Pro Commerce

Horny founding fathers

There is currently a book on the sex lives of the founding fathers.  I do not recommend it based on the Amazon reviews. I was led to think about sex and the Founding Fathers while reading a review of Gouverneur Morris’s life. (pronounced Gover-noor)

I already knew that Ben Franklin was a sexually active and a keen observer of human sexuality. His time in Paris as a courtier and lover are well documented. He is not directly involved as a writer of our Constitution.

I know about Alexander Hamilton’s very public sexual affair with a married woman and the tragic fact that she and her husband used the affair for extortion. Hamilton would certainly have been a president of the United States had this affair not occurred.

Jefferson was accused of having sex with his maid and probably had plenty of sex when he was in France.

The real issue for me was that Gouverneur Morris was a horny and active sexual male. He had many sexual affairs under many circumstances and his surviving documents make this clear.

The American electorate never acknowledged him for his extremely important role in our founding because everyone knew of his sexual escapades.

Morris wrote the preamble to the Constitution, he was the secretary who recorded the notes at the Constitutional Convention, he served in the Revolutionary War, he had clear and persuasive ideas about central government and was influential at the Constitutional Convention, and was correct on many political issues including slavery. He became a diplomat and served as a US Senator.

The disturbing fact for me is that Morris’s contributions to our founding were very significant but because of his sexual promiscuity and public knowledge of it at the time, we will never see his head sculpted onto a mountainside nor will we see him appropriately treated in public school history texts.

(Be sure to read Peter Everett's comment below about the Constitutional Convention).

Armageddon losing effectiveness

When I started discussing the impending damage that will occur in San Francisco with a $15 minimum wage due to be voted on this coming November, I foresaw that the city would become like Detroit in a very few years. Some of my friends referred to this as an Armageddon scenario.

It is not an Armageddon scenario.  It is an accurate description of what people are faced with in Detroit where the city was destroyed by union values and will not be saved.  It may or may not happen in San Francisco but it is a real phenomenon that has happened before. Ft. Dodge, Iowa is another example.

The problem that is alluded to by my friends is that the environmental movement has destroyed the importance of any projection that seems to suggest a negative future.

Environmentalists have proposed a global population explosion with the complete collapse of economic and survival systems. Environmentalists have made the same projections for human caused global warming. Neither of these projections have been accurate. They have been falsified by time.

One consequence of these false armageddons has been to discount the value of science. If I were studying science today in highschool I would recognize science as a branch of politics. Science has become an ideological fount of nonsense.

The second consequence is that any projections of negative outcomes, no matter how realistic whether they apply to Cuba, North Korea, eating sugar or government regulations of marijuana or e-cigarettes... all negative projections are treated as the same level of nonsense as the population explosion and global warming.

Environmentalists have destroyed rational critiques with their irrational exaggeration.

Standard model of physics

Is this a good time to be a theoretical physicist?

I ask this because it is beginning to look like the Standard Model of physics, Einstein's relativity and quantum mechanics, are being substantiated at the experimental level.

I'm certainly not in the field and can speak with very little knowledge. It appears to me that with the confirmation of the Higgs boson at the CERN collider and the discovery that the distribution of galactic matter substantiates the existence of gravitons, that the Standard Model has received substantial confirmation.

A great deal of work has been done on alternative models including string theory and alternative universes. Alternative universes has even become a field of study in the realm of academic philosophy.

The need for these alternative models of the universe would seem to be less important with all of the confirmation of the Standard Model.

Does the entire theory of science rest on the assumption that there will always be new fields of study?  I think the answer is 'Yes'. There will of course will be substantial worlds to investigate outside of the Standard Model.

My question is whether the substantiation of the Standard Model is sufficient to put an entire chain of research in the closet and move on to other more promising theoretical worlds?

Property and commerce

Over the past 50 years there has been an increasing understanding of the role of property rights in the development of Third World countries.

After the Second World War we were subject to many economic equations and models for economic growth based on abstract theories. None of these had any substance, no meaning and no value but they have been the framework for American foreign aid ever since.

Early experiments in giving agricultural property legal rights to the farmers as well as property rights for urban dwellers and commercial builders became an outstanding piece of evidence about the importance of property rights in the development of Third World countries. The island of Taiwan became the foremost example.   As property rights were introduced in Taiwan, economic growth exploded.  The same was true in Japan earlier.

It is fairly obvious why economic growth requires property rights. In Africa where property rights are not very widespread it is common for a prosperous farmer to find that his relatives rapidly move onto his property and have social and moral claim to live in his prosperous territory. This makes sure that he can never accumulate capital that is necessary for the expansion of business.

The United States has fairly well developed property rights and they are certainly sufficient for businesses to invest in capital development and expansion.

We should note that property rights are not as thorough as they could be and have been tested adversely at the margins over the past 40 years.

The first test came when federal law allowed courts to the seize property of drug dealers before the trial occurred. It was common for lawyers to be paid long before the accused criminal was arrested because merely the claim of illegal behavior resulted in seizure of assets. No property rights.

Those anti-property anti-business rules are still on the books and have not been successfully challenged. America has a way to go in respecting property rights.

An even worse situation exists with the right of eminent domain. Governments can still claim property rights for government projects. Traditionally this was for freeways and right-of-ways but in the 80’s some cities began claiming property for the purpose of reselling the property for commercial development. Some states have banned this interpretation of eminent domain but many important states haven't.  Government still seems to have this arbitrary and anti-commercial view that it can seize property for ostensibly 'higher and better' land use.

Property rights are fundamental to the success of commerce. American property rights are adequate but could be better.

Unions and greed

One of the greatest and least appreciated intellectuals in human history is Adam Smith.

Smith was the first person to understand that greed when harnessed in a market system is a productive attribute. In the marketplace greed became a positive value. Smith explained that greed led people to work hard, to be persistent and to act aggressively in their own interests.  When a sufficient number of people in appropriate circumstances behave aggressively producing goods and cutting prices, commerce would use the greed for the benefit of consumers and the general public.

Smith understood this and Smith was right. To this day only a small minority of intelligent and competent people in the world understand what Smith taught us.

There is a different problem with greed. The problem arises when greed is outside the commercial marketplace. When government is greedy and lacks restraint we have warfare, invasion of neighbors, seizure of property and worse.

