Tick-tick-tick…

I saw a piece on 60 Minutes last night about the blood tainted gold from the Congo that reminded me of why I have such little regard for journalism.

The story: There’s gold and political instability in the Congo, which lead to heinous power struggles and gangster violence, rapes and other human rights violations.  The culprits?  It must be those darned gold dealers.  Walmart and such.  They don’t track the gold back to the source, so they buy (by some “best estimates” provided in the story, 1%) of their gold from Congo sources which fuels the bloody power struggles.

Typical journalism.  Blame the end user.  Here are some questions or data I would have provided  if I were the reporter on this story:

1) What is the form of government in this country that allows such human rights abuses (that would be the killing and rapes) and power struggles for mineral rights to take place?

2) What is ineffective about Congo’s government compared with the governments of countries that apparently supply the other 99% of the world’s gold that doesn’t appear to be subject to such chaos?

3) Why do people stay in the Congo if it’s so bad?  Why don’t they leave for a better a life?

4) How would a gold dealer be able to tell if gold came from the Congo or not?  Do they simply take the gold seller’s word for it?  Do you honestly think that would be an effective way to end the violence in the Congo?  Even if gold could be traced to the source, you don’t think a black market would keep that gold flowing?

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Charles Krauthammer on the Health Reform Bill

Horrifying piece from Krauthammer.

The fundamental problem with the 2,074-page Senate health-care bill (as with its 2,014-page House counterpart) is that it wildly compounds the complexity by adding hundreds of new provisions, regulations, mandates, committees and other arbitrary bureaucratic inventions.

The only thing linking these changes — such as the 118 new boards, commissions and programs — is political expediency. Each must be able to garner just enough votes to pass. There is not even a pretense of a unifying vision or conceptual harmony.

Insuring the uninsured is a moral imperative. The problem is that the Democrats have chosen the worst possible method — a $1 trillion new entitlement of stupefying arbitrariness and inefficiency.

And Krauthammer proposes a few reforms for those who ask “what reforms do you propose?”  Tort reform, end prohibition of selling insurance across state lines and tax employer-provided health insurance.

Bah Humbug

In Scroogenomics, George Will and Joel Waldfogel, author of a book by the same name, sides with me on a long running Christmas time debate. 

Gifts that people buy for other people are usually poorly matched to the recipients’ preferences. What the recipients would willingly pay for gifts is usually less than what the givers paid. The measure of the inefficiency of allocating value by gift-giving is the difference between the yield of satisfaction per dollar spent on gifts and the yield per dollar spent on recipients’ own purchases.

Christmas etiquette involves composing one’s face to feign pleasure when unwrapping an unwelcome windfall — say, a sweater of an appalling color and a style that went out of style in the 1940s — and murmuring “Oh, you shouldn’t have” without revealing that you mean exactly that. Price of the sweater: $50. Value to recipient: $0. Actually, less than zero, considering the psychological cost of the forced smile.

I was disappointed that Will did not mention Milton and Rose Friedman’s Four Ways to Spend Money in his column.  The value destruction of gift was covered by the Friedmans long ago as Category II spending. 

The value created with the purchase of the gift isn’t the value perceived by the gift recipient.  Rather, it’s the psychological value gained by the gift giver for satisfying “its-the-thought-that counts.”  Which, is usually unfortunate for the gift recipient.

One of my long held theories is that most problems can be traced back to a breakdown in a feedback mechanism.  With gift giving, we rarely get true feedback from the recipients as to the value of the gift.  We get polite “thank you’s”.  The truth comes later when the recipient doesn’t use the gift, returns or exchanges the gift, sells the gift in a garage sale, donates it to charity, re-gifts it or simply gives it to someone else.  But, the truth rarely makes it back to the giver.

One way to fix the feedback loop is to establish a ground rule before the gift exchange that the gift recipients give honest opinions about the the gifts.  Another ground rule could be that the gift giver would have to take back the gifts that the recipients didn’t like.  I believe these two adjustments to feedback would very quickly convert most gift exchanges to exchanges of money, gift cards or gifts that have more value to the recipients.

