Episode #227: Free-Rider Friday, January 2019

Ron Thinks ASMR Is Super Bowl Big…

Autonomous Meridian Sensory Response - or ASMR - is an effective tactic in advertising. Case in point from the SuperBowl: “Zoe Kravitz Does ASMR, Whispers About Michelob Ultra’s Pure Gold Organic Beer in Super Bowl Spot,” AdWeek, Kristina Monllos, January 28, 2019

 Here is some more information from Wikipedia to get you started on the subject of ASMR.

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 What do comedy, Trump, and Broadway have in common?

…more than you might think. Colin Quinn’s one-man off-Broadway show is real talk. He tackles some tough subjects and shows guts. Some might even call it counter culture. More here: “The Comedy Counter-Counterculture,” Kyle Smith, National Review, January 29, 2019

Don’t make me craugh. I might spit out my milk. Or cry in despair…

From FEE this past week, we had a great article on the North Korean constitution and a new word for everyone to file away. More here: “North Korea’s Constitution Makes Me Craugh,” FEE, Lawrence W. Reed, January 30, 2019 

Craugh: The temptation to cry and laugh at the same time (Reed conjured up this word while reading North Korea’s constitution)

At one point, we all thought Bezos was just a little crazy…

In hindsight, many of Jeff Bezos’ letters to Amazon shareholders have been great reads. Even years later. This one in particular is from 1997. So get in your Wayback Machine (maybe a Motorola in your pocket and definitely a CRT monitor on your desk) and take a look at this one: “Investor Letters: Jeff Bezos’ 1997 Letter to Amazon Shareholders

From this letter, we have Bezos’ four tenants:

  1. Be obsessed with the customer

  2. Focus on results over process [hat tip to House, M.D.]

  3. Make high quality decisions quickly

  4. Embrace external trends quickly

When Bezos was asked by an employee what Day 2 at Amazon will look like, he said Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death.

For a contrary view on Day 2, see Debbie Madden’s column in Inc.: “Jeff Bezos Says It’s Always Day 1 at Amazon. Here’s the Big Problem With That Philosophy

A Huge Hat Tip to Tim Williams…once again 

Don’t Change Your Practices, Change Your Mind,” Tim Williams, Ignition Consulting Group, January 15, 2019

Speaking of Tim Williams. Do yourself a favor and follow him on LinkedIn. He’s a LinkedIn influencer and every piece he writes is worth reading.

So what did Ed want to talk about this week? Texas.

If Texas were its own country, it would be the third largest oil producer in the world. Heck, if Texas were its own country, by many measures it would be the third largest country in the world too. (Wikipedia link for data points)

Larry Lessig still fights for the commons…

In 1922, Robert Frost wrote a poem. Until now, you had to pay a royalty to use it. Robert Frost poem enters the public domain as of January 1, 2019.

From the Be Careful What You Ask For department… 

Let’s get Caesar involved! (written by Allan Patterson) Go ahead, click the link. You’ll laugh. You might even craugh.

Let’s Get Deep For A Moment…

So what does Jesus have to say about the welfare state? Mr. England has a few thoughts in his article: “Jesus on the redistribution of wealth,” Randy England, Liberty.me, January 15, 2019

Creating An Emotional Connection With Your Dish Detergent…

Something that happens time and time again. That brand WANTS you to love it. That brand WANTS you to feel an emotional connection. But it’s dish detergent so are we expecting too much? Probably. And that’s why “Brand purpose is a lie,” …from Fast Company, January 17, 2019

Episode #226: A Priest and a Rabbi...

Folks, we have the Judeo-Christian tradition on the show! Ed and Ron were honored to have back on the show for the third time, and at the same time, Father Robert Sirico and Rabbi Daniel Lapin. Join us for another fascinating conversation with these two mentors, covering issues from economics, liberty, freedom, truth, and a host of other topics.

Rev. Robert A. Sirico received his Master of Divinity degree from the Catholic University of America following undergraduate study at the University of Southern California and the University of London. During his studies and early ministry, he experienced a growing concern over the lack of training religious studies students receive in fundamental economic principles, leaving them poorly equipped to understand and address today's social problems. As a result of these concerns, Fr. Sirico co-founded the Acton Institute with Kris Alan Mauren in 1990. His writings are published in a variety of journals, including: the New York Times, the Wall Street JournalForbes, the London Financial Times, the Washington Times, and National Review. He is a member of the prestigious Mont Pèlerin Society, the American Academy of Religion, and the Philadelphia Society. He is the Pastor of Sacred Heart of Jesus parish in Grand Rapids, Michigan. Father Sirico holds dual Italian and American citizenship.

Rabbi Daniel Lapin was born into a prestigious Torah family. He was a student of his father, Rabbi A.H. Lapin, who served the Jewish communities in Johannesburg and Cape Town, South Africa, eventually immigrating to America with his wife where they established the Am Echad synagogue in San Jose, CA. He learned in yeshivas (Torah schools) in England and Israel as well as studying physics, engineering and mathematics in S. Africa. Rabbi Daniel immigrated to the U.S. where, along with Michael Medved, he founded the Pacific Jewish Center in California. In 1992, he and his family relocated to Washington State where he began his work strengthening the Judeo-Christian roots of this country by writing, speaking and standing shoulder to shoulder with prominent Christian leaders, leading to the establishment of the American Alliance of Jews and Christians. In 2002, Rabbi Lapin wrote his bestselling book Thou Shall Prosper: The Ten Commandments for Making Money.

Ed’s Questions

Father Sirico, you wrote in your book Defending the Free Market: Freedom is not a goal or virtue in itself. Ultimately, the aim of freedom must be the truth. You value the truth more than your freedom. Can you explain that, and then we’ll get Rabbi Lapin’s reaction.

Peter Block, a consultant and previous guest of the show [Episode #183], defines liberty as the absence of oppression, freedom is the act of commitment (a choice to have an intention to create a certain kind of world).

Father, what is your favorite story, part, or concept from the Old Testament? And Rabbi, what is your favorite story, part, or concept from the New Testament? Do you have favorite concept from the Old Testament?

We humans are said to be a tribal species, but it seems nowadays that tribalism has gotten completely out of hand, and is running amuck, with people running to quick judgment. Would you address this notion that being tribal is ok, but tribalism really seems to be a problem?

Ron’s Questions

Rabbi Lapin, on your recent podcast, you laid out a principle: The Bible is the source of morality. But the Bible’s morality applies to individuals, not to nations. Can you explain what you mean, and then we’ll get Father Sirico’s reaction.

Why do we tend confuse poverty with virtue (or piety)? Father I’ll start with you. [Rabbi Lapin wrote in Business Secrets of the Bible: “The opposite of wealth is evil. If wealth isn’t being created, then evil is being done.” And if wasn’t for the Bible, we wouldn’t have the word “poor”.

Prior Shows with Father Robert Sirico and Rabbi Daniel Lapin

Books by Father Robert Sirico and Rabbi Daniel Lapin

Episode #225: The Real Monopolies: Occupational Licensure

In 1950, one out twenty occupations required some type of licensure. Today, it is almost one out of three. There are three levels of occupational licensure:

  1. Registration

  2. Certification

  3. Licensure

Political organization is a far better predictor of licensure than the danger the profession poses to the public (measured by liability premiums).

Some Suggested Reading:

One book that really changed Ron’s mind on this topic is The Rule of Experts: Occupational Licensing in America , S. David Young, 1987 (CATO).

President Obama was likely the first president to ever discuss occupational licensing in a public speech (speech before national Governors’ Assn), and his Council of Economic Advisors issued a report, which included 80 pages that are highly critical of occupational licensure.

George Bernard Shaw: “All professions are a conspiracy against the laity.” Economists have documented the following effects of licensure:

  • Limit consumer choice

  • Raise consumer prices

  • Increase practitioner income

  • Limit practitioner mobility

  • Deprive poor of adequate services (rich drive, poor walk)

  • Restrict job opportunities for minorities, older workers

  • Stifle innovation and creativity—had retailing been subject, supermarkets, big box, Amazon could have never happened

Thomas Edison had little formal education and could not have been licensed as an engineer under today’s guidelines. Frank Lloyd Wright would not qualify to sit for the architect’s certifying exam. Cranks, crackpots, and outsiders bring innovation.

Colonial America Cotton Mather and his fellow clergyman fought to establish inoculation as a cure for small pox: their leading opponents were doctors.

The first law in the USA was in Virginia in 1639, which regulated physicians fees. The second law regulated the quality of physicians service in Massachusetts 10 years later.

The American Medical Association (AMA) was formed 1847, and by 1900 every state had mandatory licensing law.

Most licensure imposes experience requirements—usually an arbitrary length. Until courts stopped it, it took longer to become a master plumber in Illinois than to become a Fellow of the American College of Surgeons.

Citizenship and residency requirements are also part of licensure. Many of these began in the 1930s as European refugees came to the USA.

More Suggested Reading:

Another great book is The Right to Earn a Living: Economic Freedom and the Law , Timothy Sandefur, 2010 (CATO).

A Louisiana law licensed florists. It requires a one-hour written exam and 3-hour performance exam that tests on “harmony” and “effectiveness” of floral arrangements.

Since 2000, fewer than 50% have passed!

One witness testified in court in a case that was challenging the licensure law: “I believe that the retail florist does protect people from injury…We’re very diligent about not having an exposed pick, not having a broken wire, not having a flower that has some type of infection, like, dirt that remained on it when it’s inserted into something they’re going to handle, and I think that because of this training, that prevents the public from having any injury…”

This doesn’t pass the laugh test. However, it did pass the “rational basis test.”

Cause and Effect:

In 2007, psychics in Salem, MA lobbied for licensing as a requirement to protect the public. But it is literally impossible to be a competent psychic.

In 1881, the National Burial Case Association set prices for coffins across the industry. Two years later, the National Funeral Directors Association fixed the price of adult coffins at $15, a large sum in those days. For a wooden box your kid could make in wood shop.

Interior designer license is one of the most difficult to earn. Only three states and Washington, D.C. offer it. It requires 2,190 days of education & experience (6 years)!

They argue that carpets could begin sparking infernos, porous countertops could spread bacteria, mis-chosen jail furnishings can be used as weapons.

In Illinois, barbers and manicurists are licensed, but not electricians, even though shoddy electrical job could burn down your neighborhood, but your hair will grow back.

Let’s Talk Liberty and Freedom:

This is not just a dollars and cents issue, it’s a liberty and freedom issue. One doesn’t have to ask permission to exercise one’s rights. The right to earn a living: marry, travel, have children, (drive), worship, etc.

Even the Magna Carta protected the right of “any man to use any trade thereby to maintain himself and his family.”

This right to earn a living was transformed into a privilege that could be revoked whenever politicians decided that doing so would be a good idea.

In License to Work: A National Study of Burdens from Occupational Licensing , Dick M. Carpenter, Lisa Knepper, et. al., they describe a new occupation: Permit Expediter. In Los Angeles they exist for helping restaurants comply with all of their licensing. In Washington, D.C. former Consumer and Regulatory Affairs bureaucrats help with licensing.

But in Chicago, Permit Expediters are so common, they have their own license!

The book also studied 102 low-income occupations, such as: Interior designer, shampooer, florist, home entertainment installer (8 months), funeral attendant, tree trimmers (1+ year), shoe shiners (Newark).

On average, states license 43 occupations (LA = 71/102, OR = 59; WY = 24 fewest).

CA licenses 177 job categories and Hawaii imposes the most burdensome requirements, while PA has the lightest.

Most of the 102 occupations are practiced somewhere without licensure or widespread harm.

The average cosmetologist requires 372 days training while the average EMT requires 33 days.

One argument made in favor of licensure is asymmetric information, but that is true in a lot of markets (houses, cars, etc.). Information will never be perfect; it’s costly to acquire.

Reputation is stronger than regulation. And of course there is always tort law.

Milton Friedman wrote his PhD thesis with Simon Kuznets, Income from Independent Professional Practice (NBER, 1945). One excuse he constantly heard from the medical profession was: letting too many people in would lower incomes to such an extent that doctors would resort to unethical practices to increase their income.

Friedman replied: “This has always seemed…objectionable on both ethical and factual grounds. It is extraordinary that leaders of medicine should proclaim publicly that they and their colleagues must be paid to be ethical.”

Another excellent book is Bottleneckers: Gaming the Government for Power and Private Profit, by William Mellor and Dick M. Carpenter II.

