Never underestimate the foolishness of anyone in a hurry. Get 535 people in a hurry at the same time, and it's Katie Bar the Door. That is what is happening to our health care in this country.
We all want to know we can go to the doctor when we need to. We also want to be able to extend our lives by undergoing a surgical procedure or taking medicine. The problem is, we still want it to cost what it did when a doctor could carry all his/her tools in a black leather bag.
The miraculous advance of medicine allows us to improve and extend our lives in ways we could not have imagined a few years ago. Instead of medicine being something that is practiced between an individual and one doctor, it is now practiced between an individual and the thousands of people whose skills are brought to bear on complex diseases. Think about an MRI machine and the almost unimaginable amount of knowledge that had to be brought together in one place for it to work.
In other words, we should expect that health care will cost more than it once did, just as a car with air conditioning and leather seats costs more than the vinyl benched oven-on-wheels we used to drive. Unfortunately, instead of letting bright and industrious people work on solutions to the problem of high health care costs, we have a government hard at work to destroy it.
Government will meddle and tinker, tinker and meddle, until they give us the equivalent of Social Security and Medicare. Hopelessly over-promised, national health care will, sooner rather than later, go broke.
What then?
They will ration care. Of course, no one will call it rationing. Instead, they will find yet another way to put lipstick on a pig and parade it around like a supermodel. Yet even in the midst of this, there is hope. As the public system crumbles, the irrepressible creative instincts of young men and women will be brought to bear on the practice of medicine. Bright people who want to use their talents to help others will find ways to offer care to the sick when they need it, not months down Waiting List Road.
This is already happening in Canada. Technically, most private care in Canada is illegal. This means that citizens cannot go outside the system by using private doctors. Fortunately, this law is rarely enforced. As a result, a host of private practices have sprung up, giving those who can pay the option of bypassing the waiting lists and suboptimal medical choices represented by the public system.
If we in the U.S. move toward a universal health care system, do not expect our government to learn anything from Canada's recent lessons. Expect instead that they will attempt to outlaw private practice. They will do so because as the public system breaks down, more doctors will move out of it in favor of serving the needs of the sick privately.
This is where the health care battle line should be drawn. The right to preserve and enhance our life and our health is as fundamental as the right to self-defense or free speech. Being forced to die or live as a cripple because one's care is not "cost-effective" enough for public funding, and then being denied the right to seek a private physician's services is an assault on any sane person's notion of freedom.
Allowed to flourish, the creative power of the human mind will bring forth new cures, new medical services, and longer, more enjoyable lives for all. New insurance structures, medical care cooperatives, and charities will emerge, providing care for those who truly cannot afford care. Instead of fighting and scratching for a limited resource, we can all contribute to creating more.
It is beginning to look like some form of government-run health care is inevitable. It won't be pretty, but it will be survivable unless they outlaw private care. If they do, consider it the equivalent of censorship or illegal search and seizure. It's your right, don't let them take it.
Showing posts with label money. Show all posts
Showing posts with label money. Show all posts
Tuesday, July 7, 2009
Friday, July 3, 2009
Property: The Forgotten Freedom
I think of freedom in straightforward terms. Any individual should be free to do as he/she likes as long as it does not demonstrably impinge on the same rights in others. This idea is not new, of course, but it is largely misunderstood, especially with regard to property.
Were we all composed of pure spirit, with no need to feed, clothe, or shelter ourselves, property rights would be meaningless. Since we are mere flesh and blood, each individual needs to have control of certain things to survive. The reason is simple--most things we need are created, not found.
With the possible exception of air and sunshine, every material thing we need comes about because some individual, often in cooperation with others, has the ability, will, and desire to turn a beneficial idea into reality. Fortunately, the human race has also discovered that trading with others results in more material goods for oneself.
Who owns such wonderful things? In my view, the creator. From spear tip to computer chip, the rightful owner is the person who created it. If he/she contracted with others to create it, that contract defines who owns what fraction of its value.
Some people in society are more capable than others at producing certain things. No one wants to hear me sing opera or see me dance for Chippendale's. Yet I do not begrudge the vocalists or 20-somethings with six-pack abs their due. Neither should they begrudge me my ability to write a book or teach a class.
Inevitably, some people on the whole are able to create more value than others. They own more things as a result of their benefiting others more. They are better off than others because they are better to others. It is their ability that enables others to benefit from the things they cannot create themselves. The more benefit they provide, the more they prosper.
This is disturbing to those who are less willing or less capable. In the name of "fairness," they seek to take from the creators and give to those they deem more deserving. The most obvious example is the thief, motivated at a primal level to take by force what he/she either cannot or will not create.
