a couple of gigs with the Mondays in March. All this work will help him pay off the 10,000GBP tax demand from the inland revenue.

Rave on, Bez!

Sunday, January 30, 2005

That hoax VW commercial

That hoax VW commercial

For the past fortnight or so there has been a buzz building up on the web about a viral clip based on a Volkswagen commercial playing on the Polo. Small but Tough campaign. In the advertisement a terrorist steps out of his house into a VW Polo, drives to a European style cafe where their diners on the pavement including a child in a pushchair and detonates a dynamite body vest. Whilst the interior of the car is engulfed in flame and the car rocks a bit on its springs from the blast. According to the buzz on the web the clip is alleged to have been done by London-based creative team Lee and Dan, Volkswagen are said to be threatening legal action and extremely peeved over the fact this clip made into the wild.

  • Is it a hoax? Kind of, according to The Guardian the clip was made by Lee and Dan as a new business 'calling card' to get the attention of Volkswagen
  • Looks professional, was it expensive? Apparently about 40,000GBP

Saturday, January 29, 2005

Young consumers reject converged devices allegedly

According to research by Mobeon Labs (via netimperative), 16-19 year olds are mostly likely to use SMS and voice on their phones rather than MP3 players, radios or video messaging. In addition, they do not understand the services offered by carriers or see much difference between operators. All the expensive brand-building work done by the likes of Vodafone and Orange has gone to waste?

Not surprising results really, remember the furore of WAP where banks like the Halifax rolled out WAP-baed online banking services only to quietly shut them down due to lack of use.

I once heard tell of product from HP. The story went something along the lines of: HP developed a PC type computer that used a touch screen rather than a mouse called the HP 150. It was a considerable technical acheivement and they were proud of it. A consultant walked through the development area and noticed that the engineers were not using their own creation to write techinical documentations and reports. He told his client at HP that the product would be a failure. They boo-hoo ed the idea and went ahead launching the computer. It tanked. People didn't want to use it because it would take thier hands away from the keyboard, unlike a mouse. The moral is that people want stuff that is easy to use to incorporate into their life.

More internesting from a PR point of view telecoms providers have once again failed to rise above the status of being a utility. All the expensive sponsorship deals with David Beckham and creative cinemas spots were for nothing.

Viral Craic-ers

One of my friends Jonathan sent over a viral link used to promote an independent property advice site, have a look here.

Fellow St Helens Saints fan and well known comedian Johnny Vegas does his sales pitch for their new home strip and makes some pretty outrageous claims in the process, have a look here. (Quicktime recommended)

Friday, January 28, 2005

Portfolio piece part deux

Portfolio piece part deux

I guess this is what Houdini meant when they did their electro hit The Freaks Come Out At Night. Pictures by Jonathan Pearson Photography.

Portfolio piece

Portfolio piece

My mate Jonathan took these pictures at an underground student club night and is available to do most kinds of photography including corporate, product and plain mad stuff.

Belief Systems

And yea it came to pass, Steve came before a multitude of the faithful and unveiled a small beige box and they saw that it was good. The box did say hello on its screen and was given the sacred name Macintosh. A name that shall be revered by the faithful for the next 21 years. Now you can share this biblical moment with friends on the 21st anniversary of the Mac with family and unknown passers by by downloading this 21 meg or so Quicktime file of the original Macintosh launch courtesy of a German media agency who kept their original copy locked in a vault. Thanks to Industrial Technology and Witchcraft.

Various Muslim organisations have been whipping themselves into a frenzy over the forthcoming series of 24. The Muslim Council of Great Britain have complained about series four of 24 not showing a balanced view of the muslim community. An old saying goes somewhat along the lines that the strongest voice often masks a weak argument, expect that Sky's publicists must be over-the-moon by this counter-endorsement. Do not expect Sky to edit or halt the showing of 24. On the contrary this is a great way of making 24 into must-see TV.

From a PR point of view the muslim community's concerns would be relatively easy to rebuff. Coverage on Media Bulletin here. The Muslim Council of Great Britain press release on its concerns about 24 is here.

Slicing the cake

Why Apple makes a little money on a PC. Much electronics are based on open designs often developed by the likes of Quanta, Flextronics or one of their competitors. That laptop with Dell on the front, or a Motorola cell phone, do you honestly think that Dell or Motorola designed it? No they didn't, many times now the 'technology company' only contributes a brand and marketing. Though the way most technology companies operate, marketing is a misnomer for a dogs dinner that passes for that business function. CIO magazine spills the beans here with a behind the scenes look on how modern hardware is made. Whilst they are worried about America losing its technical know-how, I would point out that the men in Taiwan make Apple products but they don't give them the joie de vivre that makes them an Apple product. It is is this lesson that the Dells, Gateways and HPs of this world are struggling to learn.

This secret sauce is research and development, however even Apple is guilty of reducing the amount of long term research that it is doing, something that threatens the technoligical leadership of American and European technology brands.

Thursday, January 27, 2005

Jargon Watch

Determined detractors - persistent critics of a company, product or service who mount their own PR campaign. Examples include, Supersize Me and who use the gains made in digital technology (digital video, laptop movie production, websites, email newsletters, web logs, RSS feeds, flash animation) to develop asymmetric warfare marketing campaigns against their target brand, product or service. Thanks to Sense Worldwide.

BRIC - the emerging and increasingly influential markets of Brazil, Russia, India and China. Thanks to Wired magazine Jargon Watch.

Happy slapping - latest craze sweeping through schools where someone walks up, slaps someone in the face and records the reacton a mobile phone with a camera capability. As heard on a radio news report on LBC.

Wednesday, January 26, 2005

Yes, Yes Y'all

Yes, Yes Y'all

Old school hip-hop hero and heavy weight talent Biz Markie has been immortalised with this Ecko branded alarm clock. In a blow to designer jeans Carhartt European arm which has been involved in helping some of The Biz's most recent work; Ecko has a plastic Biz hunched over a
record crate and will wake you up with a vocal samples from his greatest hits. A true gift for the aging b-boy!

Pulp Fiction

Like the magazines of old that brought the works of authors from Charles Dickens to Dashiell Hammett Nature magazine has started running a ten-part murder mystrey called Schrödinger's mousetrap. The story takes its name from the Austrian scientist and philanderer Erwin Schrödinger and his thought experiment Schrödinger's Cat, which was designed to show how incomplete the model of quantum mechanics then was.
Shiseido schemes to undermine Japanese manliness

Having managed to mine the Japanese market for women's beauty products, Shiseido is now trying to convert Japanese men to a similar regime according to the Tigers Leap blog by Sense Worldwide. More details here.

Tuesday, January 25, 2005

Bloomsbury Blockade sent through an email offering to pre-sell the forthcoming JK Rowling book Harry Potter and the Half-Blood Prince. This is the sixth in the Harry Potter series of books and will come with grown-up and children's cover options for those people not wanting to look a complete fool on their way into work.

According to Amazon the book will be launched on Saturday July, 16 2005. If it is anything like Harry Potter and the Order of the Phoenix, the volume and weight of books to be delivered will strain the resources of the likes of DHL and the Royal Mail. From Bloomsbury and Amazon's point of view it must be a logistical challenge on a par with a major military campaign. From a PR point of view it will be taking up a fair amount of space in the national newspapers for a week or so beforehand.
Analysts discover bath tub and FX humour

Analysts at Credit Suisse First Boston found that companies who warn about profits tend to do so more than once. In a remarkable feat of arithmetic and hard work, CSFB analysts have managed to find something that business people have known for a long time.

This is a classic example in businesses of the bath tub effect, when you dip in performance it takes a while to move pieces around the board, alter your market offering and get back on top. The bottom of the bath is the reorganisation period and the sloping sides the time it takes to get into and out of trouble. Will this analytical statement of the obvious lead to a return in momentum funds? (Simply put a momentum fund trades on the principle that if a item has just increased in price, it will continue to do so for the short term, they will tend to trade in and out of stocks fast making small gains over and over again - think about the way brokers played chicken with ever rising prices of and telecoms stocks during the late 1990s through to 2000).

