Monthly Archives: August 2012

Confessions of a “Job Creator”

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Can anyone “create” a job? Continue reading →

Although I watch mostly obscure shows on television, I have been unable to avoid the deluge of ads that Linda McMahon has recently been running. She is the former CEO of the WWE who is once again running for the U.S. Senate in Connecticut. The ads claim that she has “created hundreds of jobs” as head of the wrestling empire currently run by her husband, while her opponent, Congressman Chris Shays, has not created even one. This argument is so simple-minded that it is almost not worthy of addressing, but it did start me thinking about my own contribution to job creation.

I have been involved in running a small company for the last thirty or so years. During that time we have employed at one time or another several dozen people. Did I create dozens of jobs? Of course not. At the present time we have only five slots, and one of them is currently empty. So, perhaps by Ms. McMahon’s standard I created four jobs.

Sue and I started the company from scratch. We ran it out of our house for more than a decade. So, in a real sense we actually did create our small business. Sue came up with the name TSI Tailored Systems, and for the first five or six years we would attempt to complete any kind of programming job that we came across. “Anything for a buck” was our secret motto. Eventually we had more business than we could handle without going crazy, and we hired a couple of employees.

Vince McMahon, on the other hand, worked for his father, the owner of the wrestling federation that dominated the northeastern United States, for his entire adult life up to the time that he bought out the old man. So, the McMahons had the tremendous advantage of starting with the strongest company in their line of business. This is not meant to denigrate their accomplishments, which are considerable.

How much of the growth was Linda McMahon responsible for? She was the CEO of the company up until a few years ago, but whenever Vince was interviewed about the company’s success, he often used the first person singular. I followed wrestling pretty closely during the period of the federation’s rapid expansion, and I never heard her name mentioned. Furthermore, I could not find any interviews in the glory days in which Vince referred to his wife’s role. So, any reasonable person might wonder how many of those jobs she personally created.*

In point of fact I suspect that neither Linda nor I created even one job. In my case I know that if my company did not get those custom programming jobs in the early days, some other company or freelancer would have probably done them. If we had not sold and installed the twenty or so ad agency systems that we did, the agencies would have almost certainly bought one of the other systems available. If we had not developed our system for retail advertising departments, AdDept, it is more difficult to figure out what would have happened, but we do know that some retailers that were not our customers spent enormous sums of money to develop similar systems.

That brings up an interesting point. We were successful largely because we were efficient. If our system had not been on the market, our customers would still have tried to solve their problems. They would likely have settled on a less efficient method. “Less efficient” implies that they would have used more people to develop and support it than we did. Thus, it could easily be argued that the net effect of our efforts was fewer jobs, not more.

Moreover, the very nature of our work was intended to reduce employment at our customers. In many cases the users were challenged to justify the expense of the system in terms of the number of “census” that they could reduce. In a large number of cases our system certainly facilitated the merger of retailers or consolidation of divisions of retailers, both of which always resulted in substantially few jobs.

So, I confess that my career has probably cost the economy quite a few jobs. If anything, I have contributed to the unemployment problem by running an efficient business that improved the efficiency of other businesses. It is even worse than that, because several of the companies that now use our system have outsourced many of the jobs that still remain. A substantial number of the day-to-day users of our system are in India.

What about the wrestling business? The WWE currently employs a substantial number of people, but has it had a positive or negative effect on employment in the United States? Ms. McMahon argues that it has added jobs in Connecticut, but she is running for senator, not governor. Transferring jobs from one area of the country to another does not help with the nation’s unemployment problem.

I suspect that if you added up all of the people employed by all of the wrestling fiefdoms that the WWE put out of business, the actual impact has been a decrease in the number of people involved with wrestling. I might be wrong, but someone should do the math.

And if there were no such thing as professional wrestling? Would there be more unemployment? I doubt it. People would have still had the same demand for entertainment. They would have spent their entertainment budgets on something else, maybe Roller Derby. Maybe the mixed martial arts craze would have started earlier. Vince McMahon said that his competitors were the NBA and Disney; maybe he cost them business (and jobs) by filling arenas with wrestling shows.

The real point is that owners and managers of businesses do not create jobs in any meaningful sense. Myriad factors affect the unemployment rate. In the long run as the population increases, a larger percentage of the people in underdeveloped countries enter the labor force, science produces technology that improves productivity, and resources become more scarce, worldwide unemployment is bound to increase. It seems difficult to imagine that as technological advances spread to the third world there will be nearly enough work for seven billion people. The only way I can imagine employment rates increasing is for the work week to be shortened or the retirement age dropped throughout the world. And people throughout the west are talking about raising the retirement age!

Can politicians create jobs? They can certainly cause people to be hired. Can they affect the unemployment rate in the United States? I am not sure that they can, and I am equally unsure that minimizing unemployment is per se a desirable goal. I mean everyone needs a source of income, but do we really want everyone to work?

