Saturday, July 9, 2011

Anthony On Pollution

On Jul 9, 2011, at 10:55 AM, Anthony wrote:

Spured on by news of the gold in California, Konrad Spiers migrates from Shiny Rock, VA to  Fair Play, CA where he finds gold in the Cosumnes River and stakes a claim.    Konrad does well, but the placer deposits quickly run out.   Undeterred, Konrad starts to use Mercury to extract the fine flour gold from the river.     After a period of a few months, downstream,  rancher Hubert Wiley wakes up to find his 100 head of cattle died of mercury poisoning.  Further downstream, citizens of Rancho Murieta start suffering the effects of mercury poisoning.   
How would the free market settle this?   If true property rights are enforced how could the poisoning of a river, a limited resource needed by all,  be prevented?   What happens if the cost of cleanup and restitution costs more than Konrad's entire estate?   How would the free market clean up the river?


All law starts with property law, and property law starts with riparian law: law concerning riverbanks.  So it is with natural law, upon which free markets are based.

In property rights, sequence matters.  Before man, animal poop got in the river. Let's take a safe bet and say Hubert Wiley was ranching the territory before the town of Rancho Murieta formed.  No doubt Hubert Wiley was conserving cow poop as fertilzer, but no doubt also cow poop got in the river. So the fact that cows pooped in the river before Rancho Murieta formed means Rancho Murieta lives with that fact.  What limits the cow poop is not only its value as fertilser, it is also Hubert Wiley can only farm so much territory, so he can only turn so much land into private property, can handle only so many cows.  Wealth is limited to what you can personally (or your family unit) can work.  (Where I part company with capitalists is they accept usury and employment, which allows the few to trap the many and distort the free market.)

So we have a stasis between the town and Wiley. Then comes the wicked Konrad Spiers.  Konrad Spiers can homestead upriver to the extent that he does nothing that harms the quiet enjoyment of the property of the people downriver of him, nor can the downriver people harm the quiet enjoyment of Konrad Spiers on his property.  If downriver they have formed uses that require 100,000 gallons river flow per day, of a million gallon river flow, then Konrad can start using some of the unused 900,000 gallon river flow.  The people downriver may not dam it up to the point that it floods out Konrad Spiers.

I know you made up your story because Spiers would have been shot when the first cow got sick.  That much mercury would have been noted and the word would get out quickly.    But let's go with your story...

As soon as silt starting gumming up the works downriver, a lawsuit would have been enjoined, requiring Spiers stop and ordering damages paid.  This was what kept polluters at bay for some 800 years of common law.  You can read in Morton Horwitz's book, case by case, how courts in USA shifted from property rights to utilitarianism, with the principle of the greatest good for the greatest number, with government as the arbiter, instead of the law.  Once the courts began ruling the dirty coal plant was more important than the old lady's laundry, there was no limit on the size and damage of big biz pollution.  In USA we socialize the cost of pollution, instead of making the perpetrator pay for it.
Under property rights, Spiers would be obliged to account for every gram of mercury. If he brought on 1000 grams and used it, he would have to reclaim the same 1000 from the process.  If he cheated he would be liable for the cost.  He would never exceed the ability to cover the cost because his damage would be immediately seen.  

Only governments can protect polluters, and they do, for example, by licensing nuclear power plants that are so very poorly designed and managed.  if GE were responsible for the cost of cleanup, we would have alternative power sources.  If we had to pay what it costs to produce power, we'd use far less an waste almost none.  This is why the Bonneville Power Administration is so abjectly evil.

Under property rights, in common law, the basis of the free market, you must keep your mess on your property.  This keeps the cost borne by those who would make the mess. Instead, we have a system where people exploit the chaos we always have when there is a government involved.



Breakthrough: Samples and Competing On Design

The big challenge in small business start up, wherein one must compete on design, is samples of the new design.  The only hard part in business is getting the product right, defined as enough orders from customers to cover the supplier's minimum production run, in a workable amount of time, profitably.

This entails prospecting and idea with customers, of finding the best the best place in the world, getting samples, testing the samples and redesigning until you get the product initially right (after which market feedback will ever improve your product with each iteration.  Customer base grows with perennial improvement.

