Do Corporations Control Regulators?

Companies with interests in an industry, may have the greatest financial stake in the regulatory activity of that agency. They are more likely to attempt to influence that body than would individual consumers. The term applied to the possible outcome is called “regulatory capture.”

Members of the consuming public would have little incentive to try to influence the regulators. We would therefore expect that when regulators assign experts to help review and decide policy, this will lead to opinions of former industry members in contact with that industry.

I feel there are some agencies where industry input is essential. High tech and medical are examples. But it is important that independence be truly and consciously maintained

This regulatory capture syndrome extends beyond political agencies and organizations into business, media, and popular culture.

The concept of regulatory capture is one of government failure. Yet, the media and the Left constantly attack the problem as one of a free market shortcoming. ( See the Earl J Weinreb NewsHole® comments.)

Grade School Ineptness

My comments often criticize colleges and college student deficiencies. But never overlook the poor job of the American public school system, and its poor kindergarten to 12^th grade education record.

Real dollars spent have more than doubled in the past forty years as teachers unions have gotten stronger. The number of teachers have increased by more than one third. Yet less than 40% of students who graduate are ready for college level. And, of course, do not measure up to international standards.

A solution is possible, in the form of charter schools where union rules are somewhat relaxed and school vouchers, were funds allocated to public education are set aside for parents to use for private school tuition. ( See the Earl J Weinreb NewsHole® comments.)

Banking Mark-to-Market Accounting

I have been saying all along, going back to 2007, there was no reason to bail out banks. Credit guarantees, and/or takeovers, and in worst cases, conventional bankruptcies would have cleared up the financial mess without the lingering financial recession we now have.

Just one example of pure idiocy in the past: Accounting rules relating to assets, including mortgage-backed securities, required that they be marked-to-market if held for trading, or held "available for sale." Most banks hold such assets in one of these two accounts. Mark-to-market rules unfortunately applied.

Daily pricing of bank assets based on limited markets saw to it that bank net worth disappeared literally overnight. Short sellers legitimately took advantage of the fact and the downward market result became even more exaggerated.

In short: Much of the banking problems we have had could have been avoided with clearer thinking by the “experts.”

The financial meltdown that brought on this deep recession could have been self-corrected by simple market-place principles and no mark-to market accounting. ( See the Earl J Weinreb NewsHole® comments.)

Where We Can Save Tax Dollars

Over-regulation of the U.S. economy is estimated to cost $2 trillion in extra costs that taxpayers will pay in one form or another. These costs come in varying disguises: Windmills, solar panels. battery operated cars. All of which are worthy goals.

But they belong in research labs where they can be studied more deeply before being made commercial, and not subsidized by taxpayers as they are today. Any product that is commercially viable will be brought to market by an entrepreneur seeking profit. Only Big Government believes in the principle of losing money with taxpayer assistance.

Also, in order to save taxpayer funds, do we need an Energy Department or Education Dept, when their functions are state and local matters? Do we need subsidies for sugar farmers and ethanol production? All are just ruses for more, larger government. ( See the Earl J Weinreb NewsHole® comments.)

Should Franchisers Offer Financing?

I am not an advocate of most franchising, both for a franchiser, and someone seeking to buy a franchise.

My comments today are from the perspective of selling a franchise.

The franchisee usually finds it difficult to get financing these days, so any help from a franchiser is welcome. But, I find it dangerous for a franchiser to offer financing to a franchisee unless there is firm collateral. Despite the rosy marketing and promotional material. A franchise is, after all, small business, and that entails risk.

The only type of financing that makes sense is account receivables financing. It actually ties the franchisee more closely to the franchiser. Construction, real estate and general financing does nothing that applies equally to both parties. (See the Earl J Weinreb NewsHole® comments.)

College Snake Oil

Education marketers compare apples and oranges when making earnings comparisons about the financial advantage of attending formal college. That skews career choices of too many kids.

Numbers thrown out by what I call college administration snake oil salesmen, are usually off-the-mark. They often include janitor jobs, in comparison with high tech. Their figures are prejudiced with regard to higher-paying, non-college trades, such as electricians, plumbers, or computer techies.

You are successful because of your skills and enterprise. not a framed piece of paper from a college. Get a marketable ability. Whether it comes from a college or a technical school. Many technical school graduates earn far more than college grads. ( See the Earl J Weinreb NewsHole® comments.)