The problem with greed that I wish to discuss in this blog is when it appears in unions that are parasites of government. This has become a significant and potentially serious problem in the United States.

Unions collect dues from their members, and in the United States, these dues are used to bribe the government to pay its own union employees ever increasing wages. In most of the United States government wages are today significantly higher than in the commercial market. The same is true for government employee health benefits and government pensions.

Wherever the unions are restrained by limits on tax collection they always prefer firing the people with the least seniority and giving promotions to those with the most seniority. This often means an increase in crime when the police department fires its newest and most sincere employees.

We are now in a period where we see that union greed has no bounds. When it is inside a corporation union greed can drive the corporation to bankruptcy.  One less corporation.

When the union greed is inside the government it simply results in destruction of government services and an occasional bankruptcy of a local government.  Not a good thing.

Greed in the form of unions seems to have no restraints at this juncture of history and is harmful to all concerned except the union members who have seniority.

Unions, corruption and business

The decline in unions from their peak in the late 1950s until today has correlated with a significant rise in the wealth and power of the United States.

The decline of unions has been an important reason for the increase in success in business in the United States, especially in contrast to Europe

These factors are certainly connected but the direct connection is hard to establish. We can look at an automobile company and see that the union conditions result in low or minimum output.  Just watch the lackadaisical assembly line. You can look at the San Francisco municipal buses and see that the various work rules introduced by the union guarantee a dysfunctional system.

There is one unique problem with unions. They are hostile to meritocracy.  They prohibit meritocracy in the union environment. Unions only believe in rewarding zombie behavior. There are two elements of the zombie behavior that are rewarded: first is seniority.  The newest person gets the least reward and is often mistreated; the longest-serving person gets the most reward regardless of competence or productivity. Output, competence, ingenuity and anything else to do with merit are ignored or suppressed.  

The second part of the zombie equation is a focus on retirement benefits. This makes sure that a zombie lifestyle is fostered. Union workers are discouraged from seeking any immediate pleasures by hard work or ambition.  They are encouraged to postponed  rewards until the individuals are too old to enjoy pleasures. Unions promote a life of zombie values. This is precisely the opposite of what commerce is about. Commerce is about excitement, vitality and fun.

The zombie behavior and an absence of meritocracy are entirely appropriate for government. Therefore, today, unions are only functional in government environments.

Corruption is also an element of government. It is only because governments have significant power, arbitrary power, that corruption is possible.

It is important that government has exactly the right amount of corruption. Not too little not too much.

In the United States, local government is corrupt only for the construction industry and for large chain store operators. That means that knowledgeable businesses who understand corruption are able to operate with a great deal of freedom. But the corruption is not so blatant and visible that people feel discouraged by being outside of the corruption circle.

At State and Federal levels the corruption is more visible but doesn’t discourage local businesses.

In San Francisco there are several businesses that are very effective at corruption: Starbucks and Walgreens. They have many retail stores. Trader Joe's and Peet’s Coffee are ineffective in dealing with corruption and they have to go to other areas, such as shopping malls to thrive.

Overall by having corruption invisible or difficult for the public to understand it is a nearly idyllic situation for business because: it does not discourage the naïve but it does allow for success among the skillful.

Weak government and business

This blog, which discusses why weak government is wonderful for business, is really an homage to Mancur Olson.

Olson explains that government can be pictured as a saucer with a depression in the middle and a rising lip around the edge. In the center we have no government or a government that is so weak it resembles anarchy. This environment is often found in parts of Africa where the government is weak and it is also found in war zones where commerce has trouble growing because an investment in businesses isn't worthwhile when it risks being destroyed. Property rights cannot be enforced and there is no stability in the market necessary for expansion of manufacturing. The center of the saucer may have trade but not industrial commerce.

The opposite is true on the lip of the saucer where the government is strong and rigid. It is usually a tyranny which we are familiar with in the former Soviet Union, Cuba, in China under Mao and in North Korea. Any business that begins to succeed will be confiscated and given to the brother of the tyrant. That is the reason businesses do not grow and thrive where the government is too strong.

Now to look at the flat part of the saucer.  There are many governments that are close to the anarchy side and many close to the tyranny side. The United States is closest to the anarchy side and that is the reason businesses thrive. We have fairly stable property rights and stable markets. There are many parts of the United States where you can start a business and grow and it will never come under the scrutiny of the government. This is not true in Germany. This is not true in Japan. Two countries that have very efficient and extensive governments.

The reason America has such weak government is because it is unique in the world in having been created from the bottom up. First there were farming settlements then there were urban outcroppings that formed their own governments to supply water and roads. These local governments grew into regional governments that provided schools, fire protection and police. These in turn grew to form state governments and state governments formed the federal government. This did not happen anywhere else on the planet and accounts for the weak government of the United States.

I have watched hundreds of small businesses form. They usually start without thinking about paying any taxes and it is seldom that they register for the permits or dozens of regulatory permissions that are needed for small business. They don’t do this until they are already thriving. That happened in San Francisco in the hippy era. That happens in poor neighborhoods; that happens in areas where governments are ineffective or incompetent. That is necessary for most businesses to get started. That is always necessary for innovative businesses because they would be squashed immediately if the government’s couldn't fit them into existing rows or columns.

Ultimately when a new business is strong enough to hire people it starts filling in the necessary forms and meeting the myriad regulations.  It is the weak government that allows businesses to start and thrive in the first place.

Free trade

The arguments for free trade and its extraordinary benefits were made more than 200 years ago by the handsome economist David Ricardo. Three years from now we can celebrate the 200 anniversary of his publication of the theory of ‘comparative advantage’.

Ricardo understood the simple relationship between one person who lives in a banana forest and another person who lives in a cotton field. Ricardo understood that the person living in the banana forest should be selling bananas to the person who lives in the cotton field in return for the cotton. That the existence of tariff barriers was forcing the person who lives in the banana forest to try and grow cotton and learn to weave and vice versa. With trade barriers in the way neither person was making the most effective use of their resources or talents.

To bring this issue up to date and help my readers understand the extraordinary benefits of free trade in the United States, especially since the early 1960s, we need to consider two locations in the world where the per capita income is significantly different.

