The Left hates Wal-Mart but they’re OK with destroying Jobs and Industries to enjoy the things they Like

Posted by PITHOCRATES - March 22nd, 2014

Week in Review

The left wants to raise the minimum wage.  They want to make companies pay salaried people overtime.  And they want to block Wal-Mart from entering their communities.  Because their many jobs destroy a few jobs.  And their lower prices and wider selection of goods makes it difficult for Mom and Pop stores to sell a more limited selection of goods at higher prices.

Yes, they care about the little guy.  And want the little guy to pay more for less at the local Mom and Pop stores the much richer more elite left can more easily afford.  Which they like to frequent because those higher prices, of course, keep out the riffraff.  For when it comes down to it the left likes to enjoy the things they like no matter how many jobs they destroy.  Such as in the music industry.  That went from the phonograph to the gramophone to vinyl to 8-track to compact cassette to CD to MP3 to subscription to download to streaming (see The times they are a-changin’ for the music business posted 3/21/2014 on The Economist).  And every step along the way entire industries were destroyed along with the jobs in that industry.

But this is okay.  This is creative destruction.  Where something new and better replaces something older and not as good.  A march of technology that makes our lives better.  As in the music industry.  As well as how cell phones destroyed the paid public phone industry.  How email and texting is destroying the United States Postal Service.  How digital cameras destroyed the film development industry.  How wireless internet and tablet computers have destroyed the news paper industry.  How smartphones destroyed the telephone book industry.  Etc.

Things are better with these new technologies.  And liberals love to use all of this technology as they sit sipping their espresso in their quaint coffee shops.  Having no problem with all the creative destruction that allows them to do so.  But let a Wal-Mart open up somewhere where people can hardly scrape by in life and they have a problem with that.  Because they don’t want a Wal-Mart in their neighborhood.  They want to keep it chic and unique and a little pricy.  So the elitists can enjoy their time without having to be around people they deem less desirable.  Like the shoppers at Wal-Mart.

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The High Cost of Employing People has some replacing People with Technology

Posted by PITHOCRATES - March 8th, 2014

Week in Review

Self-serve checkouts at stores are reducing the number of cashiers in the economy.  As bar codes and credit cards make it easier to live in a world that isn’t served by people.  You can even pay with cash at these self-serve checkouts.  And people love them.  Why?  Shorter lines.  You can have 10 or more self-checkout lanes managed by one employee to fix problems and approve alcohol sales.  Whereas 10 checkout lanes with cashiers require 10 cashiers.  And these days full-time employees are expensive.  Especially in low-margin industries.  Like retail sales and grocery stores.

So stores don’t like to have a lot of checkout lanes with no lines with some cashiers getting paid for working part of the time.  They’d rather have 3 checkout lanes with long lines with 3 cashiers working all of the time.  Or one cashier overlooking 10 self-serve checkout lanes.  Because fewer people cost less.  Making it easier to survive in a world of thin margins.  And this concept may soon be coming to a restaurant near you (see Pizza Hut table lets you touch-screen your toppings by Amanda Kooser posted 3/4/2014 on cnet).

Touch-screen tables already exist. Pizza Hut restaurants already exist. Put the two together and you end up with a touch-screen table concept for ordering pizzas using your fingers…

The interactive table idea isn’t far-fetched at all. The technology to make it happen is already available. If this were to be rolled out, however, it would require a pretty hefty investment for the hardware, which would need to be rugged enough to stand up to countless greasy fingerprints, soda spills, and other abuse.

People love their gadgets.  There’re apps for everything these days.  To make our lives more efficient.  To speed things up in our lives.  In large part by removing those slow and time-consuming people.  This is the brave new world we live in.  A world where we even use that technology to communicate with each other.  Instead of meeting face-to-face.  It is clear we’re addicted to technology.  And losing our desire to interface with people.

Which is why it’s sad that costly government regulations (such as Obamacare) and higher taxes are squeezing margins so much for businesses that they prefer to invest in technology instead of hiring people.  Because with technology you don’t need to pay for unemployment insurance.  Workers’ compensation insurance.  Health insurance.  Mandated paid-leave.  Holidays.  Vacation days.  Drug testing.  Sexual harassment training.  Sexual harassment lawsuits.  A higher minimum wage.  Etc.  All of those things our liberal Democrats have burden our businesses with to make it better for employees.  But the costs are so great to comply with these regulations and taxes that businesses are now replacing employees with technology wherever they can.  Just so they can remain in business.

What’s next?  Restaurants where you sit down and select something from your touch-screen table?  And a pre-cooked dinner (appetizer, entrée and dessert) is warmed in an automated kitchen?  Only to be delivered to your table by an automated conveyance system?  Eliminating cooks, waitresses and even food-runners?  If you keep raising the cost of employing people this may be our brave new world in our not so distant future.  If you doubt this just think of the last time you went to the post office.  Did your banking face-to-face with a bank teller.  Dropped your film off to be developed into photographs.  Used a newspaper to find a movie to see.

