JustinIdea - Justin Ricaurte's Personal Blog

The Next Four Years

It's great to see a barrier fall in America by Barack Obama being elected the first black President in our nation's history.  Although, many people have what will turn-out to be unrealistically high expectations of what will happen over the next four years, no matter how good their reasons are - the Law of Unintended Consequences still lives.  While Obama is great in some areas he falters in others, and just because an issue wasn't across every news screen during the election season doesn't mean that it isn't important.  I wish him the best as President of the United States and making the best decisions possible considering the circumstances our country is in.  The issues:

Very Excited About

• Obama's energy policy.  I'm hoping he picks Al Gore as Energy Secretary and has T. Boone Pickens head a panel of industry advisors.  Energy determines our foreign policy, so making a smart pick here will be his most important decision.
• A cap-and-trade carbon market where all carbon credits must be bought by private industry.  Allocating them among participants for free would create loads of corruption.  Also, if Democrats want to make sure our company's aren't at a competitive disadvantage to those in nation's with more lax environmental standards, they can make any company that produces or sells products in the United States buy carbon credits.
• The closing of Guantanamo Bay prison and hopefully all the other secret prisons the U.S. has.  We should not deny any person on earth their right against cruel and unusual punishment and to a fair and speedy trial by jury of the peers, not to mention access to a lawyer.
• The ending of the war in Iraq.  We shouldn't have been there in the first place.
• Hopefully the end of most rhetoric from the White House being about terrorism.
• America's world image being repaired as we stop Bush's use of "Cowboy Diplomacy"
• Stem Cell research using federal funds being legalized.  It's about time we started taking the lead further in this very important field of research.
• Federal investment in basic research increasing, so that the pace of innovation in our country picks up again.
• Intelligent Design not being given the same standing as Evolution in schools, because it is not a sound scientific theory.

Excited About

• The ability for Obama to make the R&D tax credit permanent.
• Greater potential investment in education.

Lukewarm About

• Obama's ability to hold government programs accountable.  With rock-solid majorities in the House and Senate, he won't be under as much pressure to find what should be given more money and what should be cut.  This was the one good thing Bush started, while he was in office: The President's Management Agenda.
• Ability of the Supreme Court to contain the Democrats with their majorities to overextending the government's role in the economy as long as Obama doesn't turn into a tyrant like FDR, when he tried to pack the Supreme Court.  Currently the Supreme Court is leaning slightly conservative with a 4-1-4 break-down, so any attempt at overstepping their bounds should hopefully be struck down.
• The Democrats being able to re-privatize the banking system in short order.  The government has no place running the banking system and further destroying the balance between risk-and-reward in the financial marketplace.

Concerned About

• Corporate taxes.  If Obama closes the tax loop holes and does not lower the corporate income tax rate, businesses will be forced to lay-off workers or raise prices in order to stay profitable, especially given the current circumstances.
• Health care.  Moving towards a single payer system will not make our health care better.  If you think government-run health care will work well, how well does government-run infrastructure work?  Oh yeah, that's why our government has underfunded our infrastructure by $2 trillion, which is why our infrastructure is degrading to the point of being a developing nation.  The only way to cut costs dramatically is to cut access.  If you want to check out the future of health care, check out Qliance 
• Personal income taxes.  Raising taxes never helps the country as government is less-efficient than the private sector at using the money it has, which is also why government workers are paid less.  Not only that, but Obama wants to raise taxes on those citizens that make more than $250,000.  At a time when the United States desperately needs investment in the country in order to create jobs and get out of the financial crisis, Obama wants to tax the group of people that invest most of their money back into the economy.  If you want to pay more taxes, you should voluntarily mail the extra amount of tax burden you would like to take to the Department of Treasury as a gift.  Here's the mailing address, so it is easier for you to increase your own tax burden. 