Tax Cuts Must Be Permanent

Business psychology is not a political liberal’s strong suit. From time to time the Obama Administration, for example, has offered tax cuts when under pressure to do so. But only as temporary measures.

Such temporary, half-hearted tax reductions have little effect because business people plan for years ahead. Temporary cuts are not only meaningless, they are a trap.

For instance, a cut in payroll taxes for a short time is another version of failed Keynesian economics. It adds some money to the economy for a time and sounds good because it appears it will add to consumer spending. But experience shows it has no business multiplier effect for producing jobs. ( See the Earl J Weinreb NewsHole® comments.)

Pareto Optimality’s Efficiency Concept

Pareto efficiency, or Pareto optimality, is a concept in economics. Named after Vilfredo Pareto, the term is used in engineering, game theory, and social sciences.

Pareto used his theory in studies of economic efficiency and income distribution. He claimed that a change from one allocation to another could make one individual better off, without making another worse off. This is referred to as a Pareto improvement. The allocation is called Pareto efficient or Pareto optimal.

The 80/20 Efficiency concept, so often used in management, is his reasoning. For example, 20% of your sales force may contribute 80% of your sales.

I bring it up because the liberals on the political left would do well to reconsider some of their anti-business tirades when trying to create jobs, contemplating the Pareto principles. ( See the Earl J Weinreb NewsHole® comments.)

College Teaching Standards

Over 4,000 colleges and universities enroll over 17 million students. College has obviously become a huge growth industry.

The industry has also mutated negatively, with far too little oversight of quality.

As an example: Colleges appear to be primarily in the business of acquiring students, differing to a degree, only in their approach to marketing.

Some do so as research centers. They may boast professors with science awards and Nobel Prizes which are very appealing marketing devices. Such esteemed faculty also attract more grants and endowments.

But few undergraduate students have these celebrity professors. They often are taught by graduate students.

Parents and taxpayers pay billions of dollars to colleges and universities. Schools make money whether students learn or not, whether students graduate or not, and whether they get good jobs after leaving school, or not.

Colleges and universities thus engage in "bait and switch;" conferring what are actually deficient degrees, and engage in other practices that would bring legal sanctions in any other business. ( See the Earl J Weinreb NewsHole® comments.)

Government Anti-Hiring Tactics

The Obama administration would love to improve the job picture. but continues to overlook how job creation really works.

It does not work by handing out one-time tax credits or benefits. It does help by improving the psychology for hiring. That means providing a clear understanding of the ground rules for business. And those ground rules must be pro-business.

Enterprise requires less cost of doing business. With no future prospects of a choking increase in taxes. That means no higher minimum wages for unskilled labor and ever-increasing burdens such as government-mandated health care.

Inasmuch as government bureaucrats and most politicians have never operated a pushcart, how are they to know the psychology of creating private enterprise jobs? ( See the Earl J Weinreb NewsHole® comments.)

The Small Business Optimism Index

If you want an idea of where the economy is heading and what the chances are for a brightening in the picture for more jobs, you will want to see small business optimism numbers.

The National Federation of Independent Business periodically issues its Small Business Optimism Index. That, better than any political pronouncement from the White House, will tell you how small business folk are prepared to speculate with their hard-earned money, to create needed jobs that the government can only gab about. ( See the Earl J Weinreb NewsHole® comments.

College Student Practical Failures

A Pew Charitable Trusts investigation back in 2006 showed that 50% of college seniors failed a practical test. It had asked them to understand a table about exercise and blood pressure, or understand newspaper editorials, or to compare credit card offers.

Graduates are probably less adept today, from more recent test scores being reported.

Employers say many college graduates lack basic skills of thinking and writing. This is not surprising.

About 20% of college seniors did not have the ability to estimate whether their car had enough fuel to get to a gas station. According to the National Assessment of Adult Literacy, the percentage of college graduates’ ability in literacy had declined from 40% to 31% in the past decade.

I have often said, colleges do more for their teachers and staff, than for a large portion of their students. ( See the Earl J Weinreb NewsHole® comments.)

Economic Environmentalist Damage

Americans in the past created farmland out of forests, swamp and deserts.They produced the world's most widespread and inexpensive agriculture. They built dams and canals.

