Category Archives: Economic Colloquy

In the wake of the “Great Recession” we discuss American and world economic progress (or lack there of).

Legalized Marijuana will Sweep the Nation!

I predict that pot will be more or less legal most everywhere in the very near future. Why? Because cash is king.

In January, the state of Colorado collected $2 million in recreational pot taxes and $1.5 million in medical marijuana taxes. What state can resist that cold hard cash? It is just waiting to be taken.

Do any of us really believe that marihuana being illegal is stopping anyone from getting high? Hell, I’m a law abiding, tax paying, white collar schmuck and even I know two people I could personally call up and get a dime bag from if I really cared to.

I predict that eventually, even the most socially conservative of states will give way, even if it is a medical marijuana cop out where they’re pretending to be hard on drug use, but still want to collect at least a few dimes from all those dime bag transactions!

2014-03-18 11_35_19-Colorado collects $2M in recreational pot taxes - Yahoo News

Need convincing? Look no further than Lynchburg, TN, home of Jack Daniels!  Lynchburge is a dry city. You can’t buy Jack Daniels in the town it is made. But Jack Daniels still produces barrel after barrel of whiskey and you can buy bottles of Jack Daniels from their overpriced gift shop!

Why? Because cash is king! Jack Daniels produced millions in tax revenue every year. Who can resist all that green?

Weed will be legal soon enough, if for no other reason than collecting a few more tax dollars.
http://news.yahoo.com/colorado-collects-2m-recreational-pot-taxes-212356027–finance.html

-Holden

Maybe its time for Government to raise Min Wage

Over on one of my favorite blogs, journalist Phil Ebersole has wrote extensively about minimum wage.  Here’s a few recent thoughts on the subject.

My gut tells me government shouldn’t meddle in wage or price fixing. Let the market sort it out. I also feel like opening the door to such a debate would only serve to hurt smaller businesses or worse, open some sort of economic Pandora’s Box. But then I was reminded of past lessons from my grad student days.

When I was in business school, we were taught that it is the nature of a business and even more importantly, its duty to its stakeholders to maximize value.  What the value is, is determined in the corporate mission statement and by the stakeholders themselves.

In the case of most corps, value is profit and stakeholders are those who own the stock/equity of the company, or further those who work for and rely on the company one way or another

In business school, I was also taught that is was pretty much the government’s job to play referee. It isn’t the business’ job to play good guy or make the call as to what serves the public good , but to maximize value for its stakeholders.

If this is what they teach in mainstream, MBA classes and this appears to be the prevailing attitude of big business, I say maybe government does need to be more involved as much as I hate to say it.

The issue of Minimum Wage seems little different than EPA or Anti-trust regulations at this point. If there is no oversight, abuse happens. The power of the common man has been decentralized, party through a poorer/evolving economic environment but also through the ineffectiveness, corruption  and increasingly unpopularity of labor unions. The average laborer has very little power in most cases and no sort of unified voice.

Now find ourselves in a bit of a David vs Goliath situation. And just like in the Biblical story, the only way David will ever have a snowball’s chance in hell of beating Goliath is thanks to intervention from a higher power.

-Holden

The military passes a financial audit for the first time

For the first time since 1990, when the Congress approved the Chief Financial Officers Act, which among other things, required all federal agencies and departments to produce what would be regarded as a clean financial statement on their budgets, a branch of the U.S. military passed a financial audit.

As reported by Jamie Dupree:

“It was the first time any branch of the military service had been given an “unqualified favorable audit” for being able to show where billions in funding had gone.

Let me repeat that – it was the first time that any part of the service had been able to fully account for where all of its money was spent.”

This begs the question: What are the consequences for committing fraud, failing audits, and abusing tax dollars? Apparently nothing. What is the point of an audit if there is no enforcement?

Morality: Questioning Land Ownership

I began to think about the concept of  land ownership after reading two separate books, whose authors probably would not agree on the subject. The first was the final  pamphlet  in a series of writings by Thomas Paine called “Agrarian Justice”. The second is from a book I read about a year ago by Ron Paul called “Liberty Defined“.