Whenever I’ve had this discussion with my family, I start hearing Bah-Humbugs.  They mistake my desire for a better gift exchange, where recipients get more value out of the process (which I thought was the point), for lack of generosity. 

There are times when I think gift giving can provide more value to the recipient than even the cost of the gift.  I’ll write about those in the future.

The Bathroom Value Proposition

As I wrote in the previous post, in extreme conditions, the truth about value proposition comes out.  This reminded me of long ago trips I made to Mexico.  On my first trip, the bathrooms were indescribably horrific.  I couldn’t use them.  Even private restrooms just didn’t seem to have the same standard of cleanliness that we have in the U.S.

On my next trip, things had changed.  We found bathrooms that were cleaner than most public restrooms in the U.S.  It seems that some entrepreneurs discovered that people were willing to pay for clean restrooms.  I certainly was.  And it was worth every penny.  We found gas station restrooms that were staffed by full time attendants.  Pay a few cents, and you got access to a spotless restroom that was cleaned after each use.

In the U.S., we’ve almost always assumed that restrooms are a public service and it would be nearly criminal to charge for access.  But, some entrepreneurs might just find that people are willing to pay, especially if the what they get is better than what’s available for free – a spotless restroom.

Thanksgiving Menu Part II: Value Proposition

Value proposition is one of those subtle and nuanced things that drives successes and failures in the marketplace.  Businesses go broke because they don’t do a good job with value proposition.  Likewise, businesses who do provide value proposition – or what the customers want – do well.

It’s subtle and nuanced, because very often, even the businesses don’t know exactly why their customers like them or not.   Sometimes the customers can’t even articulate it very well, or they may give you one of the five real reasons why they perceive more value from one business over another.

In my home town, I often choose a gas station that I favor less because it’s in a safer and easier to access location for me.  That’s a case where convenience and safety wins out over a better ran business, for me.

The Thanksgiving Menu/Bathroom Policy at Latte Land (written about in the previous post) highlighted this idea of value proposition with me.  The managers of Latte Land mistook good coffee (which they have very good coffee) as the only part of the value proposition for their customers.   But, many customers view it as a package deal.  I buy coffee, I get to use your restroom.  Or, as the woman behind us asked, “They want me to pay more to fill me up, but then not give us a place to empty out?”

It’s at extreme conditions, like those of Thanksgiving evening in Latte Land, where the truth of value proposition comes out.  That’s when managers should listen. For many people, part of the value proposition of buying coffee is getting to use the restroom at the place.  A customer may never say this in a marketing focus group or survey.  It’s so basic that most people don’t think about it.  Using the coffee shops restroom might not be a service they always use, but they feel that using it is included in the purchase price.  We assume it, just like assume people will wear clothes in public.  And, by closing their restroom down when some people needed it most, it was a nearly equal to someone not wearing clothes in public.  It was viewed as an over reach by customers.

When Latte Land raised prices and removed the use of the bathroom, the truth came out.  Customers view part of the value proposition as making sure that customers have a place to empty their bladders.  As I previously recommended, they could have done that by simply directing customers to the event facitlities down the street.  It wouldn’t have been completely satisfactory to everyone, but it would have been better than what they did.

Thanksgiving Menu

Last evening, I took the family to the annual Christmas light ceremony at one of the local shopping areas.  This one is a big deal in my town.  A few hundred thousand people typically gather for this one. 

We wanted some hot chocolate and coffee so we decided to brave the line at one of the local coffee shops, Latte Land, which is usually well run.  I wasn’t surprised to see they had a temporary “Thanksgiving Menu” displayed that had a smaller selection, fewer sizes and higher prices.  I would do something like that myself.  The lesser selection helps them focus their operations on speed and the higher prices recognize the higher demenad for that night.  Judging from the length of the line, they could have charged more.

