Greek and Latin Books, the Printing Press, the Gutenberg Bible, Newspapers, Desktop Publishing, the Blogosphere and the Internet

Posted by PITHOCRATES - October 16th, 2013

Technology 101

(Originally published December 28th, 2011)

Monks worked by Candlelight Painstakingly Copying by Hand the Great Books of Greek Knowledge

Alexander the Great spread Greek thinking and the Greek language throughout much of the known world.  From the Mediterranean to the Indus Valley.  Everywhere Alexander went he built new cities. Where that Greek thinking took hold.  Astronomy.  Geometry.  Architecture.  Engineering.  Philosophy.  Etc.  The Greeks impressed the Romans.  Even though they conquered them.  But the empire they built used that Greek thinking they so admired as its foundation.  They studied the Greeks.  Mastered their language.  Read their books.  And translated the Greek books into Latin.  The new universal language.

The Roman world was an advanced world.  And a Latin world.  The great minds throughout the Empire spoke and studied in Latin.  Which helped to diffuse this knowledge throughout the known world.  For you were never outside the Latin world.  The common people may not have spoken Latin.  Instead speaking the common language of their people (French, German, English, etc.).  But in their universities they all spoke Latin.  For educated men everywhere spoke Latin as their second language.  The language of knowledge.  Education.  And of the Church.  Where the masses were in Latin.  Until the Great Schism in 1054, that is.  When Greek replaced Latin in the Eastern Orthodox Church.  But Latin remained the language of the Catholic Church in the West.

It was the Church and their medieval monks that brought this knowledge forward through the Dark Ages.  For it wasn’t dark in their monasteries.  Where monks, the few people who could read and write, worked by candlelight painstakingly copying by hand the great books of Greek knowledge.  Making this knowledge available for the select few who could afford these works of art.  Which they were.  For each one was one of a kind.  Which made them rather costly.  And unavailable for the common people.  Including the Bible.  No, these belonged to the wealthy.  The universities.  And the Church.  Until a German goldsmith came along with a brilliant idea.

The Printing Press gave us Inexpensive Books, Newspapers, Censorship and Revolution

That idea was moveable typesetting.  Individual letters arranged to spell out lines of text.  Clamped together with other lines of text.  Placed into a press.  Smeared with ink.  Then pressed onto paper.  In this way Johannes Gutenberg published the first mass-produced book.  The Gutenberg Bible.  And knowledge would never be the same.

Printing spread.  As did the mass production of books.  Reading was no longer for the well-to-do or Church clerics.  Everyone was learning to read.  And they were reading books.  In their own language.  Which put an end to Latin.  Because the printing press made books so cheap they printed them in all sorts of languages.  Making knowledge more readily accessible to the common people.  Anyone who wished to learn to read could.  And did.  Thanks to Gutenberg.  And the printing press.

But not only books were printed.  Knowledge was taking shape in a new form.  Newspapers.  And this type of knowledge was powerful.  People throughout a kingdom knew what was happening in their kingdom.  And what was happening in other kingdoms.  And they more often questioned authority.  So much so that it ushered in a new government policy.  Censorship.  As governments tried to suppress unfavorable news.  Such as the British blockade of Boston Harbor.  Soon Boston’s problem was everyone’s problem as the news traveled throughout the American colonies.  Escalating what the British thought was a Boston problem into a revolution in America.  And later in France.  After the French read all about the American Revolution in their newspapers.

Desktop Publishing, the Blogosphere and the Internet has Revitalized the Free Press

With newspapers came newspaper advertising.  A great medium for advertisers to promote their goods.  And a cash cow for publishers.  Advertisers kept the price of newspapers low.  Making them affordable to the masses.  Giving publishers great power to control information.  Which they did.  Newspapers started out as tools of political parties.  Alexander Hamilton and Thomas Jefferson viciously attacked each other in print.  Through anonymous editorial content.  So using newspapers for political purposes is nothing new.  But in the age of advertising the stakes were much higher.

Newspapers soon assumed an air of neutrality.  They weren’t tabloid news anymore.  But journalism.  Reporting the facts so their readers can make their own conclusions.  And they were neutral for awhile.  But the captive audience of a large daily was just too much to pass up.  Papers could influence and shape opinion.  And many did.  With clear biases even though they denied it.  Frustrating their readers.  Who began to look for other sources of news.  And they found a big one.  So big that it is destroying the giants of print media.  Shrinking these newspapers’ circulation numbers.  And with them their advertising revenue.  So what was driving people away from the once storied titans of news?  The Internet.

The Internet has revolutionized the way we get information.  And has revitalized the free press.  We can get news from anywhere without it going through the editorial filter of a politically connected publisher.  Desktop publishing and the blogosphere allow anyone to write and publish at little to no cost.  Some blogging platforms are free thanks to online advertisers.  Now anyone can report, think, opine and publish.  Technology has made the costs of electronic publishing almost free.  Gone are the days when you needed mammoth printing presses, typesetters, copy editors, delivery trucks etc.  Today all you need is a computer.  Or a cellular device.  And an Internet connection.

People in the Middle of the News can Report the News in Real Time thanks to Micro-Blogging

Few newspapers today can afford to stay in business with their low circulation numbers and lost advertising revenue.  But people have never been more informed.  Sources of news and opinion are electronically everywhere.  For a fraction of the cost.   With some of that news being published within seconds of the news event happening.  From anywhere in the world.  Thanks to the Internet.  And micro-blogging platforms such as Twitter.  Even if the news arrives to us in a foreign language we can use an online translator to read it.  With some simple copy and paste commands.  News has never been more convenient.

People in the middle of the news can report the news in real time.  A process that started with the Greeks and the Romans.  Who diffused all that Greek knowledge.  That a lot of monks brought through the Dark Ages to the age of print.  Feeding our insatiable hunger for knowledge.  The printing press gave us inexpensive books.  In our common languages.  And the newspaper.  That eventually gave us desktop publishing.  The Internet.  And instantaneous knowledge.  All of this without having to learn Latin to boot.  Good for us because that is one thing the Internet can’t do well.  Translate Latin.  For that you need a person.  Or years of education.  And who has the time these days for that?  I mean, we can’t even wait for a daily newspaper these days to get our news.

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FT190: “The children are our future. God help us.” —Old Pithy

Posted by PITHOCRATES - October 4th, 2013

Fundamental Truth

Our Universities praise Government Intervention, Vilify Capitalism and Denigrate US History

I recently saw some students on television from our most prestigious universities.  I won’t say who or where they were because it doesn’t matter.  For they all pretty much think the same.  There were liberal Democrats.  And conservative Republicans.  Young people.  Just into their twenties.  They spoke of economics, health care, free markets, investing in education, etc.  Kids too young to have experienced life.  In fact, most were still on their parent’s health insurance policies.  But they knew everything there was to know.  Particularly the liberal Democrats.

In college kids don’t know anything.  That’s why they are there.  So someone can tell them all those things they don’t know.  The problem is this.  The people telling them what to think have a liberal bias.  It’s no secret.  The teachers’ unions demand pay and benefit packages well beyond what most people can get in the private sector.  The government let’s them gouge taxpayers.  And in return they teach our kids in public schools to become Democrat voters.  Then it’s on to college.  Where the anti-capitalist hippies of the Sixties went on to become college professors.  Who talked about the fairness in the former Soviet Union and the former East Germany.  Where they put people before profits.  Admiring their love of people.  And hatred of profits.  While glossing over on their oppressive police states, thought crimes, prisons for political dissidents, torture and wholesale executions.

