nick baily's two cents

Slice of Life @ Street Corner, USA

I think this one speaks for itself just fine. 

Making a Mint With The Value of Press

OK, fine I'll admit it, I'm the last human in the world to dive into Mint.com. As an OCD spreadsheet wielder with every penny I have or don't have tracked and sliced and diced I never really thought it was for me. But today I decided it might be worth giving it a shot. It had some features I wanted to try and let's face it, no matter how good your spreadsheet is, chances are you're no match for a well designed application.

I have to say, I was more than impressed, and my turbocharged spreadsheet feels like a bicycle sitting next to a Porsche 911. I had dim memories of first being tipped by Jason Calacanis via his TechCrunch event with Michael Arrington, and was trying to remember the story of Mint getting off the ground. A quick google revealed this article and sure enough, it was only two years or so ago. They've certainly blown things out since. But reading the interview lent even more insight:

We didn’t have money for advertising, so we started a blog. We didn’t have money for writers, so most of our original blog content then was guest posts from other personal finance blogs, plus a couple of columns on people’s worst financial disasters.

To build demand, we started asking for email addresses for our alpha 9 months in advance of launch. Then when we had too many people sign up, we asked people to put a little badge that said “I want Mint” on their blogs to get priority access. We got free advertising and 600 link backs which raised our SEO juice.

When it came time to launch, we choose TechCrunch 40 – why pay $20k for DEMO?

We decided not to do SEM – it’s too easy and too additive. Instead, we relied on press. It’s where I spent 20% of my time. I’m spending it right now while writing this.

The net result has been millions of visitors and 1.5m users essentially for free. Mint is not inherently viral like a social network – but all good things are viral by word of mouth.

And so here we are two years later. We’ve attracted over 1.5 million users, found over $300 million in savings, managed $50 billion in assets, and helped people track nearly $200 billion in purchases.

Notice the interesting way he uses the terms "viral" or "word of mouth" and "press" almost interchangeably. It's a great illustration of a common misconception -- which is this idea that all you need is to build something truly impressive and people will beat a path to your door. 

Granted, there's more than a grain of truth to that, brilliant ideas really do spread virally, and with lightning speed. 

But often what people feel is an avalanche of "word of mouth" is really just great press. Sure, often the press is "following" the word of mouth buzz. A classic example, perhaps the opening shot of the Web 2.0 era (or the final screaming death of the 1.0 era, depending on how you look at things), is F*ckedcompany.com, which Phil Kaplan famously created for the hell of it over a long weekend, emailed as a link to six people, and woke up a couple days later to find tens of thousands of visitors beating a hole in his servers. 

So, it happens. But more often than not when people say they "keep hearing" about something, or that "everyone's been telling me about" something, they don't mean real actual conversations. Most people move in pretty close-knit circles. What they mean is that everyone in the media has been telling them about it. What feels like word of mouth often isn't so much the presence of tremendous chatter from close, trusted friends and but rather the absence of an over the top, in your face marketing blitz. To be specific, paid marketing, like advertising. Like Superbowl ads. Like Pets.com.

And to go back to the F*ckedcompany.com example, the viral pass-along for that site was nothing short of remarkable, it was like a direct conduit into the zeitgeist. But if my memory serves, it made the Wall Street Journal within the week, and was on to Time, Newsweek, The Today Show, Rolling Stone, and just about everywhere in the media universe in a short amount of time. How many people discovered it through an email forward or water cooler conversation vs. the number that learned about it via some kind of "proper" media channel?

That's something you can only guess at, but it's one example of many. Zappos.com is another that comes to mind in the online/startup space, and there are more examples than you can count in entertainment, music, film, etc. 

In all cases they've hit a trifecta, that combination of a great product (yes, that's still the prerequisite, if you don't have that the rest of this is meaningless) with a core evangelical base of initial users and a successful effort to get that positive word of mouth coming from those who measure their audiences in millions. 

You bet the media has changed, these days the personality with the huge megaphone might be a tech hero with a six figure Twitter follower count. But social media is media. And that personality is a media personality, the underlying point isn't diminished one inch. 

