Jobs, Jobs, Jobs: an Entrepreneur’s Perspective

It’s hard, but I believe that if you can’t find a job then make a job.  I have been working or in school (or both) since age 11 or 12.  I had a shared a paper route with another paperboy (delivering alternate weeks) for a couple years.  I worked odd jobs while in junior high and high school including painting fences, mowing lawns and babysitting.  In late high school I had summer jobs doing things like HVAC maintenance (as an assistant/gopher), a surveying assistant, and installing Ethernet cable.  I even did freelance work for a small/medium-sized publishing company, producing graphics and slides and sent in over a 2400-baud modem.

I always found a job, because a) I needed the money for college, b) I was willing to take what I could find.

Now that I am a professional I have steady work.   I’ve also continued to be an entrepreneur as I worked.  If I was laid off and couldn’t find work I’d like to believe that I would continue to pursue my entrepreneurial effort.  I’d take part-time work (like I did during my school years) to pay for the basics.

I write this after having returned from an internet entrepreneurial group meetup.  I get to meet and reacquaint with other entrepreneurs at varies levels in the entrepreneurial process, from “haven’t a clue, just getting started” to “been self-employed for 20+ years”.

If your are unemployed, I’d encourage you to consider what job you would like to create for yourself.  Sure, keep applying for “regular” jobs to, and if a good-enough one comes around, take it.  In the mean time apply yourself to developing your own small business.  I recommend something with low start-up costs, and something that you have a passion for.  You may find yourself developing new and valuable skills in the processes…  Discover talents you didn’t know you had.

You may, just may succeed in creating a wonderful business.  Even if you don’t, you will learn more about yourself, your talents and what you really like (and don’t like).  So when you do land that cushy corporate job, you will have a better idea of how to shape your career.  Even after landing that job, you might find yourself dabbling in entrepreneurial enterprises.

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Financial Opinion on Marijuana Legalization

Marijuana Plant in Pot

As a non-user of marijuana, I find it interesting and unfortunate that many other non-users are opposed to marijuana legalization.  My  argument starts fiscally.  Illegal marijuana is a net cost to society.  It finances crime syndicates both in the US and particularly Mexico.  Illegal marijuana also poses several direct fiscal burdens:

1. Law enforcement costs to arrest and pursue marijuana use and sale cases.
2. Expenses to incarcerate marijuana transporters, sellers, buyers and users.
3. Cost of taking employed users away from their jobs and family.

Conversely, legalized marijuana provides fiscal benefits:

1. Decreased law endorsement expenses.  Law enforcement can focus on under-age (under 21) marijuana crimes.
2. Decreased incarceration expenses.   Freeing non-violent users (and sellers) from prisons will save tremendous sums of money.  Further not incarcerating such people in the future saves money.
3. Otherwise law-abiding individuals will retain jobs.
4. Tax revenue can be collected on legal marijuana.

That is just the beginning of my supporting argument.   Think of the other “Freakonomic” effects of marijuana criminalization:

1. Drug violence in the form of turf wars and transportation route protection (esp. at border crossings).
2. Financial support of other illegal enterprises, such as human smuggling and weapon smuggling.
3. Lack of quality controls (regulations) leading to contaminated (with pesticides) and laced marijuana leading to sickness, disease and occasional death of consumers.

Please note that I am NOT advocating the use of marijuana, in the same way (as a non-smoker) that I do NOT advocate the use of tobacco!  I avoid both because of their negative health effects.

However, I do use alcohol.  I like microbrew beers, fine Scotch, and assorted other libations.  I have done some research and have learned that 1-2 alcoholic drinks per day is an overall  health-enhancing activity.

I liken marijuana prohibition with alcohol prohibition in a few ways.  For example, both have lead to increases in organized crime and related violence.  And both reduced sales tax revenues.   Further, both moratoriums have lead to poor quality products… such as blindness induced by the lacing of ethanol with methanol during Prohibition.

