Dire Economic Circumstances Call for Real Leadership

Like just about everyone else, I’ve been following the dire economic news. It seems like last year’s irresponsible borrowing and lending practices are finally coming back to bite everyone in the tuchus.

Jeff Jarvis posted this morning that many of the experts currently gathered in Davos for the World Economic Forum think that mismanagement, lack of a coordinated response to the prospect of a recession and lack of confidence are a huge part of our current problem.

Billionaire investor and brilliant economic mind George Soros said today that the way to shore things up now is to further regulate lending and borrowing so that banks are transparent about the kinds of loans they are making and borrowers don’t lie on loan applications.

It’s really a pity that President Bush has done little more than attempt to pacify and distract the public with a piddling $50 billion “economic stimulus package” that will do nothing to stimulate the economy.

ACT For Change is Stupid, Mistakes Apple for a Democracy, Demands iPhone Be Unlocked

I got an e-mail yesterday from Act for Change, encouraging me to “Tell Steve Jobs: Unlock the iPhone!” They have a petition for me to sign and everything. But they’ve forgotten one teensy thing: Apple is not a democracy. It’s a dictatorship ruled with an iron fist by Steve Jobs. And he’s not going to unlock anything.

If they were sending out an appeal to Apple shareholders, their actions would make a bit more sense. But Apple’s shareholders are likely to hold the line with Jobs because it’s in our best financial interest to do so. And American consumers at large are in no position to make demands when it comes to Apple and the iPhone because it’s quite simply the most revolutionary product to hit the market in a very long time. It’s so in demand that even Walt Mossberg likes it and he’s a tough customer.

But even if Apple were a democracy, they still wouldn’t be able to do anything about it. AT&T built a special voicemail infrastructure just for the iPhone. Visual voicemail won’t work on any other network, and that’s one of the iPhone’s coolest features. Plus, Apple has a contract with AT&T that it can’t back out of without facing a lawsuit. The shareholders will never stand for that.

If the hippies over at ACT for Change really want to do something productive with their time, they should be asking people to tell Congress to hold Bush accountable for his lack of regard for the Constitution or even tell Dick Cheney that he’s actually a part of the government.

If I were one of their contributors, I would be pretty pissed that they were spending my money on a meaningless, hopeless campaign to unlock the iPhone.

Personal Responsibility, Conspicuous Consumption and Payday Loans

I met a woman and her two year-old on the bus last April. The woman was on her way home from Ross, where she worked sixty hours a week to put herself through school. She was studying to be a dental hygienist. I was blown away by her work ethic. She was raising a toddler, working Wall Street hours and attending classes.

Being a kid-lover, I started to talk to her daughter. I was telling her how lucky she was to have such an amazing mama. The girl giggled and smiled and buried her face in her mom’s chest. That’s when I noticed that the child was wearing Puma brand sneakers. Even at the cheapest online stores, Puma sneakers for kids retail at a little under $50 a pair. Keep in mind that toddlers outgrow their entire wardrobes every few months.

I didn’t say anything about the sneakers. But I was blown away at the decision this woman had made. She was working long hours for little pay and putting herself through school in order to give her daughter a better life. But it didn’t occur to her that reducing her consumption of designer kids’ shoes might have been a good idea. Even the wealthiest people I know don’t buy designer shoes for their toddlers. And that’s probably part of the reason they’re so wealthy.

I’m not in a position to judge that individual woman. Maybe the shoes were a gift. Or maybe they were a lucky find at the thrift store. But that is not the only example I’ve seen of conspicuous consumption among working Americans. In trailer parks from coast to coast, people routinely watch the Super Bowl on plasma screen televisions far larger and nicer than ours. They drive more expensive cars, wear more expensive clothes and relax on nicer furniture. And that’s a problem because a lot of those people buy their lavish possessions on credit.
Read more

Of Cows and Corn: Artificially High Corn Prices Put the National Cattlemen’s Beef Association on the Same Side as Thomas L. Friedman

The Wall Street Journal reported today that corn plantings have hit the highest level since 1944. This is because the booming corn ethanol industry has sent corn prices skyrocketing to $4 a bushel, as Fortune reports.

The corn farmers are ecstatic. But the National Cattlemen’s Beef Association feels differently. All the surplus corn in this country due to our absurdly high corn subsidies means that corn has become an integral, if environmentally unsound, part of cattle feed. The skyrocketing price of corn has led to skyrocketing costs for beef and pork farmers.