Our love of technology, our impatience to wait for anything and the high cost of hiring people (especially low-skilled workers) has taken us far down the road to that people-less future.  You can’t stop the march of technology.  But you can stop making it so costly to hire people.  If we focused on this we wouldn’t have to worry about a people-less future.  Something we should think about the next time we enter a voting booth.

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The Obamacare Website uses 10-Year-Old Technology that is not User Friendly

Posted by PITHOCRATES - October 19th, 2013

Week in Review

They say you should never send a boy to do a man’s job.  With the Obamacare website rollout we also see we should never send the government to do a job a kid can do.  Design a functioning website (see Tech experts: Health exchange site needs total overhaul by Kelly Kennedy posted 10/17/2013 on USA Today).

The federal health care exchange was built using 10-year-old technology that may require constant fixes and updates for the next six months and the eventual overhaul of the entire system, technology experts told USA TODAY…

Recent changes have made the exchanges easier to use, but they still require clearing the computer’s cache several times, stopping a pop-up blocker, talking to people via Web chat who suggest waiting until the server is not busy, opening links in new windows and clicking on every available possibility on a page in the hopes of not receiving an error message. With those changes, it took one hour to navigate the HealthCare.gov enrollment process Wednesday…

“I have never seen a website — in the last five years — require you to delete the cache in an effort to resolve errors,” said Dan Schuyler, a director at Leavitt Partners, a health care group by former Health and Human Services secretary Mike Leavitt. “This is a very early Web 1.0 type of fix.”

“The application could be fundamentally flawed,” said Jeff Kim, president of CDNetworks, a content-delivery network. “They may be using 1990s technology in 2.0 world…”

Clearing the cache, which has helped make it easier for some people to enroll, could ultimately strain the system more, Kim said…

But as HHS fixes errors, the cookies may not correspond with the updated website, so rather than allowing someone to quickly log in, they instead cause an error message. And every time a person clears his computer’s cache, the government’s website has to work that much harder to grab more data…

Engates said he believes most of the problems are caused by systems integration with other sites, such as the IRS.

So much for the Obamacare website being user friendly.

Today when someone is having trouble with technology they usually turn to their children.  Or the neighbor’s kid.  In the old days parents had their kids teach them how to program the VCR.  Little has changed.  For when we have a technology problem no one ever says ‘let’s call the government’.  No.  They usually look for some kid they know.  Because kids are fascinated by technology and want to learn all about the latest new thing.  Whereas adults are just too tired to learn anything new.

Perhaps we can ask the neighbor kid to buy our health insurance for us.  They’ll know how to clear the computer’s cache, turn off a popup blocker and open links in new windows.  While us old people dream about the good old days.  When we could go to a private insurer, sit across the desk from her or him and buy insurance the old fashion way.  Without having to have a kid do it for us.

Why does the government always take something that was working perfectly fine and make it so damn hard?

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Food Surplus, Artisan, Guilds, Industrial Revolution, Mechanized Looms and Luddites

Posted by PITHOCRATES - May 14th, 2013

History 101

As the Middle Class grew Artisans joined Guilds to Restrict Entry into their Trade

For most of our existence on this planet we were hunters and gatherers.  Like the animals in the wild.  Dependent on our environment for our food.  Which was often scarce.  Leaving our distant relatives with a chronic gnawing hunger in their bellies.  Sometimes the environment provided so little food that there wasn’t enough for everyone.  So a great many went hungry.  And a great many eventually died from that hunger.  Such was life for hunters and gatherers dependent on their environment for food.  Then we started thinking.  And figured out how to farm.

As farmers we took control of our environment.  Instead of eating only what the environment gave us we grew what we needed.  And grew even more to have a food surplus.  To get us through times when the environment did not provide a good growing season.  Having control over our food turned that chronic gnawing hunger into a rare and infrequent occurrence.  Which established us at the top of the food chain.  And made us master of the planet.  Where we shaped it to serve our needs.  Instead of living at its mercy.

With a stable food supply we were able to do something else.  Something other than grow food.  We could build things.  And an artisan class grew.  Potters.  Shoemakers.  Blacksmiths.  As time passed the artisan class grew.  Creating a middle class.  Markets where people met to trade their goods grew into cities.  The economy grew more complex.  The cities grew more crowded.  And the artisans became protective of their trades.  Joining guilds that restricted entry into their trade.  By maintaining a maximum number of artisans in each trade.  For though there was more food than ever the fear of hunger never went away.

In Medieval Europe Cloth Production was Second only to Food Production

Artisans joined guilds for one reason.  So they wouldn’t starve to death.  Basically.  By restricting entry into their trade they limited competition.  This allowed them to charge higher prices for their goods or services.  And that healthy income allowed them to buy all the food they desired.  Whereas if other artisans were allowed to set up shop in town they could offer their goods or services for less.  Forcing other artisans to lower their prices.  Which is good for the masses.  Allowing them to pay less for the artisans’ goods or services.  Helping them to push off hunger themselves.  But not good for the limited few who saw their wages fall with more artisans entering their trade.  Hence the guilds.