  Gifts to the United States

  U.S. Department of the Treasury  

  Credit Accounting Branch

  3700 East-West Highway, Room 622D

  Hyattsville, MD 20782

• Fannie Mae and Freddie Mac.  The Democrats will want to keep these institutions alive, but no company in America should be given an unfair, government-endowed advantage in the marketplace.  They helped to create the problem we're in today by creating excess liquidity in the financial markets due to their implicit government-guarantee, and now we're paying for it.
• Excessive Regulation.  Regulation in its current form is unnecessary.  We have already bestowed police powers on the Federal government, so it can prosecute companies and their officers for fraud and other crimes.  The Democrats will be tempted to over- regulate the markets, especially the financial ones, but hopefully they can't add too much regulation, or innovation will slow.
• The Government bailing out the auto industry.  The Democrats will be tempted to help the voters in Detroit that helped put them in power, but government intervention in industry only delays the inevitable.  If the companies are not able to quickly adapt to the market, they should be allowed to die, so that they stop draining resources from the economy.  If they want to invest in job re-training for these voters, then they should invest in job re-training instead of bailouts.

Very Concerned About

• America's future trade policy.  It doesn't matter if the economists voted Democrat or Republic, 95% support free trade.  Why?  Because, free trade brings prosperity to all parties involved and has created more jobs than it has destroyed.  Yes, we should hold other countries to our environmental standards, but the best way to bring about this would be to make companies that produce or sell products in the United States to join our future cap-and-trade system and by permits.
• The deficit.  Government spending needs to be kept in check, and it should stop mortgaging the future for the present.  No amount of stimulus will help revive the economy, because consumers and the federal government are over-leveraged and need to cut back on spending.  Democrats being able to control spending?  I don't think this has ever happened, and the Republicans haven't done much better.  They need to get Keynes's influence out of there.
• Monetary policy.  The government has put $5 trillion into the monetary system in the last two months, which is completely unsustainable and will most likely over time as it has time to sit create massive amounts of inflation.  Again, they need to get Keynes's influence out of there.
• Entitlement Programs.  The Democrats will want to raise taxes to cover these, but no matter what they try, they are sitting on a demographic time-bomb.  Entitlements will eat-up our economy if the system isn't reformed.

A recession? How about some inflation with that

Good old Ben Bernanke has been working on quieting Wall Street recently, because the bankers lost money from some risky bets they made, and he now claims a recession is currently the worst thing that could happen to the United States. Last time I checked, if you're trying to get above average returns, you'll need to take on above average risk. So the fact that the banks lost billions of dollars on sub-prime mortgages should be nothing to get riled up about.

So what if the United States does go into recession as the jobs data and other indicators may be pointing to? Shouldn't the Fed lower rates? If the United States was isolated from the world, yes, it should. But the U.S. isn't an island without any trade. We might not be completely globalized, but trade still makes up about 20% of our economy.

What ever happened to the talk about inflation? Inflation must have disappeared right? Well, no, not at all. A falling dollar makes foreign imports cost more in the United States. Look at toys, clothes, and other products rising in cost unless the companies want to absorb the currency exchange costs. While that might be manageable, a falling dollar coupled with inflation in China makes a bit of a perfect storm. With Chinese inflation now hitting 11-year highs, companies will be less likely to be able to absorb the pressure on their profits and will need to pass on the price increase. Some are already asking for 20-50% more. Hopefully the Fed will get its act together, raise rates, and keeps stagflation from hitting the United States.

A Sustainable Policy

Last week it was great to see Al Gore acknowledged for his efforts in promoting the building of a more sustainable society.  With a decrease in pollution and energy consumption, we will have fewer incidences of illnesses such as asthma and thereby decreasing the amount we spend on health care, more money to spend on things aside from energy, greater domestic and international economic growth, and a more peaceful world because money will not flow en mass to dictatorships built off of fossil fuels, especially ones that finance international terrorism. 

One big problem with proposed policy measures is that they do not allow for both parties to get what they want from the table.  The Democrats want to help the environment, public health, etc., and the Republicans want to promote growth by lowering taxes.  To increases its chances of success, a policy should take into account these agendas.  One such as this:

1. A cap-and-trade pollution system where the government sells credits that companies can buy for their needs.  The cap would need to be lowered each year to promote further decreases in energy used. 
2. Requiring all business that produce goods in the United States or that sell goods to American consumers to participate in the system and to take into account a life-cycle analysis of their products.
3. Requiring companies listed in the United States and those that want to have government pensions buy their stock to disclose their carbon footprint.
4. Eliminating the corporate income tax in exchange for participation.