One is Brazil where the average income is about $12,000 per person per year. Brazil has vast resources of every sort including fertile land, water, forests, oil and minerals. The second is Singapore. Singapore is a tiny island, (technically a peninsula) connected to Malaysia with virtually no resources other than dirt, sun, sand and a very good harbor. The average income in Singapore is about $50,000 per person per year.

So how can the nation with vast space and resources have such low per capita income compared to the tiny island that has no resources?

The answer to this question is simultaneously one explanation of why the United States is so rich. Singapore is a trading nation; it lives entirely on trade. It doesn't produce anything other than what it can add to the value of any good or service that it imports. Singapore imports raw products and applies value to those products; it resells them as exports. It is a pure trading nation, (a Ricardian paradise) and it is considerably richer than any nation that lives on its resources.

Trade is the source of nearly all wealth in the world.

The United States has been the beneficiary of an aggressive free-trade policy for most of its history but especially since the 1960s.  It has always been the Republican Party that pushed for greater free-trade.

Immigration and business

There are two important components in the immigration spectrum.  One is the illegal immigrants who cross the border and provide low-cost labor. The other end is the high level and technical part of the spectrum.  The special skills labor market currently comes through the H1B visa system.

Both of these sources of immigration are important to business. Both of these seem to be anathema to unions. Unions are most effective in restraining the low-end immigration channels, but out of rote hostility to immigration they also oppose the high-end skills market.

Americans have always had a mixed and confused attitude toward immigration.  We have done little to restrain immigration. On the other hand we have been very unhappy at times with the immigrants as they fill our labor demands. This is part of a 200 year old pattern.   It is no different today. The complaints about border crossing are not relevant. The number of so-called illegals is only 3% of our total population. That is insignificant.  Because this population is sending so much money back to Mexico and the other countries they come from the demand to emigrate from Mexico and these other countries is diminished.

The so-called Kennedy Immigration Reform of 1965 changed legal immigration from white Europeans to a global system. However this system is currently swamped with family repatriation. 

The explosion of American commerce from the 1960s on is related to the rapid increase in free trade and imports, the dramatic expansion and improved quality of immigration as well as the end of our hereditary elite and the decline of unions. Since many of these things occurred at the same time it is hard to separate out just the importance of immigration.

However immigration is a very important function in the growth and vigor of American industry. Immigration is tied to globalized corporations who benefit from moving foreign employees back and forth inside the global entity. This labor mobility benefits significantly from a generous immigration policy.

Many people do not know that the business grad schools on the borders of the United States, in Mexico, are among the best business schools on the continent. We need those ambitious people who want to come to the United States.

I personally have worked in many countries as a consultant.  Everyone benefitted and tens of thousands of jobs were created in other countries from my help.  Tight immigration rules would have stopped me.

Hereditary elite and business

Nearly every country in the world has an hereditary elite. The United States had one up until 1960. 

The second world war saw the American military give officer rank to everyone who had graduated from college. At the time this was a small percentage of the population but it was a far more democratic cross-section than in most of the world because the United States had created public universities in the middle of the 19th century.

The consequence was that the officer class after the second world war promptly moved into the corporate world where the few extraordinary meritocratic managers rose to the top and displaced the hereditary elite who had been managing American corporations. By the end of the 1950's the top 50 American corporations and the top hundred most important people in the professions were disproportionately meritocratic not hereditary.

The consequence of this was that all of the private and secretive clubs in America could no longer get jobs for their members because of their hereditary lineage. The most important impact was that business grew rapidly and prospered as never before.

America has remained, for the past 50 years, free of an hereditary elite. I know that some people would suggest that we have hereditary processes in government which I do not deny. Government-politics is the oldest institutional structure extant and predates commerce. Talents that are effective in government and politics can be passed on from father to son. Such talents cannot be passed on in the realm of commerce.

It saddens me to see constant efforts in our society to re-create the hereditary elite. After the real debutante ball became meaningless new debutante balls have been formed around the country. They are just for show in every way but they are efforts to reestablish an elite. Rich people still send their children to prep schools and prep schools are still funnels to elite schools. Nevertheless elite schools are not particularly important to commerce and they do not interfere significantly with meritocracy in business. This is not true, of course, for government where meritocracy is largely absent.

Many clubs have been created to try and simulate the previous secret and elite clubs. Most of these are a farce because they are nothing more than the traditional networking structure of the Lions Club the Masonic order and the Rotary, none of which have been socially important since their imitation of the hereditary elite clubs evaporated in the 1950s.

Three cheers for meritocracy in our society. It's importance should not be ignored.

 

What makes America productive?

In an earlier blog I talked about the fact that there is nothing unusual about ordinary Americans and yet I see young Americans in their late 20's walking down the street who are earning $100,000 a year.  What shocks me is that these people have no unique talents as Americans whereas there are countries that have entire populations with more talent appropriate to business.  The Japanese are harder working and more conscientious.   Germans are more precise and persistent.  Israelis and Singaporean are better educated.  Israelis are more intelligent and ingenious .   Scandinavians are more honest in business dealings. The Dutch and the overseas Chinese are much better at small business.

What makes Americans unique is our institutions. I am going to list seven of them. Each one of the seven will be discussed in a separate blog.

*1)  No hereditary elite. At the end of the 1950s the United States was able to eliminate its hereditary social class.  No other society has done this.  The consequence of this is that meritocratic people in American society are able to rise to the top of management, to the tops of their own businesses and provide us with the strongest most vital commercial society on the planet.

*2) Immigration.  We have a fairly open and successful immigration system.   It could be much more effective. Canadians and Israelis have better access to the talented people of the world than United States.  But what we have is still adequate.   Many studies have been done that show how immigrants contribute disproportionately to the success of businesses, especially hi tech and innovative businesses.

*3)  Free trade. We have the most extensive free trade system in the world. Economists, for 250 years, have explained how this is the most efficient way of allocating resources in the world and for any specific nation.  There were changes in our trade at the beginning of the 1960s. We dramatically increased our imports and exports. This resulted in vast expansion of American corporate sales to a global market and brought competition to hundreds of domestic fields as well as dramatically lowering the cost of goods and services in most American markets.

