The Equal Employment Opportunity Commission, responsible for ensuring that the nation’s workers are treated fairly, has itself willfully violated the Fair Labor Standards Act on a nationwide basis with its own employees, an arbitrator has ruled. . . . The EEOC has a much worse record of labor and civil-rights violations than most corporations and agencies with a similar-size workforce.
As Reynolds notes - "Fair employment practices, like taxes, are for the little people." On one hand, it's sort of frightening that Americans have a leadership that believes in imposing greater amounts of regulation and taxes but don't believe those same regulations and taxes apply to themselves. Arnold Kling sees an additional quite troubling pattern (also via Instapundit):
For quite a while, but especially over the last nine months, the best way to predict developments in politics and finance has been to ask: what will do the most to increase the concentration of power? Every headline, from the Geithner regulatory plan to the proposed cap on the charitable deduction, to the resignation of the General Motors CEO, should be viewed in that light.
Perhaps this is a case the Bono's organization doth protest too much and the reason they resist calls for accountability is that they can't live up to the scrutiny.
A redefined top-end. Fewer big-spending Westerners, tighter MNC expense budgets and a general de-rating of Western standards will change the way China defines luxury and status. High End Asian has existed for a while, but it’s always been in the shadow of European standards. As that shifts, international managers are going to have to make sure that their offering stays competitive.
A more middle-class middle-class China I recently had lunch with Bill Dodson, publisher of This Is China - and he made the distinction between ‘middle-class Chinese’ and ‘entrepreneurial Chinese’. The folks that westerners call ‘middle-class’, most Chinese call ‘rich’. The real Chinese middle-class is huge, value-oriented and very local. The entrepreneurs and returnees, whom we have all been CALLING the middle class, were very international, status-conscious and tended to have jobs that linked them to China’s ‘external economy’. The real middle is on the rise.
More opaque B2B transactions. As western capitalism gets de-rated in China, so will the annoying trappings of western commerce — like open bidding for contracts, RFPs and transparent procurement. Look for a re-guanxified buying process – even in MNCs.
Larger, more assertive SOE & State actors The stimulus package shows the direction of China. Private commerce is going to finally and definitively be given a back seat to the SOE/State actors in China business. As some of us have always suspected – market-oriented commerce was just a phase in China. Now that there are plenty of well trained, commercially sophisticated managers in the system, we’ll see China rapidly back away from ‘market socialism’ and towards ‘Statist capitalism’.
Laxer QC, compliance and regulation. China will be throwing the baby out with the bathwater, and many hard-won gains in the areas of quality control, consumer protection and anti-graft policies are going to fall by the wayside.
I'm not alone in thinking that China's domestic economy will bear the brunt of the global downturn - but I'm also not sure ChinaSolved's prediction isn't wrong that the US will not have emerged by the end of 2010. If the lessons China learns are the above, this will ultimately handicap their future growth as it will reduce the efficiency of their economy. It will also suggest China's apparatchiks have been successful at reclaiming some of the power they have lost.
The US government says no (CNN). While the media hasn't exactly been reporting the multitude of protests from unlikely places - ie people who actually contribute in some meaningful way to society (IBD via Instapundit), much of the electorate is clearly unhappy with the bailout packages (not to mention the treat of higher taxes and bigger government well into the future). So why won't the government take the money back? So much for the silly people who say that capitalists deceive to seize power during crises (Reason). They must have had "capitalists" confused with "government".
Services like this make the traditional gatekeepers of information increasingly irrelevant. What matters now more than ever are the ideas/content rather than distribution - from Wil Wheaton (via Instapundit):
As creators, the barriers between us and our audience are falling faster and more easily than ever before, the time between creation and release is shrinking, and thanks to the Internet we can reach more people with less effort than we could as recently as a decade ago.
This is excellent news and it furthers the irony that capitalism may soon no longer require capital. It also does not bode well for the mainstream media who have been suffering through a depression for quite some time (ReadWriteWeb). It's going to get worse.
World Bank President Robert Zoellick has recently taken to calling on rich countries to pony up 0.7% of their respective stimulus packages, including $6 billion from the United States, for a bank "vulnerability fund" for the world's poorer countries. It's all part of what he calls, echoing President Obama, "the Age of Responsibility."
Apparently "responsibility" doesn't apply to the World Bank:
The bank has publicly stated that the debarments mean only that these companies will be prevented "from bidding on future World Bank-financed contracts." Does that mean that the companies continue to get money from the bank for the contracts that were signed before the debarments? Interesting question. Our sources say they do, and the bank's sanctions procedures are ambiguous on the point. We contacted the debarred companies that still have contracts with the bank, but they either hung up on us or never returned our calls.
As for the bank, it has declined to respond to our multiple queries. A February 4 bank press release promised to make a redacted report of its Philippines investigation available on its Web site "in the coming weeks," but so far we haven't seen it.
We suppose the bank might say that it owed these companies "due process" before cutting them off. But that doesn't mean the bank had to do more than a half-billion dollars of business with companies it suspected of corruption. If this is the "responsibility" that the bank proposes to exercise over the new taxpayer billions Mr. Zoellick is requesting, his donors should look for worthier recipients.
