What Businesses Charge

I had an interesting revelation when I was a teen and working in the stock room at my local JC Penney. When inventory arrived, I was to put the price tags on the items. The sheet that I was given to derive the prices from also had the store's own cost for those items. The markup was always 100%. If you're paying $20 for an item, the store paid $10 for it. Sounds fairly reasonable? Or should we tell JC Penney how much they should be able to mark up its items? We don't. We simply let the market dictate whether JC Penney sells that item for $20 or it stays on the shelf.

So why exactly do we want to do the same thing with payday lending? Certain legislators in the state don't like the amount of markup on short term loans that businesses give to people. They want to cap how much the business can charge for these transactions.

It's also interesting that explanations for the proposed bills are always using these drastic annual percentage rates, numbers like 260%. But how does it work for real? I asked Jamie Fulmer, the Senior VP of Public Affairs at Advance America what it would cost me to borrow $1,000 and pay it back in full a week later. He replied that the maximum I can borrow in Rhode Island is $450 and the interest on that loan, whether it was paid back in a week or two weeks would be a flat $45. I don't think it's be unreasonable to call that a 10% markup. Keeping in mind that this is intended to be a payday loan, which means it bridges someone over until their next payday. This isn't intended to be some long-term mortgage kind of thing.

Over on Twitter, the Providence Journal's Phil Marcelo filled me in on a couple questions I had like what are the lenders' reported profit margins. Using this source, one payday lender, Advance America had a 10.4% profit margin, less than companies like Mattel, Hershey's, IHOP and Tempurpedic. I don't see anyone trying to curb the costs of candy bars or pancakes.

I think we all know what would happen if you drastically cut the amount of profit that a business can make when they're already not exactly operating at a ridiculously high margin. They'll go out of business. Gee, isn't that a great idea. Let's chase businesses out of Rhode Island. We have too many of those already.

My next question was if people do depend on these types of loans and the legal, aboveboard, taxpaying businesses are chased away, what will people do for their monetary needs? Marcelo said the responses he's gotten have included that new non-profits will provide small loans at lower rates or people will simply have to cut back on their expenses. If there are non-profits willing to jump into this business at a lower rate, where are they? They'd single-handedly put companies like Advance America out of business, legally. Why don't we see these starting up? We know the answer. At a lower rate, you lose money. Oh, I firmly believe that if the lenders are chased away by business regulations the void will be filled, there's no doubts there. However, it'll be filled by those who will charge a whole lot more. Some online lenders have been known to charge as much as 1,000% on the loans. Who knows what the guy down on the corner or at the local bar would charge. And I don't quite think he'd simply repo your car or put a lien on your house if you missed the payment.

Why are we trying to protect people from themselves? Do we really want and need more anti-business regulations in Rhode Island? Apparently some members of our General Assembly think we do.

Who owns your stuff?

When is our stuff actually, you know, our stuff? Recently a stir was caused when cell-phone unlocking—the practice of enabling your cellphone for use on any cell network with any SIM card—became illegal. Now, with legislation pending in Congress to re-legalize(?) the practice, Kyle Wiens writes that we need to focus on “unlocking” much more technology embedded in other everyday items we supposedly own:

Copyright is impacting more people than ever before because the line between hardware and software, physical and digital has blurred.

The issue goes beyond cellphone unlocking, because once we buy an object — any object — we should own it. We should be able to lift the hood, unlock it, modify it, repair it … without asking for permission from the manufacturer.

But we really don’t own our stuff anymore (at least not fully); the manufacturers do. Because modifying modern objects requires access to information: code, service manuals, error codes, and diagnostic tools. Modern cars are part horsepower, part high-powered computer. Microwave ovens are a combination of plastic and microcode. Silicon permeates and powers almost everything we own.

This is a property rights issue, and current copyright law gets it backwards, turning regular people — like students, researchers, and small business owners — into criminals.

In a related story, the U.S. Supreme Court just ruled that the so-called First Sale Doctrine is viable when applied to purchasing products made for sale overseas and then re-selling them in the U.S. As reported by NPR:

The case involves a part of the copyright law that was aimed at so-called gray market goods. These are U.S. copyrighted products — from textbooks to watches — that are manufactured in other countries for sale there, then purchased and imported to the United States for discounted resale.

Supap Kirtsaeng, a mathematics student from Thailand, discovered that some of his textbooks were being published and sold in Asia for less money. They were identical to the textbooks he used at Cornell and the University of Southern California, except that they were much cheaper and bore an inscription saying they could not be exported. He got his friends and family in Asia to send him many copies of the books, sold them on eBay and made about $100,000 profit.

Needless to say, the publisher of the textbooks, John Wiley & Sons, didn't like that one bit. It sued Kirtsaeng for copyright infringement and won in the lower courts. Kirtsaeng was ordered to pay $600,000 in damages....Writing for the [Supreme Court] majority, Justice Stephen Breyer said that to impose geographic limits on the first sale doctrine would make no sense. He cited statistics from retailers indicating that $2.3 trillion worth of foreign goods were imported to the U.S. in 2011, and many of those products were subject to copyright protection when they were made.

Automobiles, calculators, microwaves, tablets, personal computers — all may contain copyrighted software programs or packaging, and many of these products are made abroad with the U.S. copyright holder's permission, Breyer observed. To forbid their importation unless the copyright owner agreed would mean, in essence, that a car owner whose GPS, radio or carburetor was made abroad could not freely resell his vehicle without the copyright owner's permission. Therefore, said the court, goods, once sold lawfully — whether in the U.S. or elsewhere — can now be resold in the U.S. without the copyright holder's permission.

This all comes while Derek Khanna enjoys a mini-celebrity as a copyright reformer. Khanna was the author of the infamous House Republican Study Committee document that include, as Digital Trends calls them, the “three myths” of copyright:

1. Copyright was not created in order to guarantee that content creators get paid, as copyright reliant industries claim; it was created to “promote the progress of science and useful arts,” according to the U.S. Constitution. Khanna adds that the “purpose” of copyright “is to lead to maximum productivity and innovation.”

2. Copyright is not, as some claim, “free market capitalism at work,” writes Khanna. It is the exact opposite: “a government-subsidized monopoly,” thanks to the massive, government-upheld penalties on those who violate copyright.

3. Copyright does not lead to “innovation and productivity,” writes Khanna. He argues that, instead, copyright policy has created “a system that picks winners and losers, and the losers are new industries that could generate new wealth and added value.”

So we have a 100+ year old “Happy Birthday” and other interesting items copyrighted. All because the right entities are lobbying the right people.

Why Not Rhode Island?

In an interview with Brian WIlliams, Apple CEO Tim Cook yesterday said:

"We've been working for years on doing more and more in the United States. Next year, we will do one of our existing Mac lines in the United States."

The article doesn't say where in the US that Apple will begin their manufacturing. Maybe that hasn't been decided yet. However if you were in charge of a state that was economically distressed and heard this type of news, wouldn't you immediately perk up and start putting in calls on behalf of your state?

Now before anyone gets excited, I'm not advocating for any EDC-type loans to Apple. I'm fairly certain the company doesn't need a cash handout. However, if our current corporate tax laws aren't a good fit, I'd certainly put that on the table for negotiations. I have said many times that we should simply fix the corporate tax laws so these types of negotiations and deals aren't necessary, but we're not there yet. If the company wants to move some manufacturing to the US, and a large part of that decision is PR-related, then why not Rhode Island? Imagine the positive PR if in some time, Apple can claim to have saved the Rhode Island economy.

Just as Governor Chafee visited the Dassault headquarters in France recently to keep up relations with the company to the benefit of 350 employees in Rhode Island, he should be looking to begin conversations with a company like Apple. Get Mr. Cook on the phone and invite him to Rhode Island immediately for a site visit. Show them how we have Quonset for shipping, we're very close to a couple information technology hubs in Boston and New York, and we have a large and available workforce.

If Apple is looking to ship some jobs to the US to build their Mac computers, the leadership in Rhode Island should be sleeping out overnight on CEO Cook's doorstep looking to get the brand within our borders.

Building a Business Community

Recently, we've seen a report from RIPEC about the troubled EDC and how to improve it. Everyone wants to improve the business community, or at least they say they do, but as one of the points in the report, Rhode Island lacks a clear vision or path toward making any improvements. Reports like that can be a step in the right direction, if they're carried out with the right recommendations.

Then you have others who are just choosing to bypass all that government gobbledygook and reports and meetings and hearings and testimony, and just try to carve out their own path. Next weekend, Johnson & Wales University in Providence is hosting Providence Startup Weekend, which is like a mini-camp for potential business entrepreneurs to get quickly immersed in the business of a startup company, what they need to think about and what needs to be done.

This kind of incubator and low-cost, non-governmental assistance is exactly what Rhode Island needs. We've had a company like Betaspring around for a while doing this sort of mentoring thing for companies as well, but that is more of a long-term relationship.

Of course, it doesn't do a whole lot of good to teach someone to swim and then tell them to jump in the ocean and swim to England. Rhode Island isn't exactly the most business-friendly (well, actually it's the least friendly) and even some of the smartest or best funded businesses will struggle under the weight of the RI regulatory and taxation structure, until the General Assembly gets serious about taking steps forward.

Talking Teen Unemployment and the Minimum Wage on the Dan Yorke Show

630AM/99.7FM WPRO has posted my appearance on the Dan Yorke show, Tuesday, in two segments. The first is the initial half hour introducing the research from the RI Center for Freedom & Prosperity and touching on some conclusions. For the second hour, Economic Development Corp. board member and VIBCO President Karl Wadensten joined us in the studio for a broader discussion.

A Decade of Moving Next Door

I've been following taxpayer migration data for years, but in a haphazard way. A new study that I've coauthored for the RI Center for Freedom & Prosperity finally gave me the opportunity to review all fifteen years of available data from the IRS.

The picture — from the 2003 beginning of what can only be described as an exodus — is frightening. After accounting for the tens of thousands of Rhode Islanders who moved to other states and other taxpayers who moved in the opposite direction, Rhode Island lost 24,455 households, with $1.2 billion of annual income (not inflation adjusted). More conspicuously, a net 3,406 taxpayers moved right across the border, to abutting counties in Massachusetts and Connecticut, taking with them $254.5 million in annual adjusted gross income (AGI).

Continue reading on the Ocean State Current...

Obama: Businesses Are Lucky & Should Thank the Government

President Obama:

[L]ook, if you’ve been successful, you didn’t get there on your own. You didn’t get there on your own. I’m always struck by people who think, well, it must be because I was just so smart. There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something -- there are a whole bunch of hardworking people out there.

The President goes on to qualify (sorta) the above by explaining that businesses wouldn't be successful without all the "good stuff" the government provided via our tax dollars magic(?).

If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business -- you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.

The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together. There are some things, just like fighting fires, we don’t do on our own. I mean, imagine if everybody had their own fire service. That would be a hard way to organize fighting fires.

The National Federation of Independent Businesses responds:

What a disappointment to hear President Obama’s revealing comments challenging the significance of America’s entrepreneurs.

His unfortunate remarks over the weekend show an utter lack of understanding and appreciation for the people who take a huge personal risk and work endless hours to start a business and create jobs.

I'm sure every small-business owner who took a second mortgage on their home, maxed out their credit cards or borrowed money from their own retirement savings to start their business disagrees strongly with President Obama's claim. They know that hard work does matter.

Every small business is not indebted to the government or some other benefactor. If anything, small businesses are historically an economic and job-creating powerhouse in spite of the government.

There is just enough truth in President Obama's statement to seem sorta plausible. But it is true only from a stratospheric view in that our country, often through the government, did make these improvements or create programs that do help business at the macro-level. But individuals who create businesses--and who have also paid and continue to pay taxes that fund the government programs cited by the President--don't gain any particular advantage over anyone else thanks to this stuff. Yes, they are also often supported by friends, family and community, but in the end they're the ones putting their own asses on the line.

ADDENDUM: Jim Pethokoukis adds his thoughts:

The less damning interpretation is that Obama is merely parroting Elizabeth Warren’s blindingly obvious statement that private enterprise benefits from certain public goods that government provides, such as education and infrastructure, and thus investors and entrepreneurs and other wealthy Americans shouldn’t mind paying taxes for them.

But that’s a strawman argument — and a divisive one at that. Demonization through distortion. Few opponents of higher taxes are arguing that the most successful Americans should pay no taxes — only that with the top 1% making 20% of the income and paying 40% of the taxes, that the system is already progressive enough.....The more worrisome interpretation is that Obama is adding his own philosophical addendum to the Warren Doctrine: that there is no such thing as individual achievement or merit. All success is directly due to society’s collective effort as manifested by government. It takes a village — or at least its bureaucrats — to accomplish anything. There are no heroes, no great Americans other than The People who express the National Will through Government. As if the nation’s entrepreneurs all stand on the shoulders of the giants at the Commerce Department and the Small Business Administration and the Energy Department. If entrepreneurs really add no value to the efforts of government, why not not tax them at 90%? That way, more money for government — the “somebody else” in the Obama statement — to create more middle-class prosperity.

