How to Recover the Economy


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Recover the economy? Pretty bold title, eh?

It’s way too easy to misdiagnose what ails the economy these days. Then again, how do you not misdiagnose a condition when you’re seeing the wrong type of doctor? A podiatrist is as likely to catch your brain tumor as a cardiologist is able to treat you for kidney stones. Similarly, and far too often, those who claim to be able to fix the economy, such as then candidate Barack Obama and now the field of GOP candidates, are attempting to use Band-Aids in place of stitches or putting a bruised arm in a cast.

recover the economy, promote entrepreneurism

Pres Obama, honorary doctor of economics

Such economic doctors will read a story in the New York Times and conclude that we need to tax the wealthy more, return to the tax code of the 70’s, and utterly unlearn the Reagan philosophies in order to return to a fair policy toward the poor.

That’s a casted bruised arm.

Others might suggest that in order to save the economy, they personally need to swoop in wearing a cape and single-handedly lower tax rates “across the board” so more money flows and business owners create jobs.

Should have used stitches.

Simple fixes cannot act as a long-term strategy to recover the economy, though they may provide a bump that they can take credit for, followed by a slump for which they’ll be able to place blame.

The economy is alive. It is comprised of every person on the planet. Each person has an identity in a worldwide economic game. In this Massively Multiplayer Online Role Playing Game (MMORPG), everyone must follow the rules. Anyone found breaking the rules risks varying punishments ranging from fines to removal from the game for a time while sitting in the State Penitentiary. Of the majority who follow the rules, everyone seeks their own advantage as defined by themselves. Perhaps advantage means personal wealth; perhaps it means spiritual value. Some players form clubs/teams/guilds/unions in order to achieve a greater advantage than would have been possible on their own.

Since the economy is composed of ourselves, there can be only one cause for why the disparity of wealth has increased over the last few decades: we allowed it. When your boss’s tax rate was reduced under any of the past administrations, did you immediately ask for a raise or did you fail to realize that your labors were then more valuable to him? Would you have stepped into a position for an extra $0.50 an hour over what you were making to fill the job made available by someone walking out after having asked for a $3.00/hr raise and not getting it?

Probably the latter and of course you would have, respectively.

Since we cannot trust our fellow man to not undercut us for our own jobs, the only real solution to preventing recessions and depressions–and to recover the economy as it is–is entrepreneurism. More employers means more employees. Lower unemployment means rising wages.

Undoing Reagan era tax cuts only makes it harder on the employers and managers who are now likely leveraged with their own debts they would not be able to pay if their tax rate increases. Lowering tax rates on everyone favors higher income earners dollar-wise and there’s no guarantee that the money will be used to expand a business or even spent at all. It may in fact already be spent and put towards paying off some of that debt.

Having more people own their own businesses has a compound effect: 1) they free up a job for someone to come off unemployment and 2) they hire, directly or indirectly in the form of paying for services or using contractors, people off unemployment.

Unemployment falls. Wages rise. Economy recovers.

Moral for the politicians who want to recover the economy: pass policies that encourage entrepreneurism; pass on those that do not.

The Mystery of Capitalism


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I finally got around to watching Michael Moore’s financial documentary: Capitalism: A Love Story. I don’t normally agree with the guy’s points of view, and this movie was little different. For the most part, his “heavy hitting” points fell on me like stardust–contrived and without weight. There were a few exceptions and maybe I’ll touch on them in a bit.

Capitalism: A Love Story movie poster

Capitalism: A Love Story movie poster

Each segment left me more and more convinced that “capitalism” is the most misunderstood and ill-defined word in the English language. As an economic system, it has been described as evil, as “anything goes,” as nonsense, and as the only fair means of running an economy. From what I can tell, though, especially from what was highlighted in the movie, is that few, if anyone, understand capitalism beyond their limited scope.

Before anyone gets offended at my calling your scope limited, please let me explain using some of my engineering background to illustrate. When an engineer sets himself on a problem in a larger process or system, a solution is often found more easily if the scope is set smaller. For example, in a manufacturing process involving multiple mixing vessels, several material streams, and a complicated control system, if liquid comes out of a tank at the wrong temperature, the engineer would limit his analysis to the inputs and outputs of that tank alone. Similarly, most people when shopping for some widget will look at competitors’ offerings, perhaps at different stores, and make a decision on price and value with limited consideration for anything beyond that scope.

Those same people look at the wealthy CEO’s of large companies who make decisions of hiring and firing, opening and closing plants and offices, and on the pay structure of employees in the company and see that they are making decisions based on the quarterly need of pleasing the stockholders with limited consideration beyond that scope.

These people are guilty of the same mistakes and none of them have embraced Capitalism’s awesome power for good.

Moore primarily pointed to the actions of larger corporations and their dealings with the government to highlight the evil nature of capitalism. The government granting special favors to a few at the expense of the many has no role in Capitalism; what Moore depicted was corporate cronyism.

