Carl from Chicago

Business executive interested in history, economics, taxation and energy policy.

Divvy Bikes and Logistics

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Divvy bikes came to Chicago this year towards the end of the summer and they seem to be a big hit. We see people riding Divvy bikes all the time and they have a distinctive “flash” light on the front (like a strobe) that is visible from far away, even from our condominium high up over River North.

I often walk near the train station and I noticed the Divvy van loading up bikes when the obvious hit me; Divvy bikes came from all over the city and ended up near the train station. These vans were redistributing the bikes back to other stations so that the next days’ rush hour could repeat the process.

The stations seem to have a solar powered panel; they should connect each of the bikes to a sensor and then broadcast to a central station so that they can map out bike usage in regular intervals and use this information to improve their bike distribution algorithm. I assume that they can also make some stations larger than others; this way you could collect many bikes downtown and then redistribute them to stations that they came from (presumably on the north side) during the day. Here is an article I found about the Divvy “Rebalancers“.

Perhaps some day they could alter pricing in some sort of “congestion” model to charge people more who drop bikes off at popular stations and charge people less to ride those same bikes in the opposite direction to less popular stations. This could supplement the “rebalancers” with market forces. Grist for an MBA case study perhaps?

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Happy Holidays

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Happy Holidays from Chicago! And I want to give a special thanks for the writers of America 3.0, who are taking time out from their busy lives and mercantilistic duties in order to try to bring a positive set of recommendations for the future.

ZIRP Embodied

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ZIRP or “Zero Interest Rate Policy” has been in effect in the USA since late 2008. From that point forward, the effective interest received on money from CD’s, banks, and non-risk bearing debt is very low, especially when taxation is taken into consideration.

Recently I was standing at an ATM when I saw this receipt casually left on the ground. It showed over $300,000 left in a low or non interest bearing account. To me, this embodies how ZIRP has turned the world on its head.

When I was growing up, inflation was high and interest rates were high, too. I distinctly remember my grandfather having an argument with someone else when he said that interest rates would never go below 10% again (they were nearly 20% at the time). If you had any money, you had to put it to work to get the benefit of “compounding interest” which is basically interest earned on interest, which would make your assets grow quickly. In parallel, of course, inflation was making everything cost more, so you were probably treading water, but that is a different issue entirely.

In the age of ZIRP, there is no point instructing anyone about the advantages of compounding interest, because the effects are too small to be believed. In the portfolios I run for my nieces and nephews, they receive ZERO CENTS most months on the cash held in their account, and the cumulative year end totals are too small to receive an interest 1099 from the IRS. The SEC fee, which amounts to a few pennies per trade, actually is a larger cost, so I am just likely to ignore both elements.

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My Review of America 3.0

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First of all I want to thank Michael Lotus and James Bennett for taking the time and energy to write and promote America 3.0. It cannot be underestimated how much work this book took to research, write and publish and these 2 gentlemen (I really only know Mr. Lotus, but I am making assumptions on Mr. Bennett) are very busy individuals who have to earn a living for themselves and their families.

Throughout, they made a giant effort to make the book positive, upbeat and solutions-focused. This approach is radically different than the “conspiracy theory” or “single issue” approach that mars most books of this genre (although there really aren’t a lot of books that spring to mind when I think of likely comparisons). Even though the book would generally be classified as politically on the “right” by the general public, the authors go out of their way to not characterize their opponents as “bad people” and show the fundamental (positive) motivations that drive some of their actions, even if the results ended up being disastrous or misguided.

As a well-informed reader (by the standards of the world at large, if not always by the extremely high standards of Chicago Boyz, and often when I read Trent Telenko’s articles on military history I feel rather ignorant indeed) there were many areas of the book that were very new to me, increasing my interest in the topics that they raised. Given my focus on business, economics, energy, taxation, and military history, I really haven’t thought much at all about the role of the family and how it shaped America’s growth, but that topic was the seminal driver for the book. It felt very true and aligned with my experience, that the nuclear family and the ability of sons and daughters to marry off and “find their own way” contributed greatly to our successful outcomes. In the course of my business and travels I see the facts arrayed differently, and I can also see how individuals that I know from these countries have adjusted (and often embraced) this new, freedom-seeking and independent course of living.

The idea that we can reform our institutions and have the Federal government take over tasks that it logically should hold while devolving other roles to state and local government makes a lot of sense. They also discuss the “great haircut”, a single event to reform our finances across all the institutions simultaneously, as a logical approach, along with new barriers to ensure that it doesn’t re-occur.

I will think about the areas of my expertise and how they can be applied to concepts similar to America 3.0 in the future. There is a lot of de-centralization coming with energy and services and these can be aligned to the capabilities and responsibilities of our citizens, rather than being a top-down phenomenon in the process of disintegrating, which is the current trajectory.

Thanks again to the authors for an excellent book, and they are a credit to this site and what the founders have attempted to portray, which is a positive, forward look at the issues that we face and how we can solve them with political, economic and personal freedoms.

Cross posted at LITGM

The Minimum Wage Debate and Tax Incentives

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Originally when I started over at Chicago Boyz I used to write regularly about tax policy. I haven’t written as much lately on that topic because the news has been completely dispiriting… at every turn it seems that the Federal, State and Local governments have taken positions to make the system more complex, confusing, and dysfunctional.

The goal of a tax policy should be to:
1. Achieve the revenue goals that they set out to meet
2. Do so in a way that has causes the least amount of distortions to the economy

Recently the idea of “fixing” our tax policies and incentives, for me at least, is aligned with recent discussions on the idea of raising the minimum wage. The minimum wage is $7.25 / hour, although this varies with state and local laws as summarized here. A suburb in Seattle, near the Seattle-Tacoma airport (Sea-Tac), recently passed an ordinance to raise the minimum wage to $15 / hour. This ordinance is a bit more clever than most, since the airport is unlikely to close or take significant actions due to the immense capital costs and constraints associated with doing so, and has a strong public element (politicians can just try to pass the costs on to air travelers).

These same discussions come up in Chicago, as fast food workers also have had some (small) demonstrations to try to raise the minimum wage to $15 / hour. While their campaign has sputtered out, it will likely re-surface and be championed by our governor.

The obvious difficulty with raising the minimum wage is that employers are not sitting ducks. There are many low wage workers in River North, for instance, working in bars, restaurants, cleaning services, and in various security related occupations (virtually every building has a set of doormen). If you doubled the minimum wage, for instance, all of these businesses and institutions would immediately embark on a host of labor saving initiatives and automation efforts. I am not an expert in these sorts of automation experts but can imagine people being replaced by computers, call centers handling service, and moving to self-service for customers in other instances. It is highly unlikely that they would just attempt to pass on the price increases and keep the same level of staffing; that would be economic suicide, especially with their competitors scrambling to reduce their labor expenses. Efforts that could not be automated would rise in price, which would likewise discourage consumption, until an equilibrium was reached.

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