Never mind the controversy over extending the Bush tax cuts. I think the much more intriguing development regarding taxes was President Obama's proposal to simplify the tax code. The knee jerk reaction from opposition politicians and pundits may be "What's he really up to?" The better approach is "Let's do it!"
The President has proposed just 3 tax rates ranging from around 8% to 24% as well as a cut in the corporate tax rate. This would be offset by eliminating deductions and loopholes, including the sacred cow; mortgage interest deduction. I think that's a giant step in the right direction.
The mortgage interest deduction, like so many other deductions, credits and exemptions, is designed to short circuit market forces and influence behavior. This is a tactic that true free market proponents should oppose anyway. The mortgage interest deduction is based on the flawed premise that everyone should own a home. Furthermore, it doesn't encourage home ownership, it simply encourages mortgages. After all, once your mortgage is paid off, you no longer get the deduction. Will doing away with the deduction hurt home prices? Probably. Homes values will be based on a home's value, rather than on a combination of the value of the home and the value of a tax deduction. That's not a bad thing in the long run.
I would propose a new deduction however, for medical expenses. This should be a straightforward deduction and not some convoluted scheme based on a qualified account with restricted access. This could open a whole new field for lenders. If you have to take out a 20 year loan to pay for your surgery, at least you can take a tax deduction for the payments - interest and principal.
I would stand firm against any form of consumption tax whether it be on just gas or broader, unless it completely replaces every other tax. Even then, I would wait for a constitutional amendment forbidding the return of the income and payroll taxes.
The average American doesn't have the time or the resources to wade through our current 10,000+ page monstrosity of a tax code looking for exemptions, loopholes and credits. Free market proponents should applaud a tax system that doesn't attempt to influence where, when and how you direct your resources. The government's role is to be referee, not chaperon. Imagine what might happen to productivity if big business made investment decisions based on what consumers want and need rather than on what the government would like them to blow money on.
I'm willing to give the President the benefit of the doubt and assume he has determined that the American people aren't interested in a care-taker government and has decided to change course. Regardless of what may or may not be going on in his head or in backroom discussions with advisers, he has tossed a ball to limited government proponents. Take it and run with it. Never mind who might get the credit or benefit politically. The only way it results in a second term for President Obama is if the U.S. prospers as a result. Is that so bad? Do the right thing. You might be surprised at the results.
Friday, December 10, 2010
Wednesday, December 1, 2010
Gold Play
With gold making another run for $1400/oz, should you start buying some if you haven't already? If you already own some, should you start selling? When it comes to policy and politics, I rarely, if ever find myself in agreement with multi-billionaire investor, George Soros, but when it comes to the gold market, I believe he's got this one right. He may be evil from my socio-economic perspective, but he's not stupid.
Soros has called gold "the ultimate bubble" and is, in fact, gradually reducing his holdings. He has wisely, not predicted a top or a time frame for a decline. Bubbles are by nature, unpredictable. I'm not going to call a top either, but there are some fundamental things you should know about gold if you're going to play the game.
It's often said that gold has "intrinsic value". That is, that it has value apart from speculative trading or as a currency. That's true. It has intrinsic value to those who actually consume it, like jewelers and space craft manufacturers. But the market price, at the moment, is not being driven by consumers. It's being driven by investors/speculators and that portion of the price is entirely subjective. Contrary to the old real estate adage, they are producing more gold and very little of it is actually consumed. In fact, one could say the only gold that's truly consumed is that small fraction of production that gets shot into space. Much of it is now being purchased by people who just want to store it, or have someone else store it, simply to make them feel better.
At some point, the guru of the week is going to tell folks it's time to sell. Who is everyone going to sell to? It could be days, weeks or years, but when gold falls it's going to fall fast and far. You may be waiting for a "top". So are millions of other people. Good luck with that. At least it looks cool.
So, what should you be investing in? I'm not an investment adviser, so take this as the opinion of just another member of the Peanut Gallery, but if I were trying to preserve currency, I'd buy inflation adjusted Treasuries. If I'm trying to preserve wealth, I'm buying things that I, or my heirs, can actually use regardless of the economic situation. After all, the true value of wealth lies in how it contributes to your quality of life. That's a call only you can make.
Soros has called gold "the ultimate bubble" and is, in fact, gradually reducing his holdings. He has wisely, not predicted a top or a time frame for a decline. Bubbles are by nature, unpredictable. I'm not going to call a top either, but there are some fundamental things you should know about gold if you're going to play the game.
It's often said that gold has "intrinsic value". That is, that it has value apart from speculative trading or as a currency. That's true. It has intrinsic value to those who actually consume it, like jewelers and space craft manufacturers. But the market price, at the moment, is not being driven by consumers. It's being driven by investors/speculators and that portion of the price is entirely subjective. Contrary to the old real estate adage, they are producing more gold and very little of it is actually consumed. In fact, one could say the only gold that's truly consumed is that small fraction of production that gets shot into space. Much of it is now being purchased by people who just want to store it, or have someone else store it, simply to make them feel better.
At some point, the guru of the week is going to tell folks it's time to sell. Who is everyone going to sell to? It could be days, weeks or years, but when gold falls it's going to fall fast and far. You may be waiting for a "top". So are millions of other people. Good luck with that. At least it looks cool.
So, what should you be investing in? I'm not an investment adviser, so take this as the opinion of just another member of the Peanut Gallery, but if I were trying to preserve currency, I'd buy inflation adjusted Treasuries. If I'm trying to preserve wealth, I'm buying things that I, or my heirs, can actually use regardless of the economic situation. After all, the true value of wealth lies in how it contributes to your quality of life. That's a call only you can make.
Tuesday, November 16, 2010
Our day of reckoning may never come
Everyone likes to talk about our nation’s deficit, the national debt, unfunded liabilities. Politicians and pundits declare the situation unsustainable and predict dire consequences for inaction. Yet, inaction continues. I believe that in many cases, individuals in a position to fight for change decline to do so because they believe that eventually, things will come to a head and we’ll be forced, as a nation, to take drastic action. There will be a day of reckoning. A day when we wont be able to take another step, or draw another breath, without first fixing our financial problems. Unfortunately, it’s probably not going to go down that way.
The evidence is all around us. There has been no reckoning in North Korea, Cuba, Venezuela, Burma, Somalia. These and other chronically impoverished nations illustrate that things are never so bad that they can’t get worse. Even in countries where people resort to eating tree bark to try to avoid starvation or sell their own organs to pay back loan sharks, the powers that be remain the powers that be.
So how do you break the will of an entire nation’s population and keep it broken from generation to generation? There are many variations on the theme, but generally speaking, you convince people that self-interest is not only insignificant, but immoral. You sell them on the idea that they exist to serve others, which by definition is everyone except themselves. Then you become the interpreter, communicator and executor of exactly what “others” need them to do.
You can’t do it all at once. Especially if a country has had a taste of free market success. You start out small, with the simple idea that sharing is better than not sharing. Then you make sharing mandatory, through the tax code. Then you just continue to increase the amount of mandatory sharing, being careful to bestow the fruits of the sharing on people who are supportive of your agenda. By the time they realize that there’s very little left to share, you are in control of all the nation’s critical resources and much of the population is convinced that their own personal well being is not important anyway.
It’s also helpful to convince the population that the situation is much better than it really is, or that relatively speaking, they are doing alright. You do this with propaganda, misinformation and censorship. This worked pretty well for the Soviet Union for a long time. Then the fax machine came along and ruined everything. People behind the iron curtain started getting news about all the cool goodies in the west they didn’t have access to. However, if the developed world sinks into the muck of stagnation and mediocrity together, what are we going to compare our situation with? Future generations may just conclude that whatever they’ve got is as good as it gets.
Left to their own devices, individuals don’t operate exclusively in self-interest mode or common good mode. We switch from one to the other and back again as the situation changes from minute to minute, day to day, year to year. But the default mode has to be self-interest. We have real life case study after real life case study to show that making the common good paramount and imposing it from a central authority leads to nothing but misery. Yet we continue to pursue it because it’s what we’ve been taught in school, in church, at work, by just about everyone in a position of authority since the day we were born.
The collectivist movement is like carbon monoxide; sucking the life from the blissfully unaware. If we continue down this path there wont be a big climactic crash. There wont be an “I told you so.” moment. We will simply drift farther and farther down in quality of life as our sense of self and the will to fight for it gradually fade away. I guess the good news is that civilization wont last forever powered by a bunch of dull drones. It too will fade away, new alliances will be made and new societies will arise, but we’re talking centuries, not decades.
The alternative is to demand that the government take less and do less; a lot less. I don’t mean just not asking for more. I mean demanding less, because there will be resistance from those who actually want to promote that downward spiral. They honestly think it’s best for humankind to live as more of an orderly hive than a bunch of selfish individuals. Ironically, selfishness is the only thing that can save us from ourselves at this point.
The evidence is all around us. There has been no reckoning in North Korea, Cuba, Venezuela, Burma, Somalia. These and other chronically impoverished nations illustrate that things are never so bad that they can’t get worse. Even in countries where people resort to eating tree bark to try to avoid starvation or sell their own organs to pay back loan sharks, the powers that be remain the powers that be.
So how do you break the will of an entire nation’s population and keep it broken from generation to generation? There are many variations on the theme, but generally speaking, you convince people that self-interest is not only insignificant, but immoral. You sell them on the idea that they exist to serve others, which by definition is everyone except themselves. Then you become the interpreter, communicator and executor of exactly what “others” need them to do.
You can’t do it all at once. Especially if a country has had a taste of free market success. You start out small, with the simple idea that sharing is better than not sharing. Then you make sharing mandatory, through the tax code. Then you just continue to increase the amount of mandatory sharing, being careful to bestow the fruits of the sharing on people who are supportive of your agenda. By the time they realize that there’s very little left to share, you are in control of all the nation’s critical resources and much of the population is convinced that their own personal well being is not important anyway.
It’s also helpful to convince the population that the situation is much better than it really is, or that relatively speaking, they are doing alright. You do this with propaganda, misinformation and censorship. This worked pretty well for the Soviet Union for a long time. Then the fax machine came along and ruined everything. People behind the iron curtain started getting news about all the cool goodies in the west they didn’t have access to. However, if the developed world sinks into the muck of stagnation and mediocrity together, what are we going to compare our situation with? Future generations may just conclude that whatever they’ve got is as good as it gets.
Left to their own devices, individuals don’t operate exclusively in self-interest mode or common good mode. We switch from one to the other and back again as the situation changes from minute to minute, day to day, year to year. But the default mode has to be self-interest. We have real life case study after real life case study to show that making the common good paramount and imposing it from a central authority leads to nothing but misery. Yet we continue to pursue it because it’s what we’ve been taught in school, in church, at work, by just about everyone in a position of authority since the day we were born.
The collectivist movement is like carbon monoxide; sucking the life from the blissfully unaware. If we continue down this path there wont be a big climactic crash. There wont be an “I told you so.” moment. We will simply drift farther and farther down in quality of life as our sense of self and the will to fight for it gradually fade away. I guess the good news is that civilization wont last forever powered by a bunch of dull drones. It too will fade away, new alliances will be made and new societies will arise, but we’re talking centuries, not decades.
The alternative is to demand that the government take less and do less; a lot less. I don’t mean just not asking for more. I mean demanding less, because there will be resistance from those who actually want to promote that downward spiral. They honestly think it’s best for humankind to live as more of an orderly hive than a bunch of selfish individuals. Ironically, selfishness is the only thing that can save us from ourselves at this point.
Wednesday, November 10, 2010
How to manage inflation
With the Federal Reserve "monetizing the debt" or printing money and buying up Treasury securities from banks, it's time once again to review inflation strategy. Let's assume for the sake of this article that we're going to get an inflationary period in the near future. Maybe we will, maybe we wont, but let's just say we will. How do you deal with it? There are things that both retailers and consumers can do to cushion the blow.
First let's look at retailers. Assume that each time you place an order for inventory, it's going to be a little more expensive. For the sake of simplicity, let's say you normally keep a one-week supply of inventory on hand. Bump that up to about 8 weeks and keep it there. Why? Because once you've got that overstock, when you place your next one-week order and you see the price has gone up, you can raise your retail price on your entire stock and maintain a decent margin. You also will have the option of holding off on a price increase for a week or two and perhaps undercut your competitors for a bit. When the inflationary cycle dies down, and it will, and you notice prices haven't gone up for a few weeks running, start reducing your orders and getting back down to normal inventory levels. This is why inflation tends to drop off quickly when it's run its course. A lot of retailers will be doing the same thing and orders to suppliers will suddenly drop off a cliff. Your margin on your most recent purchases will be smaller, but your older stock should help make up for that. You'll also have a chance to build up some cash, since you'll have several weeks of smaller than normal inventory outlays.
What about the consumer? Well, retailers that employ the above strategy are going to be taking advantage of some nice profit margins on many of their products. They'll want to entice you into the store by offering "loss leaders". That is, they'll be willing to offer a few items at or even below cost in the hopes that you'll buy a few of the more pricey items while you're there. If you want to be thrifty, be flexible. Stock up on those loss leaders. Different stores will have different items on sale, so you may want to shop at several. You may also want to adjust to the idea that you may be having chicken for dinner 4 times in a week. An inflationary period is no time to be finicky. Take what they're giving. Stock up on sale items. If you don't have a pantry, make one. It might be a good idea to get a big freezer if you've got the room. You can apply the same strategy to more than just groceries. If the home improvement store has a super-sale on something related to a project you were planning on getting to "one of these days", jump on it. Your new kitchen faucet is still going to be worth one kitchen faucet no matter where inflation goes.