The Chairman and founding GC of Institute for Justice, and director of strategic research, www.ij.org.

They define Bottlenecker as: A person who advocates for the creation or perpetuation of government regulation, particularly an occupational license, to restrict entry into his or her occupation, thereby accruing an economic advantage without providing a benefit to consumers.

Justice William O. Douglas: “The right to work is the most precious liberty that man possesses.”

Conclusion: these laws really hurt the poor and minorities, exacerbate inequality, and even harm kids (can’t have a lemonade stand).

Episode #224: The Best Books We Read in 2018

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“I think we ought to read only the kind of books that wound and stab us. If the book we are reading doesn’t wake us up with a blow on the head, what are we reading it for.” -Franz Kafka

Ron’s Five Best Books in 2018

5. The Tyranny of Metrics, Jerry Muller

“Juking the stats”—the way in which institutions are perverted, as effort is diverted from its true purpose to meeting the metric targets.

Surgeon avoids tough cases—creaming, avoiding risky instances that might have negative effect impact on metrics.

“While we are bound to live in an age of measurement, we live in an age of mismeasurement, over-measurement, misleading measurement, and counter-productive measurement. The problem is not measurement, but excessive measurement and inappropriate measurement—not metrics, but metric fixation.”

Hospitals penalized % patients fail survive for thirty days beyond surgery, so they kept the patient alive for 31 days.

The Tyranny of Metrics
By Jerry Z. Muller

Metric fixation leads to a diversion of resources away from frontline producers toward managers, admin, and those who gather and manipulate data. Goodhart’s law: Any measure used for control is unreliable.

Metric fixation stifles innovation, risk-taking, and creativity, and creates a short-term vs. long-term outlook. During Vietnam War, Robert McNamara substituted civilian mathematical analysis for military expertise.

In the book, Muller covers:

  • Colleges and Universities

    • Training, oriented to production and survival

    • Education, oriented to making survival meaningful

  • Schools

  • Medicine—diagnosing and treating disease, American medicine is best in world; lifestyle patters beyond control of Drs

  • Policing

  • The Military

  • Business & Finance

  • Philanthropy and Foreign Aid—the snake of accountability eats its own tail

Sunlight best disinfectant, Wikileakism. More often, result is paralysis. Transparency becomes the enemy of performance

You can listen to Jerry Muller being interviewed by Russ Roberts on EconTalk

4. Strategic Cost Transformation, Dr. Reginald Lee

Ron was honored to write the Foreword, where he states:

“Dr. Lee’s distinction between noncash costs and cash costs is brilliant, not to mention essential for understanding how manipulating costs will not alter cash. The goal is to generate cash profit, not accounting profit. Most costs in organizations today are for capacity: Human capital, facilities, and technology. These costs don’t change based on how they are utilized, and yet cost accountants force math relationships that make it appear as if they did, such as cost per hour. The fact is, services and products don’t have costs, organizations do.

Besides, as Dr. Lee makes clear, “You don’t need calculated costs for managerial purposes. The data in the OC domain are precise and unambiguous [measurements]. The AD information is ambiguous and messy [metrics]. OC provides everything AD does without the drama.”

Cost accountants have all sorts of metrics in their toolboxes they claim are the magic bullet for calculating profitability per job, or per product/service. Yet these metrics of margin analysis won’t predict the need for additional capacity, or help you model cash flow, nor do they tell you from a pricing perspective if you’ve left money on the table.

Further, these metrics do not help you improve the future performance of your organization. Cost accountants are collectively plunging a ruler into the oven to determine its temperature—it is the wrong tool.

Listen to our interviews with Dr. Lee: Episode #200 and Episode #112.

3. Factfulness, Hans Rosling

Son, Ola, daughter-in-law, Anna, also co-authored the book.

Hans Rosling, R.I.P. [July 27, 1948 – Feb 7, 2017]

The book begins with a test, here are few of the questions, with the correct answer in bold.

Where does the majority of the world population live? Low income countries (9%)/middle (75%)/high income countries

In last 20 years, proportion of world population living in extreme poverty has… Almost doubled/same/almost halved

On average, 7% get it right (less than 1 in 10), all around the world, all types of professions, including Nobel Prize winners, and medical researchers worst

They did worse than random chance!

Chimps would do better—and their errors would be equally shared between the two wrong answers. The human errors all tended to be in one direction—the world is worse than it really is.

Rosling calls this an “Overdramatic worldview,” and it’s not the media’s, or the school’s fault, etc.

It’s how our brains work: illusions don’t happen in our eyes, they happen in our brains.

One linguistic change he convinced me of: there is no gap between the “developed” and “developing” worlds.

2. In the First Circle, Aleksandr Solzhenitsyn

Shunning the moral relativism that permeates modern thought, Solzhenitsyn unapologetically treats good and evil and the human soul as metaphysical realities.

Four days in a sharashka (slang for a prison research institute), December 24-27, 1949

Polyphonic principle: no single character dominates the novel.

To sum the book up: What does it mean to be a human being?

Solzhenitsyn last words to his fellow countrymen as he departed into exile: “Live Not by Lies!”

“The man from whom you’ve taken everything is no longer in your power; he is free again.”

“Lenin and Trotsky were right: If you couldn’t shoot people without trial, you would never be able to make history at all.”

“Socialism without Stalin was no different from fascism!” (Stalin to himself)

Mrs. Elanor Roosevelt: ask the prisoners whether any of them wished to address a complaint to the UN?

“They unanimously protest against the distressing situation of the blacks in America and ask the UN to look into the matter.”

There are two episodes on EconTalk on this book, with Russian Literature Professor Kevin McKenna. The first one talks about Solzhenitsyn the man, and the second discusses the book [spoiler alert for the second interview]. 

Ed’s Five Best Books in 2018

5. The Vampire Economy, Gunter Reimann

4. Tomorrow 3.0: Transaction Costs and the Sharing Economy, Michael C. Munger

Listen to our show with Mike Munger, Episode #190.

2. Win Bigly, Scott Adams

And… Ron and Ed’s #1 Book for 2018 surprising no one…

1. Life After Google, George Gilder

  • Kurt Godel: “Every logical system necessarily depends on propositions that cannot be proved within the system.” The mathematics of information, led to computers.

  • Computers required what Alan Turing called “oracles” to give them instructions and judge their outputs. Also led to Claude Shannon’s information theory.

  • Gordon Bell coined Bell’s Law: every decade a hundredfold drop in the price of processing power engenders a new computer architecture.

Listen to our interview with George Gilder on Life After Google, Episode #207.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #223: 2018 - The Year in Review

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RIP

  • President George Herbert Walker Bush

  • Barbara Bush

  • John McCain

  • Charles Krauthammer

  • Marty Allen, comedian

  • Penny Marshall

  • Stephen Hillenburg, Creator SpongeBob Squarepants, ALS, 57

  • Roy Clark

  • Stan Lee

  • Paul Allen

  • Burt Reynolds

  • Neil Simon

  • Robin Leach

  • David Ogden Stiers, M*A*S*H

  • Aretha Franklin

  • Charlotte Rae (Edna Garret, The Facts of Life)

  • Adrian Cronauer, 79, American airman, radio show was inspiration for Good Morning, Vietnam

  • Joe Jackson, patriarch of Jackson family, 89

  • Anthony Bourdain, 61

  • Kate Spade, 55

  • Dwight Clark, The Catch, ALS, 61

  • Jerry Maren, 98, last surviving munchkin from The Wizard of OZ

  • Verne Troyer, Mini-Me in Austin Powers, 49

  • Tom Wolfe, 87

  • Margot Kidder

  • Larry Harvey, Founder of Burning Man Festival, 70

  • Harry Anderson, Night Court, 65

  • R. Lee Ermey, Full Metal Jacket drill sergeant, 74

  • Linda Brown, center of US Supreme Court Case ended segregation, 75

  • Stephen Hawking, 76

  • Bill Graham, 99

  • John Mahoney, Frazier, played the father, 77

  • Jerry Van Dyke, 86

  • John Young, Astronaut, walk on moon, first space shuttle flight, 87

  • Ken Berry

  • Richard Harrison, The Old Man on Pawn Stars, 77, Parkinson’s

TSOE Shows in 2018

Out of 50 live shows in 2018, we had guests on 23 of them (46%). Big shout out to our show runner, Thomas Casey, for arranging most of the wonderful guests we had on, and thank you to all the wonderful guests for appearing on the show.

Ron’s Five Favorite Shows of 2018 

  1. Bad Medicine, Episode #178

  2. Laws of Systems Thinking, Episode #175

  3. The Subscription Business Model, Parts I & II, Episodes #217 and #221

  4. Top Ten Pricing Lessons, Episode #196

  5. The Value Guarantee, Episode #179

Ed’s Data-driver Top Shows according to YOU

Top 3 interview shows

  1. George Gilder, Episode #207, Life After Google

  2. Stephan Liozu, Episode #203

  3. Russ Roberts, Episode #213

Top 3 topic-driven shows

  1. How to Have a Value Conversation, Episode #182

  2. The Subscription Business Model, Part I, Episodes #217

  3. Top Ten Pricing Lessons, Episode #196

Pull-quotes from our Guests

Mentors and Economists

Ron’s 37-year mentor, George Gilder, Episode #207, Life After Google

  • “We have to act in the darkness of time”

  • “Faith precedes knowledge, faith precedes action, faith precedes meaning”

  • “You can’t have any logical, rational system without faith”

Ed’s long time mentor, Peter Block, Episode #183

  • “Liberty is the absence of coercion; freedom is a choice, a commitment”

  • Ed sang to Peter!

  • Eisenhower asked computer, “Is there a God?” “There is now.”

Thomas Hazlitt, Episode #184, The Political Spectrum

  • The story of naming the SS Minnow from Gilligan’s Island

  • The iPhone wouldn’t have been allowed with net neutrality

Don Boudreaux, Episode #187

  • Public Choice is “Politics without romance.”

  • If mass transit is going to be measured by the number of jobs it creates, then we should have publicly funded Rickshaws, since there is a 1:1 of jobs and passengers

Michael Munger, Episode #190, Tomorrow 3.0

  • Uber is not threat to taxis, but to Amazon (Sears was first Amazon)

  • Triangulation, Transfer, Trust

  • To the customer, all costs are transaction costs

Russ Roberts, Episode #213

  • From Russ’s recent podcast, a Chinese proverb: “No food, one problem. Lots of food, many problems.”

Walter Williams, Episode #216

  • Referring to minimum wage laws: “They don’t even pass the sniff test.”

Other notable guests: a journalist, a former Thunderbird(!), authors, entrepreneurs, etc.

Mark Skousen, Episode #205

John Stossel, Episode #204

Chris “Elroy” Stricklin, Episode #214

Jeffrey Tucker, Episode #201, Right-Wing Collectivism

Barry Melancon, Episode #177, President of the American Institute of CPAs

Blair Enns, Episode #188, Pricing Creativity

Phil Rosenzweig, Episode #191, The Halo Effect

  • “Whenever someone says ‘We have the right strategy, we just need to execute better,’ I make sure to take an extra-close look at the strategy.”

Mary Ruwart, Episode #192, Death by Regulation

  • Ed: “Your book is more horrific than a Stephen King novel, because it’s real.”

  • “At least one-half of Americans who died lost at least a decade off their lives because of the 1962 FDA Amendments”

Reginald Lee, Episode #200, Strategic Cost Transformation, VeraSage Senior Fellow

Warren Myer, Episode #218, Coyote Blog, and Climate-Skeptic

Ron Quaranta and Erik Asgeirsson, Episode #212, Erik is the President and Chief Executive Officer of CPA.com, and Ron is the Founder and Chairman of the Wall Street Blockchain Alliance.

Stephan Liozu, Episode #203, Chief Value Officer of Thales Group, Professional Pricing Society Faculty, author

David Meikle, Episode #206, How to Buy a Gorilla

Ryan Lazanis, Episode #210, Founder of Xen Accounting

Alessandra Lezama, Episode #195, AbacusNext CEO

Jeff Kanter, Episode #197, Co-founder of HealthExcellencePlus.com 

Honors

Michael Palin, Knighted, Sir Palin 

Predictions Made about 2018

2 Comments

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #222: Free-Rider Friday, December 2018

Episode #222 reminded Ed of the old TV show, Room 222, which ran from 1969-1974 (typical bad 70’s TV).

rm222.jpeg

Ed’s Topics

Warren Myer, Coyote Blog, October 2018, the real scandal in climate science.