These radical hippies took over higher education.  And wrote the curriculum.  Which praised government intervention into the free market economy.  Vilified capitalism.  And denigrated the United State’s role in history.  Programming our children to hate whatever they hate.  And to love what they love.  Even when the facts get in the way.  Which they can fix with a little history revisionism.

The Arts did Very Well during the Eighty thanks to the Generosity of Gainfully Employed People

They call the Eighties the decade of greed.  While at the same time calling President Reagan’s economic policies a failure.  Supply-side economics.  Of the Austrian school.  Everyone did well.  Everyone made money.  Which is why they were so materialistic.  Because they had good-paying jobs that allowed them to be materialistic.  Allowing them to buy Sony Walkmans and CD players.  Which everyone had to have.  Even though no one knew what they were before they hit the stores.  Proving Say’s law.

Say’s law is a part of supply-side economics.  In general it states that supply creates its own demand.  No one was clamoring for Sony Walkmans or CD players in the Eighties.  But when these companies explained how great they were all of a sudden we were demanding them.  Supply created demand.  Just as PC supply created PC demand.  PCs were on the market long before they were in everyone’s home.  It was a tough sell in the beginning.  Because no one knew what they would use them for.  But they have them now.  Just like the Internet.  For a generation who had just mastered the recording functions on their VCRs (video cassette recorders—what we used to record TV programs on before DVRs) the Internet was a confusing thing.  And many said “thank you, but no thanks.”  Then people began creating content and putting it on the World Wide Web.  Today, people can’t live without their Internet connection.  Again, supply created demand.

This is Say’s law in action.  Supply creates demand.  You make it easier for people to be creative and bring things to market and they will.  Two ways to do this is to lower tax rates and reduce the regulatory climate.  So people are more willing to take risks.  Which they will do if there is sufficient reward for taking that risk.  Reagan did both during the Eighties.  The economy exploded.  Everybody was working.  The jobs were so good that we had money for material comforts.  And generous donations.  The arts did very well during the Eighties thanks to the generosity of gainfully employed people.

Obamacare will take Money from the Young and Healthy to pay for the Old and Sick

But this isn’t what they’re teaching in our universities.  They say that Reagan did cut taxes and created an economic boom.  But at what cost?  For he had record deficits.  Because of those tax cuts.  Which is where that history revisionism comes in.  Yes, he cut tax rates.  And when he did tax receipts (actual money flowing into the treasury) nearly doubled.  But our universities don’t teach that.  As demonstrated whenever a liberal talks about Reaganomics.  Instead they attack Reagan.  Capitalism.  And Republicans in general.  Because they all believe that limited government is best.  Which threatens a ruling class.

Our universities teach our kids the economics school that benefits the ruling class.  By supporting an ever expanding government.  Keynesian economics.  Which has a proven track record of failure whenever we’ve tried it.  John Maynard Keynes himself advised FDR during the Great Depression.  FDR didn’t think much of Keynes.  But he liked his idea about government spending during times of recession.  Even though it only delayed the correction—and prolonged the recession—by interfering with market forces trying to correct market prices.  Giving us the Great Depression.  Keynesian economics also gave us the stagflation of the Seventies.  Japan’s Lost Decade in the Nineties.  The American dot-com bubble and recession in the Nineties/early 2000s.  The 2008 subprime mortgage crisis.  And the ongoing European sovereign debt crisis.  All of these crises have their roots in Keynesian economics.  The school of economics of the ruling class.  But what do they teach in college?  Free market capitalism is bad.  And Keynesian economics is gospel.

These twenty somethings were anxious to show how smart they were.  How in a mere 2-4 years of college they had learned everything there was to learn.  And could regurgitate the party line.  Rolling their eyes at the idiots around them.  Laughing with all-knowing condescension.  Praising President Obama.  Obamacare.  Believing that it will provide more for less.  When nothing in the world works that way.  More costs more.  Yet they naïvely bleat what they were taught.  These kids who haven’t opened up a letter from their private health insurer advising them that their premiums will rise by 50%, 75%, 100%, or more, to comply with Obamacare.  Because it costs more to have more.  And people now have to pay more even if they don’t want more.  In particular young people.  For Obamacare is a transfer program.  Where Obamacare will take money from the young and healthy (like these college students once they graduate) to pay for the old and sick.

These kids, of course, blame the Republicans for the government shutdown.  And that their concern for our deficits is silly.  For they believe we don’t have a deficit problem.  Yet the smaller Reagan deficits were the end of the world as we knew it.  And they don’t have a problem with members of Congress and their staff getting subsidies to pay for their Obamacare.  As paying for their Cadillac health care plans with their six-figure salaries would have been too much of a burden for them.  And beneath them.  So we should pity them while record numbers of Americans have disappeared from the labor force.  Especially during the government shutdown.  Where the grooms of the stool may not be there for them.  Forcing the ruling class to wipe their own bottoms after they go potty.

This is what government and the political left is turning into.  A ruling class.  The very thing we fought our independence from.  And they are getting away with this because they control education.  And because they do they can revise history.  And change their failures to successes.  And change conservative successes to failures.  All you need are fresh young minds to corrupt.  And corrupt they do.  These kids talk like they know everything.  But they know nothing.  Which is sad.  For the children are our future.  God help us.

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If Marijuana is Legal Kids will buy it off the Internet just as they buy Alcohol off the Internet

Posted by PITHOCRATES - July 6th, 2013

Week in Review

The American left has used the heavy hand of government to protect the children.  They’ve taken candy and chips out of school vending machines.  They put vegetables on their lunch plates (which our kids promptly throw away).  They’ve restricted smoking in all public areas.  Placed restrictions on second-hand smoke.  Even on third-hand smoke.  Some have tried to limit the size of soda they can buy.  The kind of toys they can play with.  Even the words they can say in school.  The left has made a police state for our children.  To protect them.  And to make sure they grow up and think correctly.

But they have not brought their jackbooted oppression of our children into one area.  Marijuana.  In their drive to allow medical marijuana—as well as simply decriminalizing marijuana just to get high on—they are strangely quiet when it comes to the children.  For apparently they can protect the children from marijuana just like they can protect them from alcohol (see Concern over teenagers buying alcohol via online shopping posted 7/1/2013 on BBC News Wales).

Young people are increasingly using online supermarket delivery services to buy alcohol, figures show.

A total of 21% of 14-15 year olds questioned for the Alcohol Concern Cymru Wales-wide survey said they had bought alcohol online…

Meanwhile, four out of nine under-age test purchasers working with police in Cardiff bought and received alcohol online in March…

In four of the nine cases (44%), alcohol was handed to the underage test purchasers by delivery drivers with no proof of age requested after agreeing to online terms and conditions when making the purchases.

Canada has medical marijuana.  But their pharmacies don’t want to dispense it.  And doctors don’t want to prescribe it.  As there are no drug studies with marijuana as there is with every other drug.  So they don’t know how to prescribe dosage.  And the pharmacies don’t want a highly demanded drug on site that people will want to steal.  So in Canada if you want your medical marijuana you will have to order it directly from the producer.  By phone.  Or over the Internet.  Making Canadian stoners very, very happy.

