Saturday, February 25, 2017

Where Tyranny Reigns

from the podcast Revolutions:
While talking about the French Revolution, Mike Duncan observed :
Throughout history, where property rights exist there is liberty.  Where there are not property rights tyranny reigns.

Friday, October 21, 2016

4 Things I Want for Election Day - It's a Small Ask

1.  The 10th Amendment Unleashed
I want to see No transfers of Federally raised money to the States - Grants or otherwise.  I support elimination of all programs that the Federal Government want the States to run and pay for.  I want to see No unfunded mandates.  I want the Federal Government back inside the box of what it is authorized to do in the Constitution and I want to see anything that is not there transferred to being done by the States.  I want Federal Taxes reduced commensurate with this action and State taxes increased to match.  No departments of Education, Commerce, Energy, Housing and Urban Development, etc.
2 Checks and Balances:
I want to see the President Constrained to his Constitutional Powers.  I want to see Congress authorize Wars.  I want to see the Courts limit the actions of Government. By limiting what government can do and spend, I want to see corruption reduced.
3. An Unleashed Economy:
"But experience and formal analysis tell us clearly that innovation and productivity happen where there is rule of law, simple and predictable regulation, property rights, reasonable taxation, an open and competitive economy, and decent public infrastructure." - John Cochrane.  We know how.  Let's do it.
 4. A Humble Foreign Policy. 
I want us to pull back on the international stage and push others forward.  I want our bases overseas eliminated.  I want no temptation to interfere in others' business.  I want us to do business with all, but to a greater or lesser extent dependent on how they act.

Inspired by:
Dan Carlin of the Common Sense Podcast.

Thursday, June 23, 2016

No Consent of the Governed - #NoConsent

Sunday, I listened to an outstanding Podcast called, "The Philosophical Foundations of the Constitution."  The key speaker was Roger Pilon of the Cato Institute.  He did an outstanding job of laying out the underpinnings of our Constitution.

He reminded me why we have issues with federal government power today.   He reminds me that we consented to subsume our rights in a mutually agreed form of limited government specified by the Constitution.

My Son asked, "But I didn't consent to this?"  Pilon reminds us that our consent is established by tacit agreement - you stayed here, therefore you consented.

We are so far from the enumerated powers of limited government that we - meaning social society at the founding and as specified by the Constitution we ratified, followed by succeeding generations tacitly consenting - agreed to, that tacit consent no longer holds.

We didn't consent. #NoConsent

I would still gladly consent to being governed by a government in accordance with the Constitution.  Under it, the Federal Government is empowered to provide for defense, immigration, regulation of commerce, standards, intellectual property protection and to run itself (tax, coin, courts).  Everything else is up to the States.  No Departments of Education, Energy, Housing and Urban Development, Health and Human Services, Labor, Transportation. 

"The demand for constitutional guarantees and bills of rights was a reaction against arbitrary rule and non-observance of old customs by kings.”  - Hayek

People complain that this would lead to 50 different rules for everything as individual States taxed their own people and fulfilled the necessary functions. I agree. 50 different varieties of experiment and imitation to find the very best way to promote welfare.

Accurate Reality: Protection against arbitrary and capricious governmental actions is what constitutions are meant to provide.  Our Federal government has become arbitrary and capricious.  We need to reverse the ccentralization of power and strive to move programs back to the states.  This should begin by prohibiting federally taxed dollars from being returned to state governments.

Mises, L. v. (1971 [1952]) The Theory of Money and Credit. Irvington-on-Hudson: The Foundation for Economic Education, pg. 414.

Tuesday, June 7, 2016

Sanders Revolution - Why Not

Today in a glowingly supportive story in the Washington Post, Katrina Van den Heuvel, declared that though Clinton may take the nomination, Sanders won the debate.  Not with me.  Here is why.

She defined the Sanders platform as:
- The $15 minimum wage
- Medicare-for-all
- Tuition-free college
- Breaking up the banks
- Rebuilding our infrastructure
- Getting serious about climate change.

Let's take them in order:
A $15 minimum wage is perniciously bad - cruel - for people who are discriminated against, particularly young and minority workers.   The full argument is, for example, here.

Medicare for all.
If you want to provide a medical safety net, then provide clinics for basic health care.  If you try to provide Medicare for all you will find it unaffordable to provide middle class health care - choose your own doctors, upscale hospitals, access to all medical devices and drugs, etc. - to all.  The case is made here.

Tuition-free college
This plan offers a subsidy to middle-class kids who don't really need the money, encourages financially constrained students who might not have gone to college to enter the system en route to a degree, but forces them to find living costs without reorganizing the university to account for working students, encourages marginal students with a low chance of completing a career-enhancing degree to attend school, mostly wasting government money (see here) and their own time.  Europe has many examples over time of this, creating an underclass of permanent student.

