Stan Lee and Trusted Financial Advisors

Stan LeeFor the last few years a tragic story involving Stan Lee and the demise of his fortune has been sprinkling into the news one depressing story after the next. It reminds me again of why it’s so important to have a trusted financial advisor in dealing with your estate. Most people think of long term growth but quick and brutal theft is also possible when working with people of diminishing mental capacity.

Mr. Lee either created or helped create many of the fictional super hero characters for Marvel Comics in the era before they were enormous money-making movie machines. He was paid a regular salary and didn’t earn much despite his superlative creative efforts. Later, when the movies came out he did receive his just due.

As is often the case when there is a large amount of money involved, nefarious villains slither into the picture. Not men and women like Doctor Octopus, the Green Goblin, and Black Cat; but everyday people who promise to help but instead plan to steal all the money quietly and without the need for super-powers. They just lie and gain your trust, those are abilities well within the capabilities of the average person who has no conscience.

In the United States it’s not particularly easy to get someone declared incompetent so as to protect them from themselves. I discussed this idea in other blogs but the gist of it is that people did so as a way to steal money from others. In fact, many times the person coming to steal your money isn’t some stranger but a relative.

This is where it’s absolutely vital to make sure you engage a reputable financial company to handle your finances, even if you have a relatively small amount like a few hundred thousand dollars in savings. Yes, you will have to pay that company fees for their services. These services certainly include wise investing which should increase your holdings, but also protect it from those who see it as opportunity. It may seem paradoxical to trust strangers over friends and family when it comes to finances, but when those strangers handle money for a living they are less tempted to steal and more likely to protect.

As we get older we often lose our mental acuity. This is clearly what happened to Mr. Lee and since the death of his wife, who apparently guarded the finances well, much of the money was stolen. Transferred from his estate to those of supposed friends and possibly family members intent on bilking him out of his earnings.

It nearly brings me to tears to see Mr. Lee in such a condition. Paraded around and used by horrible people as they steal his money and whisper lies to a man of diminished mental capacity. Sickened is the word that comes to mind.

It’s probably too late for Mr. Lee and his money, don’t let it happen to you or the ones you love.

Tom Liberman

Amazon and Strict Liability Laws

Strict LiabilityThe judicial branch has ruled a woman named Megan Fox, who had her home destroyed in 2015 when her son’s hoverboard caught fire, is not entitled to damages under the Strict Liability laws enforced in the United States. The case is quite interesting for a number of reasons that, as a Libertarian, I’d like to examine closely.

Strict Liability law essentially mean that anyone who manufacturers, distributes, or sells a defective product is liable even if they were not negligent in causing said defect. The concept took root in California in the 1950s in a landmark legal case called Greenman v. Yuba Power Products. The idea being the individual harmed by the defective device often has little means to recover from a devastating injury. Prior to Greenman, liability required proof the user did not use the product in an unsafe manner. This sort of negative proof is extraordinarily difficult to show and cases that crisscrossed the United States ended up with horribly maimed victims unable to get even basic compensation.

This inequity meant that Strict Liability spread from state to state and is now established in federal law as well. Case closed, you might say. Amazon sold it and owes the Fox family for the damage. The problem is that Amazon didn’t really sell it or even list it, it was purchased on their Marketplace website. This allows third-party vendors to sell products directly to customers, Amazon merely being a common location where buyers and sellers can more easily find one another. Therefore, legally they are not part of the chain of liability. Case dismissed.

The company that manufactured the hoverboard is from China, maybe. The hoverboards ended up being extremely defective and there were any number of incidents. The company vanished. There is no one to sue. There are an increasing number of cases like this one and Amazon has won victory after victory in court.

The problem with finding Amazon liable in this situation is that such a law would then extend to any third party that facilitates the selling of goods from one person to another. Companies like eBay, eBid, and Bonanza would most likely have to shut their virtual doors immediately. Websites across the country would have to eliminate their classified sections. So, I think the courts ruled correctly.

I’ll go even a bit further in that I’d like to examine the idea of getting rid of Strict Liability altogether. The base concept is companies are more easily able to absorb the costs of catastrophic injuries related to products even if it wasn’t really their fault. They can simply budget this extra cost. Everyone pays a bit more for the product to compensate those few horribly injured. This is the idea expressed by the judge in the Greenman case which drove the concept of Strict Liability to dominate state law.

In the hoverboard case news of incidents involving the devices spread across the internet via social media almost immediately. Amazon eventually sent a warning about the devices and instituted a payment plan that anticipated many returns. You might say, well, goodness, all the more need for Strict Liability but I say the opposite. This ability to research the safety of products so quickly shifts the burden back onto the consumer. If you purchase an item without doing readily available and easily obtained information about it, then anything that happens is really your responsibility.

It’s important to understand that in this case removal of Strict Liability would make no difference. The product was manufactured with obvious defects and the company that made them would be responsible no matter what. In addition, if a person uses a product in an inherently unsafe manner and his harmed, Strict Liability does not apply.

Is it time to end Strict Liability, particular for products that have been readily available for a period of time and whose potential to cause harm has been established?

I think it’s an idea worth examining. What do you think?

Is it time to rexamine Strict Liability Laws?

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Tom Liberman

Private Placement for the Casual Investor

private placementThere is a type of investment called a Private Placement that, over the last few years, has found an increasing market share in the financial world. Instead of investing in a stock or bond, a Private Placement is an investment opportunity offered to a limited group. It is sort of like Crowd Sourcing for finance.

There is nothing wrong with a Private Placement as long as it is backed by reputable investors. The problem is, more and more of these investment opportunities are really just scams. I recently read an article about a company called Woodbridge Group of Companies LLC that went bankrupt leaving a large number of investors in difficult financial situations.

The idea is simple enough. I plan on making various purchases which will generate a good amount of income. I don’t have the capital to do it. I enlist the aid of accredited investors to advertise my plan and attract investors. They give me money, I use the money on various investments, then I pay back the money as interest on the principal. After a period of time I return the principle to the investors and everyone wins.

Naturally, some people see this as a way to bilk unwary investors out of their money. They enlist others of a shady nature to do the selling and pay them excellent commissions. Eventually the investments don’t earn enough money to pay back to the investors so a Ponzi Scheme begins wherein new investors have their money transferred to previous purchasers. That’s what reportedly happened with Woodbridge.

One of the things that struck me about the Woodbridge case is they were not making outlandish claims of riches. The advertisements were offering a modest 8% return on investment which, in this Bull Market, is actually below what I’ve experienced over the last eight years or so. This level of sophistication might attract a savvier investor who is wary of get rich quick schemes. Certainly, the list of Woodbridge investors has some prominent names.

