patrick.net

Peter, do you ever get concerned that capitalism itself is a form of a ponzi scheme? I haven't put too much philosophical thought into it, but something about it nags at me. Namely, absent growth, the system seems to break down entirely.

Also, what growth is real? As the rug gets pulled out of the last 8 years, we are seeing alot of castles made of sand. How far back does this fake growth go I wonder? The early 80's? 60's? WWII?

Why should any retirement plan be a pension scheme financed by future company earnings? That is insane, one should see that the retiree expense will skyrocket over time, especially as people live longer and are able to retire early.

Why not set up a variation on the IRA that has no contribution limit and can be match funded? The contribution does not have to be deductable, but should accumulate interest tax free. Only allow contribution to Treasuries or insured CD/MMA. In essence, this is more an enhanced or employer aided savings plan for retirement rather than a pension. One can still use company stock in compensation, but keep it out of any retirement plan.

"Food prices are nasty-high right now and dont seem to be falling along with everything else." - mickrussom

Actually food prices have alot of pressure to fall. There is over-capacity and high inventory everywhere you look. (BTW, I am in the food industry and have first hand knowledge). It is just taking a long time, because quite frankly food prices were very low while all other assests were booming. In some cases the gains in prices of food were very justified and will not roll back, even during this deflation.

Food prices have been low for a long long time and now that they have gained, and food is a necessity, they are going to stay that way. The cost of transportation will be rolled back, but that is about it. People don't need a TV or a cell phone, but they have to eat. More cash is going to flow to food and less to "luxuries".

The saying in the food industry is: "When times are good, we do OK. When times are bad, we do OK."

Peter, do you ever get concerned that capitalism itself is a form of a ponzi scheme?

Not quite so. The weak hands always lose to the strong hands, through booms and busts. Capitalism is true to human nature and I believe it is sustainable.

Namely, absent growth, the system seems to break down entirely.

Growth and contraction come in cycles. The sooner we allow things to correct, the sooner we will see growth again. It is absolutely necessary that mal-investments be liquidated. Creative destruction is the life force of Free Market and I do not see any need to dampen its effects.

What growth is real? I do not know. I just see booms and busts as pendulum motions. There is no real growth in that sense. Things just move along.

BTW, I believe the mother-of-all-bubbles is not this credit bubble. It is the human population bubble. When that corrects, and it will, it is going to be scary. Hopefully, I will not see that in my lifetime.

exactly what I'm getting at.

Humans are ferocious in building the population base. Human nature, as well as capitalism both support this.

When a real limitation is put in the way of this, like lack of natural resources for sustenance, then both human nature and capitalism become detrimental to quality of life.

While this could just be an acceptable ugliness in the way things are, perhaps there is a better way.

Even without resource limitations, the internal dynamics of the population boom will tear it apart. Bubble is like a stable disequilibrium. Things all seem to be aligned and all right and then, suddenly...

While this could just be an acceptable ugliness in the way things are, perhaps there is a better way.

There are perceived "alternatives" to capitalism but there are no alternatives to human nature.

Honestly, the planet is better without us. Therefore, IMO, any form of philanthropic environmentalism is guilty of hypocrisy.

Capitalism ends up becoming stagnant with time. The rich stay rich and the poor will stay poor. I am talking about strict free market capitalism, with little to no taxes and no unions. The government ends up becoming a tool for the rich to swindle the poor, so no real democracies and no more middle class. Which causes a populist revolt and it starts over again.

What I am trying to say is, like deflation and inflation. Populism and Capitalism are also cycles that help breath new life into countries and peoples

I am talking about strict free market capitalism
followed by
The government ends up becoming a tool for the rich to swindle the poor, so no real democracies

Well which is it, a strict free market or not?

strict free market ends up becoming a tool for rich... It degrades over time.

You gotta see this. Sorry way off topic.

http://www.dailymail.co.uk/news/worldnews/article-1098125/Pictured-Desperate-Chinese-sailors-fight-Somali-pirates-beer-bottles-Molotov-cocktails.html

So strict free market becomes one where the government gets involved for the benefit of the rich. In other words, becomes not strictly free or free at all, like the one we have now. Is that a foregone conclusion for any free market? Hard to tell, because I don't think we've ever had a strictly free market any time or any place in history.

I think the gross malfeasance of the financial industry under Republican Rule (even though the actual bad behavior was decidely bipartisan) will usher in a cycle of regulation ad watchfulness that will make that sector, at lest, incapable of paying itself enormous sums while simultaneously stiffng the rest of the work force.
The Fulds of the world have slain that golden goose.

I completely agree with you Frank. We have never had a strict free market. That still does not take anything away from my argument. My argument just says that if we move closer to a free market the poor of the USA or whatever country will become more disenfranchised and it will lead to populism. eg USA, and most of S. America.