If you're on a fixed income, you may want to look for free-lance opportunities to supplement your income for a while. However, be careful. Fully investigate any offer before you sign on. There will be plenty of scammers trying to take advantage of consumer anxiety. If a deal sounds too good to be true, it is.
The most important thing to remember is Don't Panic! Keep a cool head and look for opportunities rather than obstacles. An inflationary spiral is a readjustment in the value of currency due to gross budget mismanagement. It wont last forever and you can navigate it. Knee-jerk reactions to this kind of financial upheaval almost always makes the situation worse. Politicians and policy wonks will be calling for things like price and wage controls. Don't go for it. Getting our currency situation back under control is going to be bitter medicine, but tighter government control over the free market is just snake oil. It's okay to be angry and frustrated and hold our leaders to account, but blame the player, not the game.
First let's look at retailers. Assume that each time you place an order for inventory, it's going to be a little more expensive. For the sake of simplicity, let's say you normally keep a one-week supply of inventory on hand. Bump that up to about 8 weeks and keep it there. Why? Because once you've got that overstock, when you place your next one-week order and you see the price has gone up, you can raise your retail price on your entire stock and maintain a decent margin. You also will have the option of holding off on a price increase for a week or two and perhaps undercut your competitors for a bit. When the inflationary cycle dies down, and it will, and you notice prices haven't gone up for a few weeks running, start reducing your orders and getting back down to normal inventory levels. This is why inflation tends to drop off quickly when it's run its course. A lot of retailers will be doing the same thing and orders to suppliers will suddenly drop off a cliff. Your margin on your most recent purchases will be smaller, but your older stock should help make up for that. You'll also have a chance to build up some cash, since you'll have several weeks of smaller than normal inventory outlays.
What about the consumer? Well, retailers that employ the above strategy are going to be taking advantage of some nice profit margins on many of their products. They'll want to entice you into the store by offering "loss leaders". That is, they'll be willing to offer a few items at or even below cost in the hopes that you'll buy a few of the more pricey items while you're there. If you want to be thrifty, be flexible. Stock up on those loss leaders. Different stores will have different items on sale, so you may want to shop at several. You may also want to adjust to the idea that you may be having chicken for dinner 4 times in a week. An inflationary period is no time to be finicky. Take what they're giving. Stock up on sale items. If you don't have a pantry, make one. It might be a good idea to get a big freezer if you've got the room. You can apply the same strategy to more than just groceries. If the home improvement store has a super-sale on something related to a project you were planning on getting to "one of these days", jump on it. Your new kitchen faucet is still going to be worth one kitchen faucet no matter where inflation goes.
If you're on a fixed income, you may want to look for free-lance opportunities to supplement your income for a while. However, be careful. Fully investigate any offer before you sign on. There will be plenty of scammers trying to take advantage of consumer anxiety. If a deal sounds too good to be true, it is.
The most important thing to remember is Don't Panic! Keep a cool head and look for opportunities rather than obstacles. An inflationary spiral is a readjustment in the value of currency due to gross budget mismanagement. It wont last forever and you can navigate it. Knee-jerk reactions to this kind of financial upheaval almost always makes the situation worse. Politicians and policy wonks will be calling for things like price and wage controls. Don't go for it. Getting our currency situation back under control is going to be bitter medicine, but tighter government control over the free market is just snake oil. It's okay to be angry and frustrated and hold our leaders to account, but blame the player, not the game.
Saturday, October 23, 2010
De-Mystifying the Secret
You’ve probably heard about the book/DVD/program called The Secret. Essentially it seems to suggest that achieving whatever goals you may have for yourself, your business or your personal life is a simple matter of having the right state of mind. It all seems very mystical and magical. I have a simpler, I think more rational approach to the phenomenon, which I wont call The Secret, because I’m sure that’s been trademarked and mine is a variation on the theme.
I do believe that it works and I believe I know why and how it works. The good news is, it’s not magic and with some practice, anyone can do it. My take is that it’s a kind of “top of the mind marketing” campaign. Your goals are the product and your subconscious is the target demographic.
It may be due to personal experience or a product of observation, but we often end up hard wired to believe that lofty goals are unachievable. Only a lucky few actually achieve the great things they set out to achieve. As a consequence we set the bar low. We immediately think of the obstacles to our success rather than the possibilities. The cumulative effect of our resultant behavior based on these underlying assumptions is that we don’t achieve what we want.
It’s not as easy as just making up your mind that you want to be a millionaire. You have to really sell the idea to yourself. Look at how companies like Coke, Pepsi, Google advertise their product and stay “top of the mind” with consumers. They splash their logos everywhere. They make you aware of who they are and what they have to offer and they keep you aware. You may not even notice the number of times you see a particular logo during the course of a day, but your subconscious brain sees it, and stores it, and eventually can influence you to act on it. That’s what you have to do with your goals.
Write them down. Believe you’re going to achieve them. Post them where you’ll see them every day whether you’re looking for them or not. Put a note on the fridge, on your computer monitor, above the stove. Set targets and regularly evaluate how you’re doing. The idea is to make spotting and taking advantage of opportunities to advance toward your goals automatic.
Your subconscious does not make things happen. However, you are bombarded with sensory information every minute of every day. You notice some things more than others. The collection of data that you choose to hold on to and process determines how you perceive the world, your day, your life. If you make yourself more receptive to input that will be of value to you in achieving the things you want, you will become more aware of opportunities and circumstances that you had been oblivious to before. Instead of unconsciously working against yourself, you’ll wind up unconsciously working for yourself. That’s why it seems like magic. You make better decisions which take you in the right direction without having to consciously process the information.
When Michael Jordan would drive the lane and make impossible slam dunk shots that thrilled millions, he didn’t ponder every step and measure every muscle movement. Constant practice, desire and confidence made it second nature. See goal; score goal. The subconscious and muscle memory did the rest with no overt input from Mike. Why did the tongue have to be hanging out from one side? Who cares? Don’t over-think it. Be the Michael Jordan of your destiny. Step one of course, is to decide what it is you really want and stop telling yourself you can’t do it. Then constantly remind yourself what you’re working for.
The more conventional approach to goal setting is to set aside some time to develop a plan and work on it at specific times while doing specific tasks. What percentage of your waking hours does that represent? If you can actually hard wire your brain to work on your goals full time like a software program running in the background, you can greatly increase the odds of success. The worst possible outcome is that you go about your day with a positive attitude and you don’t get a million dollars. What have you lost?
I do believe that it works and I believe I know why and how it works. The good news is, it’s not magic and with some practice, anyone can do it. My take is that it’s a kind of “top of the mind marketing” campaign. Your goals are the product and your subconscious is the target demographic.
It may be due to personal experience or a product of observation, but we often end up hard wired to believe that lofty goals are unachievable. Only a lucky few actually achieve the great things they set out to achieve. As a consequence we set the bar low. We immediately think of the obstacles to our success rather than the possibilities. The cumulative effect of our resultant behavior based on these underlying assumptions is that we don’t achieve what we want.
It’s not as easy as just making up your mind that you want to be a millionaire. You have to really sell the idea to yourself. Look at how companies like Coke, Pepsi, Google advertise their product and stay “top of the mind” with consumers. They splash their logos everywhere. They make you aware of who they are and what they have to offer and they keep you aware. You may not even notice the number of times you see a particular logo during the course of a day, but your subconscious brain sees it, and stores it, and eventually can influence you to act on it. That’s what you have to do with your goals.
Write them down. Believe you’re going to achieve them. Post them where you’ll see them every day whether you’re looking for them or not. Put a note on the fridge, on your computer monitor, above the stove. Set targets and regularly evaluate how you’re doing. The idea is to make spotting and taking advantage of opportunities to advance toward your goals automatic.
Your subconscious does not make things happen. However, you are bombarded with sensory information every minute of every day. You notice some things more than others. The collection of data that you choose to hold on to and process determines how you perceive the world, your day, your life. If you make yourself more receptive to input that will be of value to you in achieving the things you want, you will become more aware of opportunities and circumstances that you had been oblivious to before. Instead of unconsciously working against yourself, you’ll wind up unconsciously working for yourself. That’s why it seems like magic. You make better decisions which take you in the right direction without having to consciously process the information.
When Michael Jordan would drive the lane and make impossible slam dunk shots that thrilled millions, he didn’t ponder every step and measure every muscle movement. Constant practice, desire and confidence made it second nature. See goal; score goal. The subconscious and muscle memory did the rest with no overt input from Mike. Why did the tongue have to be hanging out from one side? Who cares? Don’t over-think it. Be the Michael Jordan of your destiny. Step one of course, is to decide what it is you really want and stop telling yourself you can’t do it. Then constantly remind yourself what you’re working for.
The more conventional approach to goal setting is to set aside some time to develop a plan and work on it at specific times while doing specific tasks. What percentage of your waking hours does that represent? If you can actually hard wire your brain to work on your goals full time like a software program running in the background, you can greatly increase the odds of success. The worst possible outcome is that you go about your day with a positive attitude and you don’t get a million dollars. What have you lost?
Saturday, August 28, 2010
America Needs a Rival
I've often wondered over the years, why no other country has ever really tried to 'out-America' America. After all, the whole freedom and capitalism thing worked out pretty well for us for a long time. I imagined it might be because nobody wanted to look as though they were sucking up to the top dog. Well, now that America is in a bit of an economic pickle and continues to wander away from free market principals while expanding government at a break neck pace, how 'bout somebody stepping up?
Let's just go ahead and call the race to mediocrity a 38-way tie and get back to trying to out-do each other. A little less civility and a little more fierce competition is what's called for at the moment. Countries within the former Soviet Bloc were able to look to the U.S. and say, 'There is a better way.' Who will our grandchildren point to as they stand in line for their weekly toilet paper ration? Will they come to believe that's as good as it gets?
Yes, the United States is in desperate need of an aggressive competitor in the economic arena. And no, I don't call remaining stagnant for so long that an oppressive dictatorship actually catches up and passes us (China) aggressive competition. That's just pathetic.
C'mon world. This is your big chance.
Let's just go ahead and call the race to mediocrity a 38-way tie and get back to trying to out-do each other. A little less civility and a little more fierce competition is what's called for at the moment. Countries within the former Soviet Bloc were able to look to the U.S. and say, 'There is a better way.' Who will our grandchildren point to as they stand in line for their weekly toilet paper ration? Will they come to believe that's as good as it gets?
Yes, the United States is in desperate need of an aggressive competitor in the economic arena. And no, I don't call remaining stagnant for so long that an oppressive dictatorship actually catches up and passes us (China) aggressive competition. That's just pathetic.
C'mon world. This is your big chance.
Monday, August 16, 2010
Where's the Inflation At?
If you were to tell an economist, who had been sleeping in a cave for the past decade or so, that the United States was now $13 trillion in debt, running $1.4 trillion deficits and that the Fed was engaged in “quantitative easing” (creating more money), he or she would likely guess that we also had runaway inflation and sky high interest rates. We don’t, and it’s not because of anything the government’s doing. In fact, although they wont say it out loud, they’d like to see some inflation to help alleviate their debt problem. Instead, deflation now seems more likely. So where’s the inflation?
Inflation is a loss in purchasing power of the dollar. In the past this has occurred when there were more dollars in circulation than the economic activity at the time necessitated. We have an economic slump going on in much of the developed world, but we also have a massive number of newcomers to the world economy who value a buck much more than we do. Their influence seems to be making itself known in the form of deflationary pressure. With today’s technology, goods, services and information travel around the world more frequently and faster than ever before. Most people on Earth live far below the level of income of the average American or European. Even in China, the average annual income is $3,600. It’s much lower in other countries. If you’re running a global corporation, the $5 you take in selling a tall latte in a paper cup can buy you 20 man/hours of labor in some countries. Hence, the competition for dollars among international corporations is still fierce and will remain so as long as this wage disparity exists. That is likely to go on for many many years. Sorry Federal Government. No, inflation for you.
Does that mean our government will collapse under its debt? No. It means the government is going to have to hold its spending level steady or lower it for a decade or decades. Now, if a developing country or two became strong and vibrant enough to create a new currency that was widely accepted across the globe, that could be a game changer. But for the time being, the world is short on currency and that means the value of what’s out there is going to go up (deflation) not down (inflation) even in the face of massive debt held by the issuers. Ultimately, when we get closer to parity in global living standards and wages, countries with massive debts will face hyper-inflation. For now, it looks like that will be a challenge for a later generation.
Inflation is a loss in purchasing power of the dollar. In the past this has occurred when there were more dollars in circulation than the economic activity at the time necessitated. We have an economic slump going on in much of the developed world, but we also have a massive number of newcomers to the world economy who value a buck much more than we do. Their influence seems to be making itself known in the form of deflationary pressure. With today’s technology, goods, services and information travel around the world more frequently and faster than ever before. Most people on Earth live far below the level of income of the average American or European. Even in China, the average annual income is $3,600. It’s much lower in other countries. If you’re running a global corporation, the $5 you take in selling a tall latte in a paper cup can buy you 20 man/hours of labor in some countries. Hence, the competition for dollars among international corporations is still fierce and will remain so as long as this wage disparity exists. That is likely to go on for many many years. Sorry Federal Government. No, inflation for you.