* By the same token any reasonable person might wonder how much influence Vince might have over his wife if she became a senator.

Shiny Rocks

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What makes gold, silver, and diamonds so valuable? Continue reading →

It has always seemed obvious to me that the value of an object is determined by its usefulness and its scarcity. Oxygen is essential for life, but it is so plentiful that it does not seem valuable. The right type of bone marrow, on the other hand, is critically important for people with certain conditions, and the difficulty in obtaining it dictates that those people will pay any price for it.

Of course, some artistic items apparently defy this formulation. A Picasso valued at $50 million is no more useful than the drawings that adorn refrigerators, and both are very rare, in fact, unique. Perhaps this discrepancy can be explained by ascribing value to the unique feeling that art aficionados get when viewing a painting or when showing it to others.

Over the centuries nothing has challenged the basic value formula proposed in the first paragraph as successfully as the the three shiny rocks — gold, silver, and diamonds. As far as I can tell, these three “precious” items have five shared features:
  1. They are not particularly useful.
  2. They are not particularly rare.
  3. They are durable.
  4. They reflect or bend light.
  5. They are elemental. Gold and silver are elements. Diamonds are just crystallized carbon.

One troy ounce of gold currently sells for approximately $1,600. Gold is very heavy; an ounce of gold does not take up a lot of space. The standard gold bar contains four hundred ounces. Thus, an investment of $1,600 gets you only one-fourth of one percent of one of Goldfinger’s bars. You probably would also need to pay a substantial commission.

All three of these shiny rocks have been valuable for a very long time. The wealth of a country or an individual was often a function of how many of them could be amassed. It seems incontrovertible that the looting of gold and silver from the Indians in America made Spain into a powerful nation and kept the Hapsburg empire going for many decades. The number of people who have given their lives in order to obtain shiny rocks or defend them from someone else is staggering, and it probably grows every day.

One argument for the intrinsic value of gold that is often promulgated by those selling it to ordinary consumers seems to be based on its durability. Many commodities depreciate in value over time. Animals die, grain rots, and manufactured goods become obsolete or unfashionable. Gold, on the other hand, holds its value. There is something to this, but other investments, especially real estate, also maintain value.

The other commonly heard argument is that in times of crisis government-backed currency will be useless. Certainly some people have suffered by placing undue faith in certain currencies. However, if the end times really come, civilization collapses, and mankind turns to a barter economy, I seriously doubt that those who have stockpiled food will be interested in depleting their supplies in exchange for some rocks.

Warren Buffett recently articulated the reason that these commodities seems to be shockingly overvalued: “If you buy an ounce of gold today and you hold it a hundred years, you can go to it every day and you could coo to it and fondle it and a hundred years from now, you’ll have one ounce of gold and it won’t have done anything for you in between.” This has always been my opinion, too, but I am beginning to doubt my perspicacity.

Previously I tried to place shiny rocks in the same category as works of art. Gems and jewels do nothing for me, but they seemed to provoke a sense of satisfaction in others. It still seemed weird to me that a few shiny rocks could be worth as much as a car, but no more so than that a painting could be worth millions.

The reason for my change of heart lies in India, the home of a population of over 1.2 billion people that is growing by 1.41 percent per year. Furthermore, the economic growth rate is much higher. It stood at 6.9% in 2011. Thus, India, like China, is a country with an increasingly large number of people with much more disposable income.

Most of the residents of India are Hindus, and, for reasons that I do not completely understand, adherents to the Hindu faith put great store in the purchase of shiny rocks. It is considered extremely propitious to obtain them on one particular holiday, Akshaya Tritiya, which falls in April. Indians are the world’s biggest consumers of gold. Most Indians buy it in the form of jewelry, but investments in gold-based securities are becoming more common. In fact, investments in gold ETF’s in India surged 44% this last year.

So, I now have decided that it is not so obvious that the value of a commodity is determined by its usefulness and its scarcity. Instead, it is determined by its perceived usefulness and its perceived scarcity. In India gold evidently has the perceived usefulness of bringing good luck. I see no reason to think that this appraisal will come to an end any time soon. In fact, more and more Indians will likely be able to afford a little gold. Therefore, the price of shiny rocks will probably continue to rise.

I can relate to this. In medieval times Christians assigned high value to relics (usually bones) of saints. In a book called Furta Sacra Patrick J. Geary makes a persuasive case that the relics were perceived to possess the power to bless and protect the communities in which they dwelt. In addition, every altar in every church was required to contain a fragment of a blessed relic. They became highly prized. It took centuries for this effect to subside. Even today many of the faithful leave ex-votos at shrines containing relics in appreciation of the perceived power of the relic to cure disease or heal injury.

I have never heard of a relics-based ETF. Maybe I should investigate it.