Thanks to Lawrence at the GLC Limited for this light humour (and remarkably clean language for financial services related humour):

LEAST used phrases in an FX dealing room
  • I think my budget is very fair and achieveble this year
  • This usd/chf is very liquid today '....
  • No thanks , i dont like beer'....
  • The bonuses were very generous this year'....
  • There are way too many hot looking chicks in this dealing room'....
  • Nice fill , and keep a couple of ticks for yourself'....
  • My sales desk is fuc*ing brilliant....'
  • Our systems are fantastic and work really well'....
  • Japanese fx policy makes perfect sense to me....'
  • This usd/cad is easy....'
  • This hedge fund business is always full amount'...
  • The e-platform has never shafted me ...'
  • That girl in the backoffice is an absolute genius'...
  • Its great that senior management have full understanding of Fx product...'
  • Do you mind watching my take profit orders please?
  • Hey turn the cricket off ...I was watching bloomberg tv

Monday, January 24, 2005

Online Advertising

This New York Times article is really interesting. It explains how the resurgence of internet advertising has impacted on news media organisations and contextualises the recent sale of high-quality media properties CBSMarketwatch, Slate and speculation surrounding both the Motley Fool and TheStreet. If some of the technical trade media properties could see the same kind of turnaround I know many people who would be very happy.

My favourite bit from the article: When L. Gordon Crovitz, the president of Dow Jones & Company's electronic publishing division, sat down last spring to assemble a three-year strategic plan, one of the things he foresaw was a potentially costly gap about to open. If the demand for online advertising continued to grow, Dow Jones's Web sites, including The Wall Street Journal Online, would not provide enough page views for all the online ads the company could sell.

"That is a wonderful problem to have," Mr. Crovitz said, "but you don't want to have that problem if you can avoid it."
Cool satire site

Thanks to Dave Farber's Interesting People email list for this cool site link. Students For Orwell is a satirical site (I hope) that can be found here.

Sunday, January 23, 2005

Blink or you'll miss it

The New York Times has a review of Malcolm 'Tipping Point' Gladwell's new book Blink. The crux of the book's argument is that gut impressions are often the best answer, it reminds me of something Conan Doyle wrote in his Sherlock Holmes books, something about intuition being the understanding of small clues on a subconscious level rather what Gladwell calls 'thin slicing'. The name thin slicing comes from taking a small amount of a problem and extrapollating it out into a whole. Anyway, whether or not there is any more validity in a the argument than any other way, Gladwell's work is likely to enter the lexicon of faddist business people once it starts selling in paperpack at the airport.

Gladwell has interesting archive of his article for the New Yorker here, you and read the first chapter of Blink here and the New York Times review of Blink is here.
Valley Culture

The BBC World Service radio programme Global Business has a programme on its website that talks about the Intel-AMD rivalry in terms of the personal conflict between Jerry Sanders and Andy Grove. It should be up until next Friday, well worth a listen. (Realplayer required).

VC investment in the Valley is down to its lowest for seven years according to a survey by Ernst & Young and VentureOne. Interestingly biotechnology is attracting less investment than previously. It was also claimed that companies are staying in stealth mode for longer, indicating that they are trying to self fund their businesses for longer leaving them in a stronger position to speak with external investors. One interesting omission was the relative attractiveness of competitors to Silicon Valley in other countries for VC investment money instead. More in this article from The journalist who wrote the article has some contrary information on his blog here, it all looks about as clear as UK housing market data.

In a geek equivalent of the chattering classes, some 100 'influencers' will be receiving free gifts as product placements, similar to what celebrities already receive. Hmm, some geeks or Jay-Z, I think I know where my connect marketing budget would be going. Let's face it John Doerr with the latest mobile phone is not going to generate as much publicity as Paris Hilton; unless John was wearing one of Paris Hilton's outfits. But good luck to the people who are building this into a business. More from one of the lucky 100 here.

Saturday, January 22, 2005

Media Economics Present and Future

First to the present, where journalist and blogger Charles Arthur has picked up on the Media Economics 101 piece that RC knocked out based on the 'truth' behind Prince Harry's Nuremberg Rally outfit courtesy of Popbitch.

On to media future, where Bob Cringely speculates that the Apple Mac Mini is in fact a trojan device to sell online movies, rather like the iPod and iTunes Music Service. Whilst Bob has no insider knowledge this was also the endgame for Sony's convergence strategy over the past number of years. Where it gets really interesting is that Bob sees Sony playing a subservant role to Apple in this arrangementm, based on the presence of Sony at the Macworld keynote by Steve Jobs showing a close relationship over video products.

Then again, Sony did parlay its experience working on the early Apple PowerBooks into a knowledgebase for developing its own Windows-based VIAO range of high margin laptops. Who knows which will be the player and the played over the long run?

On a related note, over in Toyko at a meeting of foreign press correspondents Kutaragi-san, the head of Sony's Computer Entertainment division admitted that Sony's ATRAC standard was a mistake, as was the fact it never embraced MP3s and that Sony's spirit of innovaton had been diluted. This was partly blamed on Sony being over protective of its entertainment content.
The fall of independent advice

This posting is prompted by an interesting article at and my experience organising independent analyst research on behalf of technology vendors.

Firstly, the eWeek article covers the purchase of The Meta Group by analyst behemoth GartnerGroup. Gartner now earned some 858 million USD revenue in 2003, to put that in perspective that dwarfs the market capitalisation of many of the technology companies that Gartner advises clients about. This is part of a wider pattern, Forrester Research acquired Giga.

Overall this is bad for the IT professional and IT journalism:
  • The pool of independent experts is declining
  • As revenues increase and the consultancy moves into being a large corporate various pressures come into play, that run the risk of losing the very commodity of independence that they earn the living from. Look at the world of accounts auditing where pressures of revenue destroyed Andersen, tainted Deloitte and has tainted the reputation of tier two players like Grant Thornton
  • It's bad for innoviative smaller vendors competing with the Microsoft's of this world. As a case in point, a number of times I have tried to comission business case research or publiclly usable competitive analysis and have been turned down because of the risk of offending 'a large software vendor'

Friday, January 21, 2005

Tight Fit

Global Telecoms Business' top five stories email had this classic in it today:

According to a report from Sweden, tight pockets are one the biggest hazards faced by mobile phones. The survey of over 300 Swedish retailers found that the squeezing by tight jeans was the second biggest causer of breakages, higher than rain, toilets, children and, more surprisingly, Abba related incidents. Only ‘dropping’ managed to beat jean squeezing to the coveted number one spot.

A case of are you just pleased to see me or is that a Nokia in your pocket?
Axis of evil: Iran, North Korea, Old Europe, Sponge Bob Square Pants?

The New York Times yesterday had an article about the Nickelodeon cartoon star appearing in a 'pro-homosexual' video. The video in question was distributed by Nile Rogers (yes that's right: the Chic, Sister Sledge producer) We Are Family foundation (geddit) and the 'pro-homosexual' element tolerance pledge only appears on a related website. The pledge was originally taken from the Southern Poverty Law Group. What next:
  • Camp Delta now home to suspected 'Al-Queda' sleeper cell members Bert, Ernie and Big Bird from Sesame Street?
  • Mr Rogers actually did reconnaissance on the neighbourhood for years with a view to planning a Timothy McVeigh style spectacular?
  • Secret CIA files newly declassified reveal how Captain Kangaroo got his name: that he was made a Captain in the KGB for recognition of his role in aiding the Rosenbergs by hiding atom bomb blueprints in a pouch like a marsupial?
The New York Times article is here (registration required).

