Treasury Rethinks TARP: Strong Banks, Weak Credit

JIM KUHNHENN

WASHINGTON — Big banks are roaring back. At crisis’ edge last year, they are repaying billions of dollars dumped into their vaults to rescue them. Dividend checks are accumulating at the Treasury. Taxpayers won’t recoup the full sum of the government’s unprecedented infusion to the financial sector, but the returns are ahead of schedule.

With large bets on bonds, commodities and exotic financial products, big banks are reporting third-quarter profits.

Of the $250 billion that the government initially set aside to spend in direct assistance to banks, it has spent $205 billion and the Treasury is already taking steps to bring that program to an end. The ledger: Banks have paid back $71 billion of the infusions. They have also paid the Treasury nearly $7 billion in dividends.

If propping up much of the teetering financial markets was the goal of the government’s $700 billion Wall Street rescue, then mission accomplished.

But there were other objectives for the Troubled Asset Relief Program, too: greater lending to consumers and businesses, mitigating foreclosures and helping banks shed toxic mortgage-backed assets.

On that, it’s unfinished business.

A program announced with fanfare four weeks ago that would funnel money to small banks at low rates to increase small business lending is still being designed. Treasury officials are looking at plans that could cost taxpayers between $10 billion and $50 billion but are encountering reluctance from small banks.

“I’m told by banker associations and banks, ‘Hey, this is good capital, we’d like to have it, but we don’t want to be the only bank in town who takes your capital because the others will advertise against us,’” Herbert Allison Jr., the assistant Treasury secretary in charge of TARP, said in an interview. “There is a stigma and it’s frustrating, frankly.”

Meanwhile, TARP is set to expire Dec. 31. But with about $140 billion still uncommitted (even more, about $300 billion, unspent), the Obama administration is considering extending at least a portion of the huge fund until next October.

“We are winding it down and will close it as soon as we can,” Treasury Secretary Timothy Geithner told a congressional committee. But he stiffly opposed any congressional effort to force the program to end. The struggle facing Treasury is how to continue TARP as insurance against further instability without having Congress use it as a source of new spending.

Officials are keeping a wary eye on smaller banks, which have been failing at the highest rate since 1992 due largely to losses from commercial real estate loans.

“The financial system is stable, but it is not normal and it could be derailed again, and you need to guard against that possibility,” said economist Mark Zandi, head of Moody’s Economy.com and a regular adviser to congressional Democrats.

Extending TARP as insurance for banks wouldn’t be a popular move. Conservatives and liberals object to the direct assistance to big banks and insurance conglomerate American International Group. Republicans have called for the program to end and assigning the unused money to debt reduction. Some liberals want the money for jobs programs.

Overall, the bank infusions alone could end up costing taxpayers about $14 billion, according to estimates by Economy.com. While banks are paying money back, not all of them can be saved. Earlier this month, a San Francisco bank became the first bailed-out institution to fail. More could fall. And two weeks ago small business lender CIT Group, which received $2.3 billion in rescue funds, filed for bankruptcy protection with little hope of repaying taxpayers.

Add to that the money injected into the auto industry, AIG and a $50 billion mortgage assistance program, and Economy.com estimates taxpayers could be left with a bill totaling $155 billion.

For instance, General Motors announced it would pay back a $6.7 billion in U.S. government loans by 2011, four years ahead of schedule. But that still leaves more than $40 billion that the government lent to GM in exchange for a common equity stake. Moody’s estimates taxpayers could recoup half of that.

The mortgage assistance program, off to a slow start, has now helped 650,000 homeowners with trial loan modifications, with average savings of $500 a month. The administration aims to help between 3 million and 4 million over three years, but that is $50 billion that won’t get repaid directly to the Treasury.

The potential cost to taxpayers illustrates the dramatic change in TARP’s purpose from the fall of 2008 when President George W. Bush proposed using the entire $700 billion to help banks get rid of toxic mortgage-backed assets. “We expect that much, if not all, of the tax dollars we invest will be paid back,” Bush said on Sept. 24 of last year.

Administration critics say Geithner has not spelled out with clarity how the program will ultimately end.

“Suppose they didn’t renew it; there would be shock,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and an economic adviser to Republican John McCain’s 2008 presidential campaign. “There is an implicit expectation that they’ll do something. But there is not a nicely framed expectation of how they will exit.”

If stabilizing the financial sector was TARP’s main goal, increasing lending was the other.

Treasury Department figures released this month show that outstanding loan balances by TARP recipients in September, the latest available data, were 3.8 percent lower than they were in February when the economy was at its worst. Lending by the largest banks that received TARP money declined for the eighth straight month in September.

Analysts and Treasury officials attribute the decline to decreased demand from borrowers and continuing skittishness by banks in the face of economic weakness. “TARP giveth, but unemployment taketh away,” said Scott Talbott, chief lobbyist for the Financial Services Roundtable, which represents large banking institutions.

Lending volume has declined less than it did during the 1991-92 recession, even though this downturn was deeper. But Allison said there is still a widespread perception that banks could be lending more.

“That’s what the business community is telling us uniformly,” he said.

Given that, the administration has a dual message for banks that are regenerating their capital.

“We want to see them using their capital for lending as much as they reasonably can,” Allison said. “We want to see banks that took TARP capital, especially the larger banks, paying it back when they are able to.”

http://www.huffingtonpost.com/2009/11/24/treasury-rethinks-tarp-st_n_368765.html

Enhancing Access to Genomic Medicine

A startup aims to calculate the value in the onslaught of genetic tests.

By Emily Singer

Per Lofberg wants to bring genomic medicine to the masses by overcoming one of the field’s biggest barriers–getting insurers and other payers to cover the growing numbers of genetic tests reaching the market. To achieve that, he founded Generation Health, a health benefit management company that aims to sift through the data on these tests, which range from those that predict an individual’s risk of heart disease or cancer to those that determine how well a patient metabolizes a certain drug. Lofberg’s goal is to find the ones that provide the greatest medical utility and economic value.