Once upon a time selling marijuana was a crime.  Which limited the number of people willing to sell it to kids.  But if it’s not a crime there will be a whole lot of people willing to sell it to kids over the Internet.  Especially when they can say, “They checked the box on the online order form stating they were of legal age.  What more could I have done.  Here’s my wrist.  Please slap it and go on your way.  For business is good and I have more orders to fill.  All of these orders, incidentally, are for adults.  Because they checked the box on the online order form.  So they have to be adults.  I mean, why would anyone lie about their age when buying marijuana?”

Our kids may not be able to play with a toy gun or eat a candy bar in school.  Thanks to the oppressive police state they live in.  Which strangely looks the other way when it comes to marijuana.  Even though it would be safer for our kids to enjoy a candy bar in school than smoking dope that they bought over the Internet.  Why?  Is it just to help them keep the youth vote?  For high school kids and college kids like smoking dope.  And vote Democrat.  Or is it because the left are nothing but a bunch of pot smokers themselves?  Funny for a group of people who have all but legislated cigarette smoking out of existence to have no problem with smoking marijuana.  Either way (the youth vote or their desire to get high) the left clearly have put their own desires above what’s best for our children.  Talk about your selfish bastards.

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VCR, VHS Video Tape , Video Store, DVD, DVDs by Mail, Video On Demand, Live-Streaming and Blockbuster

Posted by PITHOCRATES - December 11th, 2012

History 101

The VCR changed the way Families enjoyed Movie Night

The video cassette recorder (VCR) changed the way we watched movies.  Well, some of us.  For the first VCRs were really expensive.  The first ones costing as much as a car.  But by the Eighties the price fell to a few thousand dollars and within the price range of those who really wanted one.  And buy them we did.  Recording everything we wanted on television.  Many of us old enough to have lived during the Eighties no doubt have a box of video tapes we push around occasionally.  Having long forgotten what is on those tapes.  Yet we still push that box around.  Sure that there must be something good on at least one of those tapes.

Recording things off the television was one thing.  But watching movies was another.  For it was expensive to take the family to the movie theater.  Especially if you had three kids or more.  Twenty bucks for tickets.  Another twenty for popcorn, candy and drinks.  A night at the movies could cost a family $40 or more.  If you went to the movies once a week that could add up to nearly a car payment.  Which made taking the family out to the movies a very expensive endeavor.  If there was only another way for the family to enjoy movie night.

And then it happened.  They started releasing movies on video tape.  The same movies that had played in the theaters.  They weren’t cheap.  The first movies cost as much as $80 or more.  But once you paid that $80 you could watch that movie as often as you wanted.  With as many people as you wanted.  And eat as much popcorn, candy and drinks you wanted.  Even adult beverages without the worry of having to drive home.  Yes, the VCR changed the way some of us watched movies.  Those who could afford to pay $80 or more for a movie on video tape.  But there was another option for those less financially endowed.  The video store.

To Help Augment their Income Video Stores started to sell Popcorn, Candy and Drinks

Some of the first video stores required an annual membership fee.  Which wasn’t cheap.  As well as a rental fee for the movies you rented.  Did these stores rake in the money because they were so greedy?  Not really.  Remember that in those early days these stores were paying $80 for their videos.  If they had 3 copies (on average) of each that’s $240 a title.  If they had 300 hundred titles in their store that came to $72,000 in video tapes.  Anyone who has ever rented video tapes knows that they weren’t always the best of quality.  When you place a video tape into a VCR and press play a magnetic head presses against the tape.  This constant pressure and friction wears the tape out over time.

So after spending some $72,000 to stock their store they probably had to replace at least one of each title for 20% of their stock each year.  Adding another $4,800 in costs.  As well as buying some new titles with every new release.  Five copies of two new releases a month would add another $9,600 a year.  So after spending some $72,000 to stock the store they probably spent another $15,000 a year on additional video tape purchases.  Add in rent, utilities, interest on their debt, insurance, a paycheck for the owner and an employee or two that little video store could cost up to $250,000 a year to operate.  All of which they had to recover from rental fees and membership fees.  And the occasional rewind fee for those who forgot to be kind and rewind.

In time those video tape prices came down.  Allowing video stores to drop their membership fees.  They may not have liked losing that large source of income.  But it was either that or see their customers go to the stores without the membership fees.  To help augment their income video stores started to sell popcorn, candy and drinks.  Just like the theaters.  For what is a movie without popcorn, candy and drinks?  Instead of movies these stores now rented a family night together.  A one-stop shop to rent some competitively priced videos.  And to load up with some not so competitively priced snacks.  The snacks may have been a little on the pricy side.  But they were convenient.  Allowing family night to begin sooner without having to make another stop to buy some groceries.

DVDs by Mail, Live-Streaming Movies and Video On Demand put the Familiar Video Store out of Business

The VHS video tape dominated the entertainment market until the DVD came along.  A small flat disc.  Much simpler.  With no moving parts.  And you never had to rewind a DVD.  Putting the video tape rewind machine manufacturers out of business.  They could manufacture DVDs so inexpensively that they changed the model for home entertainment.  Going from renting to purchasing.  Video stores stocked DVDs to rent.  But as the DVD price fell further it was difficult to rent them.  For if someone could buy a new release for about $15 you really couldn’t charge much to rent it.  Making it difficult for the video stores to stay in business.  They could sell DVDs instead of renting them.  But it was the big box retailers that had the best prices on DVDs.

Because the DVD was so small and light there was something else you could do with it.  You could mail it.  So instead of going to a video store only to see the movie that you wanted to rent was out of stock you simply went online.  And rented the movie you wanted and some distribution warehouse mailed one of their many copies to you.  Some companies let you keep the movie as long as you wanted without any late fees.  Forever eliminating those late night drives to the video store before midnight in your pajamas to drop the video in a drop box before that late fee kicked in.  The DVD is so convenient to handle that they can even put them into vending machines at your grocery store.

With the ability to see almost any movie you wanted to see without having to go to a video store made it difficult for the video stores to remain in business.  For they were trying to compete with other businesses that didn’t have to pay rent, utilities, interest on their debt, insurance, a paycheck for the owner and an employee or two.  While their costs went up the prevailing market price to watch a movie in the home fell.  Then came movies on demand from cable providers.  And live-streaming on the Internet.  Which didn’t even need a distribution warehouse or a massive inventory of DVDs.  Or warehouse employees.  Movies just sat on a server connected to the Internet.  Which is why it is difficult to walk into a Blockbuster video store these days.  (Blockbuster basically invented the big box video store.)  But you’ll be able to rent a DVD by mail, live-stream a movie online or watch a video on demand from Blockbuster.  The new business model allowing them to remain in business at the prevailing market price to watch a movie in the home.  Unlike the old model based on brick and mortar stores that led to their bankruptcy.

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Clinton Tax Rates, Japan’s Lost Decade, Irrational Exuberance, Dot-Com Bubble, EBT and Job-Creating Capital

Posted by PITHOCRATES - November 14th, 2012

History 101

The Economy of the Nineties boomed because of Japan’s Lost Decade and Irrational Exuberance

President Obama wants to raise taxes on the wealthy.  He wants to go back to the Clinton tax rates.  The economy was booming during the Clinton Nineties.  Better than it is now.  Tax rates were higher in the Nineties than they are now.  While the deficit is greater now than it was in the Nineties.  And the debt is greater than it was in the Nineties.  The conclusion?  Higher tax rates improve economic activity.  Produce smaller deficits.  And grow the debt at a slower rate.  At least, that’s what those who want to raise tax rates say.  The only problem with this is that there are reasons why the economy was booming in the Nineties.  And it didn’t have to do with tax rates.  But, instead, the Japanese.  And irrational exuberance.