*4) Weak government.  The U.S. is unique in the way its government and governments have been formed. Always from the bottom up. Everywhere else in the world governments created their own new governments and the subsidiary governments. Top down.  In the U.S., each locality created its own government which in turn created its own regional agencies and created it's state agencies. These in turn, at the beginning, created the national government.

The advantage of this has been incompetent administration and steady deadlock on critical political issues. It was Mancur Olson who explained the enormous benefits of incompetent or semi-incompetent government. He used the metaphor of a saucer. At the center of the saucer is the realm of anarchy in which business cannot operate. Commerce does exist but businesses cannot grow. They do require laws and stability and recurrent markets. At the outer periphery of the saucer is where the government is too strong and you have tyrants. The tyrants confiscate successful businesses and give them to the tyrant's brother. The United States is and always has been on the relatively flat part of the saucer where the government is semi-competent. This is the ideal place for business.

*5) Union decline and corruption. I have put two institutions together because they have become closely related.  Unions in the private commercial world have been on a straight-line decline for 50 years. This is good.  Unions have always been harmful to United States business because unions suppress meritocracy and champion poor productivity and low output.  Unions now exist almost entirely in government.  That is the connection to corruption.  Corruption is an attribute of government.

Corruption is necessary because government is often intrusive and incompetent in the marketplace. Unions and corruption are related because today the only happy home for unions is government.  It is government that needs to be bribed. A low level of bribery is precisely what business and commerce need. Corruption gets things done for everyone who understands bribery,  but it doesn't destroy the actual market when it operates at a low level.

*6) We have fairly strong property rights. People do not carry out innovative projects or take risks in their life unless they can hope to retain the benefits of those risks. Our property rights are superior to most of those in the Latin world and in Africa.  They are not anywhere near perfect because we still condemn private property to build irrelevant new structures and we seize private property before a criminal trial.

San Francisco minimum wage part 4

This is the final part in a 4 part blog series.

What is it about business that would allow a large part of the population to believe that raising the minimum wage to $15 an hour, a 40% increase, would not have an adverse impact on business?

There are two things that I can identify that would leave people ignorant of commerce.  First is the invisible backroom.  Second is the orchid-daisy phenomenon.

Until recently,  most restaurants did not have a visible kitchen operation.  Now that some part of the kitchen operation is visible,  never the dishwashing part of the kitchen,  we are often, in the San Francisco area, able to see that nearly all of the kitchen staff is Latino.

In most businesses the people who are visible are less than half of the actual staff necessary to provide the services we are buying.   Even at McDonalds or Starbucks, where we believe we can see  most of the employees,  we do not see the cleaning and maintenance staff,  we rarely see management and never see the accounting and supply chain staff.   

Behind the visible people there is a long line of invisible workers who are involved in both the supervision and the delivery of products and services.  Even at a gymnasium the part of the staff that works on membership,  accounting, maintenance, regulatory issues and marketing are not visible.

Therefore because we see so little of the real part of the active businesses we deal with, we remain in the dark about the functioning of business.  This is the main reason that people could be naive enough to think that an increase in the minimum wage by 40% would not reduce the function or survival of the businesses around them.

The second reason is that people cannot see what business is about in what I call the orchid-daisy phenomenon.

Some businesses are like orchids. They are only able to work in the rarest and most delicate environmental circumstances.   Raise the rent and they close their doors.  Let me give you 2 categories of business that are in the orchid realm.

One was a shop that sold locally designed handmade clothing for women.  This store was on the outskirts of a well to do neighborhood where it found a low rent space.  Over time as this orchid attracted significant foot traffic other traditional businesses began to emerge around it.   After several years of retail growth around this orchid, the rents went up and the store that created this magnetic attraction for customers was replaced by a bank that could afford the high rents.  The orchid was gone. It couldn’t find a comparable low rent neighborhood that its clients would go to.

In another instance, a brilliant engineer did hand manufacturing of wind generators in a fairly small factory floor in a rough neighborhood.   As he acquired more manufacturing equipment to build his truly elegant and orchid like wind generators that were sold around the world to businesses and agencies that needed specialized heavy duty wind generators, similar manufacturing businesses moved into the area. With more businesses it became safer because of the increased  traffic flow of workers and visitors.   As the neighbourhood became safer and more manufacturing moved in, the original orchid was forced to move out of the city into an area where the rent was low.  But it also  turned out that his marketing and relationship to customers was inadequate.  That orchid failed.

Daisies are in my mind ‘weeds’.   Businesses can also be weeds.   Commerce is carried on in any circumstances where there are customers.  A prisoner can get virtually anything he wants through the chain of suppliers within every prison, if he has the money.  It is one of the great attributes of commerce that when customers can be found businesses will grow to satisfy those customer demands.   Legal-illegal. That is the weed-daisy nature of commerce.   

A business that has 5 employees servicing regular clientele when it is disrupted for some reason will find that it can change hours, change its prices and its overhead in order to continue servicing those clientele even with 2 employees.

There is another aspect of commerce that is not visible.  Invisible because illegal businesses are almost always invisible.

San Francisco minimum wage part 3

This is part 3 in a 4 part blog series.

The proposed San Francisco  November ballot measure to raise the minimum wage from $10.72 to $15 will have an effect on virtually everyone who's current wages are under $100,000 as indicated in the last blog.  So who are these people and how many are there?  How many businesses are going to be affected?

There are roughly 500,000 workers in San Francisco, about half commute into the city.  85,000 of these are self employed and will not be impacted by the rise in minimum wage.  26,000 are city employees and also will not be affected.  The remaining 389,000 work for the 31,000 businesses in the city.   Roughly 30 percent of these employees, 120,000 have a high school diploma or less. They will be dramatically affected by this new minimum wage.   Either they will get an increase in their wage until they can be replaced by a machine or changes in the business operation or they will be let go fairly soon after the wage increase has an effect.

Let's look specifically at who these people are.  20,000 workers are in the food service business and another 15,000 are retail workers. That is 35,000 people who are already in low paying jobs and subject to dismissal.

Let us go to the specific businesses. Food workers are employed by roughly 1,600 full service restaurants, 60 fast food outlets such as KFC and McDonalds.   There are an additional 80 Starbucks in the city, another 120 similar coffee shops, and 65 sandwich shops like Subway.