A policy such as this will promote business to adopt more energy efficient measures and reward the most energy efficient companies by allowing them to sell their credits and then not have to pay a corporate income tax.  The elimination of the corporate income tax would further spur innovation and accelerate the development of a more sustainable environment.

This acceleration of innovation will create millions of jobs in research, development, production, marketing, financing, and servicing these new products and make American-made products more competitive in the global economy.  These new employment opportunities along with the money the government makes by selling the credits will also offset the revenue lost by the elimination of the corporate income tax, keeping our national debt from increasing due to the program.

HBR - Globalization and Summit Syndrome

I've been trying to catch up on the stack of magazines I've accumulated recently.  Here are summaries for two of the articles I enjoyed from March's Harvard Business Review. 

The first was on "Managing Difference: The Central Challenge of Global Strategy".  Ghemawat proposed the AAA Triangle framework to tackle global challenges: adaptation, aggregation, and arbitrage.  With adaptation, companies seek to boost revenues and market share by maximizing local relevance.  With aggregation, they focus on building economies of scale by creating regional/global operations.  And with arbitrage, they exploit differences in national or regional markets by locating different parts of their supply chain in different places.  Although all companies use all three A's to some extent, the A's can be used to create further global differentiation and to exploit competitor weaknesses. 

The second was on the crises gifted performers have at each peak of their success.  This article resonated with me, because I thrive on encountering new challenges and get bored when I no longer seemed to be challenged as much.  Summit syndrome, when gifted performers become dissatisfied at the peak of their success, has three phases.  In the approach phase, the person puts in a lot more effort with marginal gains in improvement, trying to recreate the adrenaline rush of the climb.  Plateauing then occurs when virtually all of the challenges have been conquered.  These individuals continue to produce stellar results but become much more dissatisfied with the work they're doing.  The final phase is descent.  In this phase, performance will slip noticeably and sometimes wrecks havoc on relationships and personal morale. 

To be able to keep this syndrome at bay, it needs to be recognized early on, which can be difficult to do for both an on-looker and the individual.  When it is recognized though, these four steps can be taken to dispel the confusion and set the stage for the next stage of productive growth:

1. Understand your "winning formula" and the vital part it plays in feeling stale or losing your edge.
2. Reconnect with your core purpose in life.
3. Recast your current, or future, job to better align your internal aspirations with external requirements.
4. Create a developmental path by honing a handful of core leadership competencies.

I'm going to keep this in mind the next time I start to feel bored over an extended period of time. :)

The World is Round?

Valeria Maltoni wrote about a very interesting article she ran across by Pankaj Ghemawat in Foreign Policy about why the world isn't flat (a free pdf can be found here), contrary to the thesis put forward by Thomas Friedman in The World is Flat.  One of the most interesting statistics Ghemawat showed was that when looking at cross-border transactions, a best estimate can be that only 10% of everything, from cash flows to immigration to trade, crosses national borders.  Only 10% of telephone revenue comes from cross-national calls, and 20% of trade and only 3% of migration crosses borders.  Another interesting point comes from the fact the previous peak of international integration was in the early 20th century.  It was only in the last 10 years that we passed the peak, and in some cases, we still haven't.

By viewing a localized world as a problem that needs to be solved, there are three areas that can potentially make a lot of money.  Finding a way for people, capital, and products to move relatively freely between countries are gold mines for entrepreneurs to go after.  With respect to people and products, some of the problem stems from government protectionism, but finding a way to transport people and goods at 10% of the current cost could radically change the global playing field.  What if a ticket to fly to Shanghai or London cost only $100?  How many more people would jump at the opportunity to travel?  I'm guessing the price of a ticket to California would drop to $15 and to New York to $20 each way. I would definitetly be traveling more at these kinds of prices. :D

Thought Experiment - Would a 90% decrease in travel costs further push a greater adoption of English around the world as the lingua franca?  Or would Mandarin start to edge it out as more middle-class Chinese were able to travel longer distances?