Black Shards Press – Electronic Gumbo is Our Specialty

Russia’s Oil Co. Theft

29.12.2010 (12:58 pm) – Filed under: Business,Russia ::

Bruce Misamore, ex-Pennzoil exec: Vladimir Putin has no room to talk about. Bernie Madoff. “The biggest thief of all is Mr. Putin. He stole the biggest oil company in Russia.”

On Organizational Integrity

07.10.2010 (6:12 am) – Filed under: Business,Philosophy ::

One sign of a defective organization is the existence of “Godfather”-like figures who operate outside of – and above – normal operating rules and lines of responsibility. Often their excuse is that part/all of the system is broken. The proper way to address such a situation is to correct the brokenness, not circumvent it on a whim. Consider a car with a bad starter. Yes, it can be jumped with a screwdriver, but a motor started that way is not fixed, is it? Of course not. Problems don’t correct themselves. Unless organizational issues are confronted and corrected, the broken behavior remains the same.

To iPhone or Not, That is the Question

11.04.2010 (12:47 pm) – Filed under: Business,Technology ::

I’d love to have an iPhone, but buying one would be like paying to see a Michael Moore movie – more money and power flowing in the wrong direction. Steve Jobs may be brilliant, but he’s a pain in consumers’ collective rear!

Americans Should Celebrate as Income Inequality Increases

10.04.2010 (11:16 pm) – Filed under: Business,Finance,Society ::

The Business Insider has a new series of charts describing the “bum deal” working Americans have gotten in the last few decades, including this one demonstrating the fallacious but de facto standard liberal meme, namely that Americans should earn roughly equal shares of the income pie:

If you aren't in the top 1%, then you're getting a bum deal

An objective examination of this line of thinking reveals that nothing could be further from the truth.

Consider the case of a burger-flipper at McDonalds.  Let’s set the value of his work at 10 units.  (No, it doesn’t matter what the unit is, the value is relative to other occupations, not absolute.)

Now consider the store manager.  She could easily do the flipper’s job – probably has done it in the past, in fact – as well as any other job in the store.  Indeed, her ability is probably better at each and every position in the store than the people who hold them.  Her value is clearly greater than the flipper’s.  Let’s estimate it as 25, or 2.5x the flipper’s.  Debatable, but reasonable, I think, given my personal experience as the flipper.

Now, consider a highly-trained bio-chemist whose work in generating a sustainable, cost-effective algae-based energy source fundamentally alters the western world’s relationship with the OPEC nations.  What’s his value relative to the McDonalds store manager?  Infinite, in reality.  Even if we set it at 100x, that gives the chemist an overall relative value of 2500.

In any rational system of employment and compensation, a person’s earnings should reflect their value relative to other workers.  The ground-breaking bio-chemist in the scenario above should earn at least 500 times more than the burger-flipper because the value he provides to the world is infinitely greater. 

In fact, income inequality is reflective of capability inequality.  If one believes that income inequality should be removed from society, the proper way to do so is not to levy taxes, steal from those who produce wealth, and redistribute the booty to liberals’ constituents.  The right approach would be to eliminate the capability gap.  Unfortunately, this requires the participation of those at the bottom end of the economic scale, something that’s not been forthcoming.

On one level, this lack of interest in changing economic lanes is understandable because it’s not something that can be done immediately.  Rather, improving capabilities requires sacrifices of time, money, leisure, and style.  There’s nothing fun about buckling down to get an education; however, there’s no substitute either.  Every person in America has the opportunity to get a quality education.  Unfortunately, far too many squander their own chance at economic mobility (and do fatal damage to others’ at the same time) because they simply are unable to comprehend the value of what they are giving up.

For those who do, it’s obvious that income inequality equates to opportunity.  Why would the bio-chemist spend years in school, honing his mind to levels unimaginable by the burger-flipper, in order to receive a salary identical to that of his value-inferior?  He wouldn’t, of course, because there is no reason to work hard for success if victory brings no reward. 

The fact that the United States has a wide distribution of incomes demonstrates that there is an opportunity for people who work hard to succeed far beyond the imaginations of most men and women. 

America's income spread is nearly twice the OECD average

This is as it should be, for it’s an American imperative to produce over-achievers at a higher rate than the rest of the world.  That is, after all, the only way that we can continue to lead nations such as China and India whose larger populations give them an inherent competitive advantage.