The NCBA knows that sugar cane ethanol from overseas would provide the American corn ethanol industry with stiff competition because sugar cane ethanol is many times more efficient than corn-based ethanol. That’s why they’re lobbying the U.S. government to get rid of both the 54 cent tariff on sugar cane ethanol from Brazil and the 51 cent per gallon tax credit for ethanol refiners.

Coincidentally, this is the same position that New York Times columnist Thomas L. Friedman has taken repeatedly over the past few years. I wonder just how often he’s on the same page as the NCBA.

In any case, these protectionist tariffs and our $10 billion per year corn subsidy have created a real economic, environmental and human problem. In 2002, Michael Pollan, author of The Botany of Desire told the Christian Science Monitor:

We’re producing way too much corn. So, we make corn sweeteners. High-fructose corn sweeteners are everywhere. They’ve completely replaced sugar in sodas and soft drinks. They make sweet things cheaper. We also give it to animals. Corn explains everything about the cattle industry. It explains why we have to give [cattle] antibiotics, because corn doesn’t agree with their digestive system. It explains why we have this E.coli 0157 problem, because the corn acidifies their digestive system in such a way that these bacteria can survive.

And we subsidize this overproduction. We structure the subsidies to make corn very, very cheap, which encourages farmers to plant more and more to make the same amount of money. The argument is that it helps us compete internationally. The great beneficiaries are the processors that are using corn domestically. We’re subsidizing obesity. We’re subsidizing the food-safety problems associated with feedlot beef. It’s an absolutely irrational system. The people who worry about public health don’t have any control over agricultural subsidies. The USDA is not thinking about public health. The USDA is thinking about getting rid of corn. And, helping [businesses] to be able to make their products more cheaply – whether it’s beef or high-fructose corn syrup. Agribusiness gives an immense amount of funding to Congress.

So how do we get ourselves out of this mess? We open the market. We allow cheap sugar cane ethanol to compete directly with our corn based ethanol industry. Simultaneously, we erase the corn subsidy and use the money to bail out farmers who wind up on the wrong side of the course correction. Once the farming economy has diversified sufficiently, we take the $10 billion a year we were spending on corn and put it to better use. And we tell the NCBA to start recommending that farmers use something besides corn in their cattle and hog feed.

Eco-Entrepreneurs to Trump Geeks in the World of Venture Capital?

The Scobleizer himself has an interesting post about how all the venture capitalists are looking to invest in the next hot environmental technologies. If you’ve invented a device to reduce energy usage, decrease carbon emmissions or increase fuel economy, this is your time to shine.

On one hand, this is heartening. When I talk about dealing with global warming in an economically responsible way, this is what I mean. Private industry can and will contribute to the environmental revolution. Just watch where the V.Cs are looking.

On the other hand, it scares the crap out of me as a geek. I’m making my living in the computer industry at the moment. If the smart money is on enviro-geeks, well… Let’s just say maybe someday I’ll get that biology degree after all.

But in the meantime, I’m pretty damn psyched about the annoucement we just made. Blog Business Summit 2007 in Chicago!

Iraq: Let’s Make with the Economic Surginess Already

My friend and frequent commenter Jeff (glad you’re feeling better, buddy!) once wrote that Fareed Zakaria was a hack, but I vehemently disagree. In the years that I have followed him, Fareed Zakaria has rarely failed to hit the nail on the head.

His piece in this week’s Newsweek presents a solution that is both innovative and inexpensive by the standard of our military spending in Iraq.

I’ve always believed that our two biggest mistakes in this war took place directly after the fall of Saddam. We disbanded the Iraqi military and abruptly shut down all of the state-run businesses. The result has been a 50% unemployment rate. And we all know that joblessness leads to lawlessness.

It’s really mind-boggling to me that the economics-minded people running our country didn’t understand that basic concept. They thought that a free, privately-owned market would magically spring up when state-run businesses were disbanded without warning. Clearly, President Bush and his cohorts were not paying attention in economics class. Overthrowing the government and disbanding all state-owned companies is not the way to transform a totalitarian quasi-socialist state into a capitalist democracy. It takes time and subtle economic transitions. It takes years of fostering entrepreneurship.

But now that the damage has already been done, what can we do? Zakaria suggests spending $100 million — which the military will spend in the next 12 hours — to restart all of Iraq’s state-run businesses. The thought is that if people have jobs, economic stability and a sense of purpose outside sectarian violence, the fighting will quiet down. This will leave us free to focus on the Al Quaeda led insurgency in Anbar province.

