Less Guzzling

This is wonderful news, the U.S. Department of Transportation estimates that US consumers drove 12.2 billion miles fewer in June 2008 than in June 2007. This is a 4.7% decrease in consumption. The site claims a 400 million gallon drop in consumption of gas and 318 million fewer gallons of diesel.

Here's hoping that July will break the 5% mark.

I am so happy.

Americans are doing what needs to be done. We are re-assessing our gas guzzling ways. We are getting fuel efficient vehicles.

Consumers now want smaller, efficient cars. The market just accomplished one of the great aspirations of the political pundits. It is increasing the efficiency of the American fleet.

The downside for the DOT is that the dramatic drop in consumption of fuel means a dramatic drop in tax revenue. (The site fails to mention that fewer miles driven and lighter cars decrease the stress on the highway infrastructure, which should decrease their costs). Regardless, we probably need an increase in the gas tax to continue maintaining our roads.

Anyway, I applaud the conservation efforts of Americans. Learning to make the most efficient use of our resources makes us stronger as a people. Conservation, alternative energy and wise use of our energy resources is the path to prosperity.

Heating prices are likely to be wicked this upcoming winter. I hope that all Americans invest some of their ingenuity this Fall in coming up with ways to decrease their heating bills.

Progressive Lending

I've been listening to some of the speeches for aggressive new regulations for the mortgage industry. The speakers find it easy to throw blame at the evil capitalists in the lending industry.

The speeches fail to recognize that many of the people engaged in creating the mortgage mess thought they were being progressive.

There is a large number of not-for-profit organizations that push home ownership on people who don't have the financial ability to own a home. There is a whole subindustry in the legal community dedicated to erasing bad credit histories. Several of these firms are located in Salt Lake.

As I am intensely interested in the non-profit sector and local community, I've spoken with a number of people in these industries. The people who were creating the mess really thought they were progressing society by extending home ownership to a new class of people.

Many of the players in the mortgage mess weren't driven by simple capitalist greed. They were driven by the buzz of putting a person, who would not otherwise afford a home, into a home.

The mortgage mess didn't happen by people plotting to defraud banks. It was driven by the ecstasy of doing good.

The people who trained home owners to think of the appreciation in their home's value as a bank account were actually following a rather standard pathway of progressive ideology where you claim to have a new way of thinking that will lead to a brighter future ... but that leads to ruin.

In many cases, the greedy conservative bankers weren't the perpetrators of the mortgage mess. They were witless victims who thought that the toxic mortgage portfolios they had purchased would behave like mortgage portfolios of the past.

Yes, there are crooks leaching off of all aspects of business and government. The really dramatic problems almost always happen when a group stomps forth and claims to have a progressive new way of thinking about an industry.

For example, the dotcom boom was driven by a progressive new think where grabbing marketshare was more important than having a business model that made profit on sales. Market values ballooned as companies undermined the market. Then the progressive new think collapsed.

In many cases, financial collapse follows a progressive new way of thinking about a financial instrument. The market fails to understand the implications of the new way of thinking and collapses when the forces of the new way of thinking undermines the market.

The mortgage mess happened because a new way of thinking about mortgages dramatically decreased the value of mortgage portfolios. Banks that bought the portfolios were undermined.

It is critical that we understand this pattern. Slapping new regulations on an industry might temporarily stabalize an industry, but the new regulations cannot change the way people think in the future.

Often the regulations simply burden an industry or create a false sense of stability. In so many cases we find the regulators setting up the next generation for a future financial collapse.

The regulations we put in place today cannot and will not prevent people a half century from now from changing their thinking about mortgages.

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PS: This post slams progressivism because the central tenet of progressivism is that progressives have a new way of thinking that leads to prosperity. Progressivism is typified by the unspecific, but eloquent, call for change. More often than not, it is a call for a change in thinking.

The mortgage mess happened because there was a widespread change in thinking about mortgages.

The mortgage mess happened because their was a change in the way brokers felt about mortgages. These brokers felt the new think was progressive. Banks failed because the new think created mortgage portfolios with a high fail rate.

IMHO, this mortgage mess is a better example of the way that "new think" undermines a society than it is an example of greedy capitalists undermining society.

Think of it! Which makes more sense: "The high default rate on mortgages is the result of conservative lending practices." or "The high default rate on mortgages is the result of liberal lending practices"?

Crass Commercial

I decide to port all of my unfinished projects to the domain y-intercept.com (that domain has a dash. This one does not. I bought both domains because I realized many people would fail to type in the dash if I just told them the name.)

Hopefully, I can shame myself into finishing the projects.

The first thing I will port to the new site is the collection of essays that I, tongue in cheek called Crass Commercial. I penned these articles in a three day writing blitz. I did not finish them as I realized that I needed to rework the writings I did on transfinite theory to make a point about paradox.

There were several important points I wanted to make with the money. The article I just put up was a little piece called "The Source of Money. Perhaps I will get time tomorrow for a quick edit.

You could read the piece, or I will summarize below.

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Summary

The source of money isn't gold, the power of the state, or banks. The source of money is people. Money simply reflects the values that people put into money.

The profound tidbit to take from the article is that the best way for a society to prosper is to develop the people. By education, I am not simply referring to technical education. Contrary to modern education, I hold with the classical liberal ideals where the goal isn't simply to turn people into productive cogs in a machine. The goal of education should be to develop the student as a being. Education should both hone a student's skills, and it should help develop their values, for it is the values that students hold that most enrich a society.