If there is a problem with income inequality, it’s that possession of wealth can lead those who have it to game the system in order to keep accruing larger and larger piles of money without actually producing anything of value in return.

It goes without saying that criminal activities such as fraud, insider trading, tax evasion, and other abuses of the system should be actively discouraged, not because they cause income inequality but because they destroy the integrity of the system of opportunity Americans have as their birthright.

It is this system that matters, not the particular result at any point in time, and it is this system that post-modern liberalism, with its excessive emphasis on removing inequalities of every sort, attacks and undermines at every opportunity.

Far from criticizing the inequality of incomes in the U.S., we should celebrate them, for the gap indicates that the system of free enterprise envisioned by the Founding Fathers as the economic engine of this country is still firing on several cylinders, despite liberal policies that have markedly reduced the efficiency at which we are allowed to operate.

House to Bribe Car Buyers; Innovation Not Important

10.06.2009 (8:46 pm) – Filed under: Business,Politics ::

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The House of Representatives is mulling over a plan that would give “vouchers” to new car buyers who purchase fuel efficient cars.  Evidently vouchers are bad when it comes to education and good when it comes to automobiles.  Typical liberal non-think.  Choice is good if you think and act the way that they want you to; otherwise, they have to find a way to coerce you.

Here’s the basics of the plan:

Under the House bill, car owners could get a voucher worth $3,500 if they traded in a vehicle getting 18 miles per gallon or less for one getting at least 22 miles per gallon. The value of the voucher would grow to $4,500 if the mileage of the new car is 10 mpg higher than the old vehicle. The miles per gallon figures are listed on the window sticker.

Owners of sport utility vehicles, pickup trucks or minivans that get 18 mpg or less could receive a voucher for $3,500 if their new truck or SUV is at least 2 mpg higher than their old vehicle. The voucher would increase to $4,500 if the mileage of the new truck or SUV is at least 5 mpg higher than the older vehicle. Consumers could also receive vouchers for leased vehicles.

No word on whether the plan would be restricted to automobiles manufactured by effectively state-owned domestic car makers.  Given the inherent conflict of interest for lawmakers who are also overseeing the effective nationalization of two insolvent auto manufacturers, it’s important to consider the effect of policy on competition in what remains of the market.

Neither was there any indication that a sustainable solution to bridging the gulf between buyers’ interests and what the left wing of our society thinks they should drive will be forthcoming.  Innovation and competition are the only reliable way to make that happen; neither are the forte of government-owned and operated businesses.  The fact that Democrats are thinking about bribing the public into buying small cars demonstrates that no market solution is in the offing, at least from GM or Chrysler.

Misunderstanding Want and Need in Media, Life

09.04.2009 (11:52 pm) – Filed under: Business,Media ::

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Jane Hamsher’s a busy girl.  Busy, that is, following the rote formula of bashing the conservative competition before launching into her agenda, which in this case is all about keeping that lefty blogger no-one-wants-to-pay-us-for-our-hard-work theme going:

It’s staggering just how ignorant right wing bloggers are about how the business of media works, or business in general. Which wouldn’t be so ironic if they didn’t run around thumping their chests about the virtues of “free markets” and capitalism all the time.

The problem is that groups who send us their press releases expecting “earned media” just as they do the New York Times get the same “earned media” from us that they do from the New York Times. The difference is that they aren’t factoring us into their “paid” media budgets, and like the New York Times, without that, we don’t have a sustainable business model to keep offering “earned” media. As groups increasingly depend upon us as the only news outlets covering their issues (which we do without consideration as to whether they advertise with us or not), participating in a sustainable structure is something they need to be thinking about.

News flash – if a group or company can get your services for free, as part of your defending the cause or whatnot, then they’re going to do that.  If that doesn’t make you happy, try to charge them for your services.  If your work is valued at a premium compared to others willing to provide similar content – and there are a lot of them, aren’t there? – then they’ll meet your price.  If not, well, you don’t have a sustainable business model, do you?  No, not when the going price for writing ideological put-up material is effectively zero.