What does all this mean? For investors who don’t go through brokers, it means a lot. For people like me who use a financial advisor with an excellent track record, not so much. My advisors can spot these sorts of schemes from a mile away. Me? I wouldn’t know a good investment from a hole in the wall. I’m good at writing. That’s why I don’t do my own financials.

Something to think about if you’re considering a Private Placement.

Tom Liberman

Protectionism and the Steel Industry

steel-tariffPresident Trump plans to establish a large tariff on steel and aluminum. He is an avowed protectionist and that generally means making it more expensive for foreign companies to do business in the United States. I wrote a blog specifically about the trade in automobiles and our agreements with Mexico in January of 2017 but the situation is different enough this time that I thought I’d revisit the subject.

The basic idea behind almost any tariff is that foreign countries are engaged in supporting various industries in their nation and this gives those companies an unfair advantage over competing companies in the United States. I will not be getting into a discussion about the long-term impact of trade wars and how industry in the United States might be negatively impacted if countries choose to retaliate against our trade laws. Nor will I be talking about what constitutes unfair trade and our own transgressions in that regard. I’d like to keep today’s topic on the simple idea of the immediate impact of the tariffs.

Countries that import aluminum and steel into the United States will have to pay more in order to do business in this country. In the case of steel, a whopping twenty-five percent more. This means companies in the United States currently producing steel will gain a competitive advantage. Those companies might hire more workers and open more plants to start producing steel at a price higher than is currently being sold by those foreign countries but at a lower price than after the tariffs come into play.

Let’s imagine a steel manufacturer in a foreign country currently produces steel at a price of X. A competing company in the United States produces steel at a price of Y. X is less than Y and therefore foreign companies are selling us lots of steel. However, X is less than Y*1.25 and thus United States companies will be aided. They will benefit. That’s the main idea behind protectionism and at this point you might be nodding your head and thinking what a great idea it is. There is, as they say, a rub.

Everyone in the United States purchases and uses products with steel and aluminum in them. From soda and beer cans, to cars, to packaging, to windows, to doors, to siding, to many household items, street lighting, electrical lines, and more. Steel is used in buildings, roads, appliances, guns, cutlery, watches, surgical instruments, and more.

When the price of steel inevitably goes up because of these tariffs then everyone who uses these items, and that means everyone in the United States, every man, woman, and child, pays more. If people have to pay more for one thing then they inevitably have less money to pay for other things. Perhaps a family decides not to get their deck rebuilt or decides to pass on that Nashville vacation this year.

The case against Chinese steel has merit. It is possible the government is helping industry manufacturer steel at a price that cannot be met by U.S. steel companies. The question we must ask is who is hurt by this practice and who is helped?

The answer is quite straight forward. The companies and people in the United States who produce steel are hurt as are the taxpayers in China. The people who are helped is everyone in the United States including the steelworkers who get various products at a cheaper rate.

That’s economics. If you can get a comparable product at a cheaper price then you do so. You should do so. That’s a good thing. That good thing is what tariffs subvert. These tariffs will help a small percentage of the people in the United States, there is no doubt about that. That’s the appeal. We see an industry and want to help it, not thinking about the larger ramifications of such policies.

Whenever I’m talking about subjects of this nature I always remember the underrated gem, Other People’s Money. Danny DeVito plays Larry Garfield and gives an impassioned speech about the last buggy whip manufacturer. If a company can’t compete, they need to get out of the business before they are totally bankrupt.

If the government steps in and increases the price of steel then United States companies will be able to sell their product in the United States but there alone. No other country will want our high-priced steel. Eventually the tariffs will fail, as they always do. Then the steel companies and you will be back where we started. The difference will be that you’ll have less money in your pocket.

That’s the facts. That why economists don’t like tariffs and protectionist policies in general. They stave off the inevitable at an enormous cost.

Do I feel pity for the steel industry and the workers? You bet I do. It’s a sad fact of life. Everyone can’t be a winner in the game. That’s the nature of the world and of economics. President Trump would be far better off using taxpayer money on retraining steel workers for industries that can compete. I’d be all for that.

I cannot, I will not support tariffs. They just don’t work.

Tom Liberman

Cryptocurrency Mania Strikes the Tea Business

cryptocurrencyInvesting in particular ways during a financial bubble, in this case Cryptocurrency, is a good way to lose a lot of money but it also gives us amazing insight into the nature of greed. If we analyze and understand human nature during these events there is money to be made. Today let’s talk about Long Island Iced Tea Corp.

That company specializes in selling non-alcoholic beverages. What, you might ask, does this have to do with cryptocurrency? Good question. The answer is nothing. Nevertheless, the officers of the company decided to change the name to Long Blockchain and claim to be refocusing on businesses using something called blockchain. This technology is an integral part of cryptocurrency. We need not understand the particulars.

Immediately upon rebranding the company stock soared to unseen heights. What this means is people saw the name change and, in the mania surrounding cryptocurrency, immediately purchased shares. Now, the money people use to buy the stock has to come from someplace. Perhaps their saving account or their child’s education fund. The assumption of the purchaser is that, like other cryptocurrency companies, the value will rise dramatically. They hope the stock price will continue to rise and they will eventually sell their shares for an enormous profit.

There is some reality to these desires. Those who buy low and sell high stand to make a lot of money. The danger is you don’t know exactly what is low or what will be high. It’s entirely possible Long Blockchain has already reached its peak price, that anyone purchasing now will lose a lot of money. This does not dissuade the speculative investor. It is something that can be taken advantage of by a wise investor.

When perception is not aligned with reality mistakes will be made. This is clearly what is happening with cryptocurrency speculation and Long Blockchain. The company is a tea company. They have an infrastructure designed to manufacture and distribute tea. They are not well-positioned to function in competition with existing blockchain companies.

Now, I will get to the point of all this. In the same way Long Blockchain knows little or nothing about blockchain technology, the average investor, you, knows little or nothing about the nuances of the market. You see something interesting and make a purchase. In the same way Long Blockchain is most likely doomed to failure, so is the average investor. The women and men who know something about investing, who can properly take into account perception and reality; are brokers. They can help you invest your money wisely. They can take advantage of misperception without so easily falling prey to it.

The lure of easy money is almost always false and the people most vulnerable are those who have the smallest disposable income. In essence, the Middle Class. The poor cannot invest at all and the wealthy have financial advisors.

You say to yourself it’s just a bit of money and there is the chance to get rich. The same applies to purchasing lottery tickets. It’s your money, do with it as you will. I’d advise you to get sound financial advice and avoid get rich quick purchases like Long Blockchain. If not, well, my financial team is happy to take your money and I’m thrilled to pay them for doing so.

Tom Liberman

The Case Against Sanctions

sanctionsWhen the leaders of a nation decide they want to act in a way the United States perceives as detrimental, the general solution is economic sanctions. The idea being that such sanctions hurt the offending nation and politicians eventually give up on their policies. What I’d like to discuss today is what really happens when we implement economic sanctions on another nation.

