Pro Commerce

The world of economic ideas is now upside down

The world of economic ideas was as severely rocked as was the financial world over the 18 months from 10/07 to 03/09.  

The three lessons about economic ideas that I learned were: first that economic theory is largely nonsense. Second, there is no Phillips curve. Third, geography really matters.

* We had three Federal stimuli packages.  The first was a cash payment to individuals.  It had no effect whatsoever.  The second was a trillion dollar stimulus package for the financial world.  There is not a shred of evidence that it had any positive effect. Lastly there was a giant Federal jobs stimulus package which came after the economy turned around of its own accord in mid-February.  The third stimulus seems to have made jobs even more scarce than they were before the stimulus and for an unexpectedly long period of time.

* Second, the Phillips curve that used to show a relationship between inflation and unemployment is and was nonsense.  The inflation of the 1970s-early 80's was caused by a rise in oil prices. While the inflation nearly destroyed the U.S. it had no negative effect on Japan. From 1970 until today there is no connection between inflation and unemployment.  We have had no inflation since 1993 due to low prices of Chinese imported goods.  Anything produced in the U.S. (housing, education and health care) have gone off the top of the inflation chart. Everything else is non-inflationary.

Money supply... who has heard anything meaningful about money supply and inflation? It doesn't exist except in the minds of Fed. governors.

* Lastly, during an 18 month financial crash, the press who are in a terminal industry propagated the notion of a great 1930's like depression. Many geographic parts of the US and many parts of the commercial sector ( cars, housing and high priced goods) saw significant declines in sales, but not like the 1930's.  On the other hand, West coast cities from Vancouver to LA. did very well (excluding Portland) because of trade with Asia and a thriving Internet.  Geography matters.

Right now San Francisco is in the greatest boom period in 130 years, greater than the dot.com era.  The new Internet is at home in San Francisco along with the countless small and tiny businesses that make the modern commercial world work. (I may have had something to do with that.)

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PS: After I wrote this I came across Robert Barro's careful, authoritative mathematical analysis of stimulus spending and tax rate cuts:

"The bottom line is this: The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending. Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.

"Mr. Barro is a professor of economics at Harvard and a senior fellow at Stanford University's Hoover Institution."

The world of finance is now upside down

We don't have a term for it yet, but maybe it will be the October Avalanche(10/07). October of the year before last was the beginning of a dramatic financial slide that changed the world.  

The Dow Jones went from over 14,000 to under 7,000 by March of this year. The financial slide happened all over the world.

There are three important lessons about finance to learn.  First, no investment strategy that was known before 10/07 was reliable protection. None.  No form of diversification worked.  Harvard, Yale and Stanford lost as much as the rest of the financial world.

Second, the whole world is a single volatile financial system.  We have no idea how far back that reality goes but it began more that 170 years ago as gold and industrial commerce started their long journey. We have to learn to live with this volatility...we may never understand it.

Third, the financial system and the commercial system are only loosely connected.  While the financial system fell dramatically in October 2007, several nations went bankrupt and more were nearly bankrupt, yet..... many economies showed little effect.  China and India continued to grow vigorously the entire time and U.S. output barely slowed down for a couple of quarters (despite the absurd statements of the political world and the legacy media).

Let's face reality.  There is not now and may never be a safe long term financial investment strategy.  We must decouple the financial world from the commercial world.

The messianic era may have arrived

I listened to a Yom Kippur talk today.  One passage from Ezekiel 37:1-14 that we all know (dry bones, dry bones...gonna get up an walk around, them bones them bones..) makes it clear that the Lord will bring all the Jews to their own home in their own land.

Well that has actually happened as Ezekiel prophesied ...so maybe we are in the messianic age and have been since 1947. (Certainly Israel is a green and luxuriant Garden of Eden while most of its neighbors are barren sand and red rock.)

This is also the age when we can appreciate commerce as more nations are coming to understand how to support commerce with tax reductions, less progression in taxes, less government subsidies of everything, fewer trade barriers, less government, less government regulation etc. 

We (at least at this blog) appreciate commerce. Commerce has produced overflowing crops that create the greatest volume and quality of food ever imagined; has reduced disease, eliminated infirmity, and extended life especially for women to levels of health never imagined; all the while creating freedom, free time, creative arts, hundreds of thousands of kinds of work and personal authenticity unparalleled in history, even for Kings.

Maybe Israel and the rise of commerce are the heralds of the messianic age.

At least it is a combination of my two favorite subjects.

I love this headline

AP 9/27 'Leaders warn time running out for climate deal' 

After ten years of no increase in global temperature, you can bet no one will believe in global warming when we reach 15 years of no temperature increase.

Here is the data.

Our tax dollars made Walmart

A new Lefty friend asked a question that gave me great pleasure to answer.

Why is Walmart able to offer such low retail prices? 

The answer is: government subsidies. Does a Lefty like to hear that?  They don't.