UPDATE: Perhaps this explanation by Charles Krauthammer will help people better understand the "strawman argument" being put forth by President Obama as well as the nuances that are being missed by some:

Fundamental Questions (as in Business Fundamentals) About 38 Studios Running Aground When It Has

Say you've got a company that has 5 products on the market, and plans to release a new one in the next year. Which products should existing teams and new hires be assigned to work on? Maybe your existing customer base is willing, in large numbers, to pay for a new release of one of your older products. On the other hand, maybe a new product would be nearly as popular, and be more likely to bring in new customers. But the less popular upgrade might be more profitable, if a small team can get it to market (and start revenue flowing into the company) in 6 months, while developing the new product would take a larger team and at least 18 months -- but then again, if the small team is added the new product effort, maybe its time to market could be cut to 15 months. Figuring out how to balance the kinds of considerations is the job of a "product management" group in a traditional business organization.

For 38 Studios, the troubled Rhode Island software company, the problem should be much simpler. 38 Studios is at a business stage where they have only one product to develop. Their market is a retail one, i.e. they are selling individual units to a large pool of potential customers (though, if successful, their business would eventually involve a subscription component).

To first order, business planning for a company that is focused on one new retail product should be very straightforward. Money doesn't start coming in until the new product starts being sold. The product can't be sold until it is finished (to the people in the software biz laughing uncontrollably at that last statement, remember we're talking about a retail product here, not about getting an existing customer to cough up an extra year of maintenance fees and then giving them a break on their next full upgrade that's already six months overdue, etc). The cost of building the product should be highly predictable: the cost of programmers and their development hardware and software, facilities costs, and some standard business overhead. Nothing like a spike in the cost of high quality "1"s and "0"s needed to make computer chips work is going to negatively surprise the company.

You don't need to be a rocket scientist (as they still say in the software industry) to figure out how much money is needed to make a one-product-at-a-time retail business model work. If it's a year until the next release, enough money is needed to pay your employees and provide them with a place to work for a year. (I said you didn't need to be a rocket scientist; I didn't say that an MBA was going to be able to figure this out *rimshot*). Making up some round numbers, if it's going to take a year to develop a product, and you have a team of 20 programmers making 85K apiece, you need $1.7M to pay their salaries until the next release.

The point is, for 38 Studios to have run out of money in between two major releases, when the earlier release was supposedly successful, is odd to say the least. A few possible causes are:

1. They wildly overprojected how successful their last release would be, and didn't have as much money from it's sale as they were counting on.
2. Some other outside financing that was anticipated and built into their planning either pulled out or never arrived.
3. A bunch of folks with product knowledge left the company, and they haven't been able to replace them, and have fallen so far behind schedule, there's no hope of catching up.
4. The company was mismanaged from the start.

If 38 Studios really has run out of money at this stage, the proximate cause has to be something on the scale of the list above.

ADDENDUM:

To avoid any confusion, I've backfilled the original simple numbers example, based on the average salary figure reported in this Providence Business News staff report from the end of last year. But the immediate concern isn't the absolute numbers; whether you are discussing the most efficient operation in the world or the least, if your company uses X dollars per month to develop a product, and the product needs Y months of development before it's ready for the market, then X*Y dollars from other sources is needed, to have any shot of making it to release. Since 38 Studios was focused on producing a single, retail product, this ridiculously simple model directly applies to the company as a whole.

It's been presumed that 38 Studios had a plan which it shared with the Economic Development Corporation explaining where the X*Y dollars needed to keep the lights on (maybe a bad metaphor to use here) until the new product was ready for market would have come from. Given that costs are very predictable in this industry, what went wrong, with either the planning or the execution?

If You Are Not Careful, You Can Eventually Hit Your Head on a Debt Ceiling

There are about a half-a-dozen things I could comment on, in reaction to the announcement by Borders Books today that it is going all-the-way out of business. For now, following on from Justin's post earlier today, I will simply note this passage from the Wall Street Journal story on the subject...

Borders filed for bankruptcy-court protection in February. It has since continued to bleed cash and has had trouble persuading publishers to ship merchandise to it on normal terms that allowed the chain to pay bills later, instead of right away.

...and ask why Borders' current ownership didn't simply show the publishers that they had raised their debt ceiling, so that everything could continue as before. After all, that's a solution good enough for the finances of the Federal government (in the minds of some), right?

Godin on the "Economies of small"

Seth Godin has advice for the little guy. Like small business or even a small state.

Economies of scale are well understood. Bigger factories are more efficient, bigger distribution networks are more efficient, bigger ad campaigns can be more efficient. It's often hard to defeat a major competitor, particularly if the market is looking for security and the status quo.

But what about the economies of small? Is being bigger an intrinsic benefit in and of itself?

If your goal is to make a profit, it's entirely possible that less overhead and a more focused product line will increase it.

If your goal is to make more art, it's entirely possible the ridding yourself of obligations and scale will help you do that.

If your goal is to have more fun, it's certainly likely that avoiding the high stakes of more debt, more financing and more stuff will help with that.

The marketplace has changed: the ability to produce, market and sell to smaller groups of consumers has been made easier with technology. Consumers minds have changed along with it--we expect flexibility and the ability to get just what we want when we want it at a decent price. It doesn't have to be the cheapest price, so long as we see value in the quality of the product. Economies of scale still do work, but maybe not always.

I think we embraced scale as a goal when the economies of that scale were so obvious that we didn't even need to mention them. Now that it's so much easier to produce a product in the small and market a product in the small, and now that it's so beneficial to offer a service to just a few, with focus and attention, perhaps we need to rethink the very goal of scale.

Don't be small because you can't figure out how to get big. Consider being small because it might be better.

In many ways, Rhode Island really doesn't have any other choice but to embrace its "smallness." We're not going to get geographically bigger and our population has stayed the same seemingly forever. The argument around here has been focused on the efficiency that can be gained by embracing the concept of economies of scale by consolidating government services, say, at the county level. But we're not holding our breath, are we?

We have to get leaner in government--"less overhead"--and consolidation still makes sense (despite my pessimism that it will ever happen). Less waste can free up money to deliver those government services that the majority of Rhode Island citizens desire--"more focused product line"--like an efficient DMV, good roads/infrastructure, etc.

So how do we do it? By "ridding [ourselves] of obligations and scale." More on that later.

Management as the Science of Squeezing

This interesting article by Matthew Stewart mainly questions the value of an education specifically in business administration, as opposed to, say, philosophy. Stewart notes two general management theories that alternate in emphasis in the popular mind, and this anecdote from the founding of one theory, indeed, from Frederick Winslow Taylor's invention of the field of management science, resonates with me, after my years in construction:

Taylor was forty-three years old and on contract with the Bethlehem Steel Company when the pig iron question hit him. Staring out over an industrial yard that covered several square miles of the Pennsylvania landscape, he watched as laborers loaded ninety-two-pound bars onto rail cars. There were 80,000 tons' worth of iron bars, which were to be carted off as fast as possible to meet new demand sparked by the Spanish-American War. Taylor narrowed his eyes: there was waste there, he was certain. After hastily reviewing the books at company headquarters, he estimated that the men were currently loading iron at the rate of twelve and a half tons per man per day.

Taylor stormed down to the yard with his assistants ("college men," he called them) and rounded up a group of top-notch lifters ("first-class men"), who in this case happened to be ten "large, powerful Hungarians." He offered to double the workers' wages in exchange for their participation in an experiment. The Hungarians, eager to impress their apparent benefactor, put on a spirited show. Huffing up and down the rail car ramps, they loaded sixteen and a half tons in something under fourteen minutes. Taylor did the math: over a ten-hour day, it worked out to seventy-five tons per day per man. Naturally, he had to allow time for bathroom breaks, lunch, and rest periods, so he adjusted the figure approximately 40 percent downward. Henceforth, each laborer in the yard was assigned to load forty-seven and a half pig tons per day, with bonus pay for reaching the target and penalties for failing.

When the Hungarians realized that they were being asked to quadruple their previous daily workload, they howled and refused to work. So Taylor found a "high-priced man," a lean Pennsylvania Dutchman whose intelligence he compared to that of an ox. Lured by the promise of a 60 percent increase in wages, from $1.15 to a whopping $1.85 a day, Taylor's high-priced man loaded forty-five and three-quarters tons over the course of a grueling day—close enough, in Taylor's mind, to count as the first victory for the methods of modern management.

Stewart goes on to note that the method apparently did not do much for Bethlehem Steel, and the experiment mainly benefited Mr. Taylor, who went on to teach at Harvard and become a sort of management guru. For my part, having long been very concerned with efficiency and proving my worth, I have to confess a shift, in recent months, toward the attitude of the Hungarians.

A carpenter I know who works for a custom woodworking company has the worst of two worlds: He is handled as a regular employee, meaning that corporate salesmen estimate the time that each project will take, but he is paid per project, not per hour. When the economy began to sour, the company simply reduced the amount of time that it estimated for each job. One day, installing a set of stairs was a two-day task; the next day, it was a one-day task.

I'm sure my employers aren't alone in having made a point of repeated reminders that their workers are fortunate to have jobs at all, in this economy, but I wonder whether the effect on employees mightn't be contrary to managers' intentions. Eventually, all workers will reach the point of suggesting that if such a pool of ready replacements exists (all certain to prove as competent and reliable as current employees), perhaps the boss should bring them in. With that attitude established, employers might be surprised to find that morale and personal dedication to the company weren't as high as they'd thought when things begin to turn around.

As the fatal flaw of Taylor's theorizing, Stewart points to the high degree of fudging that has to be done to make human activity estimable. Breaks, meals, health, motivation, and so on all affect outcomes. In other words, a stopwatch and limited-time experiment may tell the manager how quickly something can be done, but the relevant question is really how quickly it is reasonable to expect a particular person to accomplish a given task in specific conditions, and that's highly subjective.

The aforementioned building contractors believe it's reasonable to squeeze their employees in a recession, and it may, in fact, be. It depends on the justification for the squeeze. If competition has decreased the prices that he can charge, then pay decreases can be justified... and employees would understandably expect a resumption of their prior rates when prices go up again. If the employer's merely making a calculation on the amount of profit that he can claim for himself, then pay cuts are more apt to rankle.

Of course, the sort of management theory that Stewart describes above creates an ongoing battle entirely apart from wages. In construction it is especially noticeable, because the actual work is so distinct from the management and planning aspect of it, but a large portion of information technology's boon went to employers, who thereby gained access to workers around the clock, with weekend emails and lunchtime cell-phone calls.

One could argue, on the other hand, that technology has made it easier for workers to duplicate the activities of their employers, making it easier to go out and to compete. (The motivation is only stronger to the extent that employers don't respect the end-of-day bell as the true cessation of work.) In the long run, then, it may be the managers who find themselves obviated.

Workers know how long a task should take, in reasonable terms, as a matter of absorbed knowledge. If the rest comes down to timing and calculations, let a computer handle it.

Open Thread: Combined Reporting, Good Idea or Not?

Rhode Island Governor Lincoln Chafee has proposed "combined reporting" in his FY2012 budget proposal as a means of raising revenue for Rhode Island. Given this is the most technical of the Governor's major proposed "revenue enhancers", the floor is open for any insights into the details of how and why "combined reporting" is supposed to work.

What a Tangled BigBiz Tech Web We Weave

First we all disapproved of Microsoft and they went down. Now it's Google's turn....and guess who it blames?

Google is under siege in Washington like never before — and it says an “anti-Google industrial complex” is to blame.

In an interview with POLITICO, a Google spokesman argued that a cabal of antitrust lawyers, lobbyists and public relations firms is conspiring against the Internet search giant. The mastermind? Google says it’s Microsoft.

Hm. U.S. Steel or Standard Oil? Who to choose?! Oh, but there's more.

In the 1990s, Microsoft was the tech industry wunderkind that got too big for its britches — and Google CEO Eric Schmidt, then an executive at Sun Microsystems and later Novell, helped knock the software titan down a peg by providing evidence in the government’s antitrust case against it.

The constraints imposed on Microsoft in that case helped clear the way for Google’s rise to rule the Web. Now — as Google spreads its tentacles into everything from mobile phones to digital online libraries to green energy — some of Microsoft’s allies are saying it’s time for the search giant to get its comeuppance.

Ah, so competitors to Microsoft used the government to help "even the playing field" to such a degree that another company--Google--emerged and became so successful that now their competition wants to do the same thing. Not saying there aren't legit concerns, but see what happens when government gets involved? Meet the new boss, same as the old boss? In more ways than one:

Google officials say they’ve learned from Microsoft’s mistakes. That was one reason the company opened an office in Washington in 2005, only a year after it went public. The company’s spending on lobbying climbed to $5.1 million last year, edging closer to Microsoft’s $7 million.

The company has hired its share of consultants, lobbyists and attorneys, too....In fact, three years ago, Google brought in some hired guns to try to persuade regulators to prevent the proposed merger between Microsoft and Yahoo — a partnership devised to counter Google’s dominance in search. Google lined its bench at the time with Jamie Gorelick, a Clinton-era deputy attorney general, and public relations firm Chlopak Leonard Schechter — in addition to the Washington veterans the company already had on retainer, such as the King & Spalding law firm and the Podesta Group.

Yahoo rejected Microsoft’s bid but settled for a search and advertising partnership last year that the DOJ approved, saying it would increase competition to Google.

The thing is, Google would have probably beat Microsoft without all of the histrionics: it really was a better search engine after all. Further, caught in an old business plan--desktops, OS's, etc.--Microsoft was blindsided on many fronts of the internet revolution, not just search engines. Then there's Apple. Wonder why no one's brought them to court yet due to there ubiquitous domination of the music download market?