One of the main arguments against such sanctions is the leaders of the nation don’t suffer any impact but the average person in said country is economically disadvantaged. The argument for sanctions hopes the people will blame their government for lack of goods. Unfortunately, I think it is much more common to blame the nation imposing the sanctions. It drives a country deeper into behavior we dislike. However, this objection is the least of my troubles with sanctions.

One of the biggest problems with sanctions is that, like a sword, they cut both ways. When we limit trade with a foreign nation we are now preventing companies within the United States from making a profit by selling to willing buyers. As an example, I have a number of family members and friends who work for Boeing and they are hurt by the fact their employer cannot sell goods to quite a few countries in the world. For many companies, this is certainly the difference between growth and hiring and shrinkage and layoffs. There is no question all the economic sanctions we are currently prosecuting badly hurt industry in the United States. How much business could be, and should be, done with Cuba?

Another enormous problem is there is largely a “Don’t Ask, Don’t Tell” policy when it comes to sanctions. When we ban selling or purchasing a product from a particular nation it hardly stops such activity. It simply pushes it underground. Many of the companies and nations who supposedly support such sanctions actively work around them in a variety of ways, chief among them is simply maneuvering and repackaging product.

Basically, if we aren’t allowed to sell something to a country, that product is shipped to a third-party nation that does trade with the proscribed country and the commodity is simply packaged in a container to disguise its point of origin. And, of course, the reverse happens in purchasing such goods. The offending country ships things to a willing nation who then repackages and sells back to the United States.

The second problem leads to the third, which is the creation of a black market where criminals gain huge profits at the expense of regular consumers. The moving of these goods must be done by extralegal sources or officials who are taking bribes to perform the necessary maneuvering. Now we are empowering criminals and corrupting officials. The product should be shipping at a certain cost but the price goes up because of the sanctions. Thus, when you purchase a product that might somewhere on the supply chain pass through the country with sanctions being imposed against it, you pay an increased price.

Likewise, the illegal maneuvering to avoid sanctions leads us to the fourth problem: Enforcement. Thousands of people and billions of dollars are spent trying to prevent nations and companies from maneuvering their goods in an attempt to avoid sanctions. We have agents at ports around the world inspecting packages and trying to make sure they actually come from the country of origin the packaging claims. This costs taxpayer directly, as opposed to the more indirect cost of higher prices.

Highly trained law enforcement officials spend their days and nights trying to figure out how nations and corporations are avoiding the sanctions when they could well be doing something more useful. The amount of time and money spent trying to enforce sanctions is astronomical.

The final point of my argument against sanction is they simply do not work. The nation in question continues functioning in a fairly normal way. They continue to sell their goods to willing buyers; either nations that have not imposed sanctions or through a black market.

Sanctions apparently do no good whatsoever, cost us huge amounts of money, waste the time of highly trained professionals who could be doing something else, generally harm the average person of the offending nation thus cementing their hatred of the United States, corrupt officials, funnel money to criminals, and cause an increase in the price of the goods you purchase. Yay!

Let’s take a quick moment to look at the results if we continued to trade with nations who we consider our enemies. Our companies make a profit, the people of those nations look at us more favorably, we pay lower prices, and there is an opportunity to open lines of dialog to bring about the change we are attempting to create through sanctions.

It’s a natural reaction to want to punish nations we think are behaving poorly but a better strategy is to engage. Better for everyone.

I ask for all sanctions, to all countries, be dropped immediately.

Tom Liberman

Rick Perry and Supply and Demand

rick perrySecretary of Energy Rick Perry apparently incorrectly defined Supply and Demand while speaking to workers at a coal-fired power plant in West Virginia. What I’d like to talk about today is Perry’s understanding of the idea of Supply and Demand, not so much his mistaken understanding of the meaning.

What Perry said is this: Here’s a little economics lesson: supply and demand. You put the supply out there, and the demand will follow. The real law of Supply and Demand does not mean that, but I’m not going to get into what it really means. I’d like to discuss Perry’s actual statement, which presumably he believes.

The idea is related to something called Say’s Law. Basically, if a product is put out there, people will purchase it. It’s not exactly what Perry said but it has correlation. Say’s Law was largely meant as a way to understand how we get gluts of particular products, excess that people are not purchasing. It was generally considered correct until the Great Depression when a great supply of workers created no demand. It is now almost the opposite of current economic theories. Supply is created by demand. If people want something, others will produce it.

I don’t want to get into a complex economic dissertation here, one I am not qualified to make. It seems fairly logical to me that the very idea people will simply purchase something because it is available is nonsense. This is even more true in today’s connected world than it was around the turn of the century, primarily because people have access to far more information. They can look at competing products and decide which they want to purchase.

Now, we could talk about marketing. Certainly, that gets people to purchase products they perhaps do not need or want. Even then it is not the mere presence of the product that is driving demand. You can ask any retail store manager. If they put more of a low-selling product on the shelf, they are largely going to have extra inventory.

That’s what disturbs me about the statement. Not that Perry incorrectly defined Supply and Demand, but that he apparently thinks what he said is true. He wouldn’t have said it otherwise, unless he misspoke, which is possible. It seems to me he said what he meant to say.

Happily, it’s not a big deal, Perry is the Secretary of Energy. Wilbur Ross is the Secretary of Commerce and if he made that statement, well, then I’d be concerned. So, basically, a bit of a useless kerfuffle. Still, I learned something about economic theory, so it wasn’t a total loss.

Tom Liberman

Malaysia Steals, Australian Gifted, United States Steals

jho-low-malaysia-chronicleA fellow by the name of Jho Low worked as a financier in Malaysia. He is accused of taking money from a fund called 1Malaysia Development Berhad. He then used this money to buy jewelry for Australian actress Miranda Kerr. Now the United States has taken her jewelry as stolen property.

I suppose, on some level, I understand the general idea that someone who steals something should pay back what was stolen. The reality is that is not how the justice system works. If someone murders someone there is no way to give life back. The majority of crimes cannot be dealt with in an eye for an eye fashion. We have a criminal justice system that weighs the various crimes and assigns penalties based upon them. This is our attempt to arrive at justice.

I’m all for justice, but this sordid series of events is anything except. Let’s follow the trail from beginning to end. The Malaysian government controls 1Malaysia and puts money into the fund from revenue generated by taxes. This is money that belonged to people in Malaysia and was transferred to the government.

Now, the money was siphoned off to individuals like Low to be used not for the benefit of the people of Malaysia, but for him individually. He used this money to purchase jewelry from various suppliers. These suppliers sold him the jewelry at a fair market price in good faith. They received money for the jewelry. Said jewelry was then given to Kerr while she and Low were dating.

