Not Exactly Cutthroat Capitalism

There’s a deliberate pace to life on Deer Isle that’s just different from what you see in cities. This disclosure of hours of operation on the door of a shop in the Village of Deer Isle — a shop that happened to be closed, by the way — captured the prevailing spirit perfectly.

Not open today? No problem! Just drop by tomorrow. We’ll probably be here.

At one store we visited, the proprietor was perched behind the cash register working on some acoustic guitar riffs. Chords took priority over capitalism.

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Profiting From Others’ Misfortune

I’m a big fan of capitalism.  it’s by far the best, fairest, most rational, most efficient economic system — in normal times.  But when disaster strikes, and the “Invisible Hand” and the law of supply and demand entice some businesses to engage in rampant price-gouging, it makes capitalism look bad.

price-gouging-2That’s what’s happening in Texas right now.  Hurricane Harvey has proven so devastating, and the likelihood of continuing devastation and economic disruption is so great, that supply and demand, which together are supposed to regulate pricing, are completely out of whack.  As a result, some people in Texas are charging the people trapped in the hurricane zone outrageous, grossly inflated prices — like $99 for a case of bottled water, gas for sale at $10 per gallon, which is about three times as much as it sold for prior to the hurricane, and marginal hotel rooms rented at Ritz-quality rates.

Texas, like other states, has laws against price-gouging in times of emergency or natural disaster, but it’s hard for the price police to keep up with the businessmen who see a catastrophe as a way to make an easy buck and pad their profits.  For every gouger who is caught, there undoubtedly are many others who make a lot of money selling at exorbitant prices to people who don’t know enough to raise an issue about it.  It’s an old, time-honored story, because price-gouging is as old as economic activity itself.

Natural disasters like hurricanes often bring out the best in people.  We’re seeing a lot of that in Texas, with people selflessly heading out to try to rescue those who are stranded, or opening their homes and their wallets to help those who have suffered terrible losses.  It just makes you sick to your stomach that, mixed in with the many Good Samaritans, are greedy people who take advantage of the unfortunate and put money ahead of simple human kindness and decency.  How do the gougers sleep at night, knowing that they are profiting from the misery of others?

On The Squirrel Superhighway


The bird feeder in our backyard broke, sending birdseed falling to the ground — and in the process turning our back fence into the German Village Squirrel Superhighway.  As I write this, no fewer than four squirrels are racing over the fence lines, romping through the backyard, twitching their tails, eating as much birdseed as they can stuff into their gluttonous buck-toothed mouths, and then skittering back up the trees that serve as the squirrel superhighway on and off ramps.

Squirrels are basically rats with tails, but they are industrious little buggers and fun to watch.  Hard-working and personally greedy, they are the prototypical capitalists of the animal kingdom.  When an opportunity presents itself, they are highly motivated to get their share and will do what they can to maximize their personal gain.

Now that I think of it, I’m surprised somebody hasn’t tried to tax them.

Fast Failure

Richard had a story recently about the unexpectedly rapid demise of a Jacksonville-based company called Body Central, which sold clothing to teenage girls and 20-somethings in the “fast fashion” industry segment.  After years of strong growth and expansion of its outlets into new malls, Body Central suddenly hit the wall and closed its doors.  Richard’s story is an interesting treatment of the arc of a company’s existence in modern America.

What happened?  Basically, capitalism.  Body Central, and other stores catering to the same market segment, kept expanding to new locations and storefronts and expected the demand for clothing from teenage girls and young women prowling the malls to continue to grow indefinitely.  But the tastes and buying habits of Body Central’s target audience changed.  They decided that going to malls wasn’t necessarily the bees’ knees and started looking for more clothing on-line.  In the meantime, Body Central had growth-related problems, like managing distribution centers.  Revenues shrank, efforts to redesign stores to reattract customers failed, and ultimately the enterprise crashed.

Capitalism has a long and proven track record for incentivizing production, creating wealth, and enhancing efficiencies — but it’s a messy process.  Businesses begin, occasionally thrive, and often fail.  Sometimes the failures are of mom-and-pop shops, but sometimes they are of companies that experienced some success but just couldn’t move to the next level, and sometimes the failures are of mega-corporations like Blockbuster that are killed by new technologies, changing consumer tastes and buying habits, and competitors who develop a better product or service.  It happens, but it doesn’t make the situation any more enjoyable for employees who are out of a job when the company hits the wall.

Goodbye, Body Central!  You’re just the latest in a long line — and you won’t be the last.

Off To Big D

This morning it’s off to Dallas for the National Championship Game.  For me, and for many others, it will be a circuitous journey.