Andrew Winston, Harvard Business Review article on pending climate catastrophe.

Ed’s brother’s Christmas joke.

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[On the take down of the 1984 song “Do They Know it’s Christmas” by Band Aid, see our shows with Father Sirico, Episode #134, and Magatte Wade, Episode #160, and the movie they made, Poverty, Inc.].

From Intellectual Takeout, November 25, 2018, Socialists are more materialist than capitalists.

New York Times, December 21, 2018, “What is Glitter?”

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Ron’s Topics

IBM’s rebel yell,” The Economist, November 3, 2018

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    • IBM bought Red Hat, $34B, 63% premium

    • Founded 1993, $2.9B revenue

    • For 22 quarters IBM revenue declined

    • Culture clash IBM straight-laced, Red Hat freewheeling

    • Watson: disappointment in AI

    • Red Hat name: 18th-century revolutionaries in American and France wore red caps.

    • Now, open-source looks like the establishment

Coping with the 100-year-life society,” The Economist, November 17, 2018

More than one-half of Japanese babies can expect to live to 100.

Shinzo Abe talks about a model of how to make ultra-long lives fulfilling and affordable (“designing the 100-year-life society”). The Economists thinks Japan needs to: 

  1. Persuade current workers to labor longer

  2. Encourage more women into the labor force

  3. Let in more immigrants

Even though it has made progress on all three, it’s not enough. The Japanese population is declining at almost 400,000 year, and there are 1.6 vacancies for every jobseeker.

Baby bust,” The Economist, November 24, 2018

From 2007 to 2017, America’s fertility rate dropped from 2.12 to 1.77, which is equal to England, but well below France. The teenage birth rate has halved in the past 10 years.

fertility.png

Staying alive,” The Economist, November 24, 2018

Suicide rate in America is up 18% since 2000, largely among white, middle-aged, poorly educated men.

At the global level, suicide is down by 29% since 2000, notable among:

    • Women in China and India

    • Middle-age men in Russia (stage between communism and capitalism: alcoholism)

    • Old people all around world

Why? Greater urbanization; falling poverty; greater employment rates.

515 people survived jumping off the Golden Gate bridge between 1937-1971, 94% were still alive in 1978. 90%+ survivors of suicide don’t try it again.

Suicide is strangely contagious: after Robin Williams committed suicide in 2014, 1,800 more suicides than would otherwise have been expected occurred within the next 4 months.

The Economist thinks doctors should be able to assist. Ron vehemently disagrees with this.

Take a break,” The Economist, November 24, 2018

The average Americans worker in a typical year works 100 hours more than an average Briton, French, and 400 hours more than average German worker.

Average American worker receives 17.2 days of vacation (it was 20.3 1978); around one-half don’t take full allotment.

In the European Union, there are 20 paid holidays per year (in Spain and Sweden, 36). And HBR study in 2016 found that those who took 11+ days off were twice as likely to get a raise.

But the causation could be the opposite: star workers may feel they can afford to take a break.

Extra hours don’t automatically lead to higher productivity. Parkinson’s law: work expands to fill the time available.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #221: The Subscription Business Model, Part II

Ed and I continue our exploration of the subscription business model. Check out our first episode in this series from November 9, 2018 (Episode #217).

In this episode, we discussed the book, The Automatic Customer: Creating a Subscription Business in Any Industry, by John Warillow (2015).

The history of the subscription model dates back to the 1500s, when European map publishers subscribed to future editions. Newspapers and magazines began in 17th century Europe. Ron’s first book, The Professional’s Guide to Value Pricing, which was published by Harcourt Brace initially, was sold on a subscription model.

Vijay Ravindran, from Amazon Prime: “It was never about the $79. It was really about changing people’s mentality so they wouldn’t shop anywhere else.” Nothing has been as successful in getting people to shop in new product lines

Nine Subscription Business Models

  1. The Membership Website Model—Wall Street Journal, New York Times, The Economist, Financial Times, etc.

  2. The All-You-Can-Eat Library Model—Spotify, Rdio, Rhapsody, Netflix, etc.

  3. The Private Club Model—Ongoing access to something rare (networking clubs, etc.). Disney’s Club 21 [and Club 33] at Disneyland.

  4. The Front-of-the-Line Model—Priority access to a group of your customers  (turnaround time, etc.).

  5. The Consumables Model—A product that needs replenishing (razors, diapers, socks).

  6. The Surprise Box Model—a curated package of goodies, sometimes samples (wine, cholates, etc.). Requires big supply chain, variety products, etc.

  7. The Simplifier ModelHassle Free Home Services takes care of your home maintenance, $350/month. Bigger jobs are provided, 50% of revenue. Don’t need to bundle all your services, just the ones your customer needs regularly (Q&A, tax, compliance, etc., in professional firms). Check out the Porschepassport.com—you can subscribe to a car company!

  8. The Network Model—Partial access to expensive infrastructure, value increases as more people subscribe (Zipcar, acquired by Avis).

  9. The Peace-of-Mind Model—Insurance against something your customers hope they’ll never need. Tagg is a pet tracking service, or IRS audit representation offered by accounting and law firms, Turnover Insurance, LoJack for laptops and Alzheimer’s sufferers, etc. You earn an underwriting profit, which is equal to the premiums less claims paid, plus the investment of float). Calculating risk biggest challenge, so go slow, only offer to handful of customers, limit your coverage to a dollar amount (# incidents, etc.), reinsure.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #220 : Memorable Mentors: Eric Hoffer

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Biography

Eric Hoffer (July 25, 1898 – May 21, 1983) was an American moral and social philosopher. He was the author of ten books and was awarded the Presidential Medal of Freedom in February 1983 (Reagan). His first book, The True Believer (1951), was widely recognized as a classic, receiving critical acclaim from both scholars and laymen, although Hoffer believed that The Ordeal of Change (1963) was his finest work. Hoffer was born in 1898 in The BronxNew York, to Knut and Elsa (Goebel) Hoffer. His parents were immigrants from Alsace, then part of Imperial Germany. When he was five, his mother fell down the stairs with him in her arms. He recalled, "I lost my sight at the age of seven. Two years before, my mother and I fell down a flight of stairs. She didn’t recover and died in that second year after the fall. I lost my sight and, for a time, my memory." His eyesight inexplicably returned when he was 15. Fearing he might lose it again, he seized on the opportunity to read as much as he could.

His recovery proved permanent, but Hoffer never abandoned his reading habit. By age five, Hoffer could already read in both English and his parents' native German. He was raised by a live-in relative or servant, a German immigrant named Martha. Hoffer spoke with a pronounced German accent all his life, and spoke the language fluently. Hoffer was a young man when he also lost his father. The cabinetmaker's union paid for Knut Hoffer's funeral and gave Hoffer about $300 insurance money. He took a bus to Los Angeles and spent the next 10 years on Skid Row, reading, occasionally writing, and working at odd jobs.

In 1931, he considered suicide by drinking a solution of oxalic acid, but he could not bring himself to do it. He left Skid Row and became a migrant worker, following the harvests in California. He acquired a library card where he worked, dividing his time "between the books and the brothels." He also prospected for gold in the mountains. Snowed in for the winter, he read the Essays by Michel de Montaigne. Montaigne impressed Hoffer deeply, and Hoffer often made reference to him. He also developed a respect for America's underclass, which he said was "lumpy with talent."

Eric Hoffer: The Longshoreman Philosopher, Tom Bethell, 2012

Hoover Institution houses Eric Hoffer’s papers.

His early decades are a mystery (DOB: some say 1902, more likely 1898). Grew up in Bronx, blind for 8 years, recovered his sight.

Quite possibly born in Germany and never became a legal resident of the USA. Lili Osborne knew him better than anyone, thought it possible he was born in Germany. His birth certificate has never been found. He had no passport. He spoke with a thick German accent, not American, as most immigrants. His Social Security Application applied on June 10, 1937 shows born in NYC on 7/25/1898. Fellow Dockworkers referred to him as “The one who writes books.” He was turned down by US army in 1942 due to a hernia.

Found himself broke in San Diego in 1934 (he lived on skid row in Los Angeles, then was a migrant worker in California’s Central Valley). His whereabouts from there are well known. He moved to San Francisco permanently after Pearl Harbor and worked as a longshoreman.

He described himself as an atheist (Tom Bethell says his thoughts are too complex to label). He remained very concerned about the fate of the Jews. He became an Adjunct professor at UC Berkeley during the Free Speech movement; President Johnson received him at the White House.

He worried about automation; later, he saw his fears were greatly exaggerated.

“I cannot get excited about anything unless I have a theory about it.”

Murray Rothbard was critical of Hoffer. He wasn’t interested in economics. Though he was a neoconservative.

He did say in the 1970s: “Russia’s day of judgment will come sometime in the 1990s. And when the day comes everyone will wonder that few people foresaw the inevitability of the end.”

Two contemporary writers did impress him: George Gilder, especially an article in Commentary, “In defense of Monogamy,” and Malcolm Muggeridge on Sidney and Beatrice Webb.

Jean Paul Sartre: […intellectuals enjoy the privilege of being] “scandalously asinine without harming their reputations.” Hoffer wondered what would America have been like if only college graduates had been allowed to enter the country?

He wrote that prior to FDR if you failed, blamed yourself; after FDR, you blamed the government and the system. America’s decline began with FDR and it’s absurd to think of him as a great man. He’s buried at Holy Cross in Colma, (as is Ron’s Grandmother).

The True Believer: Thoughts On The Nature of Mass Movements, 1951

Summary: President Eisenhower cited it during one of his earliest TV press conferences (Look profile stated he was Ike’s favorite author). A highly provocative look into the mind of the fanatic and a penetrating study of how an individual becomes one. Mass movements and political fanaticism.

Bethell: True believers are disappointed men—disappointed in their own lives. But instead of recognizing this they seek to reform the world. [Nazi leaders initially had artistic or literary ambitions, failed at them]. Only a handful mentioned in book: Hitler, Stalin, Luther and Gandhi, St. Paul and Jesus.

Richard Pipes: “the masses don’t make revolutions, they make a living.” Revolutions are started by intellectuals. Hoffer originally thought Communism was a mass movement, and highly productive.

Quotes

  • Fear of the future causes us to lean against and cling to the present, while faith in the future renders us receptive to change.

  • A man is likely to mind his own business when it is worth minding. When it is not, he takes his mind off his own meaningless affairs by minding other people’s business.

  • Our frustration is greater when we have much and want more than when we have nothing and want some.

  • Unless a man has the talents to make something of himself, freedom is an irksome burden. …We join a mass movement to escape individual responsibility, or, in the words of the ardent young Nazi, “to be free from freedom.”

  • The genius of a great leader consists in concentrating all hatred on a single foe…We do not usually look for allies when we love. But we always look for allies when we hate.

  • The best and worst is observed in the case of language. The respectable middle section of a nation sticks to the dictionary. Innovations come from the best—statesmen, poets, writers, scientists, specialists—and from the worst—slang makers.

The Ordeal of Change, 1963

The Ordeal of Change
By Eric Hoffer

Summary: Essays on the duality and essentiality of change in man throughout history. In Chapter One, titled Drastic Change, he begins: It is my impression that no one really likes the new. We are afraid of it.

Quotes

  • Intellectuals have been imprisoned and liquidated in Communist countries. What the intellectual craves above all is to be taken seriously, to be treated as a decisive force shaping history. He would rather be persecuted than ignored.

  • There can be no real freedom without the freedom to fail.

  • The intellectual derives his sense of usefulness mainly from directing, instructing, and planning—from minding other people’s business—and is bound to feel superfluous and neglected…in any social order that can function with a minimum of leadership will be anathema to the intellectual.

  • To adopt the role of the pioneer and avant-garde is to place oneself in a situation where ineptness and awkwardness are acceptable and even unavoidable; for experience and know-how count for little in tackling the new, and we expect the wholly new to be ill-shapen and ugly.

  • We know that words cannot move mountains, but they can move the multitude; and men are more ready to fight and die for a word than for anything else. Words shape thought, stir feeling, and beget action; they kill and revive, corrupt and cure. The “men of words”—priests, prophets, intellectuals—have played a more decisive role in history than military leaders, statesman, and businessmen.

Reflections on the Human Condition, 2006

Epigraph: If anybody asks me what I have accomplished, I will say all I have accomplished is that I have written a few good sentences.