Some people make a profession of taking from the creators and giving to others. They are called politicians. In addition to getting to pat themselves on the back for doing so much good for society, they get a generous cut themselves. Lacking the forthrightness of a thief, they mask their willingness to take from others by force in byzantine tax codes and arcane regulations.
What would our society look like if we were to refuse to allow either thieves or their governmental counterparts to take what each of us has created? Those disposed to believe in the fairy tale of a benevolent and fair government imagine hordes of the poor wandering the countryside, victims of arrogance and callousness of the elite. I see something quite different--the blossoming of a new human spirit.
When people are able to trade freely, they are able to tap their potential for creating value for others. Virtually all human beings have some capacity for doing so. In return, the less capable benefit from the more capable in two ways. First, goods and services are cheaper because capable people compete to provide them without fear of having a large portion confiscated by government. Second, the truly incapable, such as the severely handicapped, benefit from the benevolence of the wealthy. Humanity, for all its tendencies toward wanton cruelty and unjustified violence, has also shown a tremendous capacity for kindness and charity.
This Independence Day, we will all remember the precious rights our ancestors earned for us. Along with your ferocity in protecting your freedom of speech and religion, kindle a fierceness in protecting your property. You earned it, now fight to keep it.
Were we all composed of pure spirit, with no need to feed, clothe, or shelter ourselves, property rights would be meaningless. Since we are mere flesh and blood, each individual needs to have control of certain things to survive. The reason is simple--most things we need are created, not found.
With the possible exception of air and sunshine, every material thing we need comes about because some individual, often in cooperation with others, has the ability, will, and desire to turn a beneficial idea into reality. Fortunately, the human race has also discovered that trading with others results in more material goods for oneself.
Who owns such wonderful things? In my view, the creator. From spear tip to computer chip, the rightful owner is the person who created it. If he/she contracted with others to create it, that contract defines who owns what fraction of its value.
Some people in society are more capable than others at producing certain things. No one wants to hear me sing opera or see me dance for Chippendale's. Yet I do not begrudge the vocalists or 20-somethings with six-pack abs their due. Neither should they begrudge me my ability to write a book or teach a class.
Inevitably, some people on the whole are able to create more value than others. They own more things as a result of their benefiting others more. They are better off than others because they are better to others. It is their ability that enables others to benefit from the things they cannot create themselves. The more benefit they provide, the more they prosper.
This is disturbing to those who are less willing or less capable. In the name of "fairness," they seek to take from the creators and give to those they deem more deserving. The most obvious example is the thief, motivated at a primal level to take by force what he/she either cannot or will not create.
Some people make a profession of taking from the creators and giving to others. They are called politicians. In addition to getting to pat themselves on the back for doing so much good for society, they get a generous cut themselves. Lacking the forthrightness of a thief, they mask their willingness to take from others by force in byzantine tax codes and arcane regulations.
What would our society look like if we were to refuse to allow either thieves or their governmental counterparts to take what each of us has created? Those disposed to believe in the fairy tale of a benevolent and fair government imagine hordes of the poor wandering the countryside, victims of arrogance and callousness of the elite. I see something quite different--the blossoming of a new human spirit.
When people are able to trade freely, they are able to tap their potential for creating value for others. Virtually all human beings have some capacity for doing so. In return, the less capable benefit from the more capable in two ways. First, goods and services are cheaper because capable people compete to provide them without fear of having a large portion confiscated by government. Second, the truly incapable, such as the severely handicapped, benefit from the benevolence of the wealthy. Humanity, for all its tendencies toward wanton cruelty and unjustified violence, has also shown a tremendous capacity for kindness and charity.
This Independence Day, we will all remember the precious rights our ancestors earned for us. Along with your ferocity in protecting your freedom of speech and religion, kindle a fierceness in protecting your property. You earned it, now fight to keep it.
Wednesday, June 24, 2009
The Time Value of Money
We often hear the phrase "the time value of money," but what does that actually mean? Fundamentally, it means that money now is "worth more" than money later. For example, if I were to put $100 in a savings account at 1% interest, I would have $101 (not including compounding) at the end of a year. How can that be? How does money get more valuable?
It doesn't. The money itself, when there is no inflation or deflation, retains its original value. In order for there to be any return to money invested, it must be put to work. The only way money can be put to work is by using it to help transform one thing into another thing that is more valuable.
