Recently in Business & Economics Category

Someone could run the math, but my intuition tells me that people are overcorrecting for the price of gas by selling their SUVs and trucks at huge losses. Dealerships need to "move iron", but a person who unloads their used SUV, loses a ton of money. I guess it depends on how far you commute.

With stocks of unwanted new SUVs and pickups piling up at dealerships across the country, automakers are offering unprecedented promotions. Incentives for large SUVs, including cash rebates, topped $4,000 in March, or more than double those offered in March 2002, according to Edmunds.com, which monitors the motor industry.

At the same time, consumers like Chrystall are flooding the market with used SUVs, trying to trade in hulking Hummers for compact Corollas, and getting thousands of dollars less than they would have just a few months ago. In April, the average used SUV took more than 66 days to sell, at a 20 percent discount from vehicle valuation books, such as Kelley Blue Book, compared to 48 days and a 7.8 percent discount a year earlier, reported CNW Marketing Research, an automotive marketing research company.

Some desperate car dealers and consumers, are willing to lose thousands of dollars just to get rid of their SUVs. Last July, 20-year-old Sannan Nizami, of Lowell, bought a 2007 Toyota 4Runner SUV for $32,000 when it cost about $65 to fill the tank. Six months later, as a gallon of gas soared to $3.50 and more, and tank refills climbed over $80, Nizami put the vehicle up for sale. He posted it online for $27,000 but received no responses for months.

If you need or want a truck, now's the time.

Look, everyone knows that the "gas tax holiday" proposed by Hillary Clinton and John McCain is a stupid idea. I'm all for cutting taxes, but this is one of the few taxes that actually goes towards something that the government is supposed to do: maintain our infrastructure. Why not cut some of the taxes that go towards some of the multitude of unConstitutional activities our politicians pursue so vigorously as they try to buy our votes with our own money?

More than 200 economists, including four Nobel prize winners, signed a letter rejecting proposals by presidential candidates Hillary Clinton and John McCain to offer a summertime gas-tax holiday. ...

``Suspending the federal tax on gasoline this summer is a bad idea, and we oppose it,'' the letter says. Economist Henry Aaron of the Brookings Institution is among those circulating the letter. Aaron said that while he supports Obama, the list includes Republicans and Clinton supporters. ...

The gas-tax suspension has become a flashpoint in the race for the Democrat presidential nomination between New York Senator Clinton and Illinois Senator Barack Obama. Clinton and Republican McCain tout the proposal as an example of their concern for struggling middle-class families. Obama, who estimated it would save the average driver less than $30, calls the idea a ``gimmick,'' rejecting it on similar grounds as the economists.

It is a gimmick, just like the stupid "stimulus" checks that are being paid out right now. I dream of a day when "average" Americans are wise enough to see through this crap.

Hillary Clinton's response to these denunciations is also noteworthy, because she explicitly states what most leftists must think when they hear economic objections to their idiot policies:

Clinton said yesterday on ABC's This Week with George Stephanopoulos that ``I'm not going to put my lot in with economists'' because ``we would design it in such a way that it would be implemented effectively.''

Stupid economists! They haven't taken into account that the plan will be designed and implemented effectively! Well gosh, if that's suddenly with our politicians' capabilities then why don't they go back, redesign, and reimplement the rest of our bureaucracy so it works effectively too?

I've mentioned the site before, and now OutOfPocket.com has officially launched.

OutofPocket.com, a technology startup dedicated to promoting health care transparency and competition, announced today the launch of its new search engine. The search engine enables consumers to look up prices and comparison shop for health care services by searching for price data across different websites. OutofPocket.com launched an earlier version of their website in July 2007 which provided consumers with a platform to collaborate and expose the true prices of routine health care services. With the addition of the new search engine, the enhanced website collects health care price data from multiple sources including provider price lists, consumer contributed content, claims data from businesses, Government CMS Medicare data, websites that publish health care prices (hospitals, diagnostic testing facilities, clinics, labs, physician practices), and price transparency tools on public websites.

Sounds like it could grow into a valuable resource.

In the wake of last year's catastrophic failure in AIDS vaccine research (in which vaccine recipients actually had a slightly increased incidence of contracting the disease) it's eminently reasonable to consider other approaches to the problem. Considering the gazillions of dollars we've invested into AIDS vaccine research with no benefit, why not try redirecting our money away from the failing scientists and simply pay people not to get AIDS?

Thousands of people in Africa will be paid to avoid unsafe sex, under a groundbreaking World Bank-backed experiment aimed at halting the spread of Aids.

