What to do about Useful Money from Bad People

Useful Money from Bad People

A rather despicable fellow named Jeffrey Epstein donated large amounts of useful money to any number of philanthropic causes and these gifts are now causing problems for those who received them. People are returning useful money and resigning from their positions, or being asked to do so. What I’d like to examine is the nature of philanthropic money in general.

Many of the people who donate to causes are not the greatest people in the world. Certainly, Epstein is viler than most but the question remains the same. As an example, let’s imagine you are the financial officer of a charitable organization and you have strong views on religion. Perhaps you are an Atheist or perhaps you are a Christian, Muslim, Wiccan, Jew, or Hindu. You are offered a large amount of useful money from someone who has a completely different belief system than you. Do you take that money knowing it will contribute to doing what you perceive to be good? What if the person has a criminal record? What if they are giving the money in order to improve their reputation because of some misdeeds in the past?

While my question is hypothetical the reality exists to the tune of billions of dollars in charitable donations. The events surrounding Epstein are forcing the financial operators of these organizations to ask themselves this very question. Should I refuse the donation because of the nature of the person who is giving it? Does the money, and the good that is done with it, override my concerns about the source? The money given by such a person intermingles with the money given by many better people and helps us fulfill our mission. Should I deny a child from Make a Wish their wish because I don’t like the person who is giving the money? Doesn’t that just hurt the child?

This is no idle question, if organizations turn down money from disreputable or unaligned donors, they will have less money to complete their mission. Those who would benefit instead go without. There are no easy answers here but I will not shirk from a conclusion simply because the question is complex and difficult.

I’ll happily tell you what I would do were I in charge of such a charity. Not that my decision is proper for anyone else, it is right for me and me alone.

I’d take the money from any source, even if Epstein were alive today in order to give it. I’d also be completely honest about my distaste for such a horrible person. I’d highlight the donation in my monthly and annual literature. I’d speak loudly to the stakeholders in the charity about why I took the money. About how the vile criminal Epstein was attempting to restore his reputation through the donation and that I wanted nothing to do with him other than cashing the check. I’d consider re-donating a goodly portion of it to help his many victims and organizations devoted to helping them and those like them.

Perhaps you disagree and I respect your right to do so. I can certainly understand why you would.

Tom Liberman

Fake Guacamole on the Rise Because of High Priced Avocados

Fake Guacamole

If you’re like me, you love guacamole and avocados. Yum. The price for avocados is skyrocketing and this is causing a lot of pain in restaurants who use the delicious fruit in various dishes. It strikes particular hard for Mexican establishments who tend to use it across a wide array of menu items but other restaurants are suffering as well. What do they do? Use other ingredients and create Fake Guacamole.

If you weren’t against tariffs because you’re a freedom loving Libertarian who promotes open and free trade then this phrase almost certainly hits somewhere most likely even more important, your stomach. The very words Fake Guacamole should be as rage inducing as trying to Get Over It. Ok, that’s a video game reference and sometimes I just can’t help but let my inner nerd out for all to see. Well, actually, it’s pretty much always on display but I won’t get sidetracked from my mission to free you from Fake Guacamole.

I’ve written about why protectionism hurts consumers far more than it helps those industries it purports to protect so I won’t reiterate here. The results are plain to see. Avocados cost a lot more today because tariffs have exacerbated a poor harvest and increasing demand. Today’s issue is the sort of punch to the gut that I think economic philosophy and Libertarian ideology don’t impart. You, the consumer, have most likely eaten Fake Guacamole in the last few months. You are certainly paying more for what avocados you still purchase although it’s almost certain you’ve cut down on that particularly delightful and healthy food.

This is the direct result of policies that promote protectionism and their attendant tariffs. How does it feel to know you’ve been tricked? That you’ve been served something under false pretenses because politically motivated economic policies forced the restaurant to do so in order to survive? Perhaps you think it’s worth it, that the trade off is worth the horror of fake guacamole. I disagree because I see no benefit from the policies of protectionism. They are merely political rallying points to inspire a group of citizens who are not happy with the direction of government.

If you are not happy with where our government is going, more bad policies are not going help. Things are hardly perfect in the United States but don’t let that encourage you to vote for politicians who enact policies detrimental both in the short and long term. Don’t let your rabble be raised in negative ways. Demand good decisions from your leaders with your votes. They’ll listen, I promise.

Free trade means cheaper avocados and real guacamole. How can you be against that?

Tom Liberman

Nike and the Patriotic Shoe Flap

Patriotic Shoe

There’s a ridiculous news story flapping in the wind that gives me a chance to wax poetic about patriotic behavior, moral relativism, and general Libertarian ideology. It centers on the Nike company pulling a shoe with an old American flag on it. So-called patriotic politicians and others are slamming Nike for doing so, Nike’s reasoning being that a Nazi group has used that same symbol for their own rallies.

It’s an interesting situation because for the greater part of the history of the United States it was considered quite unpatriotic and disrespectful to wear the American flag on clothing. When the hippies in the 1960’s starting doing so it was the very same “patriotic” politicians, who today criticize Nike, then lambasting the counter-culture individuals for their horrible behavior. This displays, in no uncertain terms, moral relativism.

Basically, the idea of putting the American flag on clothing has gone from being unpatriotic to patriotic over the course of about fifty years. It’s interesting that those who most vehemently claimed it was disrespectful and unpatriotic now equally disparage Nike for not marketing the shoe. This is moral relativism. What was once immoral, or unpatriotic in this case, is now quite moral and patriotic. Wearing the American flag on your clothing is a symbol of being a patriot.

Another issue this particular flap bring to the forefront is the ideology of small government. For many years it was the mantra of the Republican party that government should not be involved in business decisions, or at least that involvement should be kept to a minimum. Meanwhile, Democrats insisted that government was necessary to curb the excesses of business leaders. Obviously, it is now Republicans threatening Nike with repercussions for their business decisions and Democrats insisting Nike should be allowed to do as they want.