ADDENDUM: Here's why we like have commenters: First "Mangeek" takes the Politico article (from which I pulled the above selections) to task.

How was Microsoft 'knocked down a peg'? They had virtually no action taken on them as a result of the antitrust case. See this: en.wikipedia.org/wiki/United_States_v._Microsoft#Settlement

Google's ascent wasn't at all related to the antitrust case. Microsoft is a technology -follower-, they didn't even have a search engine before Google.

Then "Dan" provides a little direction re: "monopolies":

There are some good EconTalk episodes on the subject of antitrust law in the US with attention paid to many past "Monopolies" that ended up vanishing off the face of the earth through simple competition without any intervention whatsoever.

www.econtalk.org/archives/2009/12/winston_on_mark.html
www.econtalk.org/archives/2007/10/boudreaux_on_ma.html

To my re-reading, both have mitigated some of my nebulousness on the above. Thanks, men.

Update: Senators Reed and Whitehouse Vote Against 1099 Relief

In response to my Friday 1099 repeal post, commenter "bythebay" notes that Rhode Island Senators Jack Reed and Sheldon Whitehouse did vote for a 1099 repeal amendment that was submitted by Michigan Senator Carl Levin. The Levin Amendment would have offset anticipated revenues from the 1099 provision by eliminating certain tax-breaks for oil companies. (The amendment that did pass offsets the anticipated revenue from the 1099 provision with "with already appropriated but not-yet-spent funds", according to Adam Sorenson of Time Magazine).

The Nelson Amendment supported last year by Senators Reed and Whitehouse, i.e. 1099 relief for businesses with 25 or fewer employees, also contained the provision about repealing oil-company tax breaks, meaning that if you combine the RI Senate delegation's votes on the Nelson Amendment, the Levin Amendment, and the repeal amendment that finally passed (the Stabenow Amendment), the piece that remains constant is an idea that every business sector in America should have the 1099 requirement for purchases of more than $600 imposed on them, if oil companies get a special tax break from the Federal government.

The question that needs to be answered to resolve this non-sequitur is whether Senators Reed and Whitehouse believe the 1099 measure should ever have been passed in the first place. If the answer is no, i.e. if they believe it was mistake from the very beginning, then why are they insisting that a specific agenda item be traded, in order to fix something they would claim not to support on its own merits? Or do Rhode Island's Senators believe that the 1099 requirement is actually a good idea under certain circumstances?

Senators Reed and Whitehouse Vote Against 1099 Relief

The United States Senate voted yesterday to repeal the section of the new Federal Healthcare Law that would have required businesses to file a separate 1099 form for every vendor from whom they purchase $600 or more in goods and/or services. (CNN has a good description of the scope of the 1099 provision, available here). The vote was lopsided, 81-17 in favor of the 1099 repeal -- with both Rhode Island Senators Jack Reed and Sheldon Whitehouse voting against repeal.

Senators Reed and Whitehouse had voted in the previous Senate session in favor of the “Nelson Amendment”, which would have exempted businesses with 25 or fewer employees from the 1099 mandate (the National Federation of Independent Business has a description of the Nelson amendment [and its reasons for opposing it], available here), but once that threshold is crossed, it seems fair based on the voting record to describe Senators Reed and Whitehouse as supporting an expansion of the Federal paperwork and compliance costs imposed on businesses.

We Need to Prune Regulations, Not Regulate Pruning

Pulling out a bill from Andrew's latest handy-dandy list, it's not at all clear to me, setting aside crass considerations like the impact on our hedge trimming and lawn mowing bills, how this would improve our rankings of 49th worst business climate and 49th worst economy in the country.

A bill sponsored last week by Sen. John J. Tassoni Jr., D-Smithfield, would require landscapers to register with the state and it would also require them to carry “not less than” $100,000 in public liability and property damage insurance.

Creating Pants on Fire Out of Truth

Sunday's PolitiFact correctly rates as "true" RI Democrat Senator Sheldon Whitehouse's statement that "the law... permits companies that close down American factories... to take a tax deduction for the costs associated with moving the jobs to China or India or wherever." But in its headline, in its presentation, and in an expanded quotation from Whitehouse, the article restates the argument in such a way as to drift into "pants on fire" territory.

The headline in the print edition of the Providence Journal is "Businesses do get tax incentive for 'offshoring.'" Reporter Eugene Emery rephrases the question as whether "the U.S. tax code actually offer[s] an incentive for firms to engage in such 'offshoring.'" And an expanded quotation shows Whitehouse stating that "loopholes in the tax code... reward American companies for moving American jobs overseas."

One needn't enter the debate about whether and what the United States should do about the loss of jobs to lower-cost workers in other countries to note that the rephrasing of the question is significantly deceptive. As the initial quotation states, businesses can deduct "for the costs associated with moving," but:

Robert E. Scott, senior international economist with the Economic Policy Institute, a liberal-leaning think tank that deals with issues of concern to low- and middle-income workers, confirmed that relocation expenses are deductible and that existing tax law makes no distinction between whether a company moves part of its operations to another state or to another country.

In other words, the code doesn't create an incentive to move, it just doesn't create a disincentive to do so. That's a very different dynamic. Were the U.S. government actively encouraging companies to leave our shores, the public reaction would rightly be greater than if tax law merely allows the usual adjustment for revenue spent on business-related activities.

The incentive to offshore is actually that labor is much less expensive overseas, and that merits a different response than pursuing a species of protectionist policy. I'd suggest endeavoring to increase the rights and expectations of those foreign workers and encouraging Americans toward more profitable careers.

John Robitaille (And Clearly John Robitaille) on Today's 38 Studios Development

As of 8:45 this evening, Katherine Gregg's 7-to-7 item on today's developments in the 38 Studios deal contains what appears to be a typographical echo...

Urging them both to cease their attempts to "interfere'' with the $75 million loan guarantee agreement with Schilling's 38 Studios, Carcieri said: "Businesses and the bond market should not be subject to political posturing. The attitudes and positions taken by Mr. Caprio and Mr. Chafee serve only to undermine the positive economic development steps the state has taken in recent years."

He also defended the deal, citing the Economic Development Corporation's unanimous vote "to move forward with the 38 Studios deal,'' after "months of due diligence.''

"It is a gross overstatement to imply that the Job Creation Guaranty Act reflects poorly on the state's financial management or could have an adverse impact on the state's bond rating. The fact is that a loan guarantee bond of this size or type has no impact on the state's general obligation or its bond rating,'' he asserted.

"It's obvious that Linc Chafee and Frank Caprio are anti-business and do not understand economic development. They are sending a 'keep out' message to any businesses that might consider moving to Rhode Island. With their opposition to the 38 Studio loan guaranty they are killing jobs and hurting Rhode Island families."

And his former communications director John Robitaille, the endorsed Republican candidate for governor said: "It's obvious that Linc Chafee and Frank Caprio are anti-business and do not understand economic development. They are sending a 'keep out' message to any businesses that might consider moving to Rhode Island...They are killing jobs and hurting Rhode Island families."

Despite rumors perhaps circulating amongst MSM journalists and their editors, all Republicans don't sound alike. According to representatives from the Robitaille campaign, the bolded quote is theirs; the prior quotes are from Governor Carcieri.

Ken Block, on Frank Caprio's Move in the 38 Studios Saga

In the course of an interview with Moderate party Gubernatorial Candidate Ken Block, I had the opportunity to get Mr. Block's immediate reaction to the news that General Treasurer and Democratic Gubernatorial candidate Frank Caprio had taken steps today to prevent the Rhode Island Economic Development Corporation loan-guarantee deal with 38 Studios from being implemented...

"I've been firmly and emphatically against the 38 Studios deal right from its announcement. Frank has been all over the map on it...He's apparently has gone directly to the ratings agencies and has been stirring the pot with them. I don't know if Frank has overstepped any boundaries or not, in his formal capacity, as either a citizen or as a Treasurer..."

Audio: 27 sec

"For me, it's been abundantly clear from day 1 that this deal was the wrong deal for Rhode Island. It's unfortunate. I'm not sure we can unring the bell. I'm not sure that we should unring the bell, because if a state begins reneging on deals, that could have a negative impact on other deals you might do with other entities down the line..."

Audio: 34 sec

"I know that I'm still adamantly against the deal, but will anybody do a deal with us in the future, not being able to be sure that the deal is going to go through?...I wish that Frank was clearer all the way along. Like I said before, he's been all over the map in terms of where he is. He's against it today, we'll see what happens tomorrow..."

Audio: 35 sec

Katherine Gregg has details on the steps taken by Treasurer Caprio, at the Projo's 7-to-7 newsblog.

Ian Donnis of WRNI radio's On Politics blog has extended reaction from RI Governor Donald Carcieri.

On "Giving Back"

Kimberly Dennis summarizes a cliché in such a way as to give me hope that maybe differing perspectives really are just a clarification away from harmonization (via Paul Caron, via Glenn Reynolds):

Successful entrepreneurs-turned-philanthropists typically say they feel a responsibility to "give back" to society. But "giving back" implies they have taken something. What, exactly, have they taken? Yes, they have amassed great sums of wealth. But that wealth is the reward they have earned for investing their time and talent in creating products and services that others value. They haven't taken from society, but rather enriched us in ways that were previously unimaginable.

No. "Giving back" implies that they have received something that they did not create. Inasmuch as even the most rags-to-riches story is a far cry from an entrepreneur's inventing the world from primordial muck, it is clearly true that the broader society has at the very least created the conditions in which his or her success was possible. That's especially true for entrepreneurs, like Bill Gates, whose story is more of the riches-to-more-riches variety.

Glenn Reynolds brings into the conversation philanthropy's sense of being Christian, but the point of Christian charity is not for the haves to make token gestures toward economic equilibrium. It's to offer imitative thanks to the living God whom the giver is supposed to see in the recipient. The notion translates directly into secular terms as an expression of gratitude — and, one might say, debt — to a cultural and civic structure.

Business-minded libertarians, among whom Dennis appears to count, may respond to that call by advocating for freedom and donating to market-bolstering causes. Others may shoot for the more fundamental targets of diminishing starvation and disease. And still others see continued investment in their personal vocations — whether medicine, high-tech inventions, financial investment, or any other capitalistic venture — to be their most valuable possible contribution.

Insisting that this point be acknowledged does not indicate that one begrudges the success or dismisses the inventiveness of capitalism's beneficiaries. But "giving back" isn't (or shouldn't be) penance in the form of an offering to the undeserving. It's recognition that, even to the extent that luck was not decisive, community conditions might have been, and a freely expressed hope that those conditions can continue to benefit others who are deserving.

"Religious" Varieties, Ideology and the Man in the Mirror

Alexis Madrigal at the Atlantic has written a piece that uses the latest Apple iPhone problems as a jumping off point to examine the "religious experience" of being an Apple "fanboy." In short, there are 4 myths surrounding the Apple "mystique", according to Texas A&M's Heidi Campbell:

1. a creation myth highlighting the counter-cultural origin and emergence of the Apple Mac as a transformative moment;
2. a hero myth presenting the Mac and its founder Jobs as saving its users from the corporate domination of the PC world;
3. a satanic myth that presents Bill Gates as the enemy of Mac loyalists;
4. and, finally, a resurrection myth of Jobs returning to save the failing company...

As Madrigal explains, these are myths in the Joseph Campbell vein "that helps people make sense of their relationship with the world." Madrigal wonders if "what happened during the [antenna failure] affair could undermine any of these key beliefs." Conclusion = nope.

Heidi Campbell, for one, doesn't think the company has much to worry about.

"This resurrection myth, and the belief in the infallibility of Mac technologies is going to keep people still invested," Thompson said.

Recalling the pricing and availability problems following the launch of the original iPhone, she concluded, "Antennagate will make waves for a little while, but if what happened to Apple around the launch of the original iPhone and all that rigmarole didn't shake people's faith, I don't think this will."

Humor can point to some of these underlying "truths" held by the Apple fanboys:

[A]s illustrated in this (hilarious) video that's garnered 5.5 million views on YouTube, it is hard to shake the faith of iPhone buyer that they are purchasing the world's best device.

"What the hell entices you about the iPhone 4, if you don't mind me asking?" an imaginary store clerk says. "It is an iPhone," the cartoon customer response. "You do realize that doesn't mean anything. It's a brand," the clerk responds, but to no avail.

But that's just it: the iPhone does mean something, and it's the type of meaning that transcends rational optimizing about features and raw performance. "Apple weathered the storm because there is such brand loyalty through the religious narrative," Campbell maintained. "When you're buying into Mac, you're buying into an ideology. You're buying into a community."

We'll believe in just about anything, won't we? So we "buy into an ideology," like a political one, or a movement, or a person or a company or its products. Once we've bought in, there are some very high hurdles that must be bounded over before we buy out. And, in many cases, it may not even be possible.

That's why both political parties are always garner around 33% support. Or why, once people cast their vote for someone, they are willing to give the benefit of the doubt--often well-past the point that they elected official should continue to accrue such benefits--before changing our mind. It's why sports fans cheer for a team, feel betrayed, but come back on the bandwagon when the franchise is "resurrected" (guilty). It's why people can be let down by a company's product--like a stupid phone--but still sing hosannahs when things get fixed (kinda)--because they've wrapped their identity up in being an "Apple person" and it would be an ego, perhaps even id-, crushing experience to lose that.