Summary: A collection of poignant aphorisms taken from his writings.

Quotes

Nature attains perfection, but man never does.

We hear a lot about the dehumanizing effects of the machine. Actually, the large-scale dehumanization of the Stalin-Hitler era was the work of ideological machines. In Russia the doctrinaire appliances work better than the mechanical.

A concern with right and wrong thinking is the manifestation of a primitive, superstitious mentality.

In a time of drastic change it is the learners who inherit the future. The learned usually find themselves equipped to live in a world that no longer exists.

Noncomformists travel as a rule in bunches. You rarely find a noncomformist who goes it alone.

It almost seems that nobody can hate America as much as native Americans. America needs new immigrants to love and cherish it.

Action is released by emotion, and emotion is stirred by words.

An empty head is not really empty; it is stuffed with rubbish. Hence the difficulty of forcing anything into an empty head. (Ron wonders is this was a prescient quote about AOC.)

When a genuine leader has done his work, his followers will say, “We have done it ourselves,” and feel that they can do great things without great leaders. With the noncreative it is the other way around: in whatever they do they arrange things that they themselves become indispensable.”

Language was invented to ask questions. Answers may be given by grunts and gestures, but questions must be spoken. Humanness came of age when man asked the first question. Social stagnation results not from a lack of answers but from the absence of the impulse to ask questions.

People who bit the hand that feeds them usually lick the boot that kicks them.

There are no chaste minds. Minds copulate where ever they meet.

A man’s worth is what he is divided by what he thinks he is.

More Quotes

It’s disconcerting to realize that businessmen, generals, soldiers, men of action are less corrupted by power than intellectuals...You take a conventional man of action, and he’s satisfied if you obey. But not the intellectual. He doesn’t want you just to obey. He wants you to get down on your knees and praise the one who makes you love what you hate and hate what you love. In other words, whenever the intellectuals are in power, there’s soul-raping going on. –Eric Hoffer

The best education will not immunize a person against corruption by power. The best education does not automatically make people compassionate. We know this more clearly than any preceding generation. Our time has seen the best-educated society, situated in the heart of the most civilized part of the world, give birth to the most murderously vengeful government in history. Forty years ago the philosopher Alfred North Whitehead thought it self-evident that you would get a good government if you took power out of the hands of the acquisitive and gave it to the learned and the cultivated. At present, a child in kindergarten knows better than that. –Eric Hoffer

The monstrous evils of the twentieth century have shown us that the greediest money grubbers are gentle doves compared with money-hating wolves like Lenin, Stalin, and Hitler, who in less than three decades killed or maimed nearly a hundred million men, women, and children and brought untold suffering to a large portion of mankind. –Eric Hoffer

The central task of education is to implant a will and a facility for learning; it should produce not learned but learning people. The truly human society is a learning society, where grandparents, parents, and children are students together. In a time of drastic change it is the learners who inherit the future. The learned usually find themselves equipped to live in a world that no longer exists. –Eric Hoffer

Other Program Notes—Third Segment

Five-Star Review on iTunes from Scott The Locksmith. Thank you Scott and welcome to the TSOE Community!

Email from Liz Farr on New Mexico: One of our 50 is missing, December 1

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Hi Ron and Ed,

Thanks for sharing the piece on the NM resident who had to convince someone that NM is part of the US. 

This happens all the time. For decades, New Mexico Magazine has had a column called “One of our 50 is missing.”  I’ve had experience with this myself. Here are some of my personal experiences:

I’ve been told that my English is very good and that my skin is lighter than they expected. 

Back in the 80s, when I was living in Albuquerque, I sent off to the University of Chicago for information on their graduate program in neuroscience. I received a package plastered in stamps, with “Air Mail” stamped all over. Inside that package was information on the Test of English as a Foreign Language, which I would have to pass before I could enroll.

Also in the 80s, my then-boyfriend applied to grad school at Brown University. He forgot to include a check for $20 for the application fee. He got a letter back, also covered with stamps and also stamped “Air Mail,” that noted they needed his application fee. Since the fee had to be paid in US dollars, they suggested that perhaps he had a friend in the US who might be willing to pay on his behalf. 

No problems with TSA, but I did run into a BC border patrol agent who asked if I had made the NM license plate on my car myself. 

Thanks for the chuckle!

Liz

Email from Tim

Ron,

I am reading your book [Implementing Value Pricing] and have written you once before.

This is a sincere question: I am 57 years old and have had my own marketing firm since 2002. (Pricing and billing by the hour no less).

What do you say to people when they read your implementing value-based pricing book, look to the heavens and cry out in frustration “Why the hell didn’t I swerve into this book and value pricing 20 years ago?”

Is there any sentiment that gives them peace?

Even though I’ve started implementing this thinking in the last six months, I need it.

Thank you, TIM

frustration.png

Ron’s reply to Tim

Hi Tim,

Thank you so much for your email.

I know it is cliche to say, “I wish I had a nickel…” but it’s true nonetheless.

Yours is a common reaction. We had one guy sit in a course on Value Pricing with his arms crossed and was silent the entire time. We wrote him off as a skeptic with no hope of changing his mind, let alone the behavior in his firm.

We shouldn’t have. He went back and implemented everything, almost immediately, including eliminating timesheets.

When we asked him how he was able to do all this so quickly, he replied (paraphrasing here, but it’s close): “I was so damn mad sitting in your course and computing how much money I had left on the table over my career that I swore I would change.”

So the sentiment that should give you peace is this: it’s never too late to change.

It’s one thing to be wrong; it’s quite another to stay wrong.

You’ve taken the first giant step.

Keep in touch and let me know your progress. Thanks, Tim.

Regards,

Ron

Forbes Article Quotes Ron on Auditor Independence

Hat tip to Liz Farr for letting me know about this Forbes article on auditor independence (spoiler alert: auditors aren't independent, no matter all the lip service paid by the profession to this claim). 

I'm quoted by the author, Mike Whitmire—CEO and Co-Founder of FloQast’s, and leads its corporate vision, strategy and execution—on a proposed remedy: have the stock exchanges select and pay the auditors, and also open up the attest function to competition, such as insurance companies that could offer financial statement insurance, and other firms that could attest to blockchain transactions (one startup already exists to attest to smart contracts on blockchains). 

I first came across the stock market exchange idea from an excellent bookAfter Enron, by William A. Niskanen. It is chocked full of sensible diagnosis and prescriptions on this issue that you won't find in the mainstream accounting media.

Economists don't like monopolies, and there's no reason to have the attest function locked into CPAs only. It stifles innovation and new ways to offer the attest function that would be far more effective, and more truly independent. I've been writing and teaching about this in our ethics course for over 20 years. Great to see Forbes pick up on it.

You can see the 50+ comments on Ron’s LinkedIn blog on this article, with over 16,000 reads.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #219: Free-rider Friday - November 2018

FreeRide.jpeg

Ron’s Topics

Pinot or pot?, The Economist, October 13, 2018

Winemakers worry that people’s “intoxication budgets” could be diverted to pot—they are substitutes, not complements.

Wineries complain they can’t afford seasonal labor to harvest grapes—cannabis farms pay more

Sonoma County imposed restrictions on who may grow weed, and where

Legalization will encourage more women, baby boomers and high earners—the demographic that buys a lot of wine—to smoke weed.

Legalization and medical marijuana are associated with a 15% drop in alcohol consumption (72% Americans think weed is safer).

Polish airline asks passengers to chip in for plane’s repairs before takeoff,” news.com.au, November 22, 2018

Seen and not seen. What incentives are being created here?

A Selection from the trolley,” The Economist, October 27, 2018

From a paper published in Nature, MITs “Moral Machine” website asks the general public and gathered nearly 40 million decisions from 233 countries, territories, or statelets. Ed and his family were among those who participated.

Strongest preferences:

  • Saving human over animal lives

  • Save many rather than a few

  • Prioritizing children over the old

Weakest preferences:

  • Saving women over men

  • Pedestrians over passengers in cars

  •  Taking action rather than doing nothing

  •  Criminals subhuman, below dogs, but above cats!

Differences by countries: Western, Eastern, Southern. Autonomous cars may need to download new moralities when cross national borders.

So far, Germany only country to propose ethical rules, one that discrimination by age should be forbidden.

All sort of choices will affect who lives and dies, e.g., staying relative close to cycle lane. Repeat that over hundreds of millions of trips, and you’re going to see a skew in the accident statistics.

For our show on ethics, and the trolley thought experiment, see Episode #7: Everyday Ethics: Doing Well and Doing Good.

General Motors Restructures,” National Review, The Editors, November 28, 2018, and “The Bailouts at Ten: I Told You So,” National Review, Kevin Williamson, November 28, 2018, and “A hard bargain,” The Economist, November 3, 2018

See Ron’s review of Car Guys vs. the Bean Counters.

Ed’s Topics

D.C. Agency Is Sorry Its Staff Didn't Know New Mexico Is a State

Reason story on a mistake at a Washington, DC agency denying marriage license for New Mexico resident, asking for a New Mexican passport.

Here's how climate change will impact your part of the country - CNN

refuted by Warren Meyer in

Knowledge and Certainty "Laundering" Via Computer Models

Our show with Warren Meyer

Another Economics Joke - David Friedman’s Idea Blog

Our show with David Friedman

The Importance of Local Knowledge

Don Boudreaux’s friend, Frayda Levin, recently sent the following excellent letter to the New York Times. Our show with Donald Boudreaux.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #218: Interview with Warren Meyer

WarrenMeyer.jpeg

Biography

Ron and Ed were excited to have on economist and blogger Warren Meyer. 

Warren runs a large small business, by which he means that it seems to require a tremendous amount of work for the money it makes. His company runs parks and campgrounds under concession contracts with public recreation authorities. Before becoming an entrepreneur he worked from other people in companies as large as Exxon and as small as 3-person Internet startups. He has an MBA from the Harvard Business School and a mechanical engineering degree from Princeton University.

But we are going to speak with him about his blogging activities including his work at CoyoteBlog.com and Climate-Skeptic.com. He also has written a novel called BMOC and several books and videos on climate change.

Ed’s Questions—Segments One and Three

Let’s talk about yourself and your company, Recreation Resource Management?

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I’m a staunch libertarian, as I think you are, often times when I hear public/private partnership, I think crony capitalism, but it sounds like you have a good deal going here?

The California wildfires, is this mismanagement of the Park Services. Any thoughts on that?

It sounds like a worse mess than the Fed, which is to balance unemployment and interest rates because there’s five or six competing interests here?

Your video presentation at Claremont College, explain what you mean when you call yourself a luke-warmer?

You have another proposal regarding healthcare. It’s one of the most innovative proposals. I love it and hate it, so it must be a good idea.

We’d also see a dramatic expansion of concierge and direct primary care medicine where people would subscribe to a doctor.

Reminds me of a line, if you look at a balance sheet of the US government you realize it’s a large insurance company with an army.

If we were responsible for our first 10% of heath care, what percentage of the transactions would that be, it has to be like 90% right?

Ron’s Questions—Segments Two and Four

We were discussing during the break this FEE article, “Why We Need More Climate Change Skeptics” by Doug Casey his point is climate scientists are not prophets. Scientists have made many mistakes, from Rachel Carson’s book, Silent Spring, causing the deaths of 30-50 million people in Africa from malaria due to the banning of the pesticide DDT. He defines the 97% consensus on climate change as “climate scientists actively publishing in scientific journals. That’s who the survey was sent to, so there’s obviously a selection bias, as only those advocating are going to publish, not the skeptics. Do you think it’s become too political?

Science progresses by dissent, not consensus. At one point, most doctors believed bloodletting was effective.

platetectonics.png

Plate tectonic theory [and how it was rejected for so long] is a great example. You can be alone and still be right in science. It’s not up for a vote.

Some of this climate science based on computer models, and the Club of Rome had computer models, too, which were wrong. Garbage in, garbage out, right?

It seems like when they do release the data, it’s disproven. We just had that mathematician call out mistakes in some recent data released.

You have an interesting proposal on the carbon tax and income tax. Can you explain that?

It’s a great idea, that’s the problem with it, it’s too logical. Do you think Congress would ever do it?

Picking up on your proposals that both sides tend to hate, what is your position on the Universal Basic Income.

That’s Charles Murray’s idea, pass a constitutional amendment to get rid of everything else, including Social Security, and replace it with a UBI. But that doesn’t seem like it would fly politically.