Anyway, I will try to get some editing in on the project tomorrow. I've cracked opened some articles on OpenID. If I can figure out how to implement OpenId, I will open a comment section on the y-intercept site. (Open comment sections get inundated with spam.)

Tune Up

In my last sarcastic post, I was trying to make the point that a broad based economic stimulus package would not work. The 2001 dip in the economy was a response to a broad based economic downturn. The 2008 economic dip is being caused by imbalances in the economy. Our current problem is as follows:

The global economy is surging; so gas prices are high.

The surge in the global economy has created new environmental risks.

The global economic boom has our agricultural and energy sectors working at full tilt.

The housing, automobile and financial sectors are waning.

The manufacturing sector is also weak.

If we had a stimulus, it should be aimed specifically at the imbalance.

What I would do for an incentive is launch a two part program: The program would give, for a very limited time, cash coupons for people to tune-up and retrofit their cars for energy savings. The stimulus would also help pay for installing insulation or energy efficient furnaces and windows in older houses. (assuming newer houses are energy efficient).

Both programs would need to be for a specific short duration.

If we tuned up a large percentage of older cars, we probably would achieve a temporary reduction of a percentage point or more in fuel. A major push to insulate would result in long term savings on energy.

If we tuned-up a million older cars, we probably would save about 5 to 10 million gallons of gas for the remainder of the year. We might even convince people that regular tune ups are a good idea.

The two point program would immediately provide jobs in the domestic automotive and housing industries. (Energy efficient tune ups involve both parts and labor).

NOTE: A temporary tax cut incentive at this point in time would not really help the manufacturin sector. The manufacturing sector thinks long term. So a tax cut would just spur domestic consumption. The goods would come from the international market ... which is healthy.

Competitively Cooperative

The modern mind has a strange compulsion for making side issues foundational. Early in this blog I discussed how unity is not foundational. Most people who are calling for unity usually have an enemy in mind that they wish to unite people against. The people calling for unity are actually trying to create an even greater division.

The hegemony argument is another example of people making a side issue foundational. Hegemony has value as a descriptor. But when you make achieving hegemony the primary concern of a system, you change the nature of the system.

Another example of the modern tendency to make side issues foundational is the over emphasis of the role of competition in the free market.

Freedom is the foundation of the free market. The ideal of the free market is that the individual has the ability to invest their time and resources as they see fit.

You can prove that competition is not foundational simply by looking at the way people behave when they have freedom. When people are free, they end up engaging in a mix of both cooperative and competitive activities.

Looking through the table of contents of The Wealth of Nations we see that Adam Smith spends most of his time talking about issues such as the division of labor, rents, the division of stock. All of these issues deal with mechanisms of cooperation in the free market.

Cooperation and competition are complementary forces. The terms serve as valuable descriptors, but people err when they say competition is the foundation of the free market.

The Market as Organized Cooperation

When you get down to the brass tacks, you will find that all financial transactions are cooperative in nature. When you hire on with an employer, you are not engaged in competition with the employer. You are actually making a contract to cooperate with the employer. When you buy food from the local market, you are engaged in a well orchestrated cooperative effort to bring food from the fields to your family.

In most cases, the primary factor in choosing a service is how well the service provider cooperates with you. Service providers compete by their willingness to cooperate.

The Opposite of What You Expect

When you create a system that overemphasizes one side of a complementary force, you often end up with the opposite effect than you intended. The street preacher agitating for unity against his foe causes greater division despite his illusion that he is a unifier. Peace activists who make unjust compromises in a short cut to peace might accidentally lay the foundations for a worse war. A warmonger might accidentally lay the foundation for peace when people listening to his agitations realize that they must address an issue or go to war. As we live in a fluid universe, it is not uncommon for actions to have the opposite effect than intended.

My observation is that systems that overemphasize competition tend to create less competition. When you overemphasize competition in the market, people develop the illusion that they must be big to compete. Look at the current marketplace. You will often see profitable businesses merging simply because their owners feel that they must be big to compete. I've seen many people fail to go into businesses simply because they felt that they weren't big enough or emotionally equipped to compete. When businesses merge, or people fail to enter the market, there is less competition.

Even worse, when people are driven by competition they are apt to undertake anti-market activities to undermine competitors. When you look at the dynamics small towns, you will often find a small number of leading merchants monopolizing main street.

Conversely, emphasizing cooperation has a strange habit of creating more competition.

Most successful small businesses are formed by people who wish to cooperate to achieve a specific end. Let's say a manufacturer needs a new and improved widget to go in their device. When the designers' thoughts are dominated by ideas of competition, they are likely to try and develop the widget internally. A designer who sees the market as inherently cooperative is more open to seeing the widget developed in cooperation with a third party.

The stock exchange is a good example of cooperation. In a stock exchange, people cooperate in forming a market to trade goods. The people in this market are keenly interested in having a diversity of stock to trade. Investors will actively seek out the creation of business so they have something to trade.

Affiliate marketing is an example of cooperation the internet. Affiliate marketing is a system where web sites form cooperative relations with merchants to sell products. Affiliate marketing has drawn a large number of small web sites and small merchants into the online market. Many of these companies would not have existed if not for the cooperative nature of affiliate marketing.