Here's the story.  During all your life and mine Federal tax subsidies to farmers have been in the range of $30 billion current dollars per year.  That money just poured into the farmlands of America with virtually no place for farmers to spend it.  In 1962 Sam Walton started his retail shop in rural Rogers, Arkansas.  The farm money started to roll in because Sam had plenty of interesting items that farmers had always had to drive into big cities to buy. The farm money kept pouring in and Sam kept opening rural department stores.

If you want to see a fascinating video, here is one that shows the expansion of Walmart stores from one in Rogers, Ark. to the entire farmland of America and then into adjacent suburbs.

With this kind of size and buying power Walmart, thanks to nearly thirty years of $30 billion a year in Federal subsidies to farmers, just did what any large retailer would do: improved distribution and started outsourcing.  The distribution system is a marvel of standard business, the outsourcing to China came earlier than everyone else and owes to the brilliance of Walmart management in seeing the future of China.

P.S. Mall of America tapped into this same ocean of money in 1992. It has over 500 stores in southern Minnesota.

Headlines: AIDs vaccine success

When AIDs was first recognized in 1981, medical leaders assured all of us in regular public statements that a vaccine would be available within ten years.  It is now nearly thirty years later and we are told in headlines about a successful AIDs vaccine test.

These are the actual numbers of the test on more than 16,000 Thai volunteers all of whom were taught to use condoms and to use other precautionary measures: "The results: new infections occurred in 51 of the 8,197 given vaccine and in 74 of the 8,198 who received dummy shots."

The test took place over a three year period and relied on a combination of two different vaccina. 

I'm sorry friends, I'm a statistician, that is progress over 30 years but 51 infections compared to 74 infections among cautious people may be statistically significant but it is not sufficient to herald the arrival of an AIDs vaccine.

Let's distinguish reaction from choice

The Japanese election and the election of Barack Obama were voter reactions in seriously deteriorating national conditions where voters only had one choice: for or against the incumbent (yes, that is one choice not two.)

We are stuck with our option for four years, but Congress is currently showing us that America never chose Obama for his position as the most radical Lefty in the Senate. Congress hasn't voted a single Lefty bill that Obama wants in nine months and may never vote one. (Yes, I know Congress voted the Lilly Ledbetter Lawyers Full Employment Act in its first week.)

That is not the case in Germany where voters had two ways to vote against the incumbency: a left for or against and a free market for or against.  Germans chose the free market against.  Angela Merkel has already said she will reduce taxes, reduce the power of labor and open up the German economy with less regulation.

Now tell me: is Europe really so enamoured with the Lefty politics that our president thinks he needs to bring to America?

You can be an activist

There are two comment sections at the SEC rule making hearings that relate to executive compensation. One is file S7-10-09 concerning investor access to proxy statements for directors positions.  The other is file S7-12-09 concerning corporations involved in TARP and their executive compensation packages. If you write or email use either of these two file references.

The comments I sent to the SEC on both were as follows:

"The inherent problem the public has with executive compensation is that it does not connect with any part of the corporate management that the public understands. Executive compensation should be publicly tied to corporate management performance.

"The way to tie executive compensation to corporate managerial performance is for the SEC to establish a set of compensation/performance packages and require all public corporations to select one of the packages and stick with it for five years before selecting another package.

"The proposal would resemble the Social Security supplemental health care packages that range from A to J and health insurers must fit their packages into one of the A to J categories."

If you decide to write to the SEC tell them who you are.  I said the following about myself:

" I am a former bank vice president, corporate treasurer, foundation president, management consultant to dozens of international corporations, expert witness on executive compensation and author of half a dozen books on finance and management.

"My blog on this subject is here http://phillips.blogs.com/goc/2009/07/reform-of-executive-compensation.html"

Send your comments.

My descriptions are void

I have two close friends who are historically important.  One is dead and I have written about him.  The other is very much alive.  

The one who died is Ed Roberts, founder of the disability rights movement (photo). The other shall remain nameless.

What these two men have in common is that I knew (know) them about as well as any human because we worked together on their projects for many years and we thought (think) alike. We were (are) intellectual intimates.

The reason I bring this up is because these two extraordinary people have changed America and the world.  They did it using strategy and personal behavior that is so far outside the mainstream idea of how to change the world that I encountered a problem.

Whatever I said  (or say) about either of these two, is ignored.  When I say it in an interview it never appears in the final video.

This means that the popular world view of how change occurs is so distorted that reality can never intrude.  You can get a sense of how far reality is from the conventional world view by reading my comments about Ed Roberts.  Ed never pleaded victim, he always pleaded 'give my people a chance so you'll know, that like me, you will love them'.

The same is true for my other friend...but I'm not writing about it yet.

Welcome to my world

The Iphone is getting a new app.  I saw it in beta.  I call it the Phillips Worldview.

With this app, you hold up your phone in front of you and you see the immediate landscape rendered in a Google image. On that image is the names of all the businesses that are within view.