An argument can be made for a significantly reorganized education credential using MOOCs and Technical Colleges to train the workforce we need, but not to create more sociology and ethnic studies graduates from middle class families.  The arguments are detailed here and here.

Communist and Socialist societies such as the Soviet Union, India, China, Cuba and, more recently,  Venezuela have tried these three policies before.  The results have been starvation and deprivation.  Let's not go down this path here.  People need to work and get paid what their work is worth to someone who is getting paid by a consumer, not what a politician imagines they should be paid.  Once paid, they can spend money to acquire goods and services for themselves up to the limit they have earned.  For those that cannot do so, we should have safety nets for the most vulnerable old, disabled, children and those down on their luck - temporary, unless the inability is permanent - that help them get back on their feet.

Breaking up the banks
The argument here is that there should not be another 'bail out.'  Or that the 'banks' are ruining the middle class in some ill defined way.  I note that the total government contribution to the actual banks during the financial crisis was fully paid back with interest and profit.

This is a bogey man populist argument for government intervention to solve a non-problem.  This is in a market that is already highly regulated and we think we've already taken care of whatever element of a problem there was.  Mr. Sanders blames the banks for the last recession.  Admittedly, the 'banks' are not blameless and more executives that committed fraud should have been prosecuted (doesn't the government do that?).  A more likely set of driving culprits for the recession was Federal policy supporting home ownership, mortgage brokers, and the quasi-government mortgage buying firms Freddie Mac and Fannie Mae.  These guys hold the smoking gun.   Overall, a non-issue.

Rebuilding our infrastructure
I could go for some of this and more of it if I thought our current political system was capable of not wasting all the money.  Example one: The costs of building urban train transit per mile vary amazingly.  An article here from the Atlantic says: NYC plans 8.5 miles estimate at  $17 billion, or $1,240,000/Km.  Madrid just built 41km for $58,000 per Km.  Singapore just built 22 Miles with 28 stations for $4.8 billion - $139,000/Km.  Paris and Berlin estimated recent additions at $250,000 per Km.  We cost ourselves 20x-5x what others do this work for.  Example two:  Larry Summers notes, here, that a bridge we took 11 months to build in 1922 now takes 5 years and counting to renovate.  Get me to a place where government works and I'm happy to give them more money to spend.  I support decreased crony capitalism and streamlining infrastructure investment rules and government purchasing reform.

Getting serious about climate change.
I am a climate change skeptic.  I believe that we are having an impact.  I don't believe our impact is going to be catastrophic.  That case is explained here.  Because I don't believe, I don't want to spend a bunch of money and regulate us to a lower standard of living to as great an extent as others.

 Accurate Reality:  Mr. Sanders' grab bag of progressive ideas have broad appeal to those who want the world to be nicer and the government to do more.  Unfortunately, most of the ideas are recylced socialism and rely on the benevolent all seeing government servant of the people to have any chance of success.  The non-existence of such a beast was proven in the 1930s.  These programs have been proven to not work.  I don't support programs which have been proven not to work.  Others are just based on misinformed opinions.  I disagree with 5 of his 6 core policies and shy from the other due to the accumulated barnacles of government.

Wednesday, May 18, 2016

How Entrepreneurs Pick their Projects

Do entrepreneurs pick their projects with forethought?


As I outlined in Entrepreneurial Leverage the return to entrepreneurship is contingent on the success of the project, but, also, the leverage inherent or created in the project.

However, we don't train our young in small business management, managing an innovation firm, analyzing and picking opportunities and, even today, there is little understanding of Entrepreneurial Leverage and how it affects returns to invested time.

It should be of no surprise, to anyone, then that entrepreneurs pick their projects with little real forethought.  Of course, the entrepreneur, upon seeing an opportunity, thinks, 'can I make a go of this?'  Any business person would. 

The result? Entrepreneurs face a sequential stream of random exposures over time based upon the business areas and relationships that they develop during their non-entrepreneurial career phase.  Then they jump.

So, instead of considering a selection from a portfolio of potential projects with differing, well analyzed, prospects for successful implementation and differing leverage and risk profiles, our would be entrepreneur considers and disposes of projects until she finds one that looks like it'll work, then works like mad to make it so.  Darwinian, but not very efficient.  And if high leverage projects create more societal wealth (see Guzman 2016) then not very good for society either.

Can whole industries or categories of industry be better places to create wealth.  Yes.

Can we train people to pick projects better?  Yes.

Can we train people so that their likelihood of success is higher when implementing a project?  Yes.

Can we create more well being accross society if we do?  Yes.

We don't.

Some get lucky.  They worked in a start up.  They know people who have learned by dint of hard learned on the job knowledge to think this way. They network a lot.  They attend the training conducted in incubators and at technically oriented universities to prepare entrepreneurs.  Or they work in Silicon Valley or Boston where 'the knowledge' is more wide spread.