Crass Commercial Intrusion: My attempt at affiliate marketing makes about $200.00 a year. I understand that people who know what they are doing can make a living from the market. My problem is that I am more interested in things from a conceptual level than from an implementation level.

Sadly, people who are driven by competition feel that they must dominate the market and engage in activities specifically designed to undermine the affiliate market. I would not be surprised if affiliate marketing completely vanished in the next couple of years as the major players lock all of the small players out of the system.

Internalizing the Division of Labor

Adam Smith's observation is that the division of labor seems to happen naturally. People want to concentrate on one aspect of the market. A farmer might concentrate on the quality of his crop. The delivery driver would concentrate on the efficiency of his delivery operation. These people would form an informal cooperative network. This division of labor happens naturally.

When you overemphasize competition and de-emphasize cooperation, you end up creating these megacorporations that try to internalize the entire division of labor related to the production of a specific good. If our economic theorists and socio-economic structures were to emphasized cooperation, I think we would start seeing a break up of the mega-corporations as business leaders struggled to create nimbler business structures that were better suited for cooperating dynamic, multidimensional market.

Political Systems

You will notice that I used the word "might" and not "must" in the above sections. Cooperation and competition are simply complementary terms. A politician who takes steps to increase competition may or may not increase competition. Since there is a monopoly in education, it is likely that the Utah Voucher proposal would increase competition. Other subsidy programs designed to spur competition (e.g. farm subsidies) appear to simply give an economic edge to those farmers with the inside connections or the legal expertise to get the subsidies. These insiders use their competitive edge to drive the other farmers out of business, reducing competition.

Neither competition nor cooperation is foundational to the free market. Freedom is the foundation. Since neither cooperation or competition are foundational, politicians and economic theorist are ill advised to create policies that treat the issues as foundational.

Politicians who are interested in seeing the free market succeed should pay attention to how their policies affect the freedom of the people and not on peripheral issues. The disappearance of competition or cooperation in a market might be an indicator of an imbalanced market. Direct political efforts to spur competition are likely to created unintended consequences.

Housing Prices

I thought I would take a quick second to disagree with the following quote from the Newshour:

HENRY PAULSON, U.S. Treasury Secretary: The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth.

In recent years, housing prices have grown way out of sync with the economy at large and with workers' wages. A fall in housing prices is not bad news as it means that people after the correction won't have to struggle as hard to get into a house.

We don't need a bailout. Let banks with bad lending practices fail, and housing prices drop.

One thing I really dislike about our little politicized economic system is that it makes irrational decisions. As the housing prices were peaking in these last few years, there appears to have been a push to get low income folks into the market before they were financially ready for home ownership. There also seems to have been a push to encourage people into speculative real estate development (flip this house). It might be my imagination, but crashes are often preceded by hyped up efforts to bring unsophisticated buyers into the market.

The next big story on the Newshour was about a spike of in the price of oil caused by the increased tension between the US and Turkey (Thank you Tom Lantos). The Newshour reports that the price of heating oil is expected to surge this winter.

It seems to me that the primary reason for the surge the price of heating oil is that we have too friggin' many houses!!!! All of these massive half-filled houses cost a grundle to heat. Waste. Waste. Waste. Waste. I know of too many situation where a single person lives in a big house. It is ludicrous.

This game where we heat more house than we need contributes to global warming. It does so big time. It probably is worse than the problems with cars that are too big for the single passenger inside.

We would be better off if more people lived in our current stock of houses. We would consume less heating oil and release fewer greenhouse gasses into the cosmos.

Since our housing market is overbuilt, and since heating costs are rising and since we've gone several decades with housing costs increasing faster than wages, then I think a correction in the cost of housing prices and a slow down in this most environmentally damaging industry should be welcome.

The idea that we should bail out subprime lenders to keep housing prices artificially high is wrong headed.

BTW, I think I mentioned in an earlier post that I suspect a big reason for the fall in housing prices is that we are chasing our immigrants away. That probably has a bigger effect on prices than the subprime loans.

On a final note, I hope people spend a bit of time this Fall working on ways to decrease their heating bill. If your house is too big, then don't bother heating every room. If you plan to heat the entire house, why not throw some cash into insulation or new double paned windows so that your heating bill will be just a little less in the cold winter months to come. (Salt Lake Home Links).

With the promise of increase heating costs, now is a good time to invest in conservation.

Modern Business

In a response to my Kiva post Democracy Lover said:

I should also point out that corporate capitalism has the same centralization problem.

I happen to agree that we currently have very big problems with monolithic centralized companies in the United States and abroad. When businesses get big enough they start becoming little corrupt governments within themselves. We really need a dialog on dealing with this problem.

Libertarians believe that the free market is capable of solving the problem of big business by itself. The way the market works is that little companies are always nipping at the heels of big business. In a healthy market, you have a continue cycle of small businesses forming and bringing down the big business.

The problem with our modern market is no new businesses are forming. The barriers of entry into the market are too high. Even worse, schemes like Social Security, Employer owned health care, Employer owned pensions, and Socialized medicine have collectivized the pool of capital that would be used to form new companies.

I made an attempt at starting this dialog on the site Crass Commercial dot com. I was unhappy with the site because I realized that I needed to discuss some fundamentals of philosophy and logic before really launching into the dialog.