The Japanese government partnered with business in the Eighties.  Corporations worked closely together for the good of the export economy.  And the national economy.  This was Japan Inc.  And the economy surged.  Fueled by low interest rates.  People in America worried about the Japanese buying American landmark assets with their fat profits.  An American magazine joked that America would become a wholly owned subsidiary of a Japanese corporation.  A Democrat presidential candidate said America was a fool for not doing what the Japanese were doing.  But the good times didn’t last.  That inflationary monetary policy caused a massive asset bubble.  And when it burst the Japanese suffered a deflationary spiral that last a decade or more.  Their Lost Decade.  This great contraction weakened America’s greatest economic competitor.  Greatly helping the US economy.

Also during the Nineties the Internet was coming of age.  In the Eighties there was the personal computer.  Silicon Valley.  And Microsoft.  A lot of investors were looking for the Microsoft of the Nineties.  No one knew who that was going to be.  But one thing everyone knew was that it was going to be a dot-com.  Investors poured money into dot-coms that didn’t have anything to sell.  Hence the irrational exuberance.  Dot-coms built great office buildings and technology corridors in cities.  New ‘Silicon Valleys’ were appearing across the country.  Kids went to college to learn how to make websites and set up ecommerce.  All these young kids filled these new dot-com buildings.  But when the investment money ran out these companies went bankrupt.  As they had no revenue.  Or anything to sell.  The dot-com bubble burst after Clinton’s Nineties.  Giving George W. Bush a bad recession at the beginning of his first term.  Also, President Clinton pressured lenders to qualify the unqualified for mortgages they couldn’t afford.  Starting a great real estate bubble.  That burst after Clinton’s Nineties.  Causing the subprime mortgage crisis about a decade later.

The Government taxes Small Business Owners as Rich People even though they’re not really Rich People

So there is more to the Nineties than those Clinton tax rates.  The Japanese gave them an able assist.  Then a lot of bad investing creating a lot of artificial economic activity that created a bubble.  That crashed into a recession.  Thanks to a lot of governmental interference in the private sector economy.  They kept interest rates artificially low.  And offered a lot of incentives to get those dot-coms to build in their cities.  Leaving cities with a lot of empty buildings, budget deficits, bloated public sector payrolls and no increase in tax revenue to pay for the additional infrastructure and services.  This is what the Clinton policies gave us.  Not sustained economic activity.  Or a budget surplus.  So going back to the Clinton tax rates is not likely to produce sustained economic activity.  Or a budget surplus.  Especially when President Obama has outspent Clinton over a trillion dollars a year.

So returning to the Clinton tax rates won’t help to reduce the deficit unless they return to the Clinton spending as well.  And that’s not likely to happen.  So what will the increase in tax rates do?  Well, we can get an idea by comparing the Clinton tax rates (1999) to the last tax rates we used (2011).  As they apply to a small business.  The following is an income statement for what could be a typical small business with about $1.8 million in annual sales revenue.

This is a very summarized income statement using some typical percentages for cost of sales and overhead.  This also assumes about $350,000 of debt on the company books.  Giving an interest expense of about $28 grand.  When you subtract all of these expenses from revenue you arrive at an earnings before taxes (EBT) of $358,016.73.  For many small business owners this EBT flows to their personal income tax return as personal income.  Which sounds like a lot.  But business owners will leave most of this money in their businesses.  So while the government taxes them as rich people they’re not really rich people.  For what the government doesn’t tax away will become retained earnings.  And reinvested back into their businesses.

Higher Taxes and Higher Regulatory Costs hurt Job Growth by taking away Job-Creating Capital from Businesses

All right, so let’s look at what the government would tax away.  Based on the 1999 tax rates.  And the 2011 tax rates.  Using the tax rates for married filing jointly we get the following income tax for each set of tax rates.

The 1999 tax brackets give an effective tax rate of 31.4%.  In 2011 that fell 4.7 points to 26.7%.  Which increased net profit from 13.7% in 1999 to 14.6%.  An increase of 0.93 points.  Not as big a change as in the income tax rate.  But it’s an additional $16,730.50 the small business would have to reinvest into the business.  Which could pay for a lot (even help pay their interest expense).  Especially over time.  In two years that’s about $33,461.  In five years that’s about $83,650.  In ten years that’s about $167,300.  That’s a lot of ‘free’ money the business could use to grow their business that they didn’t have to pay back.  But if we returned to the Clinton tax rates that’s money these businesses would no longer have to invest into their business.  Forcing them to pay to borrow money.  Adding additional interest expense.  And burdening the business with greater debt.  Which would be a disincentive to add additional costs.  Like creating new jobs and hiring people.

A lot of small business owners don’t pay themselves.  That is, they don’t get a paycheck like everyone else in their business.  Instead they distribute earnings from the business.  People think all business owners are rich.  But here’s something they don’t understand.  Even though they pay income taxes on their total business earnings they may only take a small percentage of their earnings out of the business.  In this example the married couple draws $75,000 a year to live on.  Even though they paid income taxes on $358,016.73.  Netting only $75,000 on these earnings would be like having 79.1% of your earnings withheld in taxes from your paycheck.  While these numbers vary among business owners this generally holds true.  They pay taxes on amounts far greater than what they take out of their business to live on.

If we go back to the Clinton tax rates it will reduce the amount of investment capital owners have to grow their business.  Which new regulations have already reduced by increasing costs.  With the unknowns of Obamacare basically freezing all new hiring.  As small business owners don’t know if the government will leave them enough money to grow their businesses.  Or even enough to maintain their current business operations.  Which is how higher taxes and higher regulatory costs hurt job growth.  By taking away job-creating capital from businesses.

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Great Depression, Monetary Expansion, Keynesian, Smoot Hawley Tariff, Gold Window, Subprime Mortgage Crisis and Great Recession

Posted by PITHOCRATES - October 2nd, 2012

History 101

There was Real Economic Activity in the Twenties so the Great Depression should only have been a Recession

The Great Depression began with the Stock Market Crash of 1929.  Which led to a period of record unemployment.  On average the unemployment rate was 13.46% during the Thirties.  Or, if you don’t count all of the make-work government jobs, 18.23%.  So what caused this unemployment?  Was it the expansionary monetary policy of the Twenties?  The Keynesians thought so.  Even the economists from the Austrian school of economics thought so.  The only ones to have predicted the Great Depression.  So were they right?  A little bit.

Yes, there was monetary expansion during the Twenties.  So a recessionary correction was inevitable.  But a depression?  When you look at the economic activity of the Twenties, no.  The Roaring Twenties were a transformative time.  It was when we began to say goodbye to the steam engine.  And said hello to electricity.  We said goodbye to the horse and buggy.  And said hello to the automobile.  We said goodbye to the horse and plow.  And said hello to the tractor.  As well as said hello to radio, motion pictures, air travel, electric lighting and electric appliances in the home, etc.  So there was real economic activity in the Twenties.  It wasn’t all a bubble.  So the Great Depression should have only been a regular recession.  But it wasn’t.  So what happened?