What will happen to these roughly 2,000 businesses?

I believe they will be faced with a 40% increase in labor costs that cannot be offset by increases in their retail sales price of 40%. Each of these types of business will be forced to reduce the number of stores operating in San Francisco.  Where they are part of a national chain, the reduction will be from 10 stores to the 2 most profitable stores.

In all the other cases, including large unionized supermarkets, they will reduce their hours to the minimum number that can be serviced by management doing the stocking of the shelves and unloading of the merchandise from the delivery trucks.   

All businesses, such as delivery services, that can move their operation out of the city, will do so.

Virtually every retail business in San Francisco will dramatically reduce the hours they are open.  I estimate that over 1,000 retail businesses will close.   This will all happened in a relatively short time, less than 2 years.   In less than 2 years San Francisco retail streets will begin to look like Detroit.

This is what we have to look forward to.

San Francisco minimum wage part 2

This is part 2 in a 4 part blog series

I am assuming that the first polls to indicate that a $15 minimum wage proposition on the ballot in the coming November election will prevail, will end the steady rise in the price of homes and condos in San Francisco.  Furthermore it will begin a decline in the price of homes at all price levels as more people figure out what is happening to home prices.

I assume that among the 52,000 Republican voters there are at least 1500 homeowners who will see the consequences of this election as dramatically harming the city.  They will put their homes on the market.  There are roughly 120,000 residential homes and condos in San Francisco.  Approximately 500 of these are put on the market every month.  In the current hot market there are as many as 10 over bids in cash for these, mostly million dollar homes.   I believe that an increase in the number of homes on the market of 1,500, in a few months, will stop the rapid growth in home sales and reverse it.  

For me, this can mean a loss of several hundred thousand dollars in the price of my home.   I am not planning to sell my home despite this paper loss because this is an extraordinary once in a lifetime opportunity to study the impact of an anti Commerce political move.  I can report on it firsthand.

Who will be impacted by a $15 minimum wage?

The first step in understanding the consequences is to understand that the prices of labor in an open market are on a ladder of fairness.  If you have been a manager, as I have, you will be aware that wages are based on a ladder from lowest to highest in which each person is paid in a way that he/she is willing to believe is justifiable based on their contribution to the enterprise.  When the bottom wage is raised by a minimum wage law, all the levels of wage above that are also raised in order to maintain the structure of output and contribution within the business. This doesn't impact wages above $100,000.

The same is true from the top down.  I have been an expert witness on executive compensation in the utility industry for decades and I can demonstrate that raising the executive wages has direct impact on raising everyone else's wage inside the company.   Additionally since there are many identical technical jobs that overlap in the market such as an accountant or office manager they act as wage markers.  Consequently, the whole local labor market reflects the contribution level of most wages based on a legal minimum wage that are transmitted throughout the wage structure of the area.

The consequence is, when the wages at the bottom go up by 40% in San Francisco, it will raise all local wages by roughly the same amount.

San Francisco minimum wage part 1

This is going to be a 4 part blog series .

The radicals in San Francisco have joined with the most powerful Union in the city, the SEIU, to put on the November 2014 ballot a proposition making the minimum wage in San Francisco $15 an hour. There are many things about this proposition that relate to the issue of Pro Commerce.  This is the most anti-commerce idea since Karl Marx proposed a society run by the proletariat.

Let us begin with the question whether the proposition can pass.   San Francisco has roughly 700,000 people who could vote. About 380,000 people do vote in a general election.  There is no possibility that pro commerce conservatives could defeat this proposition. Only 52,000 San Franciscans voted against Obama in 2012, the most anti-commerce president in 60 years.  It will take roughly 160,000 people to stop this proposition.

The union forces in this city are very powerful especially the police and fire departments who will benefit significantly from the proposition.   Their union wages are based on the minimum wage with a ladder of wages rising from that point.   A $15 minimum wage would be an increase of the current $10.72 by roughly 40 percent which would raise the entire local wage scale by that amount.

$15 an hour is not the cost to the business when all other costs such as Social Security, mandatory healthcare, vacations, mandatory sick leave and worker’s comp are included; the cost per hour is $21.

The San Francisco Board of Supervisors are likely to put another proposition on the ballot with a lower minimum wage number in hopes of splitting the minimum wage vote.  

I believe that  the $15 proposition has a fairly good chance of passing because the Democrat-Union national ideology, as set by President Obama and his clique of Lefty extremists, have made this a membership requirements for all Lefties in America.   All 320,000 voting Democrats, who live in the city, believe in this ideological proposition.    

I won't take this opportunity to make predictions on the likely passage of this proposition.  I will use this as an opportunity to discuss the ways this proposition will turn San Francisco into Detroit in a few short years.  

This is not minor.  When New York approached bankruptcy in the 1970's it drove most of the financial companies out of Manhattan to New Jersey and Connecticut.  Wall Street is no longer on Wall St. and London took over the major financial work of the globe.

A new look at American reality

It is the institutions of America that makes everyone prosperous.  

Americans are not uniquely intelligent, hard working, competent or disciplined.  

I was watching a group of Americans walking along a retail street in San Francisco recently.

My first reaction was that these people are making a lot of money but they lack any specific talents for making a lot of money.

There are people in other countries who are much more talented, as a nation, than we Americans are.  The Japanese are much harder working and more diligent than we are. The Israelis and Singaporeans are more intelligent, educated and ingenious than Americans.  Scandinavians are much more honest in their business dealings than Americans.   Overseas Chinese are much more skilled at small business than are Americans.  So why are Americans so prosperous despite their lack of unique talents?

Because we work inside a system that makes use of a few supremely talented business people and we have a system that uses nearly everyone elses modest contribution as well.  We all prosper despite our relative mediocrity. It is the system and institutions we inherited, nearly all of which arose by accident.

What are the attributes that make America so productive?  Or has in the past?  Another blog on this subject in about a week.

 

Justice Thomas and the 14th Amendment

I am a person who has carefully followed Justice Thomas’  history and read his biography.  I find Thomas to be the most lucid, most original and most impressive Supreme Court Justice.

I am supported in this position my his ruling on gun control in the Washington DC case.

He introduced into the discussion of the Second Amendment the idea that it could be applied to individuals rather than just to a national or federal right.  He made use of the 14th amendment.