There is no such thing as a perfect free market just like there is no such thing as perfect communism. You have to add in the real world....

strict free market ends up becoming a tool for rich…

___ ends up becoming a tool for TPTB.

Capitalism is about men exploiting men. Socia!ism is exactly the other way around.

Stop blaming the financial industry for this mess. There will not be a willing seller of those toxic loans if there were no willing buyers.

This mess was caused by OVER-regulation and excessive government intervention of the housing market. Throw away mortgage interest deduction, Fanron, and 500K cap-gain exemption and we would have a freer market.

Peter P I agree. It's just that when the exploited become greater then the exploiters then we get populist backlashes. Like socialists in government.

I'm in moderation?
Well gotta go, no internet for a while.
Have a happy holiday.
Been fun.

slumlord, this is why civilizations tend to swing from one extreme to another.

Our so-called growth and advancement would only make such swing ever more violent and global in nature. At some point, humanity will self-destruct.

Peter P. Yeah, we are headed for a pretty bad end as a whole. Unless we all vote for me and let me be the supreme ruler of the world. LOL

Hey, you have a great weekend.

Have a great weekend too! Merry Christmas! God save us all.

My argument just says that if we move closer to a free market the poor of the USA or whatever country will become more disenfranchised and it will lead to populism.

So this is your argument to move to socialism instead? Or are you advocating something in between? If the latter, isn't that what we have and isn't the middle class being disenfranchised and the poor made poorer?

I would argue that perhaps we should try being a truly free market before we dismiss it for socialism or semi-socialism that have us and others now and in the past.

above should read "have failed us..."

Why is my comment in moderation?

>>Have a great weekend too! Merry Christmas! God save us all.

WHAT? Isn't the free market going to decide who is saved??

###

"There are no atheists in foxholes," (Clear, Casey or Pyle, variously)

"Perhaps, then, there are also no libertarians in financial crises.” (Jeffrey Frankel)

Given the challenging economic environment, we’ve decided to cut costs at Mahalo.

Although we’ve got a significant amount of cash on hand, and the business is ahead of schedule in terms of traffic (4m uniques a month, double where we thought we would be at this point), we’re fairly certain that the advertising climate for the next two years will be severely depressed. To ignore this obvious fact would be irresponsible.

We’ve laid off a just under 10% of our full-time staff, cut our overhead by doing smart things like renting desks (we have six offices in Santa Monica fyi), and reorganized our editorial department to focus on freelance positions over in-house editors. The net result of the effort is we are giving Mahalo another year of “dry power” (or runway) to complete our mission.

We can now operate past 2012 even if we never make any advertising revenue, and truth be told building advertising-based companies is my specialty (the last two, Silicon Alley Reporter and Weblogs, Inc. each broke 10m a year revenue between their third and forth years). Perhaps we’re being too conservative, but I’ve rarely heard of companies that went out of business because they made cuts too early, and I’ve heard of many who have reported the opposite.

As the CEO of the company, the responsibility for these cuts are mine and mine alone. Obviously, I did anticipate that the market would correct and that is why we raised $20 million over two rounds of funding before we launched. That move ensures that Mahalo will be able to get to profitability and ride through what is sure to be a very deep and painful recession.

While I anticipated and prepared for the ‘internet winter’ we’re now facing (you’ve read my posts and e-mails about the startup depression I’m sure), I failed to realize how bad the situation would get. It’s much worse than I thought it would be, and ignoring market conditions today would only mean deeper cuts down the road.

It’s my responsibility to make this hard decision and I don’t take it lightly. To the people impacted I’m very sorry that I wasn’t able to anticipate this better. It’s my fault and I’m sorry that you’ve got to bear the burden of my inability to better prepare.

http://calacanis.com/2008/10/22/tough-times-hard-decisions/

Ad network Glam sees record 4th quarter, puts entire workforce on “variable” pay

Matt Marshall | December 18th, 2008

Glam Media, one of the newfangled content and advertising networks assumed by many industry observers to be vulnerable to financial meltdown, says it still hasn’t seen any marked decline in online display advertising. Yet, to be cautious, it is slashing salaries by moving to a system called “variable pay.”

Instead of resorting to mass layoffs, as many other Silicon Valley startups have, Glam is implementing an across-the-board cut in fixed pay. It is increasing the amount of “variable pay” its employees receive — in other words, pegging more of their compensation to revenue performance.

The management team of 12, for example — which took a temporary 25 percent pay cut earlier this year — will take a 25 to 60 percent pay cut in its compensation over the next year, depending on their exact positions. Glam’s top sales representatives, for example, will now only have about 25 percent of their compensation “fixed,” down from 75 percent. That means they’re more dependent on Glam bringing in revenue than ever before.

The rest of the company is also taking higher variable components of their pay. Functional managers will see 15 percent of their pay move to variable, and other employees will see between 3 and 10 percent of their pay become variable. The less an employee makes, the less their pay will vary.