Government.  The government interfered with market forces.  Based on Keynesian advice.  They said the government needed to increase aggregate demand.  As that demand would encourage businesses to expand and hire new workers.  Thus lowering the unemployment rate.  And part of increasing demand was keeping wages from falling.  So people had more money to spend.  Of course, if employers were to continue to pay higher wages that meant that prices could not fall.  Like they normally do during a recession.  So the Keynesian advice was to prevent the market from correcting prices to match supply to demand.  Prolonging the inevitable recession.  But there was more bad government policy.

The Keynesian Cure for Unemployment is Inflation

The stock market was soaring in the late Twenties.  Because of that real economic growth.  So what happened to that economic growth?  Well, in part, the Smoot Hawley Tariff of 1930.  Which was in committee in 1929 before the great crash.  But investors saw it coming.  And they knew tariffs rising as much as 50% were going to cool those hot earnings they’ve been enjoying.  As well as Herbert Hoover’s progressive plans.  Who would go on to double income tax rates.  When Herbert Hoover won the 1928 election the writing was on the wall.  And investors bailed.  Especially when the Smoot Hawley Tariff was moving through committee.  Because raising the cost of doing business does not help business.  So the great earnings ride of the Twenties was ending and the investors sold their stocks to lock in their profits.  Precipitating the Stock Market Crash of 1929.  And the record unemployment that would follow.  And the Great Depression.

So the Keynesians got it wrong during the Thirties.  Their next grand experiment would be in the Seventies.  As government spending took off thanks to the Vietnam War, the Great Society and the Apollo moon program.  There was so much spending that they had to print money to pay for it all.  As they did, though, they devalued the dollar.  Which became a problem.  As the U.S. at the time agreed to exchange gold for dollars at $35/ounce.  So when the Americans made their dollar worth less our trading partners decided to take our gold instead.  Gold flew out of the gold window.  So to stop this gold flow out of the country Nixon did what any Keynesian would do.  No, he didn’t cut back spending.  He decoupled the dollar from gold.  Slamming the gold window shut.  Without any advanced warning to the world.  So we now call this action he took on August 15, 1971 the Nixon Shock.  The Keynesians were thrilled.  Because they now had no restraint in printing new money.

The reason Keynesians were happy to be able to print more money was because that was their cure for unemployment.  Inflation.  When the economy goes into recession it was just a simple matter of expanding the money supply.  Which lowers interest rates.  Which makes businesses who had no intention to expand their businesses borrow money to expand their businesses.  So to pull the economy out of recession they inflated the money supply.  And did it work?  No.  Of course it didn’t.  It just raised prices.  Increasing the cost of business.  As well as leaving consumers with less real income.  So, no, the economy didn’t improve.  It just stagnated.  The average unemployment rate during the Seventies was 6.21%.  While the average inflation rate was 7.08%.  Also, the top marginal tax rate of 70%.  Which didn’t help the anti-business environment.

The Subprime Mortgage Crisis and the Great Recession were Direct Consequences of Bad Monetary Policy

So the Keynesians failed.  Again.  Their inflationary monetary policy only made things worse during the Seventies.  All of that inflation just kept pushing prices ever higher.  Ensuring that the inevitable recession to correct those prices would be long and painful.  Which it was.  In the early Eighties.  Then Paul Volcker rang out all of that inflation.  And Ronald Reagan began bringing the top marginal tax rate down until it was at 28% by the end of the decade.  Making a more favorable business environment.  So business grew.  And began to hire new workers.  Teaching an economic lesson some in government refused to learn.  Keynesian inflationary monetary policies did not work.

During the Nineties the Keynesians were back.  Inflating the money supply slowly but surely to continue an economic expansion.  Making money available to borrow.  And borrow it people did.  Creating a long and sustained housing boom that would last for about 2 decades.  That expansionary monetary policy gave us cheap mortgages.  Making it very easy to buy a house.  Housing prices rose.  And continued to rise during those two decades.  Then President Clinton had his Justice Department tell banks to lower their standards for approving mortgages for the unqualified.  So everyone could buy a house.  Even if they couldn’t afford to pay for it.  Ushering in the subprime mortgage industry.  Further increasing the demand for houses.  And further driving up housing prices.  Making the inevitable correction a long and painful one.

Meanwhile, there was something new in the market place in the Nineties.  The Internet.  And new Internet start-ups (dot-coms) flooded the market.  Investors poured money into them.  Even though they didn’t have a product to sell.  And had no earnings.  But investors were exuberant.  And irrational.  Kids flooded into universities to get degrees in computer science.  To staff all of those Internet start-ups.  Companies went public.  Creating a stock market bubble as investors scrambled to buy their stock.  They raised a boatload of money from those IPOs.  And spent it all.  Many without producing anything to sell.  And when that money ran out they went bankrupt.  Bursting that stock market bubble.  And throwing a lot of computer scientists out of a job.  Causing a painful recession in the early 2000s that George Bush helped mitigate with tax cuts.

And low interest rates.  People were back buying houses.  But this time they were buying McMansions.  Because that easy monetary policy gave us cheap mortgage rates.  And subprime, no-documentation, zero down loans, etc., made it easier than ever to buy a house.  Housing prices soared.  And builders flooded the market with more McMansions.  Pushing prices ever higher.  Fannie Mae and Freddie Mac were buying those toxic subprime mortgages from banks to encourage them to approve more toxic subprime mortgages.  Pushing the inevitable correction further and further out.  Running up prices so high that their fall would be a long and painful one.  Which it was when the subprime mortgage crisis hit.  As well as the Great Recession.  Direct consequences of bad monetary policy.  And the government’s interference into market forces.

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Subprime Lending, Housing Bubble, Dot-Com Bubble, Enron, WorldCom and Obamacare

Posted by PITHOCRATES - August 14th, 2012

History 101

Dot-Com Companies used Venture Capital and Proceeds from their IPOs to pay their Expenses as they had no Revenue

The economy in the Nineties boomed.  President Bill Clinton and the Democrats say it was their policies of higher taxes on the rich that made it all happen.  At least that’s the argument you hear today in their arguments for returning to the Clinton era taxes on the wealthy.  Because it gave us the incredible economic explosion of the Nineties.  And balanced the federal budget.  But was the economy really that good?  No.  It wasn’t.  A lot of bad things happened in the Nineties.  Including something we’re still suffering from today.  The Subprime Mortgage Crisis.  Which gave us the Great Recession.

The Clinton administration told lenders to approve more mortgages for poor and minority applicants or face action from his justice department.  Lenders were not approving these applicants for reasons like lack of income and a poor credit history.  Common of people who lived in poorer sections of town because they didn’t have the income and credit history to move to a less poor section of town.  To avoid action from Clinton’s justice department lenders turned to subprime lending to qualify the unqualified.  To help these lenders unload these toxic mortgages off of their balance sheets the federal government’s GSEs Fannie Mae and Freddie Mac bought them and resold them to unsuspecting investors.  And we all know how well that turned out.  A great housing bubble blowing up.  Subprime Mortgage Crisis.  And the Great Recession.

The Nineties also gave us the dot-com bubble.  A lot of Internet start-up companies with soaring stock prices for products they never sold.  They had no revenues.  But speculators were so anxious to get in on the next Microsoft that they ran up these stock prices into the stratosphere.  And with nothing to sell these dot-coms used venture capital and proceeds from their initial public offerings (IPOs) to pay their expenses.  Giving away what they had for free.  Hoping to build brand awareness.  And to figure out a way to actually make money on the Internet.  Even cities joined in the speculation.  Spending tax dollars to build high-tech infrastructure to attract the dot-coms to their cities.  And businesses came to their cities.  Built buildings.  Filled them with employees earning good money.  It was the dawn of the new high-tech, Internet-based world.  But when all of the investor money ran out they still didn’t have anything to sell to pay their bills.  The bubble burst.  People lost their jobs en masse.  And all those new buildings sat empty in cities burdened with debt and a shrunken tax base.  While students who went to college to get degrees to let them join the dot-com world found no one was hiring when they graduated.  As few were hiring during the ‘dot-com’ stock market crash and recession of 2000-2002.