The Fourteenth Amendment does not restrict its coverage only to federal legislation and rights before the federal government. It creates rights applicable to individuals.  It is this brilliant insight that commends JusticeThomas' originality and  deep intelligence.

Of course he was thinking about the fact that blacks have long had burning crosses put in their front yards and that they needed weapons to defend their lives in these circumstances. Nevertheless his intelligence has shaped the future of the Supreme Court.  

With Thomas on the Court, from now on it will be important to think of the Bill of Rights as applying to individuals well beyond the federal level.   Thanks.

 

Raising a child for tomorrow

One of the common subjects of discussions these days is the appropriate education for children that will make them productive citizens in adulthood.  One skill is math, but I have discussed that often in the past.

I have two pieces of relevant experience.   First I spent 15 years in the non-profit educational world supporting every imaginable innovation in education as well as working to modify the local school board in San Francisco.  I learned that no institutional change will significantly improve the outcome of education.

Secondly I raised 3 children.   All three have been successful in the world.  The are highly competent individuals.   Each has a different set of skills and talents but they are highly effective and competent in the marketplace.

Therefore with modesty,  I suggest that what children find most effective in their training that carries over to adulthood are the skills of self management.

Self management tends to be an automatic quality in an oldest child, in families with multiple children, the oldest child is often left with responsibility for the younger siblings. The consequences are an ability to plan, calculate and cope with the world.   Therefore it become important to pass on this skill to all the children involved.

I found the most effective approach was to give children, from a very young age, total responsibility for some modest projects.  For a very young child it might be 'please get the groceries out of the car and bring them in'  for an older child it might be ' we need two quarts of milk,  can you go get them for us, here is $10?'

These are examples of self directed self managed projects.   The more the child is given this type of responsibility the more self management they will have... the greater will be there confidence as adults.   Today a similar project might be to clean something or build something fairly complex that requires learning from a YouTube video.  

Self management is a foundation for managing others.   Both skills are permanently part of our society and will always be highly rewarded.

Jewish Review of Books

About 4 years ago I began receiving promotional material for a proposed new magazine about  a Jewish review of books.   I had long loved the New York Review of Books until it became so filled with Zyklon B ideology ( Jew hate) that I could no longer stomach it.

I went ahead and ordered my first subscription to the Jewish Review of Books and sent the magazine editor a note saying that I was very uncomfortable subscribing to anything Jewish because 2/3rds of the Jewish community voted for an openly Jew-hating leader, President Obama, and the Democratic-Union Party.   I had no interest in allowing such offal into my house.   I was willing to give the new magazine a chance to show that it was not part of the blind Jewish ideology that was so filled with self hatred.

To my delight and my wondrous amazement the Jewish Review of Books is not a piece for the self hating Jewish wing of the Jewish community.   It is an imaginative, insightful and genuinely intellectual Review of Books.  I am very grateful to the people who founded and run this review.  They bring me pleasure with each edition.  I look forward to the stimulus I can now find in my old fashioned mailbox.

Why is the 2nd Amendment 2nd?

I have not met many intelligent Lefty's in my life.  The one I remember was so unique. She said: ‘If Lefty's don't like the Second Amendment they should just change it by the amendment process.’

This has recently lead me to think about the question of the Second Amendment.

In many discussions the issue of the Second Amendment hinges on interpretation of the language.   I think this is a mistake.

The most important question that should be raised about the Second Amendment is its position in the ten amendments that we call the Bill of Rights.

The First Amendment is focused on the subject that Americans, who had just finished a war with Britain, were most sensitive about.  Their rights to free speech and assembly which had been severely abrogated under the British rule.  They recognized that these two issues were significant in defining freedom.   

Because Britain, at the time, was a state sponsor of a single religion they were also very unhappy with the constant British pressure to restrain religion in the colonies.   All three of these elements became the core definition of freedom for the tens of thousands of people who were not willing to accept a federal government and the associated Constitution without these protections.  They were so important they were bundled into one Amendment that the new Americans defined as freedom.

To me,  the position of the Second Amendment is very significant.  Here we have a newly freed people examining their own history under British colonial power making sure that their new constitution could not subject them to the same horrible mistreatment that the British imposed. They could only believe that their freedom needed to be protect with an army of free citizens with weapons.  

The Second Amendment was put in the second position in the Bill of Rights because the people voting on the new constitution considered the very definition of freedom to include the right to rebel against an oppressive government.

There was no ambiguity in the meaning at the time.  The right to own and bear arms was unequivocally the right of a free people.

Elsewhere I have commented that the right to self defense is the primary right of human beings.   I believe that the position of the 2nd amendment in the Bill of Rights confirms my universal understanding of this human attribute.

Banking future in 1994

I have made many mistakes, in my life, in predicting the future.

It is important for me to remember my erroneous predictions.  That is how I learn.

In 1994 it appeared to me that banking didn't have much of a future other than ATM machines.

The reason I said that was that the deposit function appeared to be the only still valuable service the banks provided the public and corporations.  Most lending functions had already moved to other institutions.   For example, lending was going  into the hands of special mortgage brokers who worked with insurance companies for the residential mortgage market and corporate loans were coming from specialized money brokers in the short term money market.

What I didn't recognize is that banks have a significant advantage in the source of funds because the Federal Reserve is always making money available to banks at lower than the market rate.   Moreover the other issue I didn't see was that savings and loans, that had been a major source of residential lending, no longer had a future because they were so dangerously out of control that banks would be forced to take them in-house.   Lastly,  I failed to realize that the large institutions including insurance companies and unions were relatively bad at making loans to commercial borrowers.   While banks are both too cautious and inefficient they are definitely more confident at maintaining good long term relations with the corporate world.   This cannot be replaced by a mixture of other large financial institutions that lack the day to day contact that is so beneficial to banks.

Banks have also prospered by becoming national, merging and becoming gigantic.  They are so big they are able to pay billion dollar fines to the government for preposterous bad government behavior. Banks are here to stay. They have acclimated very effectively to the commercial environment of our era.

Old age effects

It is ridiculously presumptive of me to write about the subject of old age.  I am threescore and 15 years old.  There are many people older than I and there are many who are more eloquent in describing the issues of old age then I will ever be.