Earlier this month, the startup, based in Upper Saddle River, NJ, announced a partnership with CVS Caremark, which manages prescription benefits for about 50 million people. Generation Health will analyze 17 drugs that have accompanying diagnostic tests indicating how well the drug would work in an individual, including those for cancer, heart disease, and HIV, and determine which tests CVS should offer to its customers next year. “Now there is the opportunity to bring genetics to all the people CVS Caremark serves, and that is significant,” says Raju Kucherlapati, a geneticist at Harvard Medical School in Boston.

A number of genetic tests can influence treatment decisions. For instance, a test might suggest which drug or how much of a drug a patient should take. But only a handful of such tests are commonly used. That’s in large part thanks to economics. In an informal poll at a conference on personalized medicine last week at Harvard Medical School, attendees identified “lack of reimbursement” as the major barrier preventing the adoption of personalized medicine. “From the payers perspective, there is overall skepticism of the clinical efficacy and cost-effectiveness,” said Jerel Davis, a consultant at McKinsey and Company, speaking at the conference. From the providers perspective, not only will they get no reimbursement for the tests, they might even lose income, because the tests might indicate that some procedures should be avoided, Davis said.

In some cases, tests can reduce costs by reducing prescriptions or procedures that are unlikely to help an individual patient. But they can also increase costs.Sir Michael Rawlins, chairman of the National Institute for Health and Clinical Excellence in the U.K., said at the conference that it’s cheaper to give all patients undergoing a specific surgery the blood thinner heparin than it is to do genetic testing to determine who is most at risk of blood clotting. On the other hand, he said, the breast-cancer drug herceptin, which is most effective in patients with a high concentration of a protein called human epidermal growth factor receptor 2, is only cost-effective if physicians can identify the small percentage of patients most likely to benefit from it. This type of testing is now routinely done in breast cancer.

The data needed to decide whether a particular test falls into the latter category is complex, and sometimes controversial. For example, the U.S. Food and Drug Administration changed the label of the blood thinner warfarin in 2007 to note that two specific genetic variations affect a patient’s sensitivity to the drug. However, there has been huge disagreement among physicians, insurers, and others over whether genetic testing improves outcomes and is more cost-effective than traditional methods of monitoring warfarin response.

Article Continues - http://www.technologyreview.com/business/23997/

Cloud computing: Which IT projects are right for the cloud?

Some IT functions are perfect for cloud computing. Others need to stay in your data center. Here’s how to determine which are which.

By Cara Garretson

- Cloud computing is poised to win the title of most popular, and populist, buzzword of 2009.It certainly is gaining traction outside of IT. In fact, the idea of cloud computing has become so popular that executives and employees who don’t even work in the IT department are starting to ask for it by name.

 

Budget-minded CEOs are telling IT managers to look into cloud computing to reduce the amount of expensive hardware running their data centers; CFOs are interested because they’ve heard the model can slash costs associated with new IT projects; tech-savvy employees are asking for it because they think it sounds cool.

To be clear, the actual number of corporations that have deployed cloud computing remains small; the Corporate Executive Board’s Infrastructure Executive Council doesn’t expect to see mainstream adoption — meaning at least 50% of corporations have embraced cloud computing — until 2012. And even then, they believe companies will only use some of the services that fall under the cloud computing umbrella.

Still, IT departments large and small feel obligated to at least look into cloud computing’s potential to save money, reduce overhead and increase efficiency and flexibility.

What’s more, those IT shops that drag their feet might find overeager users are beating them to the cloud, warns James Staten, an analyst at Forrester Research Inc. For example, “application developers are using the cloud and not telling IT,” he says. To avoid being caught unaware, IT should take the lead in deciding what goes into the cloud and determining how to get it there, says Staten.

But where to start? What’s the best way for an IT manager to determine whether his company’s corporate culture is suited for shipping computing tasks to Web-based third parties? What expectations should service providers be required to meet? How should the success — or failure — of a cloud computing project be measured?

These are not questions to be taken lightly, since the success or failure of a company’s foray into the cloud will influence corporate perceptions of the model going forward. Computerworld gathered advice from tech execs, analysts and experts on how IT managers should go about determining which of their corporations’ applications, tasks or services are best suited for the cloud.

Pick a project — the right project

The Corporate Executive Board, a research and membership organization designed to support the functions surrounding CEOs, has studied corporate adoption of cloud computing through its Infrastructure Executive Council and its Data Center Operations Council, both of which are headed by practice manager Mark Tonsetic.

Tonsetic’s advice to IT managers: Find a project that supports a business opportunity and could be easily moved into the cloud to save costs and resources — but it should be something that doesn’t involve core competencies, and moving it offsite shouldn’t create a security risk. In other words, find a project where moving some or all functions to the cloud would improve the bottom line but the company wouldn’t face disaster if security or availability was compromised.

Article Continues – http://www.computerworld.com/s/article/9141024/Cloud_computing_Which_IT_projects_are_right_for_the_cloud_

Hollywood wants to own your outputs (and that’s a good idea)

Opinion: the cable industry’s top man in Washington wants to make his case to Ars readers over Selectable Output Control (SOC)—Hollywood’s ability to shut down specific outputs on your A/V gear to prevent piracy. Far from opposing it, geeks should love SOC, he says; it’s technological progress in action, it won’t break your (current) TV, and it’s good for consumers.

By Kyle McSlarrow

We like to encourage debate in hot topics in tech policy and law. This week, we’re focusing on Selectable Output Control, which Hollywood and the cable industry are both pushing hard for at the FCC. We invited Kyle McSlarrow, head of the National Cable & Telecommunications Association (cable’s trade and lobbying group in Washington) to take his best shot at convincing Ars readers of the virtue, wonder, and necessity of SOC. Ars will be publishing its own response from our resident SOC expert, Matt Lasar, tomorrow.

