Category Archives: Current Affairs

Know Whereof You Speak

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This video of a woman calling Obama a communist, and then not being able to explain why he was a communist, was an uncomfortable reminder of what it feels like to be caught using words beyond your comprehension when debating/arguing/philosophizing. When I was in high school I accused my brother of being a fascist and he realized pretty quickly that I didn't actually know what a fascist was, and so asked me to explain why he was a fascist.

Oops.

Let's just say I've done a much better job since then of not using adjectives I don't actually understand.

Where Efficiency Goes to Die

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"Baumol's disease" provides an interesting explanation for why service businesses like health care can only be so efficient. Can they be more efficient than they currently are? Absolutely, but any improvements made will not bring delivery costs down to the levels found on the product side of our economy. From Steven Pearlstein's column in the Washington Post:

No matter how innovative people were in coming up with new technology and new ways of organizing their work, Baumol and Bowen reasoned, it would still take a pianist the same 23 minutes to play a Mozart sonata, a barber 20 minutes to cut the hair of the average customer and a first-grade teacher 12 minutes to read her class “Green Eggs and Ham.” Based on this observation, the duo predicted that the cost of education and health care would inevitably outstrip the price of almost everything else.

Now, 50 years later, Baumol has updated and expanded his observation with a new book,“The Cost Disease,” which sheds some useful light on our current economic debate.

The basic facts are well-known to most Americans: Over the past 30 years, overall prices have risen 110 percent, median income has risen 150 percent, medical costs have risen 250 percent and college tuitions have risen 440 percent.

To hear the politicians talk, you’d think the rise in tuitions and medical costs was an American phenomenon. But as Baumol points out, the growth rates are pretty consistent across all developed countries.

The whole column is an interesting read, and I would be remiss if I didn't point out that Pearlstein's the Robinson Professor of Political and International affairs at my alma mater, George Mason University. 

Drunken Gas

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Has anyone else seen all those social media posts blaming the high price of gas on President Obama? Experts have pointed out that the causes for the rise and fall of gas prices are complex and have little to do with the President, but that doesn't seem to deter people from believing what they want to believe. Here's an interesting story that might help persuade some folks that the President, or anyone else for that matter, is really in control of the oil industry:

On June 30, 2009, oil mysteriously jumped by more than $1.50 a barrel during the night, to reach its highest price in eight months, the kind of swing that is caused by a major geopolitical event…

Although not authorized to invest company cash in trades, Steve Perkins, a long standing, senior broker at PVM Oil Futures, had managed to spend $520 million on oil futures contracts throughout the night, the FSA said.

On the morning of the 30th, an admin clerk called Perkins to ask why he had bought 7 million barrels of crude during the night. Perkins had no recollection of the transactions, and it turned out that he had made the trades during a “drunken blackout," according to the FSA.

By the time PVM realized the transactions had not been authorized by a client, they had incurred losses of $9,763,252.

Between the hours of 1:22 a.m. and 3:41 a.m., Perkins gradually bought 69 percent of the global market, while driving prices up from $71.40 to $73.05, by bidding higher each time.

Here's the crazy thing: the authorities only suspended this guy's trading license for five years and said they might give it back if he can prove he's conquered his drinking problem. If this is how the world works how can any one leader be held responsible for the outcome? The inmates are truly running the asylum.

Dilbert on the Debate

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Some gems from Scott Adams' review of the first 2012 Presidential debate:

I think Romney has a hypnotist for an advisor, or at least someone skilled in the dark arts of psychology and influence. I just watched him repeatedly lie to me and came away thinking he'd be a good choice for managing the economy. I'm not saying he actually would be a good choice, but he did something impressive: He made me think he wouldn't cut taxes at the same time he told his base he would. As a trained hypnotist myself, I rank his debate performance as breathtakingly brilliant. (Seriously.)

Meanwhile, President Obama was learning the hard way that the worst time to have anniversary sex is right before a debate. He looked a bit too relaxed. I think he should have lit a cigarette, taken a long puff, exhaled, and told the crowd that Romney would do for the country what the President just did for the First Lady. That would be totally bad ass. Then he could toss in a zinger about how awesome the sex was right after killing Bin Laden. I think we all know that evening was ear muff time for the Secret Service.