For example, if I take $100 to buy 100 plain wooden blocks and some paint, then invest my time painting the blocks for decorative purposes, I can sell them for, say, $120. The "extra" $20 is the result of my ingenuity and effort. I take cash, some raw materials, and my time and combine them to create value that did not exist before.
If I have an idea for creating such a product, but do not have enough cash on hand to purchase the plain blocks and paint, I cannot create value. A banker or someone else that lends money might recognize my idea as valuable and offer to lend me the money. Say I borrow $100 and agree to pay the lender $105 at the end of a year. I still make $15 on the enterprise. The bank also made money--$5.
This brings us back to our original example--the 1% return on a savings account. For nothing more than the trouble of depositing money in the bank, it pays me 1% It can do so only because it then takes my money and loans it out for 5% It can do that only because someone is willing and able to take that money and create more than 5% value with it.
Now, who makes the most money? We can figure this out by reasoning that a bank will never make money if it lends it out for less than it pays depositors. So the owner of the savings account necessarily makes less money than the bank. What about the business owner? If he/she makes less than the interest rate paid to the bank, that business is a losing proposition. In other words, the business has to make a 5% return just to break even.
This is of course a drastically simplified description of rates of return. The point is that the business owner has the greatest potential of making money. Note that I said potential. Business ownership entails risk, but it is essential for there to be a return on that $100 at all.
Whenever we invest our money, it provides us a return. Behind that return, there is a business, or multiple businesses, actually doing the work of creating value. If the investment is stable and strong, it can be a good strategy for providing for the future. It will never match the potential of a self-owned business, though, because too many other people take their cut first.
Wouldn't you rather get the biggest cut on at least some of your income? I would, and I'll bet you would too. Don't wait, start learning now.
It doesn't. The money itself, when there is no inflation or deflation, retains its original value. In order for there to be any return to money invested, it must be put to work. The only way money can be put to work is by using it to help transform one thing into another thing that is more valuable.
For example, if I take $100 to buy 100 plain wooden blocks and some paint, then invest my time painting the blocks for decorative purposes, I can sell them for, say, $120. The "extra" $20 is the result of my ingenuity and effort. I take cash, some raw materials, and my time and combine them to create value that did not exist before.
If I have an idea for creating such a product, but do not have enough cash on hand to purchase the plain blocks and paint, I cannot create value. A banker or someone else that lends money might recognize my idea as valuable and offer to lend me the money. Say I borrow $100 and agree to pay the lender $105 at the end of a year. I still make $15 on the enterprise. The bank also made money--$5.
This brings us back to our original example--the 1% return on a savings account. For nothing more than the trouble of depositing money in the bank, it pays me 1% It can do so only because it then takes my money and loans it out for 5% It can do that only because someone is willing and able to take that money and create more than 5% value with it.
Now, who makes the most money? We can figure this out by reasoning that a bank will never make money if it lends it out for less than it pays depositors. So the owner of the savings account necessarily makes less money than the bank. What about the business owner? If he/she makes less than the interest rate paid to the bank, that business is a losing proposition. In other words, the business has to make a 5% return just to break even.
This is of course a drastically simplified description of rates of return. The point is that the business owner has the greatest potential of making money. Note that I said potential. Business ownership entails risk, but it is essential for there to be a return on that $100 at all.
Whenever we invest our money, it provides us a return. Behind that return, there is a business, or multiple businesses, actually doing the work of creating value. If the investment is stable and strong, it can be a good strategy for providing for the future. It will never match the potential of a self-owned business, though, because too many other people take their cut first.
Wouldn't you rather get the biggest cut on at least some of your income? I would, and I'll bet you would too. Don't wait, start learning now.
Thursday, June 18, 2009
Why Your Goals Don't Work
Yesterday, I assigned my students a voluntary overnight project. We had discussed goal setting in class and I wanted to impress upon them the importance of writing down and prioritizing their goals. As I generally find in my classes, only a small number did the whole exercise.
I already know why many of my students failed to follow through on this well-established method for getting what we want out of life. It is the same reason many of us fail to follow through. We say we want to achieve great things, but in the end, we would really rather stay in our comfortable cocoon of low-level misery.
We know from well over a thousand studies that goals work--that is, they lead to high performance. If you want to lose weight, make more money, or achieve anything else quantifiable, goals are the way to do it. Yet we all know how easy it is to get distracted while working on a goal. Why is that?
In my view, there are two major reasons we find it difficult to achieve things. The first stems from what I call a "mind-split." On the one hand we want to accomplish what we set out to do. On the other, we are afraid that we just might succeed. If we succeed, we show ourselves and the world that we really are capable. It renders null and void all the excuses we used before, and by implication, the excuses we may want to use in the future.