Enron Cooked their Books to Overstate Sales and Assets and Underreport Liabilities

Enron came of age in the Nineties.  They were in the electricity and natural gas business.  In both distribution and generation.  They were also into other businesses.  Too many to list.  But the energy business took off in the Nineties thanks to deregulation.  And Enron became a darling of the stock market.  With its stock price rising about 300% during the Nineties.  The value of its stock was worth about 70 times earnings.  Meaning that investors saw nothing but further growth in Enron.  Why?  Because the Clinton administration was taxing the rich at higher tax rates?  Not quite.  It’s because they cooked their books.

Investors like to see strong earnings.  Lots of assets on the balance sheet.  With not so much debt (i.e., liabilities).  So Enron strived to give investors what they wanted.  By the aforementioned cooking of their books.  Using mark-to-market accounting.  As opposed to historical cost accounting.  Where you buy an asset.  You post it to the balance sheet for the value you paid for it.  Then forget about it.  Mark-to-market, on the other hand, notes the ‘fair value’ of those assets.  If an asset grows in value a company adjusts it books to reflect the current, higher value.  Making their books more attractive to investors.  To look better on the liability side they created a lot of shell companies and special purpose entities.  Posting liabilities on these off-balance-sheet companies instead of their own books.  The combination of higher asset values and underreporting of liabilities made Enron look very strong financially.  And strong revenue growth just made investors drool.

Enron traded.  They bought and sold products and services.  Providing risk management for its clients.  Think of an airline buying a contract for jet fuel for one year to lock in low prices.  How you record this transaction on your books depends on what you’re buying and selling.  If you’re a stock broker you record only your fees as revenue.  Not the value of the stock.  If you’re a retailer you record the value of what you sell as revenue.  Enron recorded their trading like a retailer would.  Which greatly increased their revenues from these trades.  They also used mark-to-market accounting on future revenue streams.  Instead of using the retailer method of recording sales and costs for a period they would calculate the value of a contract for future sales and record them as current revenue.  Pulling future revenues into the current accounting period.  This sent revenues soaring.  Increasing some 700-800% during the Nineties.  Much of which was a house of cards built upon shady accounting practices.  Long story short, they couldn’t keep cooking the books.  And the house of cards collapsed.  The stock price fell back to earth.  And landed with a thud.  Becoming worthless.  People went to prison.  Workers lost their jobs.  And their pensions.  Valued at some $2 billion (though they got a little of that back).  Shareholders lost some $74 billion.  Their accountant, Arthur Andersen, went out of business for their involvement.  And Enron went bankrupt.  The biggest bankruptcy ever.  Until WorldCom.

The Obama Administration borrowed Accounting Practices from Enron and WorldCom to Score Obamacare

WorldCom became a telecommunications titan by buying other companies.  And then with the largest merger in U.S. history when it merged with MCI Communications in 1997.  It was huge.  And it posted huge sales.  Accordingly, its stock price rose.  As the dot-com bubble burst WorldCom’s stock price fell.  As did a lot of telecoms.  To prop up their falling stock price they, too, turned to shady accounting practices.  Inflating both revenues and assets.  And like Enron they couldn’t keep up the scam.  And the fallout was similar to Enron.  Only bigger.  Interestingly, they even had the same accountant.

But it’s just not corporations playing with their accounting practices.  Even the government gets into the action.  Case in point Obamacare.  The magic number for the cost of Obamacare over 10 years was a trillion dollars.  The same cost of the Iraq War and the War in Afghanistan.  As the wars end Obamacare takes over that spending.  Making it ‘revenue neutral’.  Well, health care for everyone without adding any new government spending would be hard to say ‘no’ to.  So how do you keep it below the cost of these wars?  You borrow accounting practices from Enron and WorldCom.

The original CBO scoring of Obamacare came in at $940 billion.  They based this on the data the Obama administration gave them.  Which included 10 years of new taxes (or spending transferred from war spending to Obamacare spending).  But only 6 years of benefits.  So that $940 billion only covered 6 years of Obamacare in that 10 year period.  Greatly underreporting the costs of the program.  No one knew it at the time.  Because they fast-tracked this bill through Congress before anyone had a chance to read its two thousand pages.  So they had their CBO scoring below a trillion.  And with some shady backroom deals, voila.  Obamacare became law.  CBO has since revised their number to $1.76 trillion that includes 9 years of benefits.  Bringing it to about $2 trillion if you cover all ten years.  And closer to $3 trillion if you put back the $741 billion or so taken from Medicare.  So the government cooked the books to conceal the true costs of Obamacare.  With the true cost being approximately 300% more than they promised the American people it would cost.  This $2 trillion scam is greater than the Enron and WorldCom scams.  But the government suffers no fallout for their gross misrepresentation like Enron and WorldCom did.  Because when they do it it’s just politics.

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Morse Code, Telegraph, Binary System, Bit, Byte, Bitstream, Dialup Modems, Broadband, Cable Modem and Coaxial Cable

Posted by PITHOCRATES - August 8th, 2012

Technology 101

One of the First Improvements in Communication Speed was Morse Code sent on a Telegraph

The Battle of New Orleans (1815) was a great American victory over the British.  General Andrew Jackson with a force of about 4,000 repulsed a British force of some 11,000.  It was a huge American win.  The biggest in the war.  And a humiliating British defeat.  Now here’s an interesting side note about that battle.  The war was already over.  We had already signed a peace treaty with the British.  And were already repairing that special relationship between the United States and Britain.  So why was there even a Battle of New Orleans?  Because there was no Internet, television, radio or telegraph back then.  There was only ink and paper.  And foot, horse and boat.  Making communications slow.  Very, very slow.

The American Civil War, like the Crimean War, was a war where the technology was ahead of the tactics.  Four years of fighting with modern weapons using Napoleon tactics killed over half a million Americans by 1865.  After General Grant flushed General Lee from the Petersburg defenses he chased him as Lee fled west.  With General Sheridan’s cavalry in hot pursuit.  Cutting in front of Lee’s army to bring on the Battle of Sayler’s Creek.  Where the Confederates suffered a crippling defeat.  General Sheridan telegraphed General Grant, “If the thing is pressed, I think that Lee will surrender.”  President Lincoln was monitoring the military wires in Washington.  When he read Sheridan’s message he quickly sent a wire to General Grant.  “Let the thing be pressed.”  Grant pressed the thing.  And Lee surrendered at Appomattox Courthouse.

In 50 years time communications went from taking weeks.  To taking as little as minutes. The benefit of faster communications?  At the Battle of New Orleans approximately 2,792 people were killed, wounded or went missing.  In a battle fought after the war was over.  Only word hadn’t gotten to them yet.  So fast communications are a good thing.  And can prevent bad things from happening.  And one of the first improvements in communication speed was Morse code sent on a telegraph.  A wire between two places.  With a key switch and an electromechanical device at each end.  When an operator tapped the switch closed an electrical current went down the wire to the electromechanical device at the other end of the wire, inducing a current in it that opened and closed a device that replicated the keying at the other end.  Thus they could send a series of ‘dots and dashes’ through this wire.  The operator encoded the message at one end by assigning a series of dots and/or dashes for each letter.  The operator at the other end then decoded these dots and dashes back into the original message.