I'm not sure if they are components of this ideological/religious explanation for brand loyalty (no matter the "product") or if they are distinct from it, but I think part of this loyalty can be ascribed to a couple, very human, tendencies--one having to do with the heart, and the other with the head. Once our hearts are given, we don't want to deal with being betrayed. No one wants a break-up! We also like to think we're intelligent people with good judgment: and when that judgment proves poor, we don't want to admit we were w-w-w-w-wrong.

That's why, I think, we so often witness people (including ourselves) who--once we're proponents of a way of thinking or a product--are unable to admit when "mistakes were made" or we misjudged something; or that we've simply changed our minds or were convinced otherwise. Instead, too many of the newly unconverted say we were lied to or there was some sort of conspiracy going on that we didn't know about.

We react kinda like a spurned lover and take self-righteous umbrage against our betrayers. Anything to keep the finger of culpability pointing away from us and our own judgment. Many of us are too fragile, I guess. But it's not our fault...

"Getting Unstuck"

I don't usually directly plug a blog, but Seth Godin's Blog is a pithy record of his thoughts, mostly applicable to business, but broadly applicable to life. Godin looks at things from different angles and, though some of his solutions may boil down to re-wordings of the familiar, his explanation and method is engaging.

For instance, his latest entry is about "getting unstuck" from a problem. As he explains, while there are all sorts of problems, the ones with an obvious solution get solved and so the only ones we ever really have left are "the perfect ones." These are the ones that get us stuck. Why? Because they're perfect problems:

Perfect because they have constraints, unbendable constraints, constraints that keep us trapped. I hate my job, I need this job, there's no way to quit, to get a promotion or to get a new boss, no way to move, my family is in town, etc.

We're human, that's what we do--we erect boundaries, constraints we can't ease, and we get trapped.

Or perhaps it's your product or service or brand. Our factory is only organized to make X, but the market doesn't want X as much, or there is regulation, or a new competitor is now offering X at half the price and the board won't do anything, etc.

There's no way to solve the perfect problem because every solution involves breaking an unbreakable constraint.

And there's your solution.

The way to solve the perfect problem is to make it imperfect. Don't just bend one of the constraints, eliminate it. Shut down the factory. Walk away from the job. Change your product completely. Ignore the board.

If the only alternative is slow and painful failure, the way to get unstuck is to blow up a constraint, deal with the pain and then run forward. Fast.

Basically, short term pain for long term gain. Government could learn from this, too.

The Misdirected Swagger of the Go Getter

John Derbyshire posted a viral email from Wall Street circles that amounts to an egotist's cri de coeur:

Go ahead and continue to take us down, but you're only going to hurt yourselves. What's going to happen when we can't find jobs on the Street anymore? Guess what: We're going to take yours. We get up at 5am & work till 10pm or later. We're used to not getting up to pee when we have a position. We don't take an hour or more for a lunch break. We don't demand a union. We don't retire at 50 with a pension. We eat what we kill, and when the only thing left to eat is on your dinner plates, we'll eat that.

For years teachers and other unionized labor have had us fooled. We were too busy working to notice. Do you really think that we are incapable of teaching 3rd graders and doing landscaping? We're going to take your cushy jobs with tenure and 4 months off a year and whine just like you that we are so-o-o-o underpaid for building the youth of America. Say goodbye to your overtime and double time and a half. I'll be hitting grounders to the high school baseball team for $5k extra a summer, thank you very much.

So now that we're going to be making $85k a year without upside, Joe Mainstreet is going to have his revenge, right? Wrong! Guess what: we're going to stop buying the new 80k car, we aren't going to leave the 35 percent tip at our business dinners anymore. No more free rides on our backs. We're going to landscape our own back yards, wash our cars with a garden hose in our driveways. Our money was your money. You spent it. When our money dries up, so does yours.

One encounters this sort of swagger from people who have been successful in their careers, especially (it seems) when those careers have something to do with manipulating money. Because the content begins and ends in bellicosity, internal inconsistencies are to be expected. Note that the writer declares the inevitability of finance types' overtaking other professionals because they don't mind working hard, but then insists that they'll work as little as he claims the incumbents do.

The more essential problem with the rant is that it makes the dubious assumption not only that finance is the toughest industry in the universe, but also that it is a sort of ubercareer of which all others are pale imitations. I'd suggest, as an example, that the same drive that the writer professes mightn't serve him so well in the attempt to draw eight year olds along a path toward learning. Careers are substantively different in ways that a certain kind of smarts and ambition can't always surpass, and different people are suited to them.

As for the insinuation that finance professionals are the core consumers of the American retail and service market, I can only testify that, of all the middle-to-high-end construction projects on which I've worked, I'm not sure a single one was has been for the Wall Street set. That's a roll of the dice, to be sure, but the point is that other professionals make money, too, for actually doing, you know, stuff. Stuff that creates things and accomplishes objectives other than rolling money around.

Conservatives, Bubbles, and Business

A quick note on conservatives' view of businesses appears to be in order.

In general, we do not believe businesses are inherently pure, moral actors. We do not look at the housing bubble and the derivatives market and defend them on the grounds that they were legal, so nyaa, nyaa, the CEOs got away with it and everybody else is obligated to pick up the pieces.

Rather, we see business leaders as behaving rationally (if badly) within the environment that they are given. We observe that the function of government regulations is essentially to reduce people's fear of risk and volatility, as is the implicit taxpayer support for government-originated economic backstops, like Fannie Mae and Freddie Mac.

Libertarians can make a persuasive case that society will come up with other mechanisms for reducing risk in the absence of government involvement, but if you're going to have regulations, they've got to function, and over the past decade, they failed. Indeed, many of us consider such failure to be inevitable, as the human traits of greed and self-interest infiltrate both government and business.

The appropriate response, given those observations and assumptions, is clearly not to increase the depth of partnership between political forces and economic forces, which will thereafter merely conspire to better hide bubbles and pawn off the consequences to the rest of us when they explode. In the meantime, the culture itself must not absorb and normalize the recklessness and self-interest that has been on display among the powerful.

There is More to Life than Economics, no Matter what the Papers Say

I came across an interesting Associated Press story (via ABC News) involving Taco, a local manufacturing company. Taco is using a strategy calls that the article calls "work-sharing" to avoid layoffs during the current economic downturn.

The piece that makes the article really interesting is the AP reporters' unrealistically stark explanation of Taco's management's reasoning behind work-sharing…

Taco wanted to avoid layoffs. If it cut workers who average nearly 18 years on the job, it couldn't be certain of getting them back when business picked up. Training new workers costs time and money. Instead, the company tried a strategy called work-sharing to spread the pain and preserve jobs.

It is an odd choice to cite avoiding training costs as the only factor going through Taco's management's minds. Instead, the manufacturer's leadership seems pretty clearly to be combining a realistic view of economics with an understanding that the long-run success of any human organization depends on treating people as more than cogs of a machine, and on everyone working together, to find ways to help one another out through a time of trouble.

This realization is probably a major reason why Taco has been one of the few manufacturers to have survived in Rhode Island. Rhode Island's government should try and draw a lesson or two from them, starting with an acknowledgment of economic reality and of the importance of giving people the flexibility they need to get ahead in new and creative ways.

UPDATE:

Commenter "John" points out that the work-share implemented by Taco is actually part of the stimulus...

It sounds great, but it is part of the Stimulus program. The workers are paid "partial" unemployment benefits while they work less hours. So I guess you could say it was really the government's good idea...if it retains it's status as a good idea now that is attributable to the government.

At least at the link provided by John, the Government is able to realize that avoiding layoffs is more than a matter of reducing retraining costs...

In addition to sparing employers the potential lost of its existing workforce, WorkShare also spares a company's employees the financial and emotional hardship associated with a layoff situation.

So is this a good use of stimulus funds, letting people bridge an economic downturn with minimal disruption?

Students Aren't Economic Gurus

As a follow-up to this morning's post on Rhode Island's need to get out of the way of its economy, Tabetha recently offered a comment in our discussion of the economy and higher education to which I'd like to return:

If RI wants to keep college grads, the number 1 need is pretty simple: have jobs in the most popular fields available. Without jobs in their field, recent grads have no reason to stay in RI. It would make most sense to analyze the most popular majors and then try to attract businesses that would hire graduates in those areas. RI has a high unemployment rate and I suspect that a dearth of employment opportunities in popular fields of study most affects the decision to leave town. After 4 years (or more) of study and the probable accumulation of student loans, I doubt many recent grads are going to be content to work the counter at the local Dunkin' Donuts.

This approach comes at the problem from the wrong perspective. Students choose their fields of study for a variety of reasons, ranging from personal desire to experience with adults' careers to advice and research about economic directions. Even to the extent that a college degree dictates a particular industry or type of business (which is less and less the case), the student's research and preferences are not the most reliable criteria on which to build an economy.

It's like giving the folks in entry-level positions a decisive say in the company's big-picture management. To the contrary, the people who have invested their years and their fortunes in a particular business are the ones best suited to say what it should do and where it should be located.

Again: Rhode Island's focus should be on getting out of the way of people who are willing to imagine and build the economy, not on allowing government functionaries to try their hand at economic prognostication or selecting an array of jobs that might dazzle young adults who know little about the way of the world or even what a career should look like.

Salary Caps as Barrier to Entry

Whereas I focused on the likelihood that international governments' participation would ultimately exacerbate the problem of "too big to fail" and risk taking among large banks, Matthew Lynn argues that the big banks will leverage salary caps to hinder the one thing that could truly restrain their pay and risk taking — namely, competition:

They are talking their own book. Any controls on the financial industry will only make the existing big firms more profitable, and make it harder for new competitors to emerge. The people with most to gain wouldn’t be the general public. It would be banking CEOs such as Ackermann and Blankfein. ...

It would create an effective cartel among the main, established investment banks. They wouldn’t have to worry about their best staff being poached by a rival bank offering a better deal to the star traders. That would be banned. It would, at a stroke, transfer power from the staff to the managers.

Hopefully we won't have to find out how large a scale of damage can be done when the government-big-bank system that the internationalistas are pursuing experiences inevitable failure.

Masters of Phoney Profit

Gotta say that I'm inclined to suggest a rule of thumb dictating that executive bonuses are simply not permitted while their companies are in bankruptcy, mainly for the reason expressed by U.S. Bankruptcy Court Judge Arthur Votolato with reference to such a request from Twin River:

"I'm concerned with how the management team gets credit for growing this monster they can't pay for," Votolato said.

To which one of the company's lawyers responded as follows:

Hessler suggested the judge had to separate the slot parlor's burdensome loan package from the money it makes on gambling.

Why? At the very least, our bankruptcy system shouldn't be so structured as to create incentive to borrow and then turn to the courts to wipe out debt while the architects of the scheme profit.

Self-Defeating Government Systems

First things first, Grafton Willey deserves a round of applause for speaking truth:

"This is a deep recession which we worked hard in Rhode Island to get into. We have to take a long-term recovery view," said Willey, who is also a managing director of CBIZ Tofias, a CPA firm with offices in Providence and Newport.

Don't let anybody tell you that Rhode Island has reached its lowly state without effort. Of course, it would be accurate to suggest that some of our problems do flow naturally from basic assumptions of political philosophy, and those intellectual problems will continue to hinder our recovery. The above-linked report from Neil Downing, for example, proclaims that the General Assembly has given employers a little boost by waiving a surtax that would have more rapidly passed on the cost of borrowing unemployment funds to them. But that doesn't mean that business owners won't see an increase in their insurance that's directly proportional to the difficulty that their operations have faced:

Thus, it is "very likely" that employers will have to pay more in regular unemployment insurance tax, starting in January, to help replenish the fund, [state Department of Labor and Training Director Sandra] Powell said.

On average, employers may wind up paying $674.50 in state unemployment insurance tax per worker next year, up from $628.20 this year, an increase of 7.4 percent, according to the agency's preliminary estimates.

Rhode Island's unemployment insurance tax rates (which are set by state law) range from a minimum of 1.69 percent to a maximum of 9.79 percent. That range of rates probably won't change for 2010, Powell said.

But some employers will probably wind up facing a higher tax rate within that range next year because of layoffs. (In general, the more layoffs an employer has had, the higher the tax rate.)

In other words, the human beings who thunk up this system managed to yoke the companies that have been the hardest hit with a higher proportion of the post facto costs of recovery, and to retard new employment to compensate for previously lost employment. I'm not saying that I could have come up with something better, but this is why government solutions are problematic. Of course, a problematic emphasis in the following likely contributes to our woes:

Carcieri proposed that the budget be amended to include the waiver. The General Assembly approved the waiver mainly because levying a surtax on employers now, amid a global recession, would not be fair, said Steven M. Costantino, D-Providence, chairman of the House Finance Committee.

The waiver is prudent, without a doubt, but the question of fairness shouldn't be more than an afterthought. Wisdom is what is required, and it's in short supply in government generally and Rhode Island government especially.

Peculiar Sensibilities Concerning Prostitution

As with much else in Rhode Island, it could be that some of the decisive ambivalence about the continued permissibility of prostitution in the state would dissipate if people took a moment to understand what it actually means. The blog of a new Web site that URI Professor Donna Hughes and associate Melanie Shapiro have set up, Citizens Against Trafficking, presents a scene witnessed in a Middletown store:

A business owner has told Citizens Against Trafficking that late last year, an Asian woman fled a spa-brothel nearby and came to their shop to ask for assistance.