IMG_4548Not surprisingly, flights from Columbus, Ohio to Dallas, Texas became a hot commodity as of about 1 a.m. on January 2, 2015.  By the time I secured a ticket to the National Championship Game to root on the Buckeyes, reservations for flights to Dallas prior to the game fell into two categories:  already sold out or outrageously overpriced.  As is their right in a capitalistic economy, airlines followed the law of supply and demand and jacked up their prices for flights.  As is our right, prudent members of Buckeye Nation explored their ability to secure other, more reasonably priced methods of getting to the game.

So, today I’m flying to Oklahoma City via Atlanta. Then I will rent a car and then drive about 200 miles south to Dallas.  This is similar to the fun trip Russell and I had to the Ohio State-Miami National Championship Game, when we flew to San Diego and then drove through the desert to Tempe, Arizona.  And I’m not alone in choosing an indirect route.  Others are flying to Houston and then taking to the highways, and still others are already on a 1,000-mile road trip to Dallas, hoping that they don’t get sidetracked by a winter storm.

The main thing is to get there and cheer on the Buckeyes.  If the journey becomes an adventure, so much the better.  Go Bucks!

When Entrepreneurialism Falters

A new study by the Brookings Institution suggests that there is a disturbing trend in the U.S. economy — one that involves less entrepreneurial spirit, less risk-taking, and the declining creation of new businesses.

The study looked at the rates of business creation and destruction in the U.S. from 1978 to 2011.  It shows a persistent national decline in the percentage of new businesses in the economy.  Moreover, during the 2008-2011 time period the percentage of failing businesses exceeded the number of new businesses being created for the first time.

These findings help to explain the poor employment statistics in America in recent years.  The number of people aren’t even trying to find work has grown to more than 92 million Americans, and job growth isn’t keeping pace with population growth.  A decline in entrepreneurialism would help to explain these very troubling trends.  New businesses not only create new jobs, the creation of new businesses often follows a recession, as some Americans who have lost their jobs look at their options and decide to go into business for themselves. They employ themselves, and in the process they employ others, too.  That apparently isn’t  happening as frequently now.  Why not?

The Brookings Institution study says the reasons for the decline in new business creation are “unknown.”  We can draw inferences about the causes, however, by looking at the common characteristics of entrepreneurs.  They tend to be dreamers and risk-takers.  They are willing to work hard and to put their own money into their new ventures.  They believe in themselves, in their products and services, and in their ability to succeed in our capitalist economy.  Scratch an entrepreneur, and you’ll likely find an optimist.

From this armchair analysis, I’d speculate that the decline in new business creation means that fewer people are optimistic about the future, or that fewer people have confidence in themselves and their ability to succeed on their own, or that more people are comfortable with their current circumstances and are more interested in holding on to what they’ve already got than in risking it on a new business that will involve hard work and potential failure — or a combination of those factors.  If any of these potential causes turns out to be the truth, it doesn’t paint an encouraging picture of our future.

Argentina Follows The Familiar Downward Spiral

George Santayana famously observed: “Those who cannot remember the past are condemned to repeat it.” We’re seeing that wisdom play out, again, in Argentina.

Argentina is an economic basket case. Under the government of its leader, Cristina Fernández de Kirchner, Argentina has spent lavishly on social programs and nationalized some industries. Argentina doesn’t have access to global credit markets since it defaulted on its debt obligations in 2001 and 2002. So the government is spending its dwindling reserves and seeking to devalue its currency — and in the meantime the Argentine peso is plummeting in value against the dollar and inflation is raging. The peso lost 19 percent of its value in January alone and inflation is somewhere above 25 percent.

Rather than learning the obvious lesson and ending the policies that are preventing free markets from operating, Argentina has gone in the opposite direction. The government blames supermarkets and oil companies for the inflation, and it placed caps on the prices of certain common goods sold at stores. Not surprisingly, those stores promptly began reporting shortages of the price-controlled items, because manufacturers and other suppliers obviously aren’t going to be pumping out goods that they can’t sell at a profit. Why would any business ship its goods to be sold in a price-controlled hyperinflation zone when it could just as easily send those goods to be sold in countries with rational economic policies? In Argentina, however, the government responded by fining the retailers and blaming their executives for raising prices.

We’ve seen this story again and again, in Latin America, in the Soviet Union, and in every other country that has adopted economic policies that interfere with the law of supply and demand and hinder the operation of free markets. Argentina will eventually experience a crash, as inflation spirals out of control and shortages become even more acute. But will it actually learn and take to heart the lesson it should have learned before?