Archive for October 2004

Before We Argue - Lets See If We Are Living In The Same Universe

Back some years (decades, eek!) ago when I was in college, I used to really burn hot in political arguments. I could not let any statement go from anyone without an argument. And, being a libertarian, I could always find something to disagree with someone about. Since then I have mellowed a lot, and can let a lot of things pass.

Today, its hard to resist arguing about the war in Iraq, but I often find myself in the odd position of opposing the war in Iraq but disagreeing with most of the premises and assumptions of other people I meet who are opposed to the war. Though I oppose the war, I find myself sharing assumptions about the world that are more prevalent among proponents of the war. This might have made me uncomfortable at one point of my life, but as a small-government individual-rights libertarian you get used to this kind of thing, after seeing everyone argue if the government should be in the boardroom (Democrats and increasingly Republicans) or the bedroom (Republicans and some Democrats) or both (Pat Buchanan).

Over time, I have devised a couple of tests to get at these conflicting assumptions. These tests have evolved over time but they seem to retain their power to sort out people who are operating in an alternate reality.

Here are the two tests, in their current form (though longer for this print edition). In each case, choose either A or B, based on which seems more correct to you. Elements of both A and B will have been true from time to time and in isolated incidents. Try to choose which represents the fundamental truth to you.

Continue reading ‘Before We Argue - Lets See If We Are Living In The Same Universe’ »

A Primer on Workers Comp.

When I first started this blog, I promised myself I would take the time to post featurettes on small business topics for which business school really did not prepare me.   The first such feature was on buying a business.

This week, I turn to the topic of workers comp. insurance.  Never in 2 years at one of the more storied business schools in the nation, nor in nearly 20 years at the largest corporations in the world, did I once encounter the topic of workers comp.  Now, since I bought my own business, I spend inordinate amounts of time dealing with it.

This article will focus on workers comp. from the employers point of view (most state web sites are useless to employers - they have reams of detail for workers on how to file claims or complaints, but nothing to help employers learn how it all works).

Continue reading ‘A Primer on Workers Comp.’ »

New Football Outsiders Rankings Up

Previously, I explained why I like Football Outsiders here. Their new weekly statistical rankings are up.

Unsurprisingly, Philadelphia is number 1 (by a huge margin) and New England is number 2. The real surprise is that Miami is NOT last - storied Green Bay is.

Also, this week's Tuesday Morning Quarterback is up.

Good News on Poverty

Good News via Robert Samuelson and Marginal Revolution.

While the number of people living under the poverty line have crept up, there is actually good news under the surface that has gone unreported (good news - unreported - your kidding me!)

Compared with 1990, there were actually 700,000 fewer non-Hispanic whites in poverty last year. Among blacks, the drop since 1990 is between 700,000 and 1 million, and the poverty rate -- though still appallingly high -- has declined from 32 percent to 24 percent. (The poverty rate measures the percentage of a group that is in poverty.) Meanwhile, the number of poor Hispanics is up by 3 million since 1990. The health insurance story is similar. Last year 13 million Hispanics lacked insurance. They're 60 percent of the rise since 1990.

To state the obvious: Not all Hispanics are immigrants, and not all immigrants are Hispanic. Still, there's no mystery here. If more poor and unskilled people enter the country -- and have children -- there will be more poverty. (The Census figures cover both legal and illegal immigrants; estimates of illegal immigrants range upward from 7 million.) About 33 percent of all immigrants (not just Hispanics) lack a high school education. The rate among native-born Americans is about 13 percent.

So, much of the increase in the people under the poverty line can be traced to immigration of low-skilled Hispanics trying to make a better life for themselves in this country. Of course, when these people first arrive, with no English, often lacking a high school education, and initially, no permanent job, they are going to be below the poverty line. Over time, many will find the American dream and move up (easy proof: if that were not so, why are so many trying so hard to immigrate here?) If we had been collecting the statistics carefully in the early 20th century, we would have seen a similar effect with the immigration of low-skilled Irish, Italian, German, etc. workers to this country. Surely, during this burst of immigration, it would have appeared that the poverty rates were going up, but not one would in retrospect argue anything but that everyone was getting steadily wealthier through this period.

Customer Loyalty Programs

Courtesy of Business Pundit, this article on customer loyalty programs and whether they actually increase profits.

To me, you can make a good case for them in commodity undifferentiated products like commercial airline service, but now it seems like every store, from Best Buy to Barnes and Noble have them. It strikes me that stores like these should have plenty to differentiate them without a loyalty program.

I'm no psychic, but I can probably guess what's in your wallet. Chances are it's stuffed with loyalty cards from this airline and that hotel, not to mention a handful of point-accruing credit cards. And your key chain probably has a few hanging versions of the same"ā€¯video store tag, gas station "quick pass," grocery store card. You probably belong to more loyalty groups than you can count.

Do you really think your customers are any different? It's hard to expect your affinity program to inspire loyalty when all of its members carry your competitors' cards as well.