It’s just staggering, the ignorance that underlies this denial of reality.  It’s as though Jane, Kos, et al, are brain-locked into the opening sequence of the TV show Myth Busters in which Adam says, cheesy grin in place, “I reject your reality and substitute my own.”  If only that were possible.

The idea that FDL and dKos are somehow owed patronage by the groups whose agenda they helped catapult into power is preposterous.  Business is about what value a server provider will have for a customer going forward, not about what happened yesterday.  For them to show you the money you have to have something to offer in return, something unique that justifies the expense of doing business with you, the payback for which is timely from the customer’s perspective.

At the risk of taking too great a detour, this story about small business owners in Hawaii is demonstrative of the essential point here, which is that in order to get the results you want, hard work targeted to the immediate need at hand is required. 

Seems the businesses were having trouble getting something for nothing out of their patron, the state of Hawaii in this case.  Seeing the difficulty this put them in, the owners decided to stop complaining about what they weren’t getting for free, roll up their sleeves, and solved their own problems all on their own.

So when Kos complains about the AP trying to establish a market value for services it’s been providing essentially for free to sites like his, realize that it’s because he has a need for AP’s content, is unable to generate it on his own, but is unwilling to meet AP’s as yet unset price. 

Perhaps AP will realize that harassing bloggers and/or charging them will not help them meet their objective of raising revenue.  But it’s their right to try and create a business model that is sustainable by setting a price on their content.  This is what FDL – and the PoliGazette as well – will have to do in order to survive in a very competitive environment in which the competition is often willing to work for free – establish value for businesses on their sites and price space there accordingly.

The new bottom line is that, like the Hawaiian business owners, modern news hounds expect to get news content for free.  That’s why the Times shut down its pay service – because the eyeballs were all going to free sites.  Perhaps as news organizations continue to go bankrupt consumers will realize that value has been lost and will begin to support the surviving news organizations.  But I doubt it.

The consolidation of news providers will end the same way that the phenomenon of on-line retailers ended, with a few survivors dominating the majority of the landscape.  There is no need for multiple on-line book stores.  Similarly, there is no need for fifty different newspapers and cable news networks to interpret President Obama’s latest speech.

All citizens require is for the White House to publish the videos on YouTube and perhaps provide transcripts of official events.

When opinion and commentary are wanted, people will pay for it by supporting writers who add value to the real news analyzing it in unique, useful ways.  By support I mean doing it the Michael Totten way, by providing them with the means to do their work for as long as that work has real value.  When it doesn’t, the money will move to someone whose work offers more.

That’s the way the media business of the future is going to work.  Not as a sustainable arrangement of interleaved, interdependent, multi-level media marketing schemes but in a chaotic, vibrant environment in which very small organizations supplement a few large news organizations by doing all the little things that people value that the remaining big guys can’t do.

Dave Winer had this to say yesterday (emphasis mine):

Focus on what you love about news, and then bring more of that to the insatiable users of news. If you’re making people happy, they’ll find a way to keep you doing it. It’s like Napster in 2000, the music industry was complaining while millions were freshly excited about music, for the first time in 25 years. People were talking about music on airplanes, in supermarkets. There had to be a way for them to make huge money from that, instead they tried to stop it. AP — same thing, now in 2009. We love news. We don’t love what the cable networks are providing us. The papers are folding. Get on top of the Internet, don’t try to crawl under it.

That’s your sustainable business model – make enough readers happy and your tip jar will stay full.

GM’s Problems Started Decades Ago

31.03.2009 (9:37 pm) – Filed under: Business,Finance,Unions ::

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Nate Silver’s picture is worth at least a thousand words when it comes to communicating how long GM’s financial troubles have been brewing.  Silver also gets the reason behind the company’s demise right: the costs of GM’s retiree pension and health care programs.

On one hand it’s easy to look back to 1950 and second-guess GM’s management for making the decision to pick up the costs for employee’s medical costs and retirees’ pensions.  But as we know it was all but impossible for those executives to foresee the massive increase in health care costs that would accompany government entitlement programs and the increasingly litigious social environment they helped create.  On the other, it’s a wonder that it took labor unions so long to finally destroy one of the greatest companies in American history.