Moore also belittled the idea that the mechanism by which Capitalism operates is that the people vote with their dollars on what products should be made, the producers of which then make more. What he failed to note is that the scope of Capitalism’s mechanism is not limited to what products are made, but how they are made, and by whom are they made.

Is it no wonder that the American people have as much an understanding of the power of their fiscal votes as for their political ones? Namely, very little.

When you need to buy a shirt, your dollars are encouraging not only the manufacturer of the shirt to make more, but making it the way they made it (virgin fibers vs recycled material) and by whom it is made (Asian sweat shops vs large American factories vs small American businesses). You are also supporting the store at which you bought it (corporate behemoth vs Mom&Pop shop) and their business practices (workers’ compensation and working conditions), as well as the store’s entire supply chain (multi-national distribution network vs locally sourced goods).

There is an immense responsibility inherent in spending your money.

Capitalism

This is spread far more easily than Capitalism and has been for far too long.

As to the people to whom we delegate the spending of much of our income, those we elect to public office, our votes that put them there carry similar weight and needed consideration. Must we have a representative in Congress or the Senate who promises to bring money in the forms of programs and projects or tax cuts to local industries back to our district or state, knowing that in order for our representative to do so he must give something to the others? Must we vote for local benefits when the extra deficit spending will lead to inflation and devalue our money? Those local benefits are likely of lesser value than the lost value of our currency in paying for every other districts’ perks.

How can Capitalism be so evil if everything about it is derived from what we do with our own money? If someone buys pornography, illegal drugs, or arms with the intent to harm, it is not the dollars spent that are sinful. We, collectively, decide what companies thrive and fail and what business practices are acceptable or not, so it is not the system that the Catholic Church should be condemning in the movie, but the people (everybody) using the system to buy everything they use. The greatest differences between Socialism and Capitalism can be summarized as the means by which we vote and the length of term for the consequence of that vote. With Capitalism interested parties attempt to persuade you to vote certain ways with your dollars, votes that can be changed with your very next purchase; In Socialism you elect a politician to make sure everyone else votes the same way with their dollars using government subsidies. If you so desperately want to try another economic system from what we have, try Capitalism because no one alive now has seen Capitalism in the USA.

Brilliance in Humor and the Dark Side of Politicians


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I seem to remember seeing the actual footage of the Marx Brothers, Groucho in particular, acting out a great piece of comedy, although since I cannot find it on YouTube, it must not have ever happened, right? Others claim it was others, but I don’t think I’d remember Winston Churchill in this video memory quite the same way.

The skit goes something like this:
Groucho: Excuse me, miss, would you sleep with me for a million dollars?
Woman: You’re not so bad looking, so, yeah, for a million I’d consider it.
Groucho: Well, since I don’t have a million dollars, would you sleep with me for a hundred?
Woman: Mister! What kind of a girl do you think I am?!
Groucho: We’ve already established that, miss, now we’re just negotiating…
Delivered with cigar in hand, huge mustache, and large rimmed glasses, it’s a classic.
It came up in conversation recently with my wife, but not for a similar reason as the subject of the bit. Herman Cain reminded me of it, actually.
How does Herman Cain, the 2012 Republican primary candidate for President of the United States reminded you of Groucho Marx, you ask?
Actually, Presidents, candidates, and other politicians often remind me of it. The reason is that their great policy that they come out with is generally accepted by the majority of Americans at the time of its inception. Just take a look at a few paraphrased propositions throughout history:
Woodrow Wilson: My fellow Americans, to be able to afford the programs that will cure this economy, would you pay a small portion–just 1%–of your income if you make more than $20,000 (the equivalent of almost $400,000 in 2010 dollars)?
Populous: Well, the poor need help, and I’m only middle class and won’t be taxed at all with this deal, so it sounds good to me.
Franklin Delano Roosevelt: My fellow Americans, to assure that people are cared for after the end of their working years, would you pay 1% of your first $3,000 (about $45,000 in 2010 dollars) of income, with your employer paying an equal amount to provide for the less fortunate among us?
Populous: For the equivalent of about $38 (in 2010 value), I’ll be assured an income after I reach 65? And my parents who are approaching that age will not be a burden to me either? Sign us up!
Barack Obama: My fellow Americans, health insurance is a right. If we all pay premiums, our costs will go down. That’s how insurance works: you distribute the risk. If you already have insurance, you’ll keep your carrier and your doctor.
Populous: I’m already insured, so if you need to force others to buy insurance in order to reduce what I pay, that sounds reasonable.
Herman Cain: My fellow Americans, I propose a new tax structure. Instead of complicated forms and myriad loopholes, let us set the corporate income tax rate at 9%, the personal income tax rate at 9%, and impose a national sales tax of 9%.
Populous: I’d love to only pay 9% income tax and only new products incur the 9% sales tax, so I can control how much tax I pay by controlling my purchases. Sounds good to me.
Of course, Woodrow Wilson eventually left office and Congress and succeeding Presidents saw it prudent to increase the now negotiable rate. Following FDR, Congress raided the Treasury for the trust fund and soon realized they had to bring in more revenues to pay the retirees. Barack Obama’s successors could easily one day make changes to the health care programs, the nature of which can only be speculated. What would Congress do with the opportunity to adjust both a flat income tax and a national sales tax in the years following Cain’s one-day departure from the office?
I like the idea of a flat tax. I prefer the idea of the Fair Tax, the national sales tax, to the exclusion of income taxes. The trouble with the Fair Tax is that you cannot guarantee that there won’t be a return of the income tax one day in the not too distant future. In fact, after thinking this train of thoughts that started with a memory of a video of Groucho Marx, the station at the end of the line is another video, this time out of Star Wars.