But artisans had more to fear than just people trying to take food off of their tables.  There was something else that was a far greater risk.  Technology.  Which led to increases in productivity.  That is, producing more with fewer people.  Replacing some highly-skilled artisans with lower-skilled and lower-paid people operating machines.  And without a job it was difficult to put food on the table.  With the specter of hunger haunting them some artisans did something about that new technology putting them out of a job.  They fought back against the machines.

Besides food there was another basic necessity the people needed.  Especially in England.  Where it got pretty cold during the winter.  To live in the northern climes you needed to wear clothes.  Or die of exposure.  In Medieval Europe food production was the number one occupation.  The number two occupation was cloth production.  To make the clothing people needed to wear to keep from dying of exposure.  Highly skilled weavers filled factories as they manually worked their looms.  Making the cloth that others would turn into clothing.

The most Infamous Neo-Luddite was the Unabomber Theodore Kaczynski

Their meager production rate kept clothing prices high.  Then came the Industrial Revolution.  First they mechanized spinning.  Creating more thread than a weaver could ever use.  Then they mechanized weaving.  Turning that thread into cloth at an incredible rate.  Turning cloth-making from a skilled trade into an automated process.  Producing more with fewer people.  Lowering the price of clothing.  And reducing the need for skilled artisans.  Making the people happy.  For they could buy more clothing.  And still be able to afford enough food to ward off that gnawing hunger.  Everyone was happy except, of course, those artisans put out of a job thanks to those new machines.

Britain was at War with Napoleon’s France in 1811.  During war the home economy typically suffers.  And machines replacing people didn’t help.  Highly skilled weavers either lost their jobs.  Or had to take steep pay cuts to compete with other unskilled laborers working the new mechanized looms.  Lower incomes made it difficult to buy food when prices were rising.  As they typically do during war.  Pushing some people to the breaking point.  And some people rebelled against the machines.  Smashing them.  And burning them.  These people were Luddites.  Their rebellion against technology was so great that at times more British Red Coats were in England putting down their rebellion than were fighting Napoleon’s Grande Armée.

But in the end the Luddites loss their struggle.  By 1817 the British had put down the rebellion.  And the Industrial Revolution carried on.  Making life better for the masses.  The modern economy flooding us with new must-have products at reasonable prices.  And creating scores of new jobs the Luddites never could have imagined.  Still, their anti-technology philosophy lives on.  Perhaps the most infamous neo-Luddite being Theodore Kaczynski.  The Unabomber.  Who fought against technology by planting or mailing bombs.  Killing three.  And hurting 23 others.  Who they finally found holed up in a primitive cabin in the Montana wilderness.  Where he rejected all technology.  Living without any of the creature comforts technology gives us.  Like electricity, fresh water or personal hygiene.  Being a Luddite to the extreme.

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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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U.S. Education no longer Leads the World in Science, Technology, Engineering and Mathematics (STEM)

Posted by PITHOCRATES - July 22nd, 2012

Week in Review

There’s bad news.  And news that’s not as good as the bad news.  There’s structural unemployment.  And we’re dumbing down our educational system (see For the U.S. Economy the News Is Bad and Worse by Mortimer B. Zuckerman posted 7/18/2012 on U.S. News and World Report).

Given that the median period of unemployment is now in the range of five months, vast numbers who want to work are just not counted. If we include, as we should, people who have applied for a job in the last 12 months, and those employed part time who want full-time work, the real unemployment number is closer to 15 percent. And we’ve made virtually no progress in reducing this number. We need 150,000 jobs every month just to take into account the people entering the labor force. Today we are looking at monthly job creation estimates of only 75,000 over the last three months.

We do track this true unemployment number.  We just don’t report it.  The official number we report is the U-3 unemployment rate.  The one that includes everyone who can’t find a full time job is the U-6 unemployment rate.  And it does stand around 15%.  So why does the U.S. continue to suffer through the worst recession since the Great Depression?  Because of structural unemployment.  Meaning people lost their jobs because the economy no longer needs their jobs.  Think of print newspapers going out of business because of digital news available online.  The world changes.  And we replace the old technology with new technology.  Meaning there are jobs for who drives this technological change.  And no jobs for those who cling on to the technological past.  So you want to be the people driving this new technology.  Which requires the best education.

Here now is the worse news: America is adding to the length of unemployment lines in the future by falling behind today in skill areas where global competition has become so intense. Too few of our younger people are benefiting from what is called STEM education. STEM stands for science, technology, engineering, and mathematics, the human capital at the core of any productive economy…

A stunning illustration of how far America has started to lag in training its youth is that we are only one of three countries in the 34-member Organization for Economic Cooperation and Development where the youngsters are not better qualified than their fathers and mothers. Men and women ages 55 to 64 have the same or better education than the 25-to-34 generation. The younger workers in most other OECD countries are much better educated than those nearing retirement…

In a 2010 report by the academies, an advisory group on science and technology, the United States ranked 27th among 29 wealthy countries in the proportion of college students with degrees in science and engineering. In a larger study conducted by the OECD in 2009, American 15-year-olds were 31st in math and 23rd in science. Yet another study found American 12th graders near the bottom of students from 20 nations, and this doesn’t even focus on the achievement gap between low-income and minority students and their peers…

Astonishingly, according to recent studies, about 30 percent of high school math students and 60 percent of those in the physical sciences are taught by instructors who either did not major in the subject or are not certified to teach it.