The Washington Post article circa 2005:

GM began its slide down the slippery slope in 1950, when it began picking up costs for medical insurance, pensions and retiree benefits. There was huge risk to GM in taking on these obligations — but that didn’t show up as a cost or balance-sheet liability. By 1973, the UAW says, GM was paying the entire health insurance bill for its employees, survivors and retirees…

And out-of-pocket costs for health care are eating GM alive.

Silver again:

It’s difficult to get a precise figure on these so-called legacy costs, but they averaged about $7 billion per year between 1993 and 2007 and are probably at least $10 billion per year now. Considering that GM has never made as much as $10 billion in profit in a year and that its entire operating losses in 2008 were $13.8 billion, you can see why this is a significant problem.

Unlike politicians who can simply print money or encumber future generations with debt, companies like GM have to deal with the world as it actually is – harsh, brutal, and unforgiving of mistakes. 

GM’s capitulation to the UAW’s demands is clearly a fatal mistake when seen through the 20/20 vision of hindsight.  The question of what Detroit’s automakers could have done differently is nearly moot from a financial perspective. 

Yet it’s very relevant to a country that faces at least 3 years and 9+ more months of Barack Obama’s fashionably liberal policies.  Unionization was a messy business in the post-WW II era and violence, usually originated by labor in response to companies’ refusals to give in to their demands, was if not commonplace at least an ever-present threat during contract negotiations.

60 years ago GM gave in to the threats and intimidation of labor unions.  Now the company stands at death’s door, it’s CEO ordered to resign by a politician who hadn’t even been born when the company made the agreement that would prove to be its undoing.

Unionization is by definition anti-competitive, for unions’ first priorities are create a labor environment in which employees’ job security is substantial and wages and benefits are fixed above market value.  This leads directly to higher costs and decreased quality as the entitlement mentality spreads through the workforce.  Taking benefits away from union employees is like trying to take candy from a baby whose private bodyguard is a mean S.O.B. named Uncle UAW and who carries a pair of brass knuckles in his pocket.

The result is inevitable.  As the Financial Times notes, “Healthcare costs alone account for a gap of $1,500 between the price of a Detroit vehicle and a Japanese one, and are the main reason Detroit cannot compete with the Japanese on lower-margin small cars”.

Quote of the Day – re Union Card Check Rules

12.03.2009 (12:44 pm) – Filed under: Business,Politics,Unions ::

Teamsters chief Jimmy Hoffa Jr.: 

“Since when is the secret ballot a basic tenet of democracy?”

Uhhm, since forever is my immediate response.  That’s not really true, naturally.  But it has been an essential principle of our country since it became apparent what pressures were always brought to bear whenever the secret ballot was not used.

Salem witch hunts anyone?  That’s essentially what’s happening in Washington with the liberals’ proposed changes to the Card Check rules – the abolition of anyone who doesn’t want increased unionization, by whatever means.

Having worked in a union shop I feel qualified to say that it stunk, from beginning to end and top to bottom.  The last thing this country needs is to return to the days of fetid corruption when Hoffa’s father ran the Teamsters.

h/t Mark Steyn

Who is John Galt?

27.02.2009 (9:38 am) – Filed under: Business,Literature,Society,Taxation ::

Steve Hayward says that if Barack Obama’s trillion-dollar tax increase is implemented that he will go on strike in the fashion of John Galt, Ayn Rand’s famous lead in Atlas Shrugged.

…my bigger idea is to go all Randian and literally go on strike (and I’ve never really been much of a Rand fan, by the way–Whittaker Chambers had her down right).  I’m going to start converting income opportunities into more leisure by deliberately reducing my income.  Already between federal and state income taxes, self-employment taxes, the AMT, and phased-out dependent deductions as income rises, I’m at a marginal rate of about 50% on my last dollars earned from writing or anything else.  So it will pay to keep below Obama’s high income threshold.  I suspect a lot of self-employed people will make similar calculations and adjustments, and the revenue yield will be far below what Obama’s people project.

If the economic disincentives to work are pronounced enough, it’s certainly possible that others will follow in Hayward’s footsteps.  Not sure what Steve means by a lot, however. 

I suspect that most of the self-employed, who in many ways define ambition by their willingness to forsake the relative safety of corporate/government work, will continue to keep plugging along if only because their ventures require a certain amount of care and feeding in order to produce anything at all.  But it also seems likely that small business owners will re-invest in their companies rather than pay higher marginal tax rates on money they pay themselves, thereby achieving some of the same impact as an outright strike.