For a Libertarian the answer is simple. Nike can make whatever decision they want and the governor of Arizona and the leader of the U.S. Senate are clearly big government Liberals in sheep’s clothing. Don’t like it? Reality hurts. The root problem stems from all the incentives businesses take from government in the first place which then gives said officials the feeling they have the right to tell companies how they should go about running their business. It seems simple to me, get out of it altogether. No tax breaks, no incentives, sink or swim on your business decisions.

Finally, as to the groups using the thirteen-star flag symbol to promote hatred and violence. Last I checked, this is a free country although perhaps I need to check again. They can use whatever symbol they want. Nike can market whatever shoe they want. People can wear whatever clothes they want. It’s not my business and it most certainly is not the government’s business.

Tom Liberman

Clean Energy Revolution not Fueled by Government

Clean Energy v Coal

About ten or so years ago a friend of mine told me with absolute certainty that Clean Energy would never amount to more than two percent of the United States energy needs and that I was an idiot for saying otherwise. Well, in April 2019 clean energy accounted for a greater percentage of our energy than did coal. Bub, you were wrong and will continue to be more wrong with every passing year.

I’m not here to gloat about my clean energy predictions but to talk about how this revolution is happening not because of government but in spite of it. Various groups have long promoted solar, wind, and natural gas as better sources for energy because they don’t cause nearly the pollution as generated by coal. To hasten this transition of energy away from coal, such people advocated massive government encouragement, read tax breaks and subsidies, to the purveyors of clean energy. I argued that instead of subsidizing clean energy, we should simply stop doing so for coal and oil.

President Obama and the democrats largely agreed with the sentiments expressed by the clean energy crowd. They implemented plans to help spread the use of such energy and had some successes and some failures.

Enter President Trump. He essentially has the opposite plan. He wants to encourage the use of coal and dispense with helping clean energy. He has had some successes and some failures in his plans.

The reality of the situation is quite easy to see from any graph showing production associated with coal and clean energy in the last twenty years. Coal rarely dropped below 150 gigawatt-hours of energy prior to 2010. Now they never even reach this level and it is unlikely to ever rise that high again. The trend is obvious but what is driving it?

I’m happy to tell you; capitalism completely disassociated from government. Investors, builders, and entrepreneurs have no desire to invest in coal-based plants because there is more money to be made from clean energy power plants. If you’re mining coal, working at a coal-fired plant, hauling coal on the railroad, or doing anything associated with coal; start making plans to do something else. Not today, not tomorrow, but eventually; capitalism is talking and it’s not mincing words.

The most important thing to understand is this is all good and natural, as was the rise of coal in the first place. If government just stayed out of the energy business altogether, we’d likely be much further along in this process. If you enjoy breathing air and drinking water, you should be sad we are not.

Did the Obama era clean energy policies help promote them? Certainly. Have the Trump era coal energy policies helped extend the coal era? Certainly. Neither has a chance against the true forces of capitalism. Stop subsidizing energy altogether. It’s best for all of us.

Tom Liberman

NPS or Net Promoter Score and What it Means

NPS

I just became aware of a tool used by many S&P 500 companies called NPS or Net Promoter Score. The basic idea is to find out how many of your customers are so-called Promoters. The thought being if your customers give a product a 9 or 10 rating on a ten-point scale, they are promoters. Those who give it a 7 or 8 are passives and those who give it a 0 through 6 are detractors. That is what I want to examine today, the idea of promoters, passives, and detractors.

The idea was created by a fellow named Fred Reichheld although he doesn’t approve of the way it is currently being used by management in many companies. There is a lot to said for the NPS system both for and against but that’s not going to be the gist of my blog today. I want to look at NPS from a different angle.

I used to work as an instructor and we often gave out those one to ten rating scales for students to evaluate their experience in the class. I’ve also filled out many of them for various products that I’ve purchased over the years. I’ve come to a completely different conclusion than Reichheld although the practical implications may be about the same.

The idea of promoters is, of itself quite interesting. There is an underrated movie called The Joneses which examines this idea in fairly great detail. I wrote a Libertarian review of the movie not long ago should you wish to read it. In any case, the idea is that promoters go out and tell other people how great is your product and influence them into purchasing it.

The NPS system lumps people who give a product a 9 or 10 rating as promoters. My experience is fairly different. People who habitually rate a product that high are almost always True Believers who either lack critical thinking skills or simply choose not to apply them. People who rate a good product as 7 or 8 generally are more inclined to be skeptical. My own thinking is that I would almost never rate anything a perfect ten as nothing is without flaws.

The bottom end of the scale is where I radically differ from ideology of the NPS. I think people who give a product a 0 through 2 rating are generally exactly the same as those who give it a 9 or 10. They are True Haters. They don’t like either the product or its manufacturer for some personal reason and no amount quality is going to change their mind. They are, in essence, exactly the same as the people who rate the product highly. It is my opinion it is these people who should be targeted by the manufacturer for they, if swayed through some small act of kindness, will become True Believers for life.

I would be interested in a study of NPS scores compared to religious and political beliefs to see if there is a correlation between individuals who give extreme scores and those who espouse extreme political ideas.

In summation, I actually agree with some of the principles of the NPS. The system might call them Promoters while I use the term True Believers. The system calls middle scorer givers Passives whereas I call them Skeptics. The end result is; however, valid. The True Believers will promote and purchase the product no matter the quality, whereas the Skeptics will purchase products from competitors if they are objectively better. It is only with the low scorers where my disagreement with the NPS conflicts with the actions of business leaders.

What do you think?

Tom Liberman

Why is Human Composting Illegal in the First Place?