Now I switch gears to the ethical arguments.  I have seen a loved one die of cancer and cancer-induced starvation.  Cancer and chemotherapy frequently leads to nausea and vomiting.  These are miserable symptoms and lead to weakness and premature death.  The 70-something person I refer to was a vital, strong and healthy person before cancer struck.  He could do manual labor in his 70s that 30-year-olds would struggle to do.  And his mental faculties were also razor sharp.   Nonetheless his cancer deprived him of the ability to eat and retain food.  This reduced his weight from a trim 165 pound pre-cancer 6’1″ frame to a sad 110 pounds.  I personally believe, based on my research, that marijuana would have helped his appetite and nausea, which would have greatly improved his *quality* of life.

There you have it.  Financial and ethical arguments for the legalization of marijuana.  Note, I don’t couch the arguments in terms of medical marijuana… I speak in general terms.  I have had friends and dare I say colleagues who have used marijuana.  Some of whom have retained great talents and intellects.  On close inspection I have seen their short-term memory impaired in a manner similar to that produced by overindulgence in alcohol.   In my college years I have “babysat” many an alcohol overdose “patient” including one time we had to call 911.  Conversely, I never had to “babysit” a marijuana OD person.  My research confirms that anecdotal evidence.  Cliff Notes version: “Alcohol OD bad, marijuana OD… virtually impossible.”

It makes no sense to make marijuana illegal.  Tobacco and alcohol are arguably more dangerous… but society has wisely seen clear to regulate rather than prohibit their sale and use.  Marijuana should be no exception.

Stimulus Hypocrisy

Are you excited about Obama’s campaign speech, State of the Union Address, jobs speech presentation to a joint session of Congress?  If so, tune in to hear platitudes and ineffectual, half-backed rhetoric.  Extended unemployment benefits, trivial hiring incentives, infrastructure, stimulus, Keynesian hyperbole and excuses.

I try to stay out of politics on this blog, but I feel compelled to comment about gross fiscal negligence.  I accept the argument that US GDP as a percentage of global GDP is susceptible to decline.  As an US citizen I see no reason to accelerate the decline.  For elected officials to do just that is negligent, naive, or fundamentally hostile to the general welfare of the United States.

The fact that the US has been so successful from 1945 to present is a testament to something unique and special about our whole socioeconomic system.  The fact that we have righted or ameliorated our past social mistakes while improving our economic quality of life is remarkable.

Why our President is so hostile to basic economic factors is shocking.  Historically massive US National deficits siphon capital from the private sector.  Federally-manipulated low interest rate actions (QE1, QE2) sap safe investment opportunities from senior citizens, while fueling speculation in gold, silver, and commodities ranging from oil to corn to aluminum.   Putting the hammer down on domestic oil and natural gas production, particularly off-shore, puts another deep bleeding gouge into the US GDP.   Presidentially-dictated EPA mandates on coal plants put US electrical production in limbo.  Crony-capitalism (or faux capitalism) puts basic free enterprise on notice to be politically correct as a first priority.

I have been silent too long.  I avoid social political issues, but I must address fiscal political issues.  This is my first salvo.

9.2% Unemployment, not just for Europe

When did I wake up in Europe? I want to go home, to the USA that I remember.  9.2% unemployment is for France and Italy.  I’ve been to these countries — nice places to visit — but not to work hard and get ahead.  High unemployment is cultural, normal, systematic.

Is Germany the new USA?  It’s the only European country doing well.  Germany has pride and strength of purpose.  Germany has its fiscal house together.

Is the USA becoming the next France?  Jobs for government workers, modest jobs security for those with jobs, and very few prospects for the unemployed and for recent college graduates.

The fixes for our current economic mess are not rocket science.  I agree with Bill Clinton’s recent comments… the corporate tax rate needs to be reduced.  The U.S. government needs to reduce the self-employment tax that is a huge drain on U.S. small businesses.  Congress and the Administration need to encourage, rather than stymie, domestic oil and natural gas production.  Finally,  an intervention is needed to halt Washington’s latest spending bender.  Washington has been drunk behind the wheel of a massive M1 tank, trying to drive the economy, whilst drifting lane to lane and taking out the odd car here and there.   That tank, fueled by 14+ trillion of debt, is about to find the price of fuel is about to rise.