Now I have seen 3D printers for years, but this one is a breakthrough.  It is hard and functional, not soft and and mock-up.  It is likely this is probably too expensive in most of our applications now, but that will change over time. Right now it only copies what is existing, and in poly-resign. In time you will be able to feed in design specs and get it in metal or any other material.  At first it will be applied to commodity items, like the wrench in the example, but in time it will be applied to new ideas.

But two things will never change: innovations sell in leisurely confines, say the specialty store, and a close interaction with the market is required to move a business forward.  This 3D innovation will lower the cost and widen the access to innovation, but it will not destroy specialty retail any more than the innovation of bottling which allowed beer to be widely distributed and stored at home destroyed the tavern.

It would be a mistake to see this as the end of retail. Better yet think in analogy: How could this be transferred to chemicals, electricity, fabric, etc.?

What ticks me off is the way out of our economic mess is just such people as those featured in this story.  Instead we waste money on pointless wars, for the fun of it, bailouts of failures, so we are starving this kind of creativity.


Friday, July 8, 2011

Bill on Lifestyle and Business

On Jun 9, 2011, at 3:08 PM, Bill wrote:

Hello John,

Thank you greatly for the detailed response. I took some time to think about this email and read it over several times. It does make sense. The numbers you charted out makes sense and it goes a long way to see it all planned out.

When I first read the email, I must admit that I just briefly ran through the numbers. However, I'm glad I actually went through the numbers as it tells an interesting story. 

My questions/ comments are as follows:

Sales Rep: I assume the $200, is the sales rep min. order (much like the supplier's 10 K min.)

***Right....***

1) How much time does it take to get connected to the 12 rep. organizations covering the 50 states? 

9 months? Less?

*** Depends, quick is expensive, slow is cheap... see next..***

And best methods to do so? ( Referral, road trip) 

***Referrals is slow and inexpensive, road cheap fast and expensive...    Most people do a rolling campaign over years to keep within their capacity for a growing company... but 9 months with referrals is not bad...  road trip, 3 days a city, 36 days?***

2) You noted that if you only get 1 min order/ week/ state, the reps. would dump your line. If that is the case, what's a good benchmark? How many orders per week? 

*** I'd say 20% (so twenty) as a minimum (50% is about right) ... so if they show to 50 people, ten is acceptable, as a start with the sense you are responding and ever improving, 50 is about right...***

$200,000 overhead: 

I was a bit surprised when I saw this. And I have a feeling this has a lot to do with expenses v. net income ( and keeping tax liability low).

3) My initial question is, how much of this overhead would go to sales rep. commission? 

***In gift and housewares we pa a 15% commission, so $75,000 to the sales reps.***


I think I now understand your comment about "It is not about the net income, it is about the lifestyle." (Before I didn't think much of it, but now I think I can see a hard reason for it.)

I'm going to theorize that if you manage well here, that $50,000 actually equates to much more. If you control your "costs" well part of that $200,000 overhead could become "lifestyle expenses."

Am I close on this? What are your thoughts? 

***Perzactly!!! And think of "directing costs" more than "controlling costs"***

------------------------------------------------------------------------------------------------------

***I'll get to the below next...***

John


العين عن العين

What to make of a place where a TV show advocates the death of a mom whose child drowned?  It was appalling to see White House bigwigs crowding around a screen to watch the killing of Osama Bin Laden. I am still not sure what the case was about, it is really none of my business, but here a fellow gives a quick review.


He notes that justice is elusive.  Indeed! We can never achieve justice, which God reserved for himself (vengeance is Mine).  What he gave us instead is mercy, which is transformative and gives (uuggghhh...) "closure."


In this respect Islamic justice is superior to any judeo-christian system, since they revived the eye-for-an-eye ethic.  In practice, once a court has established the facts, this gives the offended the ability to mulct payment commensurate with the wealth of the offender in lieu of the eye, an approximation of justice superior to our system of guidelines, or give the offender a pass (mercy), something out of the hands of the victim in our system.