Jim Lehrer, who apparently died several months ago, moderated the debate. The pundits have been harsh on him today. But who else do you hire for the first debate? Do you hire someone who works for a Republican news network or someone from a Democrat news networks? Apparently the debate producers scoured the United States and decided that the only non-partisan left was a cadaver.

So glad I didn't watch.

This Ain’t Your Dad’s Wall Street

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Mark Cuban does a great job explaining why Wall Street is no longer the economic engine it once was:

Over just the past 5 years, the market has changed. It is getting increasingly difficult to just invest in companies you believe in. Discussion in the market place is not about the performance of specific companies and their returns. Discussion is about macro issues that impact all stocks. And those macro issues impact automated trading decisions, which impact any and every stock that is part of any and every index or ETF.  Combine that with the leverage of derivatives tracking companies,  indexes and other packages or the leveraged ETFs, and individual stocks become pawns in a much bigger game than I feel increasingly less  comfortable playing. It is a game fraught with ever increasing risk.

So back to the original question. What business is Wall Street in ?

Its primary business is no longer creating capital for business. Creating capital for business has to be less than 1pct of the volume on Wall Street in any given period. (I would be curious if anyone out there knows what percentage of transactions actually return money to a company for any reason). It wouldn’t shock me that even in this environment that more money flows from companies to the market in the form of buybacks (which i think are always a mistake), than flows into companies in the form of equity.

He then offers up some ideas about how to return Wall Street to its original role:

My 2 cents is that it is important for this country to push Wall Street back to the business of creating capital for business.  Whether its through a use of taxes on trades(hit every trade on a stock held less than 1 hour with a 10c tax and all these problems go away), or changing the capital gains tax structure so that there is no capital gains tax on any shares of stock (private or public company) held for 1 year or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years.  However we need to do it, we need to get the smart money on Wall Street back to thinking about ways to use their capital to help start and grow companies. That is what will create jobs. That is where we will find the next big thing that will accelerate the world economy.  It won’t come from traders trying to hack the financial system for a few pennies per trade.

Collapse of the Authority-Media Complex

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Eric Garland has written a thought-provoking piece about why the celebrity "big-thinkers" are starting to be called on the carpet:

It would be positively idiotic to somehow blame Messieurs Lehrer, Gladwell, Zakaria, Ferguson and others like them for the hot mess of American leadership over the last couple decades. However, their brand of “thought leadership,” it must be said, did wonderfully in a world of authority for its own sake. People still needed to feel as if they were talking to somebody who knew what was going on, lest they sink into a horrific depression realizing that nearly all sectors of American leadership failed catastrophically all at once. Media properties were looking for towering figures who could stand up across a wide variety of platforms, as billions of dollars of content sales were now concentrated into the hands of a few companies: Disney, Time Warner, News Corp, CBS, and others who owned publishers, TV, radio and more. Speaking agencies had to fill keynote spots for the billions of dollars of conferences held every year, and having superstars is a way easier sale than actually finding the right speaker for each occasion. (You want to talk international security? Great, here’s Thomas Friedman. You want to talk international business competition? Great, here’s Thomas Friedman. You want to talk about renewing American potential? Have you heard of Thomas Friedman? He’s very influential, you know. Only $50,000, too.)

If you notice the career arcs of those who attained success against the teeth-gritting backdrop of constant leadership failures, you’ll notice that none of these high-minded intellectuals tend to rock the boat too much. Gladwell, for example, has been pre-eminent in the world of publishing for more than a decade, a period of time covering all of the collapse of character and values I have described above. Can you name a single controversial opinion the man has taken? Has he ever gotten up in the grill of anyone who might hesitate before shelling out his $75,000 speaking fee? I actually think Gladwell is a good writer, but as far as the paragon of intellectual virtue in the Western world for the last decade, shouldn’t some part of the last decade’s clusterfuck have struck him as worthy of spending a little built-up credibility and inspired him to call some people out on the carpet? I don’t mean a Network/Howard Beale cri-de-coeur, I mean maybe some minor article recognizing the dramatic drop in results from our leadership, something in tune with the times. Lord knows he could have always regained some ground with a nice book on how people get successful. Fear of starvation was not holding him back.

The piece is pretty extensive and Garland does a great job of looking back at the last 30-ish years to explain how we came to this point in our culture where we are being led by folks who really don't know what they're talking about, much less what they're doing.