It's not strictly impossible to see success happen purely organically, without any organized plan for publicity. Though I'd say it's nearly always when a founder or principal happens to be naturally press-savvy. But exceptions aside, more often than not it's a thoughtful, considered -- and experienced -- person or team at the helm, managing the media strategy. 

So, to bring it home with a pun -- if you'd like to make a mint, you might want to think about who's minding your press. 

"A counter argument that has been gaining some ground..."

That's a similar title to the last post, but this blog post in specific drew my attention. 

A counter argument that has been gaining some ground goes like this – if the rich are responsible for so much of the problem, we should work with them to solve it... does this general approach make sense? Is it pragmatic? 

“Most people see this as a reason to loathe the affluent, but wouldn’t it make more sense to see them as an enormous opportunity to create fast and dramatic change for global warming? If the 20% well-to-do offset their CO2 emssions by 50%, that would mean an overall decrease of 40%.” 

Everything within me rankles at this suggestion, but I wonder if I’m just to idealistic? Can the wealthy really just buy us out of this mess?

A very good question. Any new approach is bound to be met with skepticism. But new ideas are never without controversy, and it's heartening to see people who are naturally skeptical give a fair hearing to a novel approach. We're all on the same page -- climate change is almost certainly the greatest existential threat any of us have faced since the end of the cold war. 

It's not going to be easy, but it's going to require open minds and pragmatism, and it's great to see a glimmer of hope that all of us working towards the same goal can recognize that and act accordingly.

An idea whose time has come

Did you know that the top 7% of the world's affluent create over half of the world's carbon emissions? If that's of interest to you, this article on Luxist about The Belgrave Trust should be of interest:

The Belgrave Trust has a unique proposal, make living carbon neutral easier and more appealing to the luxury consumer. The Belgrave Trust website helps members learn how to offset their entire lifestyle and easily purchase offsets. Many websites can help you offset the cost of a flight or road trip but the Belgrave Trust appeals to the lifestyle of the high-end consumer, showing offsets for things like private jet travel and wine collecting, allowing members to create a specific profile tailored to their lifestyle. For example, the site can help calculate offsets for recreational flying or yachting and can be set up to manage your total carbon usage. The world's most affluent people are responsible for a greater share of the world's carbon emissions. The Belgrave Trust challenges its members to assume a leadership role in reducing greenhouse gas emissions.

My favorite story so far involving the financial crisis.

This post and the underlying story comprise the most amusing anecdote I've read since this entire mess began. I don't know what the ethics are of blockquoting an entire post but whatever, it's too good:

How to lose on a sure-fire bet

There was a wonderful story in today's WSJ about how some big banks managed to lose some of their hard-earned TARP money. 

Let me begin with a little background. A credit default swap is sometimes described as an insurance contract written against the possibility of default of a particular underlying asset. If I buy a CDS and the specified asset defaults, I get to collect money from whoever sold me the contract. If I also have a long position in the asset in question, I might consider buying a CDS written against that asset as an insurance or hedge against the possibility that the asset loses its value. 

But I don't actually have to own the asset in question in order to buy a CDS from somebody else. I might want to buy a CDS as a partial hedge against some other asset I hold with which the specified security could be correlated. Or maybe I just feel like making a bet with somebody I think is dumber than I am. 

The fun and games begin when multiple contracts get written on a single credit event and the notional value of outstanding contracts on that event-- the total amount of money that is promised to be paid to the buyers of those CDS in the event of a default on the underlying asset-- becomes larger than the par value of the underlying asset itself. Then it would clearly pay the party who sold those contracts to buy the underlying asset itself at par, relieve the original debtors of their burdensome obligations, and be out only $X (the underlying event) rather than some multiple of $X (all the contracts written on the event). 

And so the WSJ recounts the tale of a security based on $29 million (par) worth of subprime loans in California, half of which were already delinquent or in default. Betting that the loans weren't worth $29 million sounds like easy money, and the smart guys were willing to pay 80 to 90 cents for each dollar of CDS insurance. 

It appears from the WSJ account as if little Amherst Holdings of Austin, Texas was happy to sell the big guys like J.P. Morgan Chase, Royal Bank of Scotland, and Bank of America something like $130 million notional CDS on a $27 million credit event, used the proceeds to buy off and make good the underlying subprime loans, and pocketed $70 million or so for their troubles. The big guys, on the other hand, paid perhaps a hundred million and got back zip. 