Getting Outside Information into your Computer was a little like Getting Information over a Telegraph

Morse code is a binary system.  Just like the ‘bits’ in a computer system.  Where each bit was one of two voltage levels.  Represented by 1s and 0s.  Eight bits make a byte.  Like the telegraph operator a man-machine interface encodes information into a series of bits.  The computer bus, registers and microprocessor ‘grab’ bytes of this bitstream at a time.  And then processes these bits in parallel blocks of bytes.  Unlike the telegraph where the encoded message went serially down the wire.  The telegraph greatly increased the speed of communications.  But a telegraph operator could only encode and send one letter of a word at a time.  So he couldn’t send many letters (or pulses) per second.  Just a few.  But when you encode this information into 8-bit chunks you can greatly increase the speed data moves inside a computer.  As computer speeds grew so did their bus size.  From 8 bit to 16 bit (2 bytes).  From 16 bit to 32 bit (4 bytes).  From 32 bit to 64 bit (8 bytes).  As a computer processed more bytes of data at a time in parallel computers could increase the speed it completed tasks.

Of course, people who were most interested in faster computers were gamers.  Who played games with a lot of video and sound information encoded in them.  The faster the computer could process this information the better the graphics and sound were.  Today computers are pretty darn fast.  They can run some of the most demanding programs from 3-D gaming to computer-aided design (CAD).  But then a new technology came out that made people interested by what was happening outside of their computer.  And how fast their computer was didn’t matter as much anymore.  Because getting that outside information into your computer was a little like getting information over a telegraph.  It came in serially.  Over a wire.  Through a modem that attached a computer to the Internet.  And the World Wide Web.  Where there was a whole lot of interesting stuff.  But to see it and hear it you had to get it inside your computer first.  And the weak link in all your web surfing was the speed of your modem.

A modem is modulator-demodulator.  Hence modem.  And it worked similar to the telegraph.  There was a wire between two locations.  Typically a telephone line.  At each end of this wire was a modem.  The wire terminated into each modem.  Each modem was connected to a computer.  One computer would feed a bitstream to its modem.  The modem would encode the 1s and 0s in that bitstream.  And modulate it onto a carrier frequency.  The modem would output this onto the telephone line.  Where it traveled to the other modem.  The other modem then demodulated the carrier frequency.  Decoded the 1s and 0s and recreated the bitstream.  And fed it into the other computer.  Where the computer grabbed bytes of the bitstream and processed it.

The Coaxial Cable of Broadband could Carry a wider Range of Frequencies than the Twisted Pairs of Telephone Wire

The speed at which all of this happened depended on your modem.  Specifically your modem.  The other modem you connected to was typically on a web server and was of the highest speed.  And on all of the time.  Unlike the early dialup modems we used in the Nineties when we first started surfing the web.  Back then surfing could be expensive as you often paid for that time as if you were on the telephone.  This was the other weak link in surfing.  Trying to make that telephone line as short as possible.  Because that was what you paid for.  The use of the telephone line.  Once you got onto the Internet you could travel anywhere at no additional cost.  So you dialed in to an available local number.  Which sometimes could take awhile.  And when you finally did dial-up on a local line but went inactive for a period of time it disconnected you.  Because others were looking for an available local phone line, too.

The first modem speeds many of us used at the beginning were 2400 bits per second (bps).  Which was a lot faster than the few bits per second of a telegraph operator.  And okay for sending email.  But it was painfully slow for graphics and sound.  And then the improvements in speed came.  And they came quickly.  4800 bps.  9600 bps.  14400 (14.4k) bps.  28800 (28.8k) bps.  33600 (33.6k) bps.  And then the last of the dialup modems.  56000 (56k) bps.  Which meant you could download up to 56,000 bits per second of 1s and 0s.  That’s 56,000 pieces of information coming out of that modem each second.  Now that was fast.  Still slower than what happened inside the computer with those wide parallel buses.  That chomped off huge bytes of data.  And processed them at rates in excess of a billion times a second.  But it was still the fastest thing on the block.  Until broadband arrived.

Today you can buy a broadband cable modem for less than $100 that can download at speeds in excess of 100,000,000 bits per second.  That’s over 100 million pieces of information each second.  It is only data rates like this that let you live stream a movie off the Internet.  Something that the 56k modem just wouldn’t do for you.  And it’s always on.  Costing you a flat fee no matter how long you spend surfing the web.  You turned on your computer and you were connected to the Internet.  What allowed those greater speeds?  The wire.  The coaxial cable of broadband could carry a wider range of frequencies than the twisted pairs of the telephone wire.  Providing a greater bandwidth.  Which could carry more encoded information between modems.  Allowing you to download music and videos quicker than it took a telegraph operator to send a message.

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Personal Computer, Commodore 64, IBM PC, DOS, Macintosh, Mouse, GUI, Modem, Internet, HTML, URL and World Wide Web

Posted by PITHOCRATES - August 7th, 2012

History 101

The IBM PC operating DOS set one Standard for the Personal Computer

The first personal computer (PC) appeared in the Sixties.  (People called these first PCs ‘minicomputers’.  But we’ll use the term PC to cover all work and home single-user computer systems.)  These first PCs were little more than a programmable calculator.  Not very useful in most homes.  PCs got a little more useful in the Seventies.  The Commodore PET, the Apple II and Radio Shack TRS-80 hit store shelves in the Seventies.  And if you were a school boy without a girlfriend chances were that you were home playing games on these PCs.  Some were even writing programs.  So these PCs offered an exciting new world for geeks and nerds.  But offered little to their sisters and parents.

In the early Eighties one of the most popular PCs hit the market.  The Commodore 64.  Which offered better graphics.  And accessories like tape drives, disc drives, joy sticks and printers.  Allowing better gaming.  And the beginning of business programs.  Like a database program.  Sure, it was primitive.  And you needed a TV to use the Commodore 64.  But it was state of the art then.  Kids who played with these PCs gave up a lot of their youth to these machines.  But other than those fascinated by technology (and ardent fans of Star Trek), few others were interested in the PC in the early Eighties.  It just wasn’t anything the masses were demanding.

Then came the IBM PC.  This set one standard for the personal computer.  And we call every personal computer that uses the IBM platform a PC.  This PC came with its own monitor.  That was one color.  Monochromatic.  Either green.  Or amber.  The monitor sat on the computer box.  In the front of the box were two 5-1/4 floppy disc drives.  State of the art then.  Extinct dinosaurs today.  Businesses started buying these for the word processing and spreadsheet programs they could run.  But the PCs themselves weren’t very people friendly.  Before you could use your word processing or spread sheet program you had to boot up your computer with DOS first.  DOS was the disc operating system that made the computer work.  In those early days you had to type a DOS command to get those word processing and spreadsheet programs to start.  It required even more DOS mastery to do some basic things like installing a printer or copying a disc.  Making these PCs complicated machines that most people still did not see any reason to buy one.