Thursday, January 20, 2005

Media Economics 101

From the Popbitch email newsletter, this simple example should go some way to explain why Rupert Murdoch is an exceedingly rich man:

The story of that Harry Nazi photo

The infamous Harry Nazi snap was taken by a reveller at the ludicrious "colonialists and natives" party, but the photos were mainly of William rather than his brother. The snapper took them to the men at the Sun, who instantly noticed Harry, and paid £8,000 to the dimwit in exchange for signing away the copyright.

The result? The Sun will make upwards of 500,000 pounds from people using the photo. The
Mail alone paid the Sun £50k to use it the very next day. The tabloid has also insisted that the Sun's logo appears when the photo is used on TV.

So lets have a look at the math:
  • Within 12 hours The Sun had turned a 556 per cent profit on the pictures
  • In total they expect to earn a colossal 5,560 per cent profit on picture sales alone (this is likely to be earned over a three month period)
  • Plus the increased newspaper sales
  • Plus the equivalent advertising value of having The Sun's logo on UK prime time television news
Hollow Point

This posting pulls together some thoughts prodded into life by a news story and Linspire's Michaels Minute email newsletter, both highlight the self imposed challenges faced by companies with too much commercial power used in an unwise way.

First of all Wal-Mart has been slated for a number of years about the disturbing side effects of the retailing superpower.

Accusations against Wal-Mart include:
  • That their stores are a blot on the landscape
  • The company is alleged to have a policy of anti-union practices (which is par for the course here in the UK)
  • The company's actions is alleged to have forced suppliers out of business by distorting supply and demand and encouraging globalisation

There is a good article that outline these arguments in more depth: Fast Company - The Wal-Mart You Don't Know (page 68, December 2003). There is a viewpoint out there that goes along the lines of Wal-Marts dogged pursuit of growth at any cost had caused and untold amount of economic destruction and ruined the social fabric of communities across the US. Wal-Mart has had enough of this pinko communist rubbish and decided to launch a PR blitzkrieg to counteract negative perceptions that consumers and skakeholders may have about the retailing behemoth. A key component in this charm offensive is the dreadfully dull Walmart Facts website. Somehow I don't think that this website and copy will make it into the web designer's or PR agency's portfolio.

As a measure of the effectiveness of the campaign, it has picked up a slating from industry analysts who think that it will make little difference to consumer attitudes or Wall Street's valuation of the company.

Michael Robertson in his Michael's Minute email newsletter had two interesting Microsoft-related comments. The first one was the Microsoft had moved from being a growth company to being a value company and despite trying to diversify the company had failed to get sufficent returns from entering new markets such as PDAs, mobile phones, TV, games consoles and music. Part of this could be because players in these markets are reluctant to have their margins hollowed out in the devastating commoditised markets that have wrecked the once thriving PC business. Robertson further considers that this devastation of the industry will encourage IBM PC partner Lenovo to lean more towards Linux.

China-based Lenovo just received US government clearance to purchase IBM's PC business. IBM executives have assured the IT world that the quality and service will remain, and I hope it does because I'm a big Thinkpad fan and own several of the X series laptops. But something must change or Lenovo will have paid $1.75 billion for the right to lose money on every IBM PC they sell. Over the last 3.5 years, IBM has sold about 30 million computers and lost $965 million dollars - or approximately $33 per computer. To reverse their fortune, Lenovo needs to find a way to have $50 better economics on every PC so will they not only break even, but they will generate some profits. IBM already uses Chinese labor in their plant in Shenzen to manufacture their PCs - so there won't be much savings there. Lenovo may be able to buy hard disks, memory or other parts slightly cheaper than IBM because of greater economies of scales, but at best this will be less than $10 per machine. The only place where significant savings can be generated to turn their PC business around is the operating system and office suite. Instead of paying Microsoft $100-$300 per machine for Microsoft Windows XP and Microsoft Office, they will ship Linux with an office suite and pay just $5-$10 on some of their product line. This will give them distinction from the well-entrenched Dell and HP computers they must compete with.

Wednesday, January 19, 2005

Assault on the senses

Assault on the senses

Back in the day when video was king and cinemas were potential development sites for new supermarkets and bingo halls the law was lax, and as an impressionable young child with neighbours who had a video store I got to see some great edgy films. My Dad got a Grundig Video2000 system and one of the first tapes I watched on it was Assault on Precinct 13. I loved it, it had the sense of timing and pace of a Sergio Leone western as the different strands of the plot coalesced into the main story, it shot violence like Sam Peckinpah, it had a black man playing an authority figure and it had great leanly written dialogue like Hemingway.

I was greatly concerned when I saw the posters for the 'new' Assault on Precinct 13. Thing did not start well, unlike SWAT which updated the theme tune from the original series, Assault has some of the lamest rap tunes that I have had the displeasure to hear in a long time: KRS1 quit clownin' and shoot yo'self dawg - if I had a horse that lame as the production and rhymes on his contribution, I would have put it down 12 months before hand. John Carpenter's score was borrowed for a number of electro tracks like Bomb the Bass' Megablast and is a classic in its own terms.

The film deviates in many important ways, I'm guessing to make the story credible in a time of mobile phones, pagers, instant messaging and the internet. It could have done without being called a remake, however it is a cracking film in its own right which I would heartily recommend, being an assault on the senses like the SWAT team scenes in Leon. Get out, watch this film, just don't expect a remake of John Carpenter's meisterwerk. Lawrence Fishburne acts everyone else off stage and is smoother than a silk cod piece, Ja Rule makes a play for Flavor Flav's crown as the schizophrenic clown prince of hippty-hop muzik, John Leguizamo does a really good job of playing a baghead and Drea de Matteo is so good at playing an oversexed receptionist you could catch something just watching her on screen - Jennifer Lopez take notes - this is what a siren looks like.

London praised for infrastructure shocker

It was with great surprise that I read that more public wireless hotspots any other major city in the world. This makes a pleasant change from stories about our crumbling rail/road and underground networks. Thanks to Fred Barnako's Internet Daily email newsletter for this interesting snipppet:


The number of WiFi Hotspots is now greater than 55,000, according to a report by, a WiFi directory service. The service said London (1,177) is the city with the most places where people can connect to a public wireless network, free or paid, followed by Tokyo (854) and New York (822). The number of Hotspots will double this year, said Kevin McKenzie, CDEO of JiWire. "Hotels and other locations that naturally cater to the business traveler will be large contributors to this rapid growth," he said in a statement.

Tuesday, January 18, 2005

Consultant heal thyself

The Knowledge@Emory's European Business Forum has an interesting feature (you can download the PDF here) which talks about the uncertain future of management consultants. Part of the problem is how can the phenomenal growth exhibited by the likes of McKinsey over the past two decades can be sustained in the next two decades? The prevalence of qualitications, the prevalence of consultative skills, business process outsourcing, the geopolitical and economic shift to Asian economies all pose problems. Like a wild animal caught in a trap the management consultancies will gnaw off their own limbs to sustain their economic growth, branding consultants, marketing strategists, corporate communications and PR businesses should all be very afraid the Brooks Brothers thugs are coming and they won't play nicely.
Do you spell Bush N-I-X-O-N?

During the Nixon administration American special forces did not go into Laos and Cambodia in an operaton called Commando Hunt to use the country as a base to attach the Ho Chi Minh trail - the supply line that took North Vietnamese materials South to Viet Cong troops. This was because such activity would have meant that the US would have been waging a war in a country that it was not at war with. This did not destablise Cambodia in any way because it never happened. And since it never happened, it was not indirectly responsible for the rise to power of the Khmer Rouge.

