The Growth of Wealth

Just to be clear, I am not talking about the accumulation of wealth.  That is a fascinating but entirely different structure..  What I wish to speak about here is the growth of the collective wealth of the human species.

The first question is whether or not we are really growing richer.  We seem to have fished out the sea in large part, and we have beaten up the land quite a bit.  Since there are lots more of us, we are certainly poorer in the amount of space available per person.  That makes real estate more expensive, but apparently not quite as dear as we all thoughtr two years ago.

Simple math clearlysays that we are  growing poorer in the finite world, but that may no longer mean that we are really growing poorer.  We have learned how to extend the finite that are nothing short of amazing, and we have created our own world of the infinite.

We, the people of the planet, have developed an incredible capability to make all kinds of things. A Bhuddist would say that we carry the burden of our things.   We make so many things that we don’t even have space to throw them all away!

It’s not like all of these various things are all junk or destined to become junk.  Automobiles and planes extend our freedom and access to the world in ways that our fairly recent ancestors couldn’t even imagine.  Computers give us all access to music, science, art, and raw information that would be very hard to imagine years ago (as the science fiction of the early nineteen hundreds clearly shows).  All of these machines give us a common wealth: time.

Time is all we have.  When the world grows richer in its ability to extend our lives, we grow richer in the absolute sense of having more time.  When the world grows richer in its ability to provide for our needs and desires, we grow richer because we get a braoder choice of the way we spend that time.

If you have a life where you get to do what you want most of the time, you are leading the life of the wealthy.  If you have a life where you always do what someone else wants, you are leading the life of the slave.  For me and for many others, the critical measurement of wealth in my life is how much of it I get to spend doing what I want to do compared to how much time I have to spend doing stuff I have to do.

Remember that not long ago, the ways to use free time were a lot more limited.  Today, an unlimited world of knowledge and entertainment is availble to anyone who lives over a coffee shop.  This will change the world — the simple combination of time and access to information.


Reverence for Hard Work

One of the things that gives me hope for the future of this country is our reverence for hard work.  We like to believe that people have the skills and success that they have because they have worked harder than the rest of us.  It’s not like we think of ourselves or our neighbors as lazy, but we all would like to believe that if we had the focus, the support, the training, and the dedication, we could play golf like Tiger or ride a bike like Lance.

Like Shakespeare’s Cassius, we blame ourselves rather than our stars for falling short.  We respect Tiger Woods, Jerry Rice, Lance Allworth, Cal Ripken, and a host of others because they work so hard.  Certainly all of these people had undeniable talents, but most of us are pretty good at a lot of things.  Sometimes that even includes our work.

I like my work, and I am at least reasonably good at most of it.  However, I know I could be better at everything I do.  Part of the reason is that I want to do a lot of things, and being really good at something, good like Tiger is at golf or Lance is at bicycling,

You have to focus your life on that one thing, if that thing is physics, music, math, golf, or a whole list of other activities, you have to make that decision before you are out of your teens.  In most cases, you have had to already have done a considerable amount of work to be qualified to make that decision.  Almost without exception these days, the young superstars have shown a depth of dedication and commitment to focused work that shames most adults.

I don’t think Americans are alone in their reverence for hard work, but I do believe that we have more faith that hard work makes a difference.  We all know that you can work your butt off and fail, but that does not keep us from believing that our efforts can affect the outcome.

Hard work may not save us, but it is still our best bet.  That is our common faith.

How Common is Financial Fraud?

Obviously, the Democrats seem to be a lot better at detecting it than the Republicans, but they do have favorable timing on their side.  Bernie Madoff made a lot of people take a real close look at all of their investments, and not all liked what they saw.

Frauds like Ponzi schemes aren’t common, but they aren’t rare either.  CNBC is in no danger that they will run out of material for their American Greed series, and a similar International Greed series would not lack for mateial either.

I would bet that there are several hundred frauds going on right this minute.  Several hundred isn’t a big number in a world this size, but several hundred fraudsters still can hurt tens of thousands of victims.

The odds are pretty good that you both know someone who lost money to Bernie Madoff or Allan Stanford, and that you also know someone who is being defrauded right this minute.  I read not too long ago that more than one hundred Ponzi schemes have turned up since Madoff was outed.

There are a lot of crooks out there, and the system is not set up well to catch them.  This is partly because catching crooks is not the priority of the regulations.  The priority of all regulations is to protect the industry being regulated. That is not the original intent or the nominal rationale of any regulation, but industry lobbyists set the agenda for politicians because industry pays for their politcal campaigns.

