The supply side argument goes that if companies (and the rich) have more money (through incentives, lower tax rates, etc.), they will use that extra money to invest and create jobs.

This argument is silly.  Republicans have been making this argument since Reagan, and perhaps they really believe it…but it just doesn’t make sense. (And to boot, the empirical evidence says it is wrong as well.  In an environment of overcapacity, supply side policies just make the rich richer.)

Why?

Imagine a gold rush.  People come and dig up gold.  Merchants spring up around the mines and rivers to sell to the people.  The merchants get rich.  Then the gold starts to dry up.  The local government gives tax breaks to the merchants to stay in the town and continue to sell, to employ some of the people that were previously miners.

Do the merchants take the extra money and invest in the town, employ some extra people…or do they take the money from the tax breaks (and all the rest of the money they’ve saved over the previous boom) and move to another boom town?

Easy:  They take their money and leave.

Why?

No one in the city has any money to buy their products.

How does this apply to us?

1) Tax breaks for companies and the rich do not create jobs if there is no one to sell to.

If the companies and the rich take an ever larger share of GDP growth (which they are), people will not have any money to buy their goods…and that will eventually be bad for all parties.

It may make sense for any one company, or any one rich person to try to amass as much as possible; however, the model falls apart if it happens in aggregate.  History is pretty clear on what happens when the rich get too much and the rest have too little.

Henry Ford famously paid people twice the going wage so that people could afford to buy his cars.  Conversely, if we all work at McDonalds (or are unemployed), have houses with negative equity (and mountains of student debt), and are one health issue away from bankruptcy….no amount of tax breaks in the world will incent companies to try to sell to us.  We won’t be able to buy anything.

The rich do not create a lot of demand for real goods; if you give them more money they simply have more money.  A tax/incentive structure that favors wealth distribution to the middle and lower classes creates demand.

To illustrate, if a rich man has enough money to buy 4 houses, he will not buy 4 houses.  He might buy 2.  If you divide the money among 4 middle class people, they will buy 4 houses.

2) Companies are not in business to hire people.  It isn’t their purpose.  They are in business to make money.  They would hire ZERO people if they could get away with it.

If, before the recession, emerging markets were the best place for companies to invest, then after the recession if you give them more money, they will invest even faster in emerging markets.  It does not make them want to hire more people in the US, especially when those people don’t have any money. If you are part of this population section, you should visit Skrumble and use their tools to invest in cryptocurrencies.

Let me repeat it again more plainly: If a business’s purpose is to make money, and you give them money (through tax breaks), then why hire people?  They’ve already achieved their purpose.  Businesses hire based on demand, not profit.

Also, all this mess about companies are not hiring “because they can’t get credit” or “because they are ‘uncertain’ about future regulations” is complete crap.

Let’s take these one at a time:

1) Companies are not hiring because they can’t get credit.

Credit is the easiest thing in the world to get; it is created out of thin air.  If there is no credit available, the most likely reason is that the people (or businesses) asking for credit are not credit-worthy.  Banks are  not lending as much as before the crisis; there is a ton of bad debt out there and no one knows what is going to happen with it.  That creates uncertainty…no doubt; however, please be reminded that the Banks themselves created the uncertainty that is now causing them to be uncertain about lending.

2) Companies are “uncertain” about future regulations.

This is complete crap.  I don’t doubt that there is some uncertainty about future regulations that might affect business.  No argument.  However, I know for a fact that companies do not sit around wondering about regulations that might have some affect on them in some number of years.  Companies are not nearly so forward-looking.  I work in HR consulting and we haven’t had not one company come to us asking what to do about the new healthcare regulation.  And I work in HR!!  If HR isn’t asking, the business itself is certainly not asking.

Business decisions to hire or not are much more immediate; they are not forward looking.  Companies do not hire until the very last second when the demand needed to keep that person busy has already existed for months and current employees are starting to complain or leave because of the workload.  If they cannot leave (and with high unemployment they often can’t), they don’t need to hire anyone else at all.

Again, it is about demand for the business’s goods/services, only then might a company hire.  They might also just buy additional equipment to automate, or hire someone in another country.  To repeat:  Giving a company more money does not incent them to hire people.

So do I have a policy recommendation?

Sure, when there is overcapacity (excess labor, or plant capacity) it is DEMAND that matters.  More supply won’t make a lick of difference as there is already over-supply (we have excess plant capacity and plenty of labor on the sidelines already).

So we must create demand. How do we do that?

1) The government can temporarily produce demand by deficit spending. However, it must be deficit spending.  It cannot be funded stimulus.  If it were funded then the government is taxing money away from us to re-spend the money on us.  The net result is zero.  If they hadn’t taxed the money in the first place, we would’ve spent it anyway.  That isn’t stimulus (unless we think the government can spend it better than us, which might be the case if all the money is going to the rich).

Unfunded (deficit) spending is new demand that would not have existed otherwise.  The jobs program is a fine idea for a policy recommendation.