Both Ron Paul and Thomas Paine are known for their outspoken “pro-Liberty” stance so I was interested to see such a dynamic exist between their ideas about land ownership. It also caused me to examine my own thoughts on the subject.

1. Opposing Views: Thomas Paine and Ron Paul on Land Ownership

In context, it may be helpful to quickly describe the two men’s views on the morality and right of land ownership and then my own thoughts on the subject.

1a. Ron Paul on Land Ownership:

Ron Paul is a champion of the Austrian school of economic thought. He believes that private land ownership is a pivotal component to a successful economy, personal liberty, and natural rights.  Ron Paul is against public land ownership, especially ownership by the Federal Government, citing the misuse of public land in the abuses of eminent domain, lobbyist groups, and otherwise corrupt actions by Governments. On many of these points I agree.

“In a free society, the land is owned by the people, not the government…Total federal ownership is more than one third of the land mass of the fifty states. But that’s not the only problem…Taxation and regulations are so cumbersome that land owners are essentially renters with no right to the land…”

Ron Paul also hints and problems of facism and oligarchical control of land:

“Today’s corporations and private businesses ask local governments to condemn land in order to resell it to them. The promise is that the land value will go up, the business will pay more taxes, the municipality will benefit, and the new business will earn moremoney with its new, preferable location…This is a modern distortion and abuse of the principle of eminent domain.”

The part I do not believe Ron Paul addresses  is the potential for private land owners and corporations to own and hold giant portions of land into perpetuity. If it is every man’s natural right to own land how can we justify one man or single corporation to own it all – leaving nothing for some people. Isn’t then, the perpetual ownership of massive amounts of land inherently immoral and contrary to liberty?

Thomas Paine addresses some of these concerns.

1b. Thomas Paine on Land Ownership:

Thomas Paine believed that, in a civilized state, individuals are entitled to the fruits of their improvements to land. And since it is impossible to separate the improvements made to land and the land itself property ownership is a right. Paine did however draw a distinction between the land itself (which everyone is entitled to) and the cultivation and improvement of that land (which the laborer is entitled to):

“And as it is impossible to separate the improvement made by cultivation, from the earth itself, upon which that improvement is made, the idea of landed property arose from that inseparable connection; but it is nevertheless true, that it is the value of the improvement, only, and not the earth itself that is individual property. Every proprietor therefore of cultivated land owes the community a ground-rent for the land which he holds…

The additional value made by cultivation, after they system [of property ownership] was implemented, became the property of those who did it, or who inherited it from them, or who purchased it. It had originally no owner. Whilst, therefore, I advocate the right, and interest myself in the hard case of all those who have been thrown out of their natural inheritance by the introduction of the system of landed property, I equally defend the right of the possessor to the part which is his…”

Thomas Paine offers the following solution to bridge the gap between the rights of land owners (those who own land and cultivate it) and the rights of non-land owners (those who have a right to the ground itself, but cannot use it because it is occupied):

“To create a National Fund, out of which there shall be paid to every person, when arrived at the age of twenty-one years, the sum of Fifteen Pounds sterling, as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property. And also, The sum of Ten Pounds per annum, during life, to every person now living, of the age of fifty years, and to all others as they shall arrive at that age.”

Many people equate Thomas Paine’s solution with the modern day property tax and Social Security payments.

2. My Thoughts on the Morality of Land Ownership

The biggest problem I see with land ownership today is the perpetual ownership of mass amounts of land by the wealth elites, government, and corporations. This system usually means that large plots of valuable land and it’s resources are owned by the same family, company, or the Government for centuries.

I wonder: Is the process of perpetual and infinite land ownership acceptable in a free society or is it a modern form of royalty – where power and resources are passed down from generation to generation by a group of powerful elites?*

25 men control over 30 million acres of land (2%).
* The federal government owns more that 650 million acres of land (30%).

The New Silk Road- Chinese High Speed Rail to Europe!

Turn on the news and you’ll quickly notice that the same dozen or so stories tend to be circulated amongst the various major news outlets of America. You would assume that our freedom of speech and the proliferation of free data zipping round the world in mere seconds via the internet would result in the public being as educated as ever about… well, everything.  That doesn’t appear to be the case.