Face it: Loyalty programs have reached the saturation stage. The first-mover advantage gained by the pioneers in this field is long past. Now as common as kudzu, affinity programs have lost their distinction and, as a result, much of their value.

I am actually sick of these programs. It increasingly irritates me to have to carry 354 pieces of plastic in my wallet to get the best prices every where I shop. I am old enough to remember when you had to have every stores proprietary charge card to shop there - so you had to have a bunch of department store cards and gas cards, etc etc. I am thrilled nowadays to shed all that crap in my wallet and just use my Visa card everywhere. Now, though, we are rolling back the clock to plastic proliferation. I find myself actually growling at the poor Borders Books checkout person when they ask me if I have (or want) a Borders loyalty card.

Coming soon, I hope, is the backlash, with stores competing with a saying like "you don't have to have a special card to get our best price".

Voluntary Government Surveys

Our company operates in 10 states, so that means, each month, 16 sales tax reports (including counties and cities with separate reports), 10 withholding reports, 10 SUI reports, several workers comp reports not to mention annual health inspection reports, occupancy permit renewals, federal and state income tax forms, foreign corporation annual reports, etc, etc.

So, as happened today, when I get an optional monthly or quarterly survey to help support the commerce department data (or maybe it was labor department) it goes straight to the trash. I am sure this makes me a bad American, but does any small business owner really have time to fill out this junk, especially since the data will probably be used by some Congressman as an excuse to regulate me in some new and intrusive way?

The Commerce and Labor department data are often criticized for under-weighting small businesses and self-employment. I certainly believe it, and am proudly part of the problem.

Reason #1643 Why I Hate Workers Comp. in Florida

The workers compensation program in Florida is broken. In a previous post, I discussed why, almost no matter how broken it is, workers comp is still better than an alternate world without it. Sometimes, though, Florida tests me on this.

If you don't know, Florida is one of a couple of states (California and New York are others) that national carriers of workers comp insurance avoid because it is such a mess. Fraud is high, costs are high, benefits are low.

I found a new reason to dislike Florida workers comp today. Apparently, there are lawyers out there in Florida advertising that a worker will never get their fair shake out of the insurer unless they hire a lawyer. We have an ex-employee who was injured in a vehicle accident while at work. A claim was filed, and the workers comp system is processing the claim (though a bit delayed due to 4, count them 4 hurricanes to hit Florida in one month). So, for some reason, the employee has hired a lawyer. I do not know what he will get with the lawyer, but this is an awful trend, because the only redeeming feature of the workers comp system is that it keeps lawyers and their costs out of it. I have no idea how the lawyer gets compensated, but I am sure at some point, I will be paying his fees one way or the other. If the employee is paying for him directly, I really feel bad for the employee, because I don't know what value he is getting for his money.

So, the lawyer, putting in a good 15 seconds of work (which he probably bills an hour or two for) pulls a xeroxed set of discovery questions and sends them to me. There are thirty four questions, all with things I have to look up or xerox and send to him. None of them are tailored to this case, so most will end up being irrelevent and all my info gathering a waste of time. So, not only is there the cost of the attorney's fees adding to the process, but the externalities of the cost of my and my employees' time to feed him with data. All to probably get the same recovery for the patient the system would have given him without intervention.

This is what I really dislike about the law profession nowadays. They are the only people except for the government who can arbitrarily demand a ton of my time calling up data that no one will ever look at. Other people try this - for example, some vendors have sent me huge credit applications that would take weeks to complete - but in their case I can say "no" and tell them if they insist, they don't get my business. Lawyers and the government, though, can demand arbitrarily intrusive and time-consuming document collection and there is not a thing I can do about it.

Socialism and the Nobel Committee

Congratulations to Edward Prescott, our hometown hero from Arizona State, who shares this years Nobel Prize in Economics.

Why is it that the Nobel committee gives its highest economics prizes to people who consistently put more intellectual nails in the coffin of socialism, then go out of their way to give the "soft" prizes, such as literature and peace, consistently to communists, socialists, and enablers of totalitarianism?


Marginal Revolution has a good roundup on what exactly this economics prize was won for. I should have been more specific when I said "more intellectual nails in the coffin of socialism". The link explains it better, but one argument against free markets is that recessions are proof of market failure and a "better" system would not have them. Prescott and Kydland, among other things, show how:

Recession may be a purely optimal and in a sense desirable response to natural shocks. The idea is not so counter-intuitive as it may seem. Consider Robinson Crusoe on a desert island (I owe this analogy to Tyler). Every day Crusoe ventures out onto the shoals of his island to fish. One day a terrible storm arises and he sits the day out in his hut - Crusoe is unemployed. Another day he wanders out onto the shoals and finds an especially large school of fish so he works especially long hours that day - Crusoe is enjoying a boom economy. Now add into Crusoe's economy some investment goods, nets for example, that take "time to build." A shock on day one will now exert an influence on the following days even if the shock itself goes away - Crusoe begins making the nets when it rains but in order to finish them he continues the next day when it shines. Thus, Crusoe's fish GDP falls for several days in a row - first because of the shock and then because of his choice to build nets, an optimal response to the shock.


