A few thoughts from Jerry and John.

It’s Lonely at the Top!

If you think it is lonely at the top, consider the loneliness of the startup entrepreneur who is struggling to find customers, investors to keep the dream alive and is worried about how she will pay the bills.

John

!@#$%^&*

Great News on the Job Market!

Great news on the job market from North Carolina. In June, according to the BLS number, the jobless rate was 8.8 percent. In December the rate, again from BLS, was 6.9 percent. A full 1.9 percent drop in the jobless rate in six months. Looks like Carolina is on the road to recovery and if you are looking for a job you should pack up, and to put a twist on the Horace Greeley quote, “Go East, young man”. 

Or should you? 

Seems that the 'labor force participation rate' in North Carolina dropped a full percentage point over the same time while the national job participation rate dropped only 0.7 percent.

So there is a greater percentage of people out of work [dropped out of the work force and not counted as unemployed by the BLS] in North Carolina than across the country as a whole. As stated by the BLS spokesperson “So, our official estimates indicate that unemployment (both in terms of the level and rate) in North Carolina has gone down significantly since June, but neither the labor force nor employment level changes were significant.”

And I quote Mark Twain "There are three kinds of lies: lies, damned lies, and statistics." 

Jerry

!@#$%^&*

Advantage versus Economic Diversity

Most investors can only conceive of participating in “conventional” markets (stocks, bonds and real estate). The advantage of these investments is that there is plenty of public information available, they are highly regulated so you are less likely to get scammed, the friction costs of buying and selling stocks is very low (it is much higher for real estate) and you generally benefit from inflation (at least for stocks and real estate).

But the average investor is unlikely to get either an information advantage or a high level of diversity with this kind of portfolio. After all, low interest rates benefit both stocks and real estate, and increasing interest rates eventually tend to hurt investments in both arenas. If one owned Apple Computer, Exxon, Citibank, Allstate Insurance and Ford Motor and the overall market crashed one day by 20% don’t you think that each of these independent investments might do just as poorly? If the US stock market dropped by 20% one year, what do you think would happen to real estate prices?

On the other hand, if the law permitted you to operate a legal craps table and you only allowed pass line bets then you would have a 1.41% advantage on each and every wager. If you ran it yourself, never made a mistake on the payouts (your customers tend to point out mistakes in your favor more than mistakes in their favor), and had no other friction costs, this business would have a wonderful and rare combination of diversity and advantage. Each of the bets would have zero correlation with the other bets. Your small advantage would add up to steadily growing profits over the long run. The more reasonably sized bets that were made at your table, the more money you would make.

But these unique opportunities where you have both diversity and an advantage are hard to find and hard to retain. When you find such a prospect, the word tends to get out and new competitors undercut your advantage and increase your friction costs (for example advertising expenses).

John

!@#$%^&*

The Labor Movement

Pop culture and folk history [and our school system] tells us that the trade union labor movements and 'concern' over the welfare of children by 'progressive' were the heart and major reason for government laws and regulations against 'child labor'. We would still have little kids tied to looms if not for politicians fighting those greedy business people.

Would you be surprised to learn that here in the United States that the nation law against 'child labor' did not exist until the 'Great Depression' and the passages of the Fair Labor Standards Act in 1938? [that's the federal law that defined the age that you have to be to be hired. That law also brought us a national minimum wage and it defined full-time and part-time work.] And to drive my thought home I quote Jeffrey Tucker “...[by the] time this legislation passed, however, it was mostly a symbol, a classic case of Washington chasing a trend in order to take credit for it.”

When considering the reasoning behind the law to 'protect' children think about this. How better for 'government' to lower 'unemployment' and raise wages than to, through force, declare a group of potential workers unemployable [we did it 'for the children']. But you say, “Jerry, how can you be so cruel? Haven't you read Charles Dickinson?” Yes, I read Dickinson [and others] and for many years bought into the myth of the intolerable use of young children in factories [see any government history text in our public schools for photo's of children working in the 1900's] 'but' then, and I do use the word 'but' often, I began to read 'real' history. From 'real' history we learn that the development of the 'free market' in the 17th and 18th centuries was the primary driver in the reduction of child labor, not 'government' action. As prosperity grew, with the growth of the 'free market', more kids left the workforce and went to school. If you look at the census reports you will find that by 1930 about 6 to 7 percent of the American workforce were between the ages of 10 and 15 and of these 3 of 4 were working in agriculture. That is to say 75 percent of the 6 percent were working on the 'family' farm in 1930. In urban areas 'child labor' was mostly gone. Cultural factors were important but the major factor was economic. Parents could 'purchase' their kids education from the family's 'surplus income' instead of looking to those kids as a source of needed earnings.

So what brought about this line of thought today? I was thinking about 'unintended consequences' while reading an article titled “Why India's Ban Against Child Labor Increased Child Labor” by James Schneider. He makes the statement that “[it is taken] as a matter of faith that increasing taxes will dull people's desire to work. However, higher taxes can sometimes cause people to work more. When higher taxes reduce the after-tax wage, people are poorer for any given number of hours worked. When they become poorer, many people are more anxious to earn extra money. Economists call this the "income effect" and “Increasing tax rates is not the only way that the government can reduce wage rates. If the government punishes your employer for hiring you, your services will be less marketable, and your wage will fall.”

He goes on to discuss a paper that shows how 'child labor' has increased in India because of the Child Labor (Prohibition and Regulation) Act of 1986. The paper, 'PERVERSE CONSEQUENCES OF WELL-INTENTIONED REGULATION: EVIDENCE FROM INDIA’S CHILD LABOR BAN' by BHARADWAJ and LAKDAWALA, suggest that poverty is the key determinant of families using child labor to increase their income.

And just to let you know [I do speak from some experience], I started working full-time in the oil patch (8 hours-a-day 7 days-a-week, time-and-a-half for anything over 40 hours-a-week, good money) when I was 14. Of course that was only in the summer. But I did worked weekends when school was in secession. And that was legal in Oklahoma, at the time, under the Fair Labor Standards Act in 1938. There are loop-holes in every law if you know where to look...

Jerry