Where are these crooks?  They are where the money is.  It is as simple today as it was to John Dillinger who robbed banks because “that’s where they keep the money.”  But smart crooks have noticed that you can’t make a billion dollars robbing banks with a gun.  You need nice looking paperwork, but everybody has a computer these days.  Anybody with a little skill and patience with a computer can generate enough paperwork to look like a real business.

So how do you tell a real business from fraudulent business?  To some extent you can’t, but businesses that don’t make anything tangible should be given the highest level of scrutiny.  Businesses that claim to make money by moving some kind of paper should be looked at very carefully.  Lots of businesses do make their money this way, but make sure you understand exactly what is going on before you give them your money.  It you think what the people are doing is over your head, it’s out of your budget.

Of course, fraud isn’t limited to outright scams.  Tyco and Enron were real businesses that had fraud inside them.  Probably every large business has had to deal with some level of fraudThere are lots of real businesses with some level of fraud.  We already know that lots of embezzlers are caught and prosecuted while many more are caught and quietly asked to leave.  Legitimate businesses can turn into frauds when they are looted from within.

And even if you duck all manner of fraud, you can always lose when you hand your money to other people.  Lots of legitimate businesss efforts fail, and almost all fail eventually.  Invest in honest businesses that you have checked out thoroughly, and don’t lose more than ten percent of your stake in any one venture.

Capitalism IS Gambling, and fraud is only one of the risks.  A good gambler takes steps to protect himself against cheaters.  Be a player, not a mark.

When Are You Going to Stop Gambling?

When you are dead.    Every living creature in this universe is gambling on a million things every second of its existence.  Don’t think that you get off easy because you don’t actively gamble.  You don’t!

One of the fascinations I have with our American culture is that we pretend that gambling is a sin  The real sin is pretending that you are not.  You may not playing cards, betting on horses, rolling dice, betting on football games, or playing the market, but you are gambling.  I think gambling was heresy in a world that believed in predestination, but that world doesn’t exist any more, does it?

You are gambling with your money, your health, and your life.  That is a simple statement of fact. but we are really interested in your money.  How are you gambling with your money?

Once you realize that every single thing you do with your money is gambling, you can start thinking about what you are doing to gamble successfully.  If you think you are not gambling, you never even get to this point.  You can’t have a continuous improvement plan for an activity you are not even aware of.

What does getting better at gambling really mean, anyway?  It means winning more and losing less.  It means winning more when you win and losing less when you lose.  Gambling is not only a process, it is a process with well-defined commonly understood and agreed upon metrics.  The person with the most money is usually the best gambler.

That is, that person is usually the best gambler when it comes to money.  Having pile of money is nice, but we all know of people that had miserable lives with plenty of cash, as well as people who have great lives despite never having won a monetary bet in their lives.  Money is just one way of keeping score, and it is only the best way of keeping score when the goal is strictly the accumulation of money.  That’s a broad limitation, but important nonetheless.

The number one currency in most of our wagers is time.  You can always get more money and try again as long as you don’t run out of time, but you can never get that time back.  Money can help you make the most of time, but it can never get you time back.  And time is really all we have.

So how do you get better at gambling?  It’s all about identifying and eliminating risks.  A risk is anything that might cause you to lose a bet.  For example, every day you are making a bet that your house won’t burn down.  There are many things you can do to increase your chances of winning this bet.  This is just like any other bet.

What if the bet we are talking about is that you will have enough money to retire?  A lot of people get this bet wrong.  Some of these people always knew they were going to lose that bet, but the loss has come as a surprise to lots of people lately.  Many of these people thought they had already won this bet, and many of them had if they had taken all of their profits two years ago.  Some couldn’t and some wouldn’t, but almost all who didn’t got clobbered.

A lot who got clobbered ignored the first rule of risk managment.  “Don’t put all of your eggs in one basket.”  Victim after victim in the Bernie Madoff case said that they gave Bernie all of their money.    The same is true of of many of Allan Stanford’s victims, but getting Ponzied isn’t the only risk.  You might have had all of your money in Enron, Washington Mutual, or General Motors.

Of course, there were many who were forced to keep all of their eggs together.  Employee stock options made many employees multi-millionaires on paper, but many of these people had to keep their company stock.  Some could have cashed their options and sold the stock, but if they didn’t sell the stock or never cashed their options, all of that money disappeared.  Sometimes it disappeared by itself, and sometimes it took some or all of their other money with it.

Other common sense rules of risk management that got ignored included: “If you bet all of your money all of the time, you will lose it all eventually no matter how smart you are.”  Use of leverage or margin is betting MORE than all of your money all of the time.  The use or misuse of leverage is behind nearly every market disasters except outright frauds.

There are lots of other risk management rules that everyone knows.  Apply them!  Remember that you are gambling. and take the appropriate steps to protect your butt.  You already know what to do.  Pay attention and use some discipline!