Just as one threat was being shot down as being bogus... Sometimes there really are monsters under the bed. First - if you were ever worried about the Bird Flu or SARS (I still am somewhat and I bought two boxes of N95 masks (Google) for my family), Bird Flu could be nothing compared to some of the other viruses lurking out there (think HIV). Fortunately at least we have people hunting for these things. From TED (via BoingBoing):
The second is the potential of a solar space storm - here's how the New Scientist - which isn't exactly a fringe magazine, paints the worst case scenario:
IT IS midnight on 22 September 2012 and the skies above Manhattan are filled with a flickering curtain of colourful light. Few New Yorkers have seen the aurora this far south but their fascination is short-lived. Within a few seconds, electric bulbs dim and flicker, then become unusually bright for a fleeting moment. Then all the lights in the state go out. Within 90 seconds, the entire eastern half of the US is without power.
A year later and millions of Americans are dead and the nation's infrastructure lies in tatters. The World Bank declares America a developing nation. Europe, Scandinavia, China and Japan are also struggling to recover from the same fateful event - a violent storm, 150 million kilometres away on the surface of the sun.
It's not like this kind of thing hasn't happened before - it has! Just not in major population zones:
The incursion of the plasma into our atmosphere causes rapid changes in the configuration of Earth's magnetic field which, in turn, induce currents in the long wires of the power grids. The grids were not built to handle this sort of direct current electricity. The greatest danger is at the step-up and step-down transformers used to convert power from its transport voltage to domestically useful voltage. The increased DC current creates strong magnetic fields that saturate a transformer's magnetic core. The result is runaway current in the transformer's copper wiring, which rapidly heats up and melts. This is exactly what happened in the Canadian province of Quebec in March 1989, and six million people spent 9 hours without electricity. But things could get much, much worse than that.
The big issue is how reliant we are on an outdated electrical grid and an excellent case for decentralizing the grid. I figure though if we can get through the next 10 years without a disaster, some of the amazing technical innovations in energy will provide us with sufficient alternatives but until then... I'm not sure that relying on government is ever ideal.
Something to think about tonight when I'm sure some of you will turn off your lights in observance of "Earth Hour". Me? I think I'll keep the lights on to celebrate human civilization and hope those lights continue burning brightly.
Update: And as if we didn't already have enough things to worry about (RTE News): "A highly radioactive lead ball has gone missing in China, prompting authorities to launch an urgent search."
Not according to Phillip Greenspun who makes the argument that our systems of governance and regulations encouraged excess risk at the expense of shareholders:
Given our country’s rules regarding public company governance and the fact that Wall Street is dominated by public companies, is there a realistic hope for stability? What would any of us do if we had the chance to make $100 million per year by taking a 10 percent risk that our employer and its shareholders would be wiped out?
A free market in which participants risked their own money might work quite well, but that’s not what we tried. We had a market in which participants risked other peoples’ money and pocketed much of the upside but suffered no downside risk, all made possible by the government’s regulating away public company shareholder power.
Along with the pols out in force to decry the "greed" of Wall Street (nevermind their central role in the crisis), all sorts of people are coming out of the woodwork to capitalize on the resentment people have over the financial crisis making claims that capitalism has to be made "moral". Of course most of these people never understood capitalism (or economics for that matter) to begin with.
The blog at ASI differentiates between "greed" and "self interest": "even without their kind intervention, capitalism is very much more moral than most of the snotrags in Parliament, who seem to spend most of the time working out how to fiddle their expenses [...] People say that capitalism is based on greed, which must be restrained. No it isn't. It's built on self-interest – which is perfectly natural to us all, and beneficial to our community. Markets are about free people, voluntarily exchanging cash for goods or services."
A rejoinder by William Easterly makes the "moral" case for personal freedoms: "Individual liberty is a precise concept and a powerful ideal. It has an enormous moral appeal – “all men are created equal, and are endowed by their creator with certain inalienable rights, that among these are life, liberty, and the pursuit of happiness.” Jefferson wrote these words even though there was only liberty for propertied white males at the time in the US, but these words would serve as a beacon through American history, which Lincoln would invoke to motivate the Emancipation Proclamation, and which Martin Luther King would invoke to end Jim Crow and get de-facto voting rights for blacks."
The markets reflect who we are as individuals and as a society. So when we're told that capitalism needs to be more "moral", just remember it's none-too-subtle code that someone wants to impose their morality on us.
A complete non-sequiter. The few times I've caught it on, I've enjoyed Discovery Channel's Mythbusters (imdb). In what can only be described as slightly insane, in order to answer the question of whether or not it's possible to knock someone's socks off (CrunchGear), "the Mythbusters crew ignited 500 pounds of ammonium nitrate about a mile outside of Esparto that resulted in an explosion that “was a lot bigger than they expected.”" With windows shattered as far as a mile away, my guess is that the answer is yes.
Fully aware that fighting graft is a matter of life and death for the party and its rule, Chinese President Hu Jintao has repeatedly pledged to step up crackdowns. In recent years, more anti-graft bodies have been set up and more channels opened for the public to report suspected corruption cases. Fearful that the global financial crisis may spark public discontent, which could threaten social stability, at the NPC session, Premier Wen Jiabao, Cao and the country's top judge all vowed to make new efforts, including enhancing public supervision, to fight corruption.
But if someone should have the audacity to squeal on graft?
"Nine of the top 10 anti-graft fighters in the past three decades have faced retaliation," He Zengke, director of the Institute of Contemporary Marxism under the CCP's Central Compilation and Translation Bureau, told China Youth Daily. He did not give details on who the top 10 anti-graft fighters were, or what retribution had been meted out to them, but there are plenty of cases of informants being killed, jailed or attacked after tipping off the authorities.