The second hindrance to goal achievement is having the wrong goals. High performance does not necessarily lead to happiness and personal fulfillment. I see this in "achievement junkies," people who crave the next chunk of conspicuous wealth or yet another trophy in a sport they have grown to despise.
Learning the mechanics of goal setting takes twenty minutes. Learning to set the right goals may take twenty years. As you set out on the great journey that is entrepreneurship, remember that getting what you really want is scary and that getting what you think you want may make you miserable.
I already know why many of my students failed to follow through on this well-established method for getting what we want out of life. It is the same reason many of us fail to follow through. We say we want to achieve great things, but in the end, we would really rather stay in our comfortable cocoon of low-level misery.
We know from well over a thousand studies that goals work--that is, they lead to high performance. If you want to lose weight, make more money, or achieve anything else quantifiable, goals are the way to do it. Yet we all know how easy it is to get distracted while working on a goal. Why is that?
In my view, there are two major reasons we find it difficult to achieve things. The first stems from what I call a "mind-split." On the one hand we want to accomplish what we set out to do. On the other, we are afraid that we just might succeed. If we succeed, we show ourselves and the world that we really are capable. It renders null and void all the excuses we used before, and by implication, the excuses we may want to use in the future.
The second hindrance to goal achievement is having the wrong goals. High performance does not necessarily lead to happiness and personal fulfillment. I see this in "achievement junkies," people who crave the next chunk of conspicuous wealth or yet another trophy in a sport they have grown to despise.
Learning the mechanics of goal setting takes twenty minutes. Learning to set the right goals may take twenty years. As you set out on the great journey that is entrepreneurship, remember that getting what you really want is scary and that getting what you think you want may make you miserable.
Saturday, June 13, 2009
Is This Socialism?
In order to understand the premises of socialism, we need to understand two words: "from" and "to." Specifically, socialists believe that justice is served when societies observe the following rule: From each according to his abilities; to each according to his needs.
On the face of it, this sounds just. Who would quarrel with the idea that people should get what they need? It is the "from" part that get us into trouble. If life were a matter of us all standing around a pre-existing barrel of goods--food, clothing, shelter, and other necessities--and taking what we needed, one might justify this distribution rule.
Of course, we all know that is not how the things we human beings need come to exist. Except for air, basic necessities have to be created by someone. Socialism presumes it is right to take from the creators and give to others. Is that what our economic system has become?
You bet it has, but not in the way you may think.
The complexity of our economic system has allowed us to take from people who don't exist yet. How can that be? It is called debt. Debt is en extremely useful tool. If someone lends you money to buy something you could not purchase with cash, say a house, many people benefit. You benefit because you are able to use something valuable before you pay for it completely. The seller benefits because he/she can sell to someone who otherwise could not purchase. The lender also makes money.
If we had no system for borrowing and lending money, it would be nearly impossible to own anything like a house or car. Here is the problem. Not only can regular people and private businesses borrow money, so can the government. The difference is that the government borrows from future generations.
One way the government does this is to borrow money literally. It essentially issues IOUs to its citizens. The government can also print money. In the first case, debt can build until the present generation cannot pay it all off. In the second, government spends money it has "printed" and hopes no one notices that the resulting inflation has robbed citizens of buying power.
Either way, the system makes chumps of us. If we live frugally, save our money, and teach our children to do the same, we wind up feeding the government's insatiable appetite for spending at our own expense. At some point, the system has to break down. Either our children and grandchildren will have to pay absurd tax rates or the value of our currency will diminish to zero. Maybe both.
And this brings us back to socialism. If the government tried in the present to take the amount of money it needs to sustain its orgy of spending, citizens would revolt. If they hide their theft by passing it on to its future citizens, we who are right here right now may grumble, but we won't revolt.
Is this how we want to live? If so, let's be honest about it. Socialism advocates taking from the "able" and giving to the "needy." If you believe that, are you willing to look future generations in the eye and tell them that we gave and gave and gave and that by the way, they owe the bill?
I didn't think so.
On the face of it, this sounds just. Who would quarrel with the idea that people should get what they need? It is the "from" part that get us into trouble. If life were a matter of us all standing around a pre-existing barrel of goods--food, clothing, shelter, and other necessities--and taking what we needed, one might justify this distribution rule.
Of course, we all know that is not how the things we human beings need come to exist. Except for air, basic necessities have to be created by someone. Socialism presumes it is right to take from the creators and give to others. Is that what our economic system has become?
You bet it has, but not in the way you may think.