SOC lets content owners exert fine-grained control over the outputs on your A/V gear in order to better protect their “high-value” content. But McSlarrow says that’s not as terrifying as it sounds—it’s just technological progress in action, and the end result is good for everyone. Convinced, or still skeptical? Let us hear your thoughts in the discussion thread.

How could anyone object to such awesomeness?

A competitive marketplace with a growing list of video providers all vying for consumer attention—cable, satellite, telco, broadband, mobile, Netflix, etc.—has also brought creative thinking about new ways to bring consumers more content when and where they want it.

From our vantage point, delivering the latest hit movies to consumers’ homes—far earlier than they can watch those movies at home today—is one of the obvious next steps. Why shouldn’t you be able to watch the latest movie in the comfort of your own living room (and on your own schedule) months before you can now buy it on DVD or watch it through conventional Video-on-Demand (VOD)?

Consumers, content companies and distributors all benefit if more content is out in the marketplace sooner. Sounds like a slam dunk to me, but surprisingly, some object… and strongly.

The debate about delivering first-run movies to consumer homes earlier than currently available is really quite simple—delivering high-value content has to be done properly in order to protect the security of the material. If movie studios aren’t convinced that their movies, which often represent years of expensive investment, can be protected from unauthorized copying and distribution, consumers won’t get that content… or not as soon as we in the cable industry would like them to.

The Federal Communications Commission (FCC) has set up a process—called the Selectable Output Control (SOC) rule—that would enable us to provide that protection so content owners have the confidence they need to distribute their high-value content sooner.

In 2008, and again recently, the Motion Picture Association of America (MPAA) has asked the FCC to support SOC. NCTA has also met with Commission officials to express our support.

SOC does not break your TV

Opposition to SOC from some in the public interest community—led by the group Public Knowledge (PK)—has involved a series of incorrect accusations in letters (here, here, here, and here) and videos urging consumers to “Tell the FCC to Say ‘No’ to the Cable Kill Switch.”

In this video, PK Legal Director Harold Feld argues that SOC “breaks 25 million television sets,” and causes your personal devices—such as your TiVo or Slingbox—to no longer function. Feld says that movie studios, as well as cable operators and satellite providers, would “like to be able to remotely turn off your Slingbox, turn off your DVR, turn off anything that’s coming out of the TV set that [they] don’t directly control.”

A recent post in Ars Technica agreed with PK, suggesting that the “output changes [MPAA] wants could, in fact, hobble some home video systems.”

If that were the case, I could certainly understand the opposition. But it simply isn’t true. SOC doesn’t break anything, a topic both we and MPAA have addressed repeatedly, including in our Reply Comments last summer.

We noted in those comments that existing devices are not harmed by the use of SOC—if you have a TV set that doesn’t support SOC, then you simply wouldn’t be able to order these new movies at all. But nothing in the use of SOC prevents your existing TV from doing all the things it can do now.

The situation is analogous to any early adopter who acquires new equipment which, with the passage of time, cannot access as easily (or at all) new services coming down the road. From computers to cell phones to televisions, that has been and likely always will be the case—something Ars readers probably know more about than most. The important point is that nothing is being taken away from those early adopters, and other consumers with more capable devices will simply have more viewing options. Indeed, there can be no public interest justification for denying new choices to a majority of consumers simply because a small minority cannot avail themselves of those choices.

Critics have also argued that the MPAA’s bid for selectable output control could force some consumers to buy new home theater equipment. But both MPAA and NCTA have demonstrated that an SOC waiver simply means that a consumer’s current gear without protected connectors will work exactly the same way it does today, and newer devices with protected connectors (including millions of devices in homes today) will be able to take advantage of the earlier release of movies to cable and satellite customers using SOC.

Should we go back to the original iPod?

When Apple introduced the “Classic” iPod with the ability to rent movies, earlier generation iPods still functioned well, played music, and (for 5G iPods) played video, but they didn’t play rentals. Apple’s release didn’t suddenly render your older version useless, but you needed to purchase the Classic to get access to the video rental library. So while your “older” device may not have all of the features of the latest model, it certainly still works as intended when you bought it and isn’t “screwed up” (another PK reference).

But if you buy into the anti-SOC argument, you would assume that there should have been a massive outcry against the new iPod and its rental feature. Instead, here is what Ars itself had to say on the subject:

“Apple has answered the calls of consumers and critics with a slick, friendly movie rental section. After playing with it for a week, I’m still inclined to say that it’s off to a strong start. Though other services may have a superior catalogs (for now) or integration with other living room devices, none reach iTunes’ signature ease-of-use or integration with the world’s most popular digital media players.”

And what did Ars say about restrictions on the use of the new iPod?

“As for why movie rentals have these specific new DRM rules applied to them, they’re clearly conditions enforced by studios interested in locking down their rental content in every way possible. A crack for iTunes DRM is a scary prospect for execs interested in protecting their content and getting paid their dues, and a movie that typically sells for $15-20 at retail getting cracked for as little as $2.99 must be even more insomnia-inducing. These were likely some of the compromises Apple had to make in order to score all the major studios, and perhaps to launch a digital rental section in the first place.”

Ars clearly recognized that protection of content played a critical role in content owners being open to providing that content via the iTunes store. The reviewer is exactly right that such protections were likely a prerequisite for iTunes rentals launching at all.

SOC won’t stop piracy altogether, although it will make it more difficult. And the benefits of incorporating adequate content protection that will open up earlier release windows and provide consumers more viewing options clearly outweighs the unproven harms alleged by opponents of the SOC waiver.

Technology changes all the time. And the pace and intensity of innovation across the board in technology, communications networks, and consumer electronics is undoubtedly going to raise these types of issues with greater frequency. I don’t pretend that these issues are necessarily easy. But it does strike me that in order to continue providing consumers more services, more choices and the opportunity to do things they currently can’t do today . . . we shouldn’t let the perfect be the enemy of the good.