NOTE: While writing this essay, I realized that the site Crass Commercial.com disappeared; so I have to restore from backup.

The Libertarian view is that you handle the challenge of big business by lowering the barriers to entry and let the small consume the large. The problem, of course, is that the intellectual climate is dominated by Marxist Thought.

The Marxist World View

Marxism is based on a philosophical system called "The Material Dialectics." The Material Dialectics denies the existence of free will. As there is no free will, there is no free market. We are not the product of our choices and beliefs, we are simply the product of our material circumstance.

Marx pulled many of the same tricks as Hegel. As history is not a matter of people making conscious choices (we are, after all, nothing more than evolved biological impulses), there is no free will and no free market. Since people don't have free will, history is not a subject in the humanities. It is a science.

Ooooh, a science.

This actually philosophy is just a big mesh of paradox that received legitimacy by claiming to be science.

The Marxist idea, of course, was that the world was going through a predictable series of thesis anti-thesis conflicts. Predictably, capitalism overturned the feudal world order. In this new corrupt world order, a horrible class called the petty bourgeoisie (the middle class) would rise to ascendancy. The corporations in of the new world order would grow until they were the new oppressive force. Predictably, the intellectuals of the new order would unite the ends against the middle. The intellectual would create an army of activists (brown shirts, economic hitmen) who would radicalize the proletariat and raise the people in a global revolution that would create a new world order.

Marx claimed that, since he was a product of the old world order, he would not be able to visualize the framework of the new world order. He simply gave a recipe for radicalizing people and raising them in revolution. He simply claimed there to be an unidentifiable paradise after the bloodshed. We all get 32 vestal virgins after we blow up the train station.

The ideology was seductive. It gave professors the illusion that they were the catalyst in this great transformation of society.

To hasten the revolution, intellectuals set forth to study all of the means that the market centralizes economic power, and de-emphasized all of the ways that the market decentralized power. An example of this thought process is the ideal of "The Organization Man" put forward a half century ago.

This next statement is strange. My observation is that the market is primarily a manifestation of our own beliefs and values. Being taught a one-sided view of the market that is dominated by forces that centralize the economy, we end up with just such a market.

If, instead, we saw the market as an extraordinarily dynamic multidimensional structure with forces that both centralize and decentralize economic, then we would actually end up with just such a structure.

Classical Liberalism, by the way, has such a view of economics.

Post Modern World

The Post Modern has toned down the excesses of Marxism, but still rejects the multidimensional view of the classical liberal world. Only a few die hards have faith in "The Revolution," unfortunately, the majority of people in academia and business world still hold to the paradoxical views of Marx.

People in business and academia hold to the idea in the modern world is that a business must either dominate or perish.

The modern progressive still hold the idea that the basic structure of economics is that corporations will grow until they become governing forces unto themselves. At this point, a democratic consensus would form among the people disenfranchised by the mega corporations. This democratic consensus would lead to a political demand to socialize the mega-corporations.

The paradox ridden progressive belief holds that the progressives will get to take control of businesses once they grow too large; the result is that progressives have a nasty tendency to support actions that make big business bigger. The unfortunate result of this modern thinking is that the modern liberal seeks to throw up barriers to new corporations, they encourage business people to think in terms of market domination rather than return on investment. This is all based on the naive belief that, by encouraging the centralization of the economy, a political demand will then arise to socialize the economy to counter the inequities of the centralization.

A good example here is Managed Health Care offered by modern thinkers like Hillary Clinton and Mitt Romney. These health care plans demand that everyone buy into the monolithic insurance companies that are dominating our health care system. This system effectively centralizes health care into a cartel owned and controlled by a few mega-billionaires.

Romney, apparently sees this wholesale handing of health care into the hands of a benevolent monopoly as some sort of market device. I suspect that Hillary Clinton sees the handing of health care into the hands of a regulated monopoly as simply a step in the progression towards socialized medicine. The monstrosity that they are proposing will be so corrupt and so overbearing that we will see people rising up against it.

Libertarian Thinking

Unfortunately, modern libertarian thinking is as much a product of the modern as is modern progressivism. The great icon of modern thinking is Ayn Rand. Ayn Rand was raised in Communist Russia and received an education based on dialectical materialism. She realized that she could create a new ideology simply by turing the thesis-antithesis conflicts of Marx on its head. One view of Marxism is that world history was the struggle of the collective against the individual. Rand flipped that thesis around and state that history a is struggle of the individual against the collective.

Her philosophy elevates the CEO into a sort of Nietzschean uber-man.

I don't like the modern libertarian as they keep too much of the dialectical baggage of Marxist thinking. Too often, the modern Libertarian is suckered into arguing on behalf of big business or for excessive pay for CEOs. They often argue that the excesses of this modern corporate capitalism is part of a brave new world order.

IMHO, the radical libertarian really belongs in that tempestuous nest of things called neocon ... people who take the underlying philosophical structure of Hegelian/Marxism and apply it to Conservative ideas.

We really need to have a dialog on the issue of megacorporations, unfortunately, as long as we hold the modern way of thinking, we will find ourselves ripped apart and thrown into feuding camps.

This is why, I really never finished the Crass Commercial site because I realized I needed to talk about some foundational issues before I could even start talking.