The Defense Department’s ARPA created the ARPANET which was the Forerunner to the Internet

Then came 1984.  And the Macintosh computer (the Mac).  The other computer standard.  And rival to IBM.  And like their iconic Super Bowl ad said, it changed the world.  The Mac introduced us to the mouse.  And the graphical user interface (GUI).  Which Xerox actually created during the early Seventies but didn’t do anything with it.  But a guy by the name of Steve Jobs did.  He incorporated it into the Mac and made using a computer a whole lot easier.  The PC makers soon followed, adding a mouse and the Windows GUI to the PC.  Computers were never easier to use.  Businesses began buying computers in droves.  People were even bringing them into their homes.  Primarily for gaming.  Though some were using personal finance programs to pay their bills.  Writing letters and addressing envelopes.   And a few other things.  But the masses weren’t buying them yet.  Because there was little the masses could do on these remarkable machines.

Computer scientist JCR Licklider left Bolt, Beranek and Newman (BBN) to head the Behavioral Sciences and Command and Control programs at the Defense Department’s Advanced Research Projects Agency (ARPA).  He had an idea about making computers talk to each other.  Distant computers.  Others continued his work at ARPA.  Eventually issuing a request for quotation to connect the powerful computers at the University of California, Los Angeles (UCLA), the Stanford Research Institute’s Augmentation Research Center, the University of California, Santa Barbara (UCSB) and University of Utah.  BBN won the contract.  Built the network between these computers.  And on October 29, 1969, they sent the first message over the ARPANET.  An incredible achievement.  It was paradigm changing.  The Department of Defense had just created the Internet.  And the world would never be the same.  In another 20 years or so, that is.

The birth of the Internet in 1969 meant nothing to the masses.  The only people using it were computer people working on big, powerful computers located only at universities and research facilities.  Who could share these incredible computing resources.  But the masses had no concept of computer networks.  And weren’t asking for this technology.  They wanted other things during the Seventies.  And were only warming up to computers during the Eighties.  It was going to take a lot more to get the masses interested in this new technology.  Something that made it fun.  Without having to learn a lot of new stuff.  Something that was no more difficult than watching television.

A Favorable Business Climate in the Eighties created a High Tech Boom and ushered in the World Wide Web

As the Internet grew it allowed more computers to network with each other.  Sort of like having a new system of interstate highways.  A quick way to get places.  But unlike the interstate highways the Internet didn’t have tourist attractions and destinations of interest to go to.  At least, not yet.  And then came along Tim Berners-Lee.  Sir Timothy John “Tim” Berners-Lee these days.  Thanks to a knighthood bestowed by Queen Elizabeth II.  He helped to populate the Internet with destinations of interest.  He created a ‘web’ of hypertext documents that sat on servers.  People with computers could access these servers via their modems.  At first with dial-up modems that took forever to download anything off of the World Wide Web.  Then with broadband high speed modems.  These would connect them to the Internet.  The HyperText Markup Language (HTML) provided a common programming language for these interconnected computers.  The uniform resource locator (URL) provided a unique destination address for each thing (document, picture, video, etc.) on the World Wide Web.  And a web browser provided the virtual car to travel the Internet to these destinations of interests at various URLs all across the web.

Of course, none of this would have been possible with only those early PCs running DOS.  It was the marriage of the mouse, the GUI and the World Wide Web that made using the Internet fun and as easy as watching television.  Surfing the Internet took off in the Nineties because you could read, watch and listen to anything on the web without knowing the first thing about computer programming.  Even our parents could use email so deftly that first class mail may soon be joining the 5-1/4 floppy drive into extinction.  Along with the printed telephone directory.  And the printed newspaper.  Everything we want to know, look-up, enjoy, share, etc., is online these days.  We can even live-stream movies to our television via our PC connected to the Internet.  We bank, shop, chat and use social media like Twitter and Facebook.  We now have smartphones that can do all of this for us.  As well as take pictures and post them online.

People now use this technology throughout their day.  And most can’t imagine living without it.  This all starting with technology in the Sixties that people didn’t know a thing about.  Didn’t understand it.  And never asked for it.  But a few individuals advanced this technology.  Then some companies figured out how to commercialize it.  To make us demand something that didn’t exist only a short time earlier.  And once they explained why we had to have this technology we had to have it.  And now can’t live without it.  Proving Say’s law.  Supply creates demand.  And disproving Keynesian economics.  For demand didn’t make any of this happen.  Supply did.  A favorable business climate in the Eighties (low taxes, low regulatory burdens, sound monetary policy, etc.) created a high tech boom.  That showered us with high-tech toys.  And ushered in the next big thing.  The World Wide Web.

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Even Cutting 28,000 Jobs will not help the USPS Compete against the Internet

Posted by PITHOCRATES - May 27th, 2012

Week in Review

The United States Postal Service (USPS) hates the Internet.  Before the Internet they had a monopoly in the letter industry.  If you wanted to send Granny a letter you had to go through them.  There’s only one problem with a monopoly.  Because they have a captive audience they don’t have to innovate.  They don’t have to improve anything.  Just make a lot of money.  And give your employees generous wage and benefit packages.  Just like the railroads did.  Before trucks came around, that is.  The trucking industry nearly destroyed the railroad industry.  But the railroads learned how to compete.  They helped redefine the transportation industry that now includes trains, ships and trucks.  The railroads are back.  Stronger than ever.  And making money.  But is it too late for the USPS?

The Internet is the USPS’ trucking industry.  It has all but destroyed the snail mail industry.  To survive the USPS has to do what the railroads did.  Reinvent itself.  Reinvent the industry they participate in.  If they can.  And they better hurry.  Because their monopoly is gone.  Not from other people entering the snail mail business.  But by new technology that created a better alternative to the snail mail business.  The Internet.  And it’s tap-dancing all over the USPS (see U.S. Postal Service offers buyouts to 45,000 workers by Emily Stephenson posted 5/25/2012 on Reuters).

The mail agency, which lost $3.2 billion in the first three months of 2012, plans to begin this summer moving mail-processing activities away from smaller sites to reduce annual costs.

As part of that plan, the Postal Service will offer $15,000 in two installments to full-time mail handlers who take early retirement or leave the agency, USPS spokesman Mark Saunders said on Friday…

The Postal Service has been hit hard by tumbling mail volumes as more Americans communicate online and by massive payments for future retiree health benefits…

The agency needs to reduce its workforce by 150,000 people by 2015, Saunders said. Consolidating and closing processing facilities, which will continue through 2014, could eliminate up to 28,000 jobs and save $2.1 billion a year, the Postal Service has said.

Saunders said he could not speculate how many mail handlers would take buyouts this year, but added that the change “will not affect mail service.”

It’s not enough.  If you annualize that $3.2 billion quarterly loss that comes to a $12.8 billion loss for the year (4 X $3.2 billion).  Cutting only $2.1 billion per year will not solve their problems.  They’ll still have an operating deficit of approximately $9.6 billion.  And if the Internet doesn’t go out of business in the foreseeable future these numbers are only going to get worse.

It’s pretty interesting that a company can cut 28,000 jobs without affecting its business operations.  Why, it’s almost as if they never shrunk their labor force all these years that their business has shrunk.  It’s as if 28,000 people have just been sitting around waiting for the work to pick up again.  While collecting a paycheck.  And while the USPS pours billions into a pension plan for their future retirement.  Hmm.  I wonder if this could have anything to do with that $3.2 billion quarterly loss. 

The clock is ticking.  While the USPS is still struggling to compete with email texting is giving email a run for its money.  And it just may be that the USPS is not as nimble as the railroad industry in pulling up its tracks and laying them on the road to profitability.

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