One Reason to Hate MLM’s


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Imagine loving Starbucks coffee so much that, one day, the manager approaches you and proposes having a Starbucks installed into your living room. Instead of paying $5 per latte, you’ll only need to pay $0.50! Since you go there every work day, that would equate to a savings of $90 in the first month alone! The best part is that having the business set up in your living room will only cost you $75, which means you are in the black in the first 30 days. What? You don’t want a Starbucks in your living room? You don’t want to have to run a business? That’s OK! You don’t actually need to hire anyone, or promote your coffee shop at all. You don’t even need to tell anyone that you have it. If your friends come over though and see you drinking your Starbucks, they’re going to ask for some too, at which point you can still charge them $5 per latte…or better, invite them to have their own Starbucks!

Such would be an equivalent to any number of Multi-Level Marketing (MLM) companies out there, especially the newer ones.

In my experience, a fairly common trait of MLMs is a built-in disincentive to have customers vs. business partners. There’s one company I’m thinking of in particular that has “start-up” costs of $39 per year. The product retails for $160 each month. As a distributor, the same product can be had for $112 each month. This means that if someone gets a real benefit from the product and wants to use it every month, they recoup the $39 in the first month’s savings.

This practice comes with several implications. The first is that if the company is incenting you to sign people into your business–even if they’re acting as just a customer–isn’t the “distributor cost” really the going market price? That would mean that selling it at $160 for a month of product borders on unscrupulous behavior. Sure, it could be justified that there’s only a 28% profit margin, which isn’t outrageous, but that’s overlooking the fact that the company has set up the structure recognizing that no one would want to pay the extra $500+ over the course of a year. Second, is that if the company is incenting you to sign people into your business, it can be construed that you are being paid for recruiting, which is illegal. Such a company has a high likelihood of being shut down by regulators in short order.

I have not found this practice anywhere else in business, have you?

Granted, not all MLMs include this practice; however, enough of them exist and actually thrive despite such unethical pricing structures to leave a bad impression of the industry with the majority of people. Combine this stigma with the masses of distributors who are told by their “uplines” that everyone in the world is a prospect and it’s clear why people lose friends when they partner with the wrong company.

Effectively Perceiving Butterflies and the Methods that Catch Them


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Something’s been itching at me the last few weeks, ever since I got back from Chicago for the nutraMetrix training there. One of the trainers had mentioned a reticulating sensor (no, I’m not 100% sure that’s the word she used) that we have that will cause us to see doctors and their offices everywhere we go as a result of our training. This is the same sensory appliance of sorts that our brains use to categorize everything in our lives and we typically become acutely aware of it only when we make a change in our lives. When you buy a new car, you’ll start to see that model everywhere you go. When you change your hairstyle, everyone suddenly seems to have the same.

This phenomenon got me thinking.

It’s fairly common knowledge that you can find support for any side of any argument in both the Bible and on the Internet. This is only possible because our sensor would be looking for the support.

The way I see it, it works with the behaviors of people, too. If someone screws up–even just minorly–at work and it gets picked up at the corporate rumor mill, everyone starts to look at that person’s activity through the prism of the rumors and starts to find falt in everything he does, even down to how he says "good morning."

The political ramifications are broad, too, but we see it happeneing in a practical sense with the way both Conservatives and Progressives become more resolved in their beliefs with every news story–even if it’s the same story! As for campaigning, some say that negative ads don’t work and maybe they’re correct, but if someone can campaign perpetually and constantly denigrate the other side (and have it make sense) without actually having a named candidate as an opponent, maybe even those skeptics would admit defeat.

I think it’s an interesting idea with many far-reaching applications. If nothing else, my hope is that someone’s sensors about sensors will be activated by reading this and they’ll start to wonder what notions they have throughout the day are only had because someone else set up their mind to think that way with another earlier comment. It’s all very Butterfly Effect-y.