Kiva

While Americans are happy to skip along with the left on The Road to Serfdom, it is good to see that people outside the US are yearning for freedom and prosperity that we are lining up to throw away.

I disagree with the left on their paradoxical belief that you liberate people by socializing the economy. History shows that you impoverish people when you centralize and enrich people when you decentralize. I mean, how can you enrich when you take people's stuff away?

I hate the ideas of the left. Not the people. For that matter, I don't hate the left for their intentions, just the paradoxical thinking that undermines their intentions. When I lefty has good intentions and a rational approach to achieving those intentions, I am willing to give my applause.

For example, I just watched an interview with Former President Bill Clinton. Mr. Clinton is on an international campaign advocating giving.

When I was a progressive thinking student, I was indoctinated to disparage charity. Charity was nothing more than a bourgeoisie attempt to stave off the new order by buying off the proletariat. My lefty teachers had all sorts of put downs for charitable giving.

I am really happy to see Clinton not only promoting giving. He is promoting intelligent giving.

During the interview, Mr. Clinton pointed out the charity Kiva.org. This charity lets people make online microloans to people in countries throughout the world. I made a loan to a Martha Alicia Avila Ramos who is buying up used clothing to resell during the XMas buying season in Monterrey.

I chose her project as she is re-using stuff. She has three months to pay me back, or I am going to have to do a Dog the Bounty Hunter style mission to Mexico. The loan is organized by Accion Network.

Actually, I am not sure if I get my loan money back. I was probably just suckered into giving a donation to a bank. If I do get the money back, I will be able to loan it out again and feel doubly self-righteous.

BTW, I usually believe in keeping charity quiet. I like the online game style. It would be fun to make a program that allows direct people to business loans for US communities. I am sure than any such program would quickly be sued into oblivion.

Job Security

The Newshour had two interesting reports. The first was a piece on the UAW strike. The second was a report on how the US Army is equipping American soldiers with the antiquated M16.

The UAW strike apparently is primarily about job security. GM wants greater ability to re-align its workforce to fit current market demands. The UAW wants to assure job security for its members.

The report on the M16 concluded that the primary reason our soldiers have antiquated equipment is that the people involved in procurement want things to stay as they are for job security.

The great machine of the industrial military complex is willing to send American soldiers onto the battlefield with antiquated equipment for the job security of the Government contractors and government employees sitting at comfortable desks.

When job security is elevated to an ideal it seems to lead to mediocrity.

I think the UAW is looking at the wrong issue during their strike. The UAW is looking at the job security of its specific current members. The UAW might do better if they broadened their perspective. Rather than looking at the job security of a specific group of people, they looked at the overall health of auto workers as a whole (both current and future auto workers) they might find that the ability of GM to realign its workforce in response to market demands will approve the quality of life of the autoworker as a whole.

Instead of approaching the job security issue with the demand: "we want this particular group of people to have good paying jobs for life;" The UAW could try approaching the question by saying, "We want x number of good paying union jobs to be in the United States." GM would then have the ability to open and shut plants as markets demand.

The great fault of unions is that they end up magnifying internal political dissent within a company. This political infighting ends up being to the long term detriment to both the employer and worker. Professional societies are at their best when the focus on the health of the health of their profession as a whole. They are at their worst when they end up with a favored group that tries to force an untenable demand on the market.

The demand that GM give the current crop of workers a job for life puts in jeopardy the ability of others to hold good paying GM jobs in the future. In this case we find the demand of job security of one group of autoworkers has the potential to harm American autoworkers as a whole.

Anyway, I found it interesting that the Newshour would follow a report on the UAW strike for job security with an interview that concluded that job security leads to mediocrity in military procurement.

Startup Princess

I've been reading posts on Start Up Princess. This site from Provo is putting together a network of women entrepreneurs.

Yes, I know, I am not supposed to be there. I was actually harvesting links from the site. That's where I found Raw Melissa. Anyway, I think groups like this show entrepreneurship at its finest. The basic metaphor for the site is that the market is a magic kingdom. The goal of the start up princess is to help motivate startups by providing resources including access to venture capital and a to a network of fairy godmothers. A fairy godmothers is a successful entrepreneur willing to help other women achieve their entrepreneurial dreams.

It is a fun metaphor, and people are putting together some really worthwhile ventures such as the Now I Can Therapy Center.

Unfortunately, many of the start ups listed on the site seem to be in marginal industries like scrapbooking. One thing that I worry about is that, since so many of the primary industries in our society are dominated by a few well financed conglomerate, we end up burning our entrepreneurial spirit on on low margin markets.

Again, I was on the site to do link harvesting, and a large number of the links are already broken as people's stab at marginal markets failed to manifest. Anyway, I thought I would blog on this resource because it might add more power to the Start Up Princess's magic wand.

Emerging Markets

Did anyone else notice that the Federal Reserve rate hikes failed to lower long term interest rates. The phenomena had many people puzzled. The reason for the change is that our interest rates are no longer determined by the Federal Reserves ... but by China.

The Emerging Markets is a new must read by Antoine van Agtmael that explores the fundamental economic shifts occurring as the emerging markets (once called the third world) rapidly eclipse the first world. Funds investing in the emerging markets have been realizing an astounding 37% growth per year. The emerging market is no longer simply using cheap labor to replicate inventions from the first world. The third world has become the primary stage for research and development. For that matter, most of the real cutting edge technology showing up on shelves these days (such as the plasma TVs, iPhones, etc.) are coming from the emerging markets.