Human Composting

The State of Washington is poised to make Human Composting legal. Human Composting is a method of disposing of a corpse by simply covering it with compostable materials where it is broken down over the course of a month or two. The process is currently illegal in most states and this Libertarian asks the obvious question, why?

I’m of the opinion that the ban on any procedure other than burial or cremation speaks to the heart of the idea of limited government and reasonable regulation. I think it’s perfectly rational to have restrictions on how to properly dispose of a human corpse. Dumping a body along a main thoroughfare is clearly something against the general interests of the people. Government officials have a responsibility to carry out the will of the people and while someone might find it convenient to throw grandma’s body onto the highway, most of us will be severely inconvenienced by such an action.

The problem is the regulation that prevents any other method except those approved by the state. Instead the limitations should be much vaguer and allow people the freedom to dispose of their loved ones in a variety of ways. The regulation could simply read that corpses should be disposed of in designated regions in a manner that doesn’t inconvenience others. That way people would be free to conduct the process as they saw fit with the minor limitations as stated. Judges could make common sense rulings in regards to those who failed to obey the law.

A regulation so worded would allow Human Composting without any sort of government intervention. We wouldn’t need someone to sponsor a bill, to lobby politicians, or to fight against the existing purveyors of cremation and burial who have a vested interest in preventing the legalization of Human Composting as an economic threat.

This is what Libertarians mean when we speak of limited government. We don’t advocate anarchy and the dumping of human corpses wherever might be convenient. The problem is that regulations are so specific they make doing business impossible unless you bribe politicians into passing rules that benefit your company. This is Crony Capitalism and it is rampant in our nation from Federal to State to Local government.

Ask yourself, why is Human Composting illegal? It’s a perfectly reasonable method of disposing of a corpse and, frankly, the choice I think many people would make if given the option. I know I do.

Tom Liberman

EB-5 Program and Buying United States Citizenship

EB-5 Hudson Yards

Until I read a fascinating story, I had not heard of something called the EB-5 Visa Program for foreign investors. The idea is simple enough. If a foreign investor pumps $500,000 to a $1,000,000 into a project targeting a rural or poor urban area, their children are given legal rights to live in the United States. What could go wrong? Exactly what you would expect.

Basically, the meaning of jobs being created and poor regions as defined by the EB-5 was stretched so that most of the money went to fund luxury projects in wealthy cities. Districts were drawn to include poor regions but the vast majority of the construction took place in wealthy areas. That along with the fact that some of the developers simply absconded with large sums of money.

Most of the investors appear to come from China and individuals of enormous wealth found a way to invest their money not only with a financial return but also a pathway to United States citizenship for their children.

Personally, I’m not convinced the EB-5 program was created with the best of intentions at all. The politicians back in 1990, when it was implemented, most likely well-understand where the money would go and created a system by which it could flow to wealthy regions while following the loose guidelines of the program.

I’m not even upset the money went to fund luxury projects like Hudson Yards. I’m also not opposed to foreign nationals purchasing U.S. citizenship, which is exactly what is going on despite any arguments to the contrary. What makes me angry is pretending to be doing a good and wonderful thing by helping out the poor in rural regions and urban cities when there was never any such intention.

Some of the money did, in fact, go to projects of the nature for which they were intended but I strongly suspect that would have been the case even if the base purpose of the program was to simply attract foreign investments. When money comes into the United States for various projects it is a good thing. It would be nice if more money was spent to help poor rural areas and poverty ridden urban regions but reality is a tough mistress.

People largely don’t want luxury apartments in rural regions or the poor areas of the inner city. However, when a region undergoes development the area around it often improves as well. This reality is the best we can hope to accomplish.

Creating a program like EB-5 with unrealistic expectations of development in rural and poor regions is an exercise in deceit. I’m here to help, said the politician while stuffing their stomach at the trough. My Libertarian sensibilities say, go ahead and stuff your face, but be honest about it.

If the EB-5 program was created honestly, I’m certain organizations like Asian Americans for Equality would have found a way to use that money to help the poor in both rural and urban regions. I’m sure many investors believed they were doing a good thing because the project was under the mantle of the EB-5.

Tell investors the truth. This project is in a wealthy region and this other one is in a disadvantaged region. You decide which one in which to invest. I’d guess you’d have had more money going to the sorts of projects the entire program was designed to fund in the first place.

Tom Liberman

Why Does the Justice Department Care about the Academy Awards?

Academy Awards

The United States Justice Department just warned the Motion Picture Academy that a proposed rule change about eligibility to receive Academy Awards might result in Anti-Trust legal ramifications. Really? This is what the Justice Department of the United States of America is spending their time doing? Threatening award ceremonies about how they decide eligibility? I’ll give you a small hint, the executives of Amazon and Netflix are opposed to the changes and they just might have a dollar or two spend.

First, let’s examine what is being proposed. With the advent and enormous growth of streaming services there are more and more movies spending little or no time in the theaters. They are developed and sold directly for television. Recently the Netflix film Roma received a nomination for Best Picture and this triggered a response from the Academy and particularly influential filmmaker Steven Spielberg. They believe such films should be eligible for Emmy Awards but not Academy Awards. The idea being that the Academy Awards are for movies while the Emmy Awards are for television.

I think there are argument to be made both ways. The made for streaming movies are not in the theaters for any appreciable amount of time, mostly just so they can be eligible for movie awards. However, they are in the traditional movie format and home theaters are more and more becoming a venue for audiences to view first run movies.

We can argue back and forth about whether or not such productions are movies or television shows but it’s beyond my comprehension that the Justice Departments thinks they have a say in this matter. A major award certainly increases publicity and thus revenue for a particular show or movie but it is up to the agency that runs the ceremony to decide upon the rules for inclusion. Just because they choose to exclude a group isn’t an anti-trust violation. They are not engaged in collusion, price-fixing, bid-rigging, or even group boycotting which is, I suspect, the justification for the warning.