This is very timely. Our new Nobel Laureates did a lot of work on short term / long term economic paradoxes. For example, they work a lot with problems such as prescription drug regulation, where people can be made happy in the short term (lower prices) but really unhappy in the long term (via forgone research and therefore fewer new drugs). Interesting given that Kerry/Edwards are advocating just such a short term fix that would lead to long-term disaster. The press made a big deal out of how the Nobel Committee slapped Bush in the face with its Peace Prize to Jimmy Carter. Don't hold your breath waiting for anyone to point this one out.

In Chicago For a Few Days

In Chicago for a few days to take my kids to some of my favorite museums - Art Institute, Field Museum, Museum of Science and Technology.

Of course, within about 5 hours of arriving, one my my kids has barfed all over me. I do not know what it is - my kids are very seldom sick but travel seems to wipe them out. One or the other has barfed in the first 24 hours of the last 4 vacations. Wish me luck

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Welcome New Readers!

Welcome to readers of Professor Bainbridge, Club for Growth, and the Carnival of the Capitalists. If my hosting company was Citicorp, they would be calling me right now to ask me about the unusual activity on my account.

In particular, I want to wish a happy second anniversary to the Carnival of the Capitalists

Employment Surveys

I am not an economist, and would rather not stray too far off track, but the recent payroll numbers are raising interesting questions about the nature of business and employment in this country. Recent jobs growth numbers and unemployment numbers have been fine, with about the same unemployment numbers as we saw in November of 1996 when both parties agreed that the economy was pretty good.

However, as the total jobs growth numbers have lagged GDP growth, a number of people have scratched their heads to wonder why. One interesting fact is that when you survey households rather than employers, the jobs growth numbers look substantially better. Many are pointing to this household survey to say that the economy is changing - that more people are starting their own business or consulting and so are missed in the payroll numbers. This is a good theory, but its force is mitigated by the fact that the sample size, survey process, and error rates for the household survey are all much worse than the payroll survey.

Heritage Foundation argues that the household data is right and is better reflecting reality. Economic Policy Institute argues the opposite.

As a relatively new convert from the corporate world to small business, I can tell you that anecdotally, a good number of the people who left (voluntarily or not) the corporate world early in this decade have not gone back, and are, like me, now self-employed. I just had my 15th business school reunion and the proportion of small people self-employed or running small businesses is up a startling amount since the 10th reunion.

Business Insurance Agents

Insurance was a very scary topic for us this year. As many of you know, the cost of business insurance has skyrocketed since 2001. Our workers comp, auto, and liability insurance costs have ballooned to 10% of sales, which seems incredible to me, particularly since we have nothing really bad on our claims history.

However, this year, at renewal time, the problem went way beyond cost. As background, much of our business is in running campgrounds. Campgrounds have the same liability problems as any public contact business, in that there are more and more people out there who, if they slip and fall on your property, will try to get a financial windfall out of it by suing you. This is multiplied in campgrounds, as the possibilities for a customer hurting themselves accidentally are multiplied over a more controlled environment, like a store.

Now, leave aside for a minute the justice of whether or not we should be responsible if someone pulls their hamstring climbing a tree in our campground. Even when most of these cases go nowhere, they generate defense costs. So, liability rates have been going up.

One of the things I have learned about the insurance market, though, is that carriers pick and choose what industries they want to be in. And, the industries they don't want to be in are those that are relatively small but have higher liability potential -- too much risk of loss for too little income. Unfortunately, this seems to include campgrounds.

So, just a few weeks away from the expiration of our old policy, my old agent tells me that their underwriter will not write us for the next year. Either in our liability policy (for reasons above) or for our auto policy (because we have a lot of older drivers) or for our workers comp (same issue, older workers).

I was therefore faced not with a huge cost increase, but with the prospect of no insurance, which would mean shutting down my business (beyond the stupidity of operating without insurance, my contracts forbid it). My insurance agent at the time had no other alternatives.

This is when I learned a huge lesson - there is a big difference among business insurance agents. Many have only one or two underwriters they work with, and if those underwriters drop your line of business, you can be out of luck. It is desperately important, especially if you are in a tougher than average business to insure, to have an agent with access to many underwriters and sources of insurance.

In the end, I pieced the workers comp together state by state through many agents, which was a total pain. Finally and at the absolutely last minute, for the liability and auto, I found an agent who really knows what he is doing. He got me quick fix policies for these to keep running, and then has found better policies over time to replace them. We have had great discussions about trade-offs in liability coverage (since every policy is different in the small exceptions that they make in their coverage). By the way, I don't know if they are even looking for more business, but if you are in a crisis, particularly if you are in the southwest, you might try these guys.