The $1.8m trial – to be launched this year – will counsel 3,000 men and women aged 15-30 in southern rural Tanzania over three years, paying them on condition that periodic laboratory test results prove they have not contracted sexually transmitted infections.

The proposed payments of $45 equate to a quarter of annual income for some participants.

The programme, jointly funded by the World Bank, the William and Flora Hewlett Foundation, the Population Reference Bureau and the Spanish Impact Evaluation Fund, marks an important step in the fight to tackle Aids, which claims 2m lives a year.

In spite of billions of dollars spent annually on treatment and prevention worldwide, there were about 2.5m new HIV infections in 2007, predominantly in Africa.

Carol Medlin from the University of California, San Francisco, one of the researchers, said: “We hope this ‘reverse prostitution’ will make people think hard about the long-term consequences of their short-term behaviour.”

Sounds worth a shot. It would be surprising to me if a few dollars would provide much additional incentive to avoid a fatal disease, but then it's surprising to me that anyone contracts AIDS from sex or drug use anymore. If these payments reduce the infection rate by even 1% then they'll be more effective than all the research into AIDS vaccines thus far.

I'm normally skeptical about claims of corporate interference/conspiracies having much effect on the behavior of government, normally because government, industry, and the general population all have similarly-aligned interests: maximize productivity and wellbeing. Some individuals and cabals are focused on maintaining and extending their own power (see: Congress), but generally even this goal is pursued by attempting to improve the lives of the population as a whole (generally, in the net, on average). However, this article about lobbying and environmentalism shows just how dangerous the government can be when We The People allow it to exercise so much power that it can create whole industries for its corporate buddies.

NBC Universal is owned by General Electric, which plays a regular role in this column because of how aggressively the company has hitched its profits to its lobbying successes. GE spends more than any other corporation in America on lobbying the federal government — more than $20 million annually over the past three years — and Green Week and Earth Week probably should be disclosed as lobbying efforts.

In many of GE’s businesses, the profit model appears to be: (1) invest in something for which there isn’t much demand; (2) then lobby to mandate or subsidize it.

Wind turbines are a great example. GE describes itself as “one of the world’s leading wind turbine suppliers.” Absent subsidies, however, there might be no windmill industry, because windmills cannot reliably produce energy, and certainly not as affordably as traditional fuels such as coal. ...

GE’s coal gasification, solar power generation, electric cars and biodiesel businesses are the same: Consumers and investors acting with their own money would not patronize these technologies, but Congress, acting with your money, will. GE’s $20 million annual lobbying budget sees to it. ...

But sometimes it pours it on a bit thicker. Tuesday morning, Tom Brokaw went on NBC to give a talk about the first Earth Day. “It was a massive success,” Brokaw explained, because “the Clean Air Act, the Clean Water Act, the Endangered Species Act quickly followed. President Nixon created the Environmental Protection Agency.”

There’s the rub. Everyone who rolls her eyes at “Earth Week” or lectures from Schwimmer on “going green” was bracing for that. Environmentalism today almost always means government intervention. Government intervention means higher costs and higher taxes. And as this column has documented for more than a year, government intervention usually means profits for a well-connected special interest.

In the long run, market forces will smooth out these minor artificial inefficiencies, but that doesn't make the graft less offensive in the short run. What's more, blithely accepting this corruption opens the door to stifling the liberty that allows market forces to work at all... and in the long run we'll all be dead.

Rather than focusing on net worth, My Money Blog suggests the Financial Freedom Ratio as a more meaningful barometer of your financial health and positioning for retirement.

If someone tells you that they have a net worth of $1,000,000, you might be impressed. But what if they spent $150,000 per year? If they stopped working, the money wouldn’t last very long. However, if they only spent $15,000 per year, they might already be set for life. In other words, your income doesn’t matter. Your expenses do. It may be assumed that the two are related, but that is not necessarily true. We all have the power to disconnect the two.

I’m sure somebody somewhere has already coined this term, but until told otherwise I will call it the Financial Freedom Ratio (FFR):

FFR = Liquid Net Worth divided by Annual Expenses

By liquid, I simply mean you can sell it for cash while not affecting your expenses. (Don’t count your car if you need it for work.) For example, if you had $200,000 but only spent $20,000 per year you would have the FFR value of 10 as someone with $1,000,000 but spent $100,000 per year. This also calls into focus how important spending patterns are when talking about financial freedom. Let’s say you had the 200,000 net worth and you wanted to increase your FFR from 10 to 11. You could either

• increase your liquid net worth by $20,000 and spend the same,
• decrease your annual spending by $1,820 and not earn any more money,
• or some combination of spending less and accumulating more.