You wrote a post about doing business in California, and how you are pulling out due to the regulatory environment, not so much the taxes.

In your post, Doing Business In California, you cite how Governor Brown signed more than 1,000 bills this year. The governor Tweeted that he decided on nearly 20,000 bills in his 16 years." (source).

I love how you pick on Elon Musk In my extended article the other day about Tesla I wrote of Elon Musk [“Elon Musk is not the smartest guy in the world. He is clearly a genius at marketing and brand building. He has a creative mind -- I have said before he would have been fabulous at coming up with each issue's cover story for Popular Mechanics.”]. Do you think Tesla would sell without the subsidies (it doesn’t in OZ, other countries)?

What is your novel "BMOC" about?

2 Comments

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #217: The Subscription Business Model

We used to know the people we bought from: the butcher, baker, blacksmith, barber, farmer, etc. All that knowledge got lost when the Industrial Revolution ushered in the product era. That knowledge is coming back in a big way!

The idea is turn customers into subscribers—the Subscription Economy, according to Tien Tzuo in his book, Subscribed: Why the Subscription Model Will Be Your Company’s Future—and What to Do About It.

World is moving from products and services to subscriptions, favoring access and outcomes (Transformations) over ownership and deliverables. Customization, not standardization, constant improvement, not planned obsolescence. Lock-in and Switching Costs effects.

According to McKinsey, the subscription ecommerce market has grown by more than 100% a year for past five years. Subscription-based companies are growing eight times faster than the S&P 500 (17.6% vs. 2.2%), and five times than US retail sales market (17.6% vs. 3.6%). Companies running on subscription models grow their revenue more than nine times faster than the S&P 500.

Tzuo argues this model is industry agnostic:

Health Care, Concierge, Direct Primary Care, Amazon Prime and Rx, Education (it fires their customers after four years); Insurance; Pet Care; Utilities; Real Estate; Finance; Automobiles; Newspapers, etc.

Subscriptions are a forward-looking revenue model, as seamless as buying a book on Amazon. It changes the question from “How many services can we sell?” to “What does our customer want, and how can we deliver that as an intuitive service?”

Competitors can steal your service features, but they can’t steal your insights you gain from an active, loyal subscriber base.

Salesforce and Amazon don’t have customer segments, they have individual subscribers (Prime has 90 million subscribers who spend an average of $117 billion per year). Other businesses that have subscription models, either in total or in part:

  • Apple: Earnings call Feb 1, 2018: service revenue $31.15 billion in 2017, growing at 27% a year, more than half of Apple’s growth

  • Spotify: 50 million subscribers > 20% global music industry revenues

  • Netflix: Spends $8 billion a year on original content, providing new and innovative services to its subscribers

  • Gillette: Market share decreased to 54% (2016) from 70% (2010), because of Harry’s and Dollar Shave Club

  • Warby Parker: Averaging $3,000/sq. ft. retail space (slightly less than Tiffany’s), because 85% of foot traffic has done extensive browsing online

  • Uber/Lfyt: 60 million riders (testing flat-rate subscriptions, no surge)

  • Starbucks: More than 13 million Starbucks rewards program

Old business model: Products/Services > Channels > Customers

New business model: Services > Subscriber > Experiences > Channels

From linear transactional channels to a circular, dynamic relationship with your subscriber.

Fender guitars, 90% new users quit within one year, so Fender launched subscription-based online video teaching, Fender Play. By simply reducing the abandonment rate by 10%, it could double the size of its market (applying a service-oriented mindset to a static product).

Instead of margins and unit sales, thinking about subscriber bases and engagement rates.

Other industries where subscription business model is happening:

Automobiles

Hyundai’s new hybrid, Ioniq, you can subscribe to for $275/month. Makes owning a car as easy as a mobile device.

Porsche’s Passport, half dozen models, covers maintenance, insurance, and vehicle tax and registration, starting at $2,000 per month.

Cadillac, $1800/month, switch out vehicles as frequently as 18 times per year.

Volvo: XC40, $600/month.

One out of five autos are expected to be subscription by 2023. Here’s the differences between subscribing to a car and leasing one: 

  • Not bound to specific vehicle

  • Signing up with the company, not the car

  • R&M, etc., go away

  • Can’t buy the car at the end (company’s interest to keep car in good condition, not yours)

Data and services associated with vehicle > vehicle itself (Spotify, Sirius, OnStar). From car manufacturers, but transportation solutions (Ford: make that “bed to bed” journey as simple as possible). 

Airlines

SurfAir: Uber of the skies: limitless flights for a flat monthly fee, western USA and Europe (more than 200 million frequent fliers up for grabs!).

Newspapers

169 million US adults read newspapers online, 70% of the adult population.

  • Financial Times metrics: Recency (last visit), Frequency (how often do they visit), and Volume (how many articles read)

  • The Economist: Charges for digital and print, increased revenue 25%

  • New York Times: 60% revenue comes directly from readers, more than $1 billion, digital-only subscription revenue exceeded print advertising revenue in the second quarter of 2017.

Software

Gartner predicts by 2020, 80%+ software providers will have shifted to subscription-based models (no growth left in on-premises software).

Swallowing the fish: as the revenue curve temporarily dips below the operating expense curve before climbing back upward again.

Adobe launched Creative Suite, a perpetual license in 2012. The new metrics (not GAAP): AAR = Annual Recurring Revenue (ARR); ACV (Annual Contract Value).

Digital subscriptions in May 2013 (Adobe Creative Cloud), let customers know, no longer updating Creative Suite: from 0 to 100% subscriptions in three years, inspired Microsoft, Autodesk, Intuit, and PTC. Today, over 70% Adobe’s revenue is recurring

Microsoft, Office 365, IBM, Symantec, Sage, HP Enterprise, Qlik: IT buyers prefer opex to capex.

Creates deferred revenue, so quarterly GAAP metrics can take short-term hit.

Hardware companies, too: Cisco is swallowing the fish.

IOT and Manufacturing

What can’t your subscribe to? A refrigerator? Roof? Tease out the service-level agreement that sits behind the product! 

  •  Refrigerator: fresh, cold food

  •  Roof: solar energy

Selling the milk, not the cow.

Komatsu uses drones to survey a site in 30 minutes, which changes the question from: How many trucks can I sell you? To How much dirt do you need moved?

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Advantages

  • Predictable revenue

  • Customer lock-in and Switching costs

  • Not selling services, but creating annuities with a lifetime value that far exceeds whatever you paid to acquire them

  • Collective knowledge of our customers is a competitive advantage can’t be duplicated

  • 1:1 Marketing: Changes the 4 Ps of marketing (pricing is most important). We’re not pricing a service, we’re pricing an outcome and insurance (peace of mind)

  • Monitor usage, solve problems, pursue opportunities, and provide Transformations 1:1

  • Shift to a long-term relationship focus rather than delivering tasks

  • Allows for faster growth, as will attract new customers (rather than just selling more to current customers)

  • We can plan capacity more effectively

  • Moving beyond efficiencies and into possibilities (don’t solve problems, pursue opportunities, Drucker, otherwise starve your successes and feed your failures)

  • Breaks down silos, mold organization around needs of customer

  • Actuarial approach to risk pricing, work planning, etc. (20/80 rule)

  • Tears down silos: Portfolio approach to analyzing profit, rather than silo DCM and Realization Rates,

  • Truly “one-firm” model (this doesn’t just talk about one-firm, it achieves it!)

  • New metrics (not GAAP): AAR = Annual Recurring Revenue (ARR); ACV (Annual Contract Value)

  • Recency (last visit), Frequency (how often do they visit), and Volume (how many articles read); to keep customers renewing and re-engaging, have to provide real value

  • Dynamic cycle of action: renew, suspend, upgrade, downgrade, etc.

  • Experiment with different value metrics: tied to: seats, boxes, events, gigabytes, locations, texts, family members, you name it

  • Companies that employ a small amount of usage-based pricing in their revenue mix (less than 10%) grew more than twice as fast on average, with lower churn rates.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #216: Interview with Dr. Walter Williams

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Biography

Born in Philadelphia, Pennsylvania, Dr. Walter E. Williams holds a B.A. in economics from California State University, Los Angeles, and M.A. and Ph.D. degrees in economics from UCLA. He also holds a Doctor of Humane Letters from Virginia Union University and Grove City College, Doctor of Laws from Washington and Jefferson College. Dr. Williams has served on the faculty of George Mason University in Fairfax, Virginia, as John M. Olin Distinguished Professor of Economics, since 1980; from 1995 to 2001, he served as department chairman. He has authored ten books: America: A Minority ViewpointThe State Against Blacks, All It Takes Is GutsSouth Africa's War Against CapitalismMore Liberty Means Less GovernmentLiberty vs. the Tyranny of SocialismUp From The Projects: An AutobiographyRace and Economics: How Much Can Be Blamed On Discrimination? and American Contempt for Liberty

Dr. Williams is the author of over 150 publications which have appeared in scholarly journals such as Economic InquiryAmerican Economic ReviewGeorgia Law ReviewJournal of Labor EconomicsSocial Science Quarterly, and Cornell Journal of Law and Public Policy and popular publications such as NewsweekIdeas on LibertyNational ReviewReader's DigestCato Journal, and Policy Review.

He has made scores of radio and television appearances which include “Nightline,” “Firing Line,” “Face the Nation,” Milton Friedman’s “Free To Choose,” “Crossfire,” “MacNeil/Lehrer,” “Wall Street Week” and was a regular commentator for “Nightly Business Report.” He is also occasional substitute host for the “Rush Limbaugh” show. In addition Dr. Williams writes a nationally syndicated weekly column that is carried by approximately 140 newspapers and several web sites. His most recent documentary is “Suffer No Fools,” shown on PBS stations Fall/Spring 2014/2015, based on Up from the Projects: An Autobiography

Dr. Williams serves as Emeritus Trustee at Grove City College and the Reason Foundation. He serves as Director for the Chase Foundation and Americans for Prosperity. He also serves on numerous advisory boards including: Cato Institute, Landmark Legal Foundation, Institute of Economic Affairs, and Heritage Foundation. Dr. Williams serves as Distinguished Affiliated Scholar at the Mercatus Center at George Mason University. 

Dr. Williams has received numerous fellowships and awards including: the 2017 Bradley Prize from the Lynde and Harry Bradley Foudation, the Fund for American Studies David Jones Lifetime Achievement Award, Foundation for Economic Education Adam Smith Award, Hoover Institution National Fellow, Ford Foundation Fellow, Valley Forge Freedoms Foundation George Washington Medal of Honor, Veterans of Foreign Wars U.S. News Media Award, Adam Smith Award, California State University Distinguished Alumnus Award, George Mason University Faculty Member of the Year, and Alpha Kappa Psi Award. 

Dr. Williams has participated in numerous debates, conferences and lectures in the United States and abroad. He has frequently given expert testimony before Congressional committees on public policy issues ranging from labor policy to taxation and spending. He is a member of the Mont Pelerin Society, and the American Economic Association.

Ed’s Questions

Your show Good Intentions, do you think the situation is better or worse, and why can’t we seem to shake this good intentions versus actual outcomes paradigm we’re stuck in?

What, specifically, do you mean by spiritual poverty?

Do you think the current welfare regime contributes to this situation because it encourages this behavior because of the way the programs are structured?

I’ve heard you speak eloquently on the freedom of association and the impact it has from an economic standpoint. Would you mind talking a little bit about that?

I’d actually prefer that bigots self-identify so I could avoid them.

Ron’s Questions

You published your autobiography, Up From The Projects: An Autobiography, in 2010. One story I found fascinating was about your economics professor Armen Alchian, who asked the class: why do we build the Golden Gate bridge when a military bridge would do just fine? He didn’t know the answer. Do you now have an answer to that question?

[Professor Williams recommends the book Universal Economics, based on Armen Alchian’s work].

In 1989, you published South Africa's War Against Capitalism, which sounded like an ironic title at the time. What would you say is the biggest misperception about apartheid [apart-hate]?

Speaking of immigration, what would be your preferred policy on immigration?

Would you be for more legal immigration?

Do you favor a point system, or charging people, to get into the country?

Do you think we’ll ever see a market for body organs?

I find it ironic that Iran allows the sale of body organs, but here in the capitalist west we do not?

You and Dr. Sowell have taught me that a shortage usually has nothing to do with actual physical scarcity but because the price is wrong.

If we had to rely solely on people’s altruism, we’d have a materially lacking life.