In a similar vein, move forward thirty years to George Bush Jr's second term in office, American special forces are not infiltrating Iran or nine other Middle Eastern, African and South Asian countries including Tunisia, Algeria, Yemen, Sudan, Malaysia and Syria. You can read more in this pile of balderdash in this article in the New Yorker by journalist Seymour Hersh, famous for the pack of lies he told about prisoner abuse by American soldiers in Iraqi jails that has since been found to be as untrue as the allegations of American arms for hostages deals with Iran during the mid 1980's. Enjoy! If you liked this posting you may also enjoy a related posting Do you spell Vietnam I-R-A-Q?

UPDATE - You can see Seymour Hersh being interviewed on Newsnight, the BBC's flagship news and current affairs programme here. (Real Player required).

Monday, January 17, 2005

Not a happy time for BT

In a week where one of the main human interest stories in the UK was that BT had appeared twice as many times as any other company in the 25 years of the BBC's consumer activist television programme Watchdog, then the company gets lambasted by the Advertising Standards Authority for a Hooveresque free flights fiasco. Consumers had been promised free flights to various US and European destinations of their choice in return for signing up to BT's broadband service, unfortunately th fulfillment for those flights raised a number of complaints. BT should have learned from Avon and Orange when they handled a similar kind of marketing FUBAR last year.
The wheels have fallen off the wagon, or have they?

George W Bush II has recently been quoted in the media that the US social security system is about collapse. According to the actuaries at the Social Security Administration, it isn't. From a European perspective, this is a classic example of the socio-cultural and political chasm that lies between the US and Europe. Our concepts of a secularist societies and social responsibilities are so different. You can see it in its original form here.

A Question of Numbers



In 1938, the Social Security Act was only three years old, but its future was already very much in doubt. Conservatives claimed it would bankrupt the nation, and independent critics argued that the way it was financed amounted to ''financial hocus-pocus,'' as one editorial in The New York Times put it. President Franklin D. Roosevelt defended the program, said by a cabinet member to be his favorite, with some of his trademark oratory. ''Because it has become increasingly difficult for individuals to build their own security,'' the president told a national radio audience, ''government must now step in and help them lay the foundation stones.''

Social Security did become the cornerstone -- not only the biggest government entitlement plan but also the most universal, the most popular and the most enduring. But the debate over Social Security never ended. Barry Goldwater wanted to repeal it; Milton Friedman wrote in 1962 that it was an unjustifiable incursion on personal liberty; and David Stockman, the budget director who personified Ronald Reagan's efforts to shrink the federal government, tried to take a hatchet to Social Security, which he called a ''monster.''

But in this 70-year struggle, no other conservative has ever come as close to transforming the program as George W. Bush. He is making Social Security reform, including a partial privatization, a centerpiece of his second term. If the most ardent ideologues have their way, such a reform would be a first step toward a wholly new approach to retirement security -- one that would set aside the notion of collective insurance and guaranteed minimums for that of personal investing and responsibility.

This could do more to reverse the New Deal, and even the Great Society, than Goldwater, Stockman and Reagan ever dreamed of. ''We call it a conservative New Deal,'' says Stephen Moore, author of ''Bullish on Bush: How George W. Bush's Ownership Society Will Make America Stronger.'' In Moore's words, it will be a fundamental shift ''from an entitlement society to an ownership society.'' The key to this transformation, according to a generation of conservative thinkers and crusaders, is reducing the size and changing the nature of Social Security, which now pays benefits of half a trillion a year, and which will only grow bigger as America grows older.

The campaign to privatize has not only been about ideology; it has also focused on Social Security's supposed insolvency. Moore's book calls Social Security a ''Titanic . . . headed toward the iceberg'' and a program ''on the verge of collapse.'' A stream of other conservatives have bombarded the public, over years and decades, with prophecies of trillion-dollar liabilities and with metaphors intended to frighten -- ''train wreck,'' ''bankruptcy,'' ''cancer'' and so forth. Recently, a White House political deputy wrote a strategy note in which he said that Social Security is ''on an unsustainable course. That reality needs to be seared into the public consciousness.''

The campaign is potentially self-fulfilling: persuade enough people that Social Security is going bankrupt, and it will lose public support. Then Congress will be forced to act. And thanks to such unceasing alarums, many, and perhaps most, people today think the program is in serious financial trouble.

But is it? After Bush's re-election, I carefully read the 225-page annual report of the Social Security trustees. I also talked to actuaries and economists, inside and outside the agency, who are expert in the peculiar science of long-term Social Security forecasting. The actuarial view is that the system is probably in need of a small adjustment of the sort that Congress has approved in the past. But there is a strong argument, which the agency acknowledges as a possibility, that the system is solvent as is.

Although prudence argues for making a fix sooner rather than later, the program is not in crisis, nor is its potential shortfall irresolvable. Ideology aside, the scale of the fixes would not require Social Security to abandon the role that was conceived for it in 1935, and that it still performs today -- as an insurance fail-safe for the aged and others and as a complement to people's private market savings.


About 47 million people -- retirees and their dependents, under-age survivors of deceased workers and the disabled -- receive a check from Social Security every month. The money for this colossal endeavor comes from a payroll tax on current workers and on their employers. The program is a model of efficiency; expenses are low, as pension plans go, and participation is near universal. Benefits rise with the level of earnings, but they are tilted toward progressivity, so that those at the bottom get more in proportion to their earnings and those at the top get less. Social Security also delivers a considerable nonmonetary benefit: people who have contributed throughout their working lives know that, regardless of the ebb and flow of their careers and, indeed, of the stock market, a guaranteed pension awaits them.

Currently, Social Security is running a hefty surplus; the payroll tax brings in more dollars than what goes out in benefits. By law, Social Security invests that surplus in Treasury securities, which it deposits into a reserve known as a trust fund, which now holds more than one and a half trillion dollars. But by 2018, as baby boomers retire en masse, the system will go into deficit. At that point, in order to pay benefits, it will begin to draw on the assets in the trust fund.

The debate over Social Security's solvency is really two debates. The first is over how long the trust fund will last. The law requires the Social Security Administration to estimate its financial condition for 75 years into the future, and the agency's conclusions depend on the assumptions it makes about what America will look like decades hence -- how much people will earn, how large their families will be, how long they will live.

Politicians and other commentators tend to speak about these long-range trends, or at least about Social Security's finances, with an air of precision. This is almost amusing, since few economists can predict the swings in the federal budget even a year in advance. Joshua Bolten, head of Bush's Office of Management and Budget, said of Social Security last month, ''The one thing I can say for sure is that if left unattended, the system will be unable to make good on its promises.'' But the Social Security Administration itself pretends to no such certainty. Its actuaries (about 40 are on staff) frankly admit that the level of, say, immigration in 2020, or of wages in 2040, is impossible to forecast. ''The only thing we are sure of is that it won't happen precisely as we project,'' says Stephen Goss, the chief actuary at the agency. And the trustees' annual report, which is based on the actuaries' analysis, takes pains to say that it is not making a prediction. It makes a projection -- three different ones, actually -- that amount to informed but very rough guesses. The agency's best guess, labeled its ''intermediate'' case, is that the system will exhaust its reserves in 2042. At that point, as payroll taxes continue to roll in, it would be able to pay just over 70 percent of scheduled benefits. That would leave a substantial deficit, but one that Congress could easily avert if it were to act now when the projected problem is more than a generation away.

What's more, there is a strong case to be made that the agency is erring on the side of being overly pessimistic. If its more optimistic projection turns out to be correct, then there will be no need for any benefit cuts or payroll-tax increases over the full 75 years.

No one can definitively predict that outcome, either, of course, but David Langer, an independent actuary who made a study of Social Security's previous projections compared with the actual results in 2003, thinks the ''optimistic'' case is its most accurate. Over a recent 10-year span, the trustees' intermediate guesses turned out to be quite pessimistic. Its optimistic guesses were dead on, and its pessimistic case -- sort of a doomsday situation -- was wildly inaccurate.