That Awkward Global Test, Part 2

In part 1 of this series, I didn't talk much about the "global test" but rather spent some time giving my views on the war in Iraq. In brief, I opposed this war, but for reasons very different than that of most anti-war activist. I appreciate the need for the US to use force in the world from time to time, not the least for the quite salutary effect it can have on other miscreants who foresee that they might meet with the same fate (e.g.m see "Lybia").

One argument that I did not ever find compelling was the fact that we did not have enough allies or a large enough coalition. First, those putting forward this argument tend to go so overboard that they tend to insult those who did join us as "coerced" or "bribed". I think we owe a lot more to countries like Great Britain, Australia, Poland, Italy, and Spain (v1.0) than to intimate that they were suckers to join us. And what's with the strategy of saying that we did not have a large enough coalition, then actively trying to reduce it?

My hypothesis from day 1 of the war was that France was an ally of Iraq, and never going to join us, but that it didn't matter one way or another because alliances in the Muslim world would be much more important than with countries of fading glory in Western Europe. Therefore, the rest of this post will address two issues:

1. How realistic or unrealistic it was to expect help from our "traditional allies" and
2. Our mixed record of success with the allies that may matter more

Germany and Japan

Germany and Japan spent much of the 20th century unsuccessfully attempting to export totalitarianism to their neighbors by force. Both countries are rightfully reluctant to send their forces on cross-border adventures (in fact, Japan in prohibited in doing so by the constitution the US wrote for it). I have no problem with both countries taking a 100-year or so timeout on foreign adventurism.

France and Russia

The evidence continues to flow in. France and probably Russia were active allies of Saddam and the Baathist dictatorship in Iraq. Period. No amount of diplomacy, short of maybe a nuclear threat, was going to cause them to support an invasion of Iraq. They were no more likely to join in on an attack on Iraq than Mussolini and Italy were likely to join the Allies in WWII against Germany. The evidence emerging includes:

1. France and Russia were given a deal not long before the war to split the development rights to all of the oil in Iraq. Though it was not known then, the Duelfer report shows this to have been a direct strategy of Saddam to gain their security council vetoes. MSNBC had an article BEFORE THE WAR discussing the deal with France and Russia. Incredibly, America Haters, and even the author of this article, spend more time talking about the US going to war in Iraq for the oil. There has never been a scrap of evidence that the US went in for the oil, and very clear evidence that France and Russia were given lucrative oil deals to prevent the invasion. So who was acting for the oil?
2. France and Russia were easily the largest arms suppliers to Iraq. We knew this before the war and we have confirmed it in spades today. Every day our troops get attacked by French weapons, most of which were shipped to Saddam AFTER the embargo was in place and many within months of the start of the war. Iraq is not the only place where this is happening. While the US has in the past been careless or outright irresponsible in some of the places its weapons have ended up, today France, China, and Russia are not the key arsenals of totalitarianism.
3. France and Russia were key enablers in the UN, both passively, by defeating safeguards, and actively, by playing a direct role, of Saddam Hussein's stealing billions of dollars from the oil for food program. This story is still unfolding, and at this point I will leave aside the payments of oil vouchers to individuals, because it is not clear whether these acted as bribes (though they sure look like them). However, even without this aspect, the rape of the oil for food program is a miserable story of corruption, as detailed in part here and here.

The Scotsman has been on top of this story, and has a couple of great articles here and here.

Other Nations?
What about other nations. China? Yeah, right, the boys from Tiananmen square love promoting democracy over totalitarianism. Their actions to protect the Sudanese government from criticism over the current genocide there (again, in part, to protect their oil rights) have shown their true colors. And who else is left? Send in the Peruvian Air Force? The answer is, no one who could really help. When people say that we did not have a coalition, they primarily mean France, and you can see how likely that would have been. As an aside, I find it incredible that liberals of all stripes want to align themselves with French Foreign policy, perhaps the most illiberal in the last 50 years of all the wester democracies and certainly the country most responsible for making colonialism a bad word.

Allies that Really Matter in this War

In attacking Afghanistan and Iraq, the allies that should really matter are its powerful neighbors. I would argue that Pakistan, Turkey, Saudi Arabia and Indonesia are all more important allies in these wars than France. So how have we done with these countries - the answer is a mix of successes and failures.

In Pakistan, we probably have had our greatest diplomatic success. Certainly, on 9/12, as we were trying to decide what to do next, Pakistan seemed to be more of a problem than part of the solution, and certainly their nuclear program was worrisome. But the Bush Administration has done a good job at turning Pakistan into an ally (at least in the near-term), with Pakistan agreeing to base troops and fighters in the country, agreeing to renounce ties to the Taliban, and, perhaps most amazing, agreeing to actually use its troops and security personnel to help hunt down hiding Taliban members. Without Pakistan on our side, defeat of the Taliban would have been impossible, with Pakistan acting as a safe harbor for terrorists much like Laos and Cambodia did in the Vietnam war. Even better, all this has been achieved without ruffling too many feathers in India, which is in itself a diplomatic victory, similar to wearing a Yankees shirt in Fenway Park and not starting a fight. I know that Pakistan still has a ton of problems, but we are getting as much as we could ever expect from them in the near-term (heck, even allying with Stalin made sense for a few years get reach some key goals).