Sadly, the U.S. no longer has the best education.  Sure, students today can recite every bad thing America has done as a nation.   Tell you the inherent evils of capitalism.  And they can tell you everything you want to know about global warming.  But they’re not smarter than their parents.  Which is why our kids today won’t have a better life than their parents.  Because our educational system is dumbing them down.  Making them prime candidates for structural unemployment.  For the sad truth our college graduates are learning today is that having a college degree isn’t all that is necessary for a good job.  You need a degree in something useful.  And the liberal arts and social sciences just aren’t going to give you the science, technology, engineering and mathematics you need to compete in the global economy.

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Competition, Mom and Pop Store, Big Box Store, Cooperative, Internet Sales, POS System, Inventory Control System and Wal-Mart

Posted by PITHOCRATES - July 3rd, 2012

History 101

Big Box Stores offered More Choice and Lower Prices putting Mom and Pop Stores our of Business

Competition makes everything better for consumers.  Consumers love competition.  Because it gives them so much to choose from.  And choice is good.  Especially when that choice lowers prices.  And raises quality.  Which is why we love competition.  But it’s not very popular with businesses.  Especially the older ones.  Used to doing things the old way.  Who got into a comfortable rut.  Doing things the way they always did them.  Enjoying their comfortable incomes.  Until something arrived that shattered their world. 

America became the innovative capital of the world.  Thanks to their entrepreneurs.  In the land of liberty they were free to do great things.  Invent great things.  And go into business.  In cities and small towns everywhere moms and pops opened up shops.  Mom and pop stores.  Family affairs.  Serving their communities with quality goods and services.  At reasonable prices.  At least what people thought were reasonable prices.  Often times there was little competition for these mom and pop stores.  Apart from other mom and pop stores.

Mom and pop stores don’t have large sales.  Or large purchasing power.  So their prices are higher than a competitor who has large sales and large purchasing power.  Mom and pop office supply stores learned this lesson quickly when Office Max opened in town.  And Office Depot.  And Staples.  Big box stores that offered more choice and lower prices.  And no matter how much we loved our mom and pop stores when we had a chance to get more for less we chose to get more for less.  And these big box office supply stores put the mom and pop office supply stores out of business.

Advanced POS and Inventory Control Systems allow a Large Variety of Items at Low Prices

The mom and pop hardware stores suffered the same fate.  When the big box home improvement stores moved in.  Builders Square.  Home Quarters.  Home Depot.  Lowes.  Who served both consumers and contractors.  Giving them huge economies of scale.  Moving such a wide variety of material at low prices the small mom and pop hardware stores could never match.  Some survived.  Offering services like they did in the old days (like fixing a broken window).  And joining a cooperative (such as True Value or ACE Hardware) to match the purchasing power of the big box stores.  To get some economies of scale.  But more have gone out of business than stayed in business.

During the Eighties a lot of computer stores opened as the personal computer industry took off.  A lot of small stores custom built PCs.  Sold dot-matrix printers.  Fanfold printer paper.  Printer ribbons.  Floppy disks.  Cables.  External storage devices.  With the advent of the Internet they added dial-up modems.  As the industry grew the big box stores came in.  CompUSA.  Computer City.  The big box office supply stores.  Best Buy.  And Circuit City.  Put the small computer stores out of business.  By providing a huge variety at low prices.  They added software.  Games.  Uninterruptible power supplies.  And other electronic devices (PDAs, digital cameras, game boxes, game controllers, etc.).  Then Internet sales took off putting pressure on the big box stores.  Putting some of them out of business.

A big driver in the move away from the mom and pop stores to the big box stores is technology.  In particular inventory control systems.  Tied into their point of sale (POS) systems.  Buying a lot of goods and storing them in large warehouses is costly.  Because inventory doesn’t earn any revenue.  It costs to warehouse items.  And it takes cash to place things into inventory.  Businesses buy these things to sell them later.  If they buy too much of the wrong things they may sit in those warehouses.  Becoming less valuable as people’s interests change.  Requiring deep discounting to move these unwanted items out of inventory.  On the other hand, if you don’t carry a large inventory there is a chance you may run out of something that is popular and is selling.  This is where technology comes in.  When a cashier completes a sales transaction a lot of things happen automatically.   As people receive their change from the cashier the POS system automatically interfaces with the inventory control system.  It updates the system to show the reduction in inventory.  And the inventory control system places an automatic order to replenish the inventory.  The successful big box stores carry smaller inventories of each individual item.  Allowing them to carry a larger variety of items.  Which is how they can offer a larger variety at lower prices.