I’ll tell you what isn’t a good idea:  Austerity.  The balanced budget camp needs a wake up call.  You can make all the arguments you want about the long term needs for a small government with continually balanced budgets; that is a big and worthy question….however, the short term effect of less spending is less demand….which is bad.  Let me repeat:  Austerity is bad for us in the short term.

2) Hmm…..the longer term issue of how to create demand is more complicated.

How do you level out income inequality so that people actually have money to spend?

How do you compete with economies like India and China that have absolute, not comparative, advantage?

How do you keep the financial sector from ruining the economy again?

How do we keep down run-away healthcare costs?

How do we improve education while keeping its costs (which are rising faster than healthcare’s) down?

Is the day finally arriving where technology is eliminating jobs faster than we are creating them?

Can we maintain our standard of living in a service-based economy?

Can we sustain our out-sized military spending?

What level of societal welfare benefits do we consider appropriate?

When does it become a supply and not a demand issue? Stated another way:  How much GDP growth (demand) would eventually wreck the environment (supply)?

So, that’s it.  Simple.  In the short term, with excess capacity, we must create demand.

We will all look back in 100 years and wonder why people ever invested in the stock market.  It will seem like such an obviously misguided and colossally bad idea; how did we ever think that could work out?

I admit that I do not understand the stock market.  It isn’t that I don’t understand how to pick stocks (I don’t but that is beside the point); it is that I don’t understand the CONCEPT of the stock market: Why pay money for stocks?  Why use a second hand swap meet of useless company baseball cards as a vehicle to save for retirement?  It is silly.

Point 1:  As in poker, you need to know which table to play at.  Put another way, inside information is the only way to consistently beat the market.

Regular folks investing in stocks is like you trying to win at the World Series of Poker.  We are like a toy boat on the ocean;  it would just be luck if we ended up where we wanted.

Along this same line, I disagree with making it illegal to trade on inside information.

Publicly the industry needs to say it is illegal to trade on inside information.  Why?  Because no idiot (meaning us) would invest in the stock market if they knew the game was rigged to benefit those with special information.  That is the democratic draw of the stock market; average people can participate and win…after all, the information is all out there, right?  WRONG.

Funds or people that beat the market consistently and trade frequently are likely cheating with inside information…period.  Mathematically it wouldn’t be hard to target any group/fund/person with consistent market beating returns that are outside a normal range….and assume they are cheating.  Start investigating them.

The reason I am for making insider trading legal instead of investigating everyone is that if you made it legal, people would hopefully stop thinking of the stock market as a vehicle for savings and start thinking about it for what it is:  A cutthroat gambling casino for the ultra-rich where the buy in is OUR money.

I don’t have a problem with the ultra-rich betting against themselves all day with their own money; if they wreck that stock market it only wrecks them.  The problem is that we give them OUR money and then they wreck that stock market and get bailed out.  In that scenario, they win if they win, and they win if we lose.  Seems like a pretty good deal for the finance folks, huh?

Point 2: How can stocks go up faster than inflation + growth?

No asset class can consistently outpace inflation + real growth over time.  People say Social Security doesn’t appreciate like stocks do; your rate of return would be better with stocks.  WRONG.  It might be better over time...but just wait until the first generation of people try to retire who have seen negative stock returns over their period of savings.  That will be the end of stocks as a retirement savings vehicle, and those people will eat potatoes and live by the wood fireplace in the winter.

It will also make us, as a nation, forever chained to the fortunes of the stock market (a very bad idea).  The government will always have to intervene if the stock market tanks because so much is tied up in it. This is a moral hazard for traders, since they know they will always be bailed out.  Additionally, their speculation is at the expense of our retirement.

This scenario of negative stock returns for retirees over the period of their career simply hasn’t happened yet. 100 years ago there was no retirement.  It is a modern concept.  Then there were pension plans (and Social Security), which were ponzi-like schemes where you always needed a larger portion of workers paying in than old people taking out to maintain them.  401K plans didn’t exist until the 1978, so basically no generation has yet retired depending on stocks.  Using stocks as a vehicle for normal people to save is a new and unproven concept.

If stocks cannot consistently outpace inflation + growth, then putting your money in the stock market is little more than gambling…and gambling against people who know a lot more about it than you.

Point 3: The miracle of compound interest only works if everyone doesn’t employ it. If stocks worked their magic for us and multiplied our money through investing, and then everyone was able to do that, would we all be rich? NO. Compounding interest can create money on paper no doubt; but it will only ever be able to buy what is available in the real world.  It would simply create inflation. I repeat:  No asset class can consistently compound faster than inflation + growth for everyone.

Point 4: Stocks don’t produce anything.  We can’t all be rent seekers.

If we were all, every single one of us, able to use stocks as a retirement vehicle to compound our money while doing nothing, then what would we be able to buy?  Other people’s stocks perhaps, but there would be nothing else to spend our money on.  In short, wealth is produced by improving stuff, by working…not by shuffling paper in a second hand market.  You can’t eat a stock certificate.