If you had a meeting with president Trump, what would be one piece of economic advice would you give him?

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #215: Free-rider Friday - October 2018

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Ron’s Topics

Ed’s Topics

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #214: Interview with Chris “Elroy” Stricklin, Colonel (Ret), USAF

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Biography

Chris “Elroy” Stricklin is a combat-proven Air Force Leader who successfully bridged the gap between military leadership and civilian desire to learn about leadership. An acclaimed leadership writer with almost 100 publications and a corporate leadership speaker, he has been recognized as the #1 writer for Switch & Shift, General Leadership and many other online blogs. In addition to leading professionally for the US Air Force and writing online, he also is a leadership advisor at multiple non-profits where he helps ensure future employment for the many transitioning US military officers. He was recently featured in the Military Times article: Leaders Who Tweet, recognized with awards as “Top 10 Business Innovation Posts,” and served the role of Chief Growth Officer driving the fasting growing leadership blog on the web and earning “Top 100 Most Socially-Shared Leadership Blogs of 2014.”

As one of our dynamic team members, his unique experience as a U.S.A.F. Thunderbird coupled with Pentagon-level management of critical Air Force resources valued at $840B, multiple N.A.T.O. assignments, White House and DARPA fellowships, and command-experience in the United States Air Force allow his unique synthesis of speaking, following, leading, management, negotiations, continuous improvement and positive change. Chris is also a Certified Manager with degrees in Economics, Financial Planning, Strategic Studies and Operational Art and Science. He authored a negotiation primer subsequently published and adopted as required Air Force Pentagon new action officer orientation.

Throughout his Air Force career, he has flown combat sorties over both Iraq and Afghanistan and logged more than 50 Ground-Combat convoys throughout Afghanistan. During his time working for NATO, he lead the effort to defend against terrorism and served as lead American negotiator for a hijacked Turkish Airliner (Flight 1476) which ended safely with the hijacker apologizing to the passengers as he deplaned.

Elroy’s inspiration for writing began with the publication of his first work: Stories Around the Table: Laughter, Wisdom, and Strength in Military Life.

Ed’s Questions

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Segment One

What’s been going on at Afterburner since our last show (from November 3, 2017, Episode #166).

Why do you think the focus of Afterburner shifted to more coaching, as opposed to keynote/motivation?

One of my favorite quotes is “If you don’t like change, you’re going to like irrelevance even less,” from General Eric Shinseki. He did some amazing work with the US military while he was Chief of Staff of the US Army, but he struggled as Secretary of the Veterans Administration. His leadership talents didn’t change, or is there just something about government bureaucracy that’s not like the military?

You wrote a Forbes article that was published today “Seven Lessons On Building Elite Teams For Disruptive Innovation,” Forbes, October 19, 2018. What was the inspiration for writing this article?

The seven lessons are:

  1. Demand Diversity of Thought

  2. Remember That Attention Equals Retention

  3. Establish The Value Of Each Employee

  4. Maintain A Situational Focus

  5. Empower Your Team

  6. Trust The Team You’ve Assembled

  7. Ensure They Work With You, Not for You

I liked the first point, Demand Diversity of Thought, explain that, because it’s different than what we hear today about diversity.

Regarding #5 and #6 above, I’ve combined them in my mind, so what’s the difference between those two?

We talk about trust, but our systems seem to undermine it, such as expense reporting systems. Ricardo Semler tells his employees if they need something to do their job better, buy it with the corporate AMEX card. They won’t question it, they just pay it.

Segment Three

When you were talking about communication, I thought of George Bernard Shaw who said, “The trouble with communication is the illusion it has taken place.” I did a workshop with you on mission planning, and when it comes to a go vs. no-go decision, I think a lot of companies struggle with the courage to say we need to stop here.

I’m reminded of Captain Chesley Sullenberger, who landed the plane in the Hudson, and in an interview he said, “My job was to successfully crash the aircraft.” So many companies also need to successfully crash some projects—what are we going to say no to?

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If an AI system was in charge of that aircraft, I don’t think it would have come up with landing in the Hudson River.

On your article, “36 Leadership Experts Reveal What Truly Exceptional Leadership Is All About,” I wanted to get your reaction to my favorite definition of leadership, from Peter Block, “Leadership is about confronting people with their freedom.”

First rule of leadership, train your replacement.

Who are some of your favorites from a military leadership perspective, such as MacArthur or Patton?

Ron’s Questions

Segment Two

On your Forbes article (above), #1, I’ve started to use the word “variety” instead of diversity, because diversity is such a loaded word these days. I just wanted to get your thoughts on that?

Speaking of words, I wanted to ask you about four: Volatility, uncertainty, complexity, and ambiguity, or VUCA, from the military. I’m hear this acronym more and more in the private sector. Tell me about VUCA from a military, or fighter pilot, perspective (see Chris’s LinkedIn post, “The Value of a Consultant.”

Yes, organizations make plans, but they rarely explore the uncertainty or ambiguity in those plans.

Another post your wrote that I really like is “Improving Workplace Morale is Easy With These Two Simple Words” what are those two words?

Communication + Value

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I find an appalling lack of communication in most organizations. Do you find that as well?

Your work with Afterburner fascinates me, since I know you’re trying to introduce the Debrief and Lessons Learned process in organizations. I get a lot of resistance, especially from professional firms, and I’m just wondering how that’s going for you. Is it being embraced?

I think about some of the After Action Reviews (AAR) I’ve conducted after jobs have gone bad, and it does show the worth of the process, but it’s still a real challenge to embed the process into the culture.

I sat through an AAR in an ICU ward, and the team was admitting mistakes, in a no fear environment. It was amazing.

Segment Four

Chris, you wrote another post, “36 Questions Which Lead Leaders,” and it made me think about something the physicist Richard Feynman said: “I would rather have questions that can't be answered than answers that can't be questioned.” You start the post by writing, “Leadership is not about having the right answers, it is the ability to ask the correct questions.” That is brilliant.

That’s a fine tradeoff isn’t it, between being an expert and playing ignorant, not showing off your expertise?

In your companion post, “36 Leadership Experts Reveal What Truly Exceptional Leadership Is All About,” you say you had an “Aha moment”: “You are the average of the five people you spend the most time with.” I love that, who said it?

Another post of yours I read this morning was “A Celebration of Survival!”, published on September 14, 2018. I can’t do this post justice in words, so I’m going to ask you to explain it. Explain to us what happened on September 14 [15 years ago].

You teamed up with Joel “Thor” Need, a fellow pilot and cancer survivor, to tell your story, accepted for publication by Elva, titled Survivor’s Obligation, I love that phrase, it’s beautiful [due out in the Fall of 2019. We will have Chris back on to discuss the book].

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Struggle is a big part of life, it makes us stronger and more vibrant.

We’ve talked about planning, VUCA, Debrief, Lessons Learned, what other strategies, principles, and practices, have you brought from the  military that apply to the business world?

One of the things I’ve incorporated into my presentations on After Action Reviews since our first interview with you, is you cite a statistic that there have been 325+ Thunderbirds, and the teams turnover 50% every two years, then after four months they are able to do an air show. Some teams in companies have been together years or decades, and can’t perform at anywhere near that level. That’s a real powerful message.

Ed tells the story of doing AARs with his kids over dinner, do you do the same with yours?

2 Comments

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #213: Interview with Russ Roberts

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Background

Russell Roberts, Associate Editor, founder and host of EconTalk, and founding advisory board member of the Library of Economics and Liberty. Roberts is the John and Jean De Nault Research Fellow at Stanford University’s Hoover Institution. His two rap videos on the ideas of John Maynard Keynes and F.A. Hayek, created with filmmaker John Papola, have had more than eight million views on YouTube, been subtitled in eleven languages, and are used in high school and college classrooms around the world. His latest book is How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness (Portfolio/Penguin 2014). It takes the lessons from Adam Smith’s little-known masterpiece, The Theory of Moral Sentiments, and applies them to modern life.

He is also the author of three economic novels teaching economic lessons and ideas through fiction. The Price of Everything: A Parable of Possibility and Prosperity (Princeton University Press, 2008) tells the story of wealth creation and the unseen forces around us creating and sustaining economic opportunity. The Invisible Heart: An Economic Romance (MIT Press, 2002) looks at corporate responsibility and a wide array of policy issues including anti-poverty programs, consumer protection, and the morality of the marketplace. His first book, The Choice: A Fable of Free Trade and Protectionism (Prentice Hall, 3rd edition, 2006) is on international trade policy and the human consequences of international trade. It was named one of the top ten books of 1994 by Business Week and one of the best books of 1994 by the Financial Times. Roberts blogs at CafeHayek.com and archives his work at russroberts.info.

A three-time teacher of the year, Roberts has taught at George Mason University, Washington University in St. Louis (where he was the founding director of what is now the Center for Experiential Learning), the University of Rochester, Stanford University, and the University of California, Los Angeles. He earned his Ph.D. from the University of Chicago and his undergraduate degree in economics from the University of North Carolina at Chapel Hill.

Ron’s Questions

Segment One

I’m fascinated by some of the professors you studies under at the University of Chicago.

Also wanted to thank you for recommending and doing shows on the book, In the First Circle, by Aleksandr Solzhenitsyn. Both Ed and I are reading it, and loving it.

You wrote three economic novels, which is not only a great way to teach economics, but also a good way to learn economics. What got you into writing novels?

I love how in The Choice: A Fable of Free Trade and Protectionism you bring David Ricardo back to life. The only other novel I’ve read that’s done something similar is Saving Adam Smith by Jonathan Wight.

In The Choice, you point out a restaurant meal eaten by a foreign tourist is the same as shipping food abroad, and how our universities are an major export. Why do you think people have a manufacturing fetish? Our manufacturing sector produces more than ever, some $2 trillion, which makes it the 9th largest economy in world. Is it the Materialist fallacy?

If economics has taught me anything it’s that you can’t measure a sector based upon its inputs (jobs), but rather it must be measured based upon its outputs? Also, this line between service and manufacturing seems an outdated false distinction. Toyota might make 9 million cars per year, but try selling a car without services: financing, repairs, warranty, auto dealer inventory financing, etc. We romance the car and ignore these more boring, but vital, services.

We had Donald Boudreaux on the show and we asked him if we should we do away with the trade deficit statistics. He said yes, what do you say?

Segment Three

Just to finish up your discussion with Ed on Rabbi Lapin, I think his problem is the programmers have to decide how a car will react to certain situations—the classic Trolley problem—and because there’s no human judgment at the time of the decision.

Back to your novels. In your book The Invisible Heart: An Economic Romance was perhaps the first time I encountered the argument: what if the government forced you spend 15% of your money with minority-owned or 50% at women-owned businesses, to prove you’re not a racist or sexist? Why is it we only focus on one-side of the transaction—the employer, but not the employee or the customer?

One thing I’ve learned from Gary Becker and Thomas Sowell is the market does impose a cost on people who discriminate, which lessens it.

In The Price of Everything: A Parable of Possibility and Prosperity  you take on the price gouging issue so well. People get upset that the price for essentials increase after a natural disaster. Why is it moral for the truck driver in Ohio to sit on the couch watching college football rather than driving needed goods to Florida hurricane victims? We blame the driver who is delivering needed supplies. Why isn’t that just as bad as gouging?

In How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness , Smith uses the example of losing your little finger to avoid a catastrophe, and when I teach ethics I’ve updated the thought experiment to avoid 9/11 would you be willing to lose your little finger: The overwhelming majority of every audience answers yes. It illustrates Smith’s point that people naturally desire not only to be loved, but to be lovely (as you always say). Yet Smith is tagged as being for greed and selfishness. Can you explain the Smithian difference between selfishness (Ayn Rand), and self-interest?

Ed’s Questions

Segment Two

I’m a big fan of EconTalk, and one of my favorite episodes is when you had Bill James on the show, the father of Sabermetrics. I wanted to ask you about the famous game in 2001, Armando Galarraga and his near-perfect game. Do you think instant replay is robbing us of our humanity?

One of the guests we’ve had a couple of time (here and here) is Rabbi Daniel Lapin, and I’ve heard you refer to yourself as a religious Jew. One of things he says is he would have an ethical problem riding (or owning) an autonomous automobile, since no human judgment is involved in decision making.

Segment Four

I know you are a devotee of the musical Hamilton, in fact you put a great video in 2010 (Fear the Boom and Bust: Keynes vs. Hayek Rap Battle), a rap video between Keynes and Hayek. Obviously, Lin-Manuel Miranda stole your idea…

What, if any, influence did Adam Smith have on Alexander Hamilton?