As a gift of tremendous value, it is treated as income. Essentially Kerr had to report these gifts and their worth to the Australian government who certainly taxed her at the appropriate rate. It is largely the same as earned income from a tax perspective.

Now the United States government has forced Kerr to turn over the jewelry to them. In addition to the jewelry they’ve seized other assets worth approximately $1.7 billion. Why the United States is involved at all is not clear to me, but I’m guessing the assets in question were purchased in the United States.

So, from what I can deduce, the government of Malaysia stole a bunch of taxpayer money from its citizens and now the United States has stolen the property purchased with this money.

What would be justice? Quite simple. Return the items to the sellers in exchange for the money paid for the goods and then give that money back to the taxpayers of Malaysia. Anybody think that’s going to happen?

Now, it certainly wouldn’t be a perfect solution as the gifts have likely depreciated since their original purchase but it would be more just.

The way things stand we simply encourage foreign governments to rinse and repeat. Steal a bunch of money from taxpayers, buy lovely things, pay taxes on the purchases, pay taxes if they are gifted, use them for a while, and then give them to the U.S. government.

All we’re doing is collecting money from the stolen goods at every step of the way. That money no more belongs to the United States than it does to me. The worst part is this isn’t unusual. Local, State, and Federal government steals from thieves all the time. They call it seizures but it’s nothing more than theft.

Will the United States pay back the taxes collected on those purchases? Will Australia? Will Malaysia? Will we give the original money back to the citizens of Malaysia? They are the only victims here and they are not recompensed in any way. Everyone else makes a profit and one or two scapegoats will spend a few years in prison.

That’s government for you.

Tom Liberman

Hershey not Filling Candy Boxes

hersheyAn interesting lawsuit has been filed in my home state of Missouri in which a man claims Hershey is violating the law by underfilling their candy boxes. The reason the case fascinates me is because it brings into question both the manufacturer and the consumer.

The man filing the lawsuit believes the box size is a promise of a certain amount of candy. In a contract situation, this means Hershey has promised to deliver that quantity of candy for the price of the box. If the purchaser is deceived about this amount, then the transaction has not been successfully completed. The person making the purchase is entitled to either the correct amount of candy or a refund on a percentage of their outlay.

On the other hand, Hershey believes the weight of the box is sufficient to inform the customer of the nature of the quantity of candy within. If a customer picks up the box, judges its weight, and gives it a rattle, they are fully aware of how full the box is and Hershey has fulfilled their promise.

I think both sides have a legitimate point. Unlike certain boxed items, candy does not need extra space in order to survive jostling. Things like potato chips need the room in order not to shatter on shipping. Candy does not suffer from this issue and therefore there is only one good reason not to fill the boxes to the top. Hershey is hoping people will be deceived by the size of the box and discount the weight and the rattling factor.

The purpose of the larger boxes is simply to deceive, nothing more and nothing less.

But does this intent to deceive rise to the level of breaking a promise? Certainly, Hershey representatives are correct when they say the consumer is fully aware of the weight of the box and the lack of fullness. You cannot pick up such a container without noticing it is far short of being completely full. If the purchaser was deceived, then aren’t they to blame?

I strongly suspect Hershey will prevail in this lawsuit but I would like to think they could easily fill their boxes and forego the attempt to deceive. I understand they don’t fill the boxes because this strategy has an apparent impact on their bottom line. A box of Whoppers filled only slightly more than halfway means there is the appearance of saving a huge amount of money.

Hershey produces X number of boxes for sale. There is Y amount of product in those boxes. If you decrease Y, this lowers the cost of material to make the candy, the cost of shipping as weight is reduced, and perhaps increases boxes sold because people go through the candy faster and come back for another box.

There is however, another factor. Hershey’s has competition in this world. If people continually get less candy for their money, they can easily go to a competitor for their sweet desires. This underfill strategy might be costing the company a lot of money in the long run. Particularly if their competitors are not engaged in such.

That is the glory of capitalism. Consumers have a tremendous amount of power. Rather than filing lawsuits we can get what we want simply by changing our purchasing habits. Naturally a single person can’t do very much, but if enough people start to abandon Whoppers, you can bet Hershey will start to fill the boxes with more product.

This is even more true in the age of Social Media and the internet. Simply pointing out the discrepancy in the size of the box compared to the amount of candy therein can garner a huge amount of attention. If enough people agree with your assessment and Whoppers’s sales drop significantly in a short period of time, executives at Hershey will notice. They know exactly how many boxes are sold and any decline is something they will immediately attempt to rectify.

A Social Media strategy is likely more powerful than any lawsuit.

The Information Age has put increasing amounts of power in the hands of consumers. Speaking as a Libertarian I say … excellent.

Tom Liberman

Investment Advice from the Comments Section

investment adviceI’m not exactly sure what it is that makes people think they are financial wizards but there is an inordinate amount of bad investment advice in the comments of every financially orientated story that make its way into the news. Generally, one person starts off with solid advice about Index Funds, finding good companies, buying a reasonable amount compared to your savings, trusting a good advisor, and what not. Then come the replies.

The stories themselves are usually, but not always, filled with good advice. Beware any story that is sponsored. Other than that, it’s usually solid investment strategies. Make sure you keep enough cash on hand to survive for six months if you lose your initial investment. Avoid the small caps and absolutely stay far away from microcaps. Talk to a financial professional and heed her or his advice. Keep your portfolio varied with a mix of different investments so as to avoid disaster if one sector is badly hit. Mix investments with growth and hold stock and be aware of your retirement date.

Anyway, all good advice. The problem with all this good advice is there is no get rich quick plan. Naturally, most of the advice from the comments section involves making a lot of money quickly.

There is a strong, mythical almost, and unfounded belief that precious metals are a good investment. They are not. A small foray into such is not a disaster but they pay no dividend and offer little growth potential, only sharp swings which is pretty much a guessing game.

Another tip I see frequently is to get out of the market now! This strategy is apparently employed by many people and it is disastrous. The idea is you sell all your stocks for cash when you suspect the market is going down and then rebuy after it starts to go back up again. The problem with this strategy is the same as with precious metals but even worse. You don’t know when the market is going up or down. No one does. It’s purely a guess. Maybe you’ll get lucky once or twice but on average you’ll lose because the market generally goes up. In addition, you pay fees to sell and then repay when you repurchase. If you just held the whole time it’s likely your investments would have grown and you won’t have paid any fees.

I also see lots of advice on how to make millions buying microcap stocks. These are often called penny stocks. The idea is you can buy a million shares of some company and if it goes up by fifty cents you make a lot of money. The problem with these companies is they are often highly manipulated by shady dealers. Basically, a single investor buys the stock very low, plants a bunch of false information, pumps some of their own money back into it as it rises, and then sells when it reaches a particular height. The issue here is the average investor is often locked out of early transactions, they occur before others are even given the opportunity to buy. Thus, the vast majority of investors buy high and sell low while the manipulator does the opposite.