Stores like Wal-Mart are the People’s Hedge against Bad Fiscal and Monetary Policy 

The king of retail, Wall-Mart, got to be king with technology.  The ultimate big box store that sells just about everything under the sun (groceries, clothes, hardware, gardening supplies, electronics, prescription drugs, you name it).  They have taken inventory control systems to an art.  They combine economies of scale and efficiency that few can match.  They sell so much that they get to buy at the best prices.  And their sophisticated POS and inventory control systems keep the shelves stocked with the things people want to buy while keeping their inventories lean.  Few stores please consumers more by their wide variety and low prices.  Allowing them to fill their shopping carts without having to sacrifice other family needs.

Competition created Wal-Mart.  Because people wanted more choice and lower prices.  And Wal-Mart figured out how to do that.  Something the mom and pop stores just couldn’t do.  Which is why Wal-Mart stores are opening everywhere.  The people love them.  And the people want them.  Or they want the store that puts Wal-Mart out of business by offering even more choice at even lower prices.

Of course this begs the question why do people want more choice at lower prices?  Are they greedy?  Materialistic?  No.  They’re just not rich.  More and more of their income is taxed away at the local, state and federal level.  And prices keep rising thanks to Keynesian monetary policy.  Which continuously expands the money supply to ‘stimulate’ the economy.  Higher taxes and permanent inflation is why two-income households have become the norm and not the exception today.  And why shoppers love stores like Wal-Mart.  Because stores like Wal-Mart are the people’s hedge against bad fiscal and monetary policy.  Which is the true destroyer of mom and pop stores everywhere.

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FT120: “Give a man a fish and he can eat for a day; give him a job and he can have an obesity problem.” -Old Pithy

Posted by PITHOCRATES - June 1st, 2012

Fundamental Truth

In Warfare Starvation and Famine are the most Potent of Weapons

Starvation and famine has plagued mankind since the dawn of time.  It was the driving force in evolution.  Those who took control of their food supply lived.  Those who didn’t disappeared from the evolutionary path.  Like Neanderthal.  And those who came before him.  Our earliest civilizations massed their populations to farm.  And the masses lived in cities.  Setting down roots and saying goodbye to their hunting and gathering ways.  In the Wei River valley.  In the Indus River valley.  The valleys of the Euphrates and Tigris.  In the Nile River valley.  Where modern life took root.  Produced our first food surpluses.  And gave birth to urban life.  And the middle class.

The rise of the middle class allowed civilization to flourish.  For every person that didn’t have to produce food could do something else.  Build better tools.  Create a better government.  Create art.  In general, think about other things.  Those other things that made humans different.  By giving us a more interesting life.  And more sophisticated ways to express ourselves.

But this growth was a double-edged sword.  For large urban populations that made life more enjoyable was also a great threat to the food supply.  A cool and wet summer could destroy crops.  Poor food storage could spoil the food surplus.  A war could see an enemy purposely destroy your crops and your food surplus.  Causing famine.  Where half or your city population could easily die before the next harvest.  Or more.  Especially if the famine resulted from an act of war.   As an act of genocide.  To clear people off land that others want to use for their own food needs.  Which was Hitler’s plan in Russia.  To take the food from the Ukraine.  Kill the indigenous population.  And replace them with Nazis.  Thus creating more living space for the Third Reich.  Or Lebensraum.    Because in warfare starvation and famine are the most potent of weapons.

History has shown that the most Food-Abundant Countries are the most Capitalistic

England led the way in agricultural advances.  Increasing crop yields such that small tracts of land could support greater populations.  As well as produce such huge food surpluses that they had food to export.  As the British Empire spread across the globe so did their advanced agricultural ways.  During the 19th century starvation and famine were becoming rarer in the technologically advanced West.  The 19th century Irish Potato Famine reduced Ireland’s population by up to 25%.  A tragedy of epic proportions.  But it was an exception to the rule.  For food was growing so abundant in the advanced Western World that rarely did people go hungry.  Or feared famine.  And when mechanization and chemistry hit the farm our crop yields exploded.

During the Twentieth Century the Western World produced so much food that food prices plummeted.  Causing the Great Depression.  There was so much food available that farmers couldn’t sell their food at a high enough price to service the debt that they incurred mechanizing their farms.  But not everyone was producing bumper crops in the Twentieth Century.  Both the Soviet Union and the People’s Republic of China set records for death by famine.  As they shunned the ways of the West.  And the state took over their agricultural sectors.  States that were so inept at good farming practices and things economic that crop yields plummeted.  North Korea to this day can’t even grow enough food for her own people.  And has recurring famines.  Because they hold on to the communist ways of Stalin and Mao.  While the Russians and the Chinese have long abandoned them. 