Group boycotting is when several companies refuse to do business with a third party unless they stop doing business with a competitor. An example would be a clothing store that refused to purchase a particular line because it was being sold to a competitor of that business.

Despite any Justice Department claims to the contrary, what it is doing is damning in the eyes of this Libertarian. The government is attempting to flex its muscles at the behest of bribes, that is to say campaign contributions and lobbyist gifts, to force an independent company to do business in a way that is favorable to a third party, in this case Amazon and Netflix.

This is a stark example of Crony Capitalism. The government decides how a company does business. It’s destroying the capitalistic spirt of our nation and I’ve written about it elsewhere.

Out, out, foul government. Back to your closet where you belong.

Tom Liberman

Why the Government should not Ground 737 MAX Planes

737 MAX
Boeing 737-MAX8-200 K66201

The Federal Aviation Administration, at the behest of President Trump, has grounded Boeing 737 MAX airplanes because of two accidents over the last five months involving such planes. There is not yet evidence to suggest the crashes are related to one another or a problem with the plane but the public perception is that there is such a correlation. My question today is if the government should mandate airlines stop flying the planes?

Most of Europe, China, Canada, Panama and some other countries had already mandated various airlines stop flying the planes while other nations largely left the decision up to the companies. The first question you might ask yourself is how the United States federal government has the power to dictate to a private company which planes to fly. I discussed much of their reasoning in a blog back in May of 2017. I won’t go into details but if you want to learn more please peruse that article.

Certainly, people are afraid. Southwest Airline is the largest user of the 737 MAX planes with 34 of them and they are offering customers a chance to change flights to a different plane free of charge. This is an example of capitalism, without government interference, in action. If enough people refuse to fly on the 737 MAX planes it is fairly obvious that Southwest and other airlines would stop using them until some sort of safety check was in place.

It is clear the 737 MAX planes have flown many times without incident since they began service in May of 2017. However, two accidents within half a year does bring into question the plane’s general safety. This brings us to the topic at hand. It is better for the government to mandate the stoppage or to let each airline make the decision independently of oversight?

No one was calling for the plane to be grounded before the second accident so neither of those tragedies would have been prevented by a grounding. After the second accident the airlines were largely offering people a chance to fly on different planes so the net result of the grounding is relatively small and I suspect if enough people changed flights the airlines would have grounded the planes on their own. The practical difference is fairly small although I’m sure that would come as no comfort to the families of victims if there is a third crash.

I absolutely prefer letting each airline make their own decision about the 737 MAX. The reason is there is potential for government malfeasance. I don’t think it’s unreasonable to suggest that politicians, all the way up to and including the president, might have a grudge against one company or another and use this power to influence profits. This is Crony Capitalism at its worst.

I recognize this is a special circumstance to some degree but I’m largely against the government interfering in business decisions and that goes for this situation as well. I don’t think this grounding makes anyone safer and it further cements the idea that government has and should use this sort of power. That is a danger in itself.

Tom Liberman

Philadelphia Bans Cashless Stores and Why It is Silly

Cashless Stores

The idea of Cashless stores has been around for a while now but with Amazon set to open a series of Amazon Go outlets around the country it’s getting more news. The city of Philadelphia has now passed a law making in mandatory for most retail stores to accept cash. Cashless stores are also banned in the state of Massachusetts with similar bans being considered in New York and New Jersey. Why is all this happening and will the legislative efforts solve the issues or make them worse?

The reason retail outlets want to go cashless is because they can streamline their operations. They don’t need cashiers to make change, count cash, or risk being robbed while delivering bags of money to the bank. A quick swipe and you’re out of the store.

The reason politicians want to ban it is because such cashless stores inordinately affect the poor. People from lower income classes don’t always have credit cards or debit cards or smart phones. This means that if every grocery store in a particular region had become a cashless store, those people would not be able to purchase groceries.

It’s important to understand that both of these arguments are absolutely true. If retail outlets streamline their processes that translates to savings for consumers. If poor people are unable to purchase basic necessities that means suffering for them. We like lower prices but we don’t like suffering. The deciding factor then becomes if the proposed legislation is going to alleviate the problem it purports to solve.

Retail outlets want your money. They want rich people’s money and they want poor people’s money. There are a good number of poor people in this country and if grocery outlets shut them out then the company itself will certainly suffer. This is something the business fully understands, better than any politician I’d guess. They know the numbers. Because of this knowledge, retailers like Amazon now offer lower cost membership to low-income families enabling them to make purchase. I’d guess any grocery store in a low-income area would immediately make provisions to the do the same, they don’t want to lose out on all that business.

If a business is able to offer lower prices through modern business models, and we need look no further than Amazon and Walmart to see this, then people save money, everyone who purchases anything saves money. This includes poor people who will, if they want to purchase something at a cashless store, have to pay some amount for a debit card or a membership.

It’s my opinion in the end the poor person is going to save money by entering into the new business model, but I don’t see it as worse than a break-even proposition. That being the case, the legislation is putting an undue burden on the business, it is politicians sticking their noses in and creating laws that don’t help anyone.

The point of a law is help enforce a just system. When it the law does not do so, it shouldn’t be there at all.

Tom Liberman

Local Grocers Helping People and Wilbur Ross

Wilbur Ross

Commerce Secretary Wilbur Ross recently said something I think illustrates one of the biggest problems in implementing good economic policy. In addressing the need for federal workers to make it through the shutdown, he said, “Local people know who they are, when they go for groceries and everything else.” I see this sort of thinking from many people in the business community and it demonstrates an old military adage that tells us we are always fighting the last war.

I cannot tell you how many times I’ve heard politicians and local leaders talk about how important small business is to the economy of the United States, how it is the backbone of our nation. This was true for a long period of time after the Industrial Revolution but today our economy is largely driven by what is called Enterprise Businesses or Multinationals. The majority of business receipts are controlled by such companies despite their entire number being a small percentage of all businesses in the nation.