Then there is the derision for those who give sound financial advice. Anyone, like me, daring enough to tell people to avoid precious metals, commodities in general, a high-turnover strategy, in and out, and microcaps is immediately assaulted as being stupid and wrong. Therefore, there becomes an impression that the majority of people are advocating a particular strategy and it must be the best one. It is not.

Like a lot of things in life, there is no simple answer. Anyone who insists that you can get rich, solve a complex problem, or improve your physique with this one easy step is almost certainly lying in order to get you to behave in a way that benefits the liar. Be aware.

That being said, it’s your money to spend how you want and everyone who invests foolishly puts money into the market. This money slowly and steadily enriches me and other wise investors.

Now you know.

Tom Liberman

Ye Old Town Center, Big Box Stores, Malls, and Online Shopping

town centerThere was a time in this country when the town center was where people gathered to socialize, shop, and spend their free time. Then along came a fellow named Sam Walton and destroyed the vast majority of them. First it happened in larger communities but eventually Walmart spread to small towns and mom and pop stores went bankrupt in enormous numbers.

A lot of people were upset by this turn of events. Sam Walton was known as the Most Hated Man in America in rural areas and small towns. The people who ran those local stores fought hard. They put up the good fight. They asked their neighbors and friends to shop at their store rather than Walmart even though the price of goods was higher and the selection was smaller. A picture of economic doom and gloom was forecast as more and more small businesses closed and enterprise business began to take a larger share of the market.

With the success of Walmart came all sorts of Big Box stores and Malls. The gathering place for people changed from town centers, which largely became deserted, to malls and large shopping stores. Anyone who had a small business again fought hard. They took out loans. They asked friends and family to remain loyal.

Then the internet arrived and with it online shopping led by Amazon. Social Media blossomed in this Information Age. Now it was the malls and big box stores’ turn to feel the pain. People didn’t need to leave their house to socialize or to purchase most goods. They did due diligence with online research, ordered the product they wanted at the price they liked, and had it in a remarkably short period of time.

The malls are fighting hard. They are now offering more of the sorts of services people can’t get online, things such as haircuts and dining options. The people in the community who are losing their jobs because of online shopping are pleading with their fellow citizens to buy at the mall instead of online, hoping to save jobs.

What does it all mean? All those closed mom and pop stores, all those shuttered malls, all those lost jobs? It means we get a better product, in a timelier fashion, at a lower price, and there are more jobs than ever!

The reason the mom and pop stores died is because they couldn’t compete economically with the big box stores. The reason the malls are dying is because they can’t compete with online shopping. The winner in all of this is you and me.

It hurts when that little shop around the corner closes and the people you know and like lose their jobs. Economics and capitalism is a harsh mistress. They don’t promise wine and roses for everyone. Nothing can make everyone happy all the time. But look around. What can’t you purchase? What thing that you want can’t you have? Yes, there are some things out of your price range, but far fewer than as little as twenty years ago.

The next generation is going to expect this sort of service in the same why we can’t live without a remote for the entertainment center. There is no going backward in this world. You can’t go home again.

You can lament the end of the malls and all the jobs the same way people were upset when all the family owned businesses went under to the tornado that was Sam Walton. Don’t worry, you probably won’t notice because you’ll be busy posting a picture of your new hat on Social Media.

Tom Liberman

If you Bought $100 of Bitcoins you would have lost $100

bitcoinsBitcoins recently reached an all-time high in value and thus were spawned a bunch of pseudo-articles claiming if only you’d purchased them at their lowest value you’d be wealthy today. These articles are largely designed to convince you to purchase bitcoins. When you read articles essentially promising riches, you should be wary. I know the stories aren’t promising anything, but there is a clear innuendo.

The first reality is bitcoins aren’t physical entities you put into a safe-deposit box. They are stored on servers as bits of information. The bitcoins referenced in the various articles hinting at untold riches simply don’t exist anymore. The people that mined those coins, back then you didn’t necessarily purchase them but you mined them, stored the bitcoins on servers that simply don’t exist anymore. Any bitcoins you might have potentially owned seven years ago are valueless.

Any number of irregularities have hit bitcoins over the years and it’s not simply a matter of saying I had this much then and I’d have that much now. Many bitcoins have been essentially lost and are worthless. In addition, a healthy percentage of bitcoin purchases, like those suggested in the headlines of these articles, fail entirely. People are defrauded out of their money.

I’m not suggesting bitcoins are useless. I’m actually a big believer that cryptocurrency will eventually usurp all other national currencies and this will be a good thing. What I am saying is this plethora of article making the rounds are designed to convince you to spend a large amount of money on bitcoins, most of which you will lose.

There is at least some evidence that the current rise in prices is being manipulated by Russian business owners.

It is entirely possible bitcoins will continue their rally and go higher yet, but the reality is predicting the rise and fall of such cryptocurrency is merely a guessing game. You might get lucky, you probably will not.

The people who want you to speculate on a stock are eager for others to pay at the top because they are selling. Stories like those in Social and Mainstream media currently making the rounds trigger my naturally cautious nature. Who is writing these stories? Why are they appearing now? Is it an organized effort or just the natural consequence of the price of Bitcoins? I’m not sure the answer to those questions but I am sure I won’t be purchasing any at the current price.

Tom Liberman

Globalization China Style One Belt One Road

one belt one roadThere is a lot of strong sentiment about Globalization in the United States and other parts of the western world. The United States and some other European countries are moving away from it but China is moving forward with something called One Belt One Road (OBOR). This creates an interesting situation.

I’m not going to try and convince you of the virtues of such initiatives. That’s your decision and nothing I say will likely change your opinion. What I will talk about is the result of China moving forward while the United States retreats, that’s something it would be wise to understand.

Globalization is largely about economic development through trade. When raw materials are developed in one location, moved to a second location to be processed, shipped to a third location to be assembled, and finally transferred to a market; it becomes cheaper to produce said products. This is undeniable. Any single nation doesn’t have the ability to do all those things as cheaply or efficiently as a group of nations.
In the last decades, China has initiated massive projects around the globe and particular in Asia, designed to speed this process. A massive port in Genoa, highways to connect the biggest markets in Asia, railways in Nairobi, even canals in Nicaragua. The plans are enormous and there is some doubt they can be achieved, but it is a bold move. If Asia, parts of Europe, Africa, and South America succeed with these projects it means enormous employment and wealth. And China is leading the way.

There is, of course, the potential some or all of these projects will fail in their goals.