The Tiger Woods Brand — At Work and Growing

I am a huge fan of Tiger Woods, and that goes well beyond what he does on the golf course.  I’d be pretty happy if I could handle the typical par four like Tiger handles an interview, for example.  He’s amazing!

Many professional golfers are pretty good at giving interviews and handling press conferences, and Tiger does have the huge advantage of constant practice, the confidence of the best golfer in the world, and everything that goes along with just being Tiger Woods.  Tiger Woods would be a brand even if he didn’t know he was a brand, and he knows.

He may know better than anyone.  He obviously studied Michael Jordan and Jack Nicklaus.  I bet he has studied everyone who has ever been a brand.  He’s not only been a brand for a long time; he’s been famous for being a brand for almost as long.  And like everything else he does, he keeps getting better at it.

Hosting his own tournament at age and having it be signifcant official event is quite an accomplishment at 33.  Many of the all time greats have their own tournaments, but they were all much older.  Tiger started this several years ago, just looking and waiting for a chance to make it an official event.

Now that preparation has paid off.  The Tour needs events and sponsors for the first time in years.  They not only made his event official, but he has the Fourth of July weekend in Washington, D.C.  honoring the Armed Forces at a storied golf course under the brutal heat of the Washington summer.  And if you still aren’t thinking that Tiger is the second coming,l active miltary and kids under twelve are admitted free.  Finally, the name of the tournament is carefully crafted to maximize the way it extends the brand: The AT&T National hosted by Tiger Woods.

It is instantly the most significant event between the U.S. Open and the British Open, and it reduces all of the other events in this period to second tour events because they are automatically relegated to the second tier if Tiger doesn’t play.Tiger won’t play between the U.S. Open and his event because he’s involved in the hosting preparation,  He won’t play between this event and the British because he’s getting ready for the British.

The television ratings will demonstrate once again that there are Tiger events and golf events.  When the Tiger events are spaced out and signaled well in advance.  The size of the Tiger audience will grow and the size of the golf audience will shrink.  Professional golf will more than ever have to ride on Tiger’s coattails.

I think Tiger really likes this position.  He is obviously a person who likes being in control, and this gives him even more control.  None of this happened by accident, and none of it happened in secret.  Tiger did it all, carefully and completely, right out in the open.

Was he lucky to get the Fourth of July weekend?  Somehow, I don’t think luck had anything to do with it, but the financial crisis has made the PGA Tour that much more willing to go along with anything that Tiger wants.  They know the tournament will make them far more money than anything else they could do in that time.

He’s also nice to children without being creepy about it.  The Tiger Woods Foundation is all about helping kids to make the most of themselves.  If there is anything people like more than being helped to suceed, it is getting their children to succeed.  Tiger makes children, your children, all children, part of his brand.

Capping off the tournament, Tiger follows a wounded veteran that they are honoring down the eighteenth fairway as he marches his way to victory.  Hunter Mahan shoots a 62 in the final round, but Tiger had to beat him.  He’s still building the brand.

Let’s Get Small

We should have listened to Steve Martin forty years ago.

The biggest, most powerful lobby in Washington, D.C. is the lobby for Big Business.  True, no one is registered as a lobbyisst for BIG, Inc., but there are still a lot of lobbyists working to help the big guys and crush the little guys.

In fact, almost every lobbyist is working for a big company, a big union, or a big trade organization.  Small is distinctly unrepresented.  Small is not a source of campaign contributions and future income for politicians so even if small had their own lobbyist, that lobbyist would have a hard time getting in front of the people that make decisions.

Our politicians say over and over again that most of the jobs in this country are created by small businesses, yet again and again they give out billions of tax dollars to big business.  The midwest is not the rust belt because of small businesses; it is the rust belt because big businesses have failed.  We didn’t have a systemic melt down because small businesses posed a systemic risk; we had a systemic melt-down because big business and their lobbyists were able to convince the government to throw out the regulations that had protected the system since the Great Depression.

Not to belabor the obvious, but small business is not too big to fail.  AIG was not a small business, GM was not a small business, and CitiBank is not a small business.  The first two have already failed, and all three have been among the many very large corporations that needed lots of help from the government.

By the way, if too big to fail is a problem that poses systemic risk, why are we not only allowing unrestrained growth but actually fostering it.  The solution to the failure of a huge bank like WAMU is to sell it to an even bigger bank.  The failure of a huge brokerage like Merrill=Lynch is to combine it with a huge bank. Why is it that nobody has much to say about that?  (Actually, Matt Taiibi has pointed that out in his excellent Rolling Stone article on the crisis.

GM just recently asked for thirty billion dollars to help get it through the bankruptcy process.   It looks like we are going to give it them even though I think we have already given them at least that much.  In fact, I think if you count GMAC, GM and Chrysler have already gotten nearly $100 Billion dollars.