I have mentioned before that the most debilitating effect of old age, for me, has been the disintegration of my networks that allowed me to be an activist and to carry out the many social change activities of my life.

I would never complain about the physical disabilities of old age,  I am a happy person and do not give into the self serving need to complain.

There is something about old age that has come as a great shock to me. With the disappearance of a complex and active life I am finding that I am increasingly satisfied with less and less activity.   

Why is this a surprise?  Because I have always assumed that I wanted more leisure to carry out the category of activities that I considered less important than the major activities of my daily life.  I saw leisure as a respite to do the minor chores like sit down and read a long forgotten book, slowly.

I find that this is not the case.  With the disappearance of my daily-active-engaged life I am left without any sense that I am missing something.  To put it another way, when I was very busy I assumed that I would always be envious of myself as a busy person. Not true. Now that I am NOT busy I see the busy parts of my life as having wonderful rewards but I no longer desire that kind of determination.  I don’t miss the excitement of constant novelty.  

I am enjoying some of the stable, long standing, enduring facets of a stable mellow life.

Compassion

Among my friends there has recently been discussion about compassion.

I haven't given much thought to this subject for many years.  With the help of some Buddhists friends I came to realize that compassion and sympathy are distinct.

Sympathy is about identifying with another being; as one would say ‘I can imagine being in their shoes’.  That is sympathy.

Compassion on the other hand deals with beings for whom you cannot have a personal identity such as an ant, an oyster, a mosquito or even a log.

What has become part of this discussion most recently is the observation that compassion may leave one completely unable to act.   Compassion requires that one feels the same emotion for a being that is attacked as one does for the being doing the attacking.

Compassion therefore restrains any form of action.  However humans invariably will act when they see what appears to be an injustice. Therefore compassion, as understood by humans in our daily activity probably doesn’t exist.  We probably use sympathy for most actions that appear benevolent. Actions require a judgement based on the context. When I see a cat attacking and then eating a Morning Dove compassion requires that I see both beings as equals.

If possible I will invariably try to stop the cat from eating the Dove.  In this context I can ex post explain my behavior but the reality is I am NOT truly exercising compassion when I value the bird’s life over the cats interest, whatever it might be.

 

One room school

It is probably rare for most people to hear praises sung for a one room school.

When my father was in the Navy in WWII I attended a one room school on the naval base. The school had one teacher and a class of about 30 kids spanning the age range from kindergarten to 8th grade.

I actually enjoyed the school, despite the great differences in ages in my classmates  because I was allowed to learn and study at my own personal learning rate.

This is the exceptional value that I found in my one room school.  I only attended for a year or two so I cannot deal with the fact that the teacher probably would have become irrelevant to me based on her low level of knowledge.

To me that  one room school experience symbolizes the need for all educational systems to be adjusted to the level of learning skills of the individual.

From the time of my one room school until I finally got to University, at age 15, I found school to be irrelevant and deadly boring.   I'm not speaking about the opportunity to look at girls in my class or in the halls.  I am speaking about the academic material so readily forced down my throat which was of so little consequence or interest.

I know that excellent education as possible,  increasingly so with access to the Internet.  My personal experience suggests that learning does require individuals seeking information for themselves.

Who goes into politics?

It is not my intention to be rude.   This blog is about a subject that is inherently going to be offensive to people who are active in politics.   I apologize in advance because I know that some small percentage of people who are active in politics are honest, decent and responsible human beings.  They are a small percentage based on my lifetime experience   I have worked in politics directly for nearly a decade in legislatures, in campaigns and an elective office.

I decided to leave active politics before I was 33, when I begin to realize that virtually everyone in the political arena was boring.   To me, those who actually ran for office were ‘mentally distinct’.   I am trying to be polite when I use the phrase ‘mentally distinct’.  People who I knew who ran for office or who were elected invariably were self centered and egotistical.

I’ll try again to remind you that this does not reply to all people who are active in politics. Just most people.

People go into politics first because they love the attention.   Secondly because they have thick skins and do not believe that anything negative said about themselves can be accurate.

I have often conducted public surveys where the political body representing the population was completely out of step with the population.  The reason is that the kind of attention getting self centered person who is active in politics only responds to the pressures of other people like themselves.  A different and biased subset of the general population.

That is why I have believed for a long time that a random sample of the population is necessary to serve in elective legislative positions in order for the public to be represented.

New experience for partners

This is a cautionary piece of advice for any couples where one member of the couple is about to go on a significant experiential voyage and leaving the other partner out.

I have two examples to offer.  I have many more examples from my personal experience.

In the first instance I watched a number of stable happy couples where one member of the couple went to a two day or week long training session in New Age ideology.   One was the Earhart training seminar, EST and the other was a copy of EST.  Almost invariably, within months after one partner went to the new age training program that significantly influenced their view of the world,  the partners split up.

I have also watched the identical result occur where one person went to live for a month or so in another country,  often to study or develop their skills.  I have seen this occur for trips to Japan, Italy and Israel.  One partner comes back home and within a short time the couple has dissolved their relationship.

I think the reason is clear.  The experience was so significant in the personality of one partner that the former comfortable arrangement was disrupted.

My  observation is straightforward: if your partner is about to embark on some adventure or experience that is likely to have a significant effect on his/her view of the world,  you should expect serious problems in your relationship on his/her return.

There are exceptions.  But be cautious.

 

Two from Mankiw

Greg Mankiw, an economist who is head of the economics department at Harvard, is an economist that I regard highly.

He has published two items that I reproduce here.  One is an analysis by the Brookings Institute, a liberal think tank,  that shows that in the past several decades there has been an improvement in the income at every level of income in the U.S.  Not a decline for those in the middle class and below. Here is a summary from that report.

“Some crucial findings of the new study may come as a surprise, especially to people who believe incomes of the poor and middle class have stagnated since the turn of the century while incomes at the top have soared. The CBO’s latest numbers show the opposite is true. Since 2000 pre-tax and after-tax incomes have improved among Americans in the bottom 90% of the income distribution. Among Americans in the top 1% of the distribution, real incomes sank”

The second item is a chart  that shows an interesting change in the structure of American business.

Let me explain what is going on since I regularly recommend this change of business structure to my clients.