A theory in search of a name:

Every once and awhile you come across a gem in the darkest reaches of the internet. Here's a quote I saw buried in the comments on a real estate blog: 

I’ll posit the new version of Occam’s razor. Given a choice between two theories about the economy, the more cynical view is always closer to the truth.

Slice Of Life @ Paul Simon's Beacon Theatre Opening

One of the more impressive cakes I've ever seen. The centerpiece of the backstage celebration party following the re-opening night of the restored Beacon Theatre in NYC, headlined by Paul Simon and a few special guests (including a surprise encore with Art Garfunkel). Despite the presence of a large knife (upper right) for the entire event nobody had the guts to be the first one to take a slice. Wonder what it tasted like. 

Where Pitchfork Meets Keynes

I was having a discussion with some friends in the media and music business recently, specifically about the much-discussed (read: over-discussed) phenomenon where bands emerge and bubble up from the blogosphere and become overnight sensations in a teapot, taking the hipster world by storm, becoming ubiquitous in all the tastemaker places almost simultaneously. Someone commented that this phenomenon is really particular and endemic to the indie rock world -- where there's a massive wave of over-hype and artists are thrust out into the world not even fully formed, subject to a premature "next thing" consensus and an inevitable backlash to come. 

I don't think this is confined to music at all. Political consensus among the chattering classes is probably the most direct and clear example, with so much media, so much airtime to fill on deadline, and so many predictions that "have" to be made in the face of subjectiveness and a major herd mentality. It's also common to quickly moving technology trends (iPhone, Twitter, lots of other gadgets) and even financial opinions (Jim Cramer and Motley Fool come to mind especially). And probably quite a few other things. Just straight old TMZ style pop culture too.

But confining the discussion specifically within the confines of the music business, what I think is interesting is the degree to which the indie rock world exemplifies a certain set of attributes. You don't see the same hyper-"meta" discussions and self referential issues in other genres so much, at least not in my estimation. In straight bubblegum pop you might just as easily have the overwhelming hype and meteoric rise, and even in more esoteric niches like country or jazz or even bluegrass you definitely have flavors of the month, someone who makes a breakout performance at a festival or a last minute substitution. 

As a sidenote -- I actually think classical is a close second to indie in the herd-hype department, with that last example of a last minute substitution and seemingly coming out of nowhere being a great example of how many well known artists -- most notably Leonard Bernstein and Lang Lang, among others -- got their big breaks. And both suffered a torrential backlash several years into their career as well. 

But anyways, the basic concept is pretty well established. What's interesting to me is that in indie rock (which I should make sure to define here as the hipster, Pitchfork, blogger world, etc -- not in the indie=independent sense) it seems to have come to dominate the landscape. 

And of course, it conjures up parallels in economics. Specifically the classic quote about the stock market and investing from The General Theory, by John Maynard Keynes: 

"Professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one’s judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth and higher degrees."

I've always thought this was a pretty good metaphor as well for the worst parts of the hype machine that seems to swirl around indie rock, in the way mentioned above. The issue here isn't that you have a scene that's incredibly dynamic and changing, that artists come out of nowhere and get a ton of hype and then recede. There are plenty of reasons why you'd see those kinds of things happen. For example, another just-as-plausible hypothesis would be that it's an artistic scene that is intensely focused on novelty, hence the quick rise and short shelf life of many such artists. 

But I don't think that's quite it. I think it's the self-referential nature of the whole thing that is the most fundamental attribute. Everyone is looking at what everyone else is doing. In economics or ecology you'd describe it with some concepts from complex adaptive system dynamics, where you have systems or implied algorithms that are self-referential and loop back on themselves, and have both positive and negative feedback loops working at cross purposes. Not too far from the idea Keynes intuited in the 1930's in the quote above. 

So the more hype builds around you the more success you have. That's a positive feedback loop, a network externality. If 10 influential indie blogs plug you then that might lead to 30 more the next month. But there's a negative feedback loop. The more success you have the more you arouse the distaste and backlash of many members of the community. You have everyone looking at everyone else to see what they think before they make up their mind. 