(The photo on the right is not an example).

You see the same world as everyone, in image form, but by seeing the specific businesses you see the world more the way I see it.  I see businesses nestled in our environment and sometimes towering over us, and I see business as the helpful, benevolent creation of the commercial world.

Maybe there will be a future app that shows how the world would look without the past 200 years of industrial commerce.  It will show us filthy (foul smelling) habitation for nearly all European-type people, except royalty, with horses, dogs, pigs, chickens and donkeys wandering around.... with their poop everywhere. We will see hunchbacks, many people with deformed legs and feet and nearly everyone walking around in pain from tooth problems, unhealed wounds or malformations from broken bones.  The only pain killer will be alcohol, consumed by most people many times a day. There will be few fat people because food is scarce and costly.  Water is undrinkable unless boiled.  Sewer systems are open. There are only a few hundred occupations as opposed to hundreds of thousands in the industrial commercial world.

Such an app might challenge Lefty thought which is so focused on opposition to commerce, technology and the empirical world.

The future of the mind

The photo on the right shows seven men, with red ribbons around their necks, who have changed the future of the mind.  What these men have done is exciting but what their work will mean to understanding human mental processes in the future is even more exciting.

These men cooperated across international boundaries without knowing each other; they created a new high powered algorithm for accessing our minds. 

Some credit must go to Netflix.  In its effort to improve Netflix's ability to match films members had seen before, and rated, to unseen films they might like, Netflix offered $50,000 per quarter for improvements in their algorithm and $1,000,000 at the end of three years to anyone or team that could improve the Netflix algorithm by 10%.  

The team in this photo (all men you will note, in a contest open to everyone on the planet [especially relevant to all you faculty at Harvard who fired Larry Summers]) succeeded in making a 10.6% improvement in the existing Netflix algorithm and winning the $ million.

For its money, Netflix ended up getting more than 51,000 brilliant people, world wide, to work for it, almost free. Entire classes in Bombay, Beijing, MIT, CIT and Todai worked months and years for Netflix.  At a $100 per hour, Netflix got a quarter $ billion of work for its money.

I entered this contest when it began, because I had a clear vision of how to improve selection/matching algorithms with branching statistics (reduction of variance in small clusters).  I immediately found that the file of data Netflix gave me, and everyone, to work with was more than a 100 megabits large.  Much too large for my computer at the time to handle mathematically.

Why is this algorithm so important?  Because it is an accurate map of the mental structures of millions of people.  It is the raw data for future research on mental constructs.  The fact that one person loves The Trouble with Mary, The Big Lubowski, Speed, Man on a Wire and 30 Rock TV in such a measurable way that we can make accurate predictions from that structure means we can find out the nature of that structure with empirical testing.

Let me give you an example.  I once did a test on 15 strangers who came to my house.  As they entered the door they were given a letter label and a questionnaire that had them rate everyone else without talking to anyone.  At the end of a subsequent discussion they were given new labels and a new questionnaire.  All measures on the questionnaire were spacial.  'Which two people are more alike A,B,C ...A,B,D'  etc.

The test was designed to use spacial measurement to find out how people made judgments of strangers and then how they changed those judgments after hearing the people talk for ten minutes.  

It turns out when people first meet strangers, the first judgment they make appears to be masculine/femine.  It was sometimes easy for subjects to discern, but in a few cases not so easy.  Both men and women subjects used this same criteria.  

How do I know this was the actual criteria these people used in their minds?  Because I asked unrelated questions on the second questionnaire that could be matched to the spatial dimensions on the first questionnaire.  

Crude and animalistic as it might sound, I found that men were looking for physical threats as they met strangers and women were looking for female competitors. Very Darwinian. The whole point of the research was to have empirical data and empirical tests to corroborate whatever I found.  

Vast reliable empirical research, of a similar nature, will now be possible in the future, thanks to these seven Netflix winners.

Constitution versus legacy media

There is some irony in these two photos.  The U.S. Constitution spelled out in Article 1, Section 2, immediately in the second paragraph, that non-free persons were to be counted as 3/5ths of a free person for the purposes of taxation.  The sentence was modified after the Civil War with Amendment 14.

The photo on the right was taken on the Mall from 7th St NW facing East toward the Capitol.  This is always where the bulk of protesters congregate.  The most generous mainstream media estimate of the number of people present was 70,000.

The photo on the left was from the same spot looking West. In this photo a public estimate placed the number of people attending at 850,000.  If you know the geography or you look at a map, you will conclude that the photo on the right can have upwards of 2/3rd the number of people in the photo on the left.

Thus we would have the people in the photo on the right, based on the media data from the photo on the left estimated at over 560,000.  Conversely, basing the photo on the left from the media data on the right we have 93,000 people.

The photo on the right is a group, mostly white, protesting higher taxes, the Obamacare plan and bigger government: Sept. 13, 2009. The group was organized on a few weeks notice with no money by talk radio and the Internet. 