Not all consumers are going to be first adopters; not all technology changes are going to work instantly, seamlessly, and magically on every device currently in the marketplace. Taking practical steps, like approving the SOC waiver, that move us down the path of greater consumer choice is a far better policy choice than standing pat, or pretending that creators of content are going to accept unnecessary risks with their investments.

http://arstechnica.com/tech-policy/news/2009/11/hollywood-wants-to-own-your-outputs-and-thats-a-good-idea.ars

(Creating Jobs – One Way) – Repeal The Minimum Wage

Art Carden

It wastes resources and hurts the poor.

In July, the federal minimum wage rose from $6.55 per hour to $7.25 per hour. Before it went into effect, the Shelby County Commission in Tennessee passed an ordinance requiring firms that contract with the county to pay a “living wage.” Similar ordinances are in place around the country.

But these laws actually eliminate opportunities for low-skill workers and waste resources. They also couldn’t have come at a worse time: The last thing people on the margins of the labor market need are laws that will make them more difficult to employ. With unemployment hovering near 10%, perhaps now is a good time to consider repealing the minimum wage.

This is a standard application of basic economic principles. Demand curves slope downward, which means that people wish to buy more of something as it gets cheaper and less of something as it gets more expensive. Supply curves slope upward, meaning people are willing to do more of something as the rewards increase and less of something as the rewards decrease. In competitive markets, minimum wages create unemployment: While they draw more people into the labor market, they reduce the amount of labor companies wish to hire.

In the complex American labor market, these effects may be difficult to identify, but a comprehensive survey research on minimum wages by David Neumark and William Wascher finds that minimum wages do, in fact, reduce employment. As Neumark argues in a Wall Street Journalarticle, the best estimates suggest that this past summer’s minimum wage increase will likely destroy approximately 300,000 jobs that would otherwise be filled by teenagers and young adults. For example, summer camps cut back on hiring in response to the weakening economy but also in response to the coming increase in the price of labor.

Even if a higher minimum wage doesn’t manifest itself in lost jobs as such, it will lead to fewer hours, reduced benefits or both. Some workers who would have received paid training won’t. Employee discounts and other perks might fall. Some jobs that would have been created in the absence of a higher minimum wage won’t be–self-checkout scanners at grocery stores are in part a response to higher labor costs–and there are many margins on which employers can adjust compensation without necessarily firing people.

There are other ways in which a minimum wage is a raw deal for low-skill workers. One is its effect on experience in the labor market and, therefore, future earnings. Since having a job is one of the most important ways to acquire valuable skills, today’s minimum wage-induced unemployment translates into tomorrow’s reduced earnings.

Under-employment among young black males and low earnings among older black males are perennial problems explained in part by the minimum wage. Minimum wages and other regulations on the labor market lock a lot of younger black males out of the labor market, which means they do not acquire as many skills as they would if they were employed. When they are older, therefore, they earn less. In the 1960s, Milton Friedman said that the minimum wage is a crime against black Americans.

There is some evidence that this is the case in the most recent Employment Situation Summary released by the Bureau of Labor Statistics. The change in the unemployment rate for all workers between July and August was 0.3 percentage points (from 9.4% to 9.7%) while the change in the unemployment rate for “Black or African American” workers was double that–0.6 points (from 14.5% to 15.1%).

For workers classified as “Hispanic or Latino Ethnicity,” there was a 0.7 percentage point increase in the unemployment rate (from 12.3% to 13%). Between August and September, the Hispanic/Latino unemployment rate recovered slightly, while the unemployment rate for black workers increased again, from 15.1% to 15.4%. Workers in these categories might be disproportionately affected by the economic downturn, but they are also disproportionately affected by the minimum wage increase.

Minimum wages also feature a particularly cruel irony. Some proponents of the minimum wage argue that even if employment does fall, it is still a good policy because it might lead to a net increase in employees’ incomes. This appears to be true at first, but the expected gains from the higher minimum wage–plus part of what workers were previously taking home–will evaporate as workers jockey with one another to obtain the resource transfers promised by the minimum wage.

The minimum wage drives a wedge between the marginal value of an hour of labor and its marginal cost. This provides incentives for people to waste resources trying to appropriate the transfer–by paying lobbyists, for instance–or through more innocuous channels, like waiting in line at the employment office. No new value is created, a lot of value is destroyed and the workers we are trying to help are worse off as a result.

But the minimum wage controversy speaks to a larger issue. The market process reveals the marginal value of a given hour of labor, but supporters of minimum wages assume that the impersonal market process is somehow capable of committing injustices. This is a line of thinking that is centuries out of date. In Medieval times, markets were hampered by the “just price” doctrine, which basically held that, in any transaction, there was a morally correct price and other prices that were morally incorrect. There was no compelling theory for why some prices were morally correct and some were not; further, there was nothing to ensure that the mechanism by which these prices were determined was legitimate. In the same way, can we reasonably expect to identify those who are blessed with sufficient moral insight as to be able to determine which wages are “just” and which wages are “unjust”?

Unfortunately, this is a point that has to be made over and over again. No matter how they are packaged, restrictions on how labor markets operate ultimately destroy wealth and hurt poor workers. If Neumark’s estimate is accurate, then as a result of a minimum wage increase, about 300,000 people will be denied the opportunity to acquire the skills they need to succeed later in life.

Art Carden is an assistant professor of economics and business at Rhodes College in Memphis, Tenn., and an adjunct fellow with the Oakland, Calif.-based Independent Institute. He is a regular contributor to Mises.org, Lifehack.org and Division of Labour.

http://www.forbes.com/2009/10/16/minimum-wage-labor-economics-opinions-contributors-art-carden.html

Supremes wrestle with business method, software patents

The Supreme Court heard oral arguments in the Bilski case on Monday. The wide-ranging discussion included significant discussion about the patentability of software and also touched on the patentability of horse-training and speed-dating methods.