Now is not the time for platitudes, or experiments.  Now is the time for prudent action.

I am sad that the Space Shuttle is being retired.  Such action is merely a symbol of where the US Government, en masse, sees the USA heading.  This need not be the case.  The US, as a whole, has all that we need to succeed.  We are are free, independent, creative, and motivated.   The US has shown repeatedly the resilience to challenge adversity and thrive.  Why so few lawmakers can see this — communicate this — is baffling to me.  Are they simply economically ignorant?  Or indifferent?

Until some economically sane action emerges from Washington, I am hedging my personal finances.  I’m positioning against the real possibility of long-term, government-sponsored inflation.  I’m factoring in the likelihood of the government CPI (CPI-U Urban Consumer Price Index)  understating true inflation and overstating the real US GDP.

There is a chance, a glimmer of a chance, that the current debt ceiling negotiations will lead to economically sound changes.  I think the chances of that are less than 20%.  I will watch closely and act accordingly.

Know Unknowns: Bank Balance Sheets & The Federal Reserve

I consider myself knowledgeable about many things financial: ETFs, stocks, bonds, options, the stock market, for example.  I know the difference between an income statement and a balance sheet, and can read financial statements and prospectuses as a matter of course.

I’ve had little luck deciphering bank balance sheets. Income statements yes, balance sheets no.  They tend to be very opaque, which is one obstacle.  Loans are assets while deposits (other than Federal Reserve deposits) are liabilities.  Accurately determining the quantity, quality, type, and duration of loans can be difficult if not impossible… at least to me.  Perhaps some of this info can be found in the bank’s 10K statements.  Also opaque are details of the bank’s interest rate swaps and other OTC financial contracts.

Historically, the old-style (commercial) bank followed the 3-6-3 rule:   Borrow at 3%, lend at 6%, be on the golf course at 3:00.   Such a bank would take in deposits and lend out with loans (mortgages, car loans, commercial loans).  However, banks could not lend out all the deposits; banks had to keep a fraction of the cash in reserve.  This reserve helps to avoid the “run on the bank” problem, where too many depositors ask for their money — all at the same time.

Keeping all of this spare cash at the bank (about 3-10% of assets) is cumbersome, and also encourages bank robberies.  Banks can transfer much of this physical cash to the Federal Reserve and sometimes even earn a tiny bit of interest (0% to 0.25%, “the Fed Funds Rate”) on it.  Thus the Federal Reserve serves as the bank’s bank.  The Federal Reserve System (or “The Fed”) also helps clear checks (remember those?) and move money between banks simply by moving reserve deposit balances between banks.  No need to shuttle hard currency to and fro.  Deposits are moved with a pencil, or computer transaction in the Fed’s books.

The Fed also lends out money to banks.  Banks can borrow from the Fed at 0.75% (the so-called discount rate).  This system leaves a 0.5% profit for the Fed on the difference between the Fed Funds rate and the discount rate.

Classically the Fed would try to guide the economy by moving the Fed Funds rate and discount rate.  If the Fed thought the economy was overheating (generating excessive inflation) the Fed would raise rates to “cool off the economy”.  The Fed tried to adjust the rates so as to give the economy a “soft landing”.    If the US economy got too sluggish, with high unemployment, the Fed lowered rates.  The interesting thing (no pun intended) about these rates is that they are all short-term rates.  So short-term that the Fed funds rate is sometimes called the overnight rate.

I keep saying “classically” and “historically”, is this is how things used to be done by the Fed.  What’s new, since Fed Chairman Bernanke, has been the manipulation of long-term rates with “quantitative easing” QE, and QE2.  Also new (with the cooperation of US Treasury Sec. Timothy Geithner, Congress, and President Obama) are measures such as the AIG bailout and TARP.