Sure, it can be very difficult to keep slashing expenses, but this ratio keeps you honest as to how close you are to financial independence.

He also does some estimates of what a "good" FFR would be based on annuity pricing, and comes up with a suggested FFR of 25. (This value is pretty obvious, considering the conventional wisdom that you can safely withdraw 4% of your savings per year without eating into your portfolio.)

A while ago I read an article about economic growth in Europe during the Middle Ages, but I can't find the article nor any other source for what I remember reading. According to my memory, this article said that economic growth averaged 0%-1% for centuries in the feudal agrarian system, and that everyone was so excited about exploiting the New World because the average return on investment for a transatlantic expedition was far higher than what could be reaped by farming.

The latter part seems completely logical, but I'm especially interested in the "0%-1%" figure, if there's any way to substantiate it. Such low growth rates would obviously make the wealthy extremely conservative with their investments. Does anyone know anything more about this?

I read "The Black Swan" several months ago and it really opened my eyes to a new understanding of risk. Here's an interview with the author, Nassim Nicholas Taleb.

There are two types of businesses: those that are exposed to Black Swans and those that are relatively insulated from them - not because Black Swans cannot occur, but because their impact is not going to be monstrous. Your dentist's income will not disappear on a single day: No single event will carry big consequences for her. But trading profits can all be lost by a single transaction. So some businesses are insulated, some (like technology) are exposed to positive Black Swans, and others are exposed to negative ones. ...

The Black Swan is a matter of perspective. A turkey is fed for 1,000 days - every day lulling it more and more into the feeling that the human feeders are acting in its best interest. Except that on the 1,001st day, the butcher shows up and there is a surprise. The surprise is for the turkey, not the butcher. Anyone who knows anything about the history of banking (or remembers the 1982 Latin American debt crisis or the 1990s savings and loan collapse) will tell you that the subprime crisis was so bound to happen. Banks are exposed to such blowups. Bankers have been the turkey, historically.

I recommend buying the book.

Argh... inflation. Now that my net worth is positive (and all my remaining debt is at fixed rates) I'm starting to understand the perils of low interest rates. My low-risk savings are returning a pittance thanks to the Federal Reserve, and now their ludicrously low rates are further undercutting the value of my investments by provoking inflation!

Inflation is the great economic equalizer... maybe leftist regimes create it intentionally. Debt inflates away as the value of the currency degrades, and wealth evaporates.

Examiner.com has a great twist on John Edwards' "two Americas" trope: tax payers and tax consumers.

Tuesday is the deadline for filing federal income taxes. Half of American taxpayers will pay 97 percent of the individual income taxes the government will collect for 2008, according to IRS data. The other half will pay little or nothing, yet receive billions in benefits in the form of cash, subsidies, “free” services and other benefits, and loans. There are indeed “Two Americas,” but the two aren’t the rich and poor, but taxpayers and tax consumers. It’s going to get even tougher for the taxpayers in the near future, thanks to legislation being readied by Democrats who control Congress.

(HT: Glenn Reynolds, who also thinks we should hold national elections on April 16th.)

Los Angeles Mayor Antonio Villaraigosa thinks Immigration and Customs Enforcement should spend its time protecting illegal immigrants rather than deporting them.

Mayor Antonio Villaraigosa is asking federal officials to rethink their policy on workplace immigration crackdowns that involve established businesses and to focus on employers that mistreat workers instead. ...

He said ICE should spend its limited resources targeting employers who exploit wage and hour laws.

Unless I'm mistaken, labor law enforcement isn't under ICE's purview.

Chertoff has not responded to the mayor's letter, but Homeland Security spokeswoman Laura Keehner said the department believes its priorities are correct.

She said work-site investigations focus on national security and public safety and that the agency also investigates companies it believes may have committed visa fraud, money laundering, and other violations.

It's obvious that you can't deport all of the tens of millions of illegal immigrants that are in America, but this sort of work-site enforcement is a critical component of the attrition strategy that is most likely to make a dent in the problem. When you punish one employer and deport a dozen of his employees, hundreds of other people are put on notice. Other employers will tighten their employment practices, and illegal immigrants will self-deport when the environment is no longer conducive to their presence.

