“It’s a sign of respect that someone sends you an electric business card. It means he wants you as a customer,” – open relays are bad. The people running the ISPs in question do have some valid complaints though, such as the manuals not being written in their language. It should be interesting to see where this story goes and if politics end up playing a part in it.
Category Archives: Economics
Song for Economy
I think I was going to pick a song to describe the economy right now it would be Ludacris’ Cold Outside:
“It’s all about supply and demand”
Car Wash
I just had a very interesting experience at the aptly name “Dirty Dog” car wash. I didn’t plan to actually wash my car, as ominous clouds loomed in the distance, but merely to use their vacuum, because the mechanics who worked on my car seem to have gotten quite a bit of dust and dirt in it. The first thing I noticed when I drove up was that there were hundreds of birds all around. The irony of this struck me immediately, but it became even more interesting when I saw the giant vat of birdseed in the middle of the car wash grounds. How insidious!
It reminds me of a Three Investigators story I read as a child where the workers at a local glass shop went around the neighborhood breaking windows to create business for them (and hurting the economy), but of course Jupiter and his cohorts found them out and all was well again.
This however, took the ploy to new lows, using unsuspecting birds as the innocent agents to soil the neighborhood’s cars. Perhaps if the owner of the car wash (I’ve met her several times before) had been doing this from her backyard it could have been justified as a personal preference for birds, but it seems a tad obvious to feed hundreds of birds at the car wash. You’d think this would have a negative effect on the business since it increases the chances of someone getting ‘bombed’ right as the exit the wash itself, hardly a pleasant experience. It would be more interesting if the plan (if there is one) is actually backfiring, and causing the birds to stay more in the commercial area where the car wash is located as opposed to the surrounding neighborhoods.
Whatever the outcome, I proceded to spend a handful of quarters meticulously vacuuming very nook and cranny of my car. After I finished I started looking at all the car things the wash offered to add that extra sheen to my newly cleaned car. What caught my eye was the “New Car Smell” fragrence dispenser they had right by the vacuum. After the bird episode I appreciated the irony of putting this in my car, as those who know me will attest I have what I like to call a “mid–eighties Mercedes.”. The instructions said to apply it to the carpets and under the seat, so I stuck the dispenser under one of my seats and put the quarters into the machine. It started dispensing a mist of fragrence from the head. As I went to it to start spreading it around, I was almost knocked back by the stench it was spewing. I was expecting new car smell; I got old gym stench. As fast as I could I removed the apparatus from my car, but I could see from the glistening that it had already gotten all around the driver side of the car. I guess you get what you pay for! Excuse me, I have to go loop 610 with my windows down . . .
Update: It seems to have been as ineffective as it was unpleasant, and thankfully now I can detect no traces of the smell anywhere in my car. Whew!
Crowding Out
This is a response to a message from a forum I frequent. I’m glad with the way a couple of the points came out, so I thought it would warrent reposting in the economic category here.
Republican – greed, Democratic – opportunity for ALL economic levels
I strongly disagree with incredibly broad misinterpretation of our nation’s political landscape. Unfortunately though, I’m going to respond with another generalization. As a party, the ideological trend is for Democrats to prefer larger government and social (socialist) programs to redistribute wealth taken in through taxes. People complain that Republicans are greedy, or heartless and cut spending for this and that, but what they’re really doing is trying to decrease our nations massive debt and lower taxes, which means less of a burden on your pocket and on future generations. Miasdad made the great point that no country has succeeded with the government trying to control the economic factors of production or distribution. When they (Republicans) cut subsidies for, say, green clay pottery makers, they do two very important things (really two parts of the same thing). Lower spending can mean lower taxes, and paying down of some of the debt; the interest on the debt alone takes a significant portion of every dollar you give to the government. Much more importantly is the effect it will have on the bond market, through crowding out.
Explained very simply, if you’re Joe Bank and have a big wad of money to lend to someone, you can either give it to to a company or the government. The government has never defaulted on a debt, so you know you’re going to get your money back. To attract capital corporations are forced to offer bonds at lower prices/higher yields, because a component of interest rates is risk. So in effect the government is crowding out private investment. Entrepreneurship is what drives this country, and personally I would rather have the free market deciding where the money should go, rather than some politician. Because the borrowed money is costing the corporations more that’s less money they have less to invest, create jobs, and give money to workers who just may go out and buy green clay pottery. Republicans believe that the ultimate economic cost of the crowding out effect negates (to varying degrees, depending on who you ask) whatever benefits you may have gotten from the government spending.