Secretary Ross and President Trump are under the impression that we all reside in a small-town America that no longer exists. Most people do their shopping at Wholefoods, at Walmart, at Home Depot, or online, even those who live in rural regions. While the clerks at such companies might well know you by name, they don’t function the same way mom and pop grocery stores did even just thirty years ago. Their accounts are done electronically and they can’t just give people another month or two to make payments. To do so requires getting into the computer code at corporate headquarters. It’s just not feasible and the fact that men like Secretary Ross and President Trump, supposedly powerful business leaders, don’t seem to understand such a simple reality is discouraging.

This way of doing business saves we consumers a huge percentage of our paychecks and allows us to have many nice things. The global economy and the Enterprise Companies that arose with it deliver goods to our doors at shockingly low prices. Our choices are all but limitless and this is a product of capitalism. It is a good thing. But it also means Wholefoods can’t just give Tom a break on my purchase of potatoes because they know I’m good for it.

This is the nature of our economic world. This is reality. Perhaps you harken back to a simpler time when we had to spend a far greater percentage of our paycheck on food, shelter, and clothing. I don’t. Capitalism and globalization have brought us so many wonderful things including the incredibly cheap computer, tablet, or phone on which you are reading this blog.

Until our leaders recognize this modern world, they will not be able to fix its remaining economic issues. Things are not perfect, that is certain, and I do not say they are so. What I am saying is that if you are the Secretary of Commerce, if you are the President of the United States, maybe you should stop living in a delusional version of a world that no longer exists. You might make better decisions for us all.

Tom Liberman

Why Does the Federal Reserve Raise Interest Rates?

Federal Reserve

The Federal Reserve and the President of the United States seem to be at odds over the idea of raising interest rates. I’m of the opinion that most people, including many of my fellow Libertarians, don’t really understand the base purpose of the Federal Reserve and the point of increasing interest rates. I’m not an economist by trade but the issue is relatively straight-forward and I thought I’d take a few moments to go over it.

As I said, it’s relatively simple. Pretty much since the beginning of human history there has been something called the business cycle, or in common parlance, the boom-bust cycle. Basically, when times are good and people have plenty of money, they tend to spend it on speculative interests in the hope of gaining much more money. In contrast, when times are not good and money is in short supply, people have a tendency to hoard what they have. These two things exacerbate the business cycle.

Essentially, because people are spending more money on potentially enriching schemes during boom times the bubble goes to extremely high levels before it bursts and creates devastating economic destruction. Once the bust takes hold it is difficult to stop the downward spiral because people are reluctant to borrow money.

The solution created by Alexander Hamilton and the founders was the First Bank of the United States. Its primary idea was to raise interest rates during boom times thus curtailing people’s willingness to borrow money and fuel the boom and to lower interest rates during times of bust to encourage people to take out loans and pull the economy from its collapse.

It did not stop the business cycle altogether and thus its opponents, who felt there was artificial manipulation of the economy at the expense of growth abolished it. The booms and bust then grew much worse and so the Second Bank of the United States was formed with essentially the same goals as the first. Once again, the business cycle continued although with tempered effects because of the policies of the bank. As can be expected, people grew unhappy with the bank because they felt it was impacting the booming economy negatively and so it was abolished.

Immediately thereafter there again began a more virulent series of business cycles until Congress established the Federal Reserve which still exists to this day. As expected, the business cycles continue to be a problem as we have seen recently. One of the things that has happened since President Reagan is that the Federal Reserve has acted more to promote economic growth but not to slow it. This means, naturally that the boom cycle is not properly tempered.

That is the point of the Federal Reserve in their recent raising of interest rates. They desire to slow economic growth to temper the boom section of the business cycle. These actions anger the President of the United States in the midst of that cycle. Politicians desire to brag about the good they have done and lay blame for the bad, but the business cycle is beyond their control. The Federal Reserve cannot stop the cycle, the people who make policy can only hope to temper the catastrophic effects of the inevitable bust.

That is why it is generally considered a bad idea for politicians to dictate policy to the Federal Reserve. Their actions are often, and for good reason, opposite of those wished by the politicians.

Tom Liberman

Does Ticketmaster Mind Scalpers Breaking Rules?

TicketmasterThere’s a fascinating story in the news involving Ticketmaster being complicit in scalpers reselling tickets. The idea is simple enough, Ticketmaster has a service called TradeDesk in which people who have tickets sell them to willing buyers. The problem is TradeDesk is largely a way for scalpers who purchase tickets on Ticketmaster to resell them at higher prices.

Why is this problem? At first glance it doesn’t seem as if Ticketmaster is doing anything wrong. They sell the tickets to whoever is first to purchase them and then are involved in the resale at a higher, or lower, price. This is obviously lucrative for Ticketmaster as they get a percentage of all sales; essentially, they are profiting twice off the same product. However, thanks to some undercover work from the Canadian Broadcasting Corporation, it seems Ticketmaster is making it very easy for scalpers to purchase large numbers of tickets to events before the public has a chance to do the same. Ticketmaster has a rule in which no one is allowed to buy more than a small block of tickets but they essentially ignore it when scalpers bypass it.

Thus, people who want to purchase tickets to an event never really have much of a chance and are forced, if they still want to attend, to buy the higher priced tickets at TradeDesk. Sales representatives for Ticketmaster told undercover investigators they pretty much were facilitating such transactions. The company is denying the allegation and said they are looking into the practice. They claim they attempt to stop such large purchases to the best of their abilities.

This entire thing intrigues me from a Libertarian perspective. Let’s imagine Ticketmaster doesn’t have the rule about blocks of tickets. Then what we are seeing is capitalism in action. The event promoters generally set the ticket prices and if resellers are able to get a higher price, it’s likely the promoters set the original price too low. That’s their bad. The scalpers are merely capitalizing on a mistake. The risk is all with the reseller. If they misjudge and have to resell the tickets at a lower price, because there is little interest for instance, they lose money.