People's opinions of an artist's intrinsic merit are in part based on their perception of who else likes them, what kind of people like them, how many of those people there are, and how long this has been going on. Like in the beauty contest example above, many participants are picking the prettiest competitor at a beauty contest not based on what they personally like, but based on their impression of what they think other people's impression will be. 

So you have two countervailing forces at work -- and the result is the classic boom-bust cycle that has tons of parallels. In ecology the textbook one is watching deer populations skyrocket, then they eat all the available food, and then half of them starve and die. Then they do the same thing over and over again. In economics it's the classic business cycle boom/recession wave in the stock market and economy as a whole. It's the natural outcome of a wicked combination of positive and negative feedback loops, both governing the same variable, in this case success and prestige and "hype." 

Or to simplify: 1) The more successful you are the more people like you. 2) The more successful you are the more people hate you. Pour them together, and you get breakneck change, massive and premature over-hype and massive and premature backlash. Both often divorced from any underlying actual merit of the music in question. Just like financial bubbles tend to affect the good firms as well as the bad, both on the way up and the way down. The truly great stuff endures, but when you're looking at a week to week timetable that boom-bust cycle is all you can see.

I think it's food for thought. The interaction of positive and negative feedback loops in self-referencing systems with network effects is well known in complexity theory to be the driver for some very interesting emergent phenomena, not just in simple rules-based systems but in applied social sciences as well. Perhaps there are some parallels to be drawn in marketing, media, and even entertainment and popular culture. 

Slice Of Life @ Grammy Awards

View from the edge of the stage nabbed on my camera phone, just before the Album of the Year award is to be announced. Congrats to Robert Plant, Alison Krauss, and T Bone Burnett on a well deserved clean sweep.

Credit where credit is due.

Damm, I should post more often huh. Note to self: get with the program, buddy. 

But this email I just got inspired me to write. If you're going be that guy to trash someone in public, even if it ain't personal and just academic, then you have to give credit where credit is due. This post by Jason Calacanis is one of the most insightful and forward thinking things I have ever read on the subject of online interaction, and its effects of interpersonal and hyper-non-personal relationships. Just read it. 

I remember coming across something that reminded me of the Milgram Experiment last year and thinking that the internet was like a giant accelerant to the basic human condition laid bare by that study. But Jason's taken a vague concept rattling around and crystallized it and made it compelling, personal, and persuasive -- and I suspect may have just kicked off a discussion we'll be hearing more and more about in the near future. 

Quality economics advice? Well we've been over that already. But when it comes to online communities, Jason has to be considered perhaps the most intuitive and insighful expert out there -- if this is any indication. 

I'll be mulling it over for awhile.  

Well hello there...

Well how about that, looks like my snarky post was discovered by the big league valley blog mafia, dragging a couple new readers my way. Go figure. I've gotten some emails and comments. Might as well address a few of them, paraphrasing below:

Who the hell are you, I bet Jason Calacanis has done more in this weekend than you've done in your life, he's rich, you're not, blah blah blah.

Well, I'm not sure we've met, do I know you? Click the about link if you're bored. I've done a few things in life that are pretty interesting, but that's not the point, methinks. I do know what the f*ck I'm talking about when it comes to economics, however, hence my comments. Test me. 

Here's a few criticisms:

Your thinking is all old-economy, too 20th century. Jason's talking to the community of tech entrepreneurs, startup executives, and the like. It's not all about making widgets.

Jason's email was called the 120% Solution. He did define the problem as the current macro trend facing the US economy. He even said it wasn't the worst crisis that our country has ever faced. I didn't generalize, he did. 

So he offered a solution. And that solution wasn't just the part about working an extra 20%, that was only a part of the reccomendation. The other part involved ratcheting back consumption drastically. 

The reality is on a macro level those two things just aren't compatible. That's why calling it a solution was so funny to me. It's a recipe for complete disaster. It's pouring gasoline on a fire. 

At least as far as the economics part went the main argument boils down roughly to this sentence: "Hi America. You have a big problem now, caused by overcapacity and slackening demand. I recommend drastically increasing capacity and slashing demand further." 

My argument is, well, no, that's a really bad idea. 