The reality is, the average person appears to be ‘not in the know’ more than ever, especially in terms of geo-politics. For example, ask the average American to point out Turkey on a map and you might find that only a little over half can identify it. That was the case with Iraq, when a National Geographic study performed a few years ago revealed that only 63% of participants could find the middle eastern country on a map, despite our long war with the embattled nation.

And speaking of Turkey… have you heard about their new $35 billion dollar joint project with China to build high speed rail across Asia and the Middle East? If you’re an American, probably not. Yet it probably means more to us than anyone.

China to Turkey Train

Look to Asia and you’ll notice that America has implanted itself everywhere in the region. We have a strong foothold in South Korea, Japan, the Philippines, Taiwan, and earlier this year Secretary of State Hilary Clinton and President Obama even visited Myanmar (Burma). Surely they weren’t there to enjoy the Buddhist temples or applaud the regime for its long history of upholding human rights were they? I doubt it.

China, and Asia in general is the world’s factory. American politicians love to bemoan the fact that China owns tons of our national debt and people everywhere joke that retailers like Walmart stock their shelves to the brim with Chinese produced products, but the fact of the matter is, we rely on cheap products from China and Asia to allow us to afford our ridiculously luxurious lives at such a cheap price. Hence, the main reason we’ve injected our influence in Asia everywhere we can get a foothold.

But wait, there’s more! Once the line from China to Turkey is complete, the Chinese next plan to complete a line to Spain and another to England as well, with the project being valued at $80 billion total. This would give Europe fast access to the markets of Asia, and China a new place to dump their goods and services at their insanely cheap prices. Think of all that freight coming straight in on high speed rail.

What are the Implications for the United States?

I think what the railway means to the USA is, we get cut out of a lot more deals. We start losing footholds. Maybe it will be good for us in the long run, forcing us to be more competitive in new ways. Who knows, But in the short run, it might shake up markets at the least.

I believe the real implications actually lie a bit deeper below the surface. For example, as part of the new rail deal with China, Turkey is kicking off a slew of new public works projects, including construction of two new power plants. The loans and construction contracts to complete those projects will most definitely come from China.

This is where the real money is to be made and historically this has been our speciality- go into a country, promote economic development, extend loans and foreign aid to these developing nations under the guise of “Nation Building and Breeding American Style Capitalism and Democracy” then stipulate that the work be done by US firms, essentially feeding the cash pumped into the developing nation right back into our coffers.

Are China’s economic hit men suddenly getting a one up on ours? Are they perhaps, starting to beat us at our own game? Only time will tell.

Read the article here: http://www.todayszaman.com/news-277360-turkey-china-mull-35-bln-joint-high-speed-railway-project.html

-Holden

Is $15 a fair minimum wage?

This morning in Atlanta, GA fast food workers are going on strike in an effort to demand a higher minimum wage of $15 per hour. That is $31,500 a year for a full time fast food employee (not including benefits).

As matter of practice I believe it is good policy for any given employer to treat their employees with a certain amount of dignity and respect – including paying their employees a fair wage. I believe this not just on moral grounds, but also as a matter of doing good business and competing in the marketplace.

For example, companies like McDonalds and Wal-Mart are notorious for treating and paying their long-time employees poorly. In response this has directly affected the quality of their businesses (no one shops at Wal-Mart or McDonald’s for the ambiance) and, perhaps more importantly, degrades their reputation with the consumer. In the long run this is just bad business.

Bad business doesn’t mean that the Government should necessarily litigate their business practices though. Bad business decisions for one company presents a new opportunity for another company (thus opening up new opportunities for employees as well). For example, companies like Costco and Chick-fil-a have decided to pay employees better and implement a different sort of culture. Ultimately, this has lead to better quality services, higher profits, and happier employees – all without Government intervention.

Problems with an artificially high minimum wage:

While the idea of every worker, regardless of their job title, earning over $30,000 per year may sound like a good idea to some people – it is important to point out that there are many unforeseen consequences.

1. It disrupts small business’s ability to compete.

Mandating an artificially high minimum wage (especially one as high as $15/hr) makes it very difficult for businesses to compete in the market place.

