Capitalism for the Masses

I had to do a double-take when I read this in an insert in our church's Sunday morning worship bulletin: "The grain bank helped the community resist the market forces that diminish the value of their crop when they sell it and increase it when they buy it back." What this "food security" blurb was referring to was the fact that poorer, agriculturally based communities were beholden to the dynamic of having to sell their excess crop at its lowest, during boom harvests, and then having to buy food at its highest during poor harvests.

But at a time when capitalism-bashing is running high, I couldn't mistake the swipe being taken. Never mind that our poorest countries suffer not because of too much free trade but rather not enough: eliminating subsidies in rich parts of the world like America and Europe would lead to massive gains for the entire world, mostly enjoyed by poorer, agriculturally-dependent regions. And never mind that capitalism is the very mechanism that efficiently provides the capital and motivation for communities to diversify away from economies that are beholden to the hit and miss of different seasons of harvests and toward economies that are more consistently able to provide its citizens with the jobs and products they need to live.

Which is why I am alternately amused, saddened, and enraged by anti-capitalist protests at gatherings such as the G20. If you really want to help "the bottom billion," you should be vigorously championing for more free trade and more free markets and more financial wizardry, not less. Capitalism has brought billions out of desperate poverty so far, and I'm hoping it can do the same for billions more. Let's quit demonizing it and the people and institutions that make it work, and instead harness it all for the benefit of those billions to come.

Heating Up

Nice piece by New York Times columnist Thomas Friedman comparing our financial meltdown with our environmental one: "The Price is Not Right." Whether or not you believe in global warming, under-pricing carbon leads to excess consumption, with potentially catastrophic consequences in terms of scarce resources, shaky geopolitics, and all manner of other negative externalities.

And Friedman is right that the same principles are at play in both cases: everything has consequences, and the minute we forget that and start leveraging ourselves up accordingly, watch out for an impending day of reckoning when it all unravels:

This system was a powerful engine of wealth creation and lifted millions out of poverty, but it relied upon the risks to the Market and to Mother Nature being underpriced and to profits being privatized in good times and losses socialized in bad times. This capitalist engine doesn’t need to be discarded; it needs some fixes. For starters, we need to get back to basics — accountable lending, prudent saving, reasonable leverage and, most important, more engineering of goods than just financial products.

Some of our biggest financial firms got away from their original purpose — to fund innovation and to finance the process of “creative destruction,” whereby new technologies that improve people’s lives replace old ones, said the Columbia University economist Jagdish Bhagwati, in an interview in The American Interest. Instead, he added, too many banks got involved in exotic and incomprehensible financial innovations — to simply make money out of money — which ended up as “destructive creation.”

“Destructive creation” has wounded both the Market and Mother Nature. Smart regulation and carbon taxation can heal both.

Easier said than done, but still spot on. Here's hoping we can find some reasoned answers amidst all the bickering, for the sake of our current economic livelihoods and our future environmental survival.

Cool It

I've always been a bit of an agnostic when it came to global warming, choosing to go along with the cause if not the reasons, because of important parallel considerations such as finite resources, nervous geopolitics, and other negative externalities. This book only strengthens my contrarian position: "Cool It: The Skeptical Environmentalist's Guide to Global Warming." While agreeing that global warming is in part man-made, the author makes the following compelling arguments:

* Much of the publicity has been sensational, alarmist, and in some cases false: good policy is hard to come by when a dire tone can said to trump all other concerns, and heart-tugging images like stranded polar bears misrepresents the fact that the polar bear populations that are struggling are those in places that are getting colder and in fact the majority are blossoming because they live in places that are getting warmer.

* Any negative effects associated with warmer high temps will be more than offset by positive effects associated with warmer low temps: any increase in deaths due to higher highs will be more than made up for large decreases in deaths due to higher lows.

* Only the most herculean efforts to reverse climate change will have even minor effects: billions upon billions of dollars can be spent on the kinds of things required in Kyoto I and Kyoto II, but they may only lower temps by fractions of one degree and/or forestall warming by a year or two over the next century.

* Those efforts are vastly costlier when compared to other things we can be spending our time and money on to improve the quality of life for billions of humans today: for vastly less, we can improve the plight of billions in the present, and in doing so elevate personal and national incomes today so that we can better adapt to a warmer world tomorrow.

Do we need to take global warming seriously? Absolutely; if anything, the author's complaint with today's debate is that it deflects us from properly prioritizing our scarce resources towards the best uses. Let's be mindful of the environment, yes; but let's be mindful of it in ways that do the greatest good for the greatest number, both today and tomorrow.

Double Reminder

It had been a long day at the end of a long week. The weather bordered on absurd: bright as day, ominously dark clouds in the distance, wind gusting here and there, and a steadily increasing downpour. As I fought the elements, a stroller that wouldn't seem to roll straight, and an umbrella that kept flipping inside out, I couldn't help but sigh aloud at the spectacle of it all.