The West had a renaissance compliments of the learning we picked up from Islamic scholars. Much was wasted in pointless wars with them, and much was gained by peaceful trade.  We should try that again.


Thursday, July 7, 2011

More Bitcoins Confusion

Detlev Schlichter is ambivalent on Bitcoins, probably because his argument has some fatal errors... in favor of Bitcoins he says:


Again, just like gold. If widely accepted as a medium of exchange – and that’s a big ‘if’ – it could become a store of value, unlike state paper money, which is always and everywhere a political tool and is issued for the purpose of ongoing debasement – with grave consequences for the entire economy.


This "store of value" is a problem for economists.  Money emerges from a commodity as Schlichter himself in this article notes, quoting Menger.  The store of value is in the commodity, not in the money. Money or not, a commodity is, more or less and among other things, a store of value.  "State paper money" fiat currency, is neither money nor a commodity.  Bitcoins is neither money nor a commodity.


Few people today appreciate just how anachronistic local state fiat monies are in a world of increasingly global trade. 


This is strange too... fiat monies (he means currencies) are actually rather modern (dilution being the ancient sin).  Currency started as warehouse receipts for gold and silver.  Some wicked warehousemen would issue more receipts than there was gold and silver in storage, and eventually the fraud would be discovered and various people financially ruined.  So this was outlawed.  Next, what was outlawed for us the government began to do itself.  The Bank of England was created to print more more currency (warehouse receipts for gold and silver) than stocks thereof warranted.  This leads to inflation, which is a tax on the poor and middle class.

Fiat currency worldwide or local is a problem, a one world currency may be more efficient, but it is still fraud.  If the market supported one million gold and silver warehouses, and thus we had one million different currencies, what would it matter?  Thus spake the market.

Further, possibly the freest, most provident, peaceful and prosperous political economy on earth today, compliments of the Communist Party of the People's Republic of China, is Hong Kong.  In Hong Kong, three separate private companies issue unique currency for Hong Kong, a nation state of seven million, comparable to Switzerland.  The government does get to issue one note for minor purposes... but it is so suspect that it is not expanded to more than the one $10 note.  Transactions among the three private currencies are frictionless.   In the USA we have the legal fiction that there are nine private companies issuing currency, but no one believes it.  To match the Hong Kong ratio of private currency, USA would have to have about 45 separate companies issuing currencies.  USA has been there, but it was outlawed.

Perhaps few people appreciate how anachronistic multi-fiat currencies are because it is not anachronistic, and more important, it is irrelevant.


The gold price has skyrocket in recent years not because of any rising demand for gold in industrial application but because of its use as a monetary asset.


Let me correct this be re-writing it:  "Gold as priced in fiat currency has risen, not because of rising demand for gold in industrial application, but because of the profligate printing of fiat currency in recent years."  You see gold has not changed in value much if any, an ounce still buys a good suit of clothes, two silver dimes still buy a gallon of gas, just as when a gallon of gas was 20 cents 50 years ago.  The buying power of money has not changed, the quantity of fiat currency has changed.  More currency chasing the same amount of gold commands more currency for an ounce of gold.

Bitcoins is not money nor currency.  It is either an accounting system for barter or it is a kind of virtual reality video game.


Wednesday, July 6, 2011

Meg Checks In From Down Under

I won't include her detail-rich email question, but the answer is my standard argument...

To wit:

Hey Megan,


Thanks for your kind words...  

A couple of points...  "off the shelf" items have several challenges...

1. It is likely they have been tried, and did not work, for whatever reason.

2. If they do work, all those other people who've been to both places say "o goodie... I can do that too..." and then it is a race to the bottom, who can work for the least, wins.

3.  Off the shelf is selling already, and suppliers are desperate for what is next, not more people selling the same, since it usually means targeting customers already served.  As a start up biz, we need to represent new biz to get any traction.  Our small marginal efforts get us a place at the table for greater things as we get experience.

That being said, once you have started, there is nothing to keep you from folding in some ready-made product into your line of products, and seeing what happens.  Usually it is not so good, but it spurs ideas from feedback on what to do.