Obviously you’d like to have Adam Smith as a guest on EconTalk. What other guest from history would you like to have on EonTalk, limiting it to people who are no longer with us?

We don’t buy books anymore, with the Kindle, what are we going to have to pass on to our kids—I have books from my dad.

Your essay “The Outrage Epidemic,” on tribalism, and you did a great monologue show on this as well. Is it also a contributing a factor that this lack of an external, existential threat that we have in the US now. For almost the entirety of the 20th century—from World War I and II, to the Cold War—and then that changed. Now we seem to be turning on each other.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #212 : Interview with Erik Asgeirsson and Ron Quaranta

Ron and Ed are excited to be joined by Erik Asgeirsson and Ron Quaranta. 

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Erik is the President and Chief Executive Officer of CPA.com. He has more than 20 years of experience in leading technology organizations and driving business growth. Over the past ten years Erik has driven CPA.com's focus on cloud computing and the transforming opportunities available to accounting firms and their business clients. Erik is a frequent speaker at professional conferences and is regularly quoted in the accounting and business trade press.

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Ron Quaranta is the Founder and Chairman of the Wall Street Blockchain Alliance. He is a recognized expert in the area of blockchain innovation, particularly its impact on the world of financial markets. He has over 25 years of experience in the financial services and technology sectors.

Ed’s Questions

First Segment

Erik, what does the President and CEO of CPA.com do on a daily basis?

Ron, what does the Founder and Chairman of the Wall Street Blockchain Alliance (WSBA) do on a daily basis?

Ron, what the spark of this relationship between WSBA and CPA.com?

Erik, what’s the genesis of this relationship and how has it evolved?

Erik, let’s chat a little about the Blockchain Symposium, which I attended. You mentioned why you’re doing it, but talk about the process and tangible items that resulted?

Ron, how does this interaction with the CPA profession help the WSBA and where you are going?

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Third Segment

We haven’t even discussed the basics of blockchain, so if you’re not familiar with this technology, see our Additional Information below for prior episodes that explain the technology and its implications.

Erik, we were talking about the implications on audit, but let’s talk about the impact on accounting. Aaron Harris of Sage Intacct, believes that subledgers will exist on private blockchains, or semiprivate blockchains, as opposed to a full-on public blockchain. Ron, you answer first, then we’ll go to Erik.

Let’s move over to the tax side of things. Government sponsored blockchains that houses all recordable tax transactions, and we go in and simply verify the information. Talk about that, Ron?

About a month we had George Gilder on the show, on his book Life After Google [see below for links] and his position on what blockchain is going to do—build security into the layer of the network. We’ve experimented with the Brave browser, and our two properties—TSOE and VeraSage—our on this browser and we receive micropayments [full disclosure: so far totaling .42¢].

Ron’s Questions

Second Segment

Erik and Ron, How will blockchain specifically impact assurance service and its impact on the audit profession.

Erik, on assurance services on smart contracts, I read about a Japanese company, the Hosho Group, that provides attest services on smart contracts. I’m assuming that some of this assurance work is not just going to be done by CPAs with their traditional audit monopoly on the financial statements, but that this could be opened up to other competitors. What do you say to that?

Ron, would love to hear your views on this. 

Fourth Segment

Erik, when you see radical technology like this [blockchain], and even the government is struggling how and from which agency to regulate it, those types of technologies manifest themselves in business model changes. I’m curious how you both see what has to happen to the traditional CPA firm business model to incorporate this technology—how we price, what we measure, how we hire, educate, etc.

Ron, how do you see this technology impacting business model changes in the professions?

On centralized autonomous organizations, if I own a car that sits idle 90% of the time, this technology allows me to rent it out without the involvement of Uber or becoming an Uber driver—it disintermediates Uber potentially, doesn’t it?

Where should the regulation sit on this. With ICOs it’s not clear if they are a security, or goods and services, etc.?

Additional Information on Blockchain

Our two-part Interview with Doug Sleeter, Episode #96 and Episode #99.

Our interview with George Gilder on his book, Life After Google: The Fall of Big Data and the Rise of the Blockchain Economy, Episode #207.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #211: Free-rider Friday - September 2018

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Ron’s Topics

South China Morning Post, September 8, 2018, “Doctors said the coma patients would never wake. AI said they would—and they did.”

Thank you to our listener Geir for passing this along.

Surveillance State,” Kevin D. Williamson, September 13, 2018, National Review

When everyone is the last one out,” The Economist, August 4, 2018

Japanese work notoriously hard, 12 hour days are not uncommon, only 10 holidays per year, and it leads the world in paternity care, but only 5% men use it, and then for just a few days.

The Japanese have given the world the term karoshi—death by over work. They had employment for life post World War II, making it nearly impossible to fire, vestiges of which is holding them back: Japan has the lowest productivity of the G7 countries.

Companies tend to judge employees by input not output, and pay not on merit, but years served. The law should make it easier to hire and fire, allowing women more chances; fathers could bring up offspring, and it might even lead to more babies, suggest The Economist. The latter seems doubtful to me.

“Having a Cow,” Metro USA [from The Limbaugh Letter]

Fragile Millennials can now engage in “cow cuddling.”

For $300, stressed snowflakes can hug and “groom” a cow for 90 minutes at Mountain Horse Farm in upstate New York. We guess, don’t knock it until you tried it, but…

Cows will “pick up on what’s going on inside and sense if you are happy, sad, feel lost, anxious, or are excited, and they will respond to that without judgment, ego, or agenda.”

How udderly inspiring, as Rush says. No mention of barnyard odors.

What about consent? #MooToo?

States’ deregulatory push threatens CPA licensure,” Journal of Accountancy, September 7, 2018

Rory Sutherland, Spark.me, July 2017, “The Science of Knowing What Economists Are Wrong About,” in Montenegro

Another excellent video from Rory worth watching.

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Donald Trump’s speech to the United Nations, September 25, 2018

Geir’s question

Wonder what you think of his speech and your view on the ideology "globalism"? I prefer the ideology of liberty.

Ed’s Topics

Scarcityist-in-Chief,” Donald Boudreaux, CafeHayek

See our show with Donald Bodreaux here.

XKCD.com, 66 Time, September 21

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #210: Interview with Ryan Lazanis of Xen Accounting

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Ryan’s Biography

Ryan Lazanis is a CPA by trade but doesn’t consider himself a normal accountant. He identifies more with being an entrepreneur and loves disruptive technologies and business models. His aim is to help modernize the old, boring, traditional accounting profession. After spending many years in public practice at a small, traditional CPA firm, he started Xen Accounting in 2013. The firm was one of the first of its kind in Canada: 100% online, totally paperless, and fully cloud-based. Xen is a firm of geeky CPA’s, bookkeepers and technologists. They looked at what millennials hated at traditional accounting firm and turned that on its head to offer a new service. Ryan also likes writing & speaking on the subject of technology (including blockchain & cryptocurrency!). He’s been a writer for Techvibes, and has spoken at events around the world. Prior to Xen Accounting he was an active DJ in Montreal but says that his biggest passion is traveling to remote destinations with his wife.

Ryan Lazanis has been operating Xen Accounting without timesheets for the past five years. Founder of Xen Accounting, an innovative firm in Canada, Ryan embraced by the idea of blowing up the old “We sell time” business model of traditional accounting firms. Join Ed and Ron and learn how Ryan’s done it, the lessons he’s learned, and what it’s really like to work in a firm where time is merely a constraint, not a measure of anyone’s worth.

Ed’s Questions

Have you ever been in a tertiary meeting?

Tell us a little bit more about yourself and Xen Accounting.

Why do you do what you do, Ryan? Why did you get involved in accounting in the first place?

When you formed Xen Accounting in 2013 did you form it with the intention of not doing timesheets from the very beginning?

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When you brought your first couple of colleagues on, you didn’t have them do a timesheet?

You knew your costs in advance?

When you brought these folks on board, do they ask where the timesheets were?

What about customers? Did you find any resistance, did they ask you about the hours or your hourly rate?

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Right on your website it says, “Bitcoin accepted here.” Has anyone ever paid you in Bitcoin?

Are you more high on blockchain, or Bitcoin?

How do you see blockchain unfolding, regarding its impact on bookkeepers, accountants and auditors?

Do you see a public blockchain where multiple companies will post transactions when they interact with one another?

There’s different schools of thought on this. One colleague at Sage thinks the blockchain will replace the subledgers (A/P, A/R, etc.) rather than the General Ledger. Any thoughts on that?

Other than Bitcoin, are there other cryptocurrencies you like? [Ripple is his favorite]

Any others, Ether, etc.?

Let’s talk about Artificial Intelligence. Where do you see AI impacting the accounting profession in the shorter-term, 12-18 months out?

What about any other technologies you’re excited about? Any particular application of AI you’re high on?

Ron’s Questions

Did you grow up in Montreal?

See Ryan’s Blog post, The firm I run, Xen Accounting, has been operating for 5 years…(gulp)…without a timesheet

You said you made this change because you wanted to create a better customer experience, which is exactly why I did it back in 1989. Just love that you did it for that reason, too.

This aspect gets lost around the whole debate around hourly billing, pricing theory, behavioral economics. It’s really about creating a better customer experience?

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How has this change affected your practice in terms of recruiting talent?

You said your customers were receptive to this change. I find it’s not the customers that need to be convinced, it’s our fellow professionals isn’t it?

When you get rid of timesheets, your focus becomes creating more value for customers, what has been the sense of creativity, innovation, and collaboration—has it increased in your firm because of this change?

How about after the price has been set, and now you’re doing the work and taking care of the customer relationship, is there more creativity and collaboration?

What inspired you to write this blog post? [See above]

What’s been the reaction from your colleagues to this blog post?

We see more and more firms adopting this model. Do you think this business model is starting to diffuse and running towards a tipping point?

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On your website, you offer three options on your website: Simply Xen, Absolute Xen, and Supreme Xen. So many of our listeners are moving to this model, what are the percentages of customers’ selection for each option?

What do you think is the number one issue facing the accounting profession today?

What’s the biggest opportunity for firms in the profession right now?

What advice would you give to a young, aspiring CPA?

Would you advise I go work for a Big 4?

Do you find ex-Big 4 folks to be good talent for your firm?

Ryan, you’re obviously an entrepreneurial person, what is the best advice you’ve received in your career?

The other thing I noticed about your options, you have Fathom in your top option, and that is more of an advisory role. Do you find your firm, more and more, helping your customers make history rather than just report on it?

Do you see business advisory services growing?

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #209: Why Trade Deficits Don't Matter

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What happens when one country’s imports consistently exceed its exports, creating a deficit in the international balance of trade? There is probably no greater misunderstanding about the real nature of wealth than when a discussion turns to the balance-of-trade question.

Justice Oliver Wendell Holmes: “We need to think things instead of words.” Nowhere is this more important than with international trade, so many misleading and emotional words used to describe and confuse things that aren’t very difficult to understand.

Henry Hazlitt, author of Economics in One Lesson explained this phenomenon when he wrote: “… the same people who can be clearheaded and sensible when the subject is one of domestic trade can be incredibly emotional and muddleheaded when it becomes one of foreign trade.”

Ron recently taught an economics course to a group of learned professionals, and this one topic was the most contentious. Most everyone seemed to have an inordinate fear of China, India, and other foreign nations accumulating more and more of America’s debt.

He asked the group a simple question: If China and India become wealthier, is that a threat to America? The general consensus seemed to be yes, illustrating how zero-sum thinking is endemic to this discussion. Adam Smith eloquently wrote about this in 1776 in his seminal book, The Wealth of Nations:

Each nation has been made to look with an invidious eye upon the prosperity of all the nations with which it trades, and to consider their gain as its own loss. Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity.

One of the reasons the United States of America is such a relatively wealthy country is that it maintains a free trade zone among its 50 states. The Constitution prohibits the states from interfering with trade among their respective citizens; there are no tariffs or import, export, or other restrictions within the 50 states. No individual state worries if it is running a deficit with another.

Economist Russell Roberts posed this challenging question in his delightful academic novel, The Choice: A Fable of Free Trade and Protectionism:

Shouldn’t Florida help out Minnesota by importing just as many oranges from Minnesota as Minnesota imports from Florida? Trade flows should be unequal. … if you pick any one state in the United States and look at its trade position with respect to other states, you’d see a lot of deficits and surpluses.

