Business

New-Age Earmarks

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Yesterday, Joe Biden was holding forth on how the Obama administration will ensure that earmarks are kept out of the various economic-stimulus bills that the administration will be introducing.

It’s actually possible that he means what he says, as far as the traditional kind of earmark goes–that is, a provision for specific spending, in a specific geographical area, at the behest of a particular Congressman.

But in a broader sense, much of the economic policy of the incoming Obama administration seems to be centered around earmarks, albeit earmarks of a different kind. Instead of Congressional-district-based earmarks, we will have SIC-code-based earmarks (SIC code=standard industrial classification), providing benefits to particular industries, and reverse-bill-of-attainder earmarks, directed in favor of particular named companies or small groups of companies.

Traditional earmarks tended to politicize certain kinds of businesses, such as local construction companies. The new-age earmarks will tend to politicize all types of business, throughout the entire national economy. Your business success if you are an executive or business owner–your employment if you are a worker–your returns on investment if you are a shareholder or bondholder–will increasingly depend on the political rather than the business astuteness of company management.

Human Networks and Single Points of Failure

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Ronald Cass’s column about Bernard Madoff is insightful:

The sense of common heritage, of community, also makes it less seemly to ask hard questions. Pressing a fellow parishioner or club member for hard information is like demanding receipts from your aunt — it just doesn’t feel right. Hucksters know that, they play on it, and they count on our trust to make their confidence games work.
 
The level of affinity