For example, let’s say that a local retail boutique (The Little Apple Boutique) offer’s high wages in an effort to draw in the best employees. They need these employees because part of their business model is to offer superior customer service in exchange for moderately higher prices for their goods. Their profit margins are low because the cost of paying their employees and running the business is high, but this is the niche that they have carved out for their business and it’s working.

When an artificial minimum wage is introduced this destroys The Little Apple Boutique’s ability to execute their business plan. They can no longer attract the best employees because every other business in the area is offering the same wage. The Little Apple Boutique can’t afford to raise their wages any higher and stay in business.  Six months later customers begin to complain that The Little Apple Boutique’s customer service isn’t what is used to be. Twelve months later The Little Apple Boutique is out of business.

2. High minimum wage closes the gap between the poor and the middle class, but not between the 1% and 99%.

In general, people are very aware (and concerned) about wealth inequality in America. There is a constantly growing gap between the super-rich and everyone else. But rather than addressing that inequality gap an artificially high minimum wage could serve to expand it.

US Wealth Distribution

2a. High minimum wages hurt small businesses and but do not affect big corporations

Most of the poor and middle class people in America shop at the same places. (We all shop at places like Wal-Mart, Target, Publix, McDonald’s, etc.) The places that we can afford to shop, in general, employee a large number of employees at or slightly above the current minimum wage.

Higher minimum wage (especially $15/hr) will ultimately drive prices up at places where the poor and middle class shop. Overall this means that the middle class will be poorer (assuming they already made above minimum wage, but now have higher prices) and only serve the poor marginally (assuming the poor now make $15/hr, but now have to pay higher prices).

The one class that the higher minimum wage does not affect is the rich. Moderately higher prices do not affect their lifestyle and they probably don’t shop at McDonalds or Wal-Mart anyways.

2b. Higher minimum wages hurt middle class small businesses, not rich corporations, ultimately helping the rich corporations.

On the surface, this seems like a battle waged against big and evil corporations. The type of corporations that treat their employees like trash and serve us mediocre food. We see this as a battle for the poor and against companies like Wal-Mart and McDonald’s. This is not the truth.

Ultimately, this is a fight against the middle class and an apathetic super-rich. If the people successfully lobby the Government to pass an artificially high minimum wage (specifically one as high as $15/hr) it will hurt small, middle class business – not the evil corporations.

In the long run companies like McDonalds and Wal-Mart will survive the minimum wage hikes. They will pass the expense on to their customers, to their suppliers of beef and paper products (who are probably small/medium sized businesses) and keep the profits for themselves. In fact, the poor (who shop at Wal-Mart) will keep shopping there, but since they make more money they will spend more. Ultimately giving Wal-Mart even more profits. Ironic.

The companies that will ultimately go out of business are the ones that ultimately treat their employees with respect in the first place. Small businesses like The Little Apple Boutique, Local Farmers, and Diners will go out of business. And in the end we will all keep shopping at Wal-Mart, but this time paying higher prices for the same bad service we’ve always had.

3. Outsourcing and the Value of low skilled labor

In the labor market of individuals who are paid less than $15/hr there are basically two classes: 1. low-skilled manual labor (cashier, hamburger cook) and 2. skilled-labor that doesn’t demand much money (tech support). I want to discuss how a higher minimum wage will affect each of these two classes.

3a. Does the low-skill labor demand $15/hr?

When people think about those people who are unfairly treated by their employers (and who deserve a higher wage) they often imagine the poor mother with two kids who cannot make ends meet. She gives life everything she has, but can’t make it. It is unfair.

This is a action-provoking idea, but it does not reflect the situation of the majority of minimum wage workers. Rather it serves as an artificial “poster child” used by lobbying groups to evoke emotion from the masses.

The truth is that over half of minimum wage workers are young people (probably in school and still gaining skills) not bread-winners. A research by the Pew Research Center shows that 50.6% are ages 16 to 24; 24% are teenagers (ages 16 to 19).

This begs the question: Do 16 year old teenagers and college students really need (or do their skills demand) $15/hr? I don’t think so and I do not think an artificially high minimum wage is an appropriate way to address the rare case of a struggling mother. There are numerous, more efficient, way to manage such cases.

