Episode #33 - Free-Rider Friday - February 2015

Welcome to this week's “Free-Rider Friday.” Most of our shows are “topic” driven, where we dive deep into one subject. Free-Rider Fridays are designed to be “event” driven—whatever issues are in the news that we (or you) find worthy of commentary. In economics, free riding means reaping the benefits from the actions of others and consequently refusing to bear the full costs of those actions. This means Ed and Ron will free ride off of the news, and each other, with no advanced knowledge of the events either will bring up.

The Soul of Enterprise: Dialogues on Business in the Knowledge Economy is now available on Amazon Kindle

Cover

Ed and I are pleased to announce the publication of our first book together, based on the topics from our show.

The book is available exclusively on Amazon Kindle. You can download the Kindle app for free to read the book on a device other than a Kindle.

The book contains six chapters, which are from our show, combined into logical topics. We also added an Introduction and Epilogue.

Further, we’ve added links to many of the ideas, definitions, books, and other interesting things we cite. It’s a complete digital experience.

The Foreword was written by VeraSage Instiute’s G. Robert Newhart Non-Value-Added Fellow, Greg Kyte, and it does not disappoint. There’s also some funny illustrations by the cartoonist, caricaturist and illustrator Andrew Fyfe from Australia, a pure genius.

Here’s a more detailed description of the book:

The world’s economy has been transformed from a twentieth-century materials-based economy to the Age of the Knowledge-Based Economy — and the currency of this realm is ideas, imagination, creativity, and knowledge. According The World Bank, 80% of the developed world’s wealth now resides in human capital.

Perhaps President Ronald Reagan said it best in his address to Moscow State University on May 31, 1988:

Like a chrysalis, we’re emerging from the economy of the Industrial Revolution — an economy confined and limited by the Earth’s physical resources — into, as one economist titled his book, “the economy in mind,” in which there are no bounds on human imagination and the freedom to create is the most precious natural resource.

Written by Ronald Baker and Ed Kless, hosts of The Soul of Enterprise: Business in the Knowledge Economy, the popular radio show on Voice America’s Business Channel, The Soul of Enterprise: Dialogues on Business in the Knowledge Economy sounds the clarion call that organizations can no longer ignore this seismic shift that has occurred in the economy since 1959. The Soul of Enterprise introduces the three components of Intellectual Capital — human capital, social capital, and structural capital — and how to leverage them to create wealth in today’s economy, by revealing:

• The physical fallacy — why wealth no longer consists of tangible things, but of ideas, imagination and knowledge from human minds

• The best learning tool ever invented: After Action Reviews

• Why Frederick Taylor and the Scientific Management movement was a fraud and the wrong focus for knowledge workers

• The fact that effectiveness always and everywhere trumps efficiency

• The First Law of Pricing: All value is subjective

• The Second Law of Pricing: All prices are contextual

• The Morality of Markets: Doing well and doing good

• Why your organization — and you — need to be driven by a higher purpose than profit

The Soul of Enterprise will inspire and challenge readers to unlock the enormous financial and competitive power hidden in the intellectual capital of their organizations and knowledge workers.

Bill Gates Doesn’t Understand Wealth Creation

Ron mentioned an article from The Economist’s The World in 2015, written by Bill Gates. Some excerpts:

…disease and extreme poverty are not inevitable. In the past 25 years, the number of children who die has dropped by a half. …The number of extremely poor people has been going down at roughly the same rate.

We also know why people are escaping poverty: it is thanks to more productive agriculture, better access to financial services, and the spread of functioning health systems that prevent expensive medical emergencies.

Is he kidding? What’s caused people to escape bone-crushing poverty is the spread of capitalism. Free markets are the cause of all the results he cites, yet he doesn’t seem to understand how markets work.

This never ceases to amaze me. Some of the most successful entrepreneurs, and wealthiest, have no idea how capitalism works. They were able to practice it, but they can’t explain it, or offer a theory in its defense.

It validates William F. Buckley Jr.’s quip: “ The problem with capitalism is capitalists.”

Net Neutrality

Next we discussed the thorny issue of net neutrality. We are both against the recent regulations from the FCC that reclassifies the Internet from an “information service” to a “telecommunication service.”

Can you point to one innovative, heavily regulated industry? Had the government regulated the early days of the computer revolution, we’d probably have Vacuum Tube Valley, most likely in West Virginia.

Even The Economist likes broad rules (fast lanes can’t exceed slow lanes by a certain amount), rather than blanket regulations.

There’s an excellent article by Nick Gillespie at Reason magazine on this issue.

In all fairness, no one has seen the regulations yet. But is there any doubt that once regulation starts, it expands?

Could it be used to require all websites to have a license? Or control content?

I’m sure we will discuss this topic in future shows.

Greg Kyte

Greg Kyte called for the latter half of the show, discussing his work, videos, the Foreword he wrote to our book, and his new business: ComedyCPE.com.

Watch some of his hilarious videos at GregKyte.com, including the above infamous series of queuing up for the Blackberry, Bob’s BBQ, Great Moments in Value Pricing History, Parts I and II, and Billable Hour Scratch & Win.

Episode #29 - First-ever Free-Rider Friday - January 2015

Welcome to “Free-Rider Friday.” Most of our shows are “topic” driven, where we dive deep into one subject. Free-Rider Fridays are designed to be “event” driven—whatever issues are in the news that we (or you) find worthy of commentary. In economics, free riding means reaping the benefits from the actions of others and consequently refusing to bear the full costs of those actions. This means Ed and Ron will free ride off of the news, and each other, with no advanced knowledge of the events either will bring up.