I totally agree Ticketmaster is not being transparent if they are, indeed, allowing scalpers to purchase large blocks of tickets with the intent of reselling in violation of Ticketmaster rules. The reality of the supposed crime is more complex. Even if Ticketmaster cracks down on large blocks of tickets being sold to a single user, I’m fairly certain the scalpers will refine the technology they use to call and order and still scarf up the majority of the tickets.

Is it fair to the average user who just wants to go to the concert or see the game at the price of the original ticket? No. That’s clear. Then again, such a viewer can simply choose not to spend the extra money for the resold ticket.

What do you think?

Tom Liberman

Rich Give Almost Fifteen Billion in Charity Despite Crony Capitalism

Charity GivingThe nation’s top fifty donors scraped up $14.7 billion to give to a charity this past year. What sort of things are the rich trying to do with their money? How can we encourage them to give more?

The Bill and Melinda Gates Foundation alone donated $4.8 billion to charity organizations with a large hunk of it going to education. Educational organizations dominated the donations this year. The reason largely given is that it’s vital to have an educated workforce in the coming generations. Menial jobs are going away and highly skilled positions are going unfilled.

It won’t surprise you to learn that the biggest donors these days represent Technology Industries. They have supplanted finance donors in recent years and they, more than anyone, know their source of income is being generated by skilled workers. Without such workers, their income evaporates. It is in their interest to have educated workers but it is also in the interest of the people getting an education. A symbiotic relationship that highlights the ideas of Enlightened Self-Interest and Rational Egoism. In other words, charity isn’t just helping someone else.

At its heart is the idea: What is good for me is generally good for those around me. Anyone who runs a business isn’t going to do well without good employees and customers with ready cash. At least it used to be that way. We’ve perverted things in the United States with Crony Capitalism.

Business leaders today also spend a great deal of their money attempting to bribe, that is to say finance, politicians in their campaigns in order to influence policy. The reason business leaders do this is that political leaders determine the success and failure of business through legislation. Politicians hold the reins and with the stroke of a pen can promote one business and destroy a competitor. This forces businesses to spend money buying influence instead of running their company.

The cause and effect relationship here is infinitely interesting to me. The ostensible reason politicians were given this ability to regulate business is the impression that corporate leaders are going about their jobs in a manner detrimental to the consumer. Politicians must save us from such evil! This, in turn, led to businesses becoming overly involved in politics. It was a matter of survival.

Despite having to give enormous sums of money to politicians, these fifty people still managed to donate nearly fifteen billion to charity. I wonder how high that number might be if they didn’t have to worry about bribing, I mean donating, to politicians. If politicians can’t decide the fate of a business, then business leaders don’t care who is elected. They can go about improving their company. This means giving customers what they want and training better employees.

What started with good intentions, regulating egregious and criminal business practices, has become egregious and criminal of itself. If my competitor gives more money, that business will win through the efforts of legislators who don’t care about good products or educated workers. They create winners and losers with regulations.

We didn’t solve the problem, we made it far worse and have taken away who knows how much money from charity in the meantime.

If the solution is making the problem worse, it’s not a solution at all. Something to think about.

Tom Liberman

A Study of Tariffs and Laws and the Tomato

tomatoWith all the talk of tariffs in the news these days, I’ve been doing a bit of research and came across an interesting Supreme Court case related to the Tariff of 1883 and the humble tomato. Our friend the tomato is almost universally referenced as a vegetable in common parlance, this despite the fact that it is undeniably a fruit in botanical definition. This became an issue when the two food categories were treated differently in said tariff legislation.

If you were a seller of produce back in 1883 and sold tomatoes the tariff became an enormous issue. You see, fruits were exempted from tariffs while vegetables were not. The government, being the government, decided to include as many things in its revenue scheme as possible and that included tomatoes.

A fellow named John Nix founded a company called John Nix & Co. which became the largest sellers of produce in New York. They shipped produce from Virginia, Florida, and Bermuda to the city. Naturally, Nix didn’t want to pay extra tariffs on tomatoes. This is one of the problems with such tariffs. They raise revenue, certainly, but that revenue is taken indirectly from tax payers. While Nix’s company certainly has to pay the tariff directly to the government, they recoup this loss by raising the price on their produce. Thus, any tariff is really just an indirect tax. That is beside the point.

The point here is that the case went all the way to the Supreme Court in Nix v. Hedden, Edward L. Hedden being the Collector of the Port of New York. Hedden collected that money and Nix wanted it back. From a botanical perspective, the tomato is undeniably a fruit and therefore clearly exempt from the vegetable tariff.

The Supreme Court decided, unanimously and against nature, the tomato is not a fruit, it is a vegetable. The argument being that it is commonly thought of as thus. It is eaten as dinner rather than dessert. Therefore, Nix had to pay the tariff.

Is there a moral anywhere to be found in all of this? I’m not sure. The government instituted a tariff that was vague in reference using simply the words fruits and vegetables in non-taxonomic terms. The Supreme Court decide what Congress was really trying to do was put a tariff on tomatoes even they are clearly fruit and thus changed the legal definition in regards to tariffs, although they had not the power to change the scientifically determined definition, for which we can all be thankful.

It does give us some insight into who is the one paying for these tariffs and why manufacturers and wholesalers tend to fight them to the bitter end.

And, of course, my summation. Even if the Supreme Court made Nix pay the tariff because the tomato is commonly thought of as a fruit, this does not change the nature of the tomato. It clearly fits the established definition of a fruit, like it or not. Me, I’ll go with science over government.

Tom Liberman

United Airlines and Would You Trade a Quarterly Bonus for a Chance at a Big Prize?

