Predictably Irrational Book

Note to Washington: You Cannot Separate Human Psychology from Economics


The Huffington Post is talking about Obama’s handling of the economy and the world view of his economic advisers now that Larry Summers is resigning.

Those policies — the bailout of Detroit automakers, an $814 billion stimulus package, subsequent programs under TARP, Cash for Clunkers and the administration’s unlimited backstop of Fannie Mae and Freddie Mac — arguably saved an economy that many considered to be on the verge of collapse.

But while the recession officially ended last year, it hasn’t for most American households. The unemployment rate has risen nearly two percentage points since Obama took office, Labor Department figures show. Private-sector job creation is anemic. Growth has stagnated. Incomes have barely risen. Unpaid debts are being written off. And household wealth is lower today than where it was last December, according to Federal Reserve data through June.

The story then goes on to point out:

Large banks and corporations, on the other hand, are thriving. Corporate profits have risen to pre-crisis levels, according to the Commerce Department. Company balance-sheets haven’t been this strong since 1956, Fed data show. Firms with access to the capital markets are taking advantage of record-low interest rates and refinancing expensive debt, and pocketing the difference. Last month, IBM sold three-year notes to investors, offering 1 percent interest. On Wednesday, Microsoft Corp. sold three-year notes at 0.875 percent interest to help fund share buybacks and increased dividends for shareholders. It’s reportedly the lowest interest ever offered by a company looking to sell three-year debt.

Everyone with even a modicum of economic training knows that unemployment is a lagging indicator! Given the rebound in health in corporate America, it bodes extremely well for our long-term economic health. Healthy companies, like Google, hire people.  Unhealthy companies, like the old General Motors, lay off people. 

I Want My Country Back

How to Solve the Trade Deficit – Part IV

This is part of my special on How to Solve the Trade Deficit. You can read Part I, Part II, or Part III if you missed them.

The Increased Competition for Jobs Is Domestic, As Well

You mention that standards of living have fallen, despite gains in things like iPods with 25,000 songs and the ability to connect instantly through the Internet.  The thing is: In many respects, it isn’t true – standards of living haven’t fallen – unless you fit one specific demographic, which we’ll talk about in a minute.

I pointed out a few months ago:

  • Research that showed Americans alive today have more free time that any group of humans that have ever lived in history (you can read about it here).  What do they do with that free time?  Watch television.  No, literally, the research showed that people used all of those extra hours to sit on the couch in front of the TV.
  • Teen pregnancy and abortion rates are collapsing, which is promising for future poverty rates because having a child before the age of 25 is more likely to result in lifetime poverty.
  • We live longer than any civilization in history.
  • We have better pain management than any humans who have ever lived.
  • We can cure more diseases than any humans who have ever lived.
  • We can travel anywhere on the planet in under 20 hours.
  • We consider full-home air conditioning and heat a basic human right when, only 90 years ago, the richest men on the planet suffered the heat just like the poorest worker.

Plus, you must consider that 50 years ago, blacks, Jews, gays, women, and anyone over 55 weren’t viable competitors in the work force because they were either paid a fraction of their white, male protestant counterparts, fired, or not even considered for positions.  Unless you happened to fit into that one lucky genetic “lottery ticket” you were screwed.

Now, we are increasingly a meritocracy.  In today’s workforce, you are far more likely to have your ideas compete with a much wider range of people.  This is good for the civilization.

To put it bluntly: When you say things are getting worse from a standard of living perspective than they were several decades ago, the unspoken fact is that this is only true if you are a straight, white, male, protestant, high school graduate who wants to make a living without years of specialized training.

Knowledge Worker

How to Solve the Trade Deficit – Part III

This is Part III of my special on How to Solve the Trade Deficit.  If you missed the earlier parts, you can read Part I or Part II first.

How to Solve the Trade Deficit – Knowledge Workers vs. Manual Workers

In many ways, your question about the trade deficit has very little to do with global trade policies and everything to do with the rise of the “knowledge worker” class that Peter Drucker predicted in 1959.

Drucker, the management guru who is to executives what Warren Buffett is to investors, realized decades before most of his contemporaries that rapid gains in technology would eventually result in blue collar jobs disappearing and causing somewhat of a crisis in the population. Drucker hypothesized that the economy would split into several major classes of employees: “knowledge workers”, “production workers” and “manual workers,” just to name a few.

What Is a Knowledge Worker?

A knowledge worker is someone who has a set of skills that cannot be easily replicated or automated. A heart surgeon, a nurse, a nuclear engineer, a chemist, and a lawyer are examples of knowledge workers. No matter who employs them, they are, for all intents and purposes, their own business.

A nurse can move across the country and find work at another hospital far easier than someone who flips burgers for a living because the competition for the fast food job is much more intense (after all, almost anyone can flip burgers but not everyone has the years of medical knowledge necessary to save people’s lives in a hospital setting). Likewise, an attorney can put up a shingle and go into business for himself, getting clients to pay him on a case-by-case basis.

Four New 64 Gigabyte iPads for the Business!

After dropping Jocelyn off at the airport yesterday morning, Aaron and I went to Barnes & Noble to get a range of additional business books. We then returned home, Aaron decided to go to his parents’ house and paint Easter eggs with his nephew and mom.

A series of events then lead to my parents and I driving to the Apple store in the Country Club Plaza in Kansas City, buying four (4) new 64 Gigabyte iPads with matching leather cases, as well as a new 32 gigabyte iPhone for my mom. The total came to about $3,600. We then went to dinner at Houstons steak house, which was excellent. The last time I had eaten there was with Ellary and Aaron when she was in town for a conference.

The iPads are so much more than a consumer device. It took only a few minutes and we had installed the specialized trading applications provided by our brokerage firms, giving us access to world markets. In virtually no time, we can convert United States dollars into Euros or Swiss Francs, place complex option orders for securities around the globe, and check our total exposure to certain asset classes and individual issuers. It is going to change our lives.  And that’s just the capital markets trading operations, not the operating companies.  That is where things get exciting …