If you’d like to call-in during the live show, the listener line is: 866-472-5790. You can also participate on Twitter at #asktsoe.

Tip of the Day: Names

First, we’d like to thank Ron’s dad, Sam Baker, for the suggestion that we look at race horse names for ideas to name this show. It’s a great resource if you’re trying to name a product, service and so on.

Ed’s Item

Ed has been on a Mac for over three years, abandoning the Windows platform in December of 2011, but he admitted that Microsoft’s new Outlook program for Mac and iPhone is pretty dang good. "Apple should do hardware and operating systems, Microsoft should do application software. “He likes it, hey Mikey.”

Ron’s Item

On our September 5th, 2014 Show: Corporate Social Responsibility: Progress or PR? One of the issues we discussed was the Bill and Melinda Gates foundation.

In the October 11, 2014 issue of The Economist the article “A New Challenge” assessed the performance of the Gates foundation last ten years.

It’s “14 grand challenges” from vaccines to incapacitate disease-transmitting insect populations, were bold ideas—allocated $200 Million—and perhaps bordering on the “naïve,” a word used more than once in a speech by Mr. Gates.

This collaborates Milton Friedman’s point about entities not having specific knowledge on how to solve problem, despite the best of intentions, and it’s why we believe CSR is more PR than real progress.

Even Bono gets that capitalism is the only real antidote to poverty.

Ed’s Item

The TV show Shark Tank had an entrepreneur who invented the tree teepee. This is a great example of why Ed believes that entrepreneurs continue the work of creation.

Dawn: Listener Question

We had our first live caller, Dawn from Austin, TX. She asked what economic effect the innovations such as Uber, CarsToGo, and other transportation services will have on the economy.

She also commented that her favorite guest so far was Dr. Jules Goddard.

Ron cited an article that discusses this very issue, from January 3rd, 2015 The Economist, “There’s an app for that.” It points out that some 53 million Americans now work in the “On-demand economy.”

Ron’s Item

On our September 19, 2014 Show, we dealt with The Seven Moral Hazards of Measurements.

In the November 8, 2014 issue of The Economist, “Ranking the Rankings,” it pointed out that international comparisons are dodgy, including rankings of freedom, economic freedom, etc.

Andrew Forest, one of Australia’s richest men, decided to take on modern-day slavery, Bill Gates gave him this advice:

Find a way to quantify it, because if you can’t measure it, it doesn’t exist.

Of course, Dark Matter can’t be measured, but physicists know it’s there.

Result: Global Slavery Index, ranks 160 countries, 30 million slaves? It’s probably overstated to hype the cause, raise money, etc.

Ed’s Item

Uber is not a car service, it’s a software company. Also discussed was Uber’s surge pricing policy, which causes a backlash against the company.

Get over it, folks. You don’t have to pay the “surge prices.” Walk.

Read Russ Robert’s book, The Price of Everything, for an explanation of why price signals are so important for allocating resources to their highest use.

Ron’s Item

On our January 16th, 2015 show we interviewed Dr. Jules Goddard, he made a comment that the “jury was still out on long-term vs. short-term outlook of companies.”

In the November 22, 2014 issue of The Economist, Schumpeter, “The tyranny of the long term,” was the Schumpeter column.

The debate between long-term vs. short-term is not easily settled. A long-term outlook is no guarantee of success: Look at Japan. They were held up for looking out 50-100 years, yet they’ve been in the economic doldrums for decades.

Built to Last authors Jim Collins and Jerry Porras, profiled 18 companies, yet a follow-up study 5 years later only 8 that had out-performed market

Long-term and short-term views are both a virtue and vice, it depends on context: stable, mature industries are wise to take the long-term, but hi-tech and social media companies have to much shorter time horizons.

Amazon, Facebook, Twitter, among others, all have paltry profit performance, but investors appear to be committed for the long run.

The Google founders issued a letter with its Initial Public Offering that is worth reading on this very issue. Google is in it for the long run, and they suggest you don’t buy their stock if you disagree.

Ed’s Item

What if businesses were allowed at their discretion to expense all items that by law now they must capitalize. Well according to a Mercatus Center study full expensing might increase GDP 5 percent or more, and raise wages by 4 percent or more. Oh by the way it would likely create 885,000 jobs.

Ron’s Item

The 55% plunge in the price of oil is an unambiguous economic positive. The USA is now producing some 9 million barrels per day, approximately 1 million less than Saudi Arabia.

The losers: Russia, Nigeria, Venezuela, Iran, and OPEC.

The lost point in the media: This is a technological revolution, not an energy discovery (we’ve known of some of these shale basins for decades).

Historically, when price dropped, exploration actually decreased.

Today, however, when price drops, exploration actually increases, just like Moore’s Law (the number of transistors in a dense integrated circuit doubles approximately every two years).

The Economist has a great article on this from its December 6, 2014 issue, “Sheikhs vs shale.” (Please note articles from The Economist are sometime behind a pay wall.)

OPEC has also been rendered feckless since the USA’s energy revolution. For a cartel to be effective cartel, it needs three things: discipline, dominant market position, and barriers to entry. OPEC lacks all three. It now supplies only 30% of the world’s oil.

This also destroys the whole notion of “Peak Oil,” as energy is now in abundance given our technological sophistication and reduced cost of finding it, and extracting it.

Net Neutrality?

How different from air mail, 1st class and 3rd class mail, or coach, bus class, first class?

Won’t one-size fits all regulation stifle innovation?

We’ll return to this issue in another show.