Now you may ask why people like George W. Bush and Ronald Reagan spend money out the wazoo, and so do I, but the reason is that strong defense is a prerequisite for sustained economic growth. People will not invest and the economy itself cannot function when there is not security. That’s why, though I cringe when I see the numbers, I recognize the need for recent increases in defense spending.
People also say that Republicans only want tax cuts for the rich, and that every measure they propose is biased towards covering their rich butts. Well, the wealthiest 15% of our country pays 90% of all taxes, so any broad tax cut is going to seem biased towards the rich simply by definition. Furthermore, many would argue that, paradoxically, lowering taxes is actually the best way to get rid of our debt. How? Because less money being wasted by the government and more money in the private markets means higher productivity and growth, and when that’s combined with fiscal responsibility, that means we could grow out our debt with low taxes, the same programs we have now, and higher GDP for the country. Everybody wins.
Short Marx Notes
If you read a biography of Karl Marx you have to wonder if he didn’t like capitalism simply because he was terrible at it—he lived his entire life in debt. Marx was descended from eminent lines of rabbis, but harsh anti-semitic laws convinced his father to convert, and all of Marx’s life his venomous tongue was quick to utter some horrifying maxims about Judaism.
Marx looked at history, discarded philosophy, religion, ethics, nationalism, and said to look at the people. Each of society’s movements from slavery to feudalism to capitalism can be traced to a ruling class extracting wealth from the people, be it a slave, serf, or factory worker. Even though all the ‘wealth’ was coming from the workers, they were still at the mercy of hte ruling class because they didn’t control any of the means of production. In Marx’s view religion (“opium of the people” ), patriotism, laws, culture, and morality all are merely means of keeping the worker in his place and support the production process. This superstructure ties everyone to material thinking and desires, therefore perpetuating the cycle of exploitation of the working class. Revolutions happen as a result of new technology, and a conflict of the classes occurs whenever society switches to new means of production, but the workers always end up at the bottom of the totem pole because they are in, by definition, a class society. Marx postulated that because capitalism rested on a class system, revolution and victory by the workers was inevitable, because only in a classless society could said revolution be avoided. Because capitalism produces so much, it is a necessary precursor for socialism to occur. Marx did not consider Russia or Germany for his revolution, because they didn’t have sufficient industrial resources, he thought Communism would take place in England and France first. Here’s what has to happen for the revolution to take place:
- Falling profit rates and accumulation of capital
- Increasing concentration of economic power
- deepening crises and depressions
- High unemployment (“industrial reserve army” )
- Increasing misery of the proletariat
(from Todd Buchholz). Marx’s biggest flaw comes from the assumption that all value comes from the worker, or labor. He ignores entrepreneurship, land, capitol. Profits that Marx dubbed exploitation are actually crucial in insuring future investment and growth. The revolution never came because, however bad this economic slowdown is or how slow gigs come in the summer, workers are orders of magnitude better off than they were before. The rich get richer and the poor get richer; productivity enables total output to rise and benefit everyone. Also the worker is no longer completely separated from th emeans of production, and through things like stocks and bonds can indirectly own means of production.
No Man Is an Island
Contrary to About a Boy, and despite the quite fine gadgets that were in that movie, the conclusion that everyone comes to that no man is an island also rings true in an economic sense. I just read a clever passage in a book by P.J. O’Rourke, which I’ll post more about later:
A pencil is a simple object, but there’s not a single person in the world who can make one. That person would need to be a miner to get the graphite, a chemical engineer to turn graphite into pencil lead, a lumberjacj to cut the cedar trees, and a carpenter to shape the pencil casing. He’d need to know how to make yellow paint, how to spray it on, and how to make a paint sprayer. He’d have to go back to the mines to get the ore to make the metal for the thingy that holds the eraser, then build a smelter, a rolling plant, and a michine-tool factory to produce equipment to crimp the thingy in place. And he’d have to grow a rubber tree in his backyard. All this would take a lot of money. Yet a pencil sells for nine cents
Obviously he becomes more frivilous as it goes on, but I thought it was a nice take on Milton Friedman’s pencil example in illustrating the importance of division of labor. Now I need to go get back to something I’m good at.