She burst into their store and excitedly tried to communicate. She could only speak a few words of English. She pointed to the brothel and used hand motions and the word "f***" to indicate that she was being forced to engage in sex acts.

When asked if she wanted to call the police, she said, "Me, no English. You." When asked if she wanted them to call the police, she nodded her head to indicate yes.

She frightened and confused the shop owner by pointing to their little girl, then to the brothel, saying, "Baby. Bad. Bad."

They asked her if she had any family or friends nearby. She said, "New York."

Brothels, Rhode Islanders should note, will not restrict themselves to urban streets. According to Citizens Against Trafficking, the suburban store in which the above scene occurred has had enough and is relocating in another town (PDF):

After years of problems and the inability of the police to do anything about the brothel next door, POW Science is relocating to another part of the state. ...

The customers of Lee Health Tuina Center are all men. The men try to enter the brothel inconspicuously. Eric calls them "cowardly" and says that they hide behind a wall if the door to the brothel is not opened immediately. They peek around the wall to make sure no one can see them before entering the brothel. Men used to park behind the wall between the brothel and POW Science until the Bulmers confronted the men and refused to let them park there or in front of their store. Sunday is the busiest day for the brothel, because the other
stores are closed.

The Bulmer's suspicion that the Tuina Center was a brothel was confirmed when they read men's descriptions of buying sex there on an Internet guide to prostitution. Another business owner in the strip mall emailed the Bulmers the men's Internet writings describing prostitution and the prices for different sex acts they bought there.

Shortly after that, Eric found several hypodermic needles and syringes with blood in them on the ground in the parking lot in front of his business. Eric believes the needles were used by men before they entered the brothel. Eric filed a police report. ...

On a number of occasions, the Bulmers have contacted the police to let them know what was going on. The police told them there was nothing they could do about it.

There's an interesting dynamic on Aquidneck Island, I guess. In Portsmouth, Trisha Smith was driven from her strip mall for her eye-catching efforts to draw attention to the fact that it housed her lingerie and sex toy shop. In Middletown, an educational store is now being driven from its own strip mall because police can do nothing, various zoning and health inspectors claim to have no reason to act, and property owners Kevin and Vicky Tarsagian of Newport Properties don't want to give up their slice of the lucrative sex trade.

Getting Back to Being American

On a Matt Allen Violent Round Table back in December state Senator Leonidas Raptakis (D, Coventry, East Greenwich, Warwick, West Warwick) and Paul Tencher opined knowingly that, if only American automakers had had the foresight to rush forward with fancy environmentally friendly automobiles, instead of pushing those darned gas guzzlers, they wouldn't need a government bailout. I pointed out that those gas guzzlers were what people actually wanted, and I'd caution GM's new union-and-government-backed executives that, however "new" they want to claim to be, Americans' tastes haven't changed all that much.

Amidst the descriptions of structural changes (and the oddly front-loaded gimmicks of eBay sales and "Tell Fritz" Web site to move customer suggestions directly to the new CEO) comes this observation from which conceptual brainstorming ought to proceed:

"For 100 years General Motors was among the world's greatest companies. It deserves to be there again and it will be there again," [Obama-picked Chairman of the Board Edward Whitacre, Jr.,] said. "I agreed to take this job because I know most Americans want this company to succeed."

One can picture the commercial: soft electric guitar in the background as the interior door to a sunrise-lit garage opens; the driver passes photographs of folks and their Chevys, a couple magazines with classic cars pass the camera, while that guy (you know that guy) with the deep voice and the vaguely Southern accent talks about America's car company — the memories, the confidence. A car door closes and the garage door opens. The music switches to the driving rock sounds of Americana, and into the morning sunlight rolls... a glass-and-metal bubble hybrid.

No. There's a reason that jars against the imagination:

One of his first customers was Scott Wilbur, a 40-year-old elementary school principal who bought a silver V-8 Camaro in June.

Mr. Wilbur had not purchased a G.M. vehicle in a decade, and traded in his Honda Civic hybrid to buy the Camaro.

He even gave up his California-issued sticker to drive in hybrid-only carpool lanes to get behind the wheel of his new muscle car.

"I might not be as environmentally friendly, but at this point I don't mind waiting in traffic to drive this," he said.

Almost as a means of absolution — a personal cap and trade, you might say — Mr. Wilbur put a deposit, sight unseen, on the hybrid Chevy Volt due out next year. Most Americans will stop with the first purchase and wait a number of years to reevaluate, which means that they'll skip the Volt, perhaps hoping that technology will bring them environmentally friendly muscle, but they'll be more interested in the muscle than the friendliness.

The Saintly Purity of Government

So the story is that business executives and corporate boards have created a scheme of mutual backwashing that has resulted in salaries disconnected from economic reality. I'm open to that possibility, as well as solutions that open up the process to light and give tools to shareholders, but how in the world does the concept of imbuing an unelected individual with power over these decisions of the powerful respond to the insight that riches can corrupt?

The regulations followed requirements set by Congress earlier this year when it passed the $787 billion economic stimulus legislation. The regulations will limit top executives of companies that receive TARP funds to bonuses of no more than one-third of their annual salaries. But the administration also went beyond the steps mandated in the legislation.

The administration named Kenneth Feinberg, a lawyer who oversaw payments to families of Sept. 11 victims, as a "special master" with power to reject pay plans he deems excessive at the seven companies with the biggest injections of public money. Feinberg also would have authority to review compensation for the top 100 salaried employees at those companies.

Going one step more deeply, how is it that we can assert the guilt of those who run individual corporations but not fear the result of expanding power on a president who is now not only the top government executive, not only commander in chief of the military, but also the de facto head of auto companies, banks, and other financial institutions? A handful of rich people can manipulate investors to ensure their little empires, but an unprecedented concentration of power in the hands of a federal administration yields no opportunity to corrupt the democratic process?

The right-wing view of a capitalistic free market isn't that it's a divine ideal. It's that nothing else will work as well for as long — a historical observation that the left wing is intent on proving true once again.

An Open Thread for Gearheads

In Sunday's Projo, Froma Harrop suggested that fuel efficiency could be the key to a General Motors resurgence…

The point of this agony is to create a company that makes cars people want….GM lags in creating fuel-efficient vehicles, but that doesn’t mean it can’t catch up. It is preparing to launch the GM Volt, a plug-in hybrid, in 2010.

Blogger Mickey Kaus, on the other hand, (who was writing about cars long before anyone thought that nationalizing the auto industry would actually occur) says that GM's problem is more basic – the issue of reliability…

Toyota has been ascendant for at least three decades, and GM declining, for a simple reason: Toyota built cars that worked ("bulletproof," as they say) at a time when GM built cars that didn't work. That's what was "drawing people to Toyota lots" a generation before the Prius was conceived. Even today, when GM suffers "under the perception that they [are] saddled with cars of inferior quality," you only have to look at the Consumer Reports reliability ratings to see that the reason GM is saddled with this perception is that the perception is accurate….

But only one of the Big Three U.S. car manufacturers has made dramatic progress catching up to Japan on the bulletproof front--and it's not Chrysler or GM. It's the one that hasn't gone broke.

If it's reliability that's the problem, is government-ownership really going to be a factor in fixing it? (No, says Kaus, if the government is going to try to merge its car companies with companies that do worse than them in quality ratings.)

Are there any gearheads out there who'd care to comment on whether they believe it's reliability that's saved Ford (so far), and if anything can be done on this front to save GM and Chrysler?

An Interesting Convergence of Issues

This story confounds categorization:

Eastern District of Michigan judge Lawrence P. Zatkoff handed down the decision, in a case involving an alleged violation of the constitutional separation of church and state. The issue is whether a government-owned company, AIG, can market sharia-compliant insurance products. (To be sharia-compliant, an investment vehicle must be created and structured in ways that do not violate Islamic law.) In a well-reasoned and cogently argued opinion, Judge Zatkoff refused to dismiss the case prior to factual discovery. ...

The problem with all of this public largesse is that AIG sponsors, pays for, and aggressively markets sharia-compliant insurance products. The practice of sharia finance has created lucrative advisory positions for often radical imams, who get paid to guarantee the religious "purity" of sharia-compliant products. Such vehicles typically follow the Muslim principle of zakat and donate a slice of their profits to charity. Unfortunately, many of the charities receiving these funds have links to terrorism. Mr. Murray objects to his funds' being used to legitimate and promote sharia law, when that is the same law that calls for jihad. For that matter, sharia allows Saudis, Iranians, Sudanese, Somalis, Afghans, Taliban members, and other adherents to justify the following: the execution of apostates who decide to abandon the faith; the criminalizing of "Islamophobic blasphemy"; the punishment of petty crimes with amputations, floggings and stonings; and the repression of “non-believers” from practicing their respective religions freely and openly.

On one hand, a private business should be able to develop, operate, and market whatever products it likes (provided doing so does not directly support our nation's enemies). On the other hand, AIG is not alone, now, in being a not-so-private company, and the government ought not be in the position of financing the adherence to religious law. It's a precarious balance, and the conceit of mere mortals to maintain it is apt to become hamartia.

Herman Melville functions out of context here:

So, when on one side you hoist in Locke's head, you go over that way; but now, on the other side, hoist in Kant's and you come back again; but in very poor plight. Thus, some minds for ever keep trimming boat. Oh, ye foolish! Throw all these thunder-heads overboard, and then you will float light and right.

Starboard side, we carry the notion that the government should not interfere with freedoms of association and religion. Port side, we've now hung the principle that the government can become a controlling investor in industry. Express no surprise when when find the deck taking on water.

Paloozas All Around

I'll admit some jealousy.

Over the course of a year, Matt Allen built a brand new radio gig into the number 1 show in its slot. His previous experience had been limited to production and some periodic shows here and there on the schedule. For his show's one-year anniversary, his company threw him a big "Mattapalooza" party, replete with a cake, an office-produced video, and a parade of people offering much-deserved plaudits.

During an overlapping time period, with plenty of help from other carpenters, architects, engineers, and various subcontractors, I built this addition and renovated two-thirds of the existing house (two-thirds being equivalent to two-and-a-half to three times the size of my working class ranch):

My previous experience had been limited to small jobs and a couple of suburban basement finishes. As the project — and a hellacious year — neared completion, my reward was a series of insults from the boss and a substantial cut in my pay. (The insults, I suspect, were meant to cover the fact that, just a few months earlier, he'd promised quite the opposite change to my remuneration.)

These disparate outcomes were not the result of government regulations. Unionization did not play a role. To some extent, the cultures of the industries did; with the prominence of names and personality, the information and entertainment industry is more sensitive to the competition for proven quantities. Construction is more of a dirt-field bulldog game, with a culture of teeth-gritted tolerance for struggle (which somehow seems always to benefit the honchos financially).

But what it comes down to, it seems to me, is that some employers view talent as something to be nurtured and guarded, justifying periodic costs on an individual basis as investments in a long-term competitive advantage. Other employers view talent as something to be exploited for every immediate penny that it can generate, even if the wringing process drains the last ounces of drive from its vessel.

This comparison came to mind mainly as a starting point for ruminations about ways to make the system better... or worse. Public policy ought to encourage entrepreneurship, to be sure, but not everybody, indeed a likely minority, will have the interest or specialized knack to set out on their own. For those who wish mainly to apply their non-business skills in the workplace — which is to say, those who prefer to leave organizational processes to others — advantage is to be gained to the extent that they are (one) not tied to their current employers and (two) able to go elsewhere.

Regarding the first, it is understandable to lament the loss of those storied lifetime relationships between worker and organization. However, it isn't immediately obvious that employees benefited more from, say, promised pensions, than did employers who, by those promises, had less fear of attrition. The manacles of workplace-based healthcare are a stark example of the detriment: Why should somebody's boss hold in his hands the health of his crew's families?

Regarding the second, incentives for companies to grow ever bigger should be viewed with suspicion. Technology has done much to decrease the advantage of size — for example, by bringing the development and production of marketing materials increasingly within the capability range of neophytes. On the other hand, the new implied government insurance that companies gain by becoming "too big to fail" is certain to have repercussions that are not agreeable to workers. Especially in an environment in which businesses are developing global pools of potential workers, the fewer potential employers, the less leverage the workers will have. How much worse, too, would it be to give ultimate responsibility for the economy to a governing regime of so-called public servants?

The gathering consensus appears to be that we're heading for a time of willing dependency — a European-style socialist democracy that seeks to make guarantees to citizens of a certain standard of well-being. I maintain hope that Americans are not a people who will find the taste of such a life to be to their liking, but ultimately, Americans will have the system that they desire.

Whatever our decision, we should pause to reflect on the subtle, yet profound, significance of relations. Assistance given for family or for charity is a pleasure for the giver. Recognition of an employee, freely offered, is an opportunity. Better to be the recipient of these than to be the obligation of government functionaries or, more directly to the point, the ostensible beneficiary of mandates on one's employer. A person who is a mandated obligation is a burden to be minimized.

Reality is not such that we can each and every one of us expect paloozas in our own names, but our individual freedom and independence correlates with the value that we can place on our time. What we need, for our own fulfillment, is for those who would claim more of that time to realize that talent is more precious than money, even if their market values are the same.

Discouraging the Birth of Business Entities

While returning, this weekend, to the long-standing question of what sort of official entity Anchor Rising should become, I whittled down my understanding of the relevant tax law to what I believe to be its basic statement: Once one creates an entity, in Rhode Island, that entity is subject to fees and taxation.