I'm both an optimist and a contrarian, so all the gloomy economic forecasts rub me the wrong way. I'm not really qualified to opine on the merits of one smart-guy's view over another's, but Ken Fisher at Forbes sees things the way I do.

My critics call me a perma-bull. They forget I called the last three full-fledged bear markets right here in FORBES--reasonably well and better than most--and mostly alone (June 15, 1987; Nov. 27, 1989; Feb. 19, 2001). I know I may be wrong now. But I see what's happened since Jan. 1 as just a major correction, very comparable to 1998, with a few things flip-flopped, as described in my Feb. 25 column. ...

You can't find a time in the 20th century when, less than five months into a real global bear market, people were talking bear market and recession in any visible numbers. But they always talk disaster during corrections. Check out "Russian Financial Crisis" on Wikipedia. The second sentence says 1998 was a "global recession … which started with the Asian financial crisis in July 1997." Wrong. There wasn't a global recession then. There isn't one now.

An old saw says, "You should be fearful when others are greedy and greedy when others are fearful." Clearly folks are fearful now. So you should be greedy. Another saw: "Buy when there is blood on the streets." There's plenty of blood, or at least depression, on Wall Street. So keep buying.

Well, that's what I've been doing. I've got friends in the financial services industry who thing I'm an idiot because all the professionals they know are crapping their pants. Hey, I've been wrong before! But I know one thing: you can't "buy low, sell high" unless you're willing to "buy low".

America's capital markets are losing ground to foreign competition due to excessive expense and regulation.

The United States received only 6.9 percent of the funds raised in global initial public offerings in 2007 and did not participate in any of the top 20 global IPOs, Harvard Law School Professor Hal Scott said at the U.S. Chamber of Commerce's second annual capital markets conference.

"We found U.S. public markets had increasingly become uncompetitive," said Scott, director of the private-sector Committee on Capital Markets Regulation.

In comparison, in 2000, about half of the value of global IPOs was raised in the United States, according to Scott's committee.

Scott also noted that many foreign companies in 2007 took advantage of a U.S. regulatory change that let them delist from U.S. exchanges. About 15 percent of U.S.-listed foreign companies left the U.S. markets in 2007, about three times the historical rate, he said.

We need to ease regulations and cut taxes, or businesses will go elsewhere. That's capitalism. If we keep moving towards greater regulation and government meddling, we're going to end up on the losing end of economic history.

(HT: John Rutledge.)

I just had this idea, but it looks like other people thought of it last year: carbon offset credit cards.

Industrial giant General Electric (GE) last week introduced a new credit card that encourages consumers to offset the greenhouse gas emissions caused by their spending through the purchase of carbon offsets with reward points. The GE Money Earth Rewards Platinum MasterCard allows cardholders to put a one percent cash rebate on purchases towards projects that help mitigate global warming.

It's brilliant! Instead of giving customers the 1% back that they've come to expect from credit cards, con them into paying it back to you to "offset carbon"!

“It’s ironic,” says Michael J. Brune of the nonprofit Rainforest Action Network. “GE supplies parts for coal-fired plants, so its credit card offsets emissions it helps create.”

Ironic genius! And anyway, Brune makes it sound like emitting carbon is an issue of morality that cannot be offset by the perpetrator -- such as a bank robber who gives part of his loot to an orphanage. But that can't be the case with carbon offsets can it? Is GE's offsetting any more "ironic" than Al Gore offsetting his private plane flights?

Tax Prof notes that in addition to being stingy, the Obamas aren't saving for retirement.

Several bloggers have note another curious fact about Barack Obama's tax returns: despite over $1.6 million in Schedule C income, most of it from royalties on his book, he did not take the elemental tax planning step of establishing a SEP-IRA. The tax magic is that you can shelter up to 25% of your self-employment income (up to $180,000 in 2007), and the investment earnings accumlate tax-free until withdrawn at retirement. Greg Mankiw (Harvard) suggests possible reasons that Obama did not do this:

Maybe he is getting bad tax advice. Or maybe he is expecting vastly higher tax rates in the future when the accumulated savings will need to be withdrawn and taxed. As Obama economic adviser Austan Goolsbee has written, "Future increases in tax rates potentially threaten to significantly reduce the value of your retirement savings and may even mean that you should not save in 401(k) accounts at all."

Great news.

Update:

The Obamas don't own stock either. Wow, these people either have zero foresight, or they know something we don't....

Despite massive outpourings of money over the past decades, AT&T's CEO Randall Stephenson says America's secondary education system is a failure.

