Episode #58 - Free-Rider Friday - August 2015

Ed's Topics

More misunderstanding of price theory.

Another example of how the belief that price is exclusively a function of costs: Why Starbucks' Prices Went Up, as Coffee Beans Got Cheaper (New York Times).

Big Brother Boss

Also from the Times: Data crunching coming your way so your boss can manage your time. Great, sign my up for this... NOT!

Froggy Went A-Courtin' But Lady Frogs Chose Second-best Guy Instead (NPR)

Thanks for our listener Mike Natolli for sending the link to this one. The framing effect (or decoy effect, if you prefer) is part of the reptilian brain, not only in retiles, but in we humans as well. 

Apple working on a car.

Ron needs to start saving his money as he is on record as saying that if Apple made a car, he would buy it.

More abuse of intellectual property law.

LMFAO, The Band, Sends Cease And Desist Over LMFAO, The Beer

Ron's Topics

"What If Stalin Had Computers?" (New Republic, August 18, 2015). 

Postcapitalism: A Guide to Our Future, by Paul Mason.

Postcapitalism argues that we are on the brink of a change so big and so profound that this time capitalism itself, the immensely complex system within which entire societies function, will mutate into something wholly new.

At the heart of this change is information technology, a revolution that is driven by capitalism but, with its tendency to push the value of much of what we make toward zero, has the potential to destroy an economy based on markets, wages, and private ownership.

The Black Book of Communism: Crimes, Terror, Repression, 1999:

French scholars tally up the deaths under communism:

• USSR = 20 million

• China = 65 million

• Vietnam = 1 million

• North Korea = 2 million

• Cambodia = 2 million

• Eastern Europe = 1 million

• Latin America = 150,000

• Africa = 1.7 million

• Afghanistan = 1.5 million

• Communists not in power = 10,000

• Total = Nearly 100 million.

There is no good way to implement a bad idea!

Dan Price, CEO, Gravity Payments

120 employees, paid each $70,000 (“Happiness Salary”). He sank last year’s profits $2.2M into higher wages and slashed his salary $1M to $70,000. His two best employees quit, as well as customers who feared less service from non-motivated employees.

His brother Lucas, co-founder in 2004, filed a lawsuit, accusing Dan of paying too high a salary to himself.

This illustrates the perils of "Bubble sheet research," which attempts to measure "happiness" and its link to income.

Distributive fairness:

1.   Equality (everyone gets the same).

2.   Proportionality (all receive rewards in proportion to their inputs).

“There is nothing more unequal than the equal treatment of unequal people.” ― Thomas Jefferson

At least he used his own resources. Imagine a $70,000 federal minimum wage?

Dodd-Frank Rule

SEC requires companies to reveal median pay and compare to CEO pay, starting in 2017, passed 3-2 on party lines on August 5th.

Multinationals can exclude 5% of foreign employees.

Lobbying trade unions believe this rule will shame bosses into paying themselves less and workers more. “It will allow investors to see," says Commissioner Kara Stein, "how a company manages human capital.”

But labor unions don’t have a history of caring about protecting investors!

An investment bank with high pay can look more egalitarian than a cleaning company with low paid workers and a moderately paid CEO.

This rule hijacks the SEC for political purposes, unrelated to SEC’s mission, which is:

To protect investors, maintain fair, orderly, and efficient          markets, and facilitate capital formation.

A company’s pay ratio is not material information! Moreover, the ratio has no bearing on whether or not the CEO's pay is appropriate. Executive pay is already disclosed under current regulations.

Companies will try to goose the ratio from the other direction, by shedding its lowest-paid employees (utilizing contractors and temps).

Cost of implementation: $1.3 Billion upfront, $526million afterwards.

One way of course to "fix" the appearance of a "bad" ratio would be outsourcing, but as Ed points out, another court ruling in California is trying to stop that from happening.

Uber in Las Vegas

Surge pricing = bad when Uber does it.

Congestion pricing when government does it, celebrated by urban planning policy wonks.

North Korea

On August 15th, it turned clocks back ½ hour to establish its own time zone and reverse the imposition of Tokyo time in 1912.

It established the "Juche calendar," from 1912, the birth of Kim Il Sung.