By Timothy B. Lee

For the first time in a generation, the nation’s highest court on Monday pondered the question of which inventions are eligible for patent protection. For the petitioner, Bernard Bilski, the issue was whether he’d get a patent on “a method for managing the consumption risk costs of a commodity sold by a commodity provider.” The exchange gave him little reason for optimism. For the rest of us, the crucial question is what rule will be applied for patent eligibility in the future. On that question, the discussion was anything but clear.

The Bilski case doesn’t involve a software patent, and the United States Court of Appeals for the Federal Circuit didn’t directly address the issue of software patents in its decision last year. But the case does have huge implications for the patentability of software. Already, the Board of Patent Appeals and Interferences (the first body to review patent examiners’ decisions) has begun citing Bilski as grounds for rejecting at least the most egregious software patents. If the Supreme Court signs off on the lower court’s work, it’s reasonable to expect this trend to continue. On the other hand, if the Supreme Court adopts a less restrictive standard, the proliferation of software patents may resume in earnest.

Ars has been following the Bilski case since early last year, when it was under consideration by the Federal Circuit. In October 2008, the Federal Circuit rejected Bilski’s patent on the ground that the process it described involved neither a specific machine nor a transformation of matter. The outcome was not a surprise—virtually everyone expected Bilski to lose—but this relatively restrictive standard for patentability was out of character for a court that has a reputation for being strongly pro-patent.

The patent office has been pushing this “machine or transformation” test since at least the 1970s. The Supreme Court flirted with adopting it in its famous trio of software patent cases a generation ago. But ultimately, it stopped short, merely calling it a “clue” to patent eligibility. The Federal Circuit, perhaps cowed by the recent string of unanimous Supreme Court reversals of its decisions, went further: it adopted the test as a substitute for the “useful, concrete and tangible result” that the Supremes had ridiculed two years earlier. On Monday, the high court heard two different perspectives on how it should evaluate the lower court’s ruling.

Of horses and speed dating

Bilski’s attorney, J. Michael Jakes, appeared before the court first. The justices seemed slightly incredulous at his argument that the courts should essentially give up on restricting patents by subject matter, and instead focus on other requirements such as novelty and obviousness.

Justices peppered Jakes with hypotheticals, to see how far this theory extended. Justice Scalia wanted to know if Jakes would have allowed patents on “the best way to train horses” during the 19th century. Justice Sotomayor asked if Jakes would allow a patent on speed dating. Justice Breyer wanted to know if he could get a patent for his “great, wonderful, really original method of teaching antitrust law”—”it kept 80 percent of the students awake,” he joked. Justice Ginsburg queried about patents for “an estate plan, tax avoidance, how to resist a corporate takeover, how to choose a jury.”

Jakes told Justice Ginsberg that all of these processes would be “eligible for patenting as processes, assuming they meet the other statutory requirements.” His response to the other justices was substantially the same. He did note that he would leave in place existing restrictions on patenting in fine arts, as well as laws of nature, natural phenomenon, and abstract ideas. But he didn’t have any principled objections to patents on horse training, speed dating, or methods of teaching antitrust law.

Software patents on trial

Software patents played a surprisingly large role in the second half of Monday’s arguments, which featured Deputy Solicitor General Malcolm Stewart representing the government. The justices were cognizant of the close link between business methods and software patents (most business method patents are also software patents). And they expressed doubt that they could meaningfully restrict business method patents without also affecting the patentability of software.

Stewart argued that applying the “machine or transformation” test would not have changed the outcome of State Street, the 1998 Federal Circuit decision that opened the floodgates to both software and business method patents. This is surprising because State Street was the decision that introduced the Federal Circuit’s now discredited “useful, concrete and tangible result” test. But Stewart contended that the patent in that case, which involved using a software algorithm to manage mutual funds, would be approved under the new “machine or transformation” test the government is now defending.

That provoked a strong response from Justice Stevens, the court’s senior associate justice and its most fervent software patent critic. He noted that the patent in the State Street case merely took a standard computer and installed new software on it. “You can’t say that’s a new machine,” he said. Stewart insisted that installing a sufficiently innovative program on a computer could transform it into a new machine for purposes of patent law.

But Justice Breyer objected that this reasoning would undermine the government’s goal of limiting business method patents. “All you do is you get somebody who knows computers, and you turn every business patent into a setting of switches on the machine because there are no businesses that don’t use those machines.”

Justice Roberts asked about another hypothetical software case: whether you could patent the process of using a calculator to compute “the historical averages of oil consumption over a certain period and divide it by 2.” Stewart responded by drawing a distinction between a calculator with “preexisting functionality” to “crunch numbers” and a computer that “will be programmed with new software” and “given functionality it didn’t have before.” We’ll let readers judge for themselves whether this distinction makes any sense.

Stewart eventually backtracked and allowed that there were “difficult problems out there in terms of patentability of software innovations.” However, he suggested that Bilski was not the right case to address those questions because the patent at issue was not a software patent.

Reading the Supreme Court tea leaves

The justices’ interest in software patents is surprising because neither party to the case is advocating a change in the patentability of software (although some friend of the court briefs are). The government contended that the Supreme Court could adopt the “machine or transformation” test without disturbing the application of patents to software inventions. But the justices seemed skeptical, suggesting that it would be impossible to place meaningful limits on business method patents without also affecting a large number of software patents.

All of the high court’s recent patent decisions have been unanimous, so with the exception of Stevens and Breyer (who are on the record as patent skeptics) it’s difficult to judge where the other justices stand from their votes. Their comments during oral arguments may be the best indicator of their views. And this isn’t the first time justices have spontaneously raised concerns about software patentability. During the oral arguments in the 2007 AT&T v. Microsoft case, Justice Scalia joined Justices Breyer and Stevens in expressing skepticism about whether software could be patented. Justice Roberts’s skeptical questions on Monday suggest he may share their views.