The United States is even likely to lose its edge in education as emerging markets build universities that rival those of the first world.

Questionably Landless

This story from Venezuela is really sad. The article claims that about 150 people have been murdered as they try to cultivate land as directed by peoples Hero Hugo Chavez. So, they are out in the hot sun cultivating land, and a mercenary army comes up and shoots them. This story is supposed to show that the free market doesn't work and that we need a powerful dictator to save us.

The guy cultivating the land doesn't actually have title to the land. He was just out their bravely cultivating it. Apparently Venezuelan peasants are being encouraged to go out and cultivate fallow land in an effort to elimate poverty; So, people are running around cultivating land. The article says people are finding little pieces of state parks or private land that is fallow and going for it.

The article implies that landlords are doing the killing. Since this sounds like a free for all land grab. I wouldn't be surprised if a few of the peasants themselves are killing people who've grabbed the land that they want to grab. The murderers might even be drug lords or criminal elements who demand protection money for the people out cultivating fields.

The article states the opinion that the existence of undeveloped resources is a market failure. I find that odd, In the developed world, there is often a concerted effort to keep large sections of land undeveloped. People value nature. In a free market where people are able to use their resources as they deem fit, we find a large number of people buying easements and donating land to trusts like The Nature Conservancy. This donating an easement for nature conservancy is one of the sublime exercises of the free market.

It is elitist as all get out...but that elderly couple donating an easement on their land for openspace is, in my elitist opinion, and act of great beauty. On this little warming globe of ours, fallow land should be considered a good thing.

As an elitist prig, I also happen to love small organic farms. Yeah, I am willing to pay an extra 20 cents a pound for apples with spots. I go to the farmers market so taht the evil grocery stores get fewer of my consumer dollars.

I love small organic farms, but it seems to me that for small organic farms to do their magic of preserving the land, the small organic farmer needs to have title to the land. This thing where you cultivate land but don't own it leads to the tragedy of the commons. Since the equity of the land is not part of the equation, the people playing this land grab are less likely to do the things needed for long term sustainability.

It sounds to me like Venezuela has big problems with the distribution of capital. The land is tied up by just a few concerns that were good at grabbing the land in the past. I don't think Venezuela is going to solve its problems of past land grabbing with a new wave of land grabbing. In such systems, the person who is best at killing takes all. I think Hernando de Soto was on a better track with The Mystery of Capital. In this work, de Soto puts forward the thesis that it is in creating a process where people have clear title to land that they thrive.

I feel so bad for Jesus Guerrero who followed his bubbling populist leader's command and went forth to cultivate land. I am even sadder thinking that Senor Guerrero died on land that he did not own, nor would he ever end up owning in the peoples paradise of Venezuela.

Minimum Wage Increases Tend to Hurt the Poor

When passing popular legislation like the minimum wage increase, I wish voters and policy makers would take a second to think about the people they hurt with their well meaning actions.

We imagine that the legislation hurts the hated enemies of our community like Walmart, the big box stores and the massive franchises that currently dominate the retail market space.

The truth of the matter is that the negative effects of the minimum wage increase will be felt by the small marginal independent business. Like most retail regulation, the minimum wage increase will give a further competitive edge to the big box store. The big box store has a lower ratio of employees to sales and inventory than the small independent store on the corner. An artificial increase in wages has a direct disproportionate affect on the small stores since employee wages make up a greater portion of the store’s costs.

Small, marginal firms depend on their ability to rapidly adjust to changes in market conditions. In a free market, marginal companies would have the ability to respond to steep drops in the market simply by adjusting their biggest costs (employee wages). Imagine a small restaurant in a resort community. If it were not for wage regulations, they could simply keep their workers on during the slow season when there is no work to be done. Instead, they have to lay them off every year.

I dislike minimum wage legislation as such legislation tends to have a disproportionate affect on the small marginal businesses that add character to the economic landscape.

It also does something else that is extremely nasty.

The minimum wage increase ends up creating obstacles for companies trying to provide goods and services to the poor.

It does not take a degree in higher finance to figure this one out. Guess which income group consistently pays the lowest wages for goods and services?

Yep. Poor people tend to pay less for goods and services than rich people. A really poor person trying to start a company ends up paying lower salaries than rich people who try to start companies. When you have an artificial minimum wage, you pretty much destroy the ability of poor people to start new businesses … which effectively keeps them in poverty.

My estimation is that the minimum wage legislation will have zero financial affect on the ultra-rich Congressmen that pass the legislation. Nancy Pelosi is from a family that is so rich and powerful that they can pay well above minimum wage for their servants. The people most hurt by the minimum wage are the people trying to start a marginal business with dreams of escaping poverty. Congress is slamming the door on this American Dream.

Micro Loans v. PayDay Loans

My last post pointed out how Progressives want us to hate PayDay Lenders. What is funny is that change minded individuals have started to embrace and idea called micro-loans. In the 1990s, the United Nations finally came to grips with the fact that the big loans made to third world governments and to big businesses wanting to exploit resources in the third world made things worse for the people living in the third world. The United Nations and World Bank had made gigantic loans to governments on projects that effectively displaced the people they claimed to be helping. The big loans ended up feeding corruption, increasing the gap between the rich and poor. Even worse, the big loans saddled future generations with onerous debts.