How come we can't start like that?  AS a newbie you are desperate to get something, anything to work.  After you have built a line, you have some experience as to what might be better.  And once your org is adept at design and redesign, your customers and suppliers may relax regarding such an effort.

Drucker argues against organizing around your resources.  It would not surprise me to learn all of the products you mention are made in China.  So the Aus-Usa nexis doesn't pay.

Partnerships thrive better faster than sole proprietors, and it sounds like you have a good one.  As an exercise, I'd forget all your resources, and think in terms of Queen Elizabeth... If I were turned out of my realm in my petticoat, I would prosper anywhere in Christendom.  (I, not II)  Where are you as clever as Liz, in your way?  What were you born to rule?  What did you do as a kid when you had time and opportunity?  Jerry Garcia said it is not enough to be the best at what you do, you must be the only one.  Of course, that is just division of labor.  What is the world waiting for you to do?

You may find yourself trading racing pigeon nutrition supplies processed in Belgium and sold wordwide... who knows?

John


Tuesday, July 5, 2011

Gary North On Pareto Principle

Dr. North is hitting on a topic I cover in my book, noting the percentages in relation to specialty buyers time spent looking to innovative products.  North has some other history and tactic to offer...


July 2, 2011
Pareto's law operates in project completion. About 20% of your effort gets you 80% finished. Then things get expensive.

First 80% of the project: 20% of your cost
Last 20% of the project: 80% of your cost
Last 4% (.2 x 20%): 64% of your cost (.8 x 80%)
Last .8% (.2 x 4%): 51% of your cost (.8 x 64%)
About 25 years ago, I read an article on the cost of pollution control. It said that the last 5% of pollution reduction gets very expensive. The last 1% will come close to bankrupting you. Seeking perfection will bankrupt you (last .8%).
The article did not mention Pareto's law. I made the connection a decade later.
I write fast. It's the last 4% (20% of 20%) that takes a big chunk of my time: checking the facts, polishing the language, proofreading, and indexing. This part is boring. It takes a set of skills that are not common to creativity. I love to write. I hate to index. Yet if I don't index, the serious readers cannot get maximum value from a printed book. They cannot locate something important after they finish reading it.
Who are the readers an author wants to attract? The ones who go back and apply what they have read to their work. What percentage of readers are like this? I'll take a wild guess: 20%.
I am hoping that by using PDFs and search engine software, I can avoid future indexing. I will not index the final editions of 30 volumes of my series on an economic commentary on the Bible. Why not? Because I am running out of time. I must put the remainder of my life in final applications: a treatise on biblical economics, hundreds of support videos, books on epistemology, and maybe a high school home school curriculum. Here, creativity is crucial. Oddly enough, it is also cheaper in terms of input. I will get more output from my time if I skip the final 20%. Others can do the grunt work.
The grunt work of the last 4% can be delegated. The next-to-last 3% must be done. (Remember: seeking 100% perfection will bankrupt you.) But creative people tend not to delegate well. They don't trust other people to finish their work. So, they either must do the grunt work or else release a 96% completed project. A 96% completed project is risky, especially if it is a tool that others will use. Think of a rocket or a jetliner.
Whenever you produce a finished product, you must strive to get that last 5% finished in good working order. Budget your time and resources accordingly. Don't think, "That last 4% will be easy." It won't be.
That last 4% is where you will make your reputation. You will get your edge here. If you release things 96% finished, you will get the reputation as someone who cannot deliver the goods. Creativity does not suffice. The thing must work 99% of the time.
Why do firms issue beta versions? To get users to identify the last 4%, or last 1%, of the problem areas. This decentralizes. It delegates. It transfers costs to users. Some users like the challenge.
Akio Morita of Sony used to release preliminary versions of new products. Early adapters bought them. They complained about features or lack of features. Sony revised its products fast. The strategy worked. "Let users tell you what's wrong." But his engineers did not like it. It rubs engineers the wrong way. This is why engineers had better not be in charge of marketing.
Why does this strategy work? Two reasons: (1) the division of intellectual labor; (2) practicality of the recommended changes, i.e., user-supplied.