Does that mean our government will collapse under its debt? No. It means the government is going to have to hold its spending level steady or lower it for a decade or decades. Now, if a developing country or two became strong and vibrant enough to create a new currency that was widely accepted across the globe, that could be a game changer. But for the time being, the world is short on currency and that means the value of what’s out there is going to go up (deflation) not down (inflation) even in the face of massive debt held by the issuers. Ultimately, when we get closer to parity in global living standards and wages, countries with massive debts will face hyper-inflation. For now, it looks like that will be a challenge for a later generation.
Thursday, August 12, 2010
Information control is bad economic policy
The Chinese want increased ability to censor Google, Saudi Arabia, the UAE, India and other countries have recently threatened to cut off Blackberry service if they don't get access to encrypted customer information and communication. They claim they need access and censorship for national and regional security. But it could prove to be an economy killer.
Information is perhaps the most closely guarded asset global corporations have. If they can't trust that their information is safe, especially in countries where piracy is already a problem, they may ultimately decide that the risk of losing precious intellectual property is not worth the potential reward of establishing themselves in emerging markets.
Countries and regimes that work too hard to control information may or may not achieve increased security, but they will not achieve increased prosperity in the long run. Entrepreneurs, risk takers, producers will go where the risk/reward equation makes the most sense. Nobody wants to see the fruits of their labor simply taken from them, without warning or compensation. Not even in the name of security.
Governments and by extension the populations that enable them to remain in power, must decide if they want a vibrant economy because their government needs money to enforce control or because they want a higher living standard for individuals within the country. Order and control are not virtuous ends in and of themselves. They can be a consequence of good policy, as a happy and satisfied population can be peaceful and orderly. They are not primary goals. Any idiot with a weapon can impose order. It takes wisdom and leadership to enable and inspire creativity, production, trade and freedom.
Information is perhaps the most closely guarded asset global corporations have. If they can't trust that their information is safe, especially in countries where piracy is already a problem, they may ultimately decide that the risk of losing precious intellectual property is not worth the potential reward of establishing themselves in emerging markets.
Countries and regimes that work too hard to control information may or may not achieve increased security, but they will not achieve increased prosperity in the long run. Entrepreneurs, risk takers, producers will go where the risk/reward equation makes the most sense. Nobody wants to see the fruits of their labor simply taken from them, without warning or compensation. Not even in the name of security.
Governments and by extension the populations that enable them to remain in power, must decide if they want a vibrant economy because their government needs money to enforce control or because they want a higher living standard for individuals within the country. Order and control are not virtuous ends in and of themselves. They can be a consequence of good policy, as a happy and satisfied population can be peaceful and orderly. They are not primary goals. Any idiot with a weapon can impose order. It takes wisdom and leadership to enable and inspire creativity, production, trade and freedom.
Tuesday, August 10, 2010
Too Many Economists Spoil...Everything
Ask 3 or 4 economists what’s in store for us given the national debt, the recession and other current data and you may get 3 or 4 different answers. Why? Because predicting human behavior via a reliable mathematical formula is a pipe dream. People’s behavior changes as their experience, knowledge and awareness changes and the behavior of people is ultimately what economics is all about. There are also opposing forces within our financial system which ebb and flow from day to day, week to week and year to year.
You may have heard the financial collapse in late 2008 caused a “liquidity crisis”. That’s because most of the money we use in every day transactions is not actually Treasury issued U.S. dollars. It’s I.O.U.’s from banks to other banks. The amount of I.O.U.’s any bank can have outstanding is dependent on their deposits and other assets. If someone fails to pay back a loan, it has an exponential effect on the amount of money a bank is allowed to loan out. Your $1 default can cost the bank $10 or more in available cash flow. That’s why a default rate of 5, 6 or 7% can be enough to make a bank insolvent.
The Federal Reserve has attempted to counter the loss in total currency resulting from defaults by engaging in “quantitative easing” which is a cool way of saying “creating money out of thin air”. They don’t even go to the trouble of printing it. It’s just an adjustment to the balance sheet. They use this new money to buy assets like Treasuries and corporate bonds from banks, which gives them more cash, which they can leverage to make more loans using something called the “deposit multiplier”.
Countering the Fed’s counter measures is America’s increased savings rate. As people grow more and more skeptical of our government’s ability to competently manage the nation’s business, they start squirreling away cash. They borrow less and some even horde cash at home, rather than in banks. Remember, the bank can loan out several times the amount of money you deposit, so if you put $1 under your mattress instead of in your bank account, the bank loses several dollars in potential cash flow.
Another factor at work in the economy is the fact that profits from the financial markets have accounted for as much as 41% of corporate earnings in recent years. Financial sector profits come largely from fees on transactions (as does government tax revenues). Fewer transactions means fewer opportunities for fees. Hence both the banks and the government have a vested interest in creating more transactions, whether they lead to any actual added value or not. They view any activity as stimulus, when in reality, much of it is just waste.
Ultimately you create a thriving economy when you give people incentive to work harder and/or smarter to create value for one another. You have to make trade easier and more rewarding at all levels, from individual to small business to mega corporation. Creating more money, more rules and new fees isn’t going to get us there. The best thing the government can do for the economy right now is to quit trying to direct it and just sit back and observe for a while. Trust in the cumulative effect of individual decisions. You’ll be amazed at how efficient it really is.
You may have heard the financial collapse in late 2008 caused a “liquidity crisis”. That’s because most of the money we use in every day transactions is not actually Treasury issued U.S. dollars. It’s I.O.U.’s from banks to other banks. The amount of I.O.U.’s any bank can have outstanding is dependent on their deposits and other assets. If someone fails to pay back a loan, it has an exponential effect on the amount of money a bank is allowed to loan out. Your $1 default can cost the bank $10 or more in available cash flow. That’s why a default rate of 5, 6 or 7% can be enough to make a bank insolvent.
The Federal Reserve has attempted to counter the loss in total currency resulting from defaults by engaging in “quantitative easing” which is a cool way of saying “creating money out of thin air”. They don’t even go to the trouble of printing it. It’s just an adjustment to the balance sheet. They use this new money to buy assets like Treasuries and corporate bonds from banks, which gives them more cash, which they can leverage to make more loans using something called the “deposit multiplier”.
Countering the Fed’s counter measures is America’s increased savings rate. As people grow more and more skeptical of our government’s ability to competently manage the nation’s business, they start squirreling away cash. They borrow less and some even horde cash at home, rather than in banks. Remember, the bank can loan out several times the amount of money you deposit, so if you put $1 under your mattress instead of in your bank account, the bank loses several dollars in potential cash flow.
Another factor at work in the economy is the fact that profits from the financial markets have accounted for as much as 41% of corporate earnings in recent years. Financial sector profits come largely from fees on transactions (as does government tax revenues). Fewer transactions means fewer opportunities for fees. Hence both the banks and the government have a vested interest in creating more transactions, whether they lead to any actual added value or not. They view any activity as stimulus, when in reality, much of it is just waste.
Ultimately you create a thriving economy when you give people incentive to work harder and/or smarter to create value for one another. You have to make trade easier and more rewarding at all levels, from individual to small business to mega corporation. Creating more money, more rules and new fees isn’t going to get us there. The best thing the government can do for the economy right now is to quit trying to direct it and just sit back and observe for a while. Trust in the cumulative effect of individual decisions. You’ll be amazed at how efficient it really is.
Wednesday, July 21, 2010
Market solutions don't need Washington D.C.'s approval or even involvement
The credit crunch continues. One in seven homeowners with a mortgage are behind on their payments. Foreclosure rates are still at historic highs and government programs to help alleviate the problem aren’t working.
There are some common sense approaches to the credit problem though, that don’t require government involvement or taxpayer dollars. Many lenders, regulators and politicians are just making the issue more complicated than it needs to be.
Lenders want to protect their investments. They have no vested interest in seeing people tossed out of their homes just for the sake of tossing them out of their homes. What if they could protect their interests and equity without an eviction?
If someone is several payments behind on their mortgage, they are likely going to lose any claim to the house. Since they had borrowed against the value of the home, they really aren’t losing anything as far as assets go. They never really owned it. The heartbreak and upheaval comes from having to pack up and move, and having to do so while one’s access to credit is non existent. What if the lender agreed to finance the arrears over a period of years while allowing the customer to rent the home at current market rates? The customer would give up any claim to the home, pay back the arrears over time and must make timely rent payments. The bank doesn’t have to go through the expense of foreclosure, maintains a revenue stream from the property and retains all its equity in the property.
What if lenders could make it easier to avoid getting behind in the first place? My very first loan was for an old VW Bug I bought when I joined the Army. My credit union had a policy of offering a “skip a payment” option each December to help customers free up some cash for Christmas. It’s not as generous as it may sound. The lender just extends the life of the loan by a month and actually ends up making more money than they would have if you didn’t skip a payment. The customer gets to have a Christmas budget without ever having “saved up”. This doesn’t have to be a Christmas thing. What if borrowers could earn a “skip a payment” option every twelve months (use it or lose it, you can’t skip two payments in any given 12 month period)? This would help mortgage holders when things get really tight. It just might give them the breathing room they need to get through a tough time. Again, the lender is just deferring the payment and getting some extra interest in the process. If it prevents a foreclosure, they come out way ahead.
Why aren’t more of these types of solutions employed? Well, because lawmakers and executives who spend too much time in meetings tend to think the worst of the “average American”. Thus, policy is developed based on the what the very worst among us might do. To be fair, HOA’s and other civillian oversight organizations display the same tendencies. The fact is, most people are good people. A bit less paranoia in the marketplace could serve us all very well.
Of course, not all bad cash flow situations can be salvaged. Sometimes you just have to take your licks. However, with a bit of creative thinking and cooperation rather than panic, lenders and borrowers can work together to serve their own interests without relying on legislation and mandates. Finding ways to minimize trauma while protecting your interests can be good for business in the short, medium and long term. How long do you think a customer will remember that you could have forced them out of their home, but chose not to?
There are some common sense approaches to the credit problem though, that don’t require government involvement or taxpayer dollars. Many lenders, regulators and politicians are just making the issue more complicated than it needs to be.
Lenders want to protect their investments. They have no vested interest in seeing people tossed out of their homes just for the sake of tossing them out of their homes. What if they could protect their interests and equity without an eviction?
If someone is several payments behind on their mortgage, they are likely going to lose any claim to the house. Since they had borrowed against the value of the home, they really aren’t losing anything as far as assets go. They never really owned it. The heartbreak and upheaval comes from having to pack up and move, and having to do so while one’s access to credit is non existent. What if the lender agreed to finance the arrears over a period of years while allowing the customer to rent the home at current market rates? The customer would give up any claim to the home, pay back the arrears over time and must make timely rent payments. The bank doesn’t have to go through the expense of foreclosure, maintains a revenue stream from the property and retains all its equity in the property.
What if lenders could make it easier to avoid getting behind in the first place? My very first loan was for an old VW Bug I bought when I joined the Army. My credit union had a policy of offering a “skip a payment” option each December to help customers free up some cash for Christmas. It’s not as generous as it may sound. The lender just extends the life of the loan by a month and actually ends up making more money than they would have if you didn’t skip a payment. The customer gets to have a Christmas budget without ever having “saved up”. This doesn’t have to be a Christmas thing. What if borrowers could earn a “skip a payment” option every twelve months (use it or lose it, you can’t skip two payments in any given 12 month period)? This would help mortgage holders when things get really tight. It just might give them the breathing room they need to get through a tough time. Again, the lender is just deferring the payment and getting some extra interest in the process. If it prevents a foreclosure, they come out way ahead.
Why aren’t more of these types of solutions employed? Well, because lawmakers and executives who spend too much time in meetings tend to think the worst of the “average American”. Thus, policy is developed based on the what the very worst among us might do. To be fair, HOA’s and other civillian oversight organizations display the same tendencies. The fact is, most people are good people. A bit less paranoia in the marketplace could serve us all very well.
Of course, not all bad cash flow situations can be salvaged. Sometimes you just have to take your licks. However, with a bit of creative thinking and cooperation rather than panic, lenders and borrowers can work together to serve their own interests without relying on legislation and mandates. Finding ways to minimize trauma while protecting your interests can be good for business in the short, medium and long term. How long do you think a customer will remember that you could have forced them out of their home, but chose not to?
Saturday, July 17, 2010
Thursday, June 3, 2010
Who decides what businesses are desirable?
There is a heated debate going on in the City of Fountain, Colorado right now over whether or not to allow medical marijuana dispensaries to operate within the city limits and under what conditions. Several groups have been informally polling and speaking with business people and the general public, to get an idea where they stand on the issue.
As a local business owner, I was asked if I thought having a medical marijuana dispensaries open nearby would help, or hurt my business. I found the question not only leading, but very disturbing. It illustrates an attitude and modis operandi that’s all too typical among people who see more and more government control as a virtuous goal.
The problem I have with the question is that it assumes that I, as a local, existing business, can work with the government to ban undesirable businesses from opening nearby. That’s a very convenient way to keep out indirect competitors. Should a local phone store like Cricket or Verizon and their neighbors have a say in whether or not an electronics store can open near them? Could shopping center owners influence what businesses can open nearby. What if you’re trying to open near a large shopping center, but not renting from that center? Do you think the landlord my have some influence over his or her tennents?
But doesn’t a neighborhood or community have the right to decide what kind of businesses should operate in their area. The do and they exercise it every day. It’s called commerce. Businesses can’t survive, never mind thrive, without customers. You cast your vote every time you make, or don’t make a purchase. A factory, nationwide Internet business or businesses where the customer base doesn’t reside nearby is a different animal, but that’s not what was being discussed here. A business that relies mainly on a local customer base must have their support, as expressed by their purchases.