In countries like Saudi Arabia and Indonesia, we probably reached about a diplomatic draw. Neither country would be highly enthusiastic about either an invasion of Afghanistan or Iraq, but both provided at least modest logistics support. Neither, however, have ceased being tremendous breeding grounds for terrorism or have done much to deter those in their countries supporting terrorism. Certainly a reckoning is coming sometime in the future with Saudi Arabia, but, for now, they have been about as supportive as necessary (and no more).

It is difficult to paint our diplomatic efforts with Turkey in the run-up to the war as anything but a failure. Turkey clearly had many concerns about the war, from negative economic impact to encouraging their own Kurdish minorities to get frisky should Iraq's Kurds gain their freedom. However, given our good relations with Turkey over the last half-century, we should have been able to find a diplomatic formula to secure their cooperation. Even more, our failure was particularly deep given that Turkey's support seemed to fall apart at the eleventh hour, when these type of things should already have been worked out.

In Summary

It still flabbergasts me that so many people run around worrying about France's participation in our alliance. It strikes me that France's participation was both stupendously unlikely as well as of little practical value (beyond their UN veto). Much more important was our success with Pakistan and failure with Turkey. A new type of war in different parts of the world will require different alliances than the European wars of the 20th century.


Interesting post from Captains Quarters about the complicated nature of our relationship with Pakistan and the change in Al-Qaeda strategy to try to drive Pakistan out of its alliance with the US.

That Awkward Global Test, Part 1

The Duelfer Report has become sort of a political Rorschach test for both opponents and supporters of the war in Iraq. Opponents of the war (examples here and here) will point to the findings that Iraq, at the time of the invasion, did not have WMD's and probably got rid of them soon after sanctions began and that inspections seemed to be working. War supporters (examples here and here) will point to the findings that Saddam was carefully maintaining the capability to produce WMD's in anticipation of restarting the programs when sanctions lifted. Rather than read all these conflicting reports, go to the original - the executive summary of the report is clear and you can get the gist in a page or two.

The point of the post is really not about WMD's, but about other countries and their attitudes about US and the war. As quick background, I supported the war in Afghanistan, because they obviously harbored those who attacked us and I felt it was important to set the example of a strong response to a terrorist act (rather than the weak response to the USS Cole or the first WTC bombing). The fact that Afghanis are having their first election in millennia and tens of millions of people, particularly women, are freed from the shackles of totalitarianism is just gravy. I opposed the war in Iraq, mostly because I did not think it was our job as a country, or my job as a taxpayer, to help clean up the world. I am not dumb -- I get the argument about stopping Hitler in Czechoslovakia, but I was worried that success would be pushing on a balloon - we might push back terrorism and totalitarianism in Iraq, but what about Saudi Arabia, Syria, Egypt, Iran, etc?? Hitler was a one-headed monster - Islamic fascism unfortunately seems to be a many headed hydra. I know that President Bush would argue that a free and sortof democratic Iraq could be the seed around which moderation crystallizes in the Arab world. I would dearly love this to be true, but I fear that it is wishful thinking.

However, I will say that I have occasionally wavered in my opposition to the Iraq war. One reason is that I am thrilled to see Saddam gone and the Iraqi's trying to make a go of a free society. I wish them well. I cannot understand nor tolerate people who allow their opposition to the war and/or the president to cause them to root for failure as the Iraqi people try to make a go of it.

Second, as is sometimes the case as a libertarian, I have found myself, in my opposition to the war, uncomfortable with many of my bedfellows.

For example, many folks who oppose the war seem to feel that they actually have to go overboard and defend Saddam and pre-war Iraq. An extreme example is Michael Moore's ridiculous Fahrenheit 9/11, which tried to paint a happy picture of Saddam dominated Iraq. I find that position indefensible. Saddam sucked, and Iraq under Saddam sucked. The lighter version of this position is the Kerry campaign's position that we have substituted one bad thing (Saddam) for another (chaos and violence), with the implication that the Iraqi people are (or should be) unhappy with the trade. This is ridiculously disingenuous. Absolutely no one taking this position, that chaos is worse than dictatorship, would take this position for their own country. The proof? When faced with the choice of adopting a more statist security system in this country (Patriot Act, detentions, etc.) to avoid chaos and violence (e.g. future terrorist attacks) the anti-war crowd opposed these measures. And I promise, for all the talk of Bushitler, etc, these measures are trivial compared to what was done to keep "order" in Saddam's Iraq. So it strikes me as tremendously hypocritical to advocate for the Iraqi's a course no one would consider here in the US.