Conversely, entrepreneurs and well meaning NGOs found out that making small loans to small community minded businesses end up having a very profound positive effect. Best yet, a lower percentage of the microloans go into default than the big loans from big banks with big government consent and security.

The United Nations is now ringing the bells of MicroCredit. They even declare 2005 as the Year of Microcredit. Much of the worldwide economic boom of the last 6 years is a direct result of the explosion of microcredit.

As with all things, MicroCredit is likely to be overdone. The first microcredit loans by Grameen Bank came from a good lender to good borrowers. This universal declaration of the goodness of Microloans is likely to attract sharks wanting to lend at absurd rates to subprime borrowers.

It is interesting that local progressives are systematically slamming all the doors that provide credit to the poor in our local communities in the United States, while progressives on the international scene have figured out that George Bailey (It's A Wonderful Life reference) style banks working within a community to help it thrive lead to true, sustainable progress.

Pay Day Loans are the Result of Progressive Regulation

I just read an article in the Salt Lake Tribune (The Tribune's policy is to break all inbound links after 90 days: Easy Money With Strings Attached.)

The article does a good job pointing out the idiocies of progressive government. The article begins by deriding the excessive interest rates of PayDay loans companies. I happen to agree. PayDay Loan rates border on the ludicrous. The loans are for small amounts, and a short duration. The loaner charges a lending fee, as opposed to interest (like bonds). That fee might be something like $8 to borrow $100 for two weeks. This is an outrageous interest rate! PayDay Loan companies often provide check cashing services along with the loans. If a person is unable to pay their loan in 14 days, they have to borrow again. In just 13 cycles (182 days) the fees on the loan have exceded the amount of the loan.

I agree with this part of the article. PayDay Loan companies are a big rip off. I would never do business with one. I strongly advise people to avoid such institutions; if they can.

These Check Cashing / Pay Day loan companies exist because there is a growing segment of the population that is underserved by traditional banks. A personal with marginal finances will end up paying more in the way of fines and fees if they tried using traditional banks.

It is after making the case that PayDay Loan companies are bad for consumers that we get into the idiocy of Progressive politics. After making the case that payday loans are bad for consumer, the article presents the progressive solution to the problem: Limit the number of companies that make PayDay loans!

The progressive solution to usery in the subprime lending industry is to prevent new competition from entering into the industry.

A person with even a little bit of common sense (which excludes all Progressives) would realize that preventing people from entering the field of subprime lending industry has the effect of eliminating compentition...which will keep the interest rates ridiculously high.

I do not like the PayDay lending scheme.

Rather than playing the game of calling the people in the industry evil, I want to first look at the reason why people use these companies. The primary reason that people use subprime lenders is that they are underserved by main stream banks.

The next question I ask is why there are no banks ready to serve these people?

The answer here is simple: The regulations of the banking industry have raised the bar of entry so high that it is now impossible for small investors to get together to create a new bank that serves this underserved population.

In many ways, the evils of the PayDay Loan industry come directly from past efforts to regulate the industy and the ways the loans are defined. For example, the loans are designed for a two week period. Imagine that you just got a new job. Your first paycheck will come in one month (30 days). You need $100 to buy a new outfit for the job. Since you check will not show up for 30 days, you will need to run your payday loan through 3 cycles ... incurring a $24 fee.

The payday loan is a very good deal when you have the specific need of a one time loan for exactly 14 days. The loans are a bad deal when your needs differ from that tight definition.

Does the above argument make sense? A person with marginal finances needs a great deal of flexibility from their lenders. Extremely tight regulations often have the effect of eliminating that flexibility. Since the regulations prevent the person in need from getting the loan that best fits their needs, they end up getting the wrong loan ... and it costs them big bucks.

The financially maginal groups in this world need greater flexibility in their lending than is provided by our hyper-regulated banking system can provide. Limiting the number of banks serving the low income (as Progressive suggest) will only worsen the problem.

The article does point a few good solutions. One of the big problems with the PayDay Loan program is that borrowers will often make multiple loans from different companies. A person needing more money than is allowed by the regulated cap on payday loans is apt to run from store to store until they've borrowed the money that they need. This game increases the fees that they will pay, and increases the risk of default.

Some states require lenders to record the loans in a common database.

It's the Christmas season, which means reruns of It's a Wonderful Life. This Christmas classic was recorded in the days of black and white, when it was still possible for George Baileys of the world to make a difference in their community. Unfortunately, the snearing Progressives of the world have choked our society with so much regulation that there is no longer a place for George Baileys who would go out of their way to help the marginal in our society with finances.

Speaking of snearing progressives. Did you note how Lesley Mitchell went out of her way to point out that the owner of one of the PayDayLoan companies was a Republican?

Yes, a large number of businessmen in industries being battered by progressive politics become republicans. Of course, Ms. Mitchell is playing a different game. We are supposed to hate PayDay Loan companies for using the poor by lending them money (when no-one-else will). We are supposed to come away from the article hating the companies and above all hating the evil-Republican companies that try to serve the underserved. Personally, I've gotten to the point in life that I like the businessman who is trying to serve the public more than the progressive critic.

Resource Inflation

The inflation of fuel prices is being driven primarily by world wide demand for fuel.