Taking market forces out of the equation, by making it subject to a political vote or government policy, is the kind of “business/government/community based” approach to commerce that leads to the multi-billion dollar lobbying industry. Businesses don’t compete in the marketplace, they compete in the legislature. They don’t pour resources into research, development, cost cutting and generally adding value, they pour resources into political action committees, community focus groups, polling companies and marketing material and campaigns aimed at influencing a political outcome. As it turns out, when you get large enough in terms of cash flow, it’s more cost efficient to eliminate potential rivals through legislation than to actually compete with them.
An incredible number of medical marijuana dispensaries have opened throughout the state in recent months. I fully expect the marketplace to dispense with most of them. There are a few more expenses involved in owning and operating a commercial, retail store in a highly competitive atmosphere than there are in selling dope out of your basement. Suddenly you have rent, utilities, signage, taxes, employees and there are six other guys in a two mile radius, openly enticing your customers to buy from them. Sure was nice when you were the only guy they knew that sold pot.
But if you have the know-how and the discipline to pull it off, you have a consistent local customer base, and you’re operating a legal business, who am I to say you shouldn’t exist? The legitimate issue for government is to determine whether or not there is a direct public safety issue and if so, make that case to the public. Whether or not a local retailer has the support of the public will be determined when/if they open for business.
As a local business owner, I was asked if I thought having a medical marijuana dispensaries open nearby would help, or hurt my business. I found the question not only leading, but very disturbing. It illustrates an attitude and modis operandi that’s all too typical among people who see more and more government control as a virtuous goal.
The problem I have with the question is that it assumes that I, as a local, existing business, can work with the government to ban undesirable businesses from opening nearby. That’s a very convenient way to keep out indirect competitors. Should a local phone store like Cricket or Verizon and their neighbors have a say in whether or not an electronics store can open near them? Could shopping center owners influence what businesses can open nearby. What if you’re trying to open near a large shopping center, but not renting from that center? Do you think the landlord my have some influence over his or her tennents?
But doesn’t a neighborhood or community have the right to decide what kind of businesses should operate in their area. The do and they exercise it every day. It’s called commerce. Businesses can’t survive, never mind thrive, without customers. You cast your vote every time you make, or don’t make a purchase. A factory, nationwide Internet business or businesses where the customer base doesn’t reside nearby is a different animal, but that’s not what was being discussed here. A business that relies mainly on a local customer base must have their support, as expressed by their purchases.
Taking market forces out of the equation, by making it subject to a political vote or government policy, is the kind of “business/government/community based” approach to commerce that leads to the multi-billion dollar lobbying industry. Businesses don’t compete in the marketplace, they compete in the legislature. They don’t pour resources into research, development, cost cutting and generally adding value, they pour resources into political action committees, community focus groups, polling companies and marketing material and campaigns aimed at influencing a political outcome. As it turns out, when you get large enough in terms of cash flow, it’s more cost efficient to eliminate potential rivals through legislation than to actually compete with them.
An incredible number of medical marijuana dispensaries have opened throughout the state in recent months. I fully expect the marketplace to dispense with most of them. There are a few more expenses involved in owning and operating a commercial, retail store in a highly competitive atmosphere than there are in selling dope out of your basement. Suddenly you have rent, utilities, signage, taxes, employees and there are six other guys in a two mile radius, openly enticing your customers to buy from them. Sure was nice when you were the only guy they knew that sold pot.
But if you have the know-how and the discipline to pull it off, you have a consistent local customer base, and you’re operating a legal business, who am I to say you shouldn’t exist? The legitimate issue for government is to determine whether or not there is a direct public safety issue and if so, make that case to the public. Whether or not a local retailer has the support of the public will be determined when/if they open for business.
Tuesday, May 18, 2010
Open letter to Republican Incumbents
You may have noticed that there is a wave of angry voters out there. If you are in danger of losing your job, you may believe it's unfair; that your voting record demonstrates you are not part of the problem. I believe many of you still don't understand what all the fuss is about. Let me try to clarify.
The frustrated masses are not just Tea Party members. There are also frustrated individuals who prefer not to march under anyone's banner (myself included). We believe that this country is facing not only fiscal and economic disaster, but social disaster. Every time the government passes a new regulation, mandate, fee, or takes on some new role with respect to individuals, companies or organizations, we lose a little more individual freedom. We don't want you to take care of us. We just want to be able to interact with one another in the absence of force. We don't want you to make change painless. We want you to do the right thing.
Perhaps your voting record is immaculate. Maybe you've said and written all the right things during the course of your career. What were the results? We don't have time for another group of well intentioned politicians to do their very best and come up short...again. We're not interested in politicians that want to appease those who want less government while also appeasing those who want more government. It's not enough to be opposed to toxic policies. Stop them. When two sides advocate diametrically opposed philosophies of the role of government, you can't ride the fence. Pick a side and play to win. I don't know what you can do between now and your next election to convince the voters that you will reduce the size, scope and cost of government, but that's what we demand. As the great philosopher, Yoda, said "Do or do not. There is no try."
The Tea Party is not your enemy. Reality is.
The frustrated masses are not just Tea Party members. There are also frustrated individuals who prefer not to march under anyone's banner (myself included). We believe that this country is facing not only fiscal and economic disaster, but social disaster. Every time the government passes a new regulation, mandate, fee, or takes on some new role with respect to individuals, companies or organizations, we lose a little more individual freedom. We don't want you to take care of us. We just want to be able to interact with one another in the absence of force. We don't want you to make change painless. We want you to do the right thing.
Perhaps your voting record is immaculate. Maybe you've said and written all the right things during the course of your career. What were the results? We don't have time for another group of well intentioned politicians to do their very best and come up short...again. We're not interested in politicians that want to appease those who want less government while also appeasing those who want more government. It's not enough to be opposed to toxic policies. Stop them. When two sides advocate diametrically opposed philosophies of the role of government, you can't ride the fence. Pick a side and play to win. I don't know what you can do between now and your next election to convince the voters that you will reduce the size, scope and cost of government, but that's what we demand. As the great philosopher, Yoda, said "Do or do not. There is no try."
The Tea Party is not your enemy. Reality is.
Wednesday, May 12, 2010
Is sovereign currency about to go out of style?
Gold has been doing very well lately. As people lose confidence in global currencies, they hedge their bets by buying gold. Gold isn’t patented to any one country and so isn’t dependent on the competence of any government. The drawback is that it isn’t widely accepted as currency. That may be about to change.
in 2009, Thomas Geissler, the chief executive of TG-Gold-Super-Markt in Germany, rolled out a vending machine that dispenses small gold bars and coins. He’s since upgraded it to be able to update the price of gold every two minutes and has installed one in the prestigious Emirates Palace hotel in Abu Dhabi on a day when gold reached another all-time high.
The trouble with world currencies is that the only difference between a dollar bill and a Treasury bill is that one has an expiration date, and you get an interest premium to compensate for it. So when a government issues new debt (which they’ve all been doing a lot of lately) they are essentially creating new money. They’re adding new supply while demand is waning.
Central banks have been able to keep currencies relatively stable with respect to each other by buying and selling one another’s currency to achieve specific target ranges. They have not been able to hold their own against gold. While production does increase supply, demand is strong and growing. It may hit a tipping point if and when some major company or organization starts accepting, then demanding gold as payment.
A convenient way to acquire gold currency, such as Mr. Geissler’s “Gold to Go” machines, might just be a catalyst to creating a new global currency, which would be terrible news for existing global currencies.
in 2009, Thomas Geissler, the chief executive of TG-Gold-Super-Markt in Germany, rolled out a vending machine that dispenses small gold bars and coins. He’s since upgraded it to be able to update the price of gold every two minutes and has installed one in the prestigious Emirates Palace hotel in Abu Dhabi on a day when gold reached another all-time high.
The trouble with world currencies is that the only difference between a dollar bill and a Treasury bill is that one has an expiration date, and you get an interest premium to compensate for it. So when a government issues new debt (which they’ve all been doing a lot of lately) they are essentially creating new money. They’re adding new supply while demand is waning.
Central banks have been able to keep currencies relatively stable with respect to each other by buying and selling one another’s currency to achieve specific target ranges. They have not been able to hold their own against gold. While production does increase supply, demand is strong and growing. It may hit a tipping point if and when some major company or organization starts accepting, then demanding gold as payment.
A convenient way to acquire gold currency, such as Mr. Geissler’s “Gold to Go” machines, might just be a catalyst to creating a new global currency, which would be terrible news for existing global currencies.
Monday, May 10, 2010
Defending the Euro
I just sent this as an email FoxBusiness.com. I thought it would make a good post as well.
Wouldn't it have been better in terms of the value of the Euro as a currency if they had let Greece default (or restructure)? A country's currency is only as valuable as the world perceives it to be. A lot of that has to do with supply control.
I would be more impressed if the Euro-zone had told Greece "No, you can't have more Euro's, find another way." Even had Greece been forced to restructure its debt, that would demonstrate a failed business model, not a failed currency. In fact, the currency was too valuable to just give away.
I would think that would have increased the value of the Euro in the longer term. They haven't propped up the currency. They're trying to prop up a nanny state. I assume because they just don't want to believe it doesn't work.
Wouldn't it have been better in terms of the value of the Euro as a currency if they had let Greece default (or restructure)? A country's currency is only as valuable as the world perceives it to be. A lot of that has to do with supply control.
I would be more impressed if the Euro-zone had told Greece "No, you can't have more Euro's, find another way." Even had Greece been forced to restructure its debt, that would demonstrate a failed business model, not a failed currency. In fact, the currency was too valuable to just give away.
I would think that would have increased the value of the Euro in the longer term. They haven't propped up the currency. They're trying to prop up a nanny state. I assume because they just don't want to believe it doesn't work.
Thursday, April 29, 2010
The Cape Wind debacle
Cape Wind demonstrates that wind and solar are not the answer to our energy Jones.
The Obama administration recently approved America’s first off-shore wind farm, dubbed Cape Wind, off the coast of Cape Cod. This comes after 10 years of mandatory study, review and battling opposition groups. But opponents vow to continue to fight on grounds ranging from historic and cultural preservation to aesthetics, to safety. Similar arguments have held up solar and wind projects across the country.
It’s not just a matter of time. These delays, court battles, mandatory studies and public relations battles cost tens of millions of dollars which must be recovered somehow. If and when a project actually gets done, the cost will have to be built in to utility bills.
Wind and solar farms take up a lot of square miles. It appears there simply is not enough non-contested area on land or sea to even put a dent in our energy needs. Even individuals installing solar panels on their homes, must do battle with neighbors who want to plant or keep their trees.
The Cape Wind project would be 130 giant wind turbines, each 400 feet tall, and would hopefully provide 75% of the power requirements for Cape Cod. Now imagine what it would take to provide even 10% of the power requirements for Manhattan. Solar isn’t any more practical. If you wanted to use solar farms to supply the power needs for New York City, you’d have to cover most of upstate NY with solar panels. It’s just not going to happen.
Everyone likes the warm, fuzzy feeling they get when they talk about “clean” energy, but few want the means of production located anywhere near them. That being the case, perhaps we should stop throwing money down these black holes and look for solutions that have a snowballs chance of seeing the light of day. There are other options. Perhaps the most promising is algae to fuel. Algae farms can be located anywhere that has access to sunlight and carbon dioxide. You don’t even need clean water. Yet for some reason, approaches that are doomed to fail seem to garner all the taxpayer “investment” dollars. This is not an energy policy. It’s a bureaucrat and attorney jobs program.
The Obama administration recently approved America’s first off-shore wind farm, dubbed Cape Wind, off the coast of Cape Cod. This comes after 10 years of mandatory study, review and battling opposition groups. But opponents vow to continue to fight on grounds ranging from historic and cultural preservation to aesthetics, to safety. Similar arguments have held up solar and wind projects across the country.
It’s not just a matter of time. These delays, court battles, mandatory studies and public relations battles cost tens of millions of dollars which must be recovered somehow. If and when a project actually gets done, the cost will have to be built in to utility bills.
Wind and solar farms take up a lot of square miles. It appears there simply is not enough non-contested area on land or sea to even put a dent in our energy needs. Even individuals installing solar panels on their homes, must do battle with neighbors who want to plant or keep their trees.
The Cape Wind project would be 130 giant wind turbines, each 400 feet tall, and would hopefully provide 75% of the power requirements for Cape Cod. Now imagine what it would take to provide even 10% of the power requirements for Manhattan. Solar isn’t any more practical. If you wanted to use solar farms to supply the power needs for New York City, you’d have to cover most of upstate NY with solar panels. It’s just not going to happen.
Everyone likes the warm, fuzzy feeling they get when they talk about “clean” energy, but few want the means of production located anywhere near them. That being the case, perhaps we should stop throwing money down these black holes and look for solutions that have a snowballs chance of seeing the light of day. There are other options. Perhaps the most promising is algae to fuel. Algae farms can be located anywhere that has access to sunlight and carbon dioxide. You don’t even need clean water. Yet for some reason, approaches that are doomed to fail seem to garner all the taxpayer “investment” dollars. This is not an energy policy. It’s a bureaucrat and attorney jobs program.
Monday, March 29, 2010
So you've just been force-fed health care "reform". Now what?
Well, the debate is over. The big health care reform bill is now the law of the land. Like most Congressmen, I can't wait to see what they've done. No more predictions, no more theories. Nothing left to do but watch. Either everything is going to be great...or it's not.