The other issue on which I disagree with my anti-war brethren is this notion of not building up a sufficient alliance or getting enough global approval. This is actually the point I have been trying to get to in this post. For months, I have suspected that this discussion was both naive and misdirected. Naive, because all along I was pretty sure that France and Russia were Saddam's allies, and no more likely to join a coalition against him than Mussolini was going to join the allies against Germany. Misdirected, because if we are going to wage a war with Islamo-fascists, help from countries like Turkey, Pakistan, Saudi Arabia, and Indonesia is probably far more important than getting a few hundred MP's from France or Germany. Recent reports, including the Duelfer report and investigations of the ongoing UN oil-for-food program scandal, have begun to put factual flesh on the bones of my suspicions.

Since this post is going long already, I will continue in part 2.


I had a couple of emails already on Iraq. Let me clarify. I do not outright oppose the use of the military, even unilaterally, as a foreign policy tool. Also, I am not one of those idiots that somehow want to believe that terrorists are only attacking us because they have some valid complaints, and if we would just peacefully resolve their valid complaints, they would go away. Most terrorists and the nations that support them are bullies that hate our entire way of life, and who respond to nothing other than force. I have no problem agreeing that fighting terrorism will require military action against sponsoring nations, not just police work.

However, the attack on Iraq and its timing never quite made sense to me. I think of Iraq, Syria, Saudi Arabia, et al as a bunch of teenage boys who have been raising hell in the neighborhood for over a decade. After years of ignoring their crimes or at worst giving them a stern talking to, we suddenly take one aside (and not necessarily even the one most culpable) and shoot him. This made some sense with Afghanistan, since we could draw a direct line of culpability between the Taliban and the 9/11 attacks. But was it time to shoot Iraq? And while there certainly were links between Iraq and terrorists, were they really worse than Syria's or Iran's or Saudi Arabia's. Certainly shooting Iraq got the group's attention, that we can hopefully mine diplomatically over the coming years, but shooting Afghanistan should have had a similar effect, and we never really tried to leverage that before we moved on to Iraq.


By the way, leaving now in Iraq and giving up and/or giving in would be a disaster. Reagan's retreat from Lebanon and Clinton's retreat from Somalia were disasters to US Foreign Policy. Our best weapon is to give the opposition no hope of victory. Once you demonstrate there is a point at which you back down, you will always be driven to that point by the opposition. I disagreed with the decision to invade Iraq, but now that we are there, there is no turning back the clock. Our presence is a fact and we must make it a success or it will really be a waste. . Relevant quote:

However, there is an element of truth in Roberts's remark. For a time, the humiliatingly rapid defeat of Iraq's military (with the tacit consent of many Iraqi soldiers, it's important to add) will cause angry young men in the Muslim world to enlist in greater numbers in the effort to wipe out that stain on Muslim honor.

But it is not an infinitely expanding cycle. There is not an endless supply of young Muslim men willing to kill -- or die -- to inflict painful but strategically meaningless attacks on a grimly determined America.

But if America is not grimly determined, then that changes everything. Instead of recognizing the futility of giving their lives to kill Americans, these Muslim young men will be filled with hope that their sacrifice might yield results.

Create Your Own Stump Speech

Disappointed that the presidential candidates have skipped your town? Its not too late - now you can create your own stump speech by either of the major presidential candidates:

George Bush
John Kerry

LOL, thanks Mr. Sun. Heads up from Captains Quarters

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On Class Warfare and Taxes: Part 2

In part 1, which you should read first, we discussed how the US has crossed a milestone where fewer than 50% of the taxpayers in this country pay about 100% of the personal income taxes. We also discussed how the recent tax cuts actually shifted personal income tax burden more onto the rich, rather than less.

However, John Kerry has cited the same CBO Report I used to make the points in the previous post to say just the opposite - i.e. that the recent tax cuts actually shifted the tax burden away from the rich to the middle class. Assuming he is reading the study correctly (which he is) how can this be?

The answer is in the difference between Federal income taxes and total federal taxes. The tables I used in part 1 were for income taxes only. It strikes me as reasonable to use income tax numbers for analyzing income tax changes. The total tax numbers Kerry uses includes not only income taxes but social security and Medicare taxes (including the employer contribution), federal excise taxes (such as the gasoline tax) and the corporate income tax. Lets look at who bears the brunt of these taxes.

1. Social security taxes are regressive. Very regressive. While your paycheck may show 6.2% FICA, the bill is really 12.4% because your employer matches this payment with funds they probably would otherwise pay you in wages. What makes this tax regressive is that it is a straight 12.4% of every dollar up to a limit, currently $87,900, after which the tax is zero. This kind of profile would never be tolerated in the income tax system. The reason for this is the carryover of the original idea that social security is not a tax and social benefit program but an insurance and retirement plan, a characterization that is becoming increasingly out of whack from reality. (If it was a private retirement plan, the managers would all be in jail right now for the terrible long term returns it pays out).

2. Gas and excise taxes are generally considered regressive as well, since gasoline is probably a much higher percentage of lower and middle class spending than for the rich (those rich who own Hummer H2's notwithstanding).