3b. Skill-Labor: Outsourced jobs that could be in America:

The problem with most skilled-labor jobs that pay less than $15/hr is that they are easily outsourced to countries that do not have minimum wage standards or the job is subject to being automated.

The average outsourced job in India pays $13.46/hr ($28,000/yr). That is over $1.50 less than the proposed minimum wage of $15/hr. This means that all jobs that can be outsourced will be outsourced (or automated). 

The other idea to consider is that companies are smart. We already see retail stores replacing cashiers with automated machines. Would it seem strange to think that our food may be cooked by robots in the near future? I don’t.

In the future a $15/hr job might mean no job at all for many Americans. Food for thought.

Borders: Humanity in Exile

Earlier this year Holden and I ventured across the U.S. and Mexico border from San Diego to Tijuana. We took a 45 minute trolley ride to the Mexican border and crossed on foot. The juxtaposing skylines served as a depressing metaphor for what humanity has become. The richest people to have ever existing segregating themselves from the third world by a concrete barrier. All to protect our jobs, our border, our country. Nationality over humanity.

Immediately crossing the border there is a bridge to Tijuana that hovers over a filthy canal. In the canal are dozens of dirt and shit covered Mexicans.  Men, women, and children dressed in rags, teeth rotten, begging those Americans brave enough to cross for change. Cultural degradation as result of poverty, corruption, greed, and mal-education.

A few military guys crossing the board at the same time as Holden and I crack jokes about how they are going to “fuck some hookers” as they spit over the bridge down to where those “crazy fucks” are in the canal.

Years of conditioning has trained us to dehumanize the “other”. They are not one of us. Not human beings. We spit on them. We fuck them for pennies and brag about how cheap it was later. We separate ourselves from them by a few feet of concrete and steel. Dissociation -and the whole world is doing it.

More Borders: More Human Division

Then today I read a first hand account about another border. The border of Isreal and Palestine.

“I went to Israel. Saw a city much like any city in Europe. Clean streets. Beautiful big store fronts. Sidewalks. Nice signs telling you where to go. Little stands and shops everywhere. Great food from around the world. Pastries, pizza. It was Europe, basically. I loved it. It was very clean! It was great…

…You exit and on the other side [of the border]is a tall wire fence covered with barbed wire. There is graffiti all over the wall. The buildings are crumbling. No nice food, streets made of dirt, everyone is poor…”

It all sounds so familiar. Those fortunate enough to be rich create barriers to separate ourselves from those who are poor. Sometime we even call those people enemy. Subhuman. Terrorist. Barbarians. Backward.

Then we wonder why the have-nots are willing to die, to kill, and to terrorize. We wonder why these same people can be converted to extremism. Meanwhile we maintain a foreign policy of separatism, elitism, and turning a blind eye to exploitation. How can you call yourself a Christian, a Jew, a man of integrity, and moral atheist, a human being – and be okay with any of this?

A New Economy: The Shorter Work Week is Already Here

The conservative in my wants things to stay the same. I know how to succeed in this environment. I work a little harder, put a few more hours in at work, and do a great job and I know that the next raise, the next promotion, the next big step in my career is just around the corner. And for the most part I enjoy what I do – I have shaped my way of thinking to accept the challenge of my career as an unavoidable way I will spend 1/3 of my life.

On the other hand, spending so much time at work means that I have to give up other things that give me purpose. It means less time with my wife, less time with my little girl that is on the way, and less time with my extended family. The real sacrifice is less with my wife and child and made thought more subtle decisions like “I guess we aren’t going to see Grandma this weekend.” or “We can see our parents next month instead.” Or maybe its just being grumpy because I have to do something family related when I’d really enjoy some personal time.

But are we at a point where technology has given us an out? If we change our thinking can we work a little less and have a little more time for ourselves.  Are we enslaved by ancient ideas about middle-class-ism?

The End of an Era: 40 Hour Work Week

Enhancements in technology has granted us the gift of more free time and it’s only a matter of time before that seeps into the classic way of thinking about work.

Early in American history, when most of the country were farmers, people spent all day working. As the industrial revolution made its place in history shift work became popular and work days shortened. Over time, new industries of office workers, government employees, and service industries lead to what we now know as the 40 hour work week.