We can still theorize and predict spin and tactics though. Step one was to go public with nasty emails, making it seem as though a bunch of psychos suddenly have come out of the closet to threaten Democrats. The only problem is that lawmakers on both sides of the aisle, and pundits and news anchors, have been getting nasty emails and phone calls as far back as anyone can remember. Both parties received their share in recent weeks and the Sergeant at Arms for the House of Representatives stated there has been no notable increase recently. So why all the commotion? The idea was to make it look as though those who opposed this bill are very bad people.
Next, it's time to demonize corporations again. AT&T, Verizon, Caterpillar and others have announced that they'll be taking big charges against earnings and possibly cutting benefits, jobs or both. Now there are calls for Congressional hearings to make the CEO's of these companies explain themselves. I'll save you the trouble. When a socialist leaning lawmaker sees a company post a $3 billion dollar profit, they think "Well, they can certainly afford a $1 billion, new expense." In reality, if you reduce a company's earnings potential by 33%, you reduce the value of the company by 33% and the stock price will eventually reflect that. It is the job of management to maintain and grow earnings on behalf of the shareholders or owners (the guys they work for). Naturally, they have to take defensive action.
This will be portrayed as "putting profit before the welfare of employees". Maybe that's so, but why do people start and invest in companies? To provide for employees? No, they do it to make money. They pay employees to help them make money, not just for the sake of paying employees. Why do you get up every morning and go to work at the chip assembly plant? Because you feel some duty to humanity to provide them with computer chips? No, you do it to make money. In fact, if you're taking home more than you need to just barely stay alive, you're being greedy as well.
That's where this is going. Once the profit has been removed from business, you're next. Your government will decide how much you need and deserve and that's all you're going to get. Then they'll be flying around in their private jets, meeting at the best of hotels with their entourages in tow, thinking of just the right words to use to convince you how much better life is than it was before.
We can still theorize and predict spin and tactics though. Step one was to go public with nasty emails, making it seem as though a bunch of psychos suddenly have come out of the closet to threaten Democrats. The only problem is that lawmakers on both sides of the aisle, and pundits and news anchors, have been getting nasty emails and phone calls as far back as anyone can remember. Both parties received their share in recent weeks and the Sergeant at Arms for the House of Representatives stated there has been no notable increase recently. So why all the commotion? The idea was to make it look as though those who opposed this bill are very bad people.
Next, it's time to demonize corporations again. AT&T, Verizon, Caterpillar and others have announced that they'll be taking big charges against earnings and possibly cutting benefits, jobs or both. Now there are calls for Congressional hearings to make the CEO's of these companies explain themselves. I'll save you the trouble. When a socialist leaning lawmaker sees a company post a $3 billion dollar profit, they think "Well, they can certainly afford a $1 billion, new expense." In reality, if you reduce a company's earnings potential by 33%, you reduce the value of the company by 33% and the stock price will eventually reflect that. It is the job of management to maintain and grow earnings on behalf of the shareholders or owners (the guys they work for). Naturally, they have to take defensive action.
This will be portrayed as "putting profit before the welfare of employees". Maybe that's so, but why do people start and invest in companies? To provide for employees? No, they do it to make money. They pay employees to help them make money, not just for the sake of paying employees. Why do you get up every morning and go to work at the chip assembly plant? Because you feel some duty to humanity to provide them with computer chips? No, you do it to make money. In fact, if you're taking home more than you need to just barely stay alive, you're being greedy as well.
That's where this is going. Once the profit has been removed from business, you're next. Your government will decide how much you need and deserve and that's all you're going to get. Then they'll be flying around in their private jets, meeting at the best of hotels with their entourages in tow, thinking of just the right words to use to convince you how much better life is than it was before.
Sunday, March 21, 2010
How “exceptionalism” killed the American experiment
Our founding fathers embarked on a great experiment when they created the United States of America. What if the individual citizens held all the power? What if government were required to be responsive and accountable to its citizens? What if individual rights trumped the interests of the state? What if individuals were free to pursue happiness by their own definition. Of course, with individual freedom comes individual responsibility. Hence we started making exceptions.
Over the decades and centuries we decided that individuals are responsible for themselves, except that we’ll have Social Security, and welfare, and Medicare and Medicaid and unemployment insurance and a host of other safety nets, grants and entitlements. Individuals are free to enjoy their private property except when doing so conflicts with the “general welfare”. For example if society can make better use of your land than you by building a new road, or even a shopping center, you’ll just have to give it up for the greater good. Individuals shall be free to engage in trade, except that they’ll do so in pre-designated zones, and collect the proper taxes and pay various fees, and obtain proper licenses and comply with the appropriate regulations. Citizens have the right to bear arms, except when they don’t. Taxes shall be imposed in a uniform manner, except when the government decides to use tax credits, penalties, incentives and varying rates to influence behavior.
Now we’ve made the ultimate exception by deciding that the government is responsible for ensuring everyone gets health care. In this debate, the cost, whether or not to cover abortion, tax rates, fees and other clauses were really side issues. The underlying issue is power. The government now has legitimate justification to regulate every aspect of your life. If we’re all providing for each others health care, anything that might impact the cost or delivery of health care becomes everyones business. The food you eat, the car you drive, the recreation you engage in all have the potential to do me financial harm in the form of increasing health care costs and so I now have a vested interest in them. It’s now up to the government to ensure that the impact of your activities on me is minimized. Your activities will have to be monitored and regulated. Think this is hyperbole? When the President signs the bill on Tuesday, the IRS will officially be in charge of monitoring whether or not you have the proper health care plan, and doling out penalties if you don't.
We are in the midst of a substantial shift, from a society that put the individual on top, to one in which the individual is irrelevant. Society is no longer a tool for the individual to make use of when and if he or she chooses. It is now a master to be nurtured, fed and obeyed. You are called upon to “serve something higher than yourself”. After all, your self is insignificant. It’s others that matter. Others means everyone except you. We still choose our leaders in democratic elections. But, those leaders are now charged with serving the greater good through the power of the state, not with protecting the rights of any individual. Individuals are expendable.
Many people are very pleased with this evolution. They believe that a collectivist society can work if it’s implemented correctly and gradually. To me, it’s like a kid believing that if they move their finger to the hot stove slowly enough, it wont burn this time. People gravitate towards the socialist ideal because they believe that somehow, they’re personally going to come out ahead. All you have to do to get things from “society” is demonstrate that you’re more needy than others. Predictably socialism has demonstrated a great capacity to increase neediness. I don’t believe that the results at this latest attempt to create a collectivist Utopia will prove to be an exception.
Over the decades and centuries we decided that individuals are responsible for themselves, except that we’ll have Social Security, and welfare, and Medicare and Medicaid and unemployment insurance and a host of other safety nets, grants and entitlements. Individuals are free to enjoy their private property except when doing so conflicts with the “general welfare”. For example if society can make better use of your land than you by building a new road, or even a shopping center, you’ll just have to give it up for the greater good. Individuals shall be free to engage in trade, except that they’ll do so in pre-designated zones, and collect the proper taxes and pay various fees, and obtain proper licenses and comply with the appropriate regulations. Citizens have the right to bear arms, except when they don’t. Taxes shall be imposed in a uniform manner, except when the government decides to use tax credits, penalties, incentives and varying rates to influence behavior.
Now we’ve made the ultimate exception by deciding that the government is responsible for ensuring everyone gets health care. In this debate, the cost, whether or not to cover abortion, tax rates, fees and other clauses were really side issues. The underlying issue is power. The government now has legitimate justification to regulate every aspect of your life. If we’re all providing for each others health care, anything that might impact the cost or delivery of health care becomes everyones business. The food you eat, the car you drive, the recreation you engage in all have the potential to do me financial harm in the form of increasing health care costs and so I now have a vested interest in them. It’s now up to the government to ensure that the impact of your activities on me is minimized. Your activities will have to be monitored and regulated. Think this is hyperbole? When the President signs the bill on Tuesday, the IRS will officially be in charge of monitoring whether or not you have the proper health care plan, and doling out penalties if you don't.
We are in the midst of a substantial shift, from a society that put the individual on top, to one in which the individual is irrelevant. Society is no longer a tool for the individual to make use of when and if he or she chooses. It is now a master to be nurtured, fed and obeyed. You are called upon to “serve something higher than yourself”. After all, your self is insignificant. It’s others that matter. Others means everyone except you. We still choose our leaders in democratic elections. But, those leaders are now charged with serving the greater good through the power of the state, not with protecting the rights of any individual. Individuals are expendable.
Many people are very pleased with this evolution. They believe that a collectivist society can work if it’s implemented correctly and gradually. To me, it’s like a kid believing that if they move their finger to the hot stove slowly enough, it wont burn this time. People gravitate towards the socialist ideal because they believe that somehow, they’re personally going to come out ahead. All you have to do to get things from “society” is demonstrate that you’re more needy than others. Predictably socialism has demonstrated a great capacity to increase neediness. I don’t believe that the results at this latest attempt to create a collectivist Utopia will prove to be an exception.
Sunday, March 7, 2010
Was it the spending or the war that ended the Great Depression
With our national debt currently at around 86% of Gross Domestic Product and rising, many are concerned about the fiscal future of our country. Others point to the 1940's, when spending on World War II skyrocketed national debt to 120% of GDP and pulled us out of the Great Depression. They credit massive government spending with saving the economy.
If you look only at the statistics, that's true. But you have to put the spending in context. World War II was an endeavor that most individuals in the country had to be personally involved in. Millions of able bodied adult males were drafted and the women worked the factory jobs. We didn't have drones, satellites and assembly line robots. We had to use people. As a result, a huge segment of the population was taken out of its comfort zone and exposed to new ideas, new people, new places. It was a nation-wide life changing phenomenon even greater than the internet.
The massive spending was not on "make-work" projects. We needed specific things for our very survival. We needed air craft carriers, ships, vehicles, bombs. We had to reverse engineer whatever the enemy came up with. We needed to do it better and throw it right back at them. It was a highly motivated population working at absolutely necessary endeavors. We were not building bridges to nowhere, studying ketchup flow or planting flowers in the highway medians, just to keep people busy.
All of these things together created a huge jump in productivity and we were able to overcome the massive debt we had created. We are in a very different circumstance today. Spending alone will not fix our economy any more than recruiting one member of the New Orleans Saints will get you a Super Bowl win next year.
Perhaps fending off an invasion of extra-terrestrial invaders could have a similar impact. But, I don't think banking on that scenario is a good idea. It's time to reign in the government and its spending and remove the overhanging burden of massive debt from the marketplace.
If you look only at the statistics, that's true. But you have to put the spending in context. World War II was an endeavor that most individuals in the country had to be personally involved in. Millions of able bodied adult males were drafted and the women worked the factory jobs. We didn't have drones, satellites and assembly line robots. We had to use people. As a result, a huge segment of the population was taken out of its comfort zone and exposed to new ideas, new people, new places. It was a nation-wide life changing phenomenon even greater than the internet.
The massive spending was not on "make-work" projects. We needed specific things for our very survival. We needed air craft carriers, ships, vehicles, bombs. We had to reverse engineer whatever the enemy came up with. We needed to do it better and throw it right back at them. It was a highly motivated population working at absolutely necessary endeavors. We were not building bridges to nowhere, studying ketchup flow or planting flowers in the highway medians, just to keep people busy.
All of these things together created a huge jump in productivity and we were able to overcome the massive debt we had created. We are in a very different circumstance today. Spending alone will not fix our economy any more than recruiting one member of the New Orleans Saints will get you a Super Bowl win next year.
Perhaps fending off an invasion of extra-terrestrial invaders could have a similar impact. But, I don't think banking on that scenario is a good idea. It's time to reign in the government and its spending and remove the overhanging burden of massive debt from the marketplace.
Friday, February 26, 2010
The Day After
The US national debt is currently about $12.4 trillion. Interest on the debt is about $.2 trillion annually. Actual federal tax revenue is about $2.1 trillion, while the budget is over $3.5 trillion. To bring the budget in balance immediately would require an across the board cut of at least 33% in federal spending.
Federal spending has increased on average about 8% over the past decade, while average annual GDP growth is closer to 3%. National debt is now almost 87% of GDP and rising. No one is proposing any real reduction in federal spending. In fact, many are pushing for more. A lot more.
It was once conceivable that we could grow our way out of this situation. But the growth rate required to keep up with government spending trends would spur skyrocketing interest rates, which would cause the deficit to spiral out of control at an even faster clip.
At this point, you have to believe one of two things. The government will muster the political courage to make massive cuts in spending or the failure of this government is imminent. It might be next week. It might be in 20 years, but without a sea change in policy, behavior and the philosophy of the government’s role in society, it’s not a question of if it will collapse, just when.
Right now, politicians are playing fiscal hot potato. The hope is that they can continue as is until they are out of office and safely retired. The next crew will figure something out. But the next crew will be the same personalities in different suits.
All I can recommend is that you ground yourself in your principals. There will be a day after. There may be no avoiding the train wreck, but you control how you’ll respond to it. Make it something future generations can be proud of.
Federal spending has increased on average about 8% over the past decade, while average annual GDP growth is closer to 3%. National debt is now almost 87% of GDP and rising. No one is proposing any real reduction in federal spending. In fact, many are pushing for more. A lot more.
It was once conceivable that we could grow our way out of this situation. But the growth rate required to keep up with government spending trends would spur skyrocketing interest rates, which would cause the deficit to spiral out of control at an even faster clip.