3. Its harder to pinpoint who pays corporate income taxes. The CBO report allocates corporate income taxes in proportion to dividends reported on income tax statements, which seems reasonable. Fifty years ago, one would have said that this meant the rich pay it, since we pictured the rich as owning all the stock. Today, in our mutual fund world, a lot is probably born by the middle class, particularly middle class retirees.

As a result, the sum of these non-income taxes are probably net regressive - i.e. they disproportionately hit the lower and middle classes. This means that an income neutral income tax cut, i.e. one that does not shift the tax burden but lowers it proportionately for everyone, will still shift the total tax burden to the middle class, because it reduces the amount paid in the progressive system (e.g. income taxes) in proportion to the amount paid in the regressive system (e.g. social security).

This leads me to a couple of thoughts. First, I think while he is quoting correct stats, Kerry is using the data a bit disingenuously. First, it implies to people that the middle class is paying more so the rich can pay less, which is untrue - everyone is paying less. Second, he is trying to use the data to show that personal income tax burden is shifting to the middle class, which we showed in post 1 that it is not - it is actually going the other way. Third, he uses it to justify a tax increase (or a tax cut rollback) on the richest Americans. We showed that already the Bush tax cuts shifted more of an already ridiculously high burden to the rich. This will shift even more.

However, there is a point here if Kerry wanted to latch on to it. Forget the class rhetoric about the income tax system - focus instead on social security. There are two good reasons for this: 1) Social Security is broken, and the financial reckoning is coming 2) unlike the income tax system, social security is truly indefensibly regressive. Yes, you can dig through Kerry's web site and find something on this, but he is for some reason so drawn to the income tax issue he never really hits it hard.

If John Kerry really wants to take up a populist tax banner, leave income taxes as they are (for all the fiscal deficit crisis talk, an economic recovery plus fewer new military invasions will bring the deficit back in line without tax increases). He should instead propose a reduction in the 12.4% FICA tax rate and then an elimination of the $87,900 wage cap. To make this palatable to Congressional Republicans (and me, if I were voting) it should be tied to a package of other reforms such as allowing some investment choice by individuals.

Of course, this is not going to happen. Politicians have used Social Security scare tactics with retired and older people so often that these folks have come to react negatively to any hint of change to Social Security. Reasonable discussion about the future of Social Security is just not possible in the last five weeks of an election, particularly with Florida in play.

Be Careful Forwarding those Emails!: II

OK, today I got an email from yet another associate that claims that the US Government is making up the story that the Pentagon was attacked on 9/11. Again, please Google these things and check Snopes or urban legends or before you send them to me. The Snopes article on this one is here.

Presumably, since it is ludicrous to think that the feds could gen this event up within minutes of the WTC attacks, the proponents of this theory must also believe the WTC attack was faked or staged or created by the US Government. Beyond fever-swamp conspiracy theory lovers and rabid America-haters, I guess this also appeals to the reality avoiders who would like to believe that there are not islamo-fascists out there trying to kill us.


The Washington Post had an article on Internet conspiracy theories, including the Pentagon one mentioned above. The article also mentions this conspiracy was spread in part by a guy on his "libertarian web site". I have got to find some other name to call myself. Ayn Rand, who many libertarians (including myself) admire, always hated being called a libertarian. I start to understand why. There is a difference between wanting smaller government and living in constant X-files type paranoia about what vile plots the government is hatching.

Working with the Department of Labor: Part 3

This is part 3 in a series of my real-world experience in dealing with the Department of Labor (DOL). If you have not already, you should also check out part 1 and part 2 for background.

In this post, I will show you how we defended ourselves in a case where the DOL was extremely reluctant to grant us a legal exemption to the Fair Labor Standards Act (FLSA). It is highly unlikely that this exemption is relevant to you - it is narrowly directed at seasonal recreation businesses, but I think the process and what we learned from it may help you out in your own interactions with the DOL.

Continue reading ‘Working with the Department of Labor: Part 3’ »

ACME Featured Product V

A regular feature, it is explained here. Many of our ACME products come courtesy of this site.

Back in the corporate world, I could have really used this to sneak out of meetings.

Bomb1_1 Bomb2_1

On Class Warfare and Income Taxes, Part 1

This has actually become part 1 of a two-part post. In part one, we will look at the unbelievable proportion of income taxes paid by a small percentage of people in this country, and reflect on how crazy it is to talk about the rich getting a free ride. In post 2, we will look at a couple of truly regressive taxes where the rich really do get a free ride, and wonder why these issues get mostly ignored.

Something interesting has happened in this country over the last decade, and it is shown below in one of my favorite statistics. There is much talk in the media about this or that group paying their "fair share" of taxes, but as is usually true in the media, there are depressingly few facts in these articles. This is strange, since there are several government reports that pretty clearly outline the share of taxes paid by various income brackets. The numbers below are from a Congresional Budget Office Report, but the same numbers are buried in the IRS web site as well.