As many of you know, I am a big-time admirer of Rand.  However, it must be said that her work ignores some of the realities of life, the most poignant being children and the love, attention, and costs they bring with them.  Pure individualists may disregard such concerns but for most of us they are the reality of why we work.  That’s one reason why I don’t think that Hayward’s plan will lead to a mass Galtian movement.

The other is that, unlike the liberal fascist American government in Atlas, I seriously doubt that today’s liberals would:  A) recognize that their policies are what is killing western civilization as we know it; or B) have the courage to admit it if they did realize the effect of what they are doing.

Then again, who is John Galt?

More Americans Oppose Stimulus Than Support It, For Good Reason

05.02.2009 (6:49 am) – Filed under: Business,Finance ::

A new Rasmussen poll shows that support for the now $900B+ stimulus package being engineered by Democrats is down to 37% – it was 45% 2 week ago.  Some 20% of those polled are now undecided. 

Some of the blame for the proposal’s failure to win over voters belongs to the Democratic Congress that larded the bill up with so much ideologically-motivated pork that it couldn’t be ignored.  When interest is added to the tally, the package would top out at about $1.3T in expenditures.

(By comparison, the war in Iraq that Democrats had claimed was bankrupting the country has, in total, cost less than half of that amount.)

More fundamental to the problem of public support, however, is the popular notion that Wall Street caused the current economic problems by fraudulently disguising collections of toxic loans in the form of derivative securities.  Is that feeling on the part of ordinary Americans justified?

An earlier NY Times article discussing the disconnect between Main Street and Wall Street contained this little gem that speaks directly to the problem:

Larry Meyers and Gerard Novello, who work for an Italian securities firm, ducked into a Mexican cantina for a drink. It was Mr. Meyers’s 43rd birthday, and he ordered the tequila.

“On Main Street, ‘bonus’ sounds like a gift,” he said. “But it’s part of the compensation structure of Wall Street. Say I’m a banker and I created $30 million. I should get a part of that.”

The instant I read that paragraph I thought, “And what if you’re a banker and you lose $30 million?”  One can easily imagine the sound of crickets chirping while Meyers ponders that one.

Paul Krugman asked the same question a couple of days later and came to this obvious conclusion – “Uncle Sam to the rescue!”.

Moreover, Krugman says:

Saving the economy is going to be very expensive: that $800 billion stimulus plan is probably just a down payment, and rescuing the financial system, even if it’s done right, is going to cost hundreds of billions more.

The fact is that, if this bill is the Democrat’s idea of an economic stimulus, it and they both deserve to fail miserably.  That begs another question, which is whether a stimulus bill is needed at all.  It’s easy to be convinced that Obama and the Democrats do not believe that it is necessary, else they would not have tried to slide this corpulent barrel of pork past Congress and into law.

If Democrats truly want a stimulus package to pass they should cut out the funding for liberal agenda items and other non-immediate projects and concentrate on the matter at hand, namely injecting a shot of adrenaline into a paralyzed economy. 

Allegedly that’s important.  We all recall the sense of urgency that the Obama administration attempted to attach to the confirmation of Tim Geithner as Treasury Secretary.  By playing politics with the stimulus, the Democrats have, according to their own words, put the country at risk by delaying or sinking its passage. 

If Krugman is correct and the ultimate bill for jolting the American economy will be trillions of dollars of additional debt piled on to the already massive burden to be shouldered by our children I would suggest that there is something fundamentally wrong with the country’s economic structure.

Exhibit A: the budget “surpluses” of the Clinton years were based in large part upon expected revenues to be derived from corporate profits that did not materialize because the .com boom was mostly a stock and accounting mirage.

Exhibit B: Larry Meyers, et al, says that he creates $30 million dollars. But the truth is that no banker ever created any sort of wealth whatsoever. At most lenders provide liquidity to others, men and women who produce goods and services that others buy.  These transactions create actual wealth, unlike the paper-based ponzi schemes of the investment bankers whose primary objective is to take a cut of the profits from their deals and pass the risk on to someone else.  Shorter version: industry produces real wealth, bankers create illusions – and here we are.