Vulgar Monetarism
Brad Delong has a nice write-up of modern frustration with the monetary aggregates called Vulgar Monetarism. It addresses a number of important points, and its main flaw is in ignoring the more modern (this decade) measures of the money supply. If anyone in further reading I just found a good paper called How Should We Define the Money Supply ? – Austrian Versus Monetarist Approach.
Cheaper Tickets
Whenever you or I have the privilege of giving a movie theatre around six or seven dollars just for a ticket to see a movie, the American consumer is frequently getting less for his money. I have not been to a movie in the last four months or so that did not start with at least five minutes of commercials. Not previews, blatent commercials, be it for Coca-Cola, the Army, a video, or some other item that has little to nothing to do with the either the movie you’re about to see or a movie not released yet. I’m sure that the theatre recieves oodles of money for every ad shown to such a captive audience, yet they have not chosen to pass any of this profit on to consumers in the form of lower ticket prices. The movie industry is not weakening, in fact quite the opposite is happening, with there being more blockbusters that make more in their first weekend then some movies have made in their entire existence. If the movie theatres shifted the price of the tickets down it would increase quantity demanded and potentially push long term demand higher in the long term.
One reason I’m not complaining too much \though is that I have been repeatedly impressed with the quality of many of the movies in theatres lately. Sure, the occasionaly flop with no plot makes it through, but by and large I’ve been seeing well-developed stories with dynamic characters and impressive cinematography
Marketing Speak
Oh how I like it when they make the spam clever:
Amazon claims they ‘lowered the hurdle’ with their free shipping offer….at Buy.com we just ran that hurdle over with our free-shipping truck.
More on New Money
The Dallas Fed has posted a PDF of a letter from Tom Ferguson, one of the people overseeing the rollout of the NexGen notes. Hopefully there will be no Coca-Cola machine downtime.
Hurricanes are great!
A common misconception of students of economics is that events that normally would be viewed as economic detractors actually stimulated. I’ve heard this called the ‘window’ argument before: if someone walks down the street and throws rocks at all the windows, then all of a sudden the window man has work! He will use that money to eat at restaurants, buy clothes, send his child to college, and the world will be a better place. From the beginning this argument sounds a little off, and in this context, the flaws of the argument are especially obvious.
The money that was used for repairing existing facilities could have been better redirected towards capital investment, or any other sort of monetary allocation that increases long-term growth prospects. Anything that promotes inefficient allocation of resources (regulations, quotas, mandates, tariffs, etc.) ultimately hurts the country in the long run. It would take someone pretty heartless to bring this up in the context of the Trade Center, but in situations such as hurricanes where there is usually high property damage but only minimal loss in life the argument still seems to rear its ugly head. Perhaps it’s a simply a misinterpretation of creative destruction :).
Stock options and Congress
There is a huge argument on Wall Street and Capital hill right about what’s the proper way to account for stock options, and the whole thing is muddied further by the fact that neither side understands the whole thing. The Republicans actually have a very nice argument, but none of them can seem to articulate it.
On one side of the fence you have Greenspan and, surprisingly, the democrats. Greenspan has said that all the serious analysts have already factored in the dilution of stock options into their analysis, so releasing the data publicly should have no real effect on the markets. This is a very potent argument because if it’s not going to make a difference, what do you have to hide? Basically this falls in line with Greenspan�s drift towards transparency. The democrats are suggesting that stock options be shown in the bottom line. Republicans argue that it’s hard to accurately value stock options, but the dems are quick to counter that if it’s not worth anything, employees wouldn’t accept it as a form of compensation and if it is worth something than it should be reflected in the company’s books when they give it out. Wall Street, whose opinions are influenced more from the frenzy following Enron than anything else, also follows this line.
On the other side of the aisle, there is incredulity that people are suggesting that the books are tainted with something that cannot, as things stand, be accurately valued. There is a duality in options in that they are both income and remuneration. What it all really comes down to though is that options don’t cost the company money. The FASB almost mandated subtracting options from the bottom line but after an uproar from Silicon Valley and the Senate banking committee (most notable Phil Gramm) the proposal was reduced to a footnote, and with good reason. If my company has 5 million in profits from selling widgets, and I’ve given employees a million dollars worth of options, the company has still made 5 million dollars from widgets, there’s no reason that I should subtract a million dollars from my reported profits when it doesn’t accurately reflect my business.