The populations of United States and some of western Europe are clearly in an Anti-Globalization mood. They’ve elected leaders who advocate an Us First policy. The leaders of United States are moving forward with plans to disentangle our nation from such projects.
Again, I don’t want to tell you what China is planning and implementing is good or bad. I just want people who advocate Us First to be aware that it creates a void. Where there is a void, something will fill it. In this case, it is China.

These projects are going forward. China has a huge number of highly educated college graduates and these are the people who will be developing, innovating, and leading these projects. When the young people of other nations start working on these projects, they will be working for Chinese supervisors. They will take trips to Beijing to discuss the plans. China will become the center of commerce in the world.
Again, this might be a bad thing. All the projects could go badly and China might go bankrupt. Those who advocate an Us First policy might end up laughing all the way to the bank.

On the other hand, the projects might create enormous wealth for the countries and the people who take part. The European, African, and Asian nations that participate in these projects might reap rewards in the trillions of dollars. The people of these nations might see reduced cost of goods and all the benefits that come with it.

The United States once led the world in projects like this. We, through our votes, expressed the idea that we don’t want to do so anymore. That’s fine. That’s what living in a Representative Republic is all about. We the People get to, through our proxies, decide.

Just be aware of the potential ramifications of what you are deciding, and the possibilities for good and ill.

Tom Liberman

It is National Fill in the Blank Day and that is Good

national holidayThis month is apparently National Hamburger Month. At least that’s what Facebook tells me. Or more accurately, one of my friends on Facebook.

These things are often called Hallmark Holidays because they encourage people to purchase greeting cards. Hallmark denies responsibility for this phenomenon, but it cannot be denied it exists. The commercialization of various products is largely the reason such days litter our social media walls. Every industry worth their salt … hey, is there a National Salt Day? Let’s find out! Off to the internet.

Now, I want you to know this was a complete coincidence. I’m writing this post on May 12, 2017 and I just found out National Salt Day is May 17! That is hilarious. There is also National Salt Awareness week in late February and early March but that is actually a holiday trying to keep us from buying something. So, it doesn’t count.

Is there any end in sight? A simple answer, no. As long as there is profit to be made, we’ll have more and more of these consumer holidays. And, to be honest, it’s not a bad thing. If a company wants to promote their product and they find a good way to do it, why shouldn’t they? No one is forced to purchase Salt on National Salt day. You don’t have to buy a Mother’s Day card, flowers, or candy. Consumerism is a wonderful thing because it is largely voluntary. We buy things we want.

It is only when capitalism is constrained that we should start to be worried. When one company is not allowed to sell their product because it competes with another favored by the leaders of a country, then there is a problem.

We buy the things we want because they are priced attractively. This is the very nature of consumerism. We too often blame the corporate world for causing us to eat too much, go too far into debt, or something else related to capitalism. I won’t deny these things exist. We have an unhealthy population in the United States because of abundantly available food of a type we like. People go into debt because they want things, this overwhelms their financial good sense.

If I happened to want a nice hamburger, I might use the excuse that this is National Hamburger Week to purchase one. I’d be interested in seeing the metrics involved with many of these new holidays. Certainly, we see an enormous uptick in sales of flowers around Mother’s Day and ties around Father’s Day. If not, we wouldn’t see all these new holidays appearing on our calendar.

Naturally they are somewhat self-defeating in that as we see more and more of these holidays appear, we become inured to them. That’s perfectly normal as well and eventually someone will find a new way to market their product.

Here is an interesting theoretical question. If the government banned such days, would it reduce consumption of that particular item? I think the answer is yes, but no one is calling for such bans. Mother’s Day is a huge boon for the flower industry but we don’t see consumer protection groups advocating the end of the holiday to prevent people from spending their money.

On the other hand, we do see all kinds of groups promoting the outlawing of particular items, be they drugs or simply large soda containers. The thrust of these laws is that we don’t know what is good for ourselves. That we lack the impulse control to stop self-destructive purchases. This is true. We do lack such control, but solutions based on legal remedies are doomed to fail.

We must teach people impulse control. We must educate them on financial realities. These are the methods by which we improve the lives of citizens, by helping them improve themselves.

It’s just not the role of government to protect us from ourselves, or made up national holidays.

Tom Liberman

Sears was too Big to Fail but It Did

SearsI’d guess the majority of people under my age, fifty-two, don’t remember how dominate Sears, Roebuck and Company was in the retail industry. Sears was enormous. Too Big to Fail according to a metric that seems to be prevalent in this political era. Sears has pretty much failed and it hasn’t affected the economy or jobs in a significant way. There’s a lesson to be learned in that.

First let’s take a look at how dominant was Sears prior to the Wal-Mart and Internet era. At the turn of the century, that’s nineteenth century youngsters, people purchased things from their local general store. The selection was limited and the price was exorbitant. Then came the Sears Catalog. It changed everything in the same way as did Amazon and online shopping. People no longer had to rely on their local store. People simply sent an order form in and, within a few weeks, they had their item. It was revolutionary. It was the beginning of the end for small stores across what was then the largely rural United States.

Sears grew from that initial catalog until they were the dominant retail sales company in the country. There were, and remain, Sears stores in every city. The Sears Tower was for a time the largest building in the world. They employed huge numbers of people and their sales methods allowed others all over the country to purchase the goods they wanted at an affordable price.

I feel confident suggesting that if someone back in 1980 told Congress Sears was going to fail, there would have been panic. The thought of all those lost jobs and the fact that so many wouldn’t be able to purchase cheap goods would have caused an immediate effect. We would have seen a rush of public committee meetings, speeches about how vital was Sears to the economy, and a plethora of grim looking politicians pledging to save us from this impending disaster.

Happily, no one knew. Wal-Mart came along. The Internet came along. Sears pursued a bad business model and now they stand on the brink of insolvency. They are closing stores all over the country but, and this is important, politicians don’t care. It’s the natural course of business in their eyes and, for once, they are right.

Businesses fail. When executives make poor decisions, when the nature of the market changes, when circumstances and luck go against it, a business fails. The vital factor is that it failed for reasons. Another business model can succeed and provide profit, and people who pursue a good strategy will fill the void.

If the car manufacturers had been allowed to fail someone else would have stepped up to take their place. If the financial institutions that badly managed their affairs had been allowed to fail, others would have ably stepped up to replace them. For every job lost to the failing company, another one would have been created, if not two.

There is no such thing as too big to fail. What exists is too much vested interest in politics. The businesses that were going to fail had the Democratic and Republican Nation parties in their pockets. It was in the interest of the two major political parties to save those companies. The politicians and their parties don’t want the gravy train to stop.

The lesson to be learned is that there is no too big to fail. Failure is as much a part of capitalism as is success. Where one business fails, for whatever reason, another arises with a better model. Where one job goes away, two more appear.