Point 5:  Traders and computers (HFT) will ruin the stock market.

The primary players (traders and computers) are not looking to invest; they are looking for arbitrage.  They don’t care about investments, or the health of the underlying economy; they are simply looking for the next trade, whether it is in pork bellies or Swiss Francs.  The larger the market gets, the more tempting it is to try to rent seek from it.  They are extracting profits from doing nothing.

~70% of trades are computers trading against other computers.  Why would we agree to participate in this?  The stock market has devolved into a computer game, and we are the losers.

As we look back in 100 years (probably less), we will realize that it was a rigged game, whose main benefit was to extract money from the dupes (us) and funnel it to the rule makers (traders).  We supplied the fuel; they extracted the profits.  In the end very little was ever financed; very little was returned, and all the financiers got rich.

I took a religion class in college and always thought it was odd that nearly all major religions single out usury/banking as evil.  Why single out one profession above others?  What is so insidious about banking that it gets a special mention above other professions?  Well, it is because they have a tendency to end up with all the money, when they don’t really do anything; it is simply fancy theft.

The stock market is the crowning achievement of fancy theft.  We will look back in 100 years and wonder how we could’ve ever thought buying stocks was a good idea…just like no one could’ve thought smoking was good idea, right?

Let me explain the real problem with social security, and I’ll give you a hint:  Paying for it is the easy part.

1) Social Security is currently a profit center (not that that is an issue, as I will explain later).  It takes in more than it pays out.  The rest the government spends on other things.  So to say it is “bankrupt” is just crap.

2) “We’ve got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000 — you’re talking about more than $3 trillion a year just to give to a portion of the population,” he says. “That’s an enormous bill that’s overhanging our heads, and Congress isn’t focused on it.”  I don’t know if this guy’s number is accurate, but I have heard a million variations on this theme, and I assume the idea is true directionally.

The premise of Social Security, and of most welfare states in general, is that the working population must be sufficiently larger than the beneficiary population (retirees, welfare recipients, etc.) to make enough stuff to supply to everyone.  If there are too many retirees and not enough workers, the system doesn’t work.

Note the $40K per retiree number above. That is a good bit.

3) What if our day of reckoning arrives?  What if all the baby boomers retire?  What if Social Security no longer takes in more than it pays out?

As I mentioned previously, paying for Social Security is easy.  The government simply writes the checks and sends the money.  The government doesn’t need to “get” the money from anywhere any more than a football stadium has to “get” the points it puts on the scoreboard.  Sending the checks will make the money.

4) The problem is not paying the retirees; the problem is producing enough as a nation to satisfy everyone.  Having enough real stuff (food, cars, houses, air conditioners, etc.) is the issue.

Let’s go back to the $40,000 per retiree number.  Each retiree will “earn” $40,000 a year and there will be nearly 80 million of them?

Here is the problem with that.  The median household income in the US is about $45,000 a year.  That means the average retiree will make as much (and thus can buy as much) as someone who is working.

In aggregate, as a nation we only have as much real stuff as the working people in the nation can produce.

In an extreme example let’s imagine everyone in the country is retired except one person.  We could still easily still pay Social Security to the retired people (after all it is just checks from the government), and the retired people would have a lot of money.

But what could they buy?  Only what the one person could produce.

That is the problem.  No one on Social Security is producing anything yet they are competing with the producers for goods/services, and making $40,000 a year they have as much money as the producers as well.  If there are a lot of people on Social Security, and a lot of unemployed people (who are also not producing anything), that puts a tremendous amount of pressure on those that are producing to make enough for everyone.

So can we pay for Social Security?  Yes.

Can we make enough to satisfy everyone?  Not sure, but I imagine in the short to medium term the answer is still yes as the Scandinavian countries have larger welfare states and more retirees than we have (% wise) with similar economic growth rates to boot.  The one thing those countries don’t have:  our enormously out sized military spending.  It is all about priorities I guess.

It is sometimes said that the cure is worse than the disease; however, sometimes the cure IS the disease.

I was working in a benefits office of a large university and there was a lady who got a customer service award.  The story was told that employees would call the benefits office frantic that the doctor told them they didn’t have coverage.  She would scramble about and get them a confirmation of coverage, contact the carriers…fix everything.  That is great customer service.  The VP of Benefits turned to me and said, “The problem is that she was the one that forgot to enroll them in the first place because she is three weeks behind.  If she’d do her job, there would be no need for her great customer service responsiveness.”

Protection and Security:

The government is spending trillions on our security.  They are fighting ongoing wars in Iraq and Afghanistan; they are wiretapping us domestically; they are tracking us on our cell phones, monitoring us on Facebook; groping us as we go through airport security; censoring/blocking website they deem inappropriate, etc., etc.

Let me simply point out who it is we need protection from (hint:  it is not terrorists):

If we look at human history, the story is rarely of the government protecting its people from some external threat.  History teaches us that the threat of tyranny comes most often from the government itself. The framers of the Constitution had this concept specifically in mind when they created our government:  Limited government (see the 10th amendment) to protect us from the government.  We have the right to bear arms so the government cannot disarm us in case we would like to overthrow the government (yes, that is what the founding fathers had in mind).