Today, the population is growing by natural and immigration means. Yet many hundreds of thousands of acres of productive land is pushed out of use. At the same time we have chronic water shortages, particularly west of the Mississippi River.

We are also taking too much productive farmland away from food supplies. As well as making food we do have more expensive.

How? Professional environmentalists stop irrigation wherever they can. Too often it’s to save threatened species of fish and other organisms they view on the same level with human needs. ( See the Earl J Weinreb NewsHole® comments.)

College Grade Slight-of-Hand

I often provide this example of what goes for the best available education today.

At the College of the City of New York during World War II, students were admitted only if they had the highest grades in local schools.

If they were getting deferments because they were science and engineering majors, they had many of their classes marked on a “curve.” This was comparable to having to make the cut in professional golf. The lowest 10% to 15% of each class flunked, no matter what mark they got. Classmates competed against each other.

In the toughest college in the city, perhaps the U. S., open only to the top high school graduates, a student with one class failure immediately flunked out.

Compare that to the Ivy League standards of today!

Students go to Ivy League schools because of the aura about them, and the contacts they afford. The vaunted Ivies are not tough once you are admitted.

If anything, they are overrated. We see their products in Wall Street and government. ( See the Earl J Weinreb NewsHole® comments.)

Planet Warming in Dispute

The sun has been its least active in decades. It’s in its dimmest phase in a hundred years.

This is causing, in fact, scientists to recall the Little Ice Age, an unusual cold spell in Europe and North America, that lasted from about 1300 to 1850. The coldest period of the Little Ice Age was between 1645 and 1715, linked to a deep dip in solar storms, known as the Maunder Minimum.

Access to Greenland, at that time, was largely cut off by ice. Canals in Holland routinely froze solidly. Glaciers in the Alps covered whole villages, and sea ice increased so that no open water flowed around Iceland in 1695.

For hundreds of years scientists used the number of sunspots to trace the sun's roughly 11-year cycles of activity. Sunspots indicate intense magnetic activity on the sun's surface. Solar storms send bursts of charged particles hurtling toward Earth.

Changes in the sun's activity affect earth in other ways. Research has developed a theory that the sun has a bigger influence on earth's climate than others have predicted.

That throws the global warming pessimists who are anti-auto, anti-industry, and anti-industrial development, into their usual dilemma. (See the Earl J Weinreb NewsHole® comments.)

Executive Appearance as an Evaluation Factor

Selecting executives primarily for their good looks is well-known. It is an unfortunate fact of business life, as in politics.

Top business executives often get where they are on the basis of their good looks. This is particularly so, it appears, when it comes to women.

For men, the taller and handsome they are, the more advancement they achieve. With attractive women, there is a disclaimer. Being too pretty translates as dumb, especially among blonds.

This is unfortunate but my experience in the business world has taught me that too many execs look for shortcuts when evaluating talent among prospects.

All forms of prejudices, including, good looks, fuel and simplify those shortcuts. (See the Earl J Weinreb NewsHole® comments.)

Dubious College Grades

Both college and high school educations are not what they once were. You can call it educational inflation. College levels especially.

When it becomes too easy to enter college you get a diminution of educational principles. Educators dumb down courses, to appeal to a student’s lowest ability.

Also, affirmative action is practiced, and not just for conventional minorities. It is there for any group not equally represented on attendance roles.

Moreover, schools market themselves by appealing to the baser instincts of students. The idea is to fill the rosters by making it easier to attend.

Students, therefore, wind up in the easiest courses, That’s why so many graduates are unable to find real, practical jobs. Or why we have so many with easy-to-get law degrees and so few who are doctors and scientists. (See the Earl J Weinreb NewsHole® comments.)

Government Bailout Damage

The liberal media and left-leaning members of Congress make much of the fact that most of the bailout is being paid back or will eventually be.

But that is not the important result of what happened with that attempt to get the economy moving. It is not how much money was put up and how much has been repaid. It is the effect of the bailout and what it signified.

First, the bailout did not work despite today’s rationalization. Doing nothing would have not been the disaster we were lead to believe.

Most importantly: Government interference in all its forms is what caused damage. The meddling, the setting of business policies, and the hiring and firing at bureaucrat whim, to go with salary caps; all that resulted and that is state capitalism or socialism. ( See the Earl J Weinreb NewsHole® comments.)