History has shown that the most food-abundant countries are the most capitalistic.  Countries whose agricultural sectors use the latest in technology.  And/or have a rich and vibrant economy that can buy all the food they need if they can’t produce their own.  Like Hong Kong.  Basically a rock off the Chinese mainland.  It has little arable land.  Few natural resources.  But what it does have is low taxation and free trade.  And laissez-faire capitalism.  The Chinese lost Hong Kong to the British Empire (who have since given it back).  And the British used laissez-faire capitalism to make Hong Kong the gem it is today.  Where people are free and in want of little.  And in this island nation that can’t grow enough food to feed their population famine is unheard of.  Why?  Because they have the wealth to trade for all the food they desire.  In fact, while Mao gave the people in the People’s Republic of China famine Hong Kong were doing just fine.  Because they were wealthy and could trade for what they needed.  And they had the Royal Navy protecting her.

In America our Food Supplies are so Abundant and so Cheap that Poor People are becoming Obese

Poverty is the biggest killer.  Famine is prevalent in poor countries.  Like Haiti.  North Korea.  And sub-Saharan Africa.  People suffer in these countries unlike they do in the West.  Despite the amount of aid the West pours into them.  And it’s not because Western nations were blessed with natural resources.  Hong Kong doesn’t have anything other than laissez-faire capitalism.  Protected by the Rule of Law and minimal government interference into the private sector economy.  The very things that are missing from Haiti, North Korea and sub-Saharan Africa.  Where corruption rules supreme.  There is little regard for human rights.  Or property rights.  And no one can protect their people from the abuses of government.  Or from warring neighbors.  Like the Royal Navy protected Hong Kong.  And pretty much the rest of the world during the 19th century.  Just like America’s military might made the world safe for capitalism in the Twentieth Century.

Third world nations are not a victim of first world nations.  They are a victim of themselves.  Where corrupt rulers collect Western aid and live well while their people suffer.  Especially the nations that eschew capitalism.  And embrace socialism.  Like the Soviet Union did.  Like the People’s Republic of China did (the current Chinese regime is enjoying economic growth by allowing some capitalism into their still communist country).  And like North Korea still does.  These socialist utopias were a living hell for their people.  Where they live in fear of their government.  And of famine.

Meanwhile in the Western capitalist nations what do they suffer from?  Especially the poor people in America?  Obesity.  In New York they’re passing laws restricting the size of sugary beverages because they are dangerous to your health.  While they pass out free condoms and birth control as sex is far less risky behavior than a delicious carbonated beverage.  Apparently.  Yes, in America our food supplies are so abundant and so cheap that poor people are becoming obese.  Because capitalism has made those food supplies abundant and cheap.  And capitalism gave people jobs where they could afford to buy so much food that they can give themselves an obesity problem.  A problem they just don’t have in Haiti, North Korea or sub-Saharan Africa.  Because they can’t grow enough food.  Or earn enough money to buy enough food.  For they don’t have an environment conducive to creating jobs.  Which is why these nations are still impoverished and/or suffering famine despite all the aid the West gives them.  Food aid will run out.  And then they’ll just be starving once again.  If they have jobs, though, they’ll be able to buy food whenever they’re hungry.  Because it’s like that old saying.  Give a man a fish and he can eat for a day; give him a job and he can have an obesity problem.

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Venture Capital and Private Equity

Posted by PITHOCRATES - May 28th, 2012

Economics 101

An Idea is only an Idea unless there’s Capital to Develop it and a Business Plan

People put money in the bank to save it.  And to earn interest.  To make their savings grow.  So they can afford a down payment on a house one day.  Or start up a business.  To start a college fund.  Or a variety of other things.  They put their money into a bank because they have confidence that the bank will repay that money whenever they want to withdraw it.   And confident that the bank will earn a profit.  By prudently loaning out their deposits in business loans, mortgages, equity loans, etc.  So the bank can pay interest on their savings.  And make it grow.  While not risking the solvency of the bank by making risky loans that people won’t be able to repay.  With responsible saving and responsible lending both parties achieve what they want.  And the economy grows.

A high savings rate means banks can make more loans.  And businesses can borrow more to expand their businesses.  This is a very critical element in capitalism.  Getting capital to the people who need it.  Who can do incredible things with it.  Create new jobs.  Develop a new technology.  Find a better way to use our limited resources.  Bringing consumer prices down and increasing our standard of living.  Because when prices go down we can buy more things.  So we don’t have to sacrifice and go without.  We have a higher standards of living thanks to capitalism.  And the efficient use of capital.

As technology advanced individuals had more and more brilliant ideas.  But an idea is only an idea unless there’s capital to develop it.  And a business plan.  Something a lot of brilliant entrepreneurs are not good at.  They may think of a great new use of technology that will change the world.  Their mind can be that creative.  But they don’t know how to put a business plan together.  Or convince a banker that this idea is gold.  That this innovation is so new that no one had ever thought of it before.  That it’s cutting edge.  Paradigm shifting.  And it may be that and more.  But a banker won’t care.  Because bankers are conservative with other people’s money.  They don’t want to loan their deposits on something risky and risk losing it.  They want to bet on sure things.  Loan money to people that are 99% certain to repay it.  Not take chances with new technology that they haven’t a clue about.