And I can explain why. But the advice could have well made sense if it was a little more specific. It's not bad advice for a young knowledge worker, or startup CEO. Presumably that's the audience of the email, and the readers of Valleywag, and the excuse for some tunnel vision. 

But one commenter said this, essentially questioning my assumption that working an extra 20% is about more than just a raw increase in production, saying this:

 

I think he has a very specific idea of what we should be toiling for: not producing more factory goods, but innovating services and improving the tech infrastructure.

Well he should have said that. He didn't. Based on what he said my assumption is correct, in the aggregate. 

Most people in the economy are not engaged in work that involves innovating services or improving the tech infrastructure. It's a big world out there. And it's not just factories, though there are quite a few of those. How about ironwork riggers, carpenters, floor sanding guys, fast food workers, airline flight attendents, sandwich makers, supermarket butchers. I could go on and on. 

It's not realistic to expect these people to make the widget better by working another 20%. They're going to sand 20% more floors, or make 20% more sandwiches. That's the bulk of the economy, that's America. That's the world. 

The vast majority of the labor force is not in the business of innovating anything. Even in the knowledge worker set, it's not a panacea. Should advertising executives work 20% more to make more ads, or to make their ads more clever? Maybe they should. Personally, I'd advise that they do. I work my ass off. If you're reading this maybe you do too. Maybe Jason's email would make for great life coaching. 

But what's that going to do for our economic slump? The advice is going to make it worse. If you're not talking about a solution to macro problems you don't say stuff like this, straight from Jason's email:

 

Many intelligent people I’ve been speaking with believe that the economic crisis facing our country today is our biggest challenge since America’s inception... I’ve been thinking a lot of what got us into this mess and how we might be able to get out of it. What follows are my extremely basic thoughts on what has caused the problem and what the solution might be.

Sorry guys. This conversation is about macroeconomics. If you're going to talk about macroeconomics and you don't know what the f*ck you're talking about don't be shocked when you're called out on it.

 

How can you really argue that working harder is bad for the economy. How can everyone working a little harder be a bad thing?

There's nothing wrong with this as en ethos or philosophy. I happen to agree strongly with it. It's good advice. In fact in my response I said that this is one of those things that's counterintuitive, it might be a good idea for EACH of the people that does it, but if everyone does it then everyone is worse off. I love those kinds of paradoxes, I geek out on them in my spare time, just for fun, examples here or here.

But it's also worth noting that the solution was the combination of two main (bad) ideas, increased work (without any sense of what "work" means for most people) and reduced demand. On a macro level, as a "solution" for the current "problem" it's just backwards.

On a personal level, and highly qualified and prefaced, it's great advice. In many ways Jason wrote the same email about three weeks prior, except instead of a solution to Americas problems it was a prescription for what a startup founder should be doing right now. 

It was basically the same prescription. I actually replied to that one and said it was smart and really insightful and thanked for writing it, it was thought provoking. Then the same basic concepts applied more generally as a macroeconomic solution made me think damm, this is retarded. 

Not everything can be generalized from the personal experience of being a tech innovator, being smarter or more creative than average, and being an owner or manager. Most people aren't those things, and most of the economy doesn't work that way. 

First email was great, the other one made me want to write 1500 words in response.

   

No really, how can people working harder and more efficiently at their jobs destroy jobs? That makes no sense.

I said it was counterintuitive. That doesn't make it wrong. There are at least 80+ years of economics devoted to actually studying and understanding concepts like this. You know, by actually studying them, using math, testing assumptions. Not going with a Colbert-esque "gut feeling." 

It's much easier just to refer to John Mayard Keynes on this exact issue as he's the genius, I'm just some guy who's actually read the stuff. 

But it shouldn't be that hard to grasp. Let's simplify further. 

If one guy can do the work of two, the second guy is surplus and unemployed. Less jobs. 

A leads to B. 

Which part of the above is confusing? 

This holds unless there's demand for twice as much work to be done, and people willing to pay for the extra output, so both guys keep their jobs, but the world gets more out of them. The obvious criticism would be that if one man can do the work of two, that's good. That's more efficient and thus a goal, it's a good thing for the economy.  