In the past I have often recommended the corporate form for a small business if there was any risk of lawsuit for any form of damages the business might incur.  About  two decades ago I started recommending the use of LLCs and partnerships in these cases along with the purchase of liability insurance.   The reason is straightforward. If you have a corporation you will be paying corporate taxes to the state and federal governments.  These can be trivial or significant depending on how rapidly the business grows and what industry the business is in.   But the principals who own the business also pay income tax on the revenues they received within the corporation as salaries (or in the most extreme situation as dividends).   By forming an LLC or a partnership (and getting liability insurance) the income from the business goes directly through to the owners or principals and they only pay personal income tax on that revenue without having to additionally pay the corporate tax.

You can see why more and more businesses are finding this an appealing approach. It effectively reduces the amount of tax an individual pays on a business they own and operate.

What is missing is a combination of the Brookings analysis of changes in income distribution in the past few decades and the changes in ownership of small businesses? We need an analysis of how these two effects are working together.  Clearly if more business people are creating flow-through structures and avoiding the corporate tax, greater income is going directly to the individuals who are most likely in the top income brackets and increasing their incomes.

So what is the interaction of these two items that I have taken from Greg Mankiw’s blog?

Three generations

We have an interesting example of the way history works.

The example is found in modern Europe and I am specifically using an example of France where Zyklon B ideology is driving French Jews away. (Zyklon B is the cyanide gas that was used by the Germans to kill millions of Jews and others in the Holocaust.)

Zyklon B ideology is currently rampant in Europe.  That is the history lesson that we need to examine.

It takes 3 generations after the most horrific event in human history, the murder of 6 million innocent Jews and others, deliberately for ideological reasons, with the cooperation of the vast population of Europe, to now become irrelevant.  

I am NOT exaggerating when I say this historic horror has become irrelevant.  Zyklon B actions (Jew hate) have been carried out daily in nearly every country in Europe with only a whisper of opposition by the general population and the governments.  This is the triumph of Zyklon B ideology.

The point I want noted here for historians is that it has been only 70 years, which is two generations, for any sense of guilt to be completely gone. We are now in the 3rd generation in Europe since the historic horror and there is virtually no opposition, no sense of guilt, no sense of responsibility for  the whole idea of Zyklon B, the view that Jews should be exterminated, especially those Jews now living in Israel.

Israeli Jews are surrounded by hundreds of millions of people who want to kill them.  What Israel gets from the European Zyklon B ideologues is boycotts, pressure to accommodate Arabs who have never negotiated any peace with Israelis in over 100 years.   It is considered perfectly OK to Europeans that the Zyklon B solution will be used again on Jews.  Europeans are joined in this ideology by many American leftists as well, and by most academics in the United States.

That is my note to historians:  After 3 generations, horrible historic events of any proportion, no longer have any significance to the population that perpetrated the historic horror.  

(I will cover the similar experience with American slavery in a separate blog.)

 

 

My lecture to the top 50 American CEO’s

A few years ago I wrote a blog about the time I gave a speech to the 50 top CEOs of the United States.

 Here is the blog followed by my report on what I told the CEO's but did not include in the blog:

“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 bookIntrapreneuring.  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.”

There were two stories that I didn't report to you, my readers.  The first is about how I got the modern multi-bank-credit card started and the second was how I introduced the consumer CD (certificate of deposit).

In the first case, after I had met with my peers in bank marketing and convinced them that we could start a credit card ourselves,  we arranged for the next meeting to be in our law offices so that there would not be any legal presumption of collusion.   At the second meeting (at the law offices) the whole idea of a joint bank credit card was approved by the lawyers. At that point we agreed to begin hiring personnel to get the project underway.  I recommended that the subsequent meetings be made up of our executive vice presidents.  

That was highly manipulative of me because I knew that if any one bank executive vice president felt he was so important as to be with the other major bank executive vice presidents, in San Francisco, he would most assuredly stand behind the idea of this new kind of credit card.  They all did come to the subsequent meetings and every bank enthusiastically supported the new Mastercard.  

The card went on to become the first global currency.

The second manipulative mechanism I used was to create the modern consumer certificate of deposit.   Up until that point, roughly 1968, certificates of deposit, paying 5 percent by law, were only being sold to customers with more than $10,000.  I found there was a significant market among people who had less money to put into an account that couldn't be touched for 90 days.  After I had tested the idea in focus groups I sent a non-descript note to my top management committing them to support the modified CD.  I then told the branches and the operations people to move ahead on the project in anticipation of an advertising campaign I was planning.

Management had not really understood the idea and only tacitly signed on,  without knowing they had done so.  After a modest ad campaign, so much money poured in that management was happy with what I had created. Management never second guessed my decision.  

The new consumer CDs immediately spread to every other bank in America, it was too late to change our minds. 

MSNBC confirming beliefs

Among some of my friends I am becoming viewed as a curmudgeon .  That is because I frequently make the statement that 99 percent of people have closed minds after age 23. The reason I make that statement is rather confirmed by a recent change in media habits.

There has been a steady decline in support for president Obama and the Democrat-Union Party, largely due to the Obamacare fiasco which included lies affecting large parts of the population as well as a continual decline in the global status of America.

One of the consequences of this decline in support for President Obama and the Democrat-Union Party is that the daily need to be reminded Democrat-Union voters made the right decision, is in decline.  More and more people are questioning the soundness of that decision last year.

The best evidence is really worth looking at.

The mouthpiece for the current  administration is MSNBC.   MSNBC has been showing a decline in viewership although it was already low most of the time and it is showing a noticeable decline in revenue not experienced by CNN or Fox.   CNN and Fox have shown continued growth in revenue while MSNBC shows a decline. I take the decline in revenue growth as evidence that  the ‘We hate Republicans rant’  and the ‘We love Obama the Messiah’ rant is also declining in importance.

Here is the source of the data.

The fact that this took so long, more than 5 years, is evidence of my basic premise that people do not change their minds ever after age 23.   What is happening is not changing the Democrat-Unionist minds it is that they are no longer comfortable with a decision they made a half year ago and 5 years age.  A minor change in perception, pretty much like going from black shoes to brown. The change has an effect on ad revenue to a sycophant cable news channel.