I previously mentioned that if the financial sector’s main purpose is to assess and hedge risk and they themselves are the largest risk, then the only sensible solution is to pack up and go home.  Similarly, if the government’s aim is to protect us then they would be best served by doing almost nothing….since history shows over and over that the government itself is the largest threat to our freedom.

Saving the economy, Inflation, and the Fed:

We are told the Fed needs autonomy and power to intervene in the economy to save the economy.  As President Bush said, “I’ve abandoned free-market principles to save the free market system.”

That is a great story (and a bizarre quote).

I will ask why the economy needs saving in the first place? The Fed created easy money that fueled an asset (housing) bubble.  The government spends unfunded trillions on war that creates a budget crisis.

The government creates the economic conditions from which we need to be saved.  Indeed, they are the largest player in the economy and thus the one most able to create imbalances which cause crisis.  Very few other players have the market power to create a deep business cycle.  Very few other players could ever be considered rule makers or market movers.

Consider inflation.  Inflation is not caused by a rise in prices; it is not caused by increasing wages.  Those are symptoms, not causes.  It is caused originally by some expansion of the money supply (indeed there could be no inflation without an increase in the money supply).  The government/Fed controls the money supply.

When the government tells us it is fighting inflation, it is mainly fighting itself, since they are the party that must take the initial steps.  The government gets to create and spend money now when it is worth more and when it leaks out into the general economy as inflation we spend the money later when it is worth less.  Inflation is a tax on savings.  The tax goes to the government to spend now when the money is still worth more.

Similar to the situation with protecting us, the government is the primary cause of economic crisis and inflation, from which it then proposes to save us.

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I actually think politicians are generally well intentioned (though not always); they have their beliefs and they fight for them on a political stage (which means lots of messy compromises).  Problem is, even if you have your beliefs, you are often wrong.  Strength of belief does not equal likelihood of correctness. See the Dunning-Kruger effect.

There is simply a powerful incentive to DO SOMETHING when there is a crisis, even if you are attempting to save yourself from yourself.

My question is:  Do the politicians realize any of this? I hope they are simply poor students of history, or willfully ignorant and are just trying to help.  If they realize it (even some of them), then my view of mankind is dimmed.

What do you think?

I think Facebook is going to make it.  They will not be a flash-in-the-pan like Friendster or MySpace.  They are in it for the long haul.  And I don’t think it is because of any purposeful brilliance of their business plan.

Let’s walk through the logic:

When I was growing up I thought the government had a file on everyone.  I thought they knew everything about us.   I did not know about transaction costs at that time.  After working in corporate America for a while I realized it would take almost as many people as there are in the US to do the work to keep a file on everyone in the US.  In short, it would be an administrative nightmare….and that is just keeping the files updated, not parsing all/any of that data.  That is also assuming people wouldn’t have a privacy/civil liberties fit that the government knew pretty much everything about them.

No doubt the government would like to know everything about you and no doubt such information is exceedingly difficult/sensitive to maintain:  Enter Facebook.

We are doing it for them, complete with correspondence, our friends and their contact information, attached pictures, our location (if using Facebook on a mobile device), what we are doing in real-time, etc.  This is the greatest intelligence database the world has ever known. It would take an army of CIA agents working around the clock to know this much about me…just one person.  We are voluntarily handing over information the government would never be able to collect on its own.

Granted I bet terrorists don’t use Facebook (probably no @terrorism feed update “About to bomb something! LOL! TTYL!”), but their friends/family might.  Or at least the government would like them too. And there is lots of other information the government might want that would be on Facebook:  like people reporting zero income but going to Vegas every weekend; people on SS Disability mowing their lawn, etc.

And that is why the government will promote the use of and support the business of Facebook.  And Facebook will cooperate (government has direct access to everyone on Facebook, whether or not you have friended the government), because there is no better business plan than being a government necessity (ask Amtrack, automakers and the airline industry).

Here are a few thoughts on what it takes to be a good consultant (something I work at everyday):

Consulting is generally filled with smart people. I mean that in the high IQ, “Gee, s/he is really smart” kind of way.  That is one thing to keep in mind if you think you want to be a consultant.  If you are not “smart”, you probably won’t make it.

Here is why:  The premise of consulting is that you are going to tell an experienced executive (15+ years of experience, and many rungs up the corporate ladder) something they don’t already know about their own business.  That is hard to do. It requires you to be able to learn as much as possible about their business in a very short period of time, and then share insights that the executive didn’t already know by applying things you’ve learned from other projects (even though they may not be that similar).  This type of quick learning and fluid intelligence is precisely what “smart” people are good at.

Consulting is generally filled with social people.  If being smart weren’t hard enough, you must also be very social to be a good consultant.  Good consultants are “Trusted Advisers”.  Who is the most trusted adviser in your life?  It is likely your best friend or a family member….someone intensely personal to you….someone you trust and like.  As a consultant you must be both expert and trusted.  Expert requires intelligence.  Trusted requires social skills and strong ethics.