The Supremes are unlikely to rule on the specifics of software patentability in a case that doesn’t involve an actual software patent. Therefore, the best outcome software patent critics can hope for is probably a decision upholding the “machine or transformation” test without specifically addressing the software patent issue. This would have the practical effect of invalidating the most egregious software patents while leaving the door open to a future case that deals squarely with the legal status of software patents.

http://arstechnica.com/tech-policy/news/2009/11/supremes-wrestle-with-business-method-software-patents.ars

The Recession’s Over, but Not the Layoffs

By PETER S. GOODMAN

The Great Recession is over — not officially, but by popular acclaim — and in this accepted fact we are invited to take comfort, even as the unemployment rate last week rose into double digits for the first time in a quarter-century.

Experts have long assured us that economic life is governed by the business cycle, a repeating loop of downturn followed by expansion, as reliable as the seasons. In this context, worsening joblessness is like a punishing blizzard in April: Misery notwithstanding, the calendar promises spring.

But just as climate change has altered how we contemplate the seasons, some economists argue that the business cycle no longer operates as it once did, failing to replenish the jobs it destroys, and leaving our economy vulnerable to a potentially long-term shortage of work.

The tools we use to assess the business cycle date back to the 1920s, when the economy looked much different. Manufacturing jobs have declined sharply as a percentage of overall employment, while services have emerged as the primary economic engine. Automation and globalization have supplied thrifty corporate managers with myriad ways to boost production without hiring.

“It’s a change in the structure of the business cycle,” argues Allen Sinai, chief global economist at the research firm Decision Economics, who has put together a panel to discuss the subject at a January meeting of the American Economic Association in Atlanta. “There appears to be a new tendency to substitute against labor. It’s permanent, as long as there are alternatives like outsourcing and robotics.”

Certainly, those inclined to argue that commercial life has been remade are frequently chastened when — as often happens — the dusty old laws of economics reassert themselves.

During the technology boom of the 1990s, some hailed a New Economy that supposedly liberated us from the tyranny of the business cycle while explaining how companies that never earned a nickel could be worth more than established brands. When arithmetic returned, the New Economy became synonymous with silliness.

This decade, as investors bid housing prices to levels that breached all connection to incomes, some economists argued that the booms and busts of real estate had been rendered inoperative by financial innovation. We know how that turned out.

But the latest reassessment of the business cycle now has a couple of decades of data to consider. After recession gave way to expansion in March 1991, it took a year before hiring resumed in earnest — a so-called jobless recovery. After the following recession ended in March 2001, two years passed before jobs grew. Many economists assume that the third straight jobless recovery has already begun, as nervous businesses — worried about the lingering bite of the financial crisis and weak prospects — continue to hold back on hiring.

This is not how things are supposed to go, not according to our traditional view of the business cycle. When the economy is growing, businesses hire aggressively as they increase production and sell more goods. As workers spend their paychecks, they distribute dollars throughout the economy, creating business opportunities that prompt other companies to hire — a virtuous cycle. As growth slows, companies let people go, then hire anew when new opportunities emerge.

Our unemployment insurance system is built for this kind of boom and bust cycle, giving furloughed workers some cash to tide them over until their companies call them back.

But as Mr. Sinai and his colleagues see things, our view of the business cycle is antiquated. They say it fails to account for the critical role of finance and changing appetites for risk that can influence economic growth; that, crucially, it dates to a time when manufacturing employed roughly one-third of the American workforce, well before what we now call the global economy.

In the middle of the last century, a retailer in Chicago who needed goods likely had to place an order with a factory in the Midwest. Today, that retailer could well be part of a conglomerate that taps a global supply chain; it sends its orders to workers in China and elsewhere, or to domestic factories that can increase production without hiring many more people, either by further automating or by bringing in temporary workers.

Of course, automation can itself create extra factory jobs for American firms that make robotics, and these companies increasingly export their gear to the same factories in China that produce goods now landing on shelves in Chicago. Yet the overall trend appears to make many American companies less inclined to hire, reluctant to take on cost in an increasingly competitive marketplace.

Not everyone buys into this view. Labor-oriented economists like Lawrence Mishel at the Economic Policy Institute in Washington argue that the business cycle works the same as it always did; the problem is that economic growth has been weak in recent times.

“When growth comes back,” Mr. Mishel said, “so will jobs.”

Others suggest that the business cycle has not changed, but rather that we have developed unrealistic assumptions about the bounty that should accrue in good times. In this view, our expectations have been perverted by an unhealthy reliance on credit in recent years.

Kenneth S. Rogoff, a Harvard economist and co-author of a history of financial crises, “This Time Is Different: Eight Centuries of Financial Folly,” recalls that when he was a graduate student, most economists viewed the normal level of unemployment to be about 7 percent.

But over the last decade, as the Federal Reserve relied upon excessively low interest rates to spur economic activity, the norm slipped steadily lower, with some proclaiming that unemployment had effectively been tamed and could remain permanently in the vicinity of 5 percent.

As Mr. Rogoff portrays it, what may seem like weak hiring in recent times is really just a return to normal. Eventually, after the lingering dysfunction of the financial crisis gives way to a more healthy flow of money, enabling more businesses to borrow and expand, unemployment will settle in to a long-term average of about 6 percent, he says.

In other words, recession still turns to expansion, much as spring follows winter, but the warm months may not be as bountiful as in years past, when easy money fertilized outlandish crop production.

In any event, we’d best get ready for leaner harvests.

Peter S. Goodman is the author of “Past Due: The End of Easy Money and the Renewal of the American Economy.”

http://www.nytimes.com/2009/11/08/weekinreview/08goodman.html?_r=1

The Cloud: a short introduction

Few terms have been as simultaneously hyped and reviled as “cloud computing,” but there’s definitely more to the phenomenon than just a buzzword and some vague talk of “efficiencies” and “agility.” We’ve put together this short, simple introduction to cloud computing that you can send to your CIO the next time you catch him abusing “the cloud” at a meeting.