The group on the left are the Million (Black) Man March organized by Louis Farrakhan on Oct. 16, 1995 with millions of non-profit dollars and six months in the organizing.  Farrakhan publicly hates whites and within the category white, particularly hates Jews.

The Constitution counted blacks at 3/5ths of whites.  The modern mainstream media have whites counted at 1/8th of the value of blacks. Considerable progress for black Americans in 200 years.

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P.S. Based on the comments below, my estimate is right. Blacks count 8 times more than whites in today's legacy media.  The conservative march was twice as big as the black man march which was a disaster promptly covered up by Congress passing laws prohibiting future accurate crowd measurements.

Spitzer and Greenberg

Insiders talk about this.  You should know about it.

When I talk to financial insiders it is almost universally agreed that Eliot (Emperors Club VIP) Spitzer, was the cause of the 2008-09 financial crash.

The sequence of events begins in early 2005 when Spitzer was the Attorney General of New York running for President of the U.S. (like Teddy Roosevelt and Tom Dewey). Spitzer issued several subpoenas to Hank Greenberg, the CEO of the largest insurance company in the world AIG, which had been founded by Greenberg in 1967.

Spitzer hounded Greenberg in the press, unmercifully driving down the credit rating of AIG and its stock price.  Finally Greenberg, in the interests of his company, resigned a few months later. 

 Greenberg was followed as CEO by Martin Sullivan and Robert Willumstad, neither of whom had the vaguest notion of how to run the largest and most complex insurance company in the world.  Under Sullivan several departments quit and were left to the remaining bureaucrats to run and bungle.  All of which led to a mortgage bond insurance and related bank holdings melt down (some financial folk focus on Joe Cassano the bureaucrat who emerged to run the Financial Products division). 

 In mid-2008 the U.S. Treasurer, Hank Paulson and Fed Chair Bernanke stepped in to prop up AIG with a government investment of $200 billion which really was immediately used by AIG to prop-up a dozen banks, mostly international banks ($150 billion went to foreign banks).

Thus did we have the financial crisis of 2008-09 which led to 7 million unemployed Americans and five times that number outside the U.S. 

There were never any criminal or civil charges brought against Hank Greenberg.  He settled a minor accounting charge with the SEC a few weeks ago for $15 million.  The $15 million settlement by Greenberg, related to a trillion dollar company brought down by Eliot (Emperors Club VIP) Spitzer.

Hank Greenberg is back helping run AIG. This time he will have sufficient foresight to groom a successor.

Buffett wants higher taxes

Warren Buffett has often said he wants income taxes to be higher. 

He explains that he already voluntarily pays the 15% capital gains tax and dividend taxes.  He points out that he, and anyone else with high assets could avoid taxes altogether by borrowing every year an amount that would have an interest rate equal to the taxes owed. He would then buy life insurance equal to the amount of the loan.  He's right. With high assets no one has to pay income taxes.

It just recently dawned on me that Buffett may have a tactical reason for taking the position that he and other wealthy people should pay higher taxes.

He knows that wealthy men at the beginning of the 20th Century (Rockefeller, Carnegie, Astor and Gould) were scorned and vilified by journalists and the entire Left of the U.S.

This has probably protected him from the opprobrium of the kvetching classes.

He has avoided this by publicly demanding higher taxes for the wealthy, such as himself. 

On a personal basis he has never cared how much money he has, he loves work. Taxation is irrelevant to him.

I credit Warren Buffett with being smart, strategic, and wise.

Global Jew hate measurement

I wish to draw attention to the level of Jew hate in the world.  No one seems to have grasped the slow rise in Jew hate in official circles and the danger it poses.  I have chosen the thermometer as the visual aid.  I will update this blog semi-annually.  At Rosh Ha'shana and six months later. This is my current 2009 perspective.  A rating of zero is the level of Jew hate found in a cafe on Dizengoff Boulevard in Tel Aviv in 2002.  The rating of 100 is the level of Jew hate in Cologne Germany on Krystal Nacht 1938.

1. United Nations member states and staff: 

2. Arab governments:  (Many Arab states are duplicitous and support Israel by inaction).

3. EU citizens on the Left and Greens:

4. EU member states:

5. Latin American citizens:

6. Norwegian government:

7. The United States citizens:    ( Mostly Lefties)

8. Global citizens:  ( Most of the world's population is India, Japan, China and Africa; indifferent to Jews.)

Let me know your views on these measurements.

Advice for the Chinese

The President of the United States, under pressure from his largest campaign contributor, labor unions, has consciously been willing to start a trade war with China over a large increase in the number of imported tires.  As I say regularly, the Left hurts the poor, weak and disadvantaged the most.  Those were cheap tires folks.

At the moment China has agreed to take the issue to the WTO which will find America was wrong in two to four years.  