At this point, you have to believe one of two things. The government will muster the political courage to make massive cuts in spending or the failure of this government is imminent. It might be next week. It might be in 20 years, but without a sea change in policy, behavior and the philosophy of the government’s role in society, it’s not a question of if it will collapse, just when.
Right now, politicians are playing fiscal hot potato. The hope is that they can continue as is until they are out of office and safely retired. The next crew will figure something out. But the next crew will be the same personalities in different suits.
All I can recommend is that you ground yourself in your principals. There will be a day after. There may be no avoiding the train wreck, but you control how you’ll respond to it. Make it something future generations can be proud of.
Friday, February 12, 2010
Ramsay's Record
On Ramsay's Kitchen Nightmares, Chef Gordon Ramsay comes into a troubled restaurant and tries to get it turned around. No matter how dreadful the situation, he always seems to end his week long project with a successful relaunch and a staff committed to doing things right from now on. But what happens after he leaves?
I got curious when I watched the J. Willy's episode and later the Fiesta Sunrise episode and thought "There's no way this place is still open." I was right. As it turns out, roughly two thirds of the restaurants featured on Kitchen Nightmares, in 5 seasons in the UK and now in its 3d season in the U.S., have either closed or changed ownership. Some have pointed to these stats as evidence of failure on Ramsay's part. I beg to differ.
First of all, the vast majority of the restaurants featured on the show have one foot in the grave when he walks in the door. The fact that 1/3 of them have survived is really quite impressive. The thing that gave me the willies about J. Willy's, was that it appeared to me that the owner was simply banking on the publicity from the show to make him rich. Of course everyone smiled for the cameras, put on a good show and pledged to take Ramsay's advice to heart. Publicity wont make your food taste good. It wont make people okay with waiting too long for sub-par food at inflated prices. You have to continue to execute and provide value. Incredibly, although J. Willy's closed down, there's still a website that encourages people to "invest" in the brand name sauce that Ramsay developed for the restaurant to try to save their sorry behinds.
In the case of Fiesta Sunrise, Vick was clueless when Ramsay got there and just as clueless when he left. Yes, they had a good night, new furniture, flashy new signage and cleaned the place up. But then, they handed the reins back to Vick. But at that point I don't think Warren Buffet could have made it work. The place had 120 seats, a 90k a month break even point and was 850k in debt. Do the math. They would have had to fill the place, twice over, every day, 7 days a week, 365 days a year for about 10 years to pay off that debt.
Ramsay doesn't provide salvation. He provides a fighting chance. He goes into places that are on death's door and gives them the insight and opportunity to work their way back. But, the same people who drove it into the ground are responsible for turning it around after their one-week crash course in restaurant and business management. It's a long shot to say the least. I'd wager that his 30+% success rate is about 29% better than the results would have been without him.
I got curious when I watched the J. Willy's episode and later the Fiesta Sunrise episode and thought "There's no way this place is still open." I was right. As it turns out, roughly two thirds of the restaurants featured on Kitchen Nightmares, in 5 seasons in the UK and now in its 3d season in the U.S., have either closed or changed ownership. Some have pointed to these stats as evidence of failure on Ramsay's part. I beg to differ.
First of all, the vast majority of the restaurants featured on the show have one foot in the grave when he walks in the door. The fact that 1/3 of them have survived is really quite impressive. The thing that gave me the willies about J. Willy's, was that it appeared to me that the owner was simply banking on the publicity from the show to make him rich. Of course everyone smiled for the cameras, put on a good show and pledged to take Ramsay's advice to heart. Publicity wont make your food taste good. It wont make people okay with waiting too long for sub-par food at inflated prices. You have to continue to execute and provide value. Incredibly, although J. Willy's closed down, there's still a website that encourages people to "invest" in the brand name sauce that Ramsay developed for the restaurant to try to save their sorry behinds.
In the case of Fiesta Sunrise, Vick was clueless when Ramsay got there and just as clueless when he left. Yes, they had a good night, new furniture, flashy new signage and cleaned the place up. But then, they handed the reins back to Vick. But at that point I don't think Warren Buffet could have made it work. The place had 120 seats, a 90k a month break even point and was 850k in debt. Do the math. They would have had to fill the place, twice over, every day, 7 days a week, 365 days a year for about 10 years to pay off that debt.
Ramsay doesn't provide salvation. He provides a fighting chance. He goes into places that are on death's door and gives them the insight and opportunity to work their way back. But, the same people who drove it into the ground are responsible for turning it around after their one-week crash course in restaurant and business management. It's a long shot to say the least. I'd wager that his 30+% success rate is about 29% better than the results would have been without him.
Monday, February 8, 2010
Creating work vs. creating wealth
I saw a report some years back that studied the correlation between average global temperatures, as determined by ice core samples, and global economic activity (sorry I couldn't find it online). The conclusion was that there is a direct connection. Lower temperatures directly correspond to less trade. Higher temperatures directly correspond to increased trade.
Part of that may be psychological. People may be more sluggish and less productive when they're colder, but a big part of it is how resources are expended. One might think that snowstorms and cold weather are job creators and thus, good for the economy. But while colder temps may require more work, that work does not result in more wealth.
When you create something that is worth more than the sum of its parts, you have created wealth. Tie a rock to a stick and you have a hammer or an axe, worth more than a rock plus a stick plus some binding. When you provide a service that makes someone else more productive, you create wealth. If you deliver something for me, allowing me to continue to work on something more valuable than what I'm paying you, you have added value.
When I have to spend twice as much on snow removal this year as I did last year, that's not a creation of wealth, it's a transfer, and there is a net loss in the process. You get my money, but you have expenses, and in the end, the result is at best, a return to pre-storm status quo. No value has been added in comparison to last year.
This is a dynamic that the current crop of economic eggheads in Washington D.C. completely misses. They believe that any transfer of money is good for the economy. They don't recognize any difference between paying people to dig holes, then fill them back in and paying someone for something that's worth more to the recipient than it is to the provider. The latter is how free markets work. Both parties voluntarily enter into a transaction that leaves each with more value than they started with. The former is central control. It serves to keep people busy and has the added benefit of generating tax revenue, since whenever money changes hands in this country, it's usually subject to some sort of tax. It does not create wealth, it consumes it.
The challenge for the government now is not to "put people to work", but to enable wealth creation by allowing individuals to reap the rewards of their good ideas and hard work. To do that, they must enable individuals to choose what to spend their money on and when. They must also allow producers to offer their goods and services at market determined prices, with minimal government interference.
This is in direct contradiction to the nature of most politicians. They generally seek more control, not less. As long as this is the case, the global economic cooling trend will continue.
Part of that may be psychological. People may be more sluggish and less productive when they're colder, but a big part of it is how resources are expended. One might think that snowstorms and cold weather are job creators and thus, good for the economy. But while colder temps may require more work, that work does not result in more wealth.
When you create something that is worth more than the sum of its parts, you have created wealth. Tie a rock to a stick and you have a hammer or an axe, worth more than a rock plus a stick plus some binding. When you provide a service that makes someone else more productive, you create wealth. If you deliver something for me, allowing me to continue to work on something more valuable than what I'm paying you, you have added value.
When I have to spend twice as much on snow removal this year as I did last year, that's not a creation of wealth, it's a transfer, and there is a net loss in the process. You get my money, but you have expenses, and in the end, the result is at best, a return to pre-storm status quo. No value has been added in comparison to last year.
This is a dynamic that the current crop of economic eggheads in Washington D.C. completely misses. They believe that any transfer of money is good for the economy. They don't recognize any difference between paying people to dig holes, then fill them back in and paying someone for something that's worth more to the recipient than it is to the provider. The latter is how free markets work. Both parties voluntarily enter into a transaction that leaves each with more value than they started with. The former is central control. It serves to keep people busy and has the added benefit of generating tax revenue, since whenever money changes hands in this country, it's usually subject to some sort of tax. It does not create wealth, it consumes it.
The challenge for the government now is not to "put people to work", but to enable wealth creation by allowing individuals to reap the rewards of their good ideas and hard work. To do that, they must enable individuals to choose what to spend their money on and when. They must also allow producers to offer their goods and services at market determined prices, with minimal government interference.
This is in direct contradiction to the nature of most politicians. They generally seek more control, not less. As long as this is the case, the global economic cooling trend will continue.
Thursday, February 4, 2010
What will the U.S. debt lead to?
The problem people are having in getting their heads around what a $13 trillion dollar debt means, with deficits running 30 - 40% of the total federal budget, is that we're in uncharted waters. This is a level of fiscally throwing caution to the wind that the world has never seen before. It's hard to say what might result from this because there's no example to look back on.
There may not be a historically significant example, but I do have a personal annectdote that may apply. Back in my younger days, I liked to play poker with the guys at work. Sometimes we'd get a bit carried away and the pots would get pretty big. We began to exchange "markers" or I.O.U.'s, which we agreed would only be collected upon at the poker table. We didn't want to take anyone's grocery money after all. However, if you had outstanding "markers" you didn't get to leave the table with any cash. You had to pay down what you could before calling it a night.
This went on for a while, and worked out pretty well, until one evening when the pots got really out of hand. I was having a winning night, and many of my colleagues were trying to make all their losses up in one hand. Long story short, I wound up with something like $13 million in "markers". Everyone was having a good laugh and decided that of course, we should just throw these markers out. I said I had no problem with that provided that the $600 or so of markers I had outstanding before that night's game were also thrown out. This caused a big uproar of protest. So I said I'd honor my $600 in markers if those who owed me the $13 million honored theirs. The markers were all thrown out. We dispensed with the marker system and started playing cash only.
The level of U.S. debt is beginning to approach the level of ridiculousness of my $13 million in markers. Other countries are in a similar pickle. In the end we may have to employ a solution similar to the one my poker buddies and I came up with. Clear the books, call it even and start over with a new system. This would cause the most heart ache at the millionaire and billionaire level, so it will be avoided as long as possible. But, it seems we're all playing with funny money already. It's just a matter of time before the major players have to acknowledge it.
There may not be a historically significant example, but I do have a personal annectdote that may apply. Back in my younger days, I liked to play poker with the guys at work. Sometimes we'd get a bit carried away and the pots would get pretty big. We began to exchange "markers" or I.O.U.'s, which we agreed would only be collected upon at the poker table. We didn't want to take anyone's grocery money after all. However, if you had outstanding "markers" you didn't get to leave the table with any cash. You had to pay down what you could before calling it a night.
This went on for a while, and worked out pretty well, until one evening when the pots got really out of hand. I was having a winning night, and many of my colleagues were trying to make all their losses up in one hand. Long story short, I wound up with something like $13 million in "markers". Everyone was having a good laugh and decided that of course, we should just throw these markers out. I said I had no problem with that provided that the $600 or so of markers I had outstanding before that night's game were also thrown out. This caused a big uproar of protest. So I said I'd honor my $600 in markers if those who owed me the $13 million honored theirs. The markers were all thrown out. We dispensed with the marker system and started playing cash only.
The level of U.S. debt is beginning to approach the level of ridiculousness of my $13 million in markers. Other countries are in a similar pickle. In the end we may have to employ a solution similar to the one my poker buddies and I came up with. Clear the books, call it even and start over with a new system. This would cause the most heart ache at the millionaire and billionaire level, so it will be avoided as long as possible. But, it seems we're all playing with funny money already. It's just a matter of time before the major players have to acknowledge it.
Tuesday, February 2, 2010
How more money in campaigns could make for smarter voters
So Bill O'Rielly and John Stassel are arguing the merits of the Supreme Court's decision to strike down a key element of Campaign Finance law. That is, the Supreme Court has determined that Congress cannot limit the amount of money that corporations, unions or organizations spend to get out a political message.
Stassel stood up for free speech, but missed the main point. O'Rielly expressed concern that a foreign government could funnel big dollars into the U.S. for political purposes. That's true. But to assume that the American voter (it's still one man, one vote) is going to go for whatever idea has the most money behind it, is insulting. Suppose a law were proposed that each Thursday, every man, woman and child in America smash their own thumb with a hammer. Now suppose the Chinese government spends $100 billion promoting it. Would you vote for it? What if the ads were really funny?
Here's an idea for real campaign finance reform. What if individuals actually paid attention to what they were voting on? What if they educated themselves with regard to the underlying principals of the issue? What if they actually evaluated a candidate's competence for the job they're seeking?
We have a choice here. Dispense with freedom of speech, because we fear some may speak too much, or make more thoughtful decisions on an individual basis. The latter could actually make us all wiser and wouldn't cost us a dime.
Stassel stood up for free speech, but missed the main point. O'Rielly expressed concern that a foreign government could funnel big dollars into the U.S. for political purposes. That's true. But to assume that the American voter (it's still one man, one vote) is going to go for whatever idea has the most money behind it, is insulting. Suppose a law were proposed that each Thursday, every man, woman and child in America smash their own thumb with a hammer. Now suppose the Chinese government spends $100 billion promoting it. Would you vote for it? What if the ads were really funny?
Here's an idea for real campaign finance reform. What if individuals actually paid attention to what they were voting on? What if they educated themselves with regard to the underlying principals of the issue? What if they actually evaluated a candidate's competence for the job they're seeking?
We have a choice here. Dispense with freedom of speech, because we fear some may speak too much, or make more thoughtful decisions on an individual basis. The latter could actually make us all wiser and wouldn't cost us a dime.
The Global Casino
In thinking about the direction that global markets are heading, it occurred to me that they are increasingly operating in an environment very similar to what you see in a casino.