Being both socially adept and very smart is hard to do. How many really smart people do you know?  How many of them are also socially awkward?  Being a good consultant requires an almost Goldilocks-like balance of smart and social since the two are often inversely related.

Consulting is filled with older people.  Consulting is as much art as science.  If there were firm answers to the questions executives ask, they wouldn’t need consultants.  It is human nature that when we are unsure about something we tend to stick with experience, which often means gray hair.  You can be a young consultant, no doubt, and very competent…however, gray hair helps ease the more difficult conversations.

Consultants are performers and social architects.  There is a social dance that goes on with clients and at big meetings.  Consultants lead clients to the conversations they need to have to move the project.  Good consultants, like good politicians, allow the client to give continued feedback while the consultant controls the agenda and guides the outcome.  Clients control consultants while consultants corral clients in the direction they want to go.  Remember, if executives already knew what they wanted, and didn’t need any corralling…they wouldn’t need consultants.  It is a complementary dance.

Consulting is about consensus building and storytelling.  Remember that there are often no “correct” answers to the questions being addressed.  So a good consultant, like a good lawyer, must build the case in the simplest, most appealing way to get people on board.  Logic alone is not enough; you have to be able to tell a compelling story.  If college rewarded length of response, consulting rewards brevity…preferably in bullet points (less than 3)…even more preferably in a graphic/picture.

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So, being a good consultant is not easy.  It takes a mix of talent and years of work.  Like leaders, most consultants are made, not born.

I can’t believe I haven’t written about this before, but here goes:

Free Market: When we think of the free market, it conjures up the classic example of an open air market where there are a near infinite number of sellers all right next to each other with similar items.  If you don’t like the price, simply buy it from the next vendor.

The problem is that almost no market on the planet works like this.

Let’s give a real world example:  The Grand Bazaar in Istanbul should be a carpet shoppers paradise.  There are an infinite number of carpet sellers all right next to each other with near infinite choice of carpets.

Its a free market right?  There is lots of competition.  The prices should be great right?  WRONG.  Almost everyone is getter ripped off.  The mark-ups are unreal.  Why?  Most of the shoppers are not savvy.  Buyers know little about carpets, and so if told a price, they think it is fair.

Unequal access to information causes unfair prices.  The seller knows they bought the carpet for 10 dollars and tries to sell it to the unsuspecting tourist for the maximum price they can get, which can be 1000+ dollars.  That is the profit motive and we expect that….but unless the buyer has adequate information about the product, the market may be “free”, but it is certainly not fair. In this case “free market” almost certainly means “free to make a bunch of profit”.

Information inequality is a huge source of profit in all kinds of industries.  When you buy a house, you know how much that house costs, and you know the fee that the real estate agent gets.  It is all disclosed at the closing.

What if you didn’t know? What if the real estate agent could negotiate any price they wanted for the house (perhaps they got it at foreclosure), and sell it to you for any price they could get you to agree to (and pocket the difference)?  My guess is there would be a lot more real estate agents as it would be EXTREMELY profitable.  They could get a foreclosure, and sell it once at full price and not work for the rest of the year.

Why can’t they do that?  Because home purchase prices are disclosed as public information.  Why?  BECAUSE IT WAS LEGISLATED THAT WAY.  Without government intervention there would be no price transparency, and so we would not be able to get fair home prices.

Back to our example of the Carpet Shops:

Ok, I’m sure you’ll grant that there isn’t any price transparency at the first shop you go to…but why not go to a different shop? If you shop at a few of them surely you will be able to determine the fair price, right?

No.  What happens is that all the hundreds of sellers know that there is no gain to any of them if the buyer knows the fair price…so they ALL quote inflated prices.  It is silent collusion.  The sellers, whether explicitly or implicitly, are all in the carpet game together and they need to preserve the market.

Collusion is illegal in the US.  There can be no fair market if the sellers all collude to keep the prices high. If the government didn’t make collusion illegal, then businesses would certainly do it even more openly than they do now. From our example we see that hundreds of sellers can collude silently without too much trouble.

Think of most industries in the US (insurance, banking, healthcare, telecom, etc).  There are only a few major players.  It is so easy for them to collude, even if it is not through secret meetings.  Industries with a few major players are never “free markets” in the sense we think of. They behave more like unregulated monopolies, which means the consumer does not benefit.  This means that the majority of the markets in which normal people deal daily behave more like monopolies than the “Free Market”.

Here is the kicker of the free market:  No business wants a free market. Not one.

Why not?  In the theoretical “Free Market” (one in which there are multiple players, information transparency, educated buyers, private property protection, a lack of collusion, etc.) consumers gain at the expense of the businesses.  For business it is a blanket loss.  In business school they taught us that those are unattractive markets, and that you shouldn’t enter them.  Let me repeat:  Markets where businesses to not able to extract abnormal profits are not good markets.