The complexity of our economic system has allowed us to take from people who don't exist yet. How can that be? It is called debt. Debt is en extremely useful tool. If someone lends you money to buy something you could not purchase with cash, say a house, many people benefit. You benefit because you are able to use something valuable before you pay for it completely. The seller benefits because he/she can sell to someone who otherwise could not purchase. The lender also makes money.
If we had no system for borrowing and lending money, it would be nearly impossible to own anything like a house or car. Here is the problem. Not only can regular people and private businesses borrow money, so can the government. The difference is that the government borrows from future generations.
One way the government does this is to borrow money literally. It essentially issues IOUs to its citizens. The government can also print money. In the first case, debt can build until the present generation cannot pay it all off. In the second, government spends money it has "printed" and hopes no one notices that the resulting inflation has robbed citizens of buying power.
Either way, the system makes chumps of us. If we live frugally, save our money, and teach our children to do the same, we wind up feeding the government's insatiable appetite for spending at our own expense. At some point, the system has to break down. Either our children and grandchildren will have to pay absurd tax rates or the value of our currency will diminish to zero. Maybe both.
And this brings us back to socialism. If the government tried in the present to take the amount of money it needs to sustain its orgy of spending, citizens would revolt. If they hide their theft by passing it on to its future citizens, we who are right here right now may grumble, but we won't revolt.
Is this how we want to live? If so, let's be honest about it. Socialism advocates taking from the "able" and giving to the "needy." If you believe that, are you willing to look future generations in the eye and tell them that we gave and gave and gave and that by the way, they owe the bill?
I didn't think so.
Thursday, May 21, 2009
Killing the Goose
We all remember the story of the Goose and the Golden Egg. Anxious to become wealthy without working for it, the farmer eventually kills the goose because one golden egg a day just isn't enough.
California voters just sent a message to their politicians that they will not become the second goose to die at the hands of the shiftless and lazy. By an astonishing margin, the general populace told Sacramento that increased taxes and smoke-and-mirrors borrowing will not fly. Let us pause to celebrate a victory.
Most Americans still believe that we each own what we create. To politicians, this is a novel idea. They prefer instead to think of wealth creators as being at their disposal. Not content with only maintaining essential services like police protection, they find in taxpayers a never-ending source of wealth to confiscate and distribute according to their notions of "fairness." Of course, "fairness" is usually linked to re-election.
Fellow citizens, we are the geese and the farmer is trying to kill us. Like California, let's send the message loud and clear that enough is enough.
California voters just sent a message to their politicians that they will not become the second goose to die at the hands of the shiftless and lazy. By an astonishing margin, the general populace told Sacramento that increased taxes and smoke-and-mirrors borrowing will not fly. Let us pause to celebrate a victory.
Most Americans still believe that we each own what we create. To politicians, this is a novel idea. They prefer instead to think of wealth creators as being at their disposal. Not content with only maintaining essential services like police protection, they find in taxpayers a never-ending source of wealth to confiscate and distribute according to their notions of "fairness." Of course, "fairness" is usually linked to re-election.
Fellow citizens, we are the geese and the farmer is trying to kill us. Like California, let's send the message loud and clear that enough is enough.
Wednesday, May 13, 2009
Whose Money Is It Anyway?
Most of us work until sometime in May to pay our taxes. The rest of what we earn is ours. Hey, wait a minute. Isn't that first five months ours too?
Not according to the government. In fact, they take it before we ever get our hands on it. Those of us with jobs have taxes withheld. Take a look at your next pay stub and remind yourself how much money you DON'T get each pay period.
Here's the kicker. Far and away, it is the middle class that gets whacked for taxes. Why? Because it is easier to collect from us. The poor don't have any money to confiscate; the rich have enough money to hire people who can protect what they earn.
Is that fair? I leave that to you. But, if you decide that paying less in taxes is a good thing, read on.
Owning a side business has numerous advantages. You control it, and if you manage it properly, you can build up a solid retirement to supplement or replace your "traditional" retirement. Better yet, you can protect more of your "regular" income from taxation.
Tax laws allow numerous deductions for business. Many expenses can be used to reduce your taxable income. So, in addition to having more income, you get to keep more of your money. Be sure to use a good tax advisor, because the laws must be followed closely.
The Boston Tea Party was prompted by a 3% tax. Many of us pay over ten times that amount now. I doubt that pouring tea into the harbor will do much good these days, so throw your own little tea party. Start a side business and keep more of what was yours to begin with.