Government needs producers, entrepreneurs, people willing to take risks. These are the people that fund everything else. They are the players. The government is the house. The house always gets a cut. In fact in government, the cut is much bigger than in the casino. Whether you win, lose or draw, you'll pay through license fees, taxes on employees, unemployment insurance, workers compensation, use taxes and other fees. If you win, you pay even more, through income and capital gains taxes.
In a casino, you have the dealer watching the players, someone else watches the dealer. Someone else watches the watcher, and so on. Government is very much the same. There are a myriad of departments, agencies and employees who's ultimate purpose is to monitor the free market players.
Whether it's government or the casino, the system is designed so that the house always wins over time. At least in the casino, you only pay when you lose (and if you play long enough, you always lose). In the market place, you pay to play all the time.
The difference is that in the casino model, players go outside the casino and earn more money, so they can come and play another day. There is no system outside the reach of government where players can accumulate wealth to spend in the marketplace.
We are now in a situation where 50% of the country pays no income tax and the top 1% pays more than the bottom 95%. The number of watchers continues to increase as the pool of players gets smaller. Obviously this is not sustainable. As government seeks to limit risk, it also limits reward. The game becomes less rewarding and less fun. Fewer individuals are interested in playing. At the same time, more and more people are dependent on the house's take. The house keeps promising more while taking in less.
How long can this model continue? Well, I don't see any indications out of Washington or on the world stage that we're going to change direction, so I suppose we're about to find out.
Government needs producers, entrepreneurs, people willing to take risks. These are the people that fund everything else. They are the players. The government is the house. The house always gets a cut. In fact in government, the cut is much bigger than in the casino. Whether you win, lose or draw, you'll pay through license fees, taxes on employees, unemployment insurance, workers compensation, use taxes and other fees. If you win, you pay even more, through income and capital gains taxes.
In a casino, you have the dealer watching the players, someone else watches the dealer. Someone else watches the watcher, and so on. Government is very much the same. There are a myriad of departments, agencies and employees who's ultimate purpose is to monitor the free market players.
Whether it's government or the casino, the system is designed so that the house always wins over time. At least in the casino, you only pay when you lose (and if you play long enough, you always lose). In the market place, you pay to play all the time.
The difference is that in the casino model, players go outside the casino and earn more money, so they can come and play another day. There is no system outside the reach of government where players can accumulate wealth to spend in the marketplace.
We are now in a situation where 50% of the country pays no income tax and the top 1% pays more than the bottom 95%. The number of watchers continues to increase as the pool of players gets smaller. Obviously this is not sustainable. As government seeks to limit risk, it also limits reward. The game becomes less rewarding and less fun. Fewer individuals are interested in playing. At the same time, more and more people are dependent on the house's take. The house keeps promising more while taking in less.
How long can this model continue? Well, I don't see any indications out of Washington or on the world stage that we're going to change direction, so I suppose we're about to find out.
Monday, February 1, 2010
All tax cuts are not created equal
The theme for the week in Washington D.C. is jobs, jobs, jobs. That's a good thing right? Well, the solutions may just be worse than the problem. A variety of tax cuts and new spending programs are being discussed and proposed. Most of them are of the targeted variety. There is nothing more un-American than a targeted tax cut.
Under some of the ideas being kicked around, if you hire new workers, you get a tax break. If you just keep the ones you have, you don't. If you're a company that wants to make monorails, you'll get government money. If you make something else, you don't. If you buy a new house, you get a tax cut. If you're just trying to keep the one you have, you don't. You get the idea.
The President just submitted a $3.8 trillion budget. That means our federal government's expenditures are now approaching 30% of the total goods and services produced in this country. What they don't own, they want to control. One way to exercise control over things you don't own is through the tax code. You take from those who aren't behaving according to the master plan, and give to those who are.
According to the Heritage Foundation and Wall Street Journal's Index of Economic Freedom, the United States has fallen to 8th place in the world, behind Hong Kong and even Canada. We now rank as "mostly free".
Perhaps it's the sheer size of government that leads inevitably to more and more government control. Money is power and nobody has more of it to throw around than the U.S. government. The progressive movement has a vision, whereby we all happily work at our appointed duties and contribute to the greater good of society as determined by those smarter and wiser than a mere citizen. The ultimate goal is similar to the society depicted in Star Trek and other sci-fi favorites, where the ugliness of capitalism, free markets and even currency have been dispensed with in favor of dedication to duty. The only difference between a hard core communist and a progressive is how we get from point a to point b. Communists prefer armed conflict followed by a 'transition period', where progressives believe legislation, policy and executive order will gradually move society where they want it to be.
Maybe we'll embrace individual freedom before it all comes to a head, maybe we wont. Whether we move toward a more collectivist society via warfare or policy initiatives, the movement will not end well. It never does.
Under some of the ideas being kicked around, if you hire new workers, you get a tax break. If you just keep the ones you have, you don't. If you're a company that wants to make monorails, you'll get government money. If you make something else, you don't. If you buy a new house, you get a tax cut. If you're just trying to keep the one you have, you don't. You get the idea.
The President just submitted a $3.8 trillion budget. That means our federal government's expenditures are now approaching 30% of the total goods and services produced in this country. What they don't own, they want to control. One way to exercise control over things you don't own is through the tax code. You take from those who aren't behaving according to the master plan, and give to those who are.
According to the Heritage Foundation and Wall Street Journal's Index of Economic Freedom, the United States has fallen to 8th place in the world, behind Hong Kong and even Canada. We now rank as "mostly free".
Perhaps it's the sheer size of government that leads inevitably to more and more government control. Money is power and nobody has more of it to throw around than the U.S. government. The progressive movement has a vision, whereby we all happily work at our appointed duties and contribute to the greater good of society as determined by those smarter and wiser than a mere citizen. The ultimate goal is similar to the society depicted in Star Trek and other sci-fi favorites, where the ugliness of capitalism, free markets and even currency have been dispensed with in favor of dedication to duty. The only difference between a hard core communist and a progressive is how we get from point a to point b. Communists prefer armed conflict followed by a 'transition period', where progressives believe legislation, policy and executive order will gradually move society where they want it to be.
Maybe we'll embrace individual freedom before it all comes to a head, maybe we wont. Whether we move toward a more collectivist society via warfare or policy initiatives, the movement will not end well. It never does.
Tuesday, January 19, 2010
Brown beats Coakley, the Massachusetts....whatever
Maybe the people of Massachusetts were expressing a referendum on the policies of the administration and its allies in Congress. Maybe it was just a case of a horrible candidate versus a decent candidate. Maybe they weren’t aware of the impact this election may have had on all of our futures. It doesn’t matter. The result is the same. I’m sure there are opinion pieces and articles across the web and in the media with titles like “The Boston Massacre”, “The Shot Heard ‘Round the World....”Something....something....something...Boston Tea Party” and other historical references meant to evoke images of a revolutionary event in Massachusetts. It’s predicable, but in this case, not unwarranted. In fact, I’d like to see this event get a name all its own. I wont presume to provide one here, but I will give a description of what I saw. Maybe someone else can name it.
The group that took control of both houses of Congress, and the White House in 2008 was not just the Democrats. It is a particular faction of the Democrat party. Some would call them liberal or progressives, but those are labels, and labels can change. The important thing is the vision. This faction truly believes that a central authority, comprised of the best and the brightest (as determined by the best and the brightest), could better provide for everyones needs and desires than a free market. The only things standing in the way are the Constitution and the free markets.
The previous administration handed them control of the finincial industry, the auto industry and had already declared a financial disaster looming, of ?Biblical proportions. They had a blank check for both cash and legislation. They belonged to the party that had veto-proof majorities in the House and the Senate, had the majority of Governors, many major media outlets in their corner and the full support of most of Hollywood and University staff.
Then, liberal lion, Senator Ted Kennedy dies. A temporary seat warmer is appointed to save a spot for the Democrat that will be chosen by the party machinery to take Senator Kennedy’s place. The honor is given to Martha Coakley, a loyal soldier who will vote exactly as she is supposed to. It’s not as if the Republicans are going to present a challenge in Masschusetts. But alas, Coakley turns out to be a train wreck. She runs a horrible campaign and manages to verbally offend almost every interest group in the state. Her record as attorney general was less than stellar. Meanwhile, back at the Republican camp. There’s no point wasting a big name contender on this race. Republicans aren’t going to win the Kennedy seat. Go ahead and let an actual human being carry the banner. As it turned out, Scott Brown did strike a chord with real people. So much so that he breezed past the Democrat before the party knew what hit them.
The Repoblicans have not taken over Congress. But the one-party super majority is over. Republicans can’t be completely ignored and perhaps more importantly, Democrats are going to take a much closer look at the what’s going on within their own party.
What if the administration and its allies had proceeded without hinderance? The President promised to “fundamentally transform America”. We had administration officials suggesting that the media be much more tightly controlled. Chavez’s takeover of Venezuela was praised as a great achievement. Chairman Mao was quoted as a favorite philosopher. I don’t think most people pay near as much attention to these things as I do. I’m just telling you what I saw. Many new policy initiatives have been killed before they got off the ground, simply because people found out about them, and to date, we still have freedom of speech. We the people still have weapons at our disposal. The most formidable are awareness and the truth. Bad ideas are not exclusive to one party. We must pay attention and hold our elected officials accountable, regardless of party. This election was one in a series of roadblocks on the way to Utopia, and it’s a doozy. But it was close.
Government oversight of the nation’s health care industry was the holy grail. There’s an old American saying; “Your right to swing your arms stops at my nose.”. It means that if your behavior does me no harm, I have no legitimate objection. It’s a Cliff Notes version of individual rights in a free society. If you make health care a national mandate, to be provided by the government, you have provided a “legitimate objection” for just about any behavior. If everyone is being taxed to provide for everyone’s health care, than everyone’s behavior has a direct impact on the financial welfare of everyone else. It would be lawsuit heaven and a license for the government to legislate everything.
I’ve often said in my posts, although I didn’t like the way the country was headed, I remain optimistic because this country has the capacity to turn on a dime. I think we’re making that pivot. Enough people at least agreed that something is not right, that they broke party ranks and decided to pull the hand break.
This battle, that many are still unaware of, is not between Republicans and Democrats. It’s between individualists and collectivists. The collectivists are vastly outnumbered, but they had stealth going for them. The problem is, once you reach the top, you can’t operate in the shadows anymore, and ultimately, the people still rule here.
Thank you Massachusettes.
The group that took control of both houses of Congress, and the White House in 2008 was not just the Democrats. It is a particular faction of the Democrat party. Some would call them liberal or progressives, but those are labels, and labels can change. The important thing is the vision. This faction truly believes that a central authority, comprised of the best and the brightest (as determined by the best and the brightest), could better provide for everyones needs and desires than a free market. The only things standing in the way are the Constitution and the free markets.
The previous administration handed them control of the finincial industry, the auto industry and had already declared a financial disaster looming, of ?Biblical proportions. They had a blank check for both cash and legislation. They belonged to the party that had veto-proof majorities in the House and the Senate, had the majority of Governors, many major media outlets in their corner and the full support of most of Hollywood and University staff.
Then, liberal lion, Senator Ted Kennedy dies. A temporary seat warmer is appointed to save a spot for the Democrat that will be chosen by the party machinery to take Senator Kennedy’s place. The honor is given to Martha Coakley, a loyal soldier who will vote exactly as she is supposed to. It’s not as if the Republicans are going to present a challenge in Masschusetts. But alas, Coakley turns out to be a train wreck. She runs a horrible campaign and manages to verbally offend almost every interest group in the state. Her record as attorney general was less than stellar. Meanwhile, back at the Republican camp. There’s no point wasting a big name contender on this race. Republicans aren’t going to win the Kennedy seat. Go ahead and let an actual human being carry the banner. As it turned out, Scott Brown did strike a chord with real people. So much so that he breezed past the Democrat before the party knew what hit them.
The Repoblicans have not taken over Congress. But the one-party super majority is over. Republicans can’t be completely ignored and perhaps more importantly, Democrats are going to take a much closer look at the what’s going on within their own party.
What if the administration and its allies had proceeded without hinderance? The President promised to “fundamentally transform America”. We had administration officials suggesting that the media be much more tightly controlled. Chavez’s takeover of Venezuela was praised as a great achievement. Chairman Mao was quoted as a favorite philosopher. I don’t think most people pay near as much attention to these things as I do. I’m just telling you what I saw. Many new policy initiatives have been killed before they got off the ground, simply because people found out about them, and to date, we still have freedom of speech. We the people still have weapons at our disposal. The most formidable are awareness and the truth. Bad ideas are not exclusive to one party. We must pay attention and hold our elected officials accountable, regardless of party. This election was one in a series of roadblocks on the way to Utopia, and it’s a doozy. But it was close.
Government oversight of the nation’s health care industry was the holy grail. There’s an old American saying; “Your right to swing your arms stops at my nose.”. It means that if your behavior does me no harm, I have no legitimate objection. It’s a Cliff Notes version of individual rights in a free society. If you make health care a national mandate, to be provided by the government, you have provided a “legitimate objection” for just about any behavior. If everyone is being taxed to provide for everyone’s health care, than everyone’s behavior has a direct impact on the financial welfare of everyone else. It would be lawsuit heaven and a license for the government to legislate everything.
I’ve often said in my posts, although I didn’t like the way the country was headed, I remain optimistic because this country has the capacity to turn on a dime. I think we’re making that pivot. Enough people at least agreed that something is not right, that they broke party ranks and decided to pull the hand break.
