Business & Economics: August 2005 Archives

When you read that America's poverty rate rose to 12.7 percent last year it's important to remember what it actually means to be poor in America, from a report by the Heritage Foundation. The government definition of "poverty" is mostly a scare tactic and doesn't really tell us anything about Americans who may be really struggling.

If poverty means lacking nutritious food, adequate warm housing, and clothing for a family, relatively few of the 35 million people identified as being “in poverty” by the Census Bureau could be characterized as poor. While material hardship does exist in the United States, it is quite restricted in scope and severity.

The average “poor” person, as defined by the government, has a living standard far higher than the public imagines. The following are facts about persons defined as “poor” by the Census Bureau, taken from various government reports:

- Forty-six percent of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or
patio.
- Seventy-six percent of poor households have air conditioning. By contrast, 30 years ago, only 36 percent of the entire U.S. population enjoyed air conditioning.
- Only 6 percent of poor households are overcrowded. More than two-thirds have more than two rooms per person.
- The typical poor American has more living space than the average individual living in Paris, London, Vienna, Athens, and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to
those classified as poor.)
- Nearly three-quarters of poor households own a car; 30 percent own two or more cars.
- Ninety-seven percent of poor households have a color television; over half own two or more color televisions.
- Seventy-eight percent have a VCR or DVD player; 62 percent have cable or satellite TV reception.
- Seventy-three percent own microwave ovens, more than half have a stereo, and a third have an automatic dishwasher.

Overall, the typical American defined as poor by the government has a car, air conditioning, a refrigerator, a stove, a clothes washer and dryer, and a microwave. He has two color televisions, cable or satellite TV reception, a VCR or DVD player, and a stereo. He is able to obtain medical care. His home is in good repair and is not overcrowded. By his own report, his family is not hungry, and he had sufficient funds in the past year to meet his family’s essential needs. While this individual’s life is not opulent, it is equally far from the popular images of dire poverty conveyed by the press, liberal activists, and politicians.

The main reason people appear to be poor is that they don't work.

In both good and bad economic environments, the typical American poor family with children is supported by only 800 hours of work during a year—the equivalent of 16 hours of work per week. If work in each family were raised to 2,000 hours per year—the equivalent of one adult working 40 hours per week throughout the year—nearly 75 percent of poor children would be lifted out of official poverty.

Some people can't work, but I suspect they're in the vast minority. What does the Bible say?

2 Thessalonians 3:6-12

In the name of the Lord Jesus Christ, we [Paul and his companions] command you, brothers, to keep away from every brother who is idle and does not live according to the teaching you received from us. For you yourselves know how you ought to follow our example. We were not idle when we were with you, nor did we eat anyone's food without paying for it. On the contrary, we worked night and day, laboring and toiling so that we would not be a burden to any of you. We did this, not because we do not have the right to such help, but in order to make ourselves a model for you to follow. For even when we were with you, we gave you this rule: "If a man will not work, he shall not eat."

We hear that some among you are idle. They are not busy; they are busybodies. Such people we command and urge in the Lord Jesus Christ to settle down and earn the bread they eat.

JV points to a company called Sound Mind Investing that offers "biblically based investment advice".

HOW CAN SOUND MIND INVESTING BENEFIT YOU?

Biblical Perspective. SMI's biblical perspective runs throughout our content. Our goals are to help you glorify God through good stewardship, and increase your ability to give. It's not just about having more, it's about having more so you can give more. ...

Superior Returns. SMI really delivers to your bottom line, paying for itself many times over. Our investing strategies have consistently outpaced the market during BOTH bull and bear periods. A recent Dalbar study concluded that the average stock investor's return was less than one-third of what the market earned between 1984-2000. Following the strategies laid out in Sound Mind Investing will keep this from happening to you, and help you exchange your investment worries for peace of mind. Are you satisfied with the recent returns from your portfolio? If not, take a moment to review our Performance History page, and see what SMI can do for you.

I've browsed the free sections of the site and I haven't really seen any Bible quotes or anything, though the brochure JV sent in the email was full of them and had some great general investment advice (I'll post a link if I can find one to the brochure on the site). Although the performance history page shows that they've been fairily successful for the past six years, as they point out themselves, most investors lose to the market over time; there's no reason to believe SMI hasn't just been lucky.