United AirlinesUnited Airlines recently announced they were doing away with a quarterly bonus of $300 to all eligible employees and instituting a lottery wherein those same employees have a chance to win $100,000 and other prizes. What I’d like to ask is if you would want such a plan at your place of work?

Let’s look at the metrics. United Airlines employees almost 90,000 people although we have no way of knowing how many of those get the incentive bonus of $300. It is based on things like attendance so it doesn’t sound particularly difficult to achieve. I’m going to say that about a quarter of the employees get the bonus. That’s 22,000 bonuses of $300 awarded each quarter for a total of $6.6 million in payouts.

We have to do a bit more guesswork on the value of the remaining prizes United Airlines is giving out but let’s say the total package is worth $2 million. That’s a saving of $4.6 million dollars for the company. Pretty nifty. It might be more, it might be less, but I think it’s fair to say the new policy is designed to save the company money. United Airlines executives claim it will generate employee excitement but I think it’s reasonable to infer this line is somewhat disingenuous.

Under the old plan an employee who met the standards receives $300 each quarter. That’s not a life-changing sum by any imagination. A bonus of $100,000 and trips are, obviously, of significantly greater value to an individual employee. The employee who wins the bigger prize is quite happy while all the employees who gave up the $300 for nothing are not as thrilled. From a metric point of view that’s about 21,900+ employees who are angry and 100, depending on how many prizes are offered, who are happy, each quarter.

Will this mean more employees seek the bonus? Fewer? These are interesting questions to me. They speak to psychological motivations. Would you do more for the chance at a greater prize or do less because your chance of getting something is greatly diminished? Would it not change your work behavior at all?

What do you think?

Would you be for or against a plan like United Airlines?

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Tom Liberman

Is a Diamond a Diamond?

diamondCompanies have been able to manufacture diamonds through industrial processes since the 1950s but with advances in technology it is now possible to create a diamond that is equivalent to those found in nature in all respects except, perhaps, resale price. These grown diamonds are significantly cheaper than their naturally occurring counterparts and their share of the market is increasing, much to the chagrin of those companies who sell found diamonds.

I think it’s an interesting study in human behavior because found diamonds and their grown competition are essentially identical from a practical respect. Yet, I imagine most people are so enamored with the illusion of a real diamond they would, if they had the financial wherewithal, generally purchase the more expensive version.

Let me be honest, I find the entire diamond industry to be largely artificial. Diamonds are not particularly rare but for a long time the companies that mine them kept enormous numbers in warehouses to create scarcity. In addition, those same companies launched successful advertising campaigns which promoted the idea of their value. I have no problem with either of these tactics, no one is forcing anyone to purchase an overly expensive rock. I just don’t plan on shelling out a bunch of money for a diamond.

That being said, I’m in the minority as far as this goes. Diamonds are considered an almost necessary declaration of love between a couple. The giving of diamonds from one person to another is considered of great importance in matters of romance. This is why people pay large sums for relatively common sized stones.

It’s also no surprise established diamond companies would like to convince people the grown stones are not equivalent to those found. Those companies producing the grown diamonds are quite interested in overcoming this perception. This is business and all quite normal.

I don’t have any great insight into this issue. I don’t really know if grown diamonds will eventually completely usurp their found counterparts or if the industry will continue to distinguish one as better than the other. Possibly diamonds will simply lose most of their value as people don’t find them useful in matters of the heart anymore. I don’t know, I just find the entire situation interesting from both a marketing standpoint and that of human psychology.

For those of my readers who actually have something more than an emotionless, pea-sized, black, barely beating heart; if you had enough money would you purchase the more expensive found diamond over the grown diamond despite their being molecularly the same?

Would you pay more for a "found" diamond?

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Tom Liberman

Lady Friendly Doritos and why a Gender Trend is not Sexism

DoritosPepsiCo CEO Indra Nooyi recently gave an interview in which she noted market research indicated men and women generally have different habits when eating Doritos, a snack made by the company. She said the company planned to release products that catered toward the eating habits of women. Social Justice Warriors Triggered!

How dare a company market a product designed specifically for men or for women besides, say, tampons and jockstraps. What unbridled sexism to suggest research indicates women generally don’t like to lick their fingers of the Dorito residue or pour the crumbly remnants of the bag directly into their mouth.

The problem is groups of people do perform tasks differently, eat particular foods, and otherwise differ from one another for a variety of reasons including gender. If PepsiCo has done market research indicating certain Dorito eating trends in women then promoting a product to that gender’s preferences makes sense. What it doesn’t mean is all women eat Doritos in a particular way. That’s the gist of all the tumult. An angry female says: I’m a woman and I do like to lick my fingers of the Dorito residue. I’m a woman and I enjoy pouring the crumbs from the bag into my mouth.

No one at PepsiCo is telling you how to eat your Doritos. They are simply creating and marketing a product toward particular trends their research indicates. They discovered a certain percentage of women don’t eat Doritos because their fingers get sticky and they don’t like leaving the crumbs behind but are unwilling to pour them directly into their mouths. I’m sure there are plenty of women who do these things just as I’m sure there are plenty of men who don’t like sticky fingers and crumbs.

Let’s imagine the research indicated 70% of women don’t like to eat Doritos in the way described. With there being about 300 million people in the United States and approximately 150 million of them being women that suggests 45 million women out there do not meet the trend. That’s a lot of ladies. It also means about 105 million of them behave as the marketing indicates. Now, I’m making up the 70% figure but let’s work with that for the sake of argument.

What PepsiCo has found is their product is unappealing to 105 million women because of the sticky residue and crumbly product. They want to target that large group of people, who happen to be mostly women. Is that wrong? Is that sexism? Is that terrible and awful? I say absolutely not. I say it’s finding a market and making a product that appeals to it. That’s smart business, not sexism.