Well the obvious response is good for whom? Certainly not the guy who just got surplused. I'll refer back to Keynes, who demonstrated quite convincingly that the economy can just contract and exclude huge numbers of people and idle large quantities of resources, and that this is not self-correcting. 

The trick is to get the second guy working. Having half the world's population unemployed and starving is a market failure. And just to be clear it's not only bad for the half that's starving, it's bad in general. The rich and owners of capital fare better under full employment as well. 

This argument is pragmatic, not socialist. Every business owner presumably is not just concerned about the cost of their own employees. I don't know a business that doesn't require customers. You can't speak to broader issues without having some sense of both the supply and demand side.

If one man can do same work two used to do, and both men can continue to work because this improvement in efficiency translates to more demand then it leads to more wealth. That's called economic growth, that's what Jason thinks he's advocating in that email. 

But his prescription has two sides. The combination of the two of them is what makes it a disaster. If we could convince everyone to work 120% more and spend 120% more, we'd be closer to the right track. 

But on the level of macroeconomics, or when presented as a solution to the massive economic crisis we face (which as I pointed out above, wasn't me over generalizing, the idea that this was a solution to a national or global problem was the main thesis of his argument) the two main points are working at cross purpose. 

The "solution" is encouraging more production and less demand for that production. Those two things are incompatible. 

The analysis and recommendation are deeply unsound.

Jason Calacanis Made Me Do It

I'm a big fan of Jason Calacanis, he's one of the most compelling writers out there, smart as hell and never afraid to speak his mind, defend it, and damm the consequences.

He has an email. It says you're not supposed to reprint it, it's just for email. Or maybe not, as the case may be.

The latest one is called "The 120% Solution." It proposes some, shall we say, innovative, ideas for facing our current economic crisis. I'll skip over a bunch to keep it from being too tedious, but let's start at least at the beginning:

Many intelligent people I've been speaking with believe that the economic crisis facing our country today is our biggest challenge since America's inception.

This is an oxymoron. Let's compare the civil war, 1950-60's threat of nuclear annihilation, the direct attack on our soil by Axis powers. Or, um... a recession consisting so far of a couple consecutive quarters of negative GDP growth.

Let's pick two random examples:

• Example A: Civil War - 2% of the entire U.S. population is killed in battle.    

• Example B: 2008 - GDP is found to be declining at half a percent annualized. Investment banks fail. 

Apparently, my definition of "intelligent people" differs from Jason's. But moving on...

I'm suggesting that, until America takes care of its debt, untangles the housing mess and gets unemployment under control, we all commit to working six days a week. Yep, move the standard 35-40 hour work week right up to 48 hours.

This is actually one of those very interestingly counter-intuitive situations you come across sometimes in economics. Having everyone work additional hours will actually be disastrous to the economy.

This seems impossible and like I said, counter-intuitive. But it's true. Think about the most basic economics, supply and demand.

(visual aid here)

You're moving the supply curve to the right by doing this. In other words, because people are getting paid the same wage but produce more goods, at the same price point there is an additional supply of goods. (We have to assume he's made that assumption rather than talking about hourly workers here getting paid overtime for this extra work, right?)

But the problem in the economy right now is facing drastically falling demand. Or the demand curve is moving to the left. If you think about supply and demand curves you can get a sense of what happens next. A massive deflationary spiral. Google: "Japan's lost decade"

Or to be more colloquial, there's no such thing as a free lunch. Right now we're facing a demand side recession. People are buying less, they are borrowing less, spending less, and reducing the demand for goods. This problem cannot be solved by suddenly and drastically increasing the amount of goods available. The solution presented here is entirely supply-side based. Let's try it and see what happens, we won't like it.

There are many examples of things which are prudent for a single economic actor to do, but are disastrous to the economy in the aggregate. And lo and behold, reading further we come across a couple of the most classic examples:

If you've got credit card debt, pay it down if you can.

If you've got a mortgage, pay it off if you can.

This is part of the problem. So everyone goes to work longer and works harder and makes more stuff. Let's call them widgets, economics types love to call imaginary products and services widgets.

OK, so your team is all in there on Saturday cranking out an additional 20% more widgets. Mind you, they're not getting paid 20% more, just spitting out 20% more goods and services.