There is no reason to wait.  This is the perfect time to strike back at the evil American Left.  That opportunity will be gone in two to four years.  China should put a tariff ban on Buicks, immediately.  Buick sells well in China, overseas Buick is one of the few profitable parts of General Motors. 

In my opinion, now is the time for the Chinese government to squeeze the U.S. government owned GM and the people hurt most will be the labor union workers who put the company in bankruptcy in the first place.  Hurt the labor unions directly by banning Buicks.  Hit the folks who promote trade wars with China.

Read it and weep

If you think that the President of the United States isn't doing permanent harm to the U.S., following the drive by Moveon.org, you haven't read this letter from eight former CIA directors. They are saying in the clearest possible language that the President is completely destroying our ability to get information from our own intelligence staff and certainly from foreign intelligence agencies. Foreign agencies have never trusted us in the first place as you will read below.

"..... this approach will seriously damage the willingness of many other intelligence officers to take risks to protect the country. In our judgment such risk-taking is vital to success in the long and difficult fight against the terrorists who continue to threaten us.

"Success in intelligence often depends on surprise and deception and on creating uncertainty in the mind of an enemy. As president you have the authority to make decisions restricting substantive interrogation or any other intelligence collection method, based on legal analyses and policy recommendations. 

"But, the administration must be mindful that public disclosure about past intelligence operations can only help Al Qaeda elude U.S. intelligence and plan future operations. Disclosures about CIA collection operations have and will continue to make it harder for intelligence officers to maintain the momentum of operations that have saved lives and helped protect America from further attacks.

"Finally, another certain result of these reopened investigations is the serious damage done to our intelligence community's ability to obtain the cooperation of foreign intelligence agencies. Foreign services are already greatly concerned about the United States' inability to maintain any secrets. They rightly fear that, through these additional investigations and the court proceedings that could follow, terrorists may learn how other countries came to our assistance in a time of peril. 

"The United States promised these foreign countries that their cooperation would never be disclosed. As a result of the zeal on the part of some to uncover every action taken in the post-9/11 period, many countries may decide that they can no longer safely share intelligence or cooperate with us on future counter-terrorist operations. They simply cannot rely on our promises of secrecy."

More women in clown classes

I got a report recently that more and more women are signing up for clown classes. 

In my mind this is connected to the recent revival of roller derby.

I watched roller derby die here in San Francisco at the roller derby stadium in the late 1960's.  At the time it was regularly broadcast on TV and radio and was all girl rough and tumble.

It died and wasn't reborn until amateurs brought it back four or five years ago.  Now it is a major sport with hundreds of thousands of fans worldwide. It is still focused on rough and tumble wild girls.

Why were roller derby's fun loving, fearless, cat fighting bawdy girls in hiding for nearly 40 years? Why are they back along with female clowns?

I have only one theory.  The women's movement and then the feminist movement created such a phony, prissy, pathetic victim-hood public image of women that these real women (roller derby girls) were shamed into hiding.

Go ahead and blast me. You better have a better explanation that fits the facts.

No need to exaggerate

Some readers think I exaggerate on occasion.  These facts support a long running thesis of mine.  I am clearly understating the case and the danger.

The UN announced the release of the summary of the Gallstone Commission created to examine the three week Israeli military incursion into Gaza.  There is no need to report the nature of the Gallstone findings, they have been leaked and an introduction has been released by the UN.  The UN says that Israel created an atrocity and the Gazans were wrong to fire rockets for two years at Israeli civilians.

To understand the nature of this report and the UN that created and supports these findings one need only know a few facts.  First geography.  Gaza is bordered by two countries, Egypt and Israel.  Second access to Gaza: Israel provides Gaza with water, utilities, food, telecommunications to the world, medicine, fuel and all necessities.  Egypt has a closed border with Gaza and twice in the past five years has let a few hundred Gazans leave for a few hours under strict control. They can bring back into Gaza whatever they can carry. The Egyptians also allow smuggling tunnels.

Third, Israelis lived in Gaza for the past 35 years but Israel forcibly removed every one of the Israelis because the cost of protecting them from Gazan terrorists was too high.  

For two years since the Israelis were removed the Gazans fired rockets at Israeli towns. 
The Gazans never fired any rockets at Egypt.  Israel defended itself in December of 2008. Killing armed Gazans but was unwilling to attack the Gazan headquarters because it was in the basement of the main Gaza hospital.  

Gaza has held an Israel soldier captive for more than two years using him as hostage to get the release of 2,000 Gazan fighters and terrorists held by Israel. The Red Cross has never been allowed a visit to the Israeli captive but visits the Gazans in Israel regularly.

So the UN finds Israel guilty of war crimes.  To me that is proof that the UN is the 4th Reich.  I consider my position to be an understatement.  A global organization that regularly finds the most serious problem in the world is Jews, can be justifiably called the 4th Reich.

The term Reich, as in 3rd Reich, for seventy years, has meant a reign based solely on the belief that Jews are the source of all problems in the world and it is OK for Jews to be killed.