Trade deficits and surpluses are merely accounting conventions with no explanatory relationship to the underlying reality of an economy, which is why accountants and economists have different worldviews. If a free trade zone works internally for the United States, why would it not work internationally among the countries of the world?

 It helps to keep in mind that countries do not trade, people do. In any transaction, as Adam Smith pointed out, both parties must gain for it to take place at all—the antithesis to a zero-sum condition.

You buy a Lexus only because you perceive it as being of higher value than the price you are paying. The government, for all practical purposes, has nothing to do with it. Nor is it any of its business.

As individuals, we run trade surpluses and deficits all the time. I run a deficit with my local grocery store, importing more from them than I sell to them. You run a large surplus with your employer, who pays you more than you buy in products or services from them in return. So what? The resulting accounting deficits and surpluses simply do not reflect the economic reality behind these billions and billions of individual transactions around the world.

This is what Adam Smith meant when he wrote, “Nothing can be more absurd than this whole doctrine of the balance of trade.”

The gains from trade are what we import, not export. The purpose of production, in the final analysis, is consumption. The more imports we can acquire for fewer exports, the wealthier we are, either as individuals or as a country.

Other countries face the same realities, and we are no more likely to obtain the goods and services we desire by trading pieces of green paper with other nations than we are to send letters to the North Pole and get gifts from Santa Claus.

Basic Economics
By Thomas Sowell

Being a creditor or debtor nation simply has no correlation with a country’s standard of living. Thomas Sowell exposes this fallacious concept in Basic Economics:

In general, international deficits and surpluses have had virtually no correlation with the performance of most nations’ economies. Germany and France have had international trade surpluses while their unemployment rates were in double digits. Japan’s postwar rise to economic prominence on the world stage included years when it ran deficits, as well as years when it ran surpluses. The United States was the biggest debtor nation in the world during its rise to industrial supremacy, became a creditor as a result of lending money to its European allies during the First World War, and has been both a debtor and a creditor at various times since. Through it all, the American standard of living has remained the highest in the world, unaffected by whether it was a creditor or a debtor nation.

No one revealed the specious reasoning behind balance-of-trade concerns better than the French economist, statesman, and author Frédéric Bastiat (1801–1850), whom the Austrian economist Joseph Schumpeter said was “the most brilliant economic journalist who ever lived.”

Bastiat used entertaining fables and carried the logic of the proponents of protectionism to their logical extreme, with biting wit. One of his most famous essays, “Petition of the Candlemakers,” was a parody letter from the manufacturers of “candles, tapers, lanterns … and generally of everything connected with lighting,” arguing against the unfair competition—since since its price was zero—of the sun.

Bastiat understood that exports were merely the price we pay for imports, and having to work harder to pay for those imports did not lead to wealth. Using impeccable logic, Bastiat wondered if exports are good and imports are bad, would the best outcome be for the ships carrying goods between countries to sink at sea, hence creating exports with no imports?

Stop worrying about the accounting fiction known as the trade deficit. It’s meaningless, and leads to harmful fallacies in public policy.

Kevin D. Williamson, in Understanding Trade Deficits, National Review, July 29, 2018, points out that a trade deficit is not the same as the budget deficit; it’s not a useful term (it’s a bookkeeping term).

Trade deficits and surpluses are not caused by tariffs and other protectionist policies

  • USA/EU, on average, have same tariff rate: 1.7% USA, 2% EU

  • Significant variance by item

  • Germany has a 10% tariff on automobiles (US 2.5%)

  • One-half of Europe’s cars are exported to USA (600,000 German cars)

  • USA imposed a 25% tariff on light trucks, imposed by the Johnson administration in 1964 in retaliation for French and German tariffs on American chickens

  • China cut tariffs on autos July 1st from 25% to 15%, but could raise them back up to 40% to retaliate against president Trump

  • Manufacturers can get around tariffs by building factories in the US, such as done by BMW and Daimler. For an auto factory to be productive it needs to produce somewhere between 200,000 and 400,000 cars per year

  • 63% of Japanese branded autos sold in US were made in the US in 2006

  • Average tariffs have been cut in half since early 1990s

  • China cut tariffs on average by 90%, from 32.2% to 3.5%, since the 1990s

Trade deficits and surpluses are not driven mainly by consumer behavior, but rather several other factors

  • Macroeconomic factors, tax policies

  • Savings rates

  • Strength of the currency

  • Attractiveness to investors (Trump’s tax reform could increase our trade deficit)

  • Largest USA exporter? BMW, which produces SUVs in Spartanburg, SC, and employs 9,000 Americans; our trade deficit with Germany made that possible (100,000 BMWs alone are exported to China)

Trade deficits and surpluses are not an indicator of economic trouble or health

  • The last time the US ran a surplus was 1975, not a great economic era

  • The US ran surpluses all through the Great Depression of the 1930s, with both imports and exports lower than 1920s levels

  • Britain ran a trade deficit from Waterloo to the Great War, a century marking the apogee of its power, and it grew incredibly wealthy

  • Nigeria had years of surpluses, yet remains one of the poorest countries in world

  • US factories output doubled since 1990, and are much higher than in the 1950-60s, and employs fewer people

  • That, not trade deficits, is why manufacturing’s relative share of employment has declined

  • The US was officially a debtor nation for generations on end (it ran trade surpluses). During WW I it became a creditor nation (running trade deficits). Since then, we’ve been both. Accounting details are not determinants of American prosperity or problems.

Three types of gains from trade

  1. Absolute Advantage—We buy bananas grown in the Caribbean because of nature, geography, or skills (beer and pianos are overwhelmingly produced by Germany and Germans in other countries, even China’s most famous beer—Tsingtao) was created by Germans)

  2. Comparative Advantage—Being able to produce anything more cheaply is not the same as being able to produce everything more cheaply. We’d have to produce everything more efficiently than Canada by the same percentage for each product for there to be no gain from trade.

  3. Economies of Scale—200-400K autos per year, Australia shut down auto plants, can’t cover high costs, even though the number of OZ owned per capita is higher than US, there are 12x more Americans

Over 1,000 economists signed a letter to Senator Smoot, Congressman Hawley, and President Herbert Hoover to protest the Smoot-Hawley Tariff Act, and the last line read: “We cannot increase employment by restricting trade.”

Four measures of how US firms do in China

  1. China % of foreign sales of US firms: 15% (20% would be in line with China’s share of world GDP) = 1% American firm’s global sales

  2. American firm’s aggregate market share in China = 6%, almost double China’s in America

  3. Do US firms underperform other multinationals and local firms? Comp adv in tech, Apple, Intel, Qualcomm, top 50, sales increase 12% compound annual rate, local firms = 9%, European firms = 5%

  4. US firms shut out of some sectors. Yes. Alphabet, FB and Netflix are nowhere

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #208: Free-Rider Friday - August 2018

Ed’s Topics

Accounting Today’s Top 100 Most Influential People in Accounting

Ed and Ron both made the list, along with VeraSage Fellow Michelle Golden River, and from Sage, Jennifer Warawa, and friends of VeraSage, including:

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  • August Aquila

  • Gary Boomer

  • Jim Boomer

  • Jim Bourke

  • David Cieslak

  • Angie Grissom

  • Tom Hood

  • Allan Koltin

  • Mark Koziel

  • Gregory LaFollette

  • Taylor Macdonald

  • Stan Mork

  • Jody Padar

  • Hitendra Patil

  • Darren Root

  • Marc Rosenberg

  • Donny Shimamoto

  • Geni Whitehouse

  • Jennifer Wilson

  • Joe Woodard

Ron was also voted #6 among the Top 10 Most Influential, coming in one vote less than Donald Trump, possibly due to Russian collusion.

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Should Commuting Count as Work?

We noticed this post in LinkedIn and it was picked up absolutely everywhere. 

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Our Patreon Site

Have you ever wanted to listen to the show commercial free? Just think, no Greg Kite commercials! Not only that, Ron and Ed record weekly bonus episodes and share their conversations during the commercials. All this can be yours for $7 per month.

Nudging: Should We Be Wary of the Latest Fad in Behavioral Economics?”, Donovan Choy, FEE, September 1, 2018

Check out our show from August 2014, Episode #8: Mr. Spock and Homer Simpson.

What’s wrong with “nudging”? Two problems:

  1. Policy makers suffer from the same biases that the rest of us do

  2. Political institutions are plagued by inefficiencies

Tucker Carlson Feeling the Bern Illustrates Conservatism’s Hostility to Free Markets,” FEE, August 31, 2018, Tom Mullen

Tucker thinks Amazon, Uber, and Wal-Mart start paying their people more so the taxpayers don’t have to subsidize these workers. We this he is way wrong on this one!

Ron’s Topics

 “The Son Kingdom,” The Economist, May 12, 2018

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Masayoshi Son, founder SoftBank, Japanese telecoms/Internet

  • The Vision Fund = $100 billion venture capital fund

  • Alliance with Muhammed bin Salman, Saudi Arabia’s crown prince, $45B + $5B Apple

  • Exceeds $64B all VC funds raised globally in 2016

Masayoshi’s bet on Alibaba paid off, but in the dot.com crash of 2001, he lost 99% of SoftBank’s market value.

Less than 5% of companies that pitch receive funding, slightly more generous than most VC firms. He gives them 4-5x more than they ask for! Startups perish more from indigestion than starvation. Wants to create an ecosystem and take them into Asia, etc.

The fund invests in 3 areas:

  1. Frontier: singularity, IOT, AI, computational biology, genomics

  2. Bring new tech to old industries (ride-sharing, WAG! Dog walking uber)

  3. Technology, media, and telecoms

If Steve Jobs brought to Apple an understanding of technology and art, Son’s formula is technology plus finance.

The bigger the VC fund, the harder to make high returns

Even if he loses, the fund will shape technology in future, frontier technologies. It will offer startups an alternative to cashing out to giants (FB, Google, etc.)

Bartleby: “Taking minutes, wasting hours,” The Economist, June 30, 2018

In 1957, C. Northcote Parkinson came up with the Law of Triviality: “The time spent on any item of the agenda will be in inverse proportion to the sum [of money] involved.”

Bartleby’s Law: 80% of the time of 80% of the people in meetings is wasted.

Corollary: After at least 80% of meetings, any decisions taken will be in line with the HIPPO, or highest-paid person’s opinion.

Start with the most contentious item first, and make sure everyone understands what was actually decided.

I jumpstarted my productivity in 15 minutes—and you can, too!” AICPA guest blogger, July 13, 2018, Brock Gaucette, Manager, Corporate Communications, AICPA

How a firm got more productive by reading more books, through: increased focus, confidence in communicating, improved memory, and a new, improved addiction—reading.

Elizabeth Warren’s Batty Plan to Nationalize…Everything,” Kevin D. Williamson, National Review, August 16, 2018 and “Elizabeth Warren Looks to Make Cronyism Great Again,” Daniel J. Mitchell, FEE, August 25, 2018

The Accountable Capitalism Act: Business with more than $1B in revenue would need permission from federal government (the act establishes within the Commerce Department an Office of US Corporations to review & grant charters). The act would also regulate:

  • Dictate composition of boards

  • Internal corporate governance

  • Compensation practices

  • Personnel policies

This act is unconstitutional (takings clause), unethical, immoral, irresponsible and utterly bonkers, according to Kevin Williamson of National Review.

Companies are already accountable for everyone they exchange with: customers, employees, suppliers, govt, etc.

This is simply Elizabeth Warren staking out the most radical corner for her 2020 presidential run.

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Apple’s shareholders are, collectively, the largest taxpayer in the world. Should we seize those earnings? Isn’t that covetousness and envy?

Businesses don’t have to put up with this? Nearly 50% of the S&P’s companies revenue is from overseas. The USA is home to 64% of the world’s billion-dollar privately held companies, and a plurality of billion-dollar startups.

Economist William Nordhaus estimates that innovators keep just 2% of the social value of their innovations.

“The thaw,” The Economist, June 30, 2018

A new show, “The White Crow,” currently in production, Rudolf Nureyev, a Russian ballet dancer who defected in 1961.

Also in production, a six-part adaptation of John le Carre’s “The Spy Who Came in from the Cold,” a British spy’s assignments in East Germany, also in production

Simon Cornwell, le Carre’s son, got into the Stasi archives, just like The Americans, creator Joe Weisberg (a former CIA officer), got into the Russian archives.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.