Simultaneously, the savings rate is skyrocketing. That's what paying off debt means of course, paid off debt is savings. Since incomes/wages haven't increased, and that money going to pay down debt is no longer being used to buy products and services (or shall we call them widgets?) then people don't need as many widgets and when they go to the store they buy fewer of them.

Meanwhile, thanks to Jason's advice the factory is cranking them out now with far more efficiency like there's no tomorrow. Widgets, stacked to the rafters. 

Are we starting to see what's wrong with this picture yet?

I'll save a pedantic part right here and assume the seven people reading this far down can figure out where this is going. It's called turning a moderate recession into a full-fledged economic collapse.

Interesting advice, but, sadly, severely misguided.

OK, let's skip over some other stuff, and on to the summary:

In summary

What made America great was our ability to innovate and create world-class products, ideas and services that people around the globe fell in love with and wanted for themselves.

Can't disagree completely. It's hard to ignore things like extracting resources from nearly every region of the world at the barrel of a gun for 200 years, or the massive economic benefits that accrue from becoming the world's default reserve currency. But innovation's no small part of it either, undoubtedly.

From health care to human rights, from democracy to dishwashers, from windshield wipers to the World Wide Web, from search engines to soda pop, we've accomplished so much by dreaming and rolling up our sleeves.

Heh. We've invented many things. But what I'm most amused by as an American myself is our ability to be so self-centered that we do things like claim credit for most of the world's civilization. Or creating the World Wide Web, say.

Fun facts sidenote, check this out.  (Hint: The "E" in "CERN" stands for European, as in Switzerland, where Tim Berners-Lee, an Englishman, was working at the time. But regardless. We, um, made it great too. Without any help or anything, or something.)

Oh, PS: fun fact number two is that Americans didn't invent soda pop either.

But whatever. Go America!™

We need to put down the remote, cut our credit cards in half and start new companies with new ideas. Our entrepreneurial spirit and hard work will get us out of this mess.  All we need to do is release them.

OK, we're at the end here, so let me see if I've got this. Step one: put down the remote and see if you can annihilate the media industry. Got it. Step two: slice up them credit cards and wipe out the retail sector.

Then start a business and sell things to people! Don't start an online business though, as everyone just cut up their credit cards in step two and will need to pay by cash or barter. But work hard.

Because hard work and persistence trumps having a f-cking clue about macroeconomics.

Or so it seems.

UPDATE: Looks like I have some visitors, thanks to Owen. Interesting. I've updated and expanded on a few of the arguments, and counter arguments here.

Slice of Life @ Shanghai, Sunrise

The view from my window.

In which I bastardize the phrase "Corner Solution"

The End Of American Capitalism

Will Obama Usher In a Socialist Economy?

And so on. I think the latest round of ignorant economic arguments have started to drive me a little bit crazy. There's an ongoing sort of battle in economics, more accurately pop economics, or theories of business and policy, that seems to find it impossible to argue without resorting to what I'd call a corner solution. Or said another way, the "it's all based on this one thing, and everything else doesn't matter" type solutions. And to me it tends to be instructive to note who advances these arguments, and what their interests are.

It's not surprising that the entrepreneur class would gravitate towards a theorist who postulates that said class is the root of all virtue and creator of all value, like a Joseph Schumpeter, or the many others since, and their passel of magazine covers and business books sold in an airport near you.

The entrepreneur class finds this interesting.

As an aside, I most certainly enjoy articles that say people named "Nick" tend to me more attractive and successful. For some reason such arguments resonate strongly with me.

It's not surprising that the vast classes of salaried employees might have gravitated towards the Labor Theory Of Value. It's not shocking that as the industrial revolution came into full swing, the allure of communism was extremely attractive for large numbers of people around the world. It postulated that the vast masses were the root of all virtue and creator of all value.

The vast masses found that interesting.

It's not surprising that people who already had successfully acquired wealth and paid quite a bit in taxes gravitated towards people like Arthur Laffer and supply side theories. It's hardly a shock that people who the market had deemed to be winners would advance the theory that the market is always right, and that it always distributes resources with perfect efficiency. People like Lucas and Sargent and Friedman on the academic side, or Ayn Rand (god help us all) on the pop culture side said that the rentier class was the root of all virtue and creator of all value.