The UN is the 4th Reich.

Industrial growth

These days, I'm back in the international development game.  Most of the people in this world fail to understand the most rudimentary idea about industrial development.  Most countries that aren't developing are too small.  It is that simple.

A nation has to be big enough to have a large direct market to sell to, to draw on for quality employees and to permit skilled people to escape the chains of their tiny village... or it will not grow commercially. It can't.

The history of industrial development is the history of market size.  Holland was the first developing nation with a world market, superb workers and an entrepot of diverse people.  England was the second and America was the third.  All three of these nations had enough room for people to escape the chains of their tribal or family village and these nations encouraged people to do it.

In the 20th Century there were two nations that appear to have been exceptions but weren't.  Israel and Singapore.  Both are in the top ranks of successful industrial societies.  Israel had three times the number of Jews and Israelis outside the country as inside.  The same was true for Singapore with the vast network of Overseas Chinese.

Most of Africa will never have chance. Venezuela, Cuba, Burma, Syria, North Korea and the other small tyrannies will remain in the toilet.

Order of understanding

I find it fun to think about what occupations have the most members who (1) can cut through the international hysteria that believes in global warming and (2) ignore the vast numbers of people who don't know we have entered an era of nearly free  natural gas energy.

Its a fun game.

To me the most obvious group at the top of the list, those who understand the new world, are in the most successful tier of professional investors.  Their newsletters show they have discounted global warming hysteria for many years.  Their investments in natural gas futures show they understand that reality too.

Even more fun is to look at the middle of the of the list of occupations.  In the middle are politicians and policy wonks.  Many of these politicians and policy wonks have grasped the reality of global warming hysteria, which is why the Senate voted against the Kyoto Accords and why they have regularly defeated the cap and trade system for 15 years.  But they can't be open about their understanding because the public is slow to understand the issues.

The most fun is to look at the bottom of the list of occupations.  These are the most self-righteous, bloviating, ranting, pompous and arrogant people for whom empirical data are anathema.  They will be the last to know that the earth is not warming, certainly not because of human activity, nor to understand the vast reserves of natural gas that are abundant nearly everywhere. 

At the bottom of the list I put academics, film & theater professionals, artists, museum professional, doctors, trustafarians, journalists and environmentalists.  These were the last people to understand that the global population explosion had ended twenty years ago.

Thank goodness for divorces

  That has to be a bizarre blog title in most people's eyes. 

It might sound OK to someone who's parents were always fighting or who someone who had an otherwise difficult childhood.  That is not my reason for the title.

Divorces are the key source of information for much of modern business.

I first found out how much Werner Erhard had made from his EST new age training program and how he had hidden the money from taxes when his wife divorced him and made the whole thing public.  Werner had made the mistake of not settling with his wife. I had, years earlier, been asked financial advice by him and told him not to hide his money.

I first found out half-a-dozen tricks CEO's use to hide their executive compensation from the very public divorce of Jack Welch (CEO of GE) when he refused to settle.  I used an understanding of those formerly secret techniques to change SEC policy on executive compensation disclosure.

The giant Swiss bank UBS and Swiss banking secrecy were brought to their knees, this year, by the divorce information of an international couple who were hiding from US taxes.  In this case it was the woman who wouldn't settle.

The list is long.  Divorces are an important source of business information

CEO meeting in Paris

I was the surprise guest speaker at a meeting of the top fifty CEOs in the United States.

It was a surprise for two reasons.  First I was having lunch in the Bois de Boulogne Park in Paris when a friend Gifford Pinchot asked me to talk to the group he was teaching upstairs from the restaurant. Lunch in Paris turned into a talk with the top CEOs and some future business.

Second, by the time of the lunch, over more than a decade, I had become a prominent advocate of openness in business but the 50 CEO's had read about my exploits as a bank vice president as described in a whole chapter of Gifford's book Intrapreneuring.  My exploits, which significantly changed the credit card world and banking, were mostly based on sophisticated manipulation of top management.

I explained that I was now a firm advocate of openness in business.  I had an audience revolt on my hands.  They wanted to know how I had so successfully manipulated management. 

They had good reason to want me to talk about my old self.  They wanted to immunize themselves.

My blessings

I have to count my blessings and I have done so by putting the photos of two men who have made my life better on my computer screen.

The first photo is Howard Jarvis.  Jarvis authored and passed a California State proposition that lowered my taxes at a time when crooked property assessors were running wild all over California. His legislation set an upper limit on how fast property taxes could rise and he built in a 2/3rds rule against legislation to raise taxes of any sort.

Jarvis' blessing occurred exactly 30 years ago.  Since then I have saved over $100,000 in property taxes.  I am now receiving Social Security.  My property taxes would consume 100% of my Social Security if I didn't have the benefits of Jarvis' law.  I couldn't live in San Francisco.  Thank you Howard Jarvis.