The Incredible Shrinking Middle

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One of the underexplored aspects of the current unemployment situation in North Carolina is the movement of people from adequate paying jobs to under paying jobs. A study by the NC Justice Center makes it vividly clear:

The nonprofit group determined there were 356,000 more working-age adults employed in the state in 2001 than in 2010, with manufacturing taking the brunt of the job decline.

The state lost 380,000 jobs in that period, with about 75 percent concentrated in industries with average hourly wages that enabled individuals and families to stay above the living income standard. A family of four needed to earn at least $23.47 an hour in 2010 to have enough money to meet basic expenses, according to N.C. state government standards.

The state's manufacturing workforce, which paid an average of $25.30 an hour, fell by 38 percent during the 10-year period. Manufacturing accounted for 72 percent of the state's job losses…

Where North Carolina did have job growth, it mostly came in low-wage industry sectors, the group said. About 83 percent of the job growth came with average wages of less than the $23.47-an-hour living income standard for a family of four.

For example, 15 percent of the state's job growth from 2001 to 2010 came in the food-services and accommodation sectors, which paid $7.15 an hour.

The state's median household income dropped 9.4 percent during the decade, or from $47,823 in 2001 to $43,326 in 2010.

The center found the number of North Carolinians living in poverty – $22,314 annual income for a family of four – rose by 24.1 percent during the decade.

In a nutshell the middle class is shrinking, and not from upward mobility. You would think that would lead to an outcry against the "corporate class," but outside of a little wrist-slapping at the height of the economic meltdown it just hasn't happened. That's what makes this interview of Mike Lofgren by Bill Moyers so easy to believe (h/t Fec for the link). For those of you expecting an anti-Republican screed you'll be disappointed – he basically argues that both parties have been captured by the corporate class. Enjoy:

Charlotte During DNC Sounds Like the Triad During Furniture Market

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In the months before moving with my family to Lewisville, NC in 2004 I decided to take a couple of road trips down from Washington to check out the business environment in the Piedmont Triad. I'd never had trouble getting a room before so I didn't think to make a reservation, which was a huge mistake the time I made the trip the same week that the Furniture Market was in full swing in High Point. Let's just say I ended up staying in a motel where I suspect I was the only person who didn't pay by the hour.

Apparently finding a room in Charlotte during the Democratic National Convention is a similar experience:

All these political reporters have been complaining about the boring staged political conventions for weeks, but when presented with the opportunity to talk to a real live victim of the "Obama economy" — a hooker — they run away screaming. The National Review's John Fund explains that one of their political reporters was forced to request a hotel change after the Democratic National Convention assigned the reporter to a seedy Charlotte hotel that might have had a hooker working in the parking lot. Fund quotes his colleague anonymously:

The Knights Inn was the worst hotel I have ever seen, and I’ve stayed in many bad motels in my life. Two guys were dealing drugs in the room next to me, and a prostitute was working out of the parking lot. And this was in the early afternoon. The room itself was dirty, full of other people’s stuff, etc.

I have never requested a hotel change in 3 years at NR. This was the first time I felt absolutely compelled.

 

Slow Money

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Responding to a piece in the New York Times about bypassing Wall Street with investment dollars,  AVC's Fred Wilson describes how he and his wife have abandoned Wall Street and have concentrated on investing in businesses they can feel, touch and understand:

We are in cash, real estate, venture capital, and private investments centered around our neighborhood and city (retail, restaurants, etc). Other than cash, we are invested in things we can touch and/or impact and understand.

As Ron talks about at the start of his piece, the never ending blowups on wall street are eroding confidence in that system. It certainly has eroded our confidence in that system. So we are staying out of it for the most part.…

And he describes a movement he calls Slow Money described in this way:

“Let’s just take some of our money and invest it near where we live in things we understand, starting with food,” as the movement’s founder, Woody Tasch, puts it. He describes returns as being in the “lowish single digits,” ranging from roughly 3 percent to a few percentage points higher…

As one system seems to be failing on a regular basis, it makes sense that there are new systems that operate differently that are emerging. 

Wouldn't it be sweet justice if the titans of Wall Street were put in their place not by the toothless-so-far government regulators, but by the free market they so stridently defend but seem to only believe in if it's rigged in their favor?