And, contrary to widespread belief, recent demographic trends have been modestly better (from an actuary's gloomy standpoint) than anticipated. For instance, longevity hasn't increased as much as expected. Partly as a result, since 1997 the agency has pushed back, by 13 years, the date at which it projects its reserves will be exhausted. In other words, as the cries of impending doom started to crescendo, the guardians of the system have grown more optimistic.


The second debate concerning solvency is over whether the securities in the trust fund will be honored or whether, in Moore's pointed imagery, the fund will resemble a bank ''after it's been robbed by Bonnie and Clyde.'' This seems an odd preoccupation. Social Security does not own junk bonds or third-world debt; it invests in U.S. Treasuries, considered the safest investment on the planet. Since 1970 there have been 11 years in which Social Security has operated at a deficit; each time, it redeemed bonds from the trust fund without a fuss. Goss, the agency's actuary, says he has no doubt it will be able to do so again. ''Absolutely,'' he said when asked if the trust-fund bonds are sound.

This isn't what some conservatives have said. Paul O'Neill, the former treasury secretary, went so far as to say that Social Security has no assets. In anti-Social Security literature, the ''no assets'' contention isn't even debated; it's treated as gospel. According to Michael Tanner, head of the Cato Institute Project on Social Security Choice, the agency's pauperism has turned America's seniors into ''supplicants'': after working and paying taxes their entire lives, ''they earn the privilege of going hat in hand to the government and hoping that politicians decide to give them some money for retirement.'' The implication is that the money isn't there: graybeards will have to beg for it.

Cato, a libertarian policy center founded in the late 1970's, has been arguing for 25 years that Social Security is on the verge of crisis. In a recent position paper, Tanner wrote that Social Security faces a horrendous unfinanced liability of $26 trillion over 75 years. In a footnote, he cited the 2003 trustees' annual report. Actually, the trustees' intermediate projection is for a deficit, over 75 years, of $3.7 trillion. Though that is a lot of money, it could be covered by an immediate surcharge to the payroll tax of less than two percentage points, or by various combinations of tax hikes and benefit cuts, each of them quite manageable. But $26 trillion is too big a hole to fix. When I asked Tanner about the footnote, he admitted that the trustees didn't actually say $26 trillion; Tanner derived the figure by counting the cash-flow deficits that the trustees project from 2019 on out. In other words, he ignores the next 15 years or so, during which time Social Security will be running a surplus. And he assumes that the assets in the trust fund, which should be accruing interest into the 2040's, won't exist, either. Tanner counts only the bad years and only the bad numbers. Another doomsayer, former Republican Representative John Kasich, pegged the Social Security deficit at $120 trillion in a recent op-ed -- some 32 times the agency's figure. (Kasich toted up annual deficits in nominal -- not inflation-adjusted -- dollars for every year through 2080, by which time a hamburger could cost $40.)

Such hyperbolic claims aside, there is a serious issue at the heart of what worries critics. It isn't that the trust fund is broken; it's that the existence of the fund is seducing the government to spend more than it otherwise would, thus brooking larger deficits in the future. Since Social Security lends its surplus to the Treasury (that's what it means to be investing in Treasuries), it is parking its surplus cash with the government. And just as lending money to a child outside a candy store may impose an impossible temptation, so the government may feel tempted while it holds onto Social Security's purse.

Ideally, Congress would recognize that the surplus is only temporary and would, therefore, take pains that the money lent to it is properly saved -- that is, that it run a surplus. But the government is operating at a deficit. So you must conclude that rather than saving Social Security's surplus, the government has been spending it -- on the military, education, tax cuts. In only 15 years, the government will have to start repaying its debt to Social Security. It will be able to do so. If need be, it will borrow, as it has borrowed for many purposes since 1776. The amount of borrowing, which could very gradually scale up to 1 or 2 percent of the country's gross domestic product, will be far smaller than the present federal deficit, which is just under 4 percent of G.D.P. But to avoid layering one deficit atop another, the government needs to exercise discipline -- to not overindulge in candy -- in the years when Social Security is running a surplus.


The fear that the trust fund would represent a ''perpetual invitation'' to Congress has bedeviled Social Security since its inception. Economists of the 1930's knew that every pension plan starts with more workers contributing into the system than there are retirees. But down the road, as those workers retire, obligations mount. Therefore, they recognized, any system that builds an adequate reserve for the future must collect more than it needs in the early years. And though social scientists of the 30's could not anticipate the war or the baby boom that would follow it, they knew that America's population was going to age.

In 1934, when Franklin Roosevelt formed the Committee on Economic Security to design what was in effect the first federal safety net, the committee hired three actuaries to stargaze into the future. The actuaries predicted that the proportion of Americans over 65 -- then only 5.4 percent -- would rise to 12.65 percent in 1990, meaning that retiree costs would soar. They were just a tad high; the actual figure would be 12.49 percent.

The committee was sharply divided on how to prepare for this demographic onslaught. Harry Hopkins, who oversaw the New Deal's relief program, thought the U.S. should simply pay retirement benefits from general funds; the more fiscally minded Henry Morgenthau Jr., the treasury secretary, wanted a self-financed system. F.D.R. sided with Morgenthau; above all, he said the system should be simple -''nothing elaborate or alarming about it.''

But alarm was very much the order of the day. When Roosevelt was swept into office in 1933, he had been preoccupied with the emergency of the Depression -- 10 million unemployed, 18 million on relief, the country's business output cut by a quarter and its morale shattered. He responded with a whirlwind of legislation and with rhetoric that, for a while, truly inspired. By 1934, the energy of the New Deal's first days had begun to subside, and yet the Depression had not abated. Meanwhile, the administration was being outflanked by political zealots, utopians and snake-oil salesmen, who increasingly appealed to desperate Americans. In California, the novelist Upton Sinclair was running for governor on a radical platform to ''end poverty.'' In Louisiana, Huey Long was leveraging his ''share the wealth'' movement into a national campaign. The Rev. Charles Coughlin, a demagogic and incendiary radio orator, was attracting millions of listeners with his attacks on bankers, Bolsheviks and assorted other villains.

By far the oddest of these ducks was an elderly doctor in Long Beach, Calif., Francis Townsend, who had lost his county medical job to the Depression. Dr. Townsend, a onetime ranch hand and mining speculator, wrote to the local newspaper suggesting a fantastic retirement scheme: the government should distribute $200 a month to each American over 60 and pay for it with a sales tax. When recycled through the economy, he augured, these lavish pensions would ''abolish unemployment'' forever. His proposed stipend was well above the average American's monthly wage, and his plan was demonstrably unworkable. But in rural America, it had the lure of an elixir. ''Townsend Clubs'' popped up across the country. Millions of members were recruited, a weekly newspaper was printed and dozens of U.S. representatives dutifully lined up in support.

''The Congress can't stand the pressure of the Townsend Plan unless we have a real old-age insurance system, nor can I face the country without'' one, Roosevelt told his labor secretary, Frances Perkins. Each had been thinking of social insurance since well before the emergence of Townsend -- as governor of New York, Roosevelt dispatched Perkins to England to study the British state insurance system. But characteristically, F.D.R. had let the idea simmer until the moment was ripe. The domestic agitation was his opportunity.

In January 1935, the Economic Security committee delivered a sweeping proposal for ''cradle to grave'' insurance. Much of the bill merely authorized the federal government to distribute aid to the states, but two aspects of it were revolutionary: a plan for unemployment insurance and one for retirement. F.D.R., however, was greatly troubled by a detail in the latter. Though the payroll tax was scheduled to rise, in staircase fashion, within two generations it would be insufficient to cover benefits. Perkins explained that as the number of retirees rose, funds from the Treasury would have to cover the shortfall.