The relatively small amount of inflation that the US is currently seeing is being driven by the world economy. The US economy is growing at a robust, but not irrational pace (especially considering the current state of world wide expansion).

What I don't understand is that the Federal Reserves has been jacking up interest rates in an effort to slow the US economy. Their aim is to spoil the US economy in a vain attempt to affect the global economy.

It seems to me that the wiser course would be to accept the inflation in the price of natural resources. The inflation that occurs because of rising world demand for oil is not something the US Federal Reserve to control. Trying to control something out of one's control can lead to bad consequences.

At this point, the struggle of the American economy is to realign itself with new global realities. Americans need to invest in conservation and there needs to be a major realignment of American investment so that our business will be better in line with new global realities.

Both of these goals are difficult because of the high interest rates.

The Fed needs to be making its rates decisions based on the state of the US economy (discounting inflation caused by the global economy). The US alone cannot control the global economy. It seems to me that stifling the US economy in a time of global expansion actually puts the US at a disadvantage.

Don't Get It

I was looking at the political cartoons on Cagle. A large number of Graduation cartoons are about how graduates are all going to be unemployed and miserable.

We have been in a long running hot job market. There's a ton of opportunities for this crop of graduates. There may be a lack of jobs for people getting a high school diploma and don't intend to go to college. College graduates, however, are not lacking in opportunities.

The problems faced by current grads are excessive student loans and a tight housing market. There is also a nasty gap between the work world and academic world. In a hot job market, most students should be able to jump that chasm. I feel sad for students who been deluded into following the Marxist ideology that most professors love. The business needs people with strong ethics willing to work, not people trained in using underhanded tricks to undermine companies.

The housing market and loans are the biggest challenges for students. While there is not a cure for the excessive debt, students can cure the housing blues by going a few years as a roommate before getting a house. As for getting a job. We are currently in a hot market for college grads.

Growth Paradox

Our current mood is somewhat of a paradox. The liberal economic policies of the last two decades has led to a worldwide sustained jump in the economy. This jump is not just limited to a few rich people ... it is a widespread boom.

Despite the obvious success of free market policies around the world, the last several years have been a banner year for the left. Why are people rejecting the policies that have been making significant improvements in their lives?

It finally dawned on me. The two areas that aren't sharing in this boom are the News business (which is being undercut by the net) and Hollywood, which is seeing their influence decline. The great global opinion setters are being marginalized and they are screaming bloody murder.

Another interesting aspect of this boom is that small business seems to be in the lead. With the community color directories, I end up paying a great deal of attention to the Main Street economy. It appears to me that these small businesses are the current engines for growth. This is good news because small firms tend to do a better job distributing wealth. Big business is doing okay ... but we aren't seeing the big Clinton era bubble that makes people ecstatic.

Once Again ... The Price of Gas

I keep hearing people saying absurd things about the price of oil. The primary reason for the increase in the price of oil is that demand is skyrocketing. Here are a few of the wrong things people say about the price of gas:

A: The price of gas is going up because of taxes!

This statement is wrong. In the case of gase, prices are a fixed dollar amount and have not been raised. For that matter, if the taxes were lower, the proportional increase that we would be seeing at the pump would be higher. GasPriceWatch tells me the Federal gas tax is $0.184. The Colorado tax is $.22 per gallon. Utah taxes are $0.245. So, we are looking at a tax of about 40 cents a gallon.

In the last 5 years or so; we've seen an increase of about $1.00 per gallon to $3.00 a gallon. That is a nasty three fold increase. If the taxes were $.25 a gallon lower, we would have seen an increase from $.75 to $2.75. That would be a 3.6 percent increase!

The rise in gas prices in not being driven by a rise in taxation.

Personally, I think that, after prices stabilize, the government should think about raising gas taxes.

b: The Government is benefitting from the high gas price.

Since the rise in gas prices decreases consumption, then it reduces the amount of taxes collected. The government does get increased revenue from corporate taxes on oil companies and increased taxes on the income of mudloggers and other colorful characters in the gas industry. Of course, this increase is partially offset by the increased deductions for gas consumption in business and recessed economic activity caused by the rise in gas prices.

The US government is one of the biggest gas consumers in the world. The increased gas prices are hitting all areas of our resource intensive government hard.

c: Increasing production capacity will solve our problems.

In most situations, increasing production capacity solves supply issues. The consumption of a nonrenewable resource is a bit different. Different reports I've seen seem to indicate that the world is sitting near its maximum oil extraction rate. Any artificial increase in the extraction of oil simply transfers the dwindling reserves that future generations have into our gas tanks.

It is a hard fact to accept, but I fear that conservation of fuel and the development of alternative renewable energies are the only real long term solutions to our problem. With gas at $3 a gallon, we need to make sure we use each gallon wisely.

Fluff Economy

It is strange. There is growing concern about the economy when there has been broadbased economic improvement in the last several years. The economic good times aren't just happening in the US. We are in a rare globalized economic expansion.

The disconnect between public sentiment and economic reality is an extremely interesting subject. Some administrations are better and generating feel good economic fluff, while others are better at improving the underlying conditions in the economy.

It seems to me that one of the big reasons for this sentiment is that much of the growth is occuring in small businesses, while we tend to make our judgments based on sentiment in big corporations.

IMHO, the small business community is the thing we need to promote. The question that dominates my thoughts on the economy is how can we keep things small?