Let’s say that it is important enough to the USA to have serveral domestic automobile manufacturers.  If we took that $100 Billion dollars, how many automobile companies could we create?  I’ll bet there are a lot of guys who could make a successful automobile with $100 million dollars.  We could fund a thousand of them with that bankroll.  If five percent of them made it, we would have fifty car companies.

I’m not sure that we want fifty car companies, but having three huge mega-companies has not been a good idea either.  The point is that the money goes a lot further in the hands of small businesses than in the hands of mega-companies.

Four thousand dollars doesn’t get you very far these days, but there are lots of successful businesses that have been started with less.  Every adult in the United States could get four thousand dollars to start their own business if you broke up a hundred billion that way.  Forty thousand is a great start for a lot of small business enterprises, and one hundred billion funds two and a half million of these.

Like most problems, we should have been working on the solution long before it got to a cirisis.  We could have done something other than blandly buying into “What’s good for GM is good for America.”  This was a crackpot idea back in Eisenhower’s time.  Ike even took time to notice that the problem went far beyond GM to the whole military-industrial complex, but he couldn’t do anything about it.  Neither, apprently, could anybody else.

Here’s an idea.  Let’s put a systemic risk tax on Big.  Once you get to a certain size, you should have to pay increased taxes or divest.  The bigger you get, the stiffer the tax would get.  If they do get “too big to fail” and fail anyway, we could use the Big tax to cover the costs of breaking them up.

The advantages of this are many.  Instead of crushing small businesses in the mode of today’s Big, successfull companies would maximize their profits by fostering lots of partnerships and spin-offs.  No company would allow itself to grow so large that they would face a crushing tax burden.  Small businesses that actually create jobs and competition would spring up all over the place.

I think this is a good idea, but I realize it doesn’t have a chance.  Big owns the world.  They own the Democrats and they own the Republicans.  If we get a new party, Big will own them too.

Technology and Taxes

The New York Times reported this morning that the federal government spends seventy billion dollars a year on technology.  I’m never quite sure what these numbers mean, but I’ve also notice that most states now employ more programmers than bureaucrats.  Our collective governments are investing massive amounts of money apply technology for everything.  Are the governments getting what they want?  Are we, the taxpayer, getting what we want?

Don’t get me wrong.  I absolutely believe that the government needs to spend money on technology for a whole variety of different reasons, and I clearly receive tangible benefits from that investment all of the time.

I love being able to renew my car tabs on-line, for example.  I don’t have to drive to an office and wait in line.  Same for my driver’s license every other renewal.  Our state, Washington, has done a great job of putting a whole host of registrations on line.  I just have to wonder why it is isn’t making government cheaper.

Look at the DMV example closely from the point of the state.  The DMV can’t possibly need all of the people that they formerly required.   Sure they need a technical staff to maintain the web site, but the whole theory of automating this says that most of the work will now be done by the computer.  Theoretically, you don’t need as many people to take in the license applications and checks, review them, send them back if they are wrong, file them if they are right, and to respond in a timely manner to legimate requests for this information.  And if you don’t need all of those people, you don’t need facilities (office space, computers, parking spaces, etc.) for those people.

Furthermore, most state agencies should be able to obtain the same benefits from technology.  These savings should be at least tens of millions of dollars for the motor vehicle department alone, and other departments should see simlar savings.

Is any of this happening?  You would think so as broke as most state governments claim to be, but I don’t see my state taxes going down.  I also don’t see the state bragging about how much money the new systems are saving.  If they were saving us money, you know there would be a hundred politicians trying to take credit for it.  I don’t hear that story from any of them so far.

I tend to suspect that the problem we see is the same thing that happens in business only worse.  The entrenched protect their turf, and we end up paying for both the technology AND the labor the technology is supposed to eliminate.  Eventually, a business has to look at these costs and make appropriate adjustments, but government can get away with ignoring this as long as they can raise taxes.

So why isn’t this happening?  It seems like the obvious question.  You would think at the very least some politician would try to further his career by making this part of his brand.  The theme could be “Getting more out the Resources We Have”.  That seems far more attractive than the brands I see most politicians establish.

As quickly as these guys are to schedule a hearing about anything, you would expect hearings on this subject to go on all of the time.

Here’s a little starter list for the aspiring politician:

What is the goal of each technology investment?  That is, are we  investing to save money or to provide more services?

Are there measurements in place to see if progress is being made towards that goal?

What kind of follow-up system is in place?

The government is giving us more, but we should be getting more for less.  We keep paying more.  These investments are never going to pay off if someone isn’t at least checking out the results and following through.  It’s time for someone to stand up and pretend that they care.