But with new developments in work-related technology, instant communication, and enhanced reliability, is there any reason we can’t reduce the work week even more – and more importantly – make that the new standard?

Some economist say we can:

“A shorter working week would make us healthier, give us more fulfilling and sustainable lives and be better for the environment.”

Market Decisions on Working Hours

I do not think that the 30 hour work week revolution would come all at once, but will (and is) be a part of a broader market strategy as companies in certain industries look to become more competitive. I firmly believe that some firms, seeking top talent, will eventually use the modified work week as a strategy to cut costs, retain productivity, and still get the very best employees.

For example, what if you were looking for a job out of college and you were given two choices in employment:

Tech Job A: Work 55 hours a week, health benefits, salary of $90,000 a year.
Tech Job B: Work 40 hours a week, health benefits, salary of $75,000 a year.
Tech Job C: Work 30 hours a week, health benefits, salary of $60,000 a year.

If you’ve ever worked 55 hours a week on a consistent basis “Tech Job C” is looking pretty great right now! And as firms realize that there is a large opportunity to gain the competitive edge, saving some cash, and limit the loss of overall productivity – I think we will see options like these become standard practice.

In many ways the future is here. New work models like “work from home Fridays” and “telecommute to work” are already shortening the work week. It is only a matter of time before we are talking about the 20 and 10 hour work week.

Taxes, Bankruptsy, and the Future of the American Economy

Three things are happening to the American economy that are ultimately unsustainable:

1. Rising national debt.
2. Simultaneous increase in military  presence and social programs.
3. The federal reserve continues to pump $85 billion dollars into the economy monthly.

The only solution seems to be a massive overhaul of our current economic methodology, but first we need to understand where are our tax dollars are going and what solutions are available.

Tax Expenditure in America

Major areas of spending breaks down as follows [source]:

Military: $929B
Mandatory Spending:
Medicare & Medicaid: $802B
Social Security: $768B

These three programs account for about 75% of the total national budget. This means that, without major budget overhaul, mandatory spending alone will quickly exceed all federal revenues.

“Since the federal government has historically collected about 18.4% of GDP in tax revenues, this means these three mandatory programs may absorb all federal revenues sometime around 2050. Unless these long-term fiscal imbalances are addressed by reforms to these programs, raising taxes or drastic cuts in discretionary programs, the federal government will at some point be unable to pay its obligations without significant risk to the value of the dollar (inflation).” [source]

If the United States continues its current model without significant reductions in military or entitlement programs we can safely assume that taxes will continue to increase until we are more closely aligned to western European countries.

Comparables: Tax in the U.S and Europe

Currently the United States collects 26.2% of total GDP in taxes (State + Federal). That puts us at number 62 between South Africa and Kazakhstan. [source] We can compare this to the top 10, which include countries like Denmark and France, who each collect well over 40% of GDP in tax Revenue. But that number doesn’t mean much because every country has a different GDP and population. So we have to look at something else.

Perhaps a better number to look at is total tax revenue per capita where the United States ranks 14th.  [source] The U.S. collects about $13,084.80 per person in Tax Revenue, which puts us more closely in line with countries like Denmark ($18,100) and France ($15,120). Maybe that doesn’t sound like much, but it would take over 1.5 trillion dollars in tax revenue to catch up to Denmark or 600 billion to catch up to France. That would be about ¼ of our current budget.

Solutions: What should we do?

It seems pretty clear that doing nothing is not an option. We can’t cut taxes, expand military, and social programs. That doesn’t work. So what gives?

To avoid bankruptcy the most likely scenario is a combination of modest reductions in spending and increased taxes. Considering the size of our economy and military these changes could be relatively nominal.

For example, if the U.S. were to reduce military by 25% and increase taxes by 2.5% of GDP that would be a swing of $624.25B. Maybe we could even do some unorthodox thing like legalize marijuana and tax the hell out of it. Some studies estimate another $8.7B in federal tax revenue a year. That would put us at $632.25B.

A number like that wouldn’t burden the economy and would put us right up there with Western European countries like France. Perhaps that is something we can all live with.