Hugo Chavez turned clock back ½ hour in 2007 (a fairer distribution of sunrise?).

What is it with dictators and time?

Episode #57 - The Experts Speak

On this episode, Ed and I discussed the book, The Experts Speak: The Definitive Compendium of Authoritative Misinformation, Christopher Cerf and Victor Navasky, expanded and revised edition, 1998.

The two authors are interesting—a National Lampoon Contributing Editor, and a  Sesame Street contributor (Cerf) and editorial director of The Nation, Navasky.

They created The Institute of Expertology, a group of scholars who record sayings from experts for posterity.

The book describes three kinds of experts: past, present and future. Also, three type of expertise: descriptive, prescriptive and predictive.

Richard Feynman reminds us, “Science is the belief in the ignorance of experts.”

Samples from the “Experts”

Politics

WSJ Editorial, “Bill Clinton will lose to any Republican who doesn’t drool on stage.”

“FDR will be a one-term president.” Mark Sullivan, New York Herald Tribune columnist and political commentator, 1935.

"The race will not be close at all. Landon will be overwhelmingly elected and I’ll state my reputation as a prophet on it." William Randolph Hearst, August 1936. [FDR in 1936 won 523 electoral votes to Alf Landon’s 8, 11M vote margin].

"And while I'm talking to mothers and fathers, I give you one more insurance. I have said this before but I will say it again and again and again: Your boys are not going to be sent into any foreign wars.” FDR October 30, 1940.

"It is highly unlikely that an airplane or a fleet of them could ever think of fleet of navy vessels under battle conditions.” FDR as Secretary of the Navy 1922.

"I have no political ambitions for myself or my children.” Joseph P Kennedy.

---

"I favor the civil rights act of 1964 and it must be enforced at gunpoint if necessary.”1965.

"I would have voted against the civil rights act of 1964.” 1968. 

Both Ronald Reagan.

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"There are only two ways to reduce the budget deficit. We must do both.” April 1987.

"There are only three ways to reduce the budget deficit. We must do all three.” September 1987.

"There are only four ways to reduce the federal budget deficit. We must do all four.” August 1988.

All Michael Dukakis.

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Economics

“Stocks have reached what looks like a permanently high plateau.” Irving Fisher, Yale Economist, October 17, 1929 [one week prior to the $6 billion stock market crash].

“1930 will be a splendid employment year.” US Dept of Labor, New Year’s Forecast, December 1929.

“In all likelihood world inflation is over.” Managing Director, IMF, 1959.

Hitler

“There is no doubt that he [Hitler] has become a much more quiet, more mature and thoughtful individual during his imprisonment than he was before and does not contemplate acting against existing authority.” Otto Leybold (Warden of Landsberg Prison), letter to the Bavarian Minister of Justice, Sept 1924.

“Hitler is a queer fellow who will never become Chancellor; the best he can hope for is to head the Postal Department.” Paul von Hindenburg, President of Germany, 1931.

War

“The Hawaiian Islands are over-protected; the entire Japanese fleet and air force could not seriously threaten Oahu.” Captain William T. Pulleston, former Chief of US Naval Intelligence, “What Are the Chances?” The Atlantic Monthly, August 1941.

“Among the really difficult problems of the world, the Arab-Israeli conflict is one of the simplest and most manageable.” Walter Lippmann, April 27, 1948.

Invention

“The phonograph is not of any commercial value.” Thomas Edison, 1880.

“For God’s sake go down to reception and get rid of a lunatic who’s down there. He says he’s got a machine for seeing by wireless! Watch him—he may have a razor on him.” Editor of the Daily Express, London, refusing to see John Logie Baird, the inventor of television, 1925.

“There is not the slightest indication that nuclear energy will ever be obtainable. It would mean that the atom would have to be shattered at will.” Dr. Albert Einstein, 1932.

“What, Sir? Would you make a ship sail against the wind and currents by lighting a bonfire under her deck? I pray you excuse me. I have no time to listen to such nonsense.” Napoleon Bonaparte, to Robert Fulton, inventor of the steamboat, c. 1805.