An individual can procure from the IRS an Employer Identification Number (aka, a Taxpayer Identification Number) in order to act under an assumed name, and as long as his or her product is not taxable (as via sales taxes), the state need not be involved. Once, however, the business becomes an entity distinct from the individual — whether by joining multiple individuals in a partnership or through the creation of a corporation — various registration fees kick into play, as does the "minimum corporate tax."

The significance of the change is most conspicuous in the cases of pass-through business, such as limited liability companies and S-Corps. As a matter of general taxation, the profits of such businesses are claimed via the income tax filings of partners and owners, but in Rhode Island, they must first shave off the (currently) $500 minimum tax. In other words, even though the business entity itself has no actual income, it must pay $500.

This experience relates to a recent column by Steve Forbes:

... The U.S. has one of the highest profits levies in the developed world: 35% at the federal level, with another average of 5% from state and local taxes. Only Japan has worse. In contrast, Ireland's rate is a mere 12.5%. Imagine the howls from congressional Democrats if Barack Obama were to suggest enacting such a low corporate tax rate in the U.S.

But the accompanying table tells an eye-opening tale: Ireland's corporate tax take as a portion of its economy is higher than that of the U.S. High rates breed pressure for ever more complicated exemptions and ever more ingenious ways to avoid Uncle Sam's tax bite. But an Irish-like rate leaves companies to focus brainpower on growing their businesses instead of on jousting with tax collectors. ...

Mark Steyn seconds Forbes's assessment of tax avoidance and adds the matter of beginning businesses at all:

To a certain type of simple-minded populist, the idea of soaking vast faceless corporations is appealing. But in the end a "corporation" cannot pay tax: The Globocorp corporate HQ looming in chrome and steel over the skyline does not have a pocket to dip into. Like all taxes, the actual cash has to be ponied up by flesh-and-blood human beings - the owners, workers and employees of the corporation. The growing gap between US corporate rates and other developed nations is a massive disincentivization for real human beings to start and grow a business here. And for those already here it encourages the kind of short-term thinking that leads to Bailoutistan and American sclerosis.

It's an easy sell, I guess, to tax a non-human business "entity," but it isn't really possible, because such entities don't exist outside of abstraction. A company is essentially a mechanism within which human beings act, and its construction will be managed to serve the interests of the flesh-and-blood people who use it.

If we at Anchor Rising were to behave rationally, as an Internet-based organization with no manufacturing operations, we'd incorporate elsewhere (for liability reasons) and become The Other Side of Hope in Rhode Island... in Nevada (or wherever). The entity doesn't really "do business" in Rhode Island. With our server in Texas and our incorporation in some other state, in no tangible sense would our advertisers and sponsors be engaging in transactions with a Rhode Island company, even though they'd be trying to reach a Rhode Island audience seeking information relevant to Rhode Island communities, written by Rhode Islanders.

By contrast, if Rhode Island's corporate tax structure didn't entail regular payments from organizations with no income, and if its regular rate were more competitive with those of other states, then rational organizations from other states would have incentive to be "from Rhode Island." Mainstreamers and progressives alike speak often of building up New Economy industries in this state, but they've shown little inclination to acknowledge the incentives to which such businesses — arguably characterized by their ability to locate anywhere — will respond.

A Quick Explanation for Pat

I haven't had a chance to work through my Sunday paper, yet, so I'll offer no comment on the bulk of that to which Pat is responding in this post, but he does construct a question in such a way as to merit correction. Arguing for increasing taxes and government-induced costs of doing business in Rhode Island, he writes:

Let me ask the business folks reading: is it a successful business model to lower your prices year after year even if your production costs rise each year? I mean, you want to run government like a business, right?

The flaws in these questions are multilayered, but the core error probably comes with Pat's failure to account for the fact that much of what Rhode Island "produces" — and therefore much of its expenses — is separate from the activities that bring in revenue. Businesses will not relocate to Rhode Island based on its social safety net, for example. As for items of direct utility to businesses and productive residents — such as transportation infrastructure — the insidious tendency of modern government is to treat them as additional to general expenses, with annual bonds and supplemental fees and taxes.

The next most significant error centers on the related implication that the government's "goods" are limited and distributed in a "one per customer" fashion. If the government is to be seen as a business, most of its products are actually services, and the incremental cost of accommodating an additional customer is minimal. Adding a few cars to a highway's burden doesn't affect the cost of maintenance tasks and barely affects the frequency, yet the increased revenue of several new residents working for a productive company is likely to be significant.

In this regard, the state-as-business is more like a movie theater. The costs associated with acquiring the films, maintaining the building, and offering concessions may be going up, but if the owner finds that fewer customers are taking in the flicks, and that those who do come buy less popcorn and soda, every year, increasing the price of tickets is not a very farsighted strategy. Rather, the owner should pare down expenses not related to revenue, streamline excessive costs (e.g., if there are more ticket-rippers than attendance justifies), and redirect resources toward changes that might attract more viewers — whether that means upgrading the seating or offering discounted Jujubes.

In reality, what government entities such as Rhode Island seem to tend toward is a shifting of their "business model" toward a focus on the expenses column as their core purpose. It becomes less their business, in other words, to foster a wealthy, secure, and productive society, and more their business to mandate charitable services for the unproductive and to protect and advance the wealth and security of public-sector employees. The state undertakes to increase "production costs" (to use Pat's phrase) as its raison d'etre.

Career Path Logjam

Robert Wendover, director of the Center for Generational Studies, offers some thoughts related to my concerns that some number of Baby Boomers won't accept it as their social duty to pass the torch along to the next generation:

... Regardless of their financial position, most Boomers are reluctant to leave the workforce. While income plays a role, there is also that many in this generation have tied what they do for a living to their identity as a person. Introduce yourself to a Boomer and chances are he or she will include a job title in the first few seconds of conversation. Assemble a few of them at a gathering and they'll find a way to talk shop. Outplacement counselors know that one of the biggest hurdles for Boomers in transition is to let go of the identity they are clinging to based on a former role. An impending retirement presents them with some of this same trepidation.

Additionally, Boomers have tended to use their work environment as a source for building and maintaining a social life. There's the annual holiday party, the summer barbecue, the company sporting events and the monthly trade association meetings where 50-somethings take turns being volunteer leaders. Retirement can be the perfect storm: loss of income, loss of identity, loss of social circle. Why not remain in a role that is comfortable, reassuring and pays for the first and second mortgages?

Corporations Are Only People When Barney Wants to Give Them Something

I just came across this bit of economic philosophy from Congressman Barney Frank (D - MA), on 60 Minutes, that contradicts the standard liberal construct (emphasis added):

STAHL: But there was never any doubt that Frank himself didn't want the car companies to go under. What about the idea that, in capitalism, if a company doesn't cut it, they die? It's over.

FRANK: And that's what Herbert Hoover said. And Franklin Roosevelt said no.

STAHL: That's what Darwin said.

FRANK: Yes, it's true. And Darwin was a very good biologist. I don't think he was much of an economist.

STAHL: What we're now faced is with all the taxpayers having to prop up companies that made terrible decisions consistently.

FRANK: No, we're not propping up companies. That's your mistake. We're propping up individuals. The world doesn't consist of companies. The world are people, the country is people. And yes, it is possible to argue that the government should stay out of-

STAHL: But then — but then you're talking about welfare.

FRANK: Yeah, I'm for welfare. You're not? Are you for letting people starve?

One could quip that it apparently takes union membership to make the individual employee worthy of props... so to speak. Suffice to say that the likes of Frank have been all too willing to look beyond the individuals whom companies support when they've decried "corporate welfare" and demanded that corporations be taxed as if they're people.

Clear the Way (But Don't Build It) and They Will Come

It must be their training that leads business advocates and practitioners to declare that Rhode Island requires a targeted business plan.

A state is not a business; it's a location. Government leaders are not CEOs and corporate board members; they're politicians. We shouldn't rely upon them to innovate and develop visions for business in the state; that should be left to business people — with their own professional necks on the line — to do.

Why, then does Newport County Chamber of Commerce Executive Director Keith Stokes specify targeted tax changes and usage of an assumed federal stimulus windfall?

Of particular priority would be capital and infrastructure investments in designated industrial zone lands, enterprise zones, redevelopment districts and empowerment zones. ...

The Rhode Island Five Year Comprehensive Economic Plan states "approximately 32,450 acres were zoned for industry. The inventory of industrial-zoned land showed that 11,116 acres were actually in industrial use, the remainder being vacant or in other uses." Unfortunately, many acres of industrially zoned land in Rhode Island lack the basic infrastructure required for immediate business investment, most notably a lack of approved permits, utilities, environmental remediation, and road improvements. Investing in improving and expanding our state's industrial zoned lands and existing industrial and corporate parks has been a state planning goal for many years, but consistently lacked adequate funding. Rhode Island already enjoys many important industrial and corporate parks that with additional capital and investment will further expand their jobs and tax revenue potential.

With the state crumbling around them, a few square miles of predeveloped industrial lands here and there will not persuade companies that Rhode Island has its act together. Indeed, depending how the development is done, the location and configuration could be all wrong for a specific company. We must invest in infrastructure, but we're far from the point at which the state as a whole is in sufficiently healthy shape to focus on specific limited-use areas, and our leaders have demonstrated much less than the required insight to discern what uses companies may find for our land.

Smaller Business Association of New England Chairman Grafton Willey puts similar constraints on his advice:

We should build on our strengths and support those industries that have a unique advantage in Rhode Island. They would include: marine trades — boat building, boat storage and repair, slip rentals, boat equipment manufacturers and repairs; hospitality industry; health care; higher education; innovation and research; knowledge-based economy; and niche manufacturing industries where R.I. has a competitive advantage.

In its current predicament, Rhode Island needs to support any industries, within the boundaries of morality and safety, whose leaders determine from their own perspective that the state has a competitive advantage for them. Even putting aside the question of competence, to the degree that Rhode Island develops its own competitive advantage, it opens itself up to the subjective expenditure of public money to the benefit of politically powerful politicians and other interests.

Once again, it's not as though we've money lying around without purpose because everything basic is already done. When energy and thought are expended on specific purposes despite general disarray, it's a fair indication that the powers who be are distracting themselves from the straightforward steps that must be taken before innovation can stay on the tracks.

A Society Without Trust

Ronn Torossian makes an important point, although I'd argue that his observation is a small part of a much broader issue:

There is now an inherent distrust of the "system," from the White House to local car dealerships. Trust has been broken in all facets of American business, because for far too long, top brands have been making decisions in an environment where they stand to gain without personally taking on risk or responsibility. This atmosphere breeds recklessness, as it's easier to play dangerous games with money that's not your own, and you aren't responsible for.

Not since the Great Depression has the global economic outlook been so bleak. My solution as an entrepreneur and a marketer is to stress the importance of brands earning trust — good old-fashioned entrepreneurial trust — by working hard and taking responsibility, long term and short term. And no one knows how to earn basic trust more than the entrepreneur, an individual who takes significant responsibility for the inherent risk and outcome of his or her enterprise.

Although they can mitigate the effects around themselves, I'm not so sure that individuals can really make a tremendous difference here, at least acting within the business world. One could take the problem of trust as far as desired, whether through cultural cynicism, political bifurcation, atheism. It all comes from the same place: a belief that life is a prison of isolated action, founded in nothing more than biological processes.

Crisis Reveals Long-Term Principles (And Short-Term Interests)

Funny how, in a crisis, short-term needs bring forward principles that ought to have longer duration, but always with the suspicious taint of self-interest. Writes Providence real-estate mogul Joseph Paolino:

I call on Governor Carcieri and Mayor Cicilline to convene a summit of nonprofit leaders and to offer state and city support for accelerated construction timetables. This targeted approach could begin to yield results in a matter of months.

Government can help in many ways — for example, by reviewing institutional expansion plans and issuing building permits on an expedited basis, by removing bureaucratic obstacles, and by allowing the tax-exempt institutions to expand in commercial zones.

The underlying truth is that Rhode Island's economy is in a perpetual crisis, staggering from year to year on this windfall patch or that. Government has to get out of the way in every instance; it doesn't require extensive analysis to see the benefits across the board.

But it doesn't require paranoia to suspect that Mr. Paolino might have some specific interest in his strangely targeted proposal. If the equations make sense, then private industry will move to expand, and immigrate, as well, and in the long term, that's what Rhode Island needs above all. Handing over more land to tax exemption, in other words, for "payment in lieu of property taxes" will have deleterious effects long after the construction and real-estate companies have cashed their checks.

On Sticking to Business, Two: Anthony DiBella

Edward Mazze errs by inadvertently opening the door for the insidious consequence of socialist drift, Anthony DiBella takes his latest Business section "commentary" to the threshold of the socialist view of humanity. The humble Mr. DiBella volunteers for the task of bringing sun-shiny days to the lives of Rhode Islanders:

The governor's idea to assemble a tax policy group to find ways Rhode Island can be more competitive is an excellent one. Yet there is no guarantee that lowered taxes will lead to what should be our ultimate goal — greater happiness. If the governor is a true patriot encouraging the pursuit of happiness, then he should appoint a working group on how to make Rhode Islanders happier. I’d be happy to volunteer.