Government officials have a serious image problem both in encouraging offenses to be reported, creating the incentives to do so but also protecting whistleblowers. Sustained development requires rule of law and property rights that protect everyone. While China has clearly come a long ways - and its vibrant and burgeoning entrepreneurial class is evidence of this, it has a long ways to go.
My way of justifying my time and yours in reading my rants, on this blog:
Paul Hebert from Incentive Intelligence makes the case that incentive programs should change with the market - that the focus should be more on recognition and less on incentives. Noteworthy quote: "Recognition is an act - not an item." This may be the "optimum time to reinforce behavior that contribute to positive attitude, helping other departments, reassuring other employees and taking care of existing customers."
Some thoughts from Inc.com on cutting prices in this environment. One cautionary note: when it comes to pricing, the best lesson I remember is the strategy of companies like Four Seasons and Abercrombie and Fitch who try to avoid discounts whereever possible - when the economy does rebound, they're the ones who benefit most from higher margins but also a clearer recognition by customers of their products/services as luxury items. Discounts can also cheapen the value customers see in a product.
My only and favorite Outlook add-in is coming out of beta (and got additional funding). Xobni helps you to rethink the way you work with email (Cnet) by mapping out the relationships of the people who pass through your inbox. I reinstalled it last night and the recent updates like the re-index feature are most useful.
Richard Gibson from the WSJ notes 6 blogs/web resources for franchisees: Franchise-Chat, The Franchise Pundit, Rush on Business, Unhappy Franchisee, and WikidFranchise. Given that building a business can be an intensely lonely endeavour, joining a community of peers who can understand what you're going through is highly recommended.
These derivatives are the root of the credit crunch. Why? Unlike all other property paper, derivatives are not required by law to be recorded, continually tracked and tied to the assets they represent. Nobody knows precisely how many there are, where they are, and who is finally accountable for them. Thus, there is widespread fear that potential borrowers and recipients of capital with too many nonperforming derivatives will be unable to repay their loans. As trust in property paper breaks down it sets off a chain reaction, paralyzing credit and investment, which shrinks transactions and leads to a catastrophic drop in employment and in the value of everyone's property.
Though I'm not entirely sold on the idea that it's the problem of derivatives themselves, the fact that there's a lack of transparency to the point that there are doubts as to whether a financial institution is solvent is clearly a problem. He makes a number of important points though:
"Every financial deal must be firmly tethered to the real performance of the asset from which it originated. By aligning debts to assets, we can create simple and understandable benchmarks for quickly detecting whether a financial transaction has been created to help production or to bet on the performance of distant "underlying assets.""
"Governments should never forget that production always takes priority over finance. As Adam Smith and Karl Marx both recognized, finance supports wealth creation, but in itself creates no value."
Time Magazine's blog says yes after they have shut down YouTube in China in a rather heavy handed way. I tend to agree. Banning voices (Christian Science Monitor on the banning of the Dalai Lama from a South African peace conference) and messages (CTV on banning Roger Galloway from Canada) just tends to make them stronger. It's a pity given that I think there is an "other side" when it comes to these issues. Those with power should have learned by now that by attempting to crush a message, you often have quite the opposite effect.
Was China serious? Apparently, the journalists at Chinastakes don't think so - at least not entirely. I figure that in the short run, China doesn't have a choice but with what the US Administration is planning, can anyone blame them? (Besides, a currency created by the IMF - a multinational organization accountable to member states (ie no one)? If they really think they'd be trading up, we may all be in serious trouble).
Update: The American response - per Paul Volcker (WSJ's China Blog), "They hold all these dollars because they chose to buy the dollars, and they didn’t want to sell the dollars because they didn’t want to depreciate their currency." Frankly, the response sounds a bit insane considering the the US will at least in part be depending on China's continued appetite for American debt as the US debt multiplies over the next few years.
A myth, according to the Wendy Barnaby in the science journal Nature. As she notes:
The 1990s had seen cataclysmic forecasts, such as former World Bank vice-president Ismail Serageldin's often-quoted 1995 prophecy that, although "the wars of this century were fought over oil, the wars of the next century will be fought over water".
The solution? Practically every time, has been trade - imported food has nearly always made the difference and there haven't been wars fought over water. It's nice to know that there's at least one less reason to be worried about a nuclear holocaust (though I'm sure this won't be end of the generally hysterical statements over the issue).
Just trying to figure out a name for these somewhat random but business related blurbs that I think are useful enough to pass on. In any event, here they are:
Learn to survive the downturn by looking to how other firms thrive in highly volatile, developing markets (WSJ). The basic ideas: be aggressive - repackage, reprice, requestion the value you offer & reconsider how performance is measured. Above all - stay optimistic! Definitely worth the read. One observation that seemed to work tremendously courtesy of P&G in Africa, was how they sold product in much smaller quantities per package making it far more affordable.
In my ongoing quest to GTD, I came across another (web based) summary. But what I found particularly good was the one page .pdf work flow download that they have (about midway through the page). Getting my email inbox to empty will be the next gargantuan task though I came across 43 Folders' Inbox Zero which has some ideas that I hope prove useful.