The second photo on my computer screen is Philip Anschutz.  Philip is a brilliant and skilled businessman who lives near Denver.  Philip saw a newspaper idea that was tried out in Amsterdam and then in London...a free daily newspaper supported entirely by advertising.

He set one up in the San Francisco Bay Area and the Washington D.C. Area, the Examiner.  Both papers are in areas with close-in thriving suburbs.  The papers are well designed, offer good coverage of local news, use numbers (other journalists hate numbers) and have been a stunning success while all other local dailies wither.  But the greatest blessing is that the San Francisco Examiner is generally pro commerce.  The other dying paper in San Francisco was founded in the late-1800s and still adheres to the popular socialist and communist ideas of that long gone era.

It is a blessing to have a newspaper that doesn't stupidly ignore the lessons of the past 100 years that have seen communism and socialism fail.

Greens long history of success

Could a high-end $50 a person vegetarian restaurant survive in America? If it could survive, how long would you guess it could survive?

If you guessed thirty years you would be right. 

Roughly one percent of Americans are vegetarians so any cautious guess on your part would be sensible. Almost nobody can stay in business at high-end food prices to service a tiny market; high-end Ethiopian, Greek, Turkish and Moroccan restaurants rarely survive for long.

Greens at Fort Mason in San Francisco has succeeded and is still full today, everyday and night of the week, with over 180 seats, after thirty years.

Since Greens was originally my idea and I have been the business consultant (and often part of management) for over thirty years, I feel free to advance some ideas about the success.

* The restaurant was started by San Francisco Zen Center and created by Dick Baker the Abbott.  When it first opened it was packed because the SF Zen community had over ten thousand members. It opened packed to the walls.  It has remained packed to this day. Opening full is an important rule of business.

* We recognized that veggie customers alone would never support a business so the restaurant had to have three things: a great wine list, superb food and a comfortable welcoming non-limiting aesthetic (as opposed to the common hippy, Zennie or New Age decor of veggie places). Greens provided a place where three regular humans could eat with their veggie friend.

 * Lastly, over the thirty years we updated the decor regularly without changing it (soon to be updated again). We have been able to demand top flight service because no one on the staff ever wanted to leave.  We made sure that every single one of the thousands of dishes produced every day every week were all equally perfect (thanks to Annie, the core of the kitchen).

Do all of those things and you'll have a successful restaurant.

New Starbucks image in Seattle is wrong.

I particularly focus on Starbucks marketing because, as pointed out in an earlier blog, I see a mythological battle. 

Starbucks went after the Lefty market in the urban world. That is very clear from their sale of the New York Times newspaper in every American retail outlet, their sale of Jazz records in retail outlets and the hapless convoluted efforts they made to buy organic coop grown coffee.

The Lefties hate Starbucks.

I can't get a single hard core Lefty friend to meet me at Starbucks, they can't be seen there.The mythological battle is the man or woman who loves another and the other disdains them. Unrequited love.

With this model Starbucks store in Seattle (photos on the right) Starbucks continues to go the wrong direction.  This store is a cleaned up copy of the kind of sloppy, messy living room, college dorm style that is beloved by the pseudo-bohemian Left.  Starbucks, with this store, is again chasing unrequited love.

Even with a new name for this Seattle store, like Budweiser and Coors' attempt to sell phony micro-brew beers with pseudo names, customers will still know that it is Starbucks.

Americans will always prefer McDonald's and USA Today and the Wall Street Journal to the New York Times, but Starbucks doesn't get it.

The real direction I see in coffee retailing design is toward 'workplace conviviality'.  Clean, automobile-like and comfortable for everyone from tea drinkers, to diet soft drinkers, to beer and wine drinkers in the evenings. (Photo on the left.)

Americans are getting more like Japanese.  We want a convivial place to meet and hang out with friends in public; and sometimes we want a place to work since we have become hardworking people.

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PS  I visited the experimental Starbucks 15th Ave Tea and Coffee store in Seattle.  The design is as bad or worse than I thought.  Pure sentimental grunge. It even has wooden auditorium chairs from some elementary school. Not workable anywhere else in America, except Capital Hill Seattle and downtown Santa Cruz.

The business part is a different story... it is superb. Choose from three bean approaches: blend, single origin or estate.  Get it ground into a filter then choose filter drip, French press or Clover.  Wine and beer are available.  (No soft drinks or diet; mistake) Fresh sandwiches and fish plates; I had the sardine plate. (Great!). Well run with a convivial atmosphere.

Photo retouchers

When we talk about the way business changes over time we often use the metaphor of buggy whip makers.

I think it makes more sense to use photo retouchers as an example.

I'm sure most of my readers have no idea what a photo retoucher is or was.

Prior to 1995, all commercial photographs made on a negative used to go to the highly specialized hands of a professional photo retoucher to have specks, skin blemishes, reflections and lighting errors removed with actual brush work on the photo negative.