The proposal is especially telling if one has withstood the distracting history of the "gross national happiness, or GNH," and recalls DiBella's suggestion, a few paragraphs back, about what Rhode Islanders would do with tax dollars they were permitted to keep:

With regard to the impact of lowered taxes on J.Q. Publico, presumably that would give Rhode Islanders more money to spend on more important things, like lottery tickets and stuffies.

I don't know about my fellow face-stuffing gambling addicts, but I'd rather not invite Mr. DiBella to sort out my route to happiness. Somehow that particular pursuit seems more likely to feed his ego while depriving me of the opportunity for advancement and financial stability that I personally find to be the most fruitful field to sow for fulfillment.

On Sticking to Business, One: Edward Mazze

Sometimes the wisdom of allowing the Providence Journal Business section to indulge in "commentary" isn't at all apparent. Edward Mazze, for example, did just fine, yesterday, until he transitioned from business and economic statistics to education with the following paragraph:

Based on the number of elementary and secondary schools in a state with a little over 1 million population, Rhode Island should be well-positioned to prepare the worker of the future. Rhode Island currently has 304 public schools.

The "should be" isn't the case, however, as Mazze proceeds to illustrate, although his prescription misses the mark in its poor assessment of political realities in our state:

We need more accountability for dollars spent and on future investments. We are too small a state in population and geography to spend the amount of money for the management of education in over 30 school districts with numerous union contracts when a state our size should have no more than five school districts and a statewide union contract. The savings in dollars on administration and labor negotiations if placed back into the education of students should result in more progress in achieving targets.

Yes, you read that right: Mazze asserts that increased accountability can be achieved by pushing education even more into the General Assembly's purview. Where, in the legislative body that runs the state, does Mazze hear a strong opposing voice to unions? Where the inclination to spend and invest prudently? A statewide union contract would mean that the unions would no longer have to spread their resources out fighting small skirmishes around the state (small skirmishes for which groups such as Tiverton Citizens for Change can crop up when a lack of accountability appears as a line item on mortgage bills)?

A consolidated school system would fit in very nicely with Rhode Island's governmental practice of ensuring that no one group (much less individual) is every decisively accountable for failures of policy. Note Mazze's crucial "if":

The savings in dollars on administration and labor negotiations if placed back into the education of students should result in more progress in achieving targets.

Watchers of Rhode Island politics may suspect that "if" to be akin to the Black Spot in Treasure Island, although rather than being indicative of a pronouncement of guilt, it's a pronouncement of vulnerability. "Savings" from school consolidation would be quite an attractive supplement to the now-state-employed union members' contracts and a lucrative source of revenue for our spendthrift representatives.

Much as the Western Left has learned to use the language of diversity and compassion to promote its totalitarian policies, the Rhode Island corruptocrats are beginning to rehearse the language of business and economics. One needn't possess a degree in either to recognize that the actual benefits to the customer of consolidation are typically a secondary motive, at best. In a polity with such contempt for taxpayers, we would hardly register.

Skipping Past the "Helicopter in Every Garage" Phase

Jay Fitzgerald of the Boston Herald reports on a long-shot but interesting economic development project for Rhode Island…

Woburn’s Terrafugia Inc. hopes its futuristic car-plane business takes off in Massachusetts.

The maker of the hybrid car-plane contraption - which theoretically will both drive on roads and soar through the sky - plans to meet with officials from Gov. Deval Patrick’s Massachusetts Office of Business Development next month to try to work out an economic-incentives package to keep the company in the state.

But Massachusetts may face stiff competition in its attempt to retain Terrafugia’s future production operations.

A number of states - eager to attract a cutting-edge manufacturer requiring potentially hundreds of highly skilled assembly and mechanical workers - are actively wooing the young aviation company, founded by an MIT grad and his colleagues.

"I’d rather stay right here in Massachusetts," said Carl Dietrich, co-founder and chief executive of Terrafugia, which hopes to start production of its two-seat car-planes sometime in 2009.
But "economics are economics," said Dietrich, who adds he’s listening closely to economic-incentives pitches being made by such states as Rhode Island and Maine.

The two states, both long known for their boat-making sectors, see aviation as a logical way to attract and keep highly trained mechanics jobs, he said.

The name of Terrafugia's intended first car-plane is the "Transition". According to Terrafugia's FAQ, car-plane means exactly what it sounds like, i.e. something that might exist in a Sean Connery era James Bond movie…

Q: Will the Transition fit in my garage?

A: The Transition was designed to fit into a standard household garage. At 6.75 ft (2.1 m) high, 6.5 ft (2.0 m) wide, and 18.75’ (5.7 m) long, the Transition will fit anywhere that you could park a larger SUV such as a Cadillac Escalade or Lincoln Navigator, and will fit inside a 7’ garage and a standard parking space.

Q: How fast will the Transition drive on the ground?

A: The Transition will be fully highway capable and able to easily reach the speed limit. A 100hp engine in a vehicle as light as the Transition will provide ample power on the ground.

Q: How fast will the Transition fly?

A: At 75% power, the anticipated cruising speed of the Transition is 100 kts (115 mph, 185 km/hr).

OK, well, maybe it's not exactly like a James Bond car-plane…

Q: Can I take off from the highway?

A: No. In addition to power lines, billboards, overpasses, and other obstructions that make this idea unsafe, the Transition will have to be parked with the engine off in order to deploy the wings and engage the propeller. It is also illegal in most states (emergency landings excluded).

I'm curious; does the possibility of luring this company to Rhode Island make any of the if- it's-not-being-taxed-right-now-then-it-needs-to-be crowd mellow their position on whether Rhode Island should help balance the state budget by ending its sales-tax exemption on aircraft?

The Con-Victim's Choice

Even conservatives may have difficulty finding fault with this

The Federal Reserve Board moved yesterday to place new regulations on the nation's credit card industry that would make it more difficult for lenders to raise interest rates and give consumers more time to pay their bills.

If enacted, the regulations would be the most sweeping change in decades, offering consumers more protection against late fees and stopping lenders from making credit offers that regulators deem to be deceptive.

"The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate," said Federal Reserve Chairman Ben Bernanke. "Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs."

Representatives of the banking industry are, of course, making an argument that I'd likely make in other contexts (meaning other industries):

"The Federal Reserve's proposal is an unprecedented regulatory intrusion into marketplace pricing and product offerings," said Edward Yingling, president and chief executive of the American Banking Association. "We are deeply concerned that these rules will result in less competition, higher consumer prices, fewer consumer choices and reduced consumer access to credit cards. In short, everyday consumers will bear the real cost of these proposals."

Frankly, "reduced consumer access to credit cards" would probably be a good thing. It would, of course, be preferable for credit card users to be adequately versed in their usage and, even better, habituated to live within their means. That being quixotic, however, boundary-type regulation seems more conducive to free-market activity than would be barrier-to-entry-raising regulations such as requiring extensive paperwork and education initiatives of credit-granting institutions.

The Cost of War

I know there's no direct connection, but I couldn't help but think of those complaints about the cost of the Iraq war to the state when I read this bit of rare positive news:

A California aerospace company is scouting locations in Rhode Island in order to open a facility to build armored boats by the end of the year.

Kelly Space & Technology is looking for a 20,000- to 30,000-square-foot building to accommodate manufacturing operations and engineering offices, according to chief executive officer Michael J. Gallo. The company has opened an office in Warwick near T.F. Green Airport and has one employee evaluating potential sites, Gallo said. ...

... Gallo, a native of Fitchburg, Mass., also was drawn by Rhode Island's expertise in the boat-building industry and the defense contractors in the state and nearby.

The company also was attracted by assistance from the state's Business Innovation Factory, a nonprofit company that includes government officials and that seeks to support experimentation and innovation.

Wanted: Everything You Aren't, for Nothing You Understand

Just to see what's going on out there, I ran a Monster.com job search for the first time in years. I had forgotten how completely unqualified the ads can make you feel. That seems to be the result when corporate HR departments are given more twenty words to describe a job opening. A made-up example:

You are: a self-starting, autonomous copy-editing genius with fifty years of experience and the ability to follow instructions carefully. Passion for semiconductor technology a must. Fluency in more than half of the world's spoken languages a plus.

Your responsibilities are: to conduct broad-based research for the creation of high-impact marketing, advertising, instructional, psychosomatic media and corporate packages (print and Web), translated into three programming languages and Pig Latin in a fast-paced environment emphasizing attention to detail.

We are: a completely unknown company, but the only organization hiring people with your skill set, just now.

Benefits revealed upon hire; salary commensurate with experience.

We've Gotta Talk

Mark Patinkin makes a reasonable point — one that is often leveled in an accusatory tone at conservatives:

Stanley O'Neal, the ex-head of Merrill Lynch, was booted for losing billions betting on the garbage now known as sub-prime loans. His punishment? An estimated $161-million sendoff package. The issue isn't even that he didn't deserve it, it's that Wall Street rewards CEOs who mess up not just their own house, but the economy, which is why they don't care if they do it.

Shouldn't we demand accountability at that level of wealth and power? We on the right are properly hesitant to interfere with the operation of business, but the same argument whereby I would justify, in economic terms, government support for roadways and other infrastructure could be relevant to situations in which an upper-crust business elite rewards its own even when they play a role in disastrous business ventures that gash the global economy. If the consequence for risks gone bad is a mere $161 million severance package, then there's hardly incentive to fully vet strategies that look attractive in the short term. And as executives and board members become involved in such arrangements, the likelihood of a correction decreases.

I can hear the ghost of Milton Friedman arguing that the problem is self-correcting. The plight of Merrill Lynch will generate adjusted behavior, and future CEOs will think twice before dashing after the next subprime mortgage–type opportunity. I usually find that argument persuasive.

Maybe, amid my populist impulses, I just need reaffirmation of my faith, but I wonder. The solutions of those on the left are no solutions at all; indeed, they are apt to make the problem worse, but what would be the solutions of those on the right? If we were to decide that a problem exists, that is.

Is There More to this Providence Fruit Building Thing?

As an admitted antiquarian, I've never met an old building I didn't think should be preserved and re-used. But that's just me and I recognize that--beauty being in the eye of beholder--not everyone thinks that the Providence Fruit and Produce Company Warehouse (more here) was worth preserving, restoring or reconfiguring. OK, fine. But what troubled me about the events leading up to the demolition of the building was the manifest failure of the government--state and City of Providence--to get their acts together. In particular, how the state's incompetence ended up in lost revenue:

The state bought the building from Amtrak for $14.1 million and evicted the remaining businesses. It held the property for six years while it debated what to do with it — either knock it down or sell it — and the property deteriorated, becoming a haven for the homeless and a draw for graffiti artists.

After lobbying by local preservationists, the state decided to put the building up for sale in the spring of 2004, with the condition that the original structure be incorporated into any new design.

The state’s request for proposals included a draft preservation easement that prevents the developer from knocking the building down for any reason — even in an emergency situation, only localized repairs are allowed without permission from state historic preservation officials.

But that preservation easement was never included in either the purchase agreement or the final property transfer last February....

Carpionato responded to the request with a $4.5-million bid, and on July 8, 2004, proposed a Quincy Market-style development featuring dozens of small shops. The state agreed in principle to the design, and consented to sell the building to Carpionato for $10 million less than the $14.1-million price it had paid to Amtrak seven years before. The reason, state officials said, was that half of the property had been sliced off to allow for the offramp construction. The other reason was that forcing the buyer to re-use the old building clearly reduced the value of the property....

So the state wanted to preserve the building, but did nothing to ensure compliance. Well, almost nothing:

A section of the deal requires the developer to set aside $250,000 to be paid if Carpionato breaches the agreement, Moses wrote. But that is the extent of Carpionato’s liability, he argued, and beyond that, the state does not have legal recourse; nothing prevents Carpionato from destroying the building if the situation changes for regulatory reasons — like issuance of a demolition permit.

I'm unsure if the $250,000 will be paid--but it's a small price to pay, anyway.

I'm not particularly impressed with the way that Carpianato has gone about this and my impression is that this was their gameplan (h/t) all along. But the whole way this went down has me wondering if this isn't a case of the State being incompetent....maybe someone on the State side of things had a reason to leave out the previously agreed upon guarantees and conditions in the final purchase agreement. I don't know. But the mystery of why they were left out remains.

So, to summarize, I'm not debating the aesthetics of whether to demolish or save. I am questioning the flow of events that led to the outcome. The property was sold under a certain set of pretenses that supposedly guaranteed preservation of the original structure in some form. As a result of these assumptions, the property was sold for cheaper than market value because preservation is more expensive than ripping it down. In other words, the property could have probably fetched more money if these supposed qualifications weren't in place to begin with. That would have meant more money to the State (ie; taxpayers), including no historic tax credit, incidentally. The end result is that the developer got the best of both world; a cheaper, "preservation price" for the property and then the eventual go-ahead to demolish and develop at a more "economical" price.

So, I wonder if a game was being played from the start to keep the price down based on a pretense of preservation that would ultimately prove unenforceable because the legal language guaranteeing preservation was mysteriously left out of the final deal.

What a Career Ought to Be

"A hobby that got out of hand."

That's what Ron Voake, of Norwich, a Vermonter of the old sort, says regarding his booming business as a wooden toy maker:

Mr. Voake, the owner of Vermont Wooden Toys, has been deluged with orders from customers leery of buying toys made in China after millions of toys manufactured there were recalled this year because they have lead paint.

"Every time there was a story about a toy recall, I got flooded with orders," Mr. Voake said. "This year stacks up as preposterous. I've never had a year like this, and I hope I don't have another one."