Not according to the government. In fact, they take it before we ever get our hands on it. Those of us with jobs have taxes withheld. Take a look at your next pay stub and remind yourself how much money you DON'T get each pay period.
Here's the kicker. Far and away, it is the middle class that gets whacked for taxes. Why? Because it is easier to collect from us. The poor don't have any money to confiscate; the rich have enough money to hire people who can protect what they earn.
Is that fair? I leave that to you. But, if you decide that paying less in taxes is a good thing, read on.
Owning a side business has numerous advantages. You control it, and if you manage it properly, you can build up a solid retirement to supplement or replace your "traditional" retirement. Better yet, you can protect more of your "regular" income from taxation.
Tax laws allow numerous deductions for business. Many expenses can be used to reduce your taxable income. So, in addition to having more income, you get to keep more of your money. Be sure to use a good tax advisor, because the laws must be followed closely.
The Boston Tea Party was prompted by a 3% tax. Many of us pay over ten times that amount now. I doubt that pouring tea into the harbor will do much good these days, so throw your own little tea party. Start a side business and keep more of what was yours to begin with.
Wednesday, May 6, 2009
Truth or Consequences: Holding Big Business Accountable
When you or I start a business, we do not usually have the luxury of picking up the phone and calling our Congressman. Imagine actually getting through to your representative and having this conversation:
Noel: "Congressman Smith, this is Terry Noel."
(Smith motions to his Executive Assistant, shrugs his shoulders, and writes a note asking who the hell this guy is.")
Congressman: "Larry! Great to hear from you! You know, I am doing everything I can to stop global warming, guard against the swine flu, and get steroids out of baseball."
Noel: "Well, Congressman, that's not really why I called."
(Smith motions again. Writes a note asking for the caller's record of campaign contributions.)
Congressman: "Nothing?"
Noel: "Huh?"
Congressman: "What? I mean, nothing is more important than my constituents."
Noel: "Well, you see, I have a big problem. My business is coming up short this quarter. To tell you the truth, I could use a bailout."
Congressman: "I see..."
(Circles his finger at the side of his head in a cuckoo motion.)
Noel: "Not much. I mean nothing compared to the big banks."
Congressman: "Well, Harry, it's been nice talking to you and I appreciate your vote."
Noel: "Wait! The bailout?"
Congressman: "Yes, I am making sure that all these companies are held accountable. I am glad you support me. American jobs for American workers. That's what I say. We can't let our businesses suffer because of low wages in Fiji. Call again. Anytime."
Noel: "But...(click)...
When government injects itself into the economy, its actions are arbitrary, capricious, and usually based on campaign contributions. As long as politicians are given the power to reduce competition through regulation or provide subsidies outright to their contributors, businesses can grow. In fact, they can grow rapidly because they no longer have to work as hard to satisfy their customers. When things get rough, they ask their political friends to change the rules instead of competing fairly. Businesses don't get winnowed out for failure to perform.
The winnowing process of a truly free market is supremely neutral. If you or I do not provide a better product or service than our competitors, we lose money. If we lose enough, we go out of business. The only way to stop the current insanity of propping up businesses that are "too big to fail" is to take away politicians' power to interfere.
Noel: "Congressman Smith, this is Terry Noel."
(Smith motions to his Executive Assistant, shrugs his shoulders, and writes a note asking who the hell this guy is.")
Congressman: "Larry! Great to hear from you! You know, I am doing everything I can to stop global warming, guard against the swine flu, and get steroids out of baseball."
Noel: "Well, Congressman, that's not really why I called."
(Smith motions again. Writes a note asking for the caller's record of campaign contributions.)
Congressman: "Nothing?"
Noel: "Huh?"
Congressman: "What? I mean, nothing is more important than my constituents."
Noel: "Well, you see, I have a big problem. My business is coming up short this quarter. To tell you the truth, I could use a bailout."
Congressman: "I see..."
(Circles his finger at the side of his head in a cuckoo motion.)
Noel: "Not much. I mean nothing compared to the big banks."
Congressman: "Well, Harry, it's been nice talking to you and I appreciate your vote."
Noel: "Wait! The bailout?"
Congressman: "Yes, I am making sure that all these companies are held accountable. I am glad you support me. American jobs for American workers. That's what I say. We can't let our businesses suffer because of low wages in Fiji. Call again. Anytime."
Noel: "But...(click)...
When government injects itself into the economy, its actions are arbitrary, capricious, and usually based on campaign contributions. As long as politicians are given the power to reduce competition through regulation or provide subsidies outright to their contributors, businesses can grow. In fact, they can grow rapidly because they no longer have to work as hard to satisfy their customers. When things get rough, they ask their political friends to change the rules instead of competing fairly. Businesses don't get winnowed out for failure to perform.