But, the overreach seemed to be in their bathroom policy and the way they executed.  It was no surprise to me that their bathroom was not open.  Had it been, it would have been mobbed.  But, this didn’t go unnoticed.  Several people had to go really bad, my son included.  I eventually had to escort him to the nearest bush. 

I didn’t have a problem with their bathroom policy, but I would recommend better execution. 

Their execution:  They taped a handwritten sign on the bathroom door that said “Restroom out of service.”  I saw several people make comments to the staff, “You’re charging me extra and I can’t use your bathroom?”  To which, the staff responded with flustered looks, shrugged shoulders or ignored the clients all together hiding behind the shroud of their overwhelming demand.

My recommended execution:  Since the lighting ceremony is a festival that attracts hundreds of thousands, the shopping area provides porta-potties to handle the extra demand.  Latte Land did such a nice job with the print and lettering on their special Thanksgiving Menu, I would recommend they put the same effort into their special Thanksgiving Bathroom Policy.  They could have printed up nice signs for the front door and bathroom door that said, “We apologize that our bathroom will not be available during the Christmas Lighting Ceremony.  You will find festival facilities located one block north from our location.”  While that might not have set well with clients, that would be upfront and lets them know where they can go.

Further, I would have trained my staff to respond nicely to questions about the policy.  Something like, “We’re very sorry.  We understand your frustration.  But, if the bathroom was open, we wouldn’t be able to serve coffee because the line to the bathroom would be too long.  Porta potties are provided just one block north of here.”

Again, this would have still frustrated many, but it’s upfront, honest, official and, most important, helpful.  Much more so than the hand scrawled note in the back and the flustered looks.

Politicians nor the Media Can be Trusted

Stossel gives us perfectly valid reasons to distrust our government officials in his piece, We Pay Them to Lie to Us.

…when Harry Reid says he’ll give 30 million additional people health coverage while cutting the deficit, improving health care and reducing its cost, it’s not entertaining. It’s incredible.

The politicians have a hat full of tricks to make their schemes look cheaper than they are. The new revenues will pour in during Year One, but health care spending won’t begin until Year Three or Four. To this the Cato Institute’s Michael Tanner asks, “Wouldn’t it be great if you could count a whole month’s income, but only two weeks’ expenditures in your household budget?”

From the start, Obama has promised to pay for half the “reform” cost by cutting Medicare by half a trillion over 10 years. But, Tanner asks, “how likely is it that those cuts will take place? After all, this is an administration that will pay seniors $250 to make up for the fact that they didn’t get a Social Security cost-of-living increase this year (because the cost of living didn’t increase). And Congress is in the process of repealing a scheduled increase in Medicare premiums.”

Walter Williams asks a great question in his, A Minority View: Voluntarism or Self-Interest?

Say you want a nice three-bedroom house. Which human motivation do you think would get you the house sooner: the generosity of builders or the builders’ desire to earn some money?

Just about everyone would agree that there would be massive shortages and discontent if there were a congressional mandate that we must depend on our fellow man’s generosity for our home, our car, our food and thousands of other items that we use. Why then must a person depend on his fellow man’s generosity for an item like bone marrow that might mean the difference between life and death? There is no rhyme or reason for the congressional prohibition of bone marrow other than arbitrary unconstitutional abuse of power that far too many Americans tolerate and would like to see extended to other areas of our lives.

Thomas Sowell gives us more reason to distrust politicians in, Solving Whose Problem?

No one will really understand politics until they understand that politicians are not trying to solve our problems. They are trying to solve their own problems– of which getting elected and re-elected are number one and number two. Whatever is number three is far behind.

Many of the things the government does that may seem stupid are not stupid at all, from the standpoint of the elected officials or bureaucrats who do these things.

The current economic downturn that has cost millions of people their jobs began with successive administrations of both parties pushing banks and other lenders to make mortgage loans to people whose incomes, credit history and inability or unwillingness to make a substantial down payment on a house made them bad risks.