Ideal Franchiser Financing

As you probably know by now, I do not believe most franchises are worthwhile buying. They should be bought for name recognition and business training. Most franchisers, by far, offer little of both, so why buy into them?

If I were selling franchises and I had little to offer in the way of name recognition and ongoing training I would have to offer some other advantage to keep franchisees happy.

These days. especially, it’s financing. Yet, very few franchisers are able to do so. The ideal type, depending on the business, is accounts receivable financing. It helps the franchisee and keeps him attached to the franchiser. (See the Earl J Weinreb NewsHole® comments.)

Roosevelt, Obama and Tax Lessons

Increased taxes were a major part of Franklin D. Roosevelt’s New Deal, during the 1930’s, along with an expansion of strict political controls. Merely started by President Herbert Hoover, the actions devastated the American economy in the 1930’s.

All this central planning around open and hidden taxes is where we are mired under the Obama Administration. Yet, with financial history for us to learn from, we have not acquired any practical lesson from the 1930’s Great Depression.

The Obama Administration has attempted to tax the U.S. out of a recession, right into a deeper one of stagflation. One, where we suffer from a lack of decent, private-industry jobs, amidst much higher prices. ( See the Earl J Weinreb NewsHole® comments.)

The Rich and Poor Gap

There is a big difference between the rich and poor as a group in the U. S.. However, folks within the actual numbers are not the same each time the statistics are noted.

Individuals move from one category to another within groups. The poor people measured at one time may not be the same that are being counted in the following survey. They may no longer be poor.

Millions keep constantly moving from one income category to another. Thus, you may have been in the poor bracket in the first measurement, but have now moved into to a higher level.

This throws much of liberal political policy into a loop, whenever they talk about handouts for the poor, or the need for a livable wage for the poverty-stricken, or for those earning a minimum wage.

The Left conveniently goes on the assumption that earnings of those they measure are static. That it’s the same folks entrenched in constant financial mire. And that they need a hand to move out of the poverty group. Most have already left with each measurement.

The truth is, in the U.S. most are moving outward and upward. ( See the Earl J Weinreb NewsHole® comments.)

Basic Non-Political Economics: “Taxing the Rich”

Whenever a politician utters the magic phrase “Tax the Rich” I suggest you put on your thinking cap and remember these facts:

Taking the latest 2009 figures, about 8.2 million Americans earned $10 million dollars or more that year. They sure were rich. If you taxed those scoundrels 100% of their earnings, every penny they were “lucky” to get, the government would come up with $240 billion.

That lasts Uncle Sam a few weeks.

The truth: The top 1% earners pay about 37% of taxes The top 5% pay about 53% The top 10% pay about 68% of taxes/ The top 50% of income earners pay 96% of taxes, so if some folks are getting away with not paying taxes, it’s not the ‘RICH’

Furthermore, most of the rich earn, not inherit their wealth, so taxes are a burden on the entrepreneurial, job-producing economy. ( See the Earl J Weinreb NewsHole® comments.)

Tax “Cost” and Reality

Capital gains and dividends at only 15% is said to “cost” the government $403 billion each year. Capital gains at death are an additional $194 billion.

But what if there were no capital gains and dividend taxes?

The political left continues to think of tax "cost” in terms of “static" accounting. That is, they think solely in terms of what the government gives up in tax elimination, but not in potential revenues from such action.

However, past experience indicates that lower tax rates produce higher tax revenues. A look at gigantic tax revenue increases after the Reagan tax cuts is positive proof. The George W. Bush tax cuts as well.

For reasons known only to liberals and those on the left who want higher tax rates because they produce more massive government, the left thus persists in mouthing antiquated tax “costs” jargon.( See the Earl J Weinreb NewsHole® comments.)

Graduate School Liberal “Education”

Further to my past comments on liberal professors, the problem is not confined to undergraduate schools.

At major graduate schools offering Ph.Ds, over 60% of faculty are Democrats, 30% are independents and only 10% are Republicans.

This demonstrates the problems in attempting to educate those who become our future teachers, community leaders, and members of the media.

A further surprise: Business school professors who are believed to be chiefly conservative, actually voted two to one for John Kerry in 2004.

My experience on Wall Street indicates that many there tend to be liberal. This is, of course, contrary to what the media tries to impress on the general public. (See the Earl J Weinreb NewsHole® comments.)