“God himself could not sink this ship. Titanic Deckhand, responding to a passenger’s question, “Is this ship really unsinkable?” Southampton, England, April 10, 1912. [Sunday, April 14, 1912 it struck an iceberg].

“This is the biggest fool thing we have ever done…The bomb will never go off, and I speak as an expert in explosives.” Admiral William Daniel Leahy, advising President Truman on the impracticality of the US atomic bomb project, 1945.

"X-rays are hoax.” Lord Kelvin

"Radio has no future.” Lord Kelvin

"My dynamite will sooner lead to peace." Alfred Bernhard Nobel, founder of the Nobel Prizes.

Ed’s Favorite

"I have often thought that if there had been a good rap group around in those days I might've chosen a career in music instead of politics.” Richard M Nixon.

Ron’s Favorite

“Nothing of importance happened today.” George III (King of England), diary entry, July 4, 1776.

Episode #56 - Interview with Jennifer Warawa

Ed and I had the pleasure of interviewing his Sage colleague, Jennifer Warawa, the Global Vice President, Product Marketing–Accountants.

Jennifer's passion is to partner with consultants, accountants and bookkeepers to provide solutions that make a difference in their business or firm, and support them in delivering an extraordinary experience to their clients.

Prior to working with Sage, Jennifer owned her own firm for 12 years providing accounting, bookkeeping, and consulting services, software training, as well as business/ financial planning and marketing.

In addition to being a regular speaker at accounting conferences, Jennifer was also listed as one of the “10 Tweeters Worth Following” by Accounting Today and is an avid blogger, which includes being a featured writer on the Virgin Entrepreneur website. Jennifer made the Accounting Today Top 100 Most Influential People in Accounting and CPA Practice Advisor’s Top 40 Under 40 lists consecutively for the last four years.

Some of the issues we discussed with Jennifer

• What is Sage’s Strategy to add value in the future?

• How is the Cloud adoption coming along among firms?

• The gap between what customers want and what firms think they want.

• What things should business owners look for in selecting a CPA firm?

• What’s the number one issue facing the accounting profession?

• Is this different in different countries?

Sage's New Products to help firms be more effective

• Sage Impact

• Sage View

• Sage Value - coming soon! 

Thanks for sharing your insights and knowledge on the state of the professions, as well as businesses, Jennifer!

Episode #55 - Entrepreneur Heaven - August 2015

They say you can’t turn back the clock and go back to the good old days. Yet this is precisely what is happening with the total quality service movement, the customer loyalty movement, CRM, and other philosophies that put the customer at the center of the business organization. Millions of dollars are being spent on consultants to relearn what was once common sense, practiced by the great entrepreneurs from the turn of the century to the mid-1950s.

On this third installment of our Entrepreneur Heaven Series, we will explore the wisdom of Sam Walton, P.T. Barnum, Andrew Carnegie, and Conrad Hilton, and.

Wisdom is timeless, and occasionally turning back the clock is the wisest course of action. Sometimes history is our best teacher. 

Sam Walton (March 29, 1918- April 5, 1992)

Three weeks before his death, President George H. W. Bush awarded him the Presidential Medal of Freedom.

Graduated with a B.A. in economics, 1940, University of Missouri.

1940, starts work at J.C. Penney, stays 18 months.

Sept 1, 1945—opens first variety store.

1950, starts over in Bentonville with Walton’s .05¢ and .10¢.

July 2, 1962, Opens Wal-Mart, in Rogers, Arkansas.

Oct 31, 1969 Wal-Mart incorporated.

Battle over “fair trade,” whereby manufacturers could determine the price at which their goods could be sold. Benefited inefficient retailers since it protected them from low-price retail competition.

State by state, these laws were repealed in the 1950s, 1960s, and in 1975 Congress passed legislation ending the practice.

On the corporation’s organization chart, Walton was listed as: Chief Spiritual Officer.

In his book, Made in America: My Story (1992), Walton writes that his  single biggest regret in his whole business career: that he didn’t include the associates in the initial, managers-only profit-sharing plan.

Walton’s great insight: replacing inventory with information!

“Job security lasts only as long as the customer is satisfied. Nobody owes anybody else a living.”

