Episode #98 - Free-rider Friday - June 2016

Ron’s Topics

Sighing for paradise to comeThe Economist, June 4, 2016

  • Our June 3 show, A Check for Everyone? The Basic Income Idea, discussed Charles Murray’s “The Plan”—to pay everyone from the age of 21 $10,000 per year.
  • The Economist is against this idea, saying it’s “an answer to a problem that has not yet materialized.”
  • Thomas Sowell and George Gilder are also against it.
  • The oft-cited study by Oxford that 47% jobs are going to be automated is too gloomy.
  • The Basic Income could encourage the first-world to shut off immigrants, or create second-class citizens if they allow immigration but don’t let them participate in a Basic Income program.
  • The costs are too high, and the risk of tax avoidance/evasion is also troubling.
  • It could also be alienating, socially corrosive, and create individuals with no purpose in their lives.

How the FAA Shot down “Uber for Planes”, FEE, June 2, 2016, by Jared Meyer

  • Jared Meyer is a Fellow at Manhattan Institute
  • Boston to Martha’s Vineyard cost $70 using the Flytenow app (by comparison, $1,000 for a charter)
  • FAA ruled Flytenow was a “common carrier, subject to the same regulations as major airlines
  • Private pilots simply can’t comply with this many regulations
  • Nothing new. It’s still legal to find people to share flights with on bulletin boards or telephone calls
  • FAA worries an app will go beyond friends and acquaintances
  • FAA said it’s permissible to advertise on Facebook if you had a few friends, but not a thousand
  • Not possible to know legal from illegal
  • Existing law, pilots can’t profit, only recoup costs
  • Founders of Flytenow say it’s not Uber, it’s more like carpooling for aviation
  • It’s legal in the EU
  • Not rationally related to safety, as Captain Sully couldn’t share, so it has nothing to do with pilot qualifications or safety
  • FAA was pressured by private charters and airlines
  • Flytenow has filed a Petition for Certiorari to US Supreme Court
  • Mark Sanford (R-SC) proposed an amendment to an FAA reauthorization bill, awaiting floor vote
  • We shouldn’t have to ask for permission to innovation—permissionless innovation!

The Structure of Production: New Revised Edition, Mark Skousen, 2015

  • Cato Podcast with Mark Skousen, George Gilder, Steve Forbes
  • April 25, 2014, the Bureau of Economic Analysis (BEA) at the U.S. Department of Commerce announced a new data series as part of the U.S. national income accounts, and the BEA began reporting “Gross Output by Industry”
  • Government now recognizes the critical importance of Gross Output (GO).
  • GO measures spending throughout the entire production process, not just final output like Gross Domestic Product (GDP)
  • GO measure total sales volume at all stages of production, includes all business-to-business (B2B) transactions that GDP leaves out
  • In the third quarter of 2014, GO hit $31.3 trillion, almost twice the size of GDP, which was $17.6 trillion. GDP measures the “use” economy, GO measures the “make economy”
  • GDP is comprised of consumer spending, government spending, investment, and net exports, with the first two of these being the biggest contributors
  • GDP overemphasizes consumer and government spending as the driving force behind the economy because it ignores supply-side benefits of saving, business investment, and technological advances.
  • GDP shows Household spending generates more than two-thirds of total economic output, latest U.S. data on GDP, $17.6 trillion, consumer spending $12 trillion (68%), government spending at $3.2 trillion (18%), Private investment $2.9 trillion (16%), (Net exports at -2 percent.)
  • The GO statistic, by contrast, shows consumers less than 40 percent ($31.3 trillion), while spending by business is $16.6 trillion, more than 50 percent of economic activity
  • Consumer spending is largely the effect, not the cause, of prosperity
  • GO is over $23 trillion in 2014. GO is significantly more sensitive to the business cycle than GDP. In 2008–2009, nominal GDP fell only 2 percent, GO fell by 6 percent and B2B spending collapsed by 10 percent
  • BEA’s measure of GO does not include all sales at the wholesale and retail level.
  • Wholesale and retail trade figures are included in GO only as “net” or value added
  • Skousen believes this is a serious omission, comprising more than $7 trillion dollars in business spending in 2014
  • We need to include gross wholesale and retail trade figures. They are legitimate B2B transactions that deserve to be counted
  • Skousen created his own aggregate statistic, Gross Domestic Expenditures (GDE), which includes gross sales at the wholesale and retail level and is therefore significantly larger
  • GDE in 2014 is over $37.5 trillion, 25 percent higher than GO and 120 percent more than GDP.
  • Consumer spending actually represents only about 31 percent of the U.S. economy using the GDE statistic
  • The adoption of Gross Output is the most significant advance in national income accounting since World War II.
  • GO is a reflection of Say’s law (supply creates demand), a supply-side statistic, while GDP is a symbol of Keynes’s law, a demand-side number
  • Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts

$1B stakes on the menu The Economist, May 21, 2016

  • Berkshire purchase $1 billion in Apple shares, disclosed May 16, 2016
  • Buffett, 85, likes mature firms, ignorant about technology
  • Investment in IBM has cost him
  • Buffet made his purchase weeks after Carl Icahn, 80, sold a $5 billion stake in Apple
  • “The sight of two octogenarians grappling over the firm’s fate does not enhance its aura as a temple of innovation”
  • Apple stock is cheap trading at 11x earnings (29 for Alphabet and 72 for Facebook)
  • Apple invested $1B in Didi Chuxing, China’s Uber to curry favor with China’s government
  • It needs to do so with India!
  • There was recently an Indian ministerial decision deeming Apple’s products are not “cutting-edge” that kyboshed plans to open Apple stores in the country
  • There’s a law that states products made outside India have to be 30% sourced domestically, and Apple didn’t qualify for an exemption to this rule for being “state of the art” 

Ed’s Topics

New obsession: The Broadway play Hamilton


Russ Roberts EconTalk podcast where he discussed his decision-making process to attend the play even though the opportunity cost was thousands of dollars.

The song, The Room Where It Happens should be Hillary Clinton's campaign theme song.


We need a better capitalism or how a third way = third world

Brexit Vote?

It did pass, but we didn’t know it when we pre-recorded this show on 6/23/16.

Ron favored Brexit but predicted it would lose—time to eat crow! www.predict.org got it wrong, too, as did most of the polls.

Here’s an excellent recap by a historian of an interview Margaret Thatcher gave to Forbes back in 1992, which is prescient.


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.