There are a number of ways to account for options out there, most notable the Black-Schoals model that the most common, however not because it is good, but it’s simply the best out there. There are also guidelines for reporting options in taxes, and many have suggested that these should simply be applied to accounting. There are several problems with this, but the most serious is that tax laws are written to encourage and discourage businesses from doing certain things, and by definition accounting should be neutral, so if these suggested methods are introduced as accounting standards then suddenly there are very persuasive elements in the books that are going to change the way companies do business, and not necessarily for the better. Also, the minute that congress starts telling accountants what to do; accounting will become the only federally regulated profession out there. Doctors, lawyers, brokers, all exercise the right of self-regulation. You don’t see anyone suggesting that congress go create mandates for lawyers after Enron, even though arguably their law firm (whose name escapes me at the moment) is just as responsible for the situation as their creative accountants.
While I’m on this tangent I would like to suggest that the long term solution to the problems in the accounting business is to introduce competition into the field. Among large corporations there is a monopoly among the “Big Four” that now dominate the field, and there is really no incentive for them to rock the boat too much. If meaningful competition exists for the big accounts, such as GE and Fannie Mae, I think we’ll start to see the market forces drive accounting like they drive nearly every other profession.
Anyway, reporting stock options in the manner that the democrats and the more liberal media are suggesting will ultimately stifle the way business is done and hinder productivity, and therefore growth, in the long-term. Options give firms the oppurtunity to attract talent to the company that they could otherwise not afford, and give the employees’s of a stake in the company and interest in seeing that the company does well. A conversation earlier today Wayne Abernathi really clarified many of the things I’d been reading on the subject, and offered many of the insights here. He’s a really great staffer on the Senate Banking committee who deserves more recognition. He was one of the driving forces behind the Gramm-Leach-Bliley bill that revolutionize, amoung other things, banking regulation
Dollar to get colorful overhaul – Jun. 19, 2002
Visit to Treasury
Today was another very interesting day in DC, marked so far by a very eventful visit to the Treasury. We started out by a very thorough tour of the Bureau of Engraving and Printing. It was nice not having to wait in any of the lines, and because some of the other machines weren’t working they were making $10 bills instead of the $1s most people see on tours. Afterwards we had a nice lunch and headed to the Treasury building for our meeting with the Treasurer, Rosario Marin (pics). That was of course wonderful, though she couldn’t sign my sheet of $2 bills because her name wasn’t on them, something about protocol.
Some of the more interesting tidbits I picked up were about the new full-color bills being introduced next year, and that there is some serious discussion about putting a new face into the currency, but they won’t be taking any of the current ones out. Hmmmm. It’s all basically part of the fight to stay ahead of the counterfiters, but personally I’m going to miss the old greenbacks.
As almost more coincidence than anything else, we were able to meet briefly with John Taylor (pics), one of the greatest living economists and named as one of the main people to possibly succeed Alan Greenspan. Taylor is currently the Undersecretary of Foreign Affairs at the Treasury, no small job.
There were a few other things there, but it’s getting too late to write; check out the pictures
airport
Today at the airport I was searched. It was not particularly thorough or extensive, they simply scanned by body with a metal detector, made me take off my shoes, and went item by item searched through my bag. The humanity of the security guards made it slightly more bearable — certainly the female one’s fascination with my MD player was nice, but there was still something inherently dehumanizing about the entire experience. Surprisingly though, throughout the entire thing I felt happy and amused: This was the good old U. S. of A. hard at work, protecting the innocent and creating a safer environment for me and my progeny. Perhaps this whole line of thought springs from the new Office of Homeland Security business, which comforts me on one level and deeply scares me on another. Is this a genuine requirement to ensure our safety against a world of terrorists, axis of evil, or is this simply the first step toward an Orwellian state. I do not believe that George Bush is a bad man, but I believe that he might be shortsighted enough to send our country down the wrong path at the wrong time. We’re thirty minutes out from DC, no one may exit their seats or they will turn the plane around.
I think what it really comes down to is the whole security business stinks of bureaucracy. Parking at the airport they required us to open the trunk to our car, but though it was chock full of stuff they didn’t look through it. How many of they caught by checking people shoes? Are the intangible benefits greater than the very tangible inconvenience? The security measures are, as they stand, not draconian by any means, but they do hint at increased censorship, profiling, and a lack of privacy. It’s a thought-crime to say certain words in a plane or in an airport; what is scary is that people accept these “minor” inconveniences as the price one must pay, as a requirement of the government, not a privilege. The road to tyranny begins with a single step, a single loss of freedom.