Was that stupid? Not at all. The money that was being put at risk was not the politicians’ money, and in most cases was not even the government’s money.

No one pushed these reckless mortgage lending policies more than Congressman Barney Frank, who brushed aside warnings about risk, and said in 2003 that he wanted to “roll the dice” even more in the housing markets. But it would very rash to bet against Congressman Frank’s getting re-elected in 2010.

Very few people are likely to connect the dots back to those members of Congress who voted for bigger mortgage guarantees and bailouts by the FHA. So the Congressmen’s and the bureaucrats’ jobs are safe, even if millions of other people’s jobs are not.

Congressman Barney Frank is not about to cut back on risky mortgage loan guarantees by the FHA. He recently announced that he plans to introduce legislation to raise the limit on FHA loan guarantees even more.

Congressman Frank will make himself popular with people who get those loans and with banks that make these high-risk loans where they can pocket the profits and pass the risk on to the FHA.

As I read through Sowell’s piece, the question “where’s the missing check and balance?” kept rolling through my mind.  How can the citizen’s of Barney Frank’s district continue to elect him?  Why aren’t others checking and balancing him in Congress?   I keep coming back to the media.  The media isn’t doing its job.  We simply don’t know.

The media carries stories that fit its mental model and weeds out stories that don’t.    The work John Zeigler did after the Obama election keeps surfacing in my mind.  You can see his work here.  Ziegler demonstrated through interviews just how much effect the media’s story lines have.   It’s very subtle.  It’s incubated in my mind for the better part of six months.

The people Ziegler interviewed knew negative facts about McCain and Palin cold.  They might as well have been reciting the alphabet.  They didn’t know the negative fact about Obama or Biden nearly so well.  I didn’t know those facts well and I’m plugged into conservative media.

I’m reminded of the Ziegler work when I see an ACORN story bust and then vaporize quickly with no ties to Obama.  Had that been an organization that W or Cheney was affiliated with in the past, we’d still be hearing new information from different angles.  Or when I saw the long lines waiting for H1N1 flu vaccine or Wall Street getting a hold of the vaccine early.  Under W, that would have been panned as Bush not liking poor people, but I never saw an angle linking that to Obama.  If the global warming e-mails that surfaced this week turn out to be legit, I wonder which media outlet will dare call Gore out for being a snake oil salesman?  Palin releases her book and gets 11 fact checkers assigned by the Associated Press, while Obama didn’t have one.

The media has completely lost its objectivity – if it ever had it.  It’s finally losing its credibility with the masses.  The question is, will it try to restore by starting to ask the tough questions and doing the investigative work on its own?

Thanksgiving

As I get older, I find Thanksgiving to be my favorite holiday.  It seems to be the one time of year everyone puts family ahead of their other pursuits.  That Thursday doesn’t feel like a Thursday.  It has a different feel.  It’s its own day.

But, that’s not the only reason I like it so much.  I like it because it gives us a chance to pause and consider what we’re thankful for.  It’s easy to forget those things the rest of the year.

I’m thankful for so much.  I’ll start a list.  I’m sure I’ll forget a few things, but I can always add to it later or next year.  I’m thankful for:

• My family and friends
• The universe
• The Sun that gives us energy and the Earth that has so many things to make life hospitable for us.
  • The moon that keeps our spin stable.
  • Earth’s magnetic field that shields us from dangerous radiation.
  • Gravity, for keeping us planted on Earth and the relatively thin layer of atmosphere around Earth.
  • The atmosphere for trapping enough of Sun’s energy to warm us up from the near absolute zero temperature of space.
  • All the things that put the basic essentials for breathing and growing plant life into the atmosphere.
  • Water
  • I could keep going here
• Life and making it
• Being born in a time and place where human freedom is a very high priority
• Being born into a loving family
• Having been raised to think for myself and be skeptical of conventional wisdom
• Having my faculties to enjoy what’s around me
• Having met the people I have in my life so far
• Learning the lessons I’ve learned
• Being helped by the people who’ve helped me
• Having been able to help others
• Having coordinated my efforts for the betterment of society anonymously through the free market
• The things I enjoy doing
• Having been well cared for in times of need
• The men and women who have died for my freedom
• Overall, being able to lead a more comfortable life than generations before
• Having possibly contributed to those to come to do even better
• The four known forces in the universe
• LOST
• Libraries
• Authors
• Ice cream
• Coffee
• Beer
• Wine
• Specific kinds of wine
• Computers and all of its devices
• DVRs, digital cameras, wireless networks
• Starbucks and Starbucks founder who never felt it necessary to treat others disrespectfully
• Bicycles
• Roads
• Vehicles
• Crunchy onion rings
• The beauty of nature – the sights, sounds and smells
• Sunsets and sunrises
• Beaches
• Planes
• Doctors and hospitals
• Parks
• Monopoly
• Freeze tag

I’ll stop there for now.

But Everybody's Doing It

Raoul Lufberry sends this link, Global Warming With the Lid Off from the Wall Street Journal.  He knows one of my pet peeves is the poor reasoning and fake science (some call it statistical or mathematical modeling) that runs rampant in the global warming debates.

It seems to be turning out that scientists have a lot in common with some bankers, those applying for home loans over the last few years, Enron executives, some economists and all politicians – they peddle fiction.  Some call it lying.

It doesn’t surprise me.  After all, scientist are human and not any less susceptible to corruption and believing their own made up bull cocky.

Why Health Care Reform May Not be a Bad Idea

Free markets take an undue blame for many of today’s top problems, when the problems are rooted in government interference.  This is true for health care.  The cost of health care has risen faster than inflation for decades and is hitting that level where affordability is becoming a growing concern.

Many people reflexively blame free markets for the problem.  They think insurance companies and health care providers are just out to fleece us while the guys that run these businesses smoke their fat stogies in their posh boardrooms and spend all our money.

They neglect to consider the impact government interference has on the health care market.    Health care costs have climbed right along with the percent of medical paid by government programs.  Costs have also climbed along with the percent medical paid by third parties, driven by the tax advantage of employer paid health insurance and sate mandates on what treatments health insurance policies cover.  These alone cause enough trouble.  That doesn’t get to the supply constraints placed on the market by state and local governments  that regulate hospital beds or the AMA’s soft influence on the quantity of medical providers in the market or cost constraints placed on hospitals for not being allowed to turn away someone based on their ability to pay (someone has to pay those costs).

In fact, rarely are these things ever discussed.  The fact is the U.S. health care market is about as far from a free market as you can get.

Few people understand what a free market is.  Many people define a free market as one that has the presence of for-profit companies.  That’s wrong.  A free market is one that’s free from government intervention and regulation.  Our health care market is far from that.

I’ll take the definition of free market further.  I consider a free market to be one where a reasonable percentage of the costs are paid by first parties (i.e. the people using the service) through voluntary transactions.

Which brings us to another misconception about the health care market.  Some people argue that many medical procedures are not voluntary.  In other words, a person must get a life saving treatment or die, which puts health care providers in a more powerful bargaining position.

That argument seems sounds, but ignores the evidence that has piled up from markets in other goods and services that are relatively more of a free market than health care, that is  free markets are eventually great for everyone.  The innovation and competitiveness bring more choices and quality for all levels of budgets than less free markets.   How vital is food?  Very.  You need it to live.  Yet the percent of income we spend on food has fallen dramatically over the past century as our food processes have become more productive through innovation and competition.

That reduction in food costs gives us more income to spend on other things like cell phones, iPods and maids.  People in my family have maids that clean their homes twice a month.  Only the wealthy could afford anything like that when I was a kid.

Finally, that brings me back to my original thought.  Why health care reform may not be a bad idea.  If we eliminate all pretenses of a free market and health care blows up in our faces – along with the faces of other countries that depend on our innovations to keep their government medical systems serviceable – we will not be able to blame free markets any longer.