But some companies want a free market, right?  Maybe…if it is not in their core area of business.  For instance, Google might want Net Neutrality (unfettered access to anything put on the Internet) because the more people are on the Internet, the more money they can make.  Their potential market expands through net neutrality.  Let me state it more plainly:  For Google to make money off of you, you have to have internet access (otherwise you can’t use their services).  Not only does Google want Net Neutrality, I’m sure they would like everyone to have free internet.

What about the companies selling internet access?  I assure you they do not want everyone to have free internet.  So one company’s “free market” (Google’s) comes at the expense of another company’s profitable market (Internet Service Providers).

“Free Market”.  It seems that term means that businesses are free to do what they want, even at the expense of the customer.  The Free Market is largely fictional in practice and relative to the company saying the market is free.

When a company advocates the free market, they mean they want the market open for them….which means it isn’t open for others.

To summarize:  A “free market” requires all kinds of prerequisites to make it work in the way that benefits the consumer (i.e. us).

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The question is: Where do these prerequisites come from?

There is only one answer to that question:  The government.

The “market” is not self-regulating, nor does it protect the consumer.  The Market is simply the field on which businesses play.  They want that field as uneven as possible so they can make a profit.  (As a reminder profit always comes from somewhere.  It comes from us.)

The government counterbalance is to rig the playing field so that businesses have to compete against each other, which benefits us.

It is not in business’s best interest to compete. Their whole market loses and the customer gains.  To go back to the carpet sellers in Istanbul: If the government mandated that all carpet sellers must include the original purchase price on the carpet before selling it so we could determine a fair price (like homes, where purchase prices are public), then in the end there would still be carpets for us to buy (we would lose nothing), but the profit margin for each seller would be dramatically less (they would lose a lot).

The carpet sellers would never agree to lower prices on their own.  The government has to force them to do it.  If some seller came in and priced fairly, the other sellers would collude to make sure he loses the lease on his storefront or in a completely unregulated situation would simply threaten force against him.

Why do we need the government though? Why can’t WE, the consumers, demand that companies self-regulate? Why can’t we vote with our dollars and just not buy?

I think the primary one is that businesses are organized.  Consumers are not. Businesses can collude in the best interests of their market.  They are limited in number and focused on the parameters of their market.  People are living their lives.  We are not focused or organized.

Besides we have already have a mechanism for consumer advocacy…its called government.  They are the group that is focused and organized and designed to speak on our behalf.  In fact, “on our behalf” is supposed to be the only job they have.

To ask a Machiavellian question: If the counterbalance to corporate power is government power, then what should the corporations do to maximize their power?  They should buy the government.  Voilà.  That is what they are doing.

So.  What is the”Free Market”?  It is the term companies use to sound like they are acting in our best interest when they are trying to bend the rules of the market in their favor.

Ouch.  That’s cynical.

I will keep Wikileaks separate from Julian Assange, since I’m more  interested in the concept of Wikileaks than the person representing it.  I will also keep the specific content of the cables largely out of the discussion, since that is not central to my question either (btw, I didn’t find anything that damaging in what was released.  Secretary of Defense Robert Gates mirrors my sentiments).

Is it OK to publish secret/private information, even if it is potentially damaging?

Yes.  In fact, isn’t that what freedom of the press is all about?  I know that is what the founding fathers had in mind when they drafted the 1st amendment (not the 2nd or 3rd, the 1st): To allow We the People to hold those in power accountable for their actions.

I understand that leaking the information may have been criminal (Bradley Manning is being indicted), but obviously publishing previously leaked information is not.  In fact, Joe Lieberman is trying to make up a law to make it illegal.

I suppose politicians want freedom, openness, and transparency….as long as they themselves don’t have to abide by the same principles.

Since 9/11 and the PATRIOT act, the ability for the government to eavesdrop on our comings and goings has been greatly broadened (not that it wasn’t sufficient before I am sure).  I hear the argument all the time from politicians that if you have done nothing wrong you have nothing to worry about.

Touché Wikileaks

If the government has done nothing wrong, then why are they worried about leaking their internal memos?

The government argues that a) “diplomacy” is messy and requires secrecy, and b) that leaks of this kind may cause harm to those named in the documents.

A) Ok.  Diplomacy is messy.  I agree.  I also agree that parties may desire secrecy.  But in a country with free press that does not mean that they will GET secrecy; it just means they want it.  I see it as an operational failure….you couldn’t keep your information secret. Don’t shoot the messenger who has not broken any laws.

B) Leaks of this kind may cause harm to those named in the documents.  Hmm….they might.  However, there is not one documented case of this ever happening due to a Wikileak.  Not one.  To shut something down and put people in jail because it MIGHT cause harm…that is as bull headed as the idea of pre-emptive war (another puzzling policy).  You can’t attack someone because they might one day have the capability to attack you….that is a recipe for eternal war. To censor information that might be harmful is a recipe for blanket censorship.