Venture Capitalists make sure their Seed Capital is Used Wisely so it can Bloom into its Full Potential

Enter the venture capitalists.  Who are the polar opposite of bankers.  They are willing to take big risks.  Especially in technology.  Because new technologies have changed the world.  And made a lot of people very wealthy.  Especially those willing to gamble and invest in an unknown.  Those who provide the seed money for these ventures in the beginning.  That’s their incentive.  And why they are willing to risk such large sums of money on an unknown.  Something a banker never would do.  Who say ‘no’ to these struggling entrepreneurs.  And tell them to come back when they are more established and less risky. 

This is responsible banking.  And this is why people put their money into the bank.  Because bankers are conservative.  But there is a price for this.  Lost innovation.  If no one was willing to risk large sums of money on unknowns with brilliant ideas the world wouldn’t be the same place it is today.  This is what the venture capitalists give us.  Innovation.  And a world full of new technology.  And creature comforts we couldn’t have imagined a decade earlier.  Because they will risk a lot of money on an unknown with a good idea.

Most venture capitalists have been there before.  They were once that entrepreneur with an idea that turned it into great success.  That’s part of the reason they do this.  To recapture the thrill.  While mentoring an entrepreneur into the ways of business.  Like someone once did for them.  But it’s also the money.  They expect to make a serious return on their risky investment.  So much so that they often take over some control of the business.  They do what has to be done.  Make some hard decisions.  And make sure they use their investment capital wisely.  Sometimes pushing aside the entrepreneur if necessary.  To make sure that seed capital can bloom into its full potential.  Perhaps all the way to an initial public offering of stock.  And when it does everyone gets rich.  The entrepreneur with the good idea.  And the venture capitalist.  Who now has more seed capital available for other start-ups with promise.

The Goal of the Private Equity Firm is to Get In, Fix the Problems and Get Out

Venture capital belongs to the larger world of private equity.  Where private equity investment firms operate sort of like a bank.  But with a few minor differences.  Instead of depositors they have investors.  Instead of safe investments they have risky investments.  Instead of low returns on investment they have high returns on investment.  And instead of a passive review of a firm’s financial statements by a bank’s loan officer they actively intervene with business management.  Because private equity does more than just loan money.  They fix problems.  Especially in underperforming businesses.

A mature business that has seen better days is the ideal candidate for private equity.  The business is struggling.  They’re losing money.  And they’ve run out of ideas.  Management is either blind to their problems or unable (or unwilling) to take the necessary corrective action.  They can’t sell because business is too bad.  They don’t want to go out of business because they’ve invested their life savings to try and keep the business afloat.  Only to see continued losses.  Their only hope to recover their losses is to fix the business.  To make it profitable again.  And selling their business to a private equity firm solves a couple of their problems fast.  First of all, they get their prior investments back.  But more importantly they get hope. 

The private equity firm uses some of their investment capital to secure a large loan.  The infamous leveraged buyout which has a lot of negative connotations.  But to a business owner about to go under and lose everything the leveraged buyout is a blessing.  And it’s so simple.  A private equity firm buys a business by taking on massive amounts of debt.  They put that debt on the business’ books.  Debt that future profits of the business will service.  Once the equity firm does its magic to restore the business to profitability.  Starting with a new management team.  Which is necessary.  As the current one was leading the firm to bankruptcy.  They may interview people.  Identify problems.  Find untapped potential to promote.  They may close factories and lay off people.  They may expand production to increase revenue.  Whatever restructuring is necessary to return the firm to profitability they will do.  Their goal is to get in, fix the problems and get out.  Selling the now profitable business for a greater sum than the sum of debt and equity they used to buy it.

But with great risk comes the chance for great failure.  When it works it works well.  Producing a huge return on investment.  But sometimes they can’t save the business.  And the firm can’t avoid bankruptcy.  The business then will be liquidated to repay the banks who loaned the money.  While the equity the firm invested is lost.  Which is why they need to make big profits.  Because they suffer some big losses.  But they typically save more businesses than they fail to save.  And the businesses they do save would have gone out of business otherwise.  So in the grand scheme of things the world is a better place with private equity.

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Mercantilism

Posted by PITHOCRATES - May 14th, 2012

Economics 101

Wealth is the Stuff we use our Talent and Ability to Make

Mercantilism gave us the United States.  For it was because of these policies that the British established colonies in North America.  And it was those same policies that led to American Independence.  Because those polices pissed off the Americans. 

The mercantile system came into being as nation states arose from feudal estates.  Kings arose and consolidated these estates into larger kingdoms.  Then one king arose to consolidate the kingdoms into a nation.  Creating Spain, France, the Netherlands, England, etc.  Enlightened thinking and better technology created food surpluses.  With food surpluses a middle class of artisans arose.  And manufactured goods.  People met in markets to trade their food and goods.   These markets grew into cities.  All of this economic activity created wealth.  Food.  And manufactured goods.  That we bought with money.  Often silver and gold. 