Stephenson said he is especially distressed that in some U.S. communities and among certain groups, the high school dropout rate is as high as 50 percent.

"If I had a business that half the product we turned out was defective or you couldn't put into the marketplace, I would shut that business down," he said.

Gone are the days when AT&T and other U.S. companies had to hire locally, he said.

"We're able to do new product engineering in Bangalore as easily as we're able to do it in Austin, Texas," he said, referring to the Indian city where many international companies have "outsourced" technical and customer support workers.

"I know you don't like hearing that, but that's the way it is," he said.

The problem with American secondary education isn't a lack of funding, it's a lack of teaching. Not teachers -- we've got plenty of those, it's just too bad they apparently aren't capable of doing their jobs effectively. I think most of the blame lies with the teachers' unions' commitment to their own power at the expense of our students. They've created a culture in which the purpose of public education is to create union jobs rather than to actually educate children.

Benjamin Franklin famously advised that "a penny saved is a penny earned", meaning that reducing expenses has the same effect as increasing earnings. It's often easier to save a penny than to earn one, so the aphorism is a useful reminder to us all to be careful with our spending.

Fortunately for Ben Franklin, however, he didn't have to pay income taxes! With today's marginal rates, every penny you save can be equivalent to a penny-and-a-half in earnings! All the more reason to practice frugality.

With the feminization of our culture I think we're losing an appreciation for some of the male-oriented social skills that have helped propel Western civilization to the dominant world position we presently enjoy; perhaps chief among those skills is the art of intimidation. (That's a pay link, but I recommend reading the whole article.) Everywhere you turn is another fuzzy feel-good message about how we all need to be nice and get along, but the fact of the matter is that male-dominated social structures naturally coalesce around strong leaders, and strong leaders rely on intimidation to drive their followers. And that's not necessarily a bad thing.

Zander and Weinstein are examples of what I call great intimidators. They are not averse to causing a ruckus, nor are they above using a few public whippings and ceremonial hangings to get attention. And they’re in good company.A list of great intimidators would read a bit like a business leadership hall of fame: Sandy Weill, Rupert Murdoch, Andy Grove, Carly Fiorina, Larry Ellison, and Steve Jobs would be just a few of the names on it. These leaders seem to relish the chaos they create because, in their minds, it’s constructive. Time is short, the stakes are high, and the measures required are draconian.

But make no mistake – the great intimidators are not your typical bullies. If you’re just a bully, it’s all about humiliating others in an effort to make yourself feel good. Something very different is going on with the great intimidators. To be sure, they aren’t above engaging in a little bullying to get their way.With them, however, the motivating factor isn’t ego or gratuitous humiliation; it’s vision. The great intimidators see a possible path through the thicket, and they’re impatient to clear it. They chafe at impediments, even those that are human. They don’t suffer from doubt or timidity. They’ve got a disdain for constraints imposed by others.

The modus operandi of great intimidators runs counter to a lot of our most deeply entrenched preconceptions about what it means to be a good leader these days. We’ve all read the books and articles describing people who lead quietly and with great empathy and humility. But as you’ll see, the leaders I’ve been studying think and work in an entirely different way: They’re rough, loud, and in your face.

Beneath their tough exteriors and sharp edges, however, are some genuine, deep insights into human motivation and organizational behavior. Indeed, these leaders possess what I call political intelligence, a distinctive and powerful form of leader intelligence that’s been largely ignored by management theorists and practitioners. In all our recent enchantment with social intelligence and soft power, we’ve overlooked the kinds of skills leaders need to bring about transformation in cases of tremendous resistance or inertia. It’s precisely in such situations, I’d like to propose, that the political intelligence of the intimidating leader is called for.

The article expresses in very clear terms a concept I started to recognize in my later years of high school. Intimidating behavior doesn't come naturally to me, but I've tried to develop my abilities in this area and have found that a little bit of intimidation applied at the right time can often work wonders in business and social relationships. The flip side is that once you learn to use the power of intimidation it's very hard not to apply it in situations where it's not appropriate, such as on friends and family.

I also would never want to be (or be perceived to be) a bully, so that undermines my utilization of intimidation techniques. Most of the time I'd rather stay friends than make every effort to push a group towards an efficient or productive end, so intimidation certainly isn't the only tool in my social toolbox. Being an effective leader in a family, church, or group of friends where the primary reward to the group members is a positive social interaction is a much more difficult balancing act than leading a business that's paying its employees to get some job done. I'm far from perfect at this (as my wife will attest) but I'm working very hard to increase my experience.