Additionally, suppose there were some unfortunate harm caused by the publication of the cables? That is a thorny issue; however, not one that, in a blanket, fashion says publishing the material was bad.  If we’d had a Wikileak that proved the intelligence used to justify the invasion of Iraq was faulty, then that would’ve caused harm to those concocting the scheme, but it would have saved harm to many others.  Remember, no one has accused Wikileaks of publishing FALSE information, just inconvenient information.  The truth may occasionally cause harm; however, history teaches us that the truth serves the average person far better than government power and secrecy. It is hard to argue with that.

Finally, except in scale, how is this much different than other instances of investigative journalism with potentially harmful impact….like say Watergate?

Didn’t the Washington Post publish harmful information about the politics of our nation?  A president got impeached and Bob Woodward got a Pulitzer Prize.  Fast forward 27 years: no one is impeached or harmed and they want to shut down Wikileaks and put Julian Assange in jail (can you get a Pulitzer Prize from jail?).  My how times have changed.

I think the media is at least a little bit mad that they aren’t doing journalism anymore and some no name computer hacker from Australia is doing it for them.

—- Again, if the government is not doing anything wrong, then why do they care if their internal correspondence is made public?  It would simply be boring drivel (which it largely is this time, though that might not always be the case).

—- If they are doing something wrong, then Wikileaks is performing a journalistic service.

Thoughts?

I have discovered that I am a worrier.

Everyone worries I suppose….about paying rent each month, about their job, their kids, about lots of things.  That is normal.

I don’t worry so much about the day-to-day, but as if to point out that the brain (or at least my brain) is hard-wired to worry…..I invent worry about things I cannot control and most people would never even give a thought to.  These items consume much of my brain cycles and I write about them often (Democracy, Money, Work (in the abstract), Morals, Intelligence, etc.).  If only I could focus my brain on something more constructive instead of thinking about things I will never even influence, much less control.

I would like to introduce a concept and then develop a thought.

The Law of Conservation of Complexity (<– I made up the name):

The Law of Conservation of Complexity proposes:  When outcomes remain constant, Complexity is neither created nor destroyed; responsibility for it simply shifts.

Here is an example:

Computers have gotten easier to use over the years.  Remember command line, text interfaces?

Instead of making us remember tons of arcane text commands for doing simple things like copying, pasting, and/or renaming files, the software companies created a Graphical User Interface to allow us to do the same thing in simpler way.  The outcome is the same, copying/pasting, etc….but the complexity has moved behind the GUI interface.

Complexity actually increased.  Software engineers created a complicated graphics layer to allow us to interact more easily.  This layer didn’t exist before and creates lots of extra work for software folks.

In general, if something becomes less complex for you, it becomes more complex for someone else.  That is the law of conservation of complexity.

What this means is that complexity is always ramping UP….not down.  When something is “simplified”, generally it hasn’t been….the complicated work has simply shifted away from the people who are calling it “simplified” and toward another group that must maintain the “simplicity” with a bunch of complex processes and skilled labor.

If no one maintains the shifted complexity, you just get broken stuff as the people who think it has been simplified don’t realize that it was only simplified for them and don’t allocate sufficient resources to maintaining the newly shifted complexity.

The idea I’d like to develop is:

Civilization is limited by our ability to manage complexity….and complexity tends to crash, not unwind.

I’d wager people believe Civilization is a fairly stable thing.  The logic might run something like “There is just too much involved for it all to fail.  If some country falls apart or technology is lost,  it is replaced and relearned by others.  Civilization is robust.”

This is the global network theory, and is somewhat true on a limited scale.  Civilization is definitely built upon the remains of other civilizations and if one country fails, another replaces it.

HOWEVER, the analogy is less like a city or pyramid and more like a house of cards.

Civilization is a house of cards.

If you’ve ever built a very large house of cards (using multiple decks), you can occasionally have little sections collapse and rebuild fine; you can have it spread if you keep it near the floor….but as you build higher and the complexity of the structures rise, it becomes more difficult to rebuild collapsed sections.  Additionally it gets heavier,  more prone to larger issues, and it will eventually begin to collapse under its own weight no matter what you do.

If you get to this point, it is not possible to rewind your house of cards, to make it less complex.  The harder you try the more you will knock it down.

Things are really complex already; more than any one person can manage. Let’s take a concrete example:

The iPhone.  (I’m picking technology examples because technology is among the most complex things humans produce.)

No ONE person can make an iPhone.  No two people can.  In fact, no hundred people can.  You need cell networks to exist; you need miniature cameras; you need an army of expert software programmers, you need mp3s to exist; you need scratch proof touchscreen glass to exist; you need people with computers and iTunes and enough money to buy such devices; you need phones to exist; you need compression algorithms and IP protocols to send/receive data; you need sophisticated battery technology to power the device; you need cheap, available electricity to charge it; you need GPS satellites in space……..you need a shitload of stuff to exist to make an iPhone.

There are limits to the complexity humans can manage.

Now imagine a device 100 times as complex as the iPhone. How would it get made?  There are coordination costs of any large endeavor; eventually nothing gets done if the addition of extra complexity is eaten up by the lack of ability to manage it.