In his book The Future of Freedom, Zakaria writes that nations can only become democratic when their populace has achieved a certain level of economic prosperity and stability. It is a pretty arrogant notion to suggest that people who have not yet achieved modern economies are not capable of self-governance. But he does present some pretty compelling evidence.

President Bush has been a big advocate of pumping taxpayer money into the American economy in the form of tax cuts. He should do the same for the Iraqi economy by jump-starting old companies and giving people their jobs back. We can worry about transitioning the economy to a more capitalist structure once the violence has subsided and the democracy is thriving.

Senator Clinton Has Been Listening to Thomas Friedman

From her recent HillCast it’s easy to see that Senator Clinton has been listening to New York Times columnist Thomas L. Friedman’s call for a great national effort to build a better energy future for ourselves. In his wonderful book The World is Flat, Friedman writes:

When we got hit with 9/11, it was a once-in-a-generation opportunity to summon the nation to sacrifice, to address some of its pressing fiscal, energy, science and education shortfalls–all the things that we had let slide. But our president did not summon us to sacrifice. He summoned us to go shopping…

President Kennedy understood that the competition with the Soviet Union was not a space race but a science race, which was really an education race. Yet the way he chose to get Americans excited about sacrificing and buckling down to do what it took to win the Cold War–which required a large-scale push in science and engineering–was by laying out the vision of putting a man on the moon, not a missile into Moscow

If President Bush is looking for a similar legacy project, there is one just crying out–a national science initiative that would be our generation’s moon shot: a crash program for alternative energy and conservation to make America energy-independent in ten years. If President Bush made energy independence his moon shot, in one fell swoop he would dry up revenue for terrorism, force Iran, Russia, Venezuela and Saudi Arabia onto the path to reform–which they will never do with $60-a-barrel oil–strengthen the dollar, and improve his own standing in Europe by doing something huge to reduce global warming. He would also create a real magnet to inspire young people to contribute to both the war on terrorism and America’s future by again becoming scientists, engineers, and mathematicians.

It sure sounds like Senator Clinton is singing his song. She even compared her energy initiative to the Apollo moonshot, which seemed like a direct hat tip to Friedman. I definitely agree with her approach to the important issues of energy independence and global warming. She wants to create a Strategic Energy Fund (SEF), and she says she can do it without raising taxes. How? Make oil companies “play or pay” by either investing in R&D for clean, renewable, home grown energy, or pay heavily out of their windfall profits into the SEF. Combined with cuts to subsidies for oil companies, she says that this policy will generate $50 billion over the next ten years. I think it’s a good idea by and large, but I do wonder whether her projections for taxes on oil companies’ windfall profits are a bit optimistic. Where is she getting $50 billion? Has anyone else backed that up?

What I like is that her approach to global warming makes as much economic sense as it does environmental sense. It treats clean energy investments as a move toward energy independence first, rather than making reduced carbon emissions all-important. It’s not that reduced carbon emissions aren’t important, but we have to balance the needs of the economy with the needs of the environment. Senator Clinton’s plan seems to make sense for both, although I’ll have to do a bit more research and hear other points of view on the issue before I decide fully. I’d love some reader input here, guys. What are your thoughts about Senator Clinton’s Strategic Energy Fund plan?

Hugo Chavez Scares Me

If you think that President George W. Bush’s signing statements, eavesdropping programs and other expansions of presidential power are disturbing, wait until you read about Hugo Chavez’s expansion of powers in Venezuela. The Venezuelan legislature has basically rolled over and given Chavez 18 months of radically expanded powers to enact sweeping government reforms by decree.

That’s putting a lot of power in the hands of one egomaniacal man. Anyone who has the unmitigated gall to get up and call a fellow world leader, “the Devil” from the podium of the United Nations should be treated with skepticism in his home country, not given broad powers to take the country back to the darkest days of communism.

I hope that the Venezuelan people’s idealism is less misplaced than I fear it is…

GDP and Income Equality, Anyone See a Trend?

My boss sent me this really interesting chart that details the relationship between Gross Domestic Product per Capita and the GINI Coefficient of a country. The GINI is a pretty effective measure of income inequality.

It’s a pretty commonly known fact that poor countries have GINI’s that can run the gamut from very equal to very unequal, but wealthy countries tend to have GINI’s under .40.

What really struck me was, the United States stood alone as not only the wealthiest country, but also one of the better ones in terms of income distribution. Every country with a higher GINI underperformed us significantly. I think this just confirms that the United States kicks all kinds of ass. Also, if you ever travel to a third-world country, you’ll notice that our homeless people live better than the average person in some of the world’s poorer nations.