There was wealth.  And there was money.  Two different things.  Wealth is the stuff we use our talent and ability to make.  Food and manufactured goods, for example.  And the more food and manufactured goods a nation has the wealthier that nation is.  This is a critical point.  And the mercantile policies ultimately failed because those policies mistook money for wealth.  But money is not wealth.  It’s a temporary storage of wealth.  To make our trading of food and manufactured goods easier.  By reducing the search costs to find people to trade with.  Which is why the barter system failed in a complex economy.  It just took too long to find people to trade with.  Money solved that problem.  Because you could trade what you had for money.  Then trade your money for what you wanted.

England used the Positive Flow of Bullion to Finance the Building of the Royal Navy

Mercantilism focused on the money.  And used wealth to accumulate it.  Instead of the other way around.  The way most advanced nations do today.  These European nations accumulated money with international trade.  Beginning in the 15th century they started looking at the balance of trade between nations.  And did everything they could to maintain a positive balance of trade.  Meaning they tried to export more than they imported.  Why?  Well, nations often did trade with each other.  So they owed each other money.  And when you settled your account if other nations owed you more than you owed them there was a net flow of money to you.  Bullion.  Silver and gold.  Which is what they wanted.

To maintain a positive balance of trade the government actively intervened into the economy.  It set up monopolies.  It provided subsidies for manufacturers who exported their goods for bullion.  It placed tariffs on imports.  Or simply blocked the importation of any goods that they produced domestically.  They set up colonies to harvest raw materials to ship back to the mother country.  Which would use those raw materials in their factories to produced higher valued finished goods.  That they would export.  Especially to their colonies.  Which were convenient captive markets for their finished goods.  On the mother country’s ships.  Through the mother country’s ports.  Where they, of course taxed it.  Guaranteeing that at every step of the way they added to the positive bullion flow back to the mother country.

And it worked.  To a certain extent.  England used that positive flow of bullion to finance the building of the Royal Navy.  Which proved invaluable in the wars that followed in the mercantile world.  For mercantilism is a zero-sum game.  For every winner there had to be a loser.  Which is why this era was an era of world war.  To wrest control of those colonies.  And those sea lanes.  Great Britain came out the victor.  Thanks to their Royal Navy.  But it wasn’t all good.  For Spain found gold in the New World.  And they took it.  Shipped it back to the Old World.  Just like a good mercantilist would.  Which caused problems in the Old World.  Because money is not wealth.  It’s a temporary storage of wealth.  And when they inflated their money supply it took more of it to hold the same amount of value it once did.  Because there was so much of it in circulation.  And what happens during inflation?  Prices rise.  Because the money is worth less it takes more of it to buy the same things as it did before.  So by hording bullion to create wealth they actually destroyed wealth.  With wealth-destroying inflation.

With the Boston Tea Party the Americans Renounced Mercantilism and Demanded Free Trade

Spain was one of the greatest mercantile nations of the era.  But they quickly became a shadow of their former self.  Even though they had more bullion than their European neighbors.  For it turned out that those mercantile policies hindered economic growth.  Which is the true source of wealth.  Economic growth.  Where people use their talent and ability to create things.  That’s where the true value lay.  Not the money that held that value temporarily.  All those mercantilist policies did was raise domestic prices.  And allocated scarce resources poorly. 

It turned out free trade was the secret to wealth.  For free trade can increase wealth.  For both nations.  Thanks to something we call comparative advantage.  Instead of both nations manufacturing all of their goods they should only manufacture those goods that they can manufacture best.  And trade for the goods they can’t manufacture best.  This more efficiently allocates those scarce resources.  And produces a greater total amount of wealth.  By allowing people to buy lower cost imports they have more money left over to buy other stuff.  Increasing the overall amount of economic activity.  Which is why when Great Britain adopted free trade in the 19th century the British Empire went on to rule the world for a century or so.  And led the Industrial Revolution.  By creating wealth.  Goods and services people created with their talent and ability.  That changed the world.  And ushered in the modern era.  Something no amount of bullion could do.

But before Britain adopted free trade they were struggling with one of their belligerent colonies.  Their British American colonies.  Who were unhappy over taxation without representation in Parliament.  And the mother country forcing them to buy only British tea shipped on British ships at higher prices than they could get from the Dutch.  The British thought they found a solution to their problem.  By permitting their British East India Company monopoly to ship their tea directly to America without passing through an English port.  The tea was cheaper because of this.  But it also would set a precedent for taxation without representation.  Something the Americans weren’t about to accept.  So they threw that tea into Boston Harbor.  What we affectionately call the Boston Tea Party.  Renouncing mercantilism.  And demanding the right to engage in free trade.  Which they got after winning their independence.  And the mother country would follow suit in a few decades.  Because they, too, would learn that free trade was better than mercantilism.

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