So when you reach this point, where each additional “unit” of complexity no longer adds to the end product, but subtracts from it….then what happens? Can you rewind?

Like a juggler, you can add extra balls and keep them all going and things are moving faster and they are more complicated…but then when you add that last ball, it doesn’t slow down….you drop all the balls and you have to start over.

How robust is Civilization?

I think not so much.  Though we have currently had a good row of 3000 years or so, that is paltry compared to the sum of mankind’s existence (modern humans have been around in fits and starts for about 100,000 years).  Events do happen that cause things to unravel, and unlike our linear conception of ramp up, then ramp down….in nature it is often an exponential rise, then a very steep drop off.  Complexity tends to crash, not fizzle.

Where does that leave us?  In the same spot we were before.  I know it exists and we (though probably not me) will bump up against the complexity limit someday…but we will not be able to do much about it.  I simply tend to think about things that I have no control over.

People do change, or rather they age….which causes change.

Its been a while since I posted, and for good reason.  I’ve been gone 3 to 4 days a week for work since March.  Also, I went on my honeymoon and my wife and I are now pregnant.

So…I guess instead of writing about economics, I will write about becoming a father…in a roundabout way.

I like these kind of stories because they are stories.  Personal development is very rarely so clean as we tell it to be.  It is messy and we never realize it when it happens….then later we create a story to rationalize it to ourselves and that story becomes our truth.  It literally becomes true (in a sense) by making up the story.

When I was young my father told me I was part of a family unit and that my behavior reflected on the family so it was not my own to do with as I pleased.  Actually, that is my paraphrase of what he said.  My dad was never good at explaining things; he dictated rather than counseled.  I rarely listened, and still don’t.

I disagreed.  I am me.  I agreed that I was a family member but my behavior was my own to do with as I pleased.  I was vaguely aware that I disliked the idea that others had a charge on my behavior and rejected the idea that whether or not I made good grades, hung out with X person, or had an odd haircut had any bearing on what my parents did in their company.  I saw the two as separate and unrelated.

I largely maintained that point of view throughout my twenties.  I behaved like a self-contained unit…not overly selfish, just very much my own person.  That is a path we all go down; mine just lasted a long time.

I remember having a conversation with a guy in Tel Aviv in 1997.  He said the things you own, own you….so he’d given away his possessions (he was from California) and was now on this trip.  I said, “That’s ridiculous.  Are you telling me that if I asked you for your car, you would simply give it away?”.  He said, “Yes.  That’s exactly what I did before I left.”.  That was the end of the conversation as I had no pithy comeback for that.

My friends were all very independent self-contained people as well.  I didn’t understand “neediness”.  I mistook it for weakness.

I told a girlfriend one time (which was a bad move):  “Its like you’re looking for a reality-buffer, something or someone to stand in between you and whatever is happening in your life that is less than ideal to help you deal with it.  I don’t do that.  It’s just me and if I don’t do it or deal with it….it doesn’t get done.”.

I think that attitude was part of the reason I stayed single for so long; I didn’t understand very well the concept of taking full responsibility for something or someone else.  I take full responsibility for myself and if everyone did the same, then we’d all be taken care of.  I still rarely ask for help (though I am better at giving it); I have habituated myself to doing on my own.

Life doesn’t work like that though.  500 years ago John Donne wrote better than I ever could:

No man is an island entire of itself; every man
is a piece of the continent, a part of the main;
if a clod be washed away by the sea, Europe
is the less, as well as if a promontory were, as
well as any manner of thy friends or of thine
own were; any man’s death diminishes me,
because I am involved in mankind.
And therefore never send to know for whom
the bell tolls; it tolls for thee.

Though it is possible to be an island, much like the analogy would suggest being on an island by yourself is quite lonely and there is little of worth a man could ever accomplish there alone.

When I lived the island life (so to speak) it seemed reasonable.  I was very unattached and the lives of the attached seemed full of busyness and anxiety….and that is true.

However…..it seems a hard lesson to learn to realize that we are not meant to be unattached.  To be alive is to be attached to each other; my life is given weight and significance by the fact that others are here to witness it.  Civilization requires people who are attached to each other.  Nothing good is accomplished alone.  Even if you must make the case that it was accomplished alone….it is only enjoyed with others.  Without agreement on the fact that we are all here together, you implicitly advocate living in a cave alone, without law, without technology.

If you accept that we are in this together then there must be a certain amount of responsibility toward other people.  I’m not always certain of the degree or how that plays out in practice, but even the theoretical agreement that life requires other people and that we have a responsibility to them causes behavior change, it caused my behavior to change.

Unfortunately, I do not have a cute life story to illustrate how I came to realize that no man is an island.   I should make one up though as its a neater yarn to spin.

So….now I have a wife and she is pregnant.  I’m not really stressed about this anymore than is normal.  I’m good with taking responsibility for others.  Its a fair trade when the alternative is the island life.