I've been quietly updating my directory of webutilities for startups - which I suspect I get more use out of than anyone I've referenced to it (which I think is a good thing). Going forward, to keep it current, I'll point out some of those changes and additions. So one significant update is adding a section called "Tell the World." With some of the services out there, there's really no excuse for not having well designed printed materials for your business these days. Inkd, a marketplace for print layouts, launched today (via TechCrunch). Competitors include Branddoozie and Stocklayouts.
In the same section, I've also added microstockphotography sites - iStockphoto (owned by Getty) is one that I've used extensively. You can get amazing imagery for your marketing at great prices. Others include the more expensive SnapVillage (owned by Corbis), or the cheaper BigStockPhoto (I've also used this service), ShutterStock, Fotolia, Dreamstime, and StockXpert (owned by Jupiter Images).
Finally, one site I first came across several years ago that amazed me and my first introduction to marketplaces of content generated by a community of creatives - Template Monster. For a cost of under $100, you get a generic template (though you can buy exclusive ones). Though they may be templates, there are a number that are extraordinary. Unless you have some knowledge of web programming you'll need some help to customize it, it would still save a ton of time and money (you can use one of the outsourcing services listed there).
Just how bad? From PEHub (they're talking about players' dwindling investments in private equity): "by the time they’ve been retired from football for two years, a staggering 78 percent of NFL players are broke or nearing bankruptcy."
The start of hopefully, a useful series. My way of justifying the time I spend on my blog and your time reading it (the rants are a bonus!) - culling business ideas from 'round the web:
Arnie Street has a variable pricing model that Armando Roggio from Practical Ecommerce believes could apply to other ecommerce businesses and has been core to its success. Prices start free, and rise up to 98 cents based on popularity - prices therefore are a signal of popularity of a particular song allowing you to discover new bands. Roggio says the model has three principles that allows it to work:
There's a scalable and low-wholesale cost item
Uses a very low introductory price to entice prospective customers, and
it rewards customers for marketing for the store.
Using design as a competitive advantage is obviously not a new idea (see Apple). One trend that I think will pick up pace is the simplification and stripping of features people neither want nor use. The Industry Standard asks whether the acquisition of Flip by Cisco heralds the rise of "dumb tech"? I think it goes further than this, in that one of the drivers is building designs for "the bottom of the pyramid" (Amazon).
Making products affordable used to be about sending last year's models and rejects into the developing world, but I think there's a real recognition (in no small part motivated by competition based in the developing world), that the market potential is not only greater but now it seems things are reversing: basic concepts are being designed for the developing world to be scaled up for wealthier markets (Core77).
Finally, a trend in manufacturing. The blog at Shapeways talks a bit about the barriers to mass customization when it comes to 3D printing as an emerging technology. It makes the argument that desktop 3D printing will never become mainstream for the simple reason that it will be easier and more cost effective to manufacture in mass quantities - comparing the technology to the less than universal nature of a Singer sewing machine. I don't entirely agree with their reasoning but I think their discussion of what the key barriers are, is interesting.
Heh. "It's ok to cry" (DesignGlutStore via Swiss Miss) - customizable to your stock portfolio for those who can still afford the price of $95 for a hanky:
I caught the first episode of Better off Ted (EW) on the other night and enjoyed it thoroughly. It's a "witty satire of a soulless multinational corporation" - like a Dilbert + the Office meets the media caricature of Halliburton (only with less of a conscience) laced with delicious and bitter passive aggressiveness.
From the single dad talking to the camera about his daughter and presumed ex-wife, my favorite line so far: "when Rose was four, her mom left us to go save the world. It's been hard on Rose, frankly, not so great for the world either."
The abysmal record of foreign aid in Africa is generally a hallmark of foreign aid everywhere - and while it's not something that the west is as concerned about at the moment, as it struggles to emerge from over leverage and bad government policy, Dambisa Moyo pleads for change in a WSJ article:
Giving alms to Africa remains one of the biggest ideas of our time -- millions march for it, governments are judged by it, celebrities proselytize the need for it. Calls for more aid to Africa are growing louder, with advocates pushing for doubling the roughly $50 billion of international assistance that already goes to Africa each year.
Yet evidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and the growth slower. The insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher-quality investment. It's increased the risk of civil conflict and unrest (the fact that over 60% of sub-Saharan Africa's population is under the age of 24 with few economic prospects is a cause for worry). Aid is an unmitigated political, economic and humanitarian disaster.
It's a cruel irony that aid often hurts the people it's intended to help. The solution? If we're not going to spend the time to develop bottom up, long term incentives for made-at-home growth? "Cut it off."
In short, the upper limit on most mineral resources is, for all practical purposes, unbounded, and more importantly, the scaling factor on such resources is toward geometric growth of reserves. That is, to say, if you double the price, you don’t double the amount of available resource — you 5x, 10x, 20x, 100x it. If you halve the production cost due to advancing technology, again, you don’t double the reserves; you increase it by orders of magnitude. The scaling factors are thus greatly biased in favor of continuing production, as was demonstrated in the Simon-Ehrlich Wager.
This is the great lie of reserves figures; reserves figures for a resource reflect only upon the amount of that resource that can be produced at current prices with current technology. This applies to virtually any resource. If you were in Namibia in the 1980s and were only willing to pay a tenth of a penny per gallon for water, there wouldn’t be much I could have sold you. But if you had been willing to pay several cents a gallon, I could have sold you all the oceans in the world’s worth due to desalination. And today, thanks to advancing technology, I could do that for half a penny per gallon or less.