I've moved most of my money into index funds to guarantee I match the market. The efficient market hypothesis has convinced me that "it is not generally possible to make above-average returns in the stock market by trading (including market timing), except through luck or obtaining and trading on inside information." Linked to this hypothesis is another which states that the market is a random walk, and that it cannot be predicted. You can beat the market sometime, but over time the best you can do is tie.

Consider some other random processes, such as flipping a coin. If we play a game wherein I pay you a dollar each time you correctly guess the coin flip and you pay me a dollar each time you're wrong, what's your best guessing strategy? It doesn't matter -- no matter what you guess, over time we'll tie. Consider a less mechanical game like rock-paper-scissors. You can beat another human by out-guessing them, but it's impossible to beat a computer that plays RPS randomly because you have no information to use to predict their next move. Against non-random players there are plenty of losing strategies. (For lots more information about rock-paper-scissors, peruse the RoShamBo Programming Competition site.)

The best way I've heard of to beat the market is to get elected to the Senate.

The study found that during the boom years of 1993-98, a majority of US Senators were trading stocks - and beating the market by 12 percentage points a year on average. By comparison, corporate insiders beat the market by 5 percent, and typical households underperformed by 1.4 percent.

Financial experts interviewed for this story say the senators' collective achievement is a statistical stunner, too big to be a mere coincidence.

Rupert Murdoch's News Corp. is in trouble with the Chinese communist government for selling black market satellite equipment and programming to Chinese subjects. It sounds like the company is bending the rules to make money, but Mr. Murdoch has made his distain for totalitarian regimes pretty plain:

Rupert Murdoch's relationship with Beijing started on the wrong foot. The Australian-born mogul declared in 1993 that satellite-television networks, like the Hong Kong--based Star TV venture that he had purchased, would pose "an unambiguous threat to totalitarian regimes everywhere."

The company still plays ball with the ChiComs because they need to collect subscription fees if they want to make money, but the beautiful thing about satellite television is that the main infrastructure is in space, and can't be regulated by the Chinese. So News Corp. moved into China's extensive black market.

News Corp.'s efforts to climb through loopholes in China were brazen, according to Jiang Hua, a former News Corp. distribution manager in China. Despite regulations forbidding direct sales, Jiang, who left the company 18 months ago after a disagreement with his boss, says he distributed News Corp. channels ranging from National Geographic (in which it has a stake in Asia) to an MTV-like music channel called Channel V. Two former News Corp. executives confirm Jiang's story. Buyers were cable-TV networks from the Tibetan Plateau to the South China Sea. "News Corp. called what I did gray-market distribution," he says, "but it wasn't gray. It was black."

Jiang says payments were channeled through a shell company, Beijing Hotkey Internet, which received nearly $1.5 million a year in illicit payments from cable operators starting in 2002. Jiang and another former News Corp. employee told TIME that cable operators occasionally paid with briefcases of cash.

I see this as a noble effort to bring the outside world into the homes of oppressed Chinese. China is growing fast, and will undoubtedly be a match for the United States in a few decades. It's essential that when that time comes China isn't still under the bootheel of fascists.

Chris Harris has an amusing op-ed in the New York Times about why now is the absolute best time to buy a house in Los Angeles.

As an expert in the field - I've spent my entire life living in or behind homes - I can assure you that aside from any moment in the past decade, there has never been a better time to enter the real estate market. Here are two important reasons.

We already experienced the Internet bubble. The crash taught us all that a feeling of invincibility can lead to disaster. Now that we've learned this humbling lesson, there's absolutely no possible way it could ever happen again to us. ...

Q. Are you sure I haven't missed the boat? Housing prices have risen so much already.

A. Actually, if you look at this chart, which is based on my years of research, you'll find that prices have been remarkably stable. No less a man than Winston Churchill put it best: "Now this is not the end. It is not even the beginning of the end. But it is, perhaps [a phenomenal time for buying that starter home you've had your eye on]." ...

Q. I'm still not convinced.

A. Well then, look at these numbers:

Now: 58

Five years from now: 8,472

That's a nearly 15,000 percent increase!