So-Called Poverty in the U.S.

Thomas Sowell, one of my favorite economists, recently noted in a column, that “ If there were a contest for the most misleading wordsused in politics, ‘poverty’ should be one of the leading contenders…”

Having grown up in poverty, and oppressive discrimination, Mr. Sowell knows well of what he speaks.

But the “poverty-stricken” of the U.S. today, for the most part, have cars, color cable TVs, air conditioners, their own homes and other amenities, that the poor of other nations would never dream of ever possessing.

As Thomas Sowell says, “ This is not just a question of semantics. The whole future of the welfare state depends on how poverty is defined. 'The poor' are the human shields behind whom advocates of ever bigger spending for ever bigger government advance toward their goal.“

After all, how would the liberals sell their bigger government without poverty propaganda? ( See the Earl J Weinreb NewsHole® comments.)

College Professor Political Leanings

Surveys at major colleges indicate the overwhelming bias toward the Democrat party candidates over Republicans by faculty.

Surveys showed that close to 80% of faculty voted for Democrat John Kerry In 2004, About 1% voted for Ralph Nader, and only 20% voted for President George W. Bush. Social science professors, gave Ralph Nader about 20% of the 2004 vote, as large as that for President George W. Bush.

The pattern continued apace in 2006 and 2008 elections.

This indicates the imbalance you get from those teaching.

And it gets more slanted when the study delves into specific areas. Liberals outnumber conservatives by 11 to 1 among social scientists and 13 to 1 among the humanities professors. As many as 25% of those who teach sociology consider themselves Marxist.

At major graduate schools offering Ph.Ds, over 60% of faculty are Democrats, 30.% are independents and 10% are Republicans. ( See the Earl J Weinreb NewsHole® comments.)

$1Trillion in Waiting to Really Stimulate the Economy

About $1 trillion in cash is now held by S&P 500 companies. However, the vast majority of corporations are too scared of the economic environment, to act and employ the funds.

You can’t blame them, when they worry about encroaching taxation and regulatory agencies in Washington. The Obama administration keeps informing them by word and bureaucratic action that it’s ready to impose anti-business diktats, over which Congress has often no vote or power to control. ( See the Earl J Weinreb NewsHole® comments.)

Corporate Consultant Assurance

Corporations with experienced staff, having experts with years of background in their business, still hire consultants, whose staffs are replete with youngsters just out of business school.

Companies already have their own experts who know their business intimately. They study their operations from every angle, on an ongoing basis. So why the consultants?

My conclusion has always been that these often newly-minted consultants have always been a form of business insurance. Even though their ”fresh look” often is amateurish.

It’s much the way investment bankers are called upon for advice. They, too, are often relatively inexperienced.

The rationale? When confronted by plaintiff lawyers, you can say you tried correct management. You have taken adequate precautions in your duties as a manager by using consultants. ( See the Earl J Weinreb NewsHole® comments.)

Dodd-Frank Obsolete?

One of the main reasons for the creation of the Dodd-Frank Act was to create a banking system where no bank was too big to fail.

Now government insiders admit big banks will not be allowed to fold. In fact, credit markets permit big banks to borrow at lower cost than do middle-size and smaller banks.

Everyone involved in the financial community realizes that big banks have become even bigger and impose more systemic risk than ever before, BECAUSE of the Dodd-Frank Act.

And the regulations are still not all in place. ( See the Earl J Weinreb NewsHole® comments.)

State and Local Licensing Requirements

Some spotlights are again being trained on the various local and state licensing requirements, now that many unemployed are seeking to enter their own small business operations.

Often, such licensing is used as a means to restrain trade, done to keep competition out of established trades. Like old guilds and trade organizations. In many instances, licensing has little to do with standards or community protection; they’re a means of reducing competition. ( See the Earl J Weinreb NewsHole® comments.)

Jobs and Job Mobility

There are often jobs to be had in a particular trade but not in a specific location. Therefore, job mobility has become an important factor.

It also explains why younger folks are more readily able to adapt to unemployment, once they have necessary skills. America has always had a lower unemployment rate than Europe, for example, because we have more job mobility than Europeans.

During the severe unemployment crisis of 2009, 3 million jobs were still open while 13 million were unemployed. Skills were needed, but also mobility. ( See the Earl J Weinreb NewsHole® comments.)