It feels a bit silly posting this as resources prices have been plummeting everywhere though a few months ago, there was concern that we would ultimately be trading our dependence on oil, that relies on the greed of despotic governments, with a dependence on lithium, relying on questionable governments like Bolivia (IHT). Then again, I suppose it's also equally silly that there are those who continue to push an environmentalist agenda even if it means restricting future innovation and economic growth (developing real, sustainable solutions to our problems).
That suggests that there is a risk to the U.S. system with more people relying on entitlements. "Well, they become an interest group," Mr. Becker says. "The more you have dependence on the government, the stronger the interest group of people who want to maintain it. That's one reason why it is so hard to get any major reform in reducing government spending in Scandinavia and it is increasingly so in the United States. The government is spending -- at the federal, state and local level -- a third of GDP, and that share will go up now. The higher it is the more people who are directly or indirectly dependent on the government. I am worried about that. The basic theory of interest-group politics says that they will have more influence and their influence will be to try to maintain this, and it will be hard to go back."
Still, there remain many good reasons to continue the struggle against the current trend, Mr. Becker says. "When the market economy is compared to alternatives, nothing is better at raising productivity, reducing poverty, improving health and integrating the people of the world."
Gary Becker and Richard Posner have a great joint blog that takes a point-counterpoint approach to issues (and one, based on the 2 minute rule, that I added to my blog roll). The irony is that Becker is usually the "moderate", taking a more charitable view of government interventions but the writings of both provide fascinating reads.
I can't figure out the logic - does Congress truly believe that firms can be rescued if they lose all their top staff while attempting to stave off insolvency? I suppose it comes down to a question of performance based compensation, but what the government has done in its ire over AIG is destroyed the ability of the firms the government has bailed out (that include Bank of America, Wells Fargo Bank, Chase Bank, JP Morgan, CitiBank, Morgan Stanley, Merrill Lynch, Wachovia, Washington Mutual, Countrywide, Goldman Sachs, AIG, Fannie Mae, Freddie Mac) from compensating for performance. But it's a lot worse than that (Club for Growth):
Under this law, a bank teller at Wells Fargo could receive a bonus of $1,000 for doing a great job. If that bank teller was married to a physician who made $175,000 and they had some additional investment income, that bank teller would pay a tax of $1,055 on the bonus of $1,000 that they received for doing a good job.
I want to believe it's one of those unintended consequences of government policy but I can no longer tell. Killing these firms off or restructuring them in bankruptcy would be a far more effective use of time and tax payer dollars than the trickle of losses that these firms will experience losing their best staff in their descent into oblivion. More from Donald Luskin.
Absolutely stunning. The bill passes in the House 328-93.
Update: from the WSJ's DealJournal - "The prospect of living with a 90% tax rate is unbearable to people working at TARP-funded banks — and even those who don’t, and see a larger anti-capitalist message in Congress’s actions this week." No, I'd say it's their stupidity but that would be an insult to stupid people.
I enjoy the energy of working with entrepreneurs who generally have a boundless and optimistic view of the world. As the saying goes though, the only thing constant is change. Markets and clients can be considerably different in 2-3 years than they were in the last year but Eric Ries from IMVU points to a few principles that Tim O'Reilly (from O'Reilly Media) advocates for startups that can get you and guide you through some of the tough times:
Work on something that matters to you more than money,
I'm not afraid to say that I'm something of a free market ideologue (doesn't that just mean consistency in ideas?). I don't think it's inconsistent to believe that interventions (if they must happen) should be designed to fit the local contexts as Easterly proposes. Markets are bottom up approaches to solving the needs of the poor as market prices and the very willingness to pay also implies the prioritization of competing needs.
I wonder though if increased interest in top down approaches is one of those unintended consequences of people pushing for spending to meet "Millenium Goals" (UN) without considering efficiency or effectiveness? After all, you can tell people you're meeting those goals allowing them to sleep better at night despite the fact those same funds are literally killing the people they're supposed to help.
There is no shortage of "critics" of the markets these days. With the primary target being Wall Street, what's often ignored are the policies that not only enabled "Wall Street" but encouraged (and arguably created) the events that unfolded.
IntelligenceSquared US is a series of debates in NYC that polls the audience before the debate what they think and after on a given topic. Their recent debate had the proposition: Blame Washington more than Wall Street for the Financial Crisis. Before the show 42% agreed, and after 60% (though I am generally fairly skeptical of such things). You can find the transcripts here (courtesy of Paul Kedrosky).
On a related note, William Easterly asks why we're so afraid of "free markets". He seems to take a fairly balanced approach. I try not to fall into some of the ideological traps he notes (of those ideologues like myself). It's well worth the time to read.
For those of us who grew up listening to "Dofasco: Our product is Steel, our strength is our people" - according to Michael J Webb at Selling to Big Companies, they were wrong. It's not the people, it's the processes. I've learned that's probably true - to build enduring companies, people are important, processes even more so.
Simplicity Driven Entrepreneurship (JonathanFields). The elegance of where markets are headed. Basic idea: Figure out what you love to do (ideally where it's where you build value) and outsource the headaches. The author makes a point of saying that it's not about working less, it's about living a simpler and more enjoyable life.
At least China thinks so (Asia Times via Instapundit). China appears to be moving its investments into short term US treasuries. Investing short term suggests China is concerned real interest rates (real interest rates being stated interest rate less inflation) will fall even further (with interest rates hovering near zero - this really isn't a good thing).