The winnowing process of a truly free market is supremely neutral. If you or I do not provide a better product or service than our competitors, we lose money. If we lose enough, we go out of business. The only way to stop the current insanity of propping up businesses that are "too big to fail" is to take away politicians' power to interfere.
Wednesday, February 25, 2009
Uncovering Your Hidden Value
All business operates on a simple premise. One person creates value for another. Outside of gift-giving and other types of benevolence, the creator gets paid. He or she receives value, often in the form of money, and both partners to the trade are better off than they were before.
Many forms of value are obvious. Clothing, shelter, food, and the people who create them are valuable because we need those basic things to survive. Music, paintings, sports and other non-essentials improve our lives even though we could live without them. But they too are commonplace and obvious.
Many people who start businesses are stuck in the obvious. They try to provide more of what others are already providing quite well: dry cleaners, groceries, web design, etc. There is nothing wrong with opening this kind of business. If you can do it better, faster, or cheaper than your competitors, you may do well. But why butt heads with the rest of the market?
Each of us has value to others that may have gone unrecognized. We may know how to do something unique or make something unusual that is valuable to 0thers. But how does one discover these hidden veins of value? Start by brainstorming fifty ideas for businesses. Don't criticize or question any idea, just write down fifty. Even if some turn out to be "obvious" keep writing. Chances are, you will find something valuable that only you can provide.
The next step is refining your idea into a business model. A business model takes your initial idea and builds around it a "delivery system" that allows you to get paid for what you do well. More on business models next post.
Many forms of value are obvious. Clothing, shelter, food, and the people who create them are valuable because we need those basic things to survive. Music, paintings, sports and other non-essentials improve our lives even though we could live without them. But they too are commonplace and obvious.
Many people who start businesses are stuck in the obvious. They try to provide more of what others are already providing quite well: dry cleaners, groceries, web design, etc. There is nothing wrong with opening this kind of business. If you can do it better, faster, or cheaper than your competitors, you may do well. But why butt heads with the rest of the market?
Each of us has value to others that may have gone unrecognized. We may know how to do something unique or make something unusual that is valuable to 0thers. But how does one discover these hidden veins of value? Start by brainstorming fifty ideas for businesses. Don't criticize or question any idea, just write down fifty. Even if some turn out to be "obvious" keep writing. Chances are, you will find something valuable that only you can provide.
The next step is refining your idea into a business model. A business model takes your initial idea and builds around it a "delivery system" that allows you to get paid for what you do well. More on business models next post.
Tuesday, February 10, 2009
What is Money?
If your answer is the green stuff in your wallet or purse, go to the back of the line. The paper we all carry is a facsimile, a representation--a marker, really, for real money. It is fake. It works well in the place of real money, but only under certain conditions.
The idea behind money itself is brilliant. We can imagine how the first humans developed the barter system--you make arrows better and I make blankets better. Hmmmm...maybe we could trade and both be better off. Free trade ranks as one of humanity's crowning achievements. As we grew in intelligence and sophistication, the barter system became cumbersome. If you did not happen to need blankets at the same time I needed arrows, we were out of luck.
Money was invented to "mark" an asynchronous exchange of value. That is just a fancy way of saying that one of us could store the value he/she had created for future use. Neat idea, huh? The only problem was what to use for a marker.
Not just anything would do. In order for something to serve as money, it had to be durable, portable, and rare. Durability allowed value to be stored safely. No good using a tree leaf if it disintegrates before it can be spent. Portability allowed the value to be transported over large distances, thus expanding trade to the benefit of all. Those two characteristics are fairly obvious, and real money over the course of human history has nearly always been durable and portable. But why rare?
Rareness is a desirable characteristic for money to have because it needs to represent the value that is created and stored by the holder. If we were to use any old seashell, everyone could become rich by going to the beach. Something is wrong here, though. How can everyone become rich by picking up seashells? The answer is, they can't, though our government believes they can. This is the primary reason we are all facing the biggest financial crisis in decades.
Money is not usable. We can't eat it, can't wear it, and can't cure disease with it. What we want is the value behind it. If I am sick, the only reason I want money is to purchase your services as a physician. That seashell is worth only what I can trade it for. If the supply in a particular economy (let's say a village) gets too high, its value goes down. Soon it takes a bushel basket full of shells to purchase what three shells would purchase before.