My kids, purer in thought than I, had other things in mind. "Rainbow!" squealed Jada, and requested that I turn the stroller around so she can get a better look without having to crane her neck underneath the see-through tarp that was draped over her and Aaron. Aaron mimicked his sister's cry, and pointed, and rose in his enthusiasm as he saw Jada get more excited.

I took the opportunity to tell them that rainbows are God's reminder to us that He will always love us (Genesis 9:8-17). I turned around to look myself, and noticed that it wasn't just any rainbow, but a double rainbow. One for the kids, I suppose, and one for me, an apt reminder that even at the end of a tiring week and in the midst of strange and battering weather, He loves me too.

Facebook Will Rule the World By Not Listening to its Existing Customers . . . and I'm OK With That

Yet again in defense of Facebook, I have to agree with tech blogger Scobleizer on this: "Why Facebook Has Never Listened and Why It Definitely Won’t Start Now." Don't forget that FB is, last I checked, voluntary and free. Voluntary as in "if you don't like it, don't use it." Free as in "since there's no such thing as a free lunch, you are paying something, just not money; and you have to decide that what you're giving up is worth what you're getting; and if it's not worth it, then see above."

The glorious thing about free market capitalism is that a business' path to profitability can be (and in fact, by definition almost always is) the same path as what provides us end users with the best product or service possible. The more useful/easy/frictionless/obvious FB becomes, the more money Zuckerberg and company stand to make. Hence Scobleizer's sushi example, or my prediction in 2007 that people would be able to drag and drop items from our virtual bookshelves and kitchens into a shopping cart.

Do we need to mind the shop when it comes to issues of privacy and sensitive information? Yes, but (Beacon fiasco notwithstanding) that's an individual's decision, not Facebook's: no one is forcing me to list my phone number or post that picture from last Friday night (or, for that matter, get myself drunk in the first place so that someone else could take my picture and post it on FB).

So maybe I'm being naive or misguided or heartless, but I am eager to head into this brave new world in which information is available when and how I want it: spatially sensitive, targeted to my situation, and with the wisdom of the crowds (or at least my "friends") to guide me along the way. If it's not Zuckerberg and company, it'll be someone else; so, hit or miss, kudos to him for taking a big swing.

Looking for This Kind of Leadership

I fancy myself a management guru, even though I’m not; but hey, it’s my blog so I can dream. If I could afford it, I would devour issues of Harvard Business Review. Alas, I have to content myself with what they post for free on their site. This article by AG Lafley – “What Only the CEO Can Do” – resonates with me. [See a similar post of mine from a few years back – “The Three Things I Focused On.”]

Note the similarities. Translate and make sense of all of the disparate points in the universe that may or may not relate to your business. Figure out who you are and who you aren’t. Balance execution today with investment tomorrow. And live out the standard of values you want your entity to follow by. Those are good words for CEOs, executive directors, pastors, superintendents, and even heads of families. Would that we see more of this kind of leadership in a world that, however cynical, still hopes for it.

Give Me Liberty

I was asked by a client of ours to provide testimony in support of Philadelphia's ten-year property tax abatement on new construction and major renovations at a City Council hearing. Here are my written comments. [Note: the picture is of the Pradera Homes complex in North Philadelphia - yes, North Philadelphia - built as a result of the abatement program.]

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Green considerations are public considerations. So it makes sense to incentivize environmentally positive development. My perspective is that the City’s current property tax abatement is good policy on its own, and therefore a green abatement should augment and not replace the existing 10-year abatement. Of course, one need only read today’s paper to know that not everyone agrees with me about the existing abatement, Two Liberty Place being a particularly controversial example.

As my colleague Kevin Gillen has shown, thousands of homeowners outside of Center City have benefited from the City’s 10-year property tax abatement on new construction and major renovations, and two-thirds of units would not have otherwise been built but for the abatement. For now, let’s just consider Two Liberty Place, and see if the abatement was or was not a net positive for the City. Yes, the City does forgo ten year’s worth of tax revenue when a high-end unit is built and bought. But between real estate transfer taxes, wage taxes, and sales taxes – all of which kick in immediately – as well as property taxes that are collected after the abatement expires, the City more than makes up for those upfront foregone tax revenues, both immediately and over the long term.