Fun times. As someone else pointed out, the people who have really been harmed in this debacle are the people who saved diligently and invested conservatively. As Glenn Reynolds points out, this also suggests a lack of confidence in the US Administration's budget.
Or at least not downright pessimism - from Daniel Ikenson at the Cato Institute who thinks there's too much hysteria over trade :
The fact of the matter is that there isn’t any discernible trend toward protectionism in the United States or in the world right now. World leaders issue warnings about the consequences of protectionism, but there are not trends. There are incidences, but no trends. The ballyhooed World Bank paper cites 78 trade measures “proposed and/or implemented,” 66 of which involved trade restrictions, 47 of which eventually took effect. The long footnote associated with the presentation of these numbers (footnote 1) includes the following sentence: “It is important to note that it is difficult to distinguish the trade policy measures that are taken in response to the current crisis from measures that might have been taken anyway.”
Color me cautiously optimistic, but I do think we'll see retrenchment of protectionism - but I would agree that we probably won't see another Smoot Hawley Act (Economist). Given however the disastrous effects of Smoot Hawley, I also don't think concern - especially given some of the other er, remarkable "solutions" that governments have come up with for this crisis - can be classified as hysteria or that we shouldn't be especially guarded against it.
Traffic is down a total of 40% yoy, 20% to ytd (Port of Long Beach via Paul Kedrosky). A few pretty dramatic numbers. I'm guessing most of those containers are moving to and from China. Though I think one factor Kedrosky may not be picking up on is the new $35 "clean trucks fee" being charged (as of Feb 18th) with shippers looking to other ports as a result - particularly in this economic environment (3PLWire).
As happened in the 1930s, economic nationalism is also sure to poison geopolitics. Governments under economic pressure have far fewer resources to take care of their citizens and to deal with rising anger and social tensions. Whether or not they are democracies, their tenure can be threatened by popular resentment. The temptation for governments to whip up enthusiasm for something that distracts citizens from their economic woes -- a war or a jihad against unpopular minorities, for example -- is great. That's not all. As an economically enfeebled South Korea withdraws foreign aid from North Korea, could we see an even more irrational activity from Pyongyang? As the Pakistani economy goes into the tank, will the government be more likely to compromise with terrorists to alleviate at least one source of pressure? As Ukraine strains under the weight of an IMF bailout, is a civil war with Cold War overtones between Europe and Russia be in the cards?
If you thought AIG was an example of Democratic incompetence over a relative triviality, look at this. There are over 6.5 million trucks in the United States. This program allows 98 Mexican trucks to roam among them. And over that, they are willing to risk a trade war with Mexico.
If you wanted to do protectionism, do it competently. Go the full Smoot-Hawley. But over 98 to enrage Mexico, to threaten to destroy NAFTA, and to show the world that the American Congress is willing to impose protectionism over trivialities at a time when the economy is hanging by a thread, where every other country is looking to see if American is going to turn protectionist.
And, as we saw in the stimulus package, it included a provision to buy American, which enraged the Europeans. There is a huge amount at stake, meaning the world economy and the risk of a world depression if you have trade wars. And to do it over 98 truck (sic) is absolutely absurd.
I confess that I'm generally skeptical of the latest and greatest management idea but this is one that will stand for time immemorial - or at least so long as there's commerce. From Peter Bregman on his HBSP blog:
But underlying these is trust, deeply embedded in the culture of the organization, exemplified in its daily operations, driving its success. These days, with banks going bankrupt and employees getting laid off, trust is in short supply. So its value is higher than ever.
Trust is as simple as following through on your commitments. Every sales person knows the way to make a quick sale is to develop quick trust. A good sales person will send you an article with a little note saying it made her think of you. That builds a relationship.
This makes sense. I wouldn't fault the casual observer of the corporate world for thinking that it's greed that drives commerce. The reality however is that it's trust - sure greed can be a motivator but if your clients don't think you can deliver, that's pretty much useless. Of course the important thing is not to get carried away - when it comes to staff, having been burned already, it's important to make sure trust is earned.
There obviously needs to be a balance here or else you'll get robbed blind. That's the approach I now take - I trust until I believe I have reason to otherwise - and as much as possible, I also verify. It's also a lot easier to trust when the consequences of betrayal are negligible - or in the very least can be caught before real damage is done.
I thought Marcus Gee's latest column in the Globe and Mail, was dead on the money. Of course, maybe it's also just reinforcing a somewhat unexplainable sense that Shanghai seems artificial. On the other hand, massive, mostly empty sky scrapers just can't be sustainable. Bottomline: much of China's capital investments have been made with little regard to maximizing productivity - directed and managed by government firms. It's going to come back to haunt them.
I’ll start asking questions. What really drives this business? If I told you I’d love to see earnings up 20 percent, what would be the levers we could pull to do that? Right now, it’s actually a different question, which is, how is your revenue forecast coming out? And then you just listen.
Some C.E.O.’s will say, ‘I’m gonna do one, two, three, four, five.’ And you sit there and listen and you say, ‘Yeah, that makes sense. I got it.’ But then you have some that look at you like you came from Mars — and I worry about those guys. Or you have some that will just filibuster you for 30 minutes with stuff you just don’t understand — this buzzword, that buzzword. I worry about those guys even more than the guys that just give you a blank stare.