This is a notable experiment. Most companies in Silicon Valley and elsewhere reward their sales executives with such a variable pay component, because salespeople should be entirely focused on sales and nothing else. It is unusual for companies to make the rank-and-file subject to revenue performance, however, in part because of the danger that short-term goals will be prioritized at the expense of long-term decisions (quality product development may be neglected, for example, because there’s no reward for it).

Frank, I am not advocating anything. I am just stating what happens in the real world when countries move towards free market capitalism. It is tried for a while and then when people realize it's tough and that there are no handouts, no welfare, no medicare, no social security, when you make a bad bet or investment you can lose, the country as a whole does an about face and becomes populist.

Like the USSA and Bush. He was a free market guy and now he is a socialist. That is a real world example of what I am talking about. Free market not benefiting us and our buddies okay lets change to socialism, it also happens when you get a good percentage of people that don't win in the free market and they stage a coup or vote and install a more populist gov. Russia, China. Venezuela, Peru etc etc

Of course you can argue it was not a true free market to begin with., but in the real world you have to deal with degrees.

Frank,
Have a merry X-mas. I'll blog to you later.

>> Like the USSA and Bush. He was a free market guy and now he is a socialist.

As I said before USA is a "market free" society not a "free market" society. That is why this election I could not vote for Barrack Obama .. neither republicans ... voted independent.

>> Like the USSA and Bush. He was a free market guy and ...

As I said before USA is a “market free” society not a “free market” society. That is why this election I could not vote for Barrack Obama .. neither republicans … voted independent.

WHAT? Isn’t the free market going to decide who is saved??

Merry Christmas, justme! :)

"...and then when people realize it’s tough and that there are no handouts, no welfare, no medicare, no social security..."

What place/time are you talking about here, since we're talking about the real world.

"... when you make a bad bet or investment you can lose,"

Goodness help us! :-)

I would like to see eqiuty stripping regulated. How many more times are we going to let a company like Cerebus step in, take cash, load a company up on debt, and then move on?
In good years, the debt is a positive leveraging agent. In bad years, Cerebus just kills you. Take-overs by by companies with no business model are people just gaming the system. Time for this profit model to go to bed. Especially when the cost is a public bailout. . .

Isn't gold a sort of ponzi or pyramid scheme? Just a thought.

I would like to see eqiuty stripping regulated.

I would say you're going after a symptom rather than the cause of the problem. We need less regulation (which is prone to failure e.g. SEC & Madoff) and more free market.

Cerberus and other private equity funds are not in the business of wrecking the businesses they buy, but rather taking already wrecked companies (like GMAC and Chrysler) and deriving from them the most profit for their shareholders.

That that may result in the public having to bailout the remnants of said companies should not be addressed by disallowing companies like Cerberus.

Rather we should remove the government entities that allow all the conditions that cause huge company failures and then grant the public bailouts.

frank,

>>We need less regulation (which is prone to failure e.g. SEC & Madoff) and more free market.

By that logic, if a fox is set to guard the hen house, and things turn out badly, the lesson is that one should not have guards at the hen house?

I think not. The lesson is that it crucial WHAT KIND of guard that you have at the hen house.

Duke,

I don't disagree, but how do you implement that? I think the details will be important.

For example, one could instate a rule that one cannot take cash out of a company unless the company has paid off or funded all its liabilities (e.g. pension fund), or have a positive balance sheet.

Sounds simple, but I think that would kill the dividend of many a public company....
just for starters. So how do you do it?

There's three drivers in my household. All three of us drive four cylinder economy vehicles. We averaged about 33 mpg over the three vehicles, we only bought fuel at Arco Rotten Robbie or World Oil (lowest price).

We track our 30-day moving average fuel cost, it peaked at about $455 in the summer and is recently about $175.

The savings comes to about $3360. An annuity of 10 yr treasuries at today's rates would have to be close to 150K to cover that expense, not even including the taxes. Even if we could get 5%, that annuity would be about 65K, again, not even including taxes.

Our driving habits for three driver household are fairly modest for a household that is typically car-and-commute centric. So, the new wealth effect is even greater for others.

This new wealth should spur a wealth effect to goose the economy, let's hope so. I may need that new wealth effect wealth to cover my living expenses in case I lose my job so I will hoard my new wealth effect, but most other people can spend it for consumption, help us all of us out including our friends in China and Japan.

By that logic, if a fox is set to guard the hen house, and things turn out badly, the lesson is that one should not have guards at the hen house

No, you misunderstand the problem. I didn't say no guards are necessary. Rather that less [government] regulation is needed.

You see, because the fox is sanctioned (and required) by the government, it makes the hens complacent and/or unable or less willing to look for alternatives.

In a free market (i.e. less regulation), the job would have been filled by the best qualified guard dog who offered the best price.

The guard dog knows that if it doesn't do the best job at the best price, that there be a line of dogs waiting to take it's place.

The fox doesn't care what kind of job it does because he knows he can't be replaced.