This battle, that many are still unaware of, is not between Republicans and Democrats. It’s between individualists and collectivists. The collectivists are vastly outnumbered, but they had stealth going for them. The problem is, once you reach the top, you can’t operate in the shadows anymore, and ultimately, the people still rule here.
Thank you Massachusettes.
Saturday, January 16, 2010
Haiti Relief Requests Illustrate Core Capitalist Principal
Both government and private relief agencies are asking people to send aid to Haiti in the form of cash, rather than stuff. Why? Because, especially in a situation where the distribution channels are tough at best and non-existent at worst, it's far more efficient to have the end user determine what they need than to deliver goods and hope they can make use of them.
This is true of non-profits and government agencies handling a catastrophe and it's true of individuals in a free market. Keeping the focus on Haiti and natural disasters, perhaps we could see a new type of disaster relief organization emerge.
What if there were a non-profit relief agency who's mission were to enable commerce at the street level? It could provide things like safe storage for goods and currency; a safe place to buy and sell goods, where you could set up a table or a box, display your goods and not have to worry about getting beat up or shot; safe transportation; safe meeting areas, some kind of dispute resolution service and other things we often take for granted that would enable trade at an individual level. It could work closely with government and other relief agencies to police fraud and theft in its marketplace(s). Essentially, it would be a security service, but primarily focused on securing safe, free trade among individuals.
This would not take the place of other forms of relief, it would be in addition to it. Of course, you couldn't cover the whole country rapidly. But even a single, safe marketplace would enhance the efficient distribution of basic necessities and other goods.
Markets and economies are all about trade and resource distribution. Disaster relief efforts have demonstrated that the more options you put in the hands of the end user, the better the result and the more efficient the distribution. Government, non-profits and free markets all have legitimate, productive roles in a free society. We need to unleash the potential of free trade at all levels, not to the exclusion of everything else, but for the benefit of everything else.
This is true of non-profits and government agencies handling a catastrophe and it's true of individuals in a free market. Keeping the focus on Haiti and natural disasters, perhaps we could see a new type of disaster relief organization emerge.
What if there were a non-profit relief agency who's mission were to enable commerce at the street level? It could provide things like safe storage for goods and currency; a safe place to buy and sell goods, where you could set up a table or a box, display your goods and not have to worry about getting beat up or shot; safe transportation; safe meeting areas, some kind of dispute resolution service and other things we often take for granted that would enable trade at an individual level. It could work closely with government and other relief agencies to police fraud and theft in its marketplace(s). Essentially, it would be a security service, but primarily focused on securing safe, free trade among individuals.
This would not take the place of other forms of relief, it would be in addition to it. Of course, you couldn't cover the whole country rapidly. But even a single, safe marketplace would enhance the efficient distribution of basic necessities and other goods.
Markets and economies are all about trade and resource distribution. Disaster relief efforts have demonstrated that the more options you put in the hands of the end user, the better the result and the more efficient the distribution. Government, non-profits and free markets all have legitimate, productive roles in a free society. We need to unleash the potential of free trade at all levels, not to the exclusion of everything else, but for the benefit of everything else.
Tuesday, January 5, 2010
Time to embrace proper profiling at U.S. airports
Is there any bigger prize for a Jihadist terrorist than an Isreali plane or airport? Probably not. Yet, in thirty years there has not been a successful attack on an El Al plane nor has a plane from the Tel Aviv airport been hijacked. One would think that in a post-9/11 world, we might want to consult with Isreali airport security and see if we could pick up some pointers.
However, there is a great fear of profiling here in the USA. I don’t believe it’s so much a matter of being afraid of being labelled “racist” as the fear of liability. Isreali airport security profiliing is not about race. It’s about behavior. Obviously a 22-year old from Saudi is going to attract a bit more attention than a 64-year old Irishman. But the Isreali’s don’t strip search every 20 something Arab. It’s not necessary and would only serve to alienate paying customers. What they do focus on is conversation, speech patterns, facial expressions, eye movement, body language. Security is both uniformed and covert. Agents engage people in trivial conversation. They are trained to be attentive to things that don’t make sense. Ask a similar question twice during the course of a lengthy conversation. Get two different answers. That’s a red flag. It’s similar to the type of security at major casinos. Everyone is being watched by someone, yet most aren’t conscious of it.
So why don’t we employ some of the same techniques here??Because it would necessitate the most feared thing in the American system of justice; the judgment call. Here in the most litigious society on Earth, the most dangerous thing you can do is employ logic and reason on your own. In Isreal, if you’re pulled out of line and subjected to higher scrutiny and turn out to be innocent, you get your things together and proceed to your flight. Here, you call your attorney and start preparing the lawsuit, and you’ll probably win or at least settle out of court. So, we attempt to make all security procedures a matter of uncontestable fact checking or strict adherance to detailed procedures. We confiscate shampoo, remove shoes and ban nail clippers. Furthermore, there’s no rhyme or reason to who we subject to higher scrutiny. The more random the better. We don’t want to be accused of singling somebody out. Then we’d have to explain our reasoning. Reasoning is frowned upon.
The other drawback is training. You can’t just hire somebody off the street, give them a two-week orientation and expect them to be an expert profiler. Learning to read the “tells” of a would-be terrorist takes continous and long-term training, as well as sound reasoning ability. It’s expensive and time consuming. High tech equipment is also expensive, but much easier to deploy quickly. That’s why it is favored. Also, there is less liability exposure from a false positive from a machine, than from a human being.
Another, I think lesser, factor is that there are a lot of people in America who have convinced themselves that the Jihadists only want to destroy us because they don’t really understand us. It’s an appealing prospect. It simplifies the situation considerably. All we have to do is show the Jihadists how cool we really are, and everything will be groovy. The fact is, the Jihadists see the direction that the “civilized” countries are taking the world in and they don’t like it one bit. If Mr. Rogers were our president, they’d still want to take him out. Democracy, equal rights, tolerance of opposing views and lifestyles are simply not consistent with the world they’d like to create, and they never will be. Lax security in the name of demonstrating our civility is just going to get more people killed.
We can effectively employ profiling without being racist and without turning air travel into shear torture. We need to consult with our Isreali friends, casino security experts and perhaps some of the most successful poker players in the world. Bombs don’t blow up planes. Crazy people do.
However, there is a great fear of profiling here in the USA. I don’t believe it’s so much a matter of being afraid of being labelled “racist” as the fear of liability. Isreali airport security profiliing is not about race. It’s about behavior. Obviously a 22-year old from Saudi is going to attract a bit more attention than a 64-year old Irishman. But the Isreali’s don’t strip search every 20 something Arab. It’s not necessary and would only serve to alienate paying customers. What they do focus on is conversation, speech patterns, facial expressions, eye movement, body language. Security is both uniformed and covert. Agents engage people in trivial conversation. They are trained to be attentive to things that don’t make sense. Ask a similar question twice during the course of a lengthy conversation. Get two different answers. That’s a red flag. It’s similar to the type of security at major casinos. Everyone is being watched by someone, yet most aren’t conscious of it.
So why don’t we employ some of the same techniques here??Because it would necessitate the most feared thing in the American system of justice; the judgment call. Here in the most litigious society on Earth, the most dangerous thing you can do is employ logic and reason on your own. In Isreal, if you’re pulled out of line and subjected to higher scrutiny and turn out to be innocent, you get your things together and proceed to your flight. Here, you call your attorney and start preparing the lawsuit, and you’ll probably win or at least settle out of court. So, we attempt to make all security procedures a matter of uncontestable fact checking or strict adherance to detailed procedures. We confiscate shampoo, remove shoes and ban nail clippers. Furthermore, there’s no rhyme or reason to who we subject to higher scrutiny. The more random the better. We don’t want to be accused of singling somebody out. Then we’d have to explain our reasoning. Reasoning is frowned upon.
The other drawback is training. You can’t just hire somebody off the street, give them a two-week orientation and expect them to be an expert profiler. Learning to read the “tells” of a would-be terrorist takes continous and long-term training, as well as sound reasoning ability. It’s expensive and time consuming. High tech equipment is also expensive, but much easier to deploy quickly. That’s why it is favored. Also, there is less liability exposure from a false positive from a machine, than from a human being.
Another, I think lesser, factor is that there are a lot of people in America who have convinced themselves that the Jihadists only want to destroy us because they don’t really understand us. It’s an appealing prospect. It simplifies the situation considerably. All we have to do is show the Jihadists how cool we really are, and everything will be groovy. The fact is, the Jihadists see the direction that the “civilized” countries are taking the world in and they don’t like it one bit. If Mr. Rogers were our president, they’d still want to take him out. Democracy, equal rights, tolerance of opposing views and lifestyles are simply not consistent with the world they’d like to create, and they never will be. Lax security in the name of demonstrating our civility is just going to get more people killed.
We can effectively employ profiling without being racist and without turning air travel into shear torture. We need to consult with our Isreali friends, casino security experts and perhaps some of the most successful poker players in the world. Bombs don’t blow up planes. Crazy people do.
Monday, January 4, 2010
DMV Purgatory, a health care reform preview?
I decided to go register my new (used) Jeep today. I figured an hour or so, early in the afternoon, leaving plenty of time for other errands. So my son Max and I headed out. There was a line going out the door. I got number 708. They were on number 640 at the time, and there were two other, higher priority categories; military and renewals.
Before I start venting, let me be clear. This is not about the folks who work at the DMV. It's just an illustration of the nature of an operation in which customer service is of no consequence. There's no downside to frustrated customers. It's not like you can take your business elsewhere.
Anyway, after an hour and a half of waiting, I noticed the ATM machine. Why is there an ATM machine in here? These guys take in hundreds of dollars per minute. They must take plastic. I'd better ask. Nope. Only cash or checks, but don't worry, there's an ATM. It's not actually working, but if it were.... No problem. At the rate they were going I could drive to any ATM in the state and still be back before my number was called. So, off to the nearest gas station. The first one's ATM was also out of service. The second one worked. Back to the DMV. They had served exactly one more person in my category by the time I got back. Another hour and a half and my number finally got called. I felt like I'd won the lotto. That is, until the nice lady informed me that I needed to get a VIN verification first, since I bought a car with out of state plates. "Don't worry", she assured me, "we're open until 5pm". So, off to the nearest car dealership for a VIN verification. What does that entail? Well, the nice young lady copied some information from my title (the same title I had handed the lady at the DMV) onto a different piece of paper, asked me to read off my odometer numbers and charged my $20. She never so much as popped the hood. Back to the DMV. At least I didn't have to wait in line again. Just three hours and 45 minutes after my arrival, I left with my new plates. The title will arrive by mail in 6-8 weeks. Total cost, about $140 (the car is 16 years old).
How would a for-profit, competitive environment have been different? First of all, there were about 6 to 8 unmanned stations. A competitive enterprise would have done the math and figured that if each employee is taking in well over $1,000 per hour, and you have room for more employees, it's probably worth the expense. Also, how about on-site VIN verification. It's a five minute transaction at $20/pop. Mo money, mo money, mo money. These things even make sense from a political standpoint. How much productivity (and therefore tax revenue) is lost due to people spending half a workday at the DMV?
I suppose there's an upside, if we turn health care into a non-profit bureaucracy. We wont have to worry about people running to the hospital or the doctor's office every time they have the sniffles. If it's as torturous as the DMV, they'll have to drag people to their health care provider, kicking and screaming, or wait until they lose consciousness.
Before I start venting, let me be clear. This is not about the folks who work at the DMV. It's just an illustration of the nature of an operation in which customer service is of no consequence. There's no downside to frustrated customers. It's not like you can take your business elsewhere.
Anyway, after an hour and a half of waiting, I noticed the ATM machine. Why is there an ATM machine in here? These guys take in hundreds of dollars per minute. They must take plastic. I'd better ask. Nope. Only cash or checks, but don't worry, there's an ATM. It's not actually working, but if it were.... No problem. At the rate they were going I could drive to any ATM in the state and still be back before my number was called. So, off to the nearest gas station. The first one's ATM was also out of service. The second one worked. Back to the DMV. They had served exactly one more person in my category by the time I got back. Another hour and a half and my number finally got called. I felt like I'd won the lotto. That is, until the nice lady informed me that I needed to get a VIN verification first, since I bought a car with out of state plates. "Don't worry", she assured me, "we're open until 5pm". So, off to the nearest car dealership for a VIN verification. What does that entail? Well, the nice young lady copied some information from my title (the same title I had handed the lady at the DMV) onto a different piece of paper, asked me to read off my odometer numbers and charged my $20. She never so much as popped the hood. Back to the DMV. At least I didn't have to wait in line again. Just three hours and 45 minutes after my arrival, I left with my new plates. The title will arrive by mail in 6-8 weeks. Total cost, about $140 (the car is 16 years old).
How would a for-profit, competitive environment have been different? First of all, there were about 6 to 8 unmanned stations. A competitive enterprise would have done the math and figured that if each employee is taking in well over $1,000 per hour, and you have room for more employees, it's probably worth the expense. Also, how about on-site VIN verification. It's a five minute transaction at $20/pop. Mo money, mo money, mo money. These things even make sense from a political standpoint. How much productivity (and therefore tax revenue) is lost due to people spending half a workday at the DMV?
I suppose there's an upside, if we turn health care into a non-profit bureaucracy. We wont have to worry about people running to the hospital or the doctor's office every time they have the sniffles. If it's as torturous as the DMV, they'll have to drag people to their health care provider, kicking and screaming, or wait until they lose consciousness.
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