The second thing I look for is if I were to get on an airplane with this guy or gal, would I want to fly across the Atlantic with them? Are they nice people to be with? Do you want to be with them? Because I find that people that don’t relate well to anybody, from owners or board members to peers to direct reports to folks that actually work for a living in the trenches, they don’t succeed very well. You can usually tell that by asking, “What do you enjoy doing? What do you do as a hobby?” And ask a few questions to the people that work around them, and you get a pretty good sense pretty quickly.
The World Bank is predicting that growth in China will drop down to 6.5% below the targeted 8% (Imagethief points out that no one seems to know how that mythical 8% arrived at). The World Bank is warning China not to do it on the stimulus - but the interesting thing is why. According to the WSJ, it's because the World Bank believes China "may need to save its ammunition for 2010."
A number of clients have been telling me that they are estimating and not planning for a US emergence from the recession until late 2010 with significant concerns over what's being budgeted and how money is being spent. I worry that the ideological agenda in the US could push the recovery back even further than that - and when it does finally happen, it will be far slower than anyone has predicted.
Export-oriented manufacturing and real estate construction are in decline, while at the same time there is rapid growth in infrastructure investment, manufacturing industries tied to that, and household consumption of both manufacturing items and services.
Am bumping along in my journey of getting my "in" to "empty", I figure I'd post a draft of my summary notes of the book (downloadable from Scribd). I'm going to try to write book summaries from time to time in an attempt to cement what I've learned/am learning. It sort of goes hand in hand with my attempt to read books (which is tough when you have a soul crushing amount of work to get done). Nevertheless, here's the first.
By way of recap, Getting Things Done by David Allen is a group of productivity techniques with the primary objective of reducing the clutter in your mind so that you can focus all your creative energies on one task at a time. I'm pleased to say that I'm finding that it works - or at least working for me, but we'll see if I keep at it. I even picked up the book that was translated into Chinese for my colleagues in China.
Henry and Miller point out that in Jamaica, the People's National Party rose to power in the 1970s with the promise of "democratic socialism." Unfortunately, the PNP delivered, nationalizing companies, taxing trade, and imposing exchange controls. The PNP also distributed income through job-creation programs, schemes for housing development, and subsidies on food. Government spending rose from 23 percent of GDP in 1972 to 45 percent in 1978. The government financed much of its huge deficit by printing money, leading to 27 percent inflation by 1980.
The government of Barbados, by contrast, avoided nationalization and opened the country to trade. It also kept government spending under control although, unfortunately, Henry and Miller don't present data on government spending as a percent of GDP.
The economic results: between 1960 and 2002, real GDP per capita grew by an annual average of 2.2 percent in Barbados but only by 0.8 percent in Jamaica.
My question: how many examples like this do we need until we recognize that economic liberty (yes, that includes evil deregulation, lower taxes for rich people and free not just fair trade) and prosperity go hand in hand?
Olson showed back in 1982 that modern macroeconomic theory was basically worthless in developed stable countries. Macroeconomics posits a free market in which wages and prices adjust dynamically. That applies to an ever-smaller sector of the U.S. economy. We have a rapidly growing governnment that directly or indirectly employs more than one third of our workers, many of whom are unionized. We have a health care system that consumes 16 percent of GDP and is staffed with doctors who restrict entry into the profession via their licensing cartel. The financial services sector is about 10 percent of the economy and they now tap into taxpayer money to keep their bonuses flowing in bad times. The automotive industry kept itself profitable over the years by successfully lobbying for import tariffs. When the profits turned to losses, they successfully lobbied to have taxpayers pick up those losses. A university-trained macroeconomist might be able to predict what will happen to babysitters in a depression, but not the price of cereal, the wage of a manufacturing worker, or the fate of those Americans who collect most of our national income (e.g., Wall Street, medical doctors, government workers).
A cashflow approach is much more effective for figuring out where we’re headed. Money flows out to the folks on Wall Street who bankrupted their firms, to schoolteachers who’ve failed to teach their students, to government workers who feel that simply showing up to work is a heroic achievement, to executives and union workers in America’s oldest and least competitive industries. If times are tough and money is tight, that means almost nothing is left over for productive investment. What would have been a short recession will turn into a long depression and decades of higher taxes and slow growth to pay for all of the cash ladled out. Special interest groups will continue to gain in power.
I think that there's still hope given the average American's dislike of government and the continued decentralization of power because of technology (Reason). Suppressing the ingenuity and independence of the American entrepreneur - and more importantly, the culture of entrepreneurship will be no easy task. Unfortunately, with the current outlook on taxes, regulation and spending crowding out private capital, the short term does not look good.
Obama's inability to fill key posts is as amusing as it is instructive. It's also the tip of the iceberg where taxes are concerned. Courtesy of Instapundit, from the Florida Times-Union:
News that one in 10 Georgia lawmakers is a repeat violator of tax laws has fueled a call for a rewrite of the state’s tax code. And it’s not just conservatives who feel that way. When a series of President Barack Obama’s appointees to senior posts revealed they hadn’t paid their taxes, the anger grew. When the Georgia Department of Revenue distributed a list of outstanding taxes owed by 19 unnamed legislators, frustration boiled further.
The fun doesn't stop there. Apparently, according to the WSJ, Alec Baldwin has become a supply-side preacher of "voodoo economics" threatening to go Galt (Dr. Helen) over the cancellation of a 35% tax credit for films shot in NYC. Of course, he was preaching a different sermon a few years ago in the Huffington Post: "A Republican-controlled Congress is killing important social programs that we all depend on, so that Bush's friends can avoid paying a reasonable share of their taxes."