Then they are a little more likely to end up with a good project.  With leverage, non-rival inputs that are at least partially excludable.  They execute.  We get a winner.

Research shows that a business that has certain markers of likely ambition or potential has as much as a 65,000 times higher probability of exponential growth than one with markers for low ambition or potential.

We know how to create growth.  We've got a lot of institutional work to do it.

Accurate Reality:  We continue to do a poor job of training people to work on the most innovative wealth and job creating firms.  This leads to an under performing economy and low middle class growth.  We need to change the way we train in Universities.  We need to bring the hard won knowledge of Silicon Valley and Rt 128 into B school classes.  We need to continue to evolve our financing laws and practices to enable funding of more of these firms.  We need the legal environment and the crony capitalist state to remove barriers to these firms.  There is much work to do.  The payoffs are potentially enormous.

Monday, April 25, 2016

Grow, Cut, Print or Default - Update to 2010

In this post from October of 2010, I said that the US Government would avoid default and, therefore, would grow, cut and print its way to fiscal balance.

I noted that "US Expenditures in 2010 were $1,290 Billion more than receipts, which were estimated at $2,318 Billion. That means that we spent $3,608 Billion. We spent 55% more than we took in."

Today,  Ryan McMaken notes that we've raised record revenues for the federal government in 2015 at approximately $3,200 Billion.  Up 38% from the depths of the recession. Amazingly, spending has been more or less flat at $3,600 Billion - not an actual cut, but about the best that can often be hoped for.  Now we spend only 12% more than we take in.  All in more or less constant dollars.
Accurate Reality:  We've still a bit to go, but Grow, Print and Cut has worked to get the government out of the woods for now.

Tuesday, April 12, 2016

Entrepreneurial Leverage

Leverage is, "The ability to influence a system, or an environment, in a way that multiplies the outcome of one's efforts without a corresponding increase in the consumption of resources."- Business Dictionary

An entrepreneur in Israel Kirzner's broad sense is someone that is alert and then discovers and acts upon heretofore undiscovered opportunities.  Both Google and a new Chinese restaurant in an under served area are examples of entrepreneurship.

One produces significantly more results in terms of growth in revenue and profit for the entrepreneur and employment and contribution to its society than the other. Why? And How does the Entrepreneur pick projects?  Do they always pick high productivity projects?  If not, why not?  If growth of GDP (read prosperity of society) is driven in substantial part by these outcomes, can we, should we and how do we influence better outcomes as a society?

Entrepreneurs achieve more leverage with businesses that use a lot of new technology, ideas or business models.  In economic terms non-rivalrous inputs. These businesses have increasing returns to scale in the production function and create significant value when scaled.  The investment of entrepreneurial time and effort is leveraged relative to the same investment in businesses that are near replications of other existing business and offer near constant returns to increased scale in the business.  Each contributes to growth in the economy as a whole, but the former have out sized impact.

Entrepreneurs gain increased return when they can provide a level of excludability to their leveraged business. This can come from patent protection of the employed technology, copyright protection, trade secrets around the technology or business practices, exclusivity of resource acquisition, early acquisition of market share in markets with network effects or even speed.  In any given business there will be a varying amount of excludability.

This theory extends endogenous technological change growth theory (Romer 1990) to the entrepreneurial activity implied.  The model highlights important distinctions in entrepreneurial activity and implies potential advantaged public policies for economic development.

Businesses that employ new technology, ideas or business models have higher risk.  More experimentation, acquisition of knowledge produced by trial, is needed to employ new things and find a sustainable pattern of specialization and trade.  This takes time, patience, creativity and capital resources, all of which are expensive resources.  Little training is done in universities or corporations in managing the risks involved with this type of business building.  The literature, research and potential methods, often derived directly from experience and of varying quality, are passed down orally in business communities and only recently has there been an increased number of books and other publications with useful frameworks.

Entrepreneurs don't choose projects for leverage.  This theory is generally unknown to entrepreneurs specifically, and even with advanced, serial entrepreneurs often only vaguely felt, so they have no basis for differentiating potential projects in this way.  Most entrepreneurial projects are discovered, in Kirzner terms, alertly discovered, serially through the daily participation of the would be entrepreneur in an existing business or career.  They are not derived from a thinking exercise.  They thus appear sequentially to the entrepreneur, removing the ability to choose between several projects at once from easy consideration.

Capitalists, meaning venture capital firms, winnow this field to more leveragable projects by choosing to provide capital to firms with better business models.

Thus a poorly trained entrepreneur chooses a potentially poorly leveraged project with little training on how to maximize its chances of success.  It is no wonder that start up businesses fail frequently.
Accurate Reality:  Growth of GDP per person (read prosperity of society) is driven in substantial part by formation of new businesses - entrepreneurial activity.  Better trained entrepreneurs choosing leveraged projects with exclusion aided by better public policy would produce better outcomes.  These outcomes influence better outcomes - prosperity of society - for us all.