Six ways Wal-Mart thinks small:

1.    Think one store at a time

2.    Communicate, Communicate, Communicate

3.    Keep your ear to the ground—no computer can tell you how much you could have sold

4.    Push responsibility—and authority—down

5.    Force ideas to bubble up

6.    Stay lean, fight bureaucracy

Sam’s Rules for Building a Business:

1.    Commit to your business

2.    Share your profits with associates

3.    Motivate your partners. Encourage competition, set high goals, keep score, switch jobs

4.    Communicate

5.    Appreciate everything associates do.

6.    Celebrate your successes

7.    Listen to everyone in the Co.

8.    Exceed customer expectations

9.    Control your expenses better than competition

10.  Swim Upstream. Ignore conventional wisdom

“In this free country of ours, the shopkeeper’s success is entirely up to you: the customer.”

Phineas Taylor  Barnum (July 5, 1810 – April 7, 1891)

He never said: “There’s a sucker born every minute.”

Human oddities on display, but never gross—women and children could attend.

He just wanted to entertain an America he thought worked too hard and laughed too little

He wrote, “The American Museum” in 1869.

His circus was sold to Ringling Brothers on July 8, 1907 for $400,000 (about $8.5 million in 2008 dollars). The Ringling Brothers and Barnum & Bailey circuses ran separately until they merged in 1919 forming the Ringling Bros. and Barnum & Bailey Circus. 

Andrew Carnegie (November 2, 1835–August 11, 1919)

Born: Nov 2, 1835 in Dumferline, Scotland.

Immigrated at age 12 from Scotland.

In 1870, Britain produced more steel rest of world combined. By 1900, year Carnegie retired, US producing twice as much as UK, highest-quality, lowest-priced:

            $160/ton in 1875 to $17/ton by 1898

            Sold holdings to JP Morgan $480M (his share $300M)

Carnegie: optimist, thirst for public approbation, wrote nice things about unions, who lionized him.

Homestead Steel Works strike of 1892, Carnegie in Scotland, 300 Pinkerton guards hired crushed the workers, black mark on his legacy.

He was fanatical about controlling costs: “Cut the prices; scoop the market; run the mills full…watch the costs and the profits will take care of themselves.”

Railroads developed cost accounting, and Carnegie brought it to the steel industry

Committed himself to world peace from two decades from retirement to death, a complete failure. Actually worse, he was a fool (Richard S. Tedlow, Bus Historian, Giants of Enterprise). He was fond of Kaiser Wilhelm II of Germany (“I think he can be trusted and declares himself for peace.”)

He wrote “The Crucial Question,” (1896) advice to young people on how to become business owners.

“And here is the prime condition of success, the great secret: concentrate your energy, thought, and capital exclusively upon the business in which you are engaged.”

 “The only irreplaceable capital an organization possesses is the knowledge and ability of its people. The productivity of that capital depends on how effectively people share their competence with those who can use it.”

“Take away my people but leave my factories, and soon grass will grow on factory floors. Take away my factories but leave my people, and soon we will have a new and better factory.”

“The man who dies rich dies disgraced.”

“Man must have an idol—The amassing of wealth is one of the worst species of idolatry. No idol more debasing than the worship of money.”

Carnegie gave away $332M, including 7,000 church organs, while Rockefeller gave away $175M.

Conrad Hilton (Dec 25, 1887–Jan 3, 1979)

Grew up New Mexico, father ran a general store. He married and divorced Zsa Zsa Gabor, and had a son with her.

First bus venture managing the Hilton Trio, musically inclined ladies (including his sister), but it flopped.

Then worked in a bank, and then manager of father’s store, but father kept meddling. He served in the Army WW I.

While trying to find a hotel bed first night in Cisco, TX, he couldn’t. The owner gave him one week to come up with $40K buy the hotel. He scraped together the money from family and friends. By 1921, he added two more hotels.

He wrote “A Million-Dollar Mountain and a Red Hat” (1957) to explain how he raised the money to build his first million dollar hotel on the corner of Main and Harwood in the Dallas bus district and Be My Guest, which used to be found in the drawer of every Hilton hotel next to the Bible.

He leased the land for 99 years, at $31,000/year, from the owner, and negotiated a clause in the lease to allow him to pledge the land as collateral to lenders, enabling him to build the hotel.