The Fed has shifted into uncharted territory, and in the process neglected one of its two prime mandates: price stability and low inflation.  It also seems to have overlooked the concept of real economic growth (GDP growth adjusted for inflation).  Instead the Fed seems to be fluttering in a course of wide-ranging, unprecedented, knee-jerk reactions.

Today’s Fed is not my father’s Fed, nor are today’s banks.  Today they are increasingly known unknowns.  This path is new and the ticket stub is unclear.  I don’t see a destination nor ETA, but when I look close, very close, I see a dim watermark.  Subtle, like grey on grey, I believe I see in faint yet bold letters INFLATION.

Financial Rant against Washington’s Out-of-Control Debt Machine

“We’re spending $3.7 trillion. We’re taking in $2.2 trillion,” Sen. Jeff Sessions said, “That’s a stunning number, and one of the reasons it’s so out of control is that we don’t have a budget.”

I couldn’t have said it better.  Washington’s overall budgetary condition has gone from ridiculous to shear lunacy.  Without a drastic course correction the loons steering the ship are going to take us and our economy down with them.  (Since most of them have platinum-plated pensions, they will NOT go down with the ship).

By some strange alchemy of mendacity, arrogance, and deliberate ignorance, the United States Government continues to follow the financial lead of Italy, Portugal, Greece, and Spain…. and I might add Japan.  For good examples of fiscal sanity we need only look at countries like Australia, Brazil, China, and South Africa.

US debt trends alarmingly up with no apparent end in sight.   Failure to acknowledge these facts is a failure of leadership.  The lengths the US Government is willing to go to continue this economic farce would likely be criminal if employed by corporations. (Ever heard of fiduciary responsibility?)  Rhetoric like “there’s no problem with Social Security or Medicare… they are solvent”.  Wasn’t the same being said about Freddie Mac and Fanny Mae a short few years ago?  I wish President Obama and the US Congress would read some of the best investing books.

Every good rant deserves to deliver some solutions.  And solutions, I’ve got in spades:

• Cut Federal spending.  Start the debate at 2008 spending levels, and look for further cuts.  Phase out entire programs.  Freeze federal salaries until unemployment drops below 5%.
• Acknowledge that Social Security for people currently under the age of 40 will be aggressively means-tested.  Folks under 40 (that includes me) don’t count on much unless you are in poverty during retirement.
• There are only two kinds of infrastructure with real, lasting economic impact.  Interstate highways and the US power grid.  I’m not talking “Smart Grid”… leave that to local utilities.  I’m talking about new, improved, robust, high-voltage, DC power transmission across the United States.  If Canada and Mexico want to sell their power, let them participate (via treaty).
• Let US oil and natural gas companies drill.  Charge a 10% profit surcharge on new domestic (and offshore) production if you must, but approve the permits and get out of the way.  [But raise the liability cap for disasters.]
• Embrace the Canada-to-US oil pipeline.
• Simplify the C-corp (corporate) tax structure by eliminating ALL “loopholes” and reducing the rate from 35% to 21%.  Exempt the first $250,000 from C-corp taxes, and charge 10% for earnings of $250,000 to $5 million to encourage small business investment.
• Eliminate the self-employment tax on the first $50,000 of small business earnings.
• Strike down and reverse most provisions of ObamaCare.
• Rein in the EPA on faux “pollutants” like CO2 and modest levels of methane.  Instead focus on true pollutants like carcinogens, harmful particulates, and toxins.
• Get out of the way.  The private sector is a dynamo on steroids and is ready to roll when the regulatory restrictions are lifted and relaxed.  Anti-trust and anti-monopoly rules still serve an important roll.  Workplace safety is important too, but measure results as much as adherence to OSHA procedures.

Believe me, I’m writing with kid gloves.  Tell me where you think I’m wrong.  Please add your suggestions.  I look forward to publishing both.