According to Baldwin, whether you're paying your fair share of taxes depends not on how much money you make, but which party you belong to further cementing the appearance of hypocrisy amongst Democrats that they believe in big Government paying for their pet causes but aren't willing to pay higher taxes themselves (U2 anyone?, Slate).
I don't have much to say on the kerfuffle over Jon Stewart and Jim Cramer (I don't really like either - one being a partisan hack who admittedly is sometimes funny and the other being just plain annoying) but I'll highlight one commentator who wonders "Why Jon Stewart Really Attacked Jim Cramer":
Stewart really doesn't believe in the idea of a stock market where individuals can go to invest their money and build wealth over the long term. This, I think, is a revealing quote:
"Isn't that part of the problem, selling this idea that you don't have to do anything? Anytime you sell people the idea that, sit back and you'll get 10 to 20 percent on your money, don't you always know that that's going to be a lie. When are we going to realize in this country that are wealth is work, that we're workers."
So what is Stewart suggesting, that we "workers" just save insane gobs of money that we squirrel away into low-yielding savings accounts and rely on those savings and Social Security for our retirement? The only reason to do that is if you don't believe in the long-run soundness of the American economy. And if the American economy isn't dynamic over the long run, don't expect Social Security or Medicare to meet their meager promises.
Update (09.03.17): via JammieWearingFool: "Jon Stewart, the scourge of Wall Street and bane of CNBC, may have had a secret weapon in his corner to help him prep for his grudge match with "Mad Money" host, Jim Cramer - his older brother [...] What a routine they have. One brother pretends to kick Wall Street's butt by crucifying Cramer on his show, while the other brother is down on Wall Street kissing it."
At least that's according to the Economist. I'm wondering if this hasn't always been the case, but I think they do get one thing right:
The triumph of entrepreneurship is driven by profound technological change. A trio of inventions—the personal computer, the mobile phone and the internet—is democratising entrepreneurship at a cracking pace. Today even cash-strapped innovators can reach markets that were once the prerogative of giant organisations.
Building a credible startup has never been easier. The report also makes special mention of the World Bank's Doing Business guides that compares regulations between countries on the ease of doing business. One analyst, I think correctly, suggests "the World Bank may have done more good by compiling Doing Business than by lending much of the money that it has".
Governments would do well to remember that during these perilous economic times that reducing the complexity and number of regulations also amounts to stimulus.
There's something to be said for living in a concrete jungle. The Economix Blog points out that Dr Seuss's Lorax was wrong. Reminds me of that joke that the difference between an environmentalist and a developer is that the developer wants to develop the land and build a house in the middle of a pristine forest while the environmentalist is the guy who pays the developer for the house.
via TechCrunch, CEO and founder of LinkedIn, Reid Hoffman, notes:
I actually think every individual is now an entrepreneur, whether they recognize it or not. . . . Average job length is two to four years. That makes you a small business. . . . You are the entrepreneur of your own small business. How do you get to your next gig? How do you do your career progression? All these things now fall on the individual shoulders. And so, they’re essentially an entrepreneur. . . . They’re entrepreneurs in terms of the business of themselves and how they drive that. So it’s how they get, like, their next job opportunity, how they get a promotion. All of that stuff comes from how they manage the network around them. Which is, by the way, what gave me the idea for LinkedIn.
But I think that one of the key things — the reason why I think risk tolerance is important is because what happens is people delude themselves they’re not taking risks. They say, oh, I’m going to get a job at, you know, Hewlett-Packard or I’m going to get a job — and that’s not risky. Well, look at current economic climates. Everything in life has some risk, and what you have to actually learn to do is how to navigate it. And people who take risk intelligently can usually actually make a lot more progress than people who don’t.
He also recognizes what the stimulus program now being promoted by the US administration is deeply flawed - playing favorites with failing industries and handicapping the entrepreneurs who will reset the US economy and provide the foundation for future growth.
I'm not sure I agree with his views on microfinance in the developed world where we do have a fairly efficient banking system (ie the one that's involved with actual lending) but at least his ideas are better than the ones that have us (Canadians and Americans) giving billions to the dying auto companies who negotiated to fund defined benefit pensions they could not afford.
Usually that's how they start to suck you in. If you make little sacrifices in your life - or maybe even big ones, you can save a child or even a village. But does it? And how many people even bother to ask? From a book review by William Easterly in the WSJ (read the whole thing):
Two entrepreneurs who founded a nonprofit called GiveWell examined private charities and, Mr. Singer notes, "were astonished by how unprepared charities were" for answering questions about their efficacy -- that is, for measuring what their efforts were achieving. When it came to providing basic efficacy information, "the charities themselves didn't have it."
Surprised? Few people I know would bother asking for specific proof of the good a charity does so why should charities bother to have it on hand? For those who don't bother asking or don't want to know, I wonder if it speaks to their naivete, or whether giving is more about assuaging guilt than about making a difference.
Of course, my preferred solution, at least in countries that are open to trade, is seeding companies that address and profit from the needs of the poor - because aren't the poor the best arbiters for what services and products meet their needs? The alternative is believing that we know better than they do and should therefore dictate the services and products that they deserve and get. Blindly giving, it's unfortunate not more of us care to even ask.