Q. Wow. Wait, what exactly are those numbers?

A. What? What kind of question is that? This is just the kind of foot-dragging that's kept you paying rent on the same roach-infested closet for years while your home-owning friends have gotten fantastically wealthy. Did you know that we homeowners are having Champagne-and-caviar parties every weekend and not inviting you?

(HT: Perry Eidelbus.)

Last month I posted about a cheap real estate agency called CataList Homes (who should start paying me an advertising fee for all these mentions!) and wrote that it's about time someone developed a new model for buying and selling real estate. Real estate prices keep skyrocketing, but the percentage pocketed by agents has stayed the same 6% for ages, which means agents are making vastly more money for the same amount of work -- or less work, considering how quickly many homes in Southern California are selling these days. Using the internet for price comparisons and research, it's unbelievable to me that anyone is willing to pay an agent $30,000 for at most 40 hours of work to transact a $500,000 home. If agent fees weren't generally rolled into mortgages and nearly invisible to buyers and sellers, I doubt anyone would stand for it.

In addition to CataList, an entrepreneur named Brian Hickey has created a company named Xchange Properties that specializes in trading teardown homes at greatly reduced commissions. The article describes the teardown trend in Chicago, but the situation is similar in Los Angeles, and probably other places where the land under the house has become several times more valuable than the structure itself.

THE Hinsdale suburb of Chicago is often referred to as the epicenter of the teardown trend. Builders have been demolishing the affluent village's early post-World War II housing since 1985. For some time, Hinsdale has averaged close to 100 property demolitions a year, according to Bohdan J. Proczko, the village manager.

For Brian Hickey, the proliferation of orange fencing cordoning off properties under demolition heralded a new type of real estate market. A former securities trader, Mr. Hickey envisioned a separate property exchange where sellers could market their properties directly to builders without having to pay a full sales commission or go through the charade of house showings.

Hence the creation of Xchange Properties, a real estate company specializing solely in teardowns. Xchange maintains a database of about 3,000 potential buyers who have registered for exclusive access to listings. About half of those buyers are builders, Mr. Hickey said, while the rest are primarily real estate agents and individuals.

Best of all, Xchange bypasses the traditional real estate establishment.

Xchange operates outside traditional real estate channels. The company does not cooperate with multiple listing services and sets its sales commission at 2 percent, far below the typical 6 percent charged by most agents and brokers. All Xchange listings are sold "as is." Information is sent electronically to registered buyers according to their specifications. Since opening, Xchange has listed about a third of Hinsdale's teardowns every year, for a total of 223 sales. Xchange now has 48 active listings in Illinois and 24 pending sales.

I can't wait for them to come to Los Angeles. Chopping 4% off the price of real estate transactions would greatly reduce the risk of investing in property.

Members have voted on a first round of eliminations to narrow the list of potential business ideas for The Business Experiment, and it's fascinating to see how the project develops now that the democratic marketplace of ideas is in action. Here's a summary of the project. In short: members of the site vote on every major business decision, including product development, marketing, hiring, and so forth. Are crowds smarter than individuals? I guess we'll find out.

(HT: Director Mitch.)

Everyone's getting into the business consulting game, including The Lego Group with their Lego Serious Play program. Described on the website as:

LEGO SERIOUS PLAY is an innovative, experiential process designed to enhance business performance. Based on research that shows that this kind of hands-on, minds-on learning produces a deeper, more meaningful understanding of the world and its possibilities, LEGO SERIOUS PLAY is an efficient, practical and effective process that works for everyone within an organization. Participants come away with skills to communicate more effectively, to engage their imaginations more readily, and to approach their work with increased confidence, commitment and insight.

The hand is connected to the brain. When personal desire drives you to learn something using your hands, a complicated process takes over that generates a powerful emotional charge. Using your hands "releases" thoughts that are stuck in your head. What you learn in the process of creating 3-D -- even 4-D -- metaphors sinks much deeper into your mind than what you would learn through mere words or two-dimensional imagery. Thoughts that are "built" tend to be expressed in greater detail and are more easily understood.

Sounds at least as useful as many of the "team building" exercises I've been involved with. Plus, you get to keep the Legos.

(HT: John Vescio.)