''Ah, but this is the same old dole under another name,'' F.D.R. said. F.D.R. had hoped that handouts would no longer be necessary as the economy recovered, and he shrewdly anticipated that in future generations, welfare-type programs would be vulnerable to political attack. He wanted Social Security to be different -- universal and enduring. Therefore, he insisted, it had to be self-supporting. Thus was conceived the (soon-controversial) trust fund. To build a future reserve, the New Dealers doubled the initial level of the payroll tax to 2 percent, applied up to a cap that was initially set at $3,000 of income. This added a regressive aspect to the plan, shielding the highest income brackets. Nonetheless, in August 1935, legislation was enacted that, in F.D.R.'s words, would ''give some measure of protection to the average citizen.''

The public strongly supported the new program, but conservatives attacked it as a socialistic scourge. Playing on the fact that each worker was to receive a government number, the Hearst papers published front-page illustrations of a man wearing a chain with a dog tag. Henry Ford said Social Security could cost Americans their basic freedoms, like the right to change jobs or to move from one town to another. A shareholder in a utility filed suit, claiming that the payroll tax was unconstitutional. The case went to the Supreme Court, where, in 1937, Justice Benjamin Cardozo, as if to resolve the historic debate over federalism, ruled, ''The conception of the spending power advocated by Hamilton . . . has prevailed over that of Madison.'' The new agency's organizational elan won over some critics. W. Albert Linton, a skeptical insurance executive, visited the Social Security headquarters in Baltimore and was amazed when the staff plucked his name and address from among the 26 million records. ''I think it is amazing,'' he said, ''the way they have solved the technical aspect.''

But the opposition wouldn't die. The issue that sparked the loudest protest was one that still burns today: the trust fund. Deductions from pay envelopes began in 1937, but benefits weren't scheduled to start until 1942, and there was a great deal of mistrust about where the money was going. Government actuaries sheepishly explained that Social Security was building a reserve eventually expected to reach $47 billion. This was an awesome sum -- eight times the total then in circulation. Alfred Landon, the Republican who ran against Roosevelt in 1936, called it ''a cruel hoax'' on the American people. His platform, sounding uncannily that like that of Republicans today, stated, ''The so-called reserve fund . . . is no reserve at all, because the fund will contain nothing but the government's promise to pay.'' Arthur Altmeyer, head of the Social Security board, came under heavy fire at a Congressional hearing. Looking for a way to safeguard the reserve, he made an intriguing suggestion: why not let the government invest in sound private securities, and thus insulate the surplus from Congress's eager hands? As Altmeyer recounted in his memoir, Arthur Vandenberg, a Republican senator from Michigan, threw up his hands and snickered, ''That would be socialism!''

To quell the furor, Roosevelt turned to that standby device for embattled politicians -- an advisory council. The council arrived at an expedient solution, though one with troubling longer-term implications. It suggested increasing benefits for the first generation of retirees, even though that group had paid little in payroll taxes. An amendment in 1939 raised their benefits and also created new classes of beneficiaries -- wives, widows and survivors. This was a departure from the principle that all workers would be treated equally (couples would get more than single workers) and added an element of ''need'' -- a point that would rankle conservatives and later fuel the privatization movement. But in the political climate of 1939, it had the advantage of soaking up surplus taxes and greatly reducing the rate at which reserves would accumulate in the trust fund. F.D.R., anxious to have the controversy settled, went along, even though the changes paved the way for the eventual deficits he had feared.


The crunch came, as actuaries had predicted, in the late 1970's. Part of the problem they had not foreseen; Social Security benefits were skyrocketing because of inflation. In the 70's, Congress decided to index retirees' benefits to the cost of living. The timing was awful. Not only did inflation soar, but incomes -- the basis of payroll contributions -- stagnated. Critics like those at the newly formed Cato Institute warned of disaster. A former Nixon cabinet member, Peter Peterson, began to attract attention by arguing that any pay-as-you-go system (in which one generation supports another, as today) was inherently unstable, and advocated deep cuts in the rate at which benefits increased. The criticism had an ideological as well as an economic edge. In a pre-financed system -- in which, for instance, each worker invests for his own later retirement -- society never faces a liability. But individuals may come up short (if their investments fare badly) and live out poorer retirements. President Carter, responding to the darkening outlook, became, in 1977, the first president to legislate a belt-tightening.

Carter's efforts, however, didn't suffice. The trouble was that Social Security's actuaries had been way too optimistic. The actuaries had assumed that from 1978 to 1982 inflation would total 28 percent; the actual figure would be 60 percent. And they had predicted that wages would grow by 13 percent after inflation, whereas, in fact, real wages didn't rise at all; they declined. Social Security's experts were hardly the only people surprised by the dreadful economy, which was buffeted by skyrocketing oil prices, Middle East turmoil and a slumping stock market. Regardless, in 1981, Social Security experts announced that the trust fund would run dry in a year or two. That left the problem up to a new president, Ronald Reagan.

As a candidate for president, Reagan had proclaimed that he was ''pledged to a Social Security program that will reassure these senior citizens of ours they're going to continue to get their money.'' By then, Social Security had become a program that politicians couldn't afford to oppose and, indeed, that most Americans supported. President Eisenhower, a Republican, had proved this in 1956 when -- to the great disappointment of conservatives -- he supported a significant expansion of Social Security to include the disabled. But among adamant free marketers, the dream of upending Social Security lived on. One of the more prominent postwar opponents, in fact, was Reagan, a disarming actor then transitioning to political life.

Reagan began speaking out against Social Security in the late 50's. At the time, Democrats were trying to extend Social Security to health care -- to what would eventually become Medicare -- and Reagan worked with the American Medical Association to try to stop them. The A.M.A. conducted a stealth campaign (unearthed in 1999 by the political scientist Max Skidmore) known as Operation Coffee Cup, in which doctors' wives would urge women in their communities to oppose the plan in letters to Congress. Reagan produced a record album for that campaign in which he criticized Social Security for ''supplanting'' private savings and warned that subsidized medicine would curtail Americans' freedom. Warm and folksy even as he envisioned a bleak Orwellian future, Reagan said that Big Brother could start with health care, ''and pretty soon your son won't decide when he's in school, where he will go or what he will do for a living. He will wait for the government to tell him.''

Reagan gave slightly altered versions of this speech in personal appearances around the country, attacking Social Security as a ''sure loser'' of a program, and one that would worsen, not alleviate, the hazards of age. In the 70's, Reagan continued to sermonize against Social Security, often suggesting that it be made voluntary or more voluntary. At first blush, this sounded reasonable. As most people don't save enough for their retirement, however, under a voluntary system many who opted out would wind up destitute. Higher-earning workers (who get a lower proportional return on their payroll taxes) would opt out for certain. This problem is known as adverse selection. Wealthier people contributing higher taxes exit the system, leaving less revenue and a higher burden for the poorer people who remain. In effect, it would become an unpopular welfare program.

Once Reagan was in the Oval Office, he allowed his budget director, David Stockman, to handle the crisis. Stockman, who was waging a war on government spending, tried to exploit the moment to curtail Social Security sharply. It was Stockman's idea to cut benefits to early retirees by one-third. Without those cuts, he warned, the U.S. could suffer ''the most devastating bankruptcy in history.'' There were two weaknesses in the Stockman approach. First, he exaggerated. The deficit looming in 1983 was only temporary. (Since the birthrate dropped during the Depression, the number of seniors coming of age in the 1990's would decline, providing the agency with a respite.) Second, Stockman was politically naive. By proposing cuts for people on the verge of retirement, he triggered vehement protests. Members of the Republican-controlled Senate showed their instinct for self-preservation by voting 96-0 for a resolution intended to distance themselves from Stockman. James Baker, Reagan's chief of staff, urged the White House to do likewise. So Reagan, like F.D.R., bounced the problem to a commission, this time led by a well-known economic consultant, Alan Greenspan.

The 15-member commission got nowhere until December 1982. Then, with default only months away, an unofficial subgroup began to meet in secret. Robert Ball, a former Social Security commissioner, and Senator Daniel Patrick Moynihan negotiated for the Democrats opposite Baker for the White House.