The reason shells become worthless is that anyone can get them without providing any tangible value to anyone else. Over thousands of years, two main materials have emerged that prevent such flagrant abuses of the idea of money--gold and silver. Yes, some people acquire wealth by digging up gold or silver, but it is a lot of trouble and the supply is limited. In a sense, the miners of precious metals earn their value by providing the rest of us with a solid standard of exchange.
Gold and silver became the only real money not because anyone decreed them to be so, but because people in general recognized them as money. Governmental interference came much later, mostly with undesirable consequences.
Today, our government is creating currency hand over fist. All this in the name of "saving the economy." Note that I said "currency," not money. Did you ever wonder where that now nearly one trillion dollars comes from? They create it out of thin air. It represents no tangible value whatsoever. Like the village I just spoke of, our politicians are going to the beach, gathering shells, and calling it money. Oh, and they force us to use it as money. That is why you see "This note is legal tender for all debts, public and private" on our currency.
Our nest eggs all got hammered last year because we were counting on currency. We all thought that we would be able to trade what we thought was money for things we will want and need when we retire. Not likely. If your portfolio was mostly stocks, bonds, and mutual funds, you have been had. If you thought that Social Security would allow you to at least buy food and shelter and that Medicare would pay your doctor bills, think again.
The good news is that we do not have to sit and take this. No, I do not mean storming Washington, much as I love to dream of that. I mean that living the life you want to live and being able to retire comfortably now requires more courage and savvy than ever before. Next week, I will explain why you must learn what assets are and how you can start creating them.
The idea behind money itself is brilliant. We can imagine how the first humans developed the barter system--you make arrows better and I make blankets better. Hmmmm...maybe we could trade and both be better off. Free trade ranks as one of humanity's crowning achievements. As we grew in intelligence and sophistication, the barter system became cumbersome. If you did not happen to need blankets at the same time I needed arrows, we were out of luck.
Money was invented to "mark" an asynchronous exchange of value. That is just a fancy way of saying that one of us could store the value he/she had created for future use. Neat idea, huh? The only problem was what to use for a marker.
Not just anything would do. In order for something to serve as money, it had to be durable, portable, and rare. Durability allowed value to be stored safely. No good using a tree leaf if it disintegrates before it can be spent. Portability allowed the value to be transported over large distances, thus expanding trade to the benefit of all. Those two characteristics are fairly obvious, and real money over the course of human history has nearly always been durable and portable. But why rare?
Rareness is a desirable characteristic for money to have because it needs to represent the value that is created and stored by the holder. If we were to use any old seashell, everyone could become rich by going to the beach. Something is wrong here, though. How can everyone become rich by picking up seashells? The answer is, they can't, though our government believes they can. This is the primary reason we are all facing the biggest financial crisis in decades.
Money is not usable. We can't eat it, can't wear it, and can't cure disease with it. What we want is the value behind it. If I am sick, the only reason I want money is to purchase your services as a physician. That seashell is worth only what I can trade it for. If the supply in a particular economy (let's say a village) gets too high, its value goes down. Soon it takes a bushel basket full of shells to purchase what three shells would purchase before.
The reason shells become worthless is that anyone can get them without providing any tangible value to anyone else. Over thousands of years, two main materials have emerged that prevent such flagrant abuses of the idea of money--gold and silver. Yes, some people acquire wealth by digging up gold or silver, but it is a lot of trouble and the supply is limited. In a sense, the miners of precious metals earn their value by providing the rest of us with a solid standard of exchange.
Gold and silver became the only real money not because anyone decreed them to be so, but because people in general recognized them as money. Governmental interference came much later, mostly with undesirable consequences.
Today, our government is creating currency hand over fist. All this in the name of "saving the economy." Note that I said "currency," not money. Did you ever wonder where that now nearly one trillion dollars comes from? They create it out of thin air. It represents no tangible value whatsoever. Like the village I just spoke of, our politicians are going to the beach, gathering shells, and calling it money. Oh, and they force us to use it as money. That is why you see "This note is legal tender for all debts, public and private" on our currency.
Our nest eggs all got hammered last year because we were counting on currency. We all thought that we would be able to trade what we thought was money for things we will want and need when we retire. Not likely. If your portfolio was mostly stocks, bonds, and mutual funds, you have been had. If you thought that Social Security would allow you to at least buy food and shelter and that Medicare would pay your doctor bills, think again.
The good news is that we do not have to sit and take this. No, I do not mean storming Washington, much as I love to dream of that. I mean that living the life you want to live and being able to retire comfortably now requires more courage and savvy than ever before. Next week, I will explain why you must learn what assets are and how you can start creating them.
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