No one is saying all women eat Doritos in a particular way or that all women are dainty and all men are rough. It is impossible to deny there are differences in women and men. Savvy companies use those tendencies to market their product to specific segments of society. Does anyone deny certain television shows and movies appeal more toward women than men and vice versa? Does this mean all women love Chick Flicks and hate Action Movies? Does it mean men don’t like Chick Flicks? No. I think Steel Magnolias is a great movie but I love The Right Stuff and Fight Club as well. It’s a tendency, not a sexist agenda.

Men and women are unalike in some respects and their respective preferences in eating Doritos might just be one of those differences. That’s a fact whether you like it or not.

Tom Liberman

How Regulations Destroy Small and Medium Businesses

regulationsPeople generally assume regulations are a burden on all businesses in general but the reality is that large and enterprise companies are far less affected because of their greater resources. Thus, small and medium sized businesses are the only ones hurt. As if the small competitor didn’t have enough trouble already. It’s my opinion a great number of regulations are working exactly as planned, to benefit political allies.

You have to remember who pays the bills. Enterprise businesses bribe, I mean to say contribute, to politicians on a much larger scale than is possible for smaller businesses. When new regulations come down the pipeline they force all companies to perform a great deal of documentation to prove they are doing things correctly. Bigger companies can handle these costs much more readily and thus small producers are forced to sell their business. It’s an accelerating trend that has created carnage in the once influential small business world. I won’t get too deeply into statistics but since the 1980s small businesses have contributed less and less to the total economy of the United States.

An article I recently read about the 5,000 plus regulations that apply to apple farmers is case in point. There are regulations on scanning the entire orchard for mouse dropping before the start of the work day. Shoe to ladder to hand. While the Trump administration has reduced some regulations, they’ve also vastly increased regulations in regards to foreign workers so help does not appear to be on the horizon.

The reality of regulations is they drive out small players and aid enterprise business. Even if you support many of the regulations it is impossible to deny the evidence of their affect.

Another quite interesting factor in all of this is the standards applied by wholesalers often outstrip those applied by the government. If you want to have Whole Foods sell your produce, they require a lot of assurances about quality and safety. This means a double burden in which not only must government regulations be followed and thoroughly documented, but a second set of rules must be adhered to in order to make it to market. This, again, is to the advantage of larger operations.

I question the necessity of many government regulations at all. Let’s take the mouse droppings rule as an example. It’s certainly possible mouse droppings might make their way from the ground to a ladder to the hand of a worker and hence to an apple. The regulation requires workers walk the entire orchard each day before harvest looking for mouse droppings. This is obviously unreasonable, even for large operations. This regulation is doing nothing to prevent mouse droppings from migrating to your apple simply because it is an impossible rule to follow.

I’m not entirely against various regulations, I think there needs to be far fewer of them and they need be better written. The bottom line in the case of apples is to ensure those going to market aren’t going to make people sick. The simplest way to do this is test a random apple or two from various batches for salmonella or whatever else might cause disease. I admit this is not a perfect solution as the stray disease-causing apple will slip through the net, but that is no different than with current regulations. Citizens of the United States are sickened by food on a fairly regular basis.

Nor am I arguing against the executives of enterprise business, they have every right to conduct their companies as they choose. The problem is the majority of regulations, well-intentioned or not, basically work against smaller operations.

We want a business to succeed because they do something well, not because they are aided by the government against competition. Fewer, smarter, and better regulations is a winning recipe for the smart business owner and the consumer.

Tom Liberman

Walmart Shoplifting Deterrence is Extortion when the State is not doing it

WalmartRecently Walmart decided to suspend a shoplifting deterrent program run by companies called Corrective Education Co. and Turning Point Justice after a number of complaints about the practice. In this program people who are caught shoplifting must pay around $450 to attend classes and avoid being turned over to the police.

What is all the commotion about? The basic idea is that Walmart experiences a fairly large number of shoplifting attempts over the course of a year. Executives decided to hire private companies that provide a day of counseling to offenders instead of relying on local police departments who generally make arrests and mete out fines. They only implement the policy where local law enforcement agencies agree to do so. The result has been a decrease in shoplifting and a corresponding savings in time and effort for local police forces who estimate that investigating such minor thefts costs about $2,000 per report. In addition, the person so accused doesn’t get a criminal record or have to deal with court costs which generally add up to far more than the fee being charged for the seminars. Seems like a win-win-win, right? Nope.

A number of people have complained and state authorities are upset as well, they call the practice extortion. If you are caught committing a crime you must pay a fee or risk imprisonment. When private companies like Walmart engage in such activity it is called extortion. When the state does the same thing, we call it business as usual. Basically, every time you commit a misdemeanor, and petty shoplifting generally falls into this category, the state asks you to pay a fine or go to jail for a period of time. Somehow this is perfectly reasonable but privately offering largely the same options along with practical help to avoid having to shoplift in the future is a crime. Makes you think, at least I hope it does.

Another consideration for municipalities is while law enforcement agents clearly save time not having to deal with minor shoplifting complaints, the local government has to pay their salary either way. If the officers are engaged in duties that don’t involve collecting fines from residents, that is a loss of revenue. It should go without saying that such officers should be spending most of their time investigating serious crimes rather than imposing fines on citizens for minor transgressions. That’s not the reality in which we live. From local to state to federal levels of government, a great deal of money comes from such fines. It has largely become the main revenue stream for many municipalities so it’s not surprising they might be alarmed by such activity.

I admit there are likely to be abuses in such a system run by a private company such as Walmart but I don’t think the abuses will amount to anything more than those already occurring in the state sponsored version of the same thing.

This is a perfect example of where private solutions are better than government. This answer offers the business a documented reduction in shoplifting, gives law enforcement officers greater time to spend on other endeavors, and largely helps the shoplifter because they avoid much more severe penalties.

Shouldn’t we be doing more of this sort of thing, not less?

Tom Liberman