By Jon Stokes

There’s a kind of supply-and-demand dynamic that applies to technical terms—when a few knowledgeable insiders are hoarding a word, it maintains its meaning, but when the masses get hold of it and abuse it, it’s quickly emptied of value. This is certainly the case with “the cloud,” a term that used to mean something, and now means everything and nothing. “The cloud” is so overused by startups desperate for VC money, and by big companies desperate to look like hip startups, that IT professionals are increasingly wary of anything cloud-related. It doesn’t help that the image conjured by the word is of something vaporous, flimsy, and fleeting—whatever cloud is, it doesn’t sound like the kind of thing you want to entrust critical business functions to.

Despite the fact that everyone seems to see a different shape when they stare at it, there is something worth preserving in “the cloud” as a term that usefully describes one approach to what is often called “utility computing,” which latter term is itself a metaphorical way of speaking about a business model centered around the idea of computing power as a service like electrical power.

In first defining and then describing cloud computing in this brief article, my aim is to provide a useful definition for IT professionals who are tasked with exploring cloud services as a potential avenue for finding new efficiencies, reducing fixed costs, tackling scaling challenges, and solving novel problems at Internet scale. My secondary audiences for this piece are IT pros who need to quickly explain “the cloud” to a clueless CIO, and clueless CIOs who’d rather not have to rely on IT pros to explain buzzwords to them.

This article takes a historical and comparative approach to the topic of cloud computing. First, I’ll introduce the venerable client-server model, a model of which cloud is just the latest instance, and then I’ll contrast the cloud with its immediate predecessor, the grid. Finally, I’ll describe the three-tiered model of cloud services.

A brief history of client-server

One of the most common questions asked by cloud skeptics is, “isn’t cloud just client-server?” The answer to this is, yes, it is. There are many producer-consumer relationships at every level of computing, from the individual system out to the network, that can usefully be thought of in client-server terms. For instance, a PC’s main memory serves a variety of clients scattered throughout the system via DMA requests. In general, a client-server relationship is characterized by a single producer that allows multiple consumers access to its resource pool.

In this respect, cloud fits the client-server model, and, insofar as the typical cloud client is the same as the typical enterprise client (i.e. single desktop or laptop computer), some observers have a tendency to stop at this level of analysis. But, of course, the real action in the cloud happens on the server side of the equation, and that’s where things get interesting. But before we get into the cloud in earnest, let’s take a brief look back at client-server.

There are essentially two kinds of resources that a server can provide to clients: storage and compute cycles. Client-server models can generally be categorized according to which type of resource they provide.

Chronologically, the first type of client-server pair to become popular was the mainframe and terminal. Since storage and CPU cycles were so expensive, the mainframe pooled both types of resources and served them to thin-client terminals. With the advent of the PC revolution, which brought mass storage and cheap CPUs to the average corporate desktop, the file server gained in popularity as way to enable document sharing and archiving. True to its name, the file server served up storage resources to clients in the enterprise, while the CPU cycles needed to do productive work with those resources were all produced and consumed within the confines of the PC client.

The ’80s also saw the rise of the supercomputer, which featured a large, homogenous array of processors and was designed to serve CPU cycles to “fat-client” workstations. Supercomputers were limited to government (mostly military) and government-sponsored parts of academia, not just because those sectors were the only ones with the appetite for that much number crunching power, but because those types of public institutions had pockets deep enough to afford these machines (it was very, very expensive to pool CPU cycles and serve them at a scale that could actually do useful work).

But while the supercomputer market was heating up along with the Cold War that much of its output went toward fighting, the seeds of that market’s destruction were being sown by both Moore’s Law and the Internet.

The grid, and the rise of utility computing

In the early 1990s, the budding Internet finally had enough computers attached to it that academics began thinking seriously about how to connect those machines together to create massive, shared pools of storage and compute power that would be much larger than what any one institution could afford to build. This is when the idea of “the grid” began to take shape.

The term “grid” is a metaphor deliberately drawn from the realm of electricity generation, where electric utilities provide power over a “grid” network to clients who pay on a metered basis for the electricity that they consume. The idea behind the grid model, and the related concept of “utility computing,” was that a sufficiently large number of networked computers could be pooled together like a giant, virtual supercomputer or file server, and access to that pool of compute or storage resources could be sold in an on-demand, metered fashion.

In all, grid computing features a large number of networked, often geographically and institutionally separate nodes that together make up a shared pool of compute resources. Data and computational grids are characterized by autonomous, homogeneous nodes that are loosely coupled and often use public networks. Note that the grid’s loose coupling of nodes is a major characteristic that distinguishes it from the cluster, a similar multinode computing concept with which the grid is often confused. Clusters feature nodes that are connected by very high-bandwidth links, and this bandwidth advantage gives them a lot more average compute power per node than a grid because nodes don’t spend as much idle time waiting on data to arrive.

Computational grids are more common than data grids, and applications have to be specially written for such grids and designed to scale to a large number of parallel nodes. A typical computational grid client turns to the grid because he needs to run a massive, compute-intensive job that will occupy a large subset of those nodes for a given period of time.

The grid. Different colored jobs belong to different clients. (One of those jobs belongs to the Department of Defense.)

Grid jobs are often run in batches, where available nodes are pooled together and then assigned work that monopolizes them until it’s done. (Note: many grid nodes, like those involved in the distributed.net project, also run local client software simultaneously with their grid job; but from the point-of-view of the grid, that node is still working on a single job.) When the grid job is complete, the nodes are released back into the pool of available resources, and are ready for some other client to use.

One key aspect of the grid is that multiple institutions can share the same hardware resources without worrying about anyone else on the grid gaining unauthorized access to their data. Even though the data is on a publicly accessible grid, it remains accessible only to the client that owns it. It’s also the case that the grid hardware itself often has many institutional and/or individual owners—each party contributes compute resources to a shared pool, and in exchange, contributors can bid for cycles from that pool.