The rentier class found that interesting.

There's an entire industry devoted to privatization of everything. They're not interested in discussing the details, asking if privatizing X really leads to more efficiency. Hard to figure out why, until you notice, of course, that they're the ones looking forward to getting their hands on the assets. You could argue that the private sector does everything more efficiently. It's a good way to get a contract providing armed soldiers to the US military at 10 times the cost of just having actual, you know, soldiers do the same job.

The advocates of privatization find that interesting.

It's sure hard to figure out how these theories spread, isn't it. The reality of course is that a well functioning economy is created by a mix of inputs. Corner solutions don't work. Total state ownership of the means of production (communism) strips incentives and leads to corruption and terrible allocation of resources. We've established that didn't work. Well sort of, China hasn't done too badly lately has it, and they are nowhere near an open economy.

In contrast total privatization leads to a mafia state, an oligarchy of one dollar = one vote. Check out what happened in Saipan and the Marianas over the last couple decades for a good idea of what a privatization and entrepreneurship utopia looks like. It's not so good.

Here's a quick two theories, let's throw them out:

1) Markets are probably the most efficient and effective way of allocating resources and creating wealth.

2) Markets almost never work properly without some oversight and command of state authority.

Here's the kicker: Ideas #1 and #2 are not incompatible.

Prosperity requires effective flow of capital and capitalists and the ability for people to have incentives to innovate and invest and assume risk and reap rewards. It also requires government intervention where market failures occur (like making sure insurers are properly capitalized, or to break up monopoly situations) and to stimulate things that the private sector can't or won't efficiently create because of excessive time horizons, risk, coordination issues, or capital requirements (things like the interstate highway system, the internet, air traffic control, etc, for example).

It also requires a properly compensated, healthy, educated, and stable workforce. One that's able to make rational decisions, live with some risk mitigation to income or life events, and not constantly subject to monopsony pricing of their wages. Not only does it lead to increased efficiency, and greater wealth for all classes, it does have the not at all insignificant side effect of keeping those excluded from the economic system from scaling the iron gates and running up on the lawn with guns drawn. As they say.

It's been an amazing and historic week. An inspiring one, no matter which side of the aisle you're on. I would hope. But it's sad to see that the same tired arguments prevail, on the right, but on the left as well sometimes.

Capitalism is dead. Long live Capitalism. No we can't have national health care it's socialist. Multi-national corporations are evil. All rewards are due to the innovative class, labor is valueless and fungible.

And so on...

The reality is that entrepreneurs, bankers, investors, academics, inventors... and yes, government regulators, bureaucrats, factory workers, and cashiers all contribute to prosperity. All or nothing attitudes are kids stuff.

Or more often, the refuge of those who have a vested interest in advancing the interests of the group they most identify with. As it's been said, It is difficult to get a man to understand something when his salary depends upon his not understanding it.

And now, I will blog about a story about blogging.

Or more accurately a story about blogging as it relates to real estate, that ran in today's New York Times. 

Yup, that's me. I remember vividly -- this must have been more than a few years ago -- listening to my friend Jason Calacanis say something to the effect of "If your company doesn't have a company blog you're an idiot. Every company must have one, and it's one of the most efficient and effective ways of communicating with your customers. If you're not doing it, it's a giant missed opportunity." Or words to that effect. At the time I figured it might have been a bit of hyperbole, and of course at the time Jason's day job was building and promoting a company entirely composed of blogs, it wasn't a neutral point of view. 

But it was a comment that really stuck in my head for awhile. How? Why? Do people really care and want to read what's effectively a newsletter? Learn about your office party, or how excited you are about your new product rollout, or what you think about your industry, or the latest interesting article you read somewhere?

The answer is yes, and I think Jason (yet again) has proven to be highly prescient. I guess it's the same thing I said in the story that leads off this post. It's a way to really communicate with your audience in the first person, it's a medium well suited to a unique mix of information, opinion, and personality. When a blogger is well informed and has the background necessary to contextualize information it's one of the best ways to keep your finger on the pulse of some thing, someone -- or some company. Your company. A concept anyone with customers, and prospective customers, would be wise to consider.

The concept is not new, but apparently, it's still news.