Wooden Toy Maker is certainly an option on the table for when I can't do the construction thing anymore. The question is: Do I have to move to Vermont?

The Dream Interferes with the Life

On Dan Yorke a few minutes ago, Trisha Smith — the controversial owner of the Post & Naughty store in Portsmouth, whose landlord is threatening to cancel her lease if she doesn't stop courting customers outside her store, as it were — mentioned that she has lost her day job. (The company owner, as it happens, lives in Portsmouth.)

One could make hay about her being a never-married mother of two, but it seems to me that there's got to be a compromise that won't drive her family into poverty. She made a good point to Yorke: She's trying not to be one of those welfare moms we've been talking about. That said, she's been all over the news posing as a fighter of the prudes; perhaps she could cede a little ground and tone down the sidewalk marketing outfits. The store's name sort of makes the point without illustration, I'd say.

Of course, as a conservative New Englander, I'm very empathetic when outside activities affect a last-cubicle-on-the-left job such as the technical writer position that Ms. Smith just lost. It also occurs to me that I haven't figured out what to get the missus for Christmas, this year, and I hear that not everything in the store is apt to make a Catholic-convert ex-bad-boy blush. And if I'm of a mind to stop by and help the business out, Monday on my way home from work, the folks giving her trouble ought to be on alert that they're in very sparse company.

ADDENDUM:

Make that Tuesday on my way home from work. Mr. Yorke is apparently disrupting her business and dragging her into the studio on Monday. (Why not bring the studio to her, Dan?)

ADDENDUM II:

According to Marc (in the comments), I missed some key information when I hopped out of the van for a moment last night: Apparently the store isn't open on Mondays anyway, and Dan may be on site on Tuesday. Doesn't take long to miss much, I guess.

To Build Hi-Tech Businesses, You Need a Middle Class

Natalie Myers has an interesting article in this week's Providence Business News about some local business leaders hoping that hi-tech modeling and simulation becomes a boom industry in Rhode Island…

Steve Swenson stands next to a plasma screen showing an unmanned air vehicle landing on an unmanned boat while skimming the ocean’s surface. The images are crisp and textured, reminiscent of a video game. He explains that this is one of OceanState Technology Corp.’s first jobs for a commercial client.

Like so many modeling and simulation companies, OceanState gets most of its contracts from the U.S. Department of Defense. But Swenson said he’s trying to change that, because he sees the opportunity to leverage DOD investment on the commercial sector....

The medical industry has huge growth potential as a market for modeling and simulation, as do insurance, finance, pharmaceutical, transportation, aerospace, homeland security and cognitive science, he said.

As a result, Swenson led efforts to incorporate the region’s first trade association for the modeling and simulation industry in June last year. It’s called the New England Modeling and Simulation Consortium, and its goal is to draw attention to the region’s capabilities in that field to attract more funding from federal and commercial entities.

The question begged by the article is why Rhode Island should be better for the modeling and simulation business than any other place? You need two essentials to run a successful simulation business…

• Fast computers with lots of memory
• A smart, educated workforce to develop and run the modeling software on the fast computers

These days, no region of the U.S. has an advantage over any other in obtaining hardware and software, so if there is going to be something special about Rhode Island in this economic sector, it is going to have to be related to the people. Rhode Island’s advantage here supposedly lies in its proximity to a large number of universities that can provide the necessary workforce…

One of New England’s great attributes is its high density of universities, Swenson said. “That’s why one of the NEMSC’s agenda items is working with local universities to try to introduce programs and curriculum that would help employers in this industry get the people that they need out of college,” he said.

Here’s the problem. RI won’t be able to attract and retain the educated workforce that the modeling and simulation industry needs, if overall livability in RI stinks for the middle class. Those educated people who can run the modeling software are going to want their kids to be well-educated too. They won’t settle long-term in communities unable to combine affordable housing with good school systems.

This means that a place like Rhode Island, which heavily taxes middle class paychecks, but provides little in return to middle class citizens (like good schools), is facing a permanent disadvantage in developing a hi-tech business base.

To Build Hi-Tech Businesses, You Need a Middle Class

Natalie Myers has an interesting article in this week's Providence Business News about some local business leaders hoping that hi-tech modeling and simulation becomes a boom industry in Rhode Island…

Steve Swenson stands next to a plasma screen showing an unmanned air vehicle landing on an unmanned boat while skimming the ocean’s surface. The images are crisp and textured, reminiscent of a video game. He explains that this is one of OceanState Technology Corp.’s first jobs for a commercial client.

Like so many modeling and simulation companies, OceanState gets most of its contracts from the U.S. Department of Defense. But Swenson said he’s trying to change that, because he sees the opportunity to leverage DOD investment on the commercial sector....

The medical industry has huge growth potential as a market for modeling and simulation, as do insurance, finance, pharmaceutical, transportation, aerospace, homeland security and cognitive science, he said.

As a result, Swenson led efforts to incorporate the region’s first trade association for the modeling and simulation industry in June last year. It’s called the New England Modeling and Simulation Consortium, and its goal is to draw attention to the region’s capabilities in that field to attract more funding from federal and commercial entities.

The question begged by the article is why Rhode Island should be better for the modeling and simulation business than any other place? You need two essentials to run a successful simulation business…

• Fast computers with lots of memory
• A smart, educated workforce to develop and run the modeling software on the fast computers

These days, no region of the U.S. has an advantage over any other in obtaining hardware and software, so if there is going to be something special about Rhode Island in this economic sector, it is going to have to be related to the people. Rhode Island’s advantage here supposedly lies in its proximity to a large number of universities that can provide the necessary workforce…

One of New England’s great attributes is its high density of universities, Swenson said. “That’s why one of the NEMSC’s agenda items is working with local universities to try to introduce programs and curriculum that would help employers in this industry get the people that they need out of college,” he said.

Here’s the problem. RI won’t be able to attract and retain the educated workforce that the modeling and simulation industry needs, if overall livability in RI stinks for the middle class. Those educated people who can run the modeling software are going to want their kids to be well-educated too. They won’t settle long-term in communities unable to combine affordable housing with good school systems.

This means that a place like Rhode Island, which heavily taxes middle class paychecks, but provides little in return to middle class citizens (like good schools), is facing a permanent disadvantage in developing a hi-tech business base.

Rhode Islander Nails Popular Science Award

Heather M. Lightner in the Jamestown Press:

Every year the editors of Popular Science review thousands of new products and technologies in order to find 100 breakthroughs in 10 different categories: automotive, computing, gadgets, home entertainment, personal health, aviation and space, engineering, home, recreation, and general innovation. This year, in addition to the "Best of What's New" award, the magazine also honored one product as the overall outstanding "Innovation of the Year" award - an award that belongs to Jamestown resident Ed Sutt and his innovative HurriQuake nail.

Sutt, who is the engineering manager of fastener technology at Bostitch in East Greenwich, has been studying the relationship between wind velocity and the failure of wood frame houses since his time at Clemson University, where he earned a PhD in civil engineering. Six years at Bostitch and hundreds of prototypes later, Sutt, also known as Dr. Nail, developed the Hurri- Quake nail, a nail that holds promise of reducing damage to buildings in the event of a hurricane or an earthquake.

Compared to standard sheathing nails, the HurriQuake nail offers up to twice the resistance to high-wind conditions, also referred to as uplift capacity. Two independent laboratory tests found that the HurriQuake nail can withstand uplift forces of up to 271 pounds per square foot. With its 25 percent larger nail head and unique geometric ring designed shank, the high-tech nails can withstand wind conditions and gusts of up to 170 miles per hour.

(OK, thanks for letting me scratch my engineering itch).

Some Pre-Turkey Day Blog Stuffing : Football Econ 101

Heck, it's late on getaway-day, so why not a bit of fluff before you hit the stuff...ing. In a rather un-PC titled article, "Patriots vs. Redskins", Kevin Hassett of the new American.com On-line Magazine writes about how the Patriots are the NFL's business model franchise. Hasset explains why economic theory supports that "the [NFL] draft is the only place to build a winning team" and that "economics would predict that teams would uniformly put an enormous effort into perfecting their drafts, and avoid sinking excessive dollars into costly free agents." So who does this the best?

In fact, this model predicts very well the behavior of one team, the New England Patriots. Their head coach, Bill Belichick, who received his undergraduate degree in economics from Wesleyan University in Connecticut, has been an artist at squeezing value-added out of his draft picks, and has won three of the last five Super Bowls.

This economic brilliance was on display in September, when Belichick traded disgruntled receiver Deion Branch to the Seattle Seahawks for a first-round draft pick. The Seahawks gave Branch a $39 million contract, guaranteeing that they would achieve little value-added at that position. So Belichick burdened the salary cap of a rival with a fat obligation, and took home a valuable draft pick for his own team.

Belichick keeps winning because so many others in the league behave so strangely. Two economists, Cade Massey of Yale and Richard Thaler of the University of Chicago, studied years of draft history and found that teams make systematic errors that reflect a serious economic illiteracy. Coaches and general managers place too high a value on the top few picks, and too low a value on picks a bit further down.

Just some food for thought for you as you half-nap, half-watch an uncompetitive football game, with a ball of stuffing and turkey floating in your stomach amidst a sea of gravy, and your mind encased in a post-feast, triptofan induced fog.

Next up: why baseball is proof that trickle-down economics works.

(Just kidding)

Re: Destination Versus Convenience Gamblers

At the risk of sounding cutsie, it seems to me that the most accurate method of categorization might be to say that there are gamblers, and then there are gamblers. I don't think, for example, that Andrew captures the salient distinction here:

The study found that most (meaning numbers in the 80% range) Lincoln and Newport patrons have made a visit to Foxwoods or Mohegan Sun, but most Foxwoods and Mohegan Sun patrons haven�t visited Lincoln or Newport. The sensible conclusion is that the most significant partition of the gambling population is not between destination and convenience gamblers, but between slots-only players and more diversified gamblers. Diversified players are not satisfied by slots alone, so they go to the destination casinos (Foxwoods or Mohegan Sun). Slots players, on the other hand, will go anywhere where there are slots (Foxwoods, Mohegan Sun, Lincoln Park, or Newport Grand) regardless the other activities that might be available.

For this partitioning to be accurate, it would have to be true that the Lincoln/Newport customers who visit Foxwoods/Mohegan Sun play slots almost exclusively, and I'm not sure that's the case. This is not to say that Andrew isn't correctly identifying a shortcoming of the convenience versus destination gambler analytical scheme. The problem with that scheme, however, is not one of category, but of conceptualization: convenience/destination isn't a partition, but a spectrum. The equation yields a ratio of convenience to the gambling experience.

Some people treat gambling as merely a pastime. They'll go all the way to Foxwoods for the Big Casino experience, rather than Lincoln or Newport for down-and-dirty gambling, but the $154 loss of the average Lincoln Park visitor would be an expensive night out no matter where they went. Other people more specifically enjoy the thrill of gambling, and the convenience of finding it will carry more weight, with the "experience" factor serving mainly for periodic differentiation. And still other people treat gambling like a drug and will go wherever they can get their fix; the longing for trips to an addiction mecca, while the stuff of daydreams, falls away once the urge has been sated.

Presented thus, it becomes clear that, no matter the category, the proximity of the Big Casino experience makes a difference. If addicts can get the big score more easily, they'll be more likely to pursue it. If pastimers can save money and effort by getting the authentic casino experience closer to home, then they'll do so. But the notion that a full casino will not cannibalize the business of smaller and less glitzy venues is experientially absurd. The only way its appearance will not result in a decrease for the other outlets is if it helps to transform pastimers into addicts, which would be devastating for Rhode Island more fundamentally than through a mere loss of tax revenue.

Oppressor of America

Well, after extensive efforts since the company devoured Fleet, Bank of America has finally succeeded in persuading me to take my business elsewhere. From several varieties of inconvenience to an extremely unpleasant job fair to the fees (my God, the fees!), the behemoth has finally overcome the natural inertia against changing banks.

The company's corporate approach to handling customers was consolidated for me in a single policy that I discovered a number of months ago: if a customer should write checks for more money than is in his checking account, the bank offers the service of automatically transferring the funds from his savings account. Charging a fee for such a thing is fair — it is the customer's error, after all, and one that a bank understandably discourages — but Bank of America takes the fee out of the checking account, without automatically transferring that amount as part of the service.

During a particularly hectic time last year, when I simply had to handle my finances on autopilot, I fell into a cycle of not transferring sufficient funds to cover the fees that were automatically being withdrawn from my checking account, and those fees piled up. When I called to complain, the bank did forgive a handful of them, but my awareness that somebody within the organization had made the decision to arrange fees in such a way as to trip up busy customers left me resolved to, at some future date, quit the bank. Now that I've discovered another policy having to do with numbers of transactions that conflicts with a banking strategy that I've followed since I was fourteen, I won't delay any longer.

In fact, the entirely different feel that I've gotten from Bank of America than from any of my previous banks makes me wary of financial trends toward automation. It used to be mainly on general principle that I preferred to handle each paycheck and bill — so as not to lose touch with the flow of my money. But now I think automatic deposits and withdrawals may represent a much more insidious trend. How much higher the barrier is to changing banks when doing so requires one to recall and then figure out how to change bank information with any number of third parties!

I fear that movement toward the ideal of convenience — not just in finance — may lead to a more oppressive corporate culture, as each company becomes akin to a monopoly of its own client base.