For 2003, the estimated share of total individual income taxes paid by:

Wealthiest 1%: 33.6%
Wealthiest 5%: 55.1%
Wealthiest 10%: 67.9%
Wealthiest 20%: 83.0%
Wealthiest 40%: 97.8%
Wealthiest 60%: 103.0%

The way to read this is that the wealthiest 10% of taxpayers pay 67.9% of the country's individual income taxes. And yes, that 103% is not a typo - the bottom 40% in income as a group pay negative personal income taxes (because of the EITC).

This leads to the following fascinating conclusion: Half of the people in this country pay more than 100% of the personal income taxes. The other half get, as a group, a free ride (though there are individuals in this group that pay paxes, net, as a group, they do not). We are basically at the point in this country where 51% of voters could vote themselves all kinds of new programs and benefits knowing that the other 49% have to pay for them.

Extra Credit Exercise: Given the numbers above, and all the talk about "tax cuts for the rich", craft an income tax cut that does not disproportionately benefit the top half of the income spectrum.

Hard, huh? The same CBO report had an interesting comparison. They estimated what these same numbers would have been without the recent tax cuts. Without the "George Bush tax cuts that unjustly benefit the rich" these same numbers in 2003 would have been:

Wealthiest 1%: 31.9%
Wealthiest 5%: 51.8%
Wealthiest 10%: 63.9%

OOPS - Coyote, that can't be right? That means that the wealthiest people pay a higher share of income taxes after the Bush tax cuts. That must mean that the tax cuts disproportionately helped the lower income brackets? Can that be right?

Yes, thats right. Without the Bush tax cut, the top 60% would have paid 99.9% of all individual income taxes. Now, after the tax cut, they pay 103%, meaning the bottom 40% have gone from paying about 0% to actually getting a bunch of money in net EITC.

Which just goes to prove a related point I make a lot - agree with him or disagree with him, G.W. Bush has got to be one of the worst presidential communicators in recent memory. For further proof, see debate #1.

Interestingly, John Kerry used this same report to say that these tax cuts shifted the burden of taxation to the middle class. And, in one way, he is right, though not in the way that his statement is generally interpreted. For more, see part 2, coming soon. (hint - think total taxes, not just income taxes)


Reason, my favorite libertarian rag, has a related analysis from Nick Gillespie and Mike Snell here. I don't think I trust either Bush or Kerry on fiscal discipline. Neither, apparently, do Gillespie and Snell:

But the fact remains that Bush's cuts have reduced the amount of income tax we all pay. Though Kerry will certainly suggest otherwise in Friday's debate, the trouble with Bush's budget policy isn't that he cut income taxes. It's that he hasn't cut spending. Indeed, perhaps the strongest case for electing Kerry may be that he will usher in an age of divided government that will restrain federal spending and the various problems that accompany it.


Fixed an unbelievably bad triple negative - Even I could not figure out what I was trying to say.

Be Careful Forwarding those Emails!

Got another email today from a friend sending around the "Its time to panic they are going to reinstate the draft" email. This is the third time in a week I have been forwarded this email. Unfortunately, the email is an urban legend at best, or a campaign tactic at worst, and has been debunked all over - the best is at I guess I can forgive my friends, since CBS News fell for it too. I once embarrassed myself forwarding a similar fake email about a change in credit privacy laws. I sent it indignantly to senators and web sites and friends. OOPS, all a hoax.

Please, please. Before you pass on these emails to your friends and embarrass yourself like I did, Google it. Just plug in the email subject line, like I did here for the draft email. You will see a bunch of fairly ideological sites promoting the same story - with exactly the same language - this should be big red flag. You will also see a number of credible 3rd parties and urban legend sites debunking it.

The point of this post was about crazy emails floating around, but given that I mentioned the draft one, the house voted down the draft bill sponsored by a Democratic representative 402-2 today.

PS - if you have not seen, check it out. They seem as fair as anybody in terms of equal opportunity debunking of both political parties.


Never trust men over 60 with the computer. Our Vice President managed to direct tens of millions of debate viewers to, which is a anti-Bush/Cheney site. LOL. Perhaps even funnier, by the time debate viewers found the real site at, they likely saw this headline on the front page:

Cheney & Edwards Mangle Facts. Getting it wrong about combat pay, Halliburton, and

OOPS. Dick, just answer the question yourself.

Selling your Business

Since I just completed a three part series on buying a business, which starts here, it seems appropriate to link to this article on selling your business from via the Entrepreneurial Mind.

The amount of disclosure that buyers require can be mind-boggling. Putting it all together in a reasonable fashion is just one reason to consider hiring outside help. An intermediary, such as a business broker or an investment banker, can relieve you of some of the work while also keeping the buyer engaged. "We always recommend that a third-party intermediary represent you," says Minor.


Working with the Department of Labor: Part 2

In part 1, we discussed general expectations you should have as a business owner in working with the Department of Labor. In this installment, I will discuss a typical audit and some of the things we did to protect ourselves. In part 3, I will discuss a specific example of how it is possible to win your case with the DOL, but it may take a LOT of effort.

Continue reading ‘Working with the Department of Labor: Part 2’ »