Let’s use some actual numbers to illustrate this. Consider the gentleman in Unit 4309 who bought his unit in June 2008 for $1.1 million. (There are about as many in the building who paid more than this as there are those who paid less.) Let’s call him Mr. Liberty. Mr. Liberty’s property tax bill will eventually be about $18,000; but for the first ten years, he’ll only owe $3,000, which represents the land portion of the tax bill –the $15,000 difference represents the enhancement in the property that actually qualifies for the abatement. So Mr. Liberty would pay the City about $3,000 a year in property tax revenues, and the City would forego about $15,000 a year in property tax revenues during those first ten years. Mr. Liberty would also pay about $15,000 a year, as a low estimate, in wage taxes and sales taxes. Finally, he paid about $33,000 once, upfront, in real estate transfer taxes. So during the ten-year abatement period, the City would forego a total of $150,000 in tax revenues but receive a total of $210,000 in tax revenues from Mr. Liberty; so the City will be plus $60,000 during those first ten years as a result of Mr. Liberty. And then, every year after that, Mr. Liberty will pay about $36,000 in taxes to the City; so over 30 years, the City will be plus almost $800,000 or more as a result of Mr. Liberty. And, notice in these charts that Mr. Liberty’s contribution to the City’s coffers is always greater than what the City foregoes in property tax revenues, starting from Day 1. Multiplied by thousands of Mr. Liberty’s, you can see how this would be very good for the City.

But let’s look at this another way. Recall our estimate that the property tax abatement induced two-thirds of new and renovated units. So out of every three units, two would not have been built but for the abatement. So we can imagine two scenarios: one in which the abatement exists and three Mr. Liberty’s move in – they get their property taxes abated in the first ten years but pay other taxes – and one in which the abatement doesn’t exist and only Mr. Liberty moves in – but he has to pay full freight on his property taxes right away, as well as on all of his other taxes. Using conservative assumptions, we estimated that the abatement scenario brings in a total of $270,000 more in tax revenues in the first ten years, and a total of $1.7 million more in tax revenues over thirty years. Again, notice in these charts that the abatement’s contribution to the City’s coffers is always net positive, starting from Day 1. And again, multiplied over thousands of units, this is very good for the City.

In conclusion, in an environment in which every dollar counts, the property tax abatement program brings net new cash into the City’s coffers from Day One, and continues to be a positive contributor over the long haul.

Fooled on April 1

Of all the April Fools' Day jokes that I did or did not fall for, these two were the best: "U.S. Plans Key Role In Naming GM Board" and "'Special Report' Panel on Government Intervening in GM."

I mean, really, you expect me to believe that the president of the most powerful and capitalistic nation in the universe, the leader of the free world, is picking board members and guaranteeing warranties? C'mon; I'd have to be really gullible to believe that.

(Gets a covert poke in the back, followed by a whisper into the ear, followed by my facing turning red.)

Um . . . well at least I didn't fall for Google Romance!

Sex Ed

Thank you, First Things, for pointing out the false dichotomy between being for abstinence before marriage and being for our young women: "The Myth of the Contraceptive Compromise." Here's the money quote for me and for any other dads of daughters:

"In his patronizing dismissal of abstinence programs, [journalist William] Saletan speaks of 'mating' - meaning sexual intimacy—as an unstoppable force of nature. There is nothing natural or inevitable, however, about a teenage girl giving in to sexual demands from young men. In fact, it goes against much of human nature, and women’s self-protective inclinations used to be supported by the people and institutions around her. Not today: Her school, her culture, often her family, and sometimes even her church are no longer on her side. Now Saletan wants her president to get in line against her resolve."

I will teach my kids about 1) contraceptives, but also that 2) sex is good, that 3) a marriage relationship is what you want to preserve it for, and that 4) so it's OK to choose to save yourself and your mother and I support you in that. After all, they may hear a lot about #1 but not so much about #2, #3, and #4; so that's my job.

Huang Family Newsletter, March 2009

Kids - Aaron's getting better with his behavior and Jada with her words, so while they both still need extra help, we're glad to see progress. They have thoroughly enjoyed our new membership to Please Touch Museum so far, and also got in our usual runs to the zoo and downtown.

Adults - Amy got an A on her pharmacology midterm and also commendably held down the fort during short business trips by Lee to Baltimore and the US Virgin Islands. They are both glad for insightful twice-a-month discussions with their small group of young parents from church.

Driven, Not Much Driving

As a follow-up to my post about car use last month, I decided to track things this month as well. Thanks again to my lovely wife for handling all the car-related chores, I managed to go the entire 31-day month driving only twice: to and from the zoo both times, with one of those trips involving a pit stop at the car wash. So that's a total of two trips, five legs, and 12.5 miles driven.

Strangely enough, this usage was dwarfed by the 13 legs in which I was driven this month. Twice, I got one-way rides from friends after meetings: one a church meeting and one a board meeting. And, while I was in the US Virgin Islands for a total of 24 hours, I accumulated 11 legs: airport to villa to beach to villa to Office Max to restaurant to villa one day, and villa to meeting to villa to beach to villa to airport the next day.

The moral of the story is: be careful if you see me driving. I'm pretty rusty!