Does it hurt for those who lose their job? Is it painful for the executives who have failed? Yes.

That’s capitalism.

Tom Liberman

The Decline of Golf

decline of golfThe year was 2006 and Tiger Woods won The Open Championship, the PGA Championship, and six other events. The game of golf had 30 million regular players. Courses both public and private were being opened and designed all over the country. The world was bullish on golf and apparently rightly so.

Since then the total number of players has dropped by more than five million despite the population rising. More golf courses are closing than opening and only a small number of highly exclusive courses are even in the planning stages anymore.

What happened? It’s a complex question and there are many factors involved; including lack of star power, economics, and the time and difficulty required to play. What I’d like to focus on is the nature of economics. If golf was banking or car manufacturing there would be panic in Washington D.C. and in statehouses across the country. How can we save golf? It employs so many people. It provides an entertainment outlet for many more. We can’t let it fail.

A once thriving industry is struggling badly. People just don’t want to play anymore, for whatever reason. That’s the nature of economics and capitalism. The fact courses are closing all over and the government isn’t intervening is exactly how it should work. If a golf course cannot generate enough revenue to stay open, it should close. This means economic hardship for the employees. It means I have fewer options when I want to play a round.

What will be the result? The golf industry is coming up with innovate ways to solve the problem. There is talk of six hole courses. Courses with bigger holes to make playing a round easier. There are many ideas being discussed and implemented. Perhaps some of them will work and a new generation of golfers will once again fill courses, or perhaps it will go the way of the horse and buggy. I don’t know. I can’t know. No one knows. That’s the nature of this world.

What government often tries to do is alleviate this uncertainty. It is not merely economics. It is lives. When the golf industry falters, any number of people are affected in a negative way. Government tries to assure people it will be fine. They will prop up the golf industry so no one loses their job. So there is always a place to play. It’s a reassuring thought. Gosh, it’ll be great. We’ll never have to worry about the course closing. I’ll always have a job and be able to pay for the food on my children’s table. Thanks, government.

The problem is that it doesn’t work. When the government attempts to prop up a failing business or industry they are merely delaying the inevitable. When a business fails through natural capitalistic forces, it does so in a way that allows for it to be replaced. If people are not playing golf, they are doing something else. In this other thing there are jobs, there is security.

I think it’s important to consider where we would be today if the government hadn’t intervened in the Global Financial Crisis of 2015. Many of the car dealerships and the ancillary suppliers would have had a hard time, but now we’d have vigorous young companies established in their place. The industry would have been reborn, people need cars, that is not going away. Perhaps in the innovative storm that followed the demise of the industry we’d have fully automatic cars by now.

It is clear to me if those banks that made foolish loans had simply been allowed to go bankrupt, others would have risen in their place. And the new ones would probably not have charged me nearly as much to simply withdraw my money from my own accounts.

It is important to remember one vital fact. While failure is a disaster for one person, it is opportunity for a dozen more. It eliminates the bad and allows for new ideas to enter the market. These new companies are agile, vigorous, and provide a service wanted by the people. This is why capitalism, largely unfettered, is such a good thing for all of us.

The decline of golf is an important lesson in economics.

Tom Liberman

Trump and the Constitutional Crisis of Marijuana

marijuanaTrump dropped the big one. No, not Health Care. Medical Marijuana. I’ve been speaking with friends about this issue since before the election and I’m of the opinion it has the greatest potential to destroy the United States. My friends mostly laugh at me but read on and see if I’m being an alarmist or not.

Legal marijuana. President Trump and his Attorney General, Jeff Sessions, have been talking about enforcing the federal marijuana laws against states that have legalized or decriminalized it.

Why is this such a potentially destructive issue? Because it brings State’s Right to the front in a way we haven’t seen in generations. A number of states have made their will apparent. The people of those states want legal marijuana. The federal government disagrees. The question then becomes how the federal government enforces the restriction. That’s what I believe to be extremely dangerous.

There are some nonviolent methods available to the federal government. Banking restrictions on the funds generated by legal marijuana for example. That being said, the main option the federal government has is interdiction. This means sending federal Drug Enforcement Agency officers into various states to arrest owners and employees of such stores. This means there is the potential, I would say likelihood, of law enforcement officers for the various states defending these locations. That could easily lead to armed encounters.

We might see federal law enforcement officers killing or being killed by state law enforcement officers. What you must remember is that federal law enforcement officers also have loyalty to the various states to whom they associate themselves. A DEA officers who hails from California, for example, might well be in an armed confrontation with his brother who is a police officer from the state.

When was the last time brother fought brother in the United States? I know I’m sounding a shrill alarm and nothing has happened to date. I’ve been listening to the words of President Trump since he was campaigning and I’ve also read much of what Attorney General Sessions has said in the past. They are both strong believers that drugs are tearing the fabric of our nation apart.

I disagree, it is the illegal status of drugs that is causing all the problems. If we followed the various state’s leads by decriminalizing drug use, this entire problem would largely resolve itself. That clearly does not seem to be the aim of this administration. They want heavy-handed law enforcement. I, for one, don’t doubt the resolve of the people of California, Colorado, Washington, Oregon, and other states who have made marijuana legal. I don’t think they’re going to simply back down.

If the states refuse to back down, then the federal government has two options. They can reverse course and stop enforcing marijuana crimes or they can escalate the situation by sending in more troops.

If hostilities between federal and state law enforcement agencies becomes a reality, that is a serious issue. It could potentially destroy the United States as we know it. The western states could simply leave the Union. Another Civil War could begin if the remaining states decided to prevent such an exodus.

Again, I know I’m setting off extreme alarm bells here. I’m probably being overly dramatic but this is the first time in my life I’ve seen the potential for armed conflict between the federal government and the various states. Once that starts, it’s impossible to predict how or where it will end.

All over a simple weed that grows just about everywhere in the country. All over one group of people who think they should be able to tell legally competent adults not to smoke it.

Tom Liberman

What Asteroid Mining Means for Precious Metals

asteroid-miningWhat does asteroid mining and flooding the world’s supply of precious metals mean economically? What would that mean for the world and for you?

For many people the idea of mining asteroids is the stuff of science fiction. Most people roll their eyes at me when I talk about our ability to make this fantasy a reality.

I’m here to tell you, asteroid mining is not far away. There are a number of ideas on how to accomplish it, but one of the easiest is simply changing the velocity of small asteroids so they enter into Earth’s orbit. From there break them down aboard a space platform and drop the material to the surface.

Getting the mining platform built would be a task but once it was done there would be an endless series of asteroids floating gently in to be processed. Asteroids as small as ten meters across generally contain more than one-hundred pounds of gold and seven-hundred tons of other useful metals. Larger and more metal rich asteroids have far more. To put this in perspective; the total amount of gold mined from our planet is about 152,000 tons.