In the end, they compromised on a combination of benefit cuts and tax hikes. The payroll tax, then 10.16 percent, was already scheduled to rise, but the negotiators sped up the implementation of the increase. (Today the rate is 12.4 percent.) Moreover, Congress agreed to hike the retirement age from 65 to 67. This change, which is being phased in very slowly (the retirement age is now 65 and 6 months) had the same effect as cutting benefits. Greenspan and company now calculated that Social Security would build a giant reserve, sufficient to see it through the middle decades of the 21st century. This was the original F.D.R. approach -- build a trust fund. President Reagan said the package ''assures the elderly that America will always keep the promises made in troubled times a half-century ago.''

Social Security's next few annual reports made best-guess (intermediate) projections of solvency for 75 years, meaning it expected the system to remain solvent until 2060 and beyond. So the question that should arise now, but that has been oddly ignored is, What happened?


Nothing did. Or in the words of Robert Ball, the nonagenarian former commissioner, ''nothing in the real world.'' But perceptions changed, and the balance of opinion began to shift in favor of reform. To some extent, that shift was bipartisan. In the mid-1980's and early 90's, Democrats discovered they didn't love deficits after all. When it began to appear that Congress was incapable of keeping its hands off Social Security's surplus, fiscally prudent Democrats like Moynihan and Bob Kerrey came out in favor of individual accounts. President Clinton famously campaigned to ''save Social Security first'' -- meaning that Congress should balance the budget. Meanwhile, the popular impression that any fool could make money in the stock market (for a while, any fool did) made private accounts seem like a natural. In the 1996 campaign, even among Republican contenders, only Steve Forbes favored privatization; by 2000 it was party doctrine.

Social Security's actuaries also began to make more pessimistic assumptions about the future. To quote the report of yet another Social Security advisory panel, this one from the mid 90's, ''It is pointed out that while today there are 3.3 workers paying into the system for every beneficiary drawing benefits, over time this ratio will change to two workers per beneficiary. . . . However, this has almost nothing to do with why there is a . . . deficit.'' The report continued, ''The ratio was fully taken into account in the 1983 financing provisions.'' So why did Social Security begin to forecast a more rapid exhaustion of the trust fund? Social Security was burned in the 70's and early 80's by being too optimistic. Now the actuaries are leaning the other way. ''It's a less optimistic estimate today,'' says Harry Ballantyne, who was chief actuary until 2001.

Social Security's key long-range projection is that, over 75 years, it will come up short by an average of 1.89 percent of payroll. Though deficits would still loom beyond 2080, the problem could be fixed until then by an immediate tax increase of 1.89 percent, or a benefit cut of roughly 13 percent. (Democrats tend to favor a combination.) But this all assumes that the middle projection is right. And several underlying assumptions of that middle projection tend to exaggerate the potential deficit. The first concerns longevity. A 65-year-old man today can expect to live to nearly 82. According to the most likely projection, in 2080 he should expect to live to 86. Goss says that the agency is assuming that medical technology will deliver more ''miracles.'' Most demographers agree with him, and some even think the agency is not being optimistic enough. The only trouble is, as Goss notes, that over the past 20 years ''they have been wrong at every turn. There has been less improvement than we were expecting.'' Indeed, the improvement in mortality has slowed significantly. And no one is sure why it has slowed. Nonetheless, the agency expects a sharp rebound over ensuing decades. Its fiscal gloominess thus depends on a speculative uptick in medical miracles.

Immigration is another contentious point. Immigration is good for the system because immigrants are earners and taxpayers. Though immigration has been rising, Social Security projects that it will taper off sharply, from 1.2 million a year to 900,000 in 20 years. This forecast is curious, because if the birthrate in America declines as anticipated, the country will need more foreign workers.

Rising wages are also a boon to Social Security's finances. Forecasting wages is difficult, as the trustees' report frankly admits, but it seems undeniable that as society ages, businesses will be harder pressed to find workers, and that should push wages higher. The trustees, however, project that real wages will grow at only 1.1 percent a year -- roughly equal to the level of the last 40 years.

The basic point here is that tiny swings in any of these or other factors could improve -- or worsen -- the program's balances. If a few of them lean in the direction of the optimistic forecast, the trust fund will cover benefits through 2080, or close to it. Would such a program, which appears to be solvent or near solvent until the limit of what is humanly forecastable, be improved upon by the various schemes for privatization?


Social Security does not provide, and was not meant to provide, a satisfactory retirement on its own. The average stipend for a 65-year-old retiring today is $1,184 a month, or about $14,000 a year. About half of Americans also have private pension plans, but for two-thirds of the elderly, Social Security supplies the majority of day-to-day income. For the poorest 20 percent, about seven million, Social Security is all they have. Even those figures understate the program's importance. According to an agency publication, ''Income of the Population 55 or Older: 2000,'' 8 percent of elderly beneficiaries were poor, but a startling 48 percent would have been below the poverty line had they not been receiving Social Security. Charles Blahous, the White House point man on Social Security, publicly criticized this calculation as ''mindless,'' and the Social Security agency no longer computes the figure.

Conservative economists say the figure is irrelevant: if Social Security didn't exist, people would save more. This may be true of economists, but what about the rest of us? The argument illustrates the ideological agenda of those who favor privatization: they want to change people's behavior. But how will the proposals to privatize, several of which are before Congress, actually work? Basically, younger workers would be allowed to divert a portion of their payroll taxes into individual accounts. Upon retirement, these workers would get lower Social Security benefits supplemented by whatever had accumulated in their portfolios.

But since the diverted money would not be available to pay benefits to current retirees, the government would have to undertake significant borrowing to pay people now in their middle and older decades. Eventually, the system might transition to one in which most people mostly relied on their personal accounts. But this transition would take many decades.

The president is expected to back a plan similar to one recommended by the advisory council he appointed, in 2001. That plan opts for a slow transition, keeping entitlement-type minimums in place. The amount of money to be diverted into personal accounts -- and therefore, the potential gains -- is relatively small. Some free-market purists are unhappy about this. But Bush's economists, whatever else is said of them, are determined not to re-enact the Stockman debacle by moving too quickly and enacting immediate cuts. They have read their history.

The White House asked the Congressional Budget Office to analyze one advisory council plan. That plan would allow workers born after a certain date (perhaps 1950) to siphon about a third of the payroll tax into individual accounts, up to $1,000 a year. The money could be invested in any of three choices (other plans provide for wider menus) and would be converted into an annuity upon retirement.

The C.B.O. assumes that the typical worker would invest half of his allocation in stocks and the rest in bonds. The C.B.O. projects the average return, after inflation and expenses, at 4.9 percent. This compares with the 6 percent rate (about 3.5 percent after inflation) that the trust fund is earning now.

Proponents hail the plan for forcing savings on the government. But the diversion of money into individual accounts would save the government nothing, since it would have to borrow to offset the loss of the diverted dollars. The individual accounts represent a transfer, not a savings.

The second feature of the plan would link future benefit increases to inflation rather than to wages. Because wages typically grow faster, this would mean a rather substantial benefit cut. That cut would mean a savings for the government. This is a political choice; we can always save money by reducing benefits. But it's important to stress that the savings result from cuts, not from the decision to privatize.

Overall, the plan is gentler toward lower-income seniors than wealthier ones, but all seniors would be poorer than under present law. In other words, absent a sustained roaring bull market, the private accounts would not fully make up for the benefit cuts. According to the C.B.O.'s analysis, which, like all projections of this sort should be regarded as a best guess, a low-income retiree in 2035 would receive annual benefits (including the annuity from his private account) of $9,100, down from the $9,500 forecast under the present program. A median retiree would be cut severely, from $17,700 to $13,600. On the plus side, budget deficits would be lower in the future. But, because of the lengthy transition, that ''future'' is exceedingly remote -some 50 years down the road. In the interim, deficits would rise by up to 1.5 percent of the country's G.D.P.