Now such retouch work can be done with any photoshop program.  While professional photo retouchers still exist there are very few of them.

I prefer the 'creation/destruction' metaphor of commerce to be the photo retoucher rather than the buggy whip because the job of photo retoucher has been replaced by each of us learning to do a formerly specialized job... which is much more the way commerce operates.

Executive relies on Congress

Since no one else seems to have pointed it out I will: the current administration has relied on Congress to create legislation.

I expect that practice from Rahm Emanuel who was a Congressman and who has great respect for Congress.  I also expect that from a President who's only political experience was a few years as a legislator. 

However, that is a failure to understand what an executive is. That is a failure to understand the role of the Executive branch.

So far, in eight months, we have seen the results of deferring to Congress to create legislation.

One stimulus bill, passed, that was nearly all pork and which is beginning to have an effect (less than 10% has been spent so far, on accelerating old programs) six months after the economy turned around. The stimulus didn't stimulate anything, a total waste.

A cap and trade bill that is already dead.

The healthcare initiative is six months old in Congress: it has five different bills in the House and three in the Senate and only one House bill has been voted out of committee.  Not good evidence of legislation that will succeed. 

This week the President may try to change this failed policy of relying on Congress to create legislation.

Cat fights for the gods

Apocrypha credits Freud with saying that 'sometimes a cigar is just a cigar'.

My point in this blog is that most subjects we pay attention to are not just cigars they are the symbols expressed by cigars.

Most people know that two women fighting usually attracts attention and men will frequently watch rather than break-up the fight.  These are called cat fights.  Why so much attention to women fighting?  

Because the popular mythology holds that women are peaceful.  Feminists have argued that with more elected women the world would be more peaceful. 

Thus, when we get to watch two women fight each other we are actually enjoying the mythological battle between the reality of women and the feminist fantasy of women that the fight symbolizes.

The same is true for the large groups of extra people who went to Seattle's Pike Place Market to watch dead salmon being thrown from the front of the store to the cashier. The public crowds started coming after PETA claimed the fish throwing was degrading to fish.  The crowds got to see dead fish being thrown which is not very interesting, but each fish thrown became a mythological battle of the gods of reality versus the moralistic theories of PETA.

No battle in the world holds the interest of the American, European and Middle-Eastern press like the Israelis versus all their neighbors and all the Jew haters in the world. This battle has been in the search lights for fifty years. This battle is obviously symbolizing the mythological battle of a giant versus a human.  Americans and Israelis see the human as the Israelis. Many Europeans (who have a thousand year history of Jew hate) and most Arabs see the Palestinians as the humans.

Fetal alcohol Puritanism

If you have any good sense at all you will never say anything when a woman at a party says she can't drink alcohol because she is pregnant.  

The pregnant woman has nothing to worry about, drinking alcohol during pregnancy as a cause of fetal alcohol syndrome is a pervasive unscientific fallacy.

I followed an early study of the subject in the 1970s when the syndrome was first recognized. I had close friend on the case with unlimited government funds from the National Institute of Alcohol Abuse and Alcoholism.  The study that resulted was the only study ever done. (You paid for this study with your taxes but you have to pay $25 to read this one article because the science community doesn't really believe in open science.) (Being called a scientist is becoming an insult.)

The results: with nearly unlimited research funds, no American women could be found who drank heavily during pregnancy outside of Indian reservations... none.  So no connection could be made to drinking alcohol during pregnancy and fetal alcohol syndrome except among Indian women and their children.

Off the reservation, non-Indian women in the United States simply drink very little during pregnancy, even alcoholic women ...they don't like the taste. Therefore with millions of dollars of funding, there was no way to do a study of the effects of alcohol on the infant.

Let's drink a toast to reality versus pervasive fallacies.

Vitali's marketing mistake

A few years back a new restaurant took over a dying restaurant in North Beach in San Francisco.  The new name was Vitali's which was appropriate for the neighborhood. The location was OK. 

The first sign of trouble, to me, was that no sign of 'new restaurant' was put up.  It appeared to be an effort to mislead old customers who didn't know the old place died. Very little was changed in the dinning room, mostly replacing everything with cheaper versions.

I never ate there, I just walked past every day and looked at the constantly changing menu.  The number of customers was small to begin with at dinner and got smaller.  As the number of customers got smaller the prices on the menu rose rapidly.  From a main course in the $10 range it rose to $15 in two weeks. 

Finally, I was seeing evenings with no customers and the owner sitting outside smoking a cigarette ( a chef smoking has always been a bad sign to me, it means little or no tasting ability).  I struck up a conversation and finally asked him why his prices were rising as the number of customers declined.

"I have to cover my overhead" he replied.

This is just a preface to my letting you know that the San Francisco Chronicle, which is continuing to cut staff, and still losing money and customers, has raised the newsstand price from $.75 to $1.00.  

I always wondered what Mr. Vitali did after he closed his restaurant. Is he in management at the Chronicle?