When asteroid mining becomes a reality, there are economic issues to consider. We often consider things precious, or valuable, simply because they are scarce; not because of their value in industry. Platinum is scarce and used in industry primarily for emission control on vehicles. It’s very possible that we will not need catalytic converters on modern cars. At that point, the value of platinum is reduced dramatically. Couple this with the fact an asteroid as small as one kilometer in size might be mined for more platinum than currently exists on Earth. Suddenly platinum is all but valueless.

Gold certainly has value in industry but also largely for artistic endeavors. The things we consider valuable today will be super-abundant tomorrow, and thus have little value. This has happened before. There was time when aluminum was more valuable than gold. Aluminum has incredible value in the industrial world. Luckily it is readily available on Earth so scarcity is not an issue, although I’m guessing it will be a target of asteroid mining as well.

Basically gold, platinum, silver, and other metals we associate with monetary policies will become super-abundant. This means every person who invested in such metals will lose their money. This also infers that any country basing their economic system on precious metals will instantly become bankrupt. Their savings will be worthless as the price of gold plummets.

The economics of the world are changing and it’s wise to be prepared for such events. Gold, platinum, silver, nickel, cobalt, rhodium, and other rare and useful metals aren’t going to be readily available immediately, but there is no doubt in my mind they will eventually become so.

Someday there will be mining bases embedded in the asteroid belt that will ship billions of tons of useful elements to Earth for processing. Scarcity is no longer an issue.

I’m not saying sell all your gold and platinum today. I am saying, if you’re a gold bug or hung up on precious metals, you need to consider what’s happening in the world and off it, and plan your future accordingly.

Tom Liberman

Bill O’Reilly and why Money Matters

bill-oreillyThe slow unraveling of the career of Bill O’Reilly has an important lesson for everyone. Money matters. At least that’s the angle I’d like to examine.

O’Reilly made a lot of money for a great many people including himself. O’Reilly’s top rated show generated enormous income for Fox News but also for the advertisers. They weren’t spending tens of millions on his show for no reason. Everyone who worked at Fox and far beyond benefited from the ripple effect of his money printing machine. Camera operators, commercial actors, executives, other personalities at Fox, the list is almost endless.

That’s why it took so long for Fox to finally fire O’Reilly. Imagine O’Reilly was a simple camera operator. How many incidents with women would it have taken for him to get fired? I think we all know the answer to that one. How many people would have risen up in support of O’Reilly under those circumstances? Again, we all know the answer to this question.

We can lament this situation all we want. We can complain about the extra chances someone in O’Reilly’s position gets, the opportunities many others would not, but reality must be considered. Someone who is generating huge amounts of money will almost universally get the benefit of any doubt and even be allowed to continue long past the point of uncertainty.

I think it can be argued that simply being in the position O’Reilly was in encourages the sort of behavior in which he engaged. If you are immediately punished for wayward behavior then you just don’t get an opportunity to repeat it, you’ve been fired.

There are lessons to be learned for those who have a pragmatic mind. Sure, the ideologically motivated will attempt to lay blame on one group or the other but that’s really beyond the point. The reality is people who generate a lot of revenue are going to get more chances than those who do not.

If someone in a position of power does something reprehensible to you, you might want to seek financial rewards rather than taking the high ground. No matter your principles, the person who wronged you is going to avoid consequences, at least for a while, until multiple allegations begin to pile up.

Certainly, you should report the situation to whatever authority you can but if nothing is being done about it, you must be a pragmatist. Get out of there as quickly as your legs can carry you, like Megyn Kelly. The old adage about life giving you lemons has validity in today’s world.
There are people like O’Reilly everywhere in this world and they often crush those who get in their way. They don’t hesitate to use their wealth and power to get away with many terrible things. That’s the lesson. Don’t let yourself be crushed. Understand that life is extraordinarily unfair. That many times you’ll be in the right but won’t be rewarded for it, you might even be punished.

The final lesson to consider is your own behavior. If you find yourself in a position of power, a place where you are allowed to get away with things, don’t do it. Take the high road, you’re the only one with the option to do so.

Tom Liberman

If you Like Sports you’re not a Capitalist

capitalist-sportsI’m a Libertarian and there is not much about socialism I find enticing as a political philosophy. I also like football. Finally, I’m a realist. Sports organizations exist today almost completely as a conglomerate of policies that can only be described as socialistic and communistic.

Drafts are one of the most anti-capitalistic entities that exist in the western world. Imagine if young college students were drafted upon graduation by a particular corporate entity, their salary was predetermined by some equation, and they were unable to negotiate with anyone else. Should they choose not to sign with the company that drafted them, they could not sell their skills elsewhere for one full year, upon conclusion of which they were back in the same situation, hoping to be drafted by a company for whom they wanted to work. Yikes.

The process young high school students endure is slightly better. They can at least choose which college to whom they sell their services. However, once that letter of commitment is signed, it’s a different story. They are largely stuck. If they want to leave, their boss must approve of the school they transfer to and even then, they must sit out for a full year. And, of course, they can’t negotiate their salary.

Everyone on the team earns exactly the same amount. From the star quarterback to the third string strong safety, not that I’m picking on safeties, they all get room, board, and tuition. That, dear readers, is communism.

The amount of money each team in the NFL, NBA, and NHL is allowed to spend on salary is strictly controlled by rules. No one can spend as much as they want, each team is limited to the same value. This means each player gets remunerated at a rate that fits into a predetermined structure rather than a fully capitalistic system.

A portion of the total amount of money each team earns over the course of the season is subject to division and split among all the teams in the league equally.

Can you imagine such a system anywhere except sports? The thought is horrifying, but we accept it without thought when it comes to the various leagues. The structure is different from league to league but it is fairly similar from one to the next.

The alternative is to treat athletes like everyone else. Every school and team can offer whatever incentives they want to each player. You’re a star eight-grade basketball player? Perhaps a top school in another state wants you. Maybe they’ll move your family to a nearby home and pay you. How is that bad for the athlete?

At the end of the college season each player is free to negotiate with every professional team and arrive at a contract that is acceptable to all parties. How can that be bad for the players?

Yes, the wealthy high schools, colleges, and professional teams will get all the best athletes. That’s how a business succeeds in this world, they get the most talented players.

We must consider personal gain as well. The second-best running back would almost certainly sign with a different team than the best running back for the opportunity to play more. Teams would have to manage their expenditures within their economic means.

I have no illusions that such a system will ever be implemented for athletics across the country. I don’t deny that almost everyone reading this will call me an idiot, and they won’t hesitate to tell me why. However, in addition to being a Libertarian, I’m a dreamer. Maybe one day we’ll have a system designed to benefit the individual. That’s my dream at least.

Tom Liberman