One rationale for privatization is that workers would get a better return on their money in Wall Street securities than with Social Security's dowdy old Treasuries. This notion, which has Wall Street investment banks salivating, was especially in vogue during the 90's, when the stock market was soaring. When the bubble burst, advocates reined in their sales pitch, but they still are unrealistically sanguine. Last year, Tanner of the Cato Institute wrote that ''over the worst 20-year period of market performance in U.S. history . . . the stock market produced a positive real return of more than 3 percent.'' Actually, the market has done worse than 3 percent per annum in nine different 20-year periods.

In any case, Social Security could capture the return on stocks, without putting individuals at risk, by investing in equities directly. This would also achieve another frequently stated objective: keeping the government's hands off the Social Security trust fund. That option would be far more efficient, in economic terms, than separating the money into 150 million disparate accounts. Costs are much lower for one big investor. And more important, in a system of individual accounts, benefits will vary with individual choices, and some people will make poor ones. In Sweden, where the retirement system has included private accounts since 2000, the majority of Swedes made excessively risky investment choices by putting money into stocks at the market top, according to Richard Thaler, a University of Chicago behavioral economist. Finally, pooling the investment pools the risk, and thus reduces the danger of retiring at the wrong time. In a system of personal accounts, someone who retired after a market crash would be out of luck.

So it is notable that all the current proposals to privatize involve the economically inferior option of individual accounts. But privatization advocates aren't motivated solely, and perhaps not even primarily, by economics. Glenn Hubbard, Bush's former top economic adviser, wrote in Newsweek that an ''obvious objective'' of privatization is ''to advance the president's ownership society agenda.'' Such pro-free-market sentiment has a long lineage. Remember Senator Vandenberg, who fretted in the 30's that public ownership of private securities would amount to socialism? Even though state pension funds and some U.S. agencies, including the Federal Reserve, put some pension money in stock-index funds, conservatives still react as if such a solution for Social Security were akin to turning it over to the Kremlin. Peter Ferrara, a former White House staff member under Reagan and now senior fellow at the Institute for Policy Innovation, who has been proposing Social Security privatization plans since the late 1970's, told me that economics ''was not my primary motivation. It was ideological. We don't want the government controlling that much investment.''


There is a policy choice that unites Social Security's critics -- from Goldwater to Reagan to Bush -- which is that the program should be balanced by shaving benefits rather than by raising taxes. They favor smaller government, so shrinking Social Security (rather than increasing its financing) serves their broader aim. Indeed, though the public continues to oppose cutting benefits, Bush has ruled out any solution that involves a tax hike.

Reagan said the program had morphed from the humble insurance plan formulated by F.D.R. (for whom he voted four times) into a swollen caricature of government excess. The first Social Security recipient, a legal secretary in Vermont named Ida Fuller, started with a benefit of $22.54 a month. Today's retirees obviously do better (even after adjusting for inflation). Nonetheless, according to Lawrence Thompson, who was the Social Security acting commissioner in the 90's, the retiree program is not really more ''generous'' now than it was in the past. Like other pension systems, Social Security was designed to replace a fixed portion of a retiree's previous earnings. For a single person with average earnings, initial benefits were intended to replace about 40 percent of income. They are still pegged to 40 percent of income.

Since wages generally rise faster than inflation, retirees in each generation get more in real dollars than those in previous ones. Contemporary critics, like Kasich and the Bush council, would slow the rate of future increases by linking benefits only to inflation. Though this would save a lot of money, its effect on retirees should be understood.

Seniors now get an initial benefit that is tied to a fixed portion of their pre-retirement wages. If the index was changed, their pensions would be pegged to a fixed portion of a previous generation's income. If this standard had been in force since the beginning, retirees today would be living like those in the 1940's -- like Ida Fuller, which would mean $300 a month in today's dollars, as opposed to roughly $1,200 a month.

One way or another, societies with more old people have to devote more resources to them. Right now, benefits amount to 4.3 percent of G.D.P. The trustees' most likely projection assumes that over the next 75 years that figure will rise to 6.6 percent. In the more optimistic case, benefits will rise to 5.2 percent. Given the substantial increase in the elderly population, neither of these figures seems rash or out of proportion. The increased cost would be on a par with that of making Bush's first-term tax cuts permanent, which is projected to be about 2 percent of G.D.P.

And though future generations of workers will have to support more retirees, they will also be having fewer children. In fact, according to the Social Security actuaries, the total ''dependency'' burden (that is, the number of nonworking seniors and kids that each working-age adult will have to support) will remain lower than at its baby-boom peak. ''In a grand social sense,'' says Thompson, the former Social Security commissioner, ''we can support more seniors where there are fewer people in day care.''


Ultimately, every 75-year forecast is just a guess, and therefore every approach must accommodate a range of possible outcomes. Plans that link worker benefits to the stock market automatically adjust -- if the economy underperforms, then workers get lower benefits. This enhances, rather than mitigates, whatever is the trend in people's private savings. As Thompson says, ''The default adjustment is you eat less.'' This could be brutal and also unfair, especially to the post-1983 generation of workers that, on the say-so of Greenspan and Reagan that the trust fund would be honored, has paid a sacrifice in both reduced benefits and higher taxes.

What other solution is there? Ball, who joined the system in 1939 as a $1,620-a-year district officer in Newark, has thought of one. He starts from two premises: it would be reckless not to make some adjustments now, but foolish to make too much of 75-year prophecies. ''In 1928, there was no way to forecast the Depression, World War II, the birth-control pill. We have to stop acting as if 75-year estimates were absolute,'' he told me.

Nonetheless, Ball would tweak the system in several modest ways to reduce the projected deficit. For instance, he would very gradually raise the cap on income subject to the payroll tax, now at $90,000. This would reverse a recent regressive trend. Income distribution in America has become more skewed, thus upper-income folks have earned more money that has escaped the tax. Ball would also add three other, smaller fixes to further tighten benefits and raise taxes. (There are many variations of these fixes floating around the Beltway.) After Ball's prescription, how much of a deficit would then remain? Possibly a fraction of a percent of the payroll, possibly zero. The answer would depend on the net effects of future birth rates, wars, diseases, inventions and so forth. Enter now Ball's little accommodation to uncertainty. It is that Congress simply resolve now to impose, 50 years hence, a payroll tax increase sufficient to close whatever gap exists over the ensuing quarter-century. This could not be enforced now, of course, but that is Ball's point. He wants to free the Congress, and the rest of us, from the annual game of insisting on an exact and illusory far-off balance; to diminish the perception that we must urgently adjust to economic and demographic developments too distant to be forecast.

The 2004 ''Economic Report of the President'' takes dead aim at such an approach. It reckons that all pay-as-you-go systems will eventually be doomed by demographics, and that solutions like Ball's will only push back the date that the trust fund runs out of money by a few years. The White House worries that any fix that covers 75 years of benefits could still bequeath a deficit in the 76th year. ''The nation must act to avert a long-foreseen future crisis in the financing of its old-age entitlement programs,'' the report states. Its assumptions may be true, or they may not be, but the conclusion suggests a misplaced allegiance: We have an obligation to the distant future, but don't we owe a greater debt to the current generation and to those that immediately follow?

Prudence dictates taking steps now to minimize the possible shortfall. This could include raising the cap, some modest cuts and tax increases and a gradual redeployment of the trust fund into assets that may not be tapped, willy-nilly, for whatever legislative purpose. But only a real crisis would dictate undoing an institution that has provided a safety net for retirees, that has helped to preserve in the social fabric some minimum of shared responsibility and that has been supported by workers in good faith. And, in looking at Social Security today, the crisis is yet to be found.

Roger Lowenstein is a contributing writer and the author of ''Origins of the Crash.'' His last article for the magazine was about presidents and job creation.