Article Continues - http://arstechnica.com/business/news/2009/11/the-cloud-a-short-introduction.ars

Making Ultracapacitors Marketable

An energy storage startup gets a big boost with new government funding.

By Erika Jonietz

An MIT spinoff just getting off the ground received a huge helping hand from the U.S. Department of Energy on Monday. FastCAP Systems, of Cambridge, MA, received a two-year, $5.35 million grant in the first round of funding ever issued by the new Advanced Research Projects Agency-Energy (ARPA-E). The company aims to commercialize a nanotube-enhanced ultracapacitor, an energy storage device that could greatly reduce the cost of hybrid and electric vehicles and of grid-scale energy storage, making it easier to integrate renewable energy sources such as solar and wind-based power.

“The ARPA-E grant represents the ability to ramp up faster,” says Joel Schindall, the MIT professor in whose lab the technology was originally developed. “We now have the resources to do the things that we’ve been wanting to do for the last few years.”

ARPA-E was inspired by the Defense Advanced Research Projects Agency (DARPA); like DARPA, it is chartered with supporting high-risk, high-reward research–but ARPA-E is focused on projects that could provide innovative solutions to the problems of climate change and energy security rather than defense. An agency of the U.S. Department of Energy, ARPA-E received $400 million in initial funding from the federal government in April. On Monday, it announced the awardees in its first round of grants to small businesses, universities, and large corporations. Thirty-seven projects were funded, receiving an average of approximately $4 million each. ARPA-E received more than 3,600 concept papers, and the final winners were selected from about 300 full applications.

Nick d’Arbeloff, president of the New England Clean Energy Council, says that the ARPA-E award will make a big difference to the small companies that receive them. “An award of this type is huge,” he says. “It is a huge badge of honor and validation for other investors, that this is seen by the Department of Energy as a highly innovative, breakthrough technology, and one that every venture capital firm should be tracking.”

Ultracapacitors that use activated carbon electrodes are already on the market but are used only for limited applications, such as absorbing the energy produced by braking in hybrid buses and providing the quick bursts of power needed to get the large vehicles moving. The reason that they are restricted to such niche markets is that they cannot store enough energy to provide power over a long period of time.

Article Continues – http://www.technologyreview.com/business/23830/

The Defining Moment – Health care reform

By PAUL KRUGMAN – From the New York Times

O.K., folks, this is it. It’s the defining moment for health care reform.

Past efforts to give Americans what citizens of every other advanced nation already have — guaranteed access to essential care — have ended not with a bang, but with a whimper, usually dying in committee without ever making it to a vote.

But this time, broadly similar health-care bills have made it through multiple committees in both houses of Congress. And on Thursday, Nancy Pelosi, the speaker of the House, unveiled the legislation that she will send to the House floor, where it will almost surely pass. It’s not a perfect bill, by a long shot, but it’s a much stronger bill than almost anyone expected to emerge even a few weeks ago. And it would lead to near-universal coverage.

As a result, everyone in the political class — by which I mean politicians, people in the news media, and so on, basically whoever is in a position to influence the final stage of this legislative marathon — now has to make a choice. The seemingly impossible dream of fundamental health reform is just a few steps away from becoming reality, and each player has to decide whether he or she is going to help it across the finish line or stand in its way.

For conservatives, of course, it’s an easy decision: They don’t want Americans to have universal coverage, and they don’t want President Obama to succeed.

For progressives, it’s a slightly more difficult decision: They want universal care, and they want the president to succeed — but the proposed legislation falls far short of their ideal. There are still some reform advocates who won’t accept anything short of a full transition to Medicare for all as opposed to a hybrid, compromise system that relies heavily on private insurers. And even those who have reconciled themselves to the political realities are disappointed that the bill doesn’t include a “strong” public option, with payment rates linked to those set by Medicare.

But the bill does include a “medium-strength” public option, in which the public plan would negotiate payment rates — defying the predictions of pundits who have repeatedly declared any kind of public-option plan dead. It also includes more generous subsidies than expected, making it easier for lower-income families to afford coverage. And according to Congressional Budget Office estimates, almost everyone — 96 percent of legal residents too young to receive Medicare — would get health insurance.

So should progressives get behind this plan? Yes. And they probably will.

The people who really have to make up their minds, then, are those in between, the self-proclaimed centrists.

The odd thing about this group is that while its members are clearly uncomfortable with the idea of passing health care reform, they’re having a hard time explaining exactly what their problem is. Or to be more precise and less polite, they have been attacking proposed legislation for doing things it doesn’t and for not doing things it does.

Thus, Senator Joseph Lieberman of Connecticut says, “I want to be able to vote for a health bill, but my top concern is the deficit.” That would be a serious objection to the proposals currently on the table if they would, in fact, increase the deficit. But they wouldn’t, at least according to the Congressional Budget Office, which estimates that the House bill, in particular, would actually reduce the deficit by $100 billion over the next decade.

Or consider the remarkable exchange that took place this week between Peter Orszag, the White House budget director, and Fred Hiatt, The Washington Post’s opinion editor. Mr. Hiatt had criticized Congress for not taking what he considers the necessary steps to control health-care costs — namely, taxing high-cost insurance plans and establishing an independent Medicare commission. Writing on the budget office blog — yes, there is one, and it’s essential reading — Mr. Orszag pointed out, not too gently, that the Senate Finance Committee’s bill actually includes both of the allegedly missing measures.

I won’t try to psychoanalyze the “naysayers,” as Mr. Orszag describes them. I’d just urge them to take a good hard look in the mirror. If they really want to align themselves with the hard-line conservatives, if they just want to kill health reform, so be it. But they shouldn’t hide behind claims that they really, truly would support health care reform if only it were better designed.

For this is the moment of truth. The political environment is as favorable for reform as it’s likely to get. The legislation on the table isn’t perfect, but it’s as good as anyone could reasonably have expected. History is about to be made — and everyone has to decide which side they’re on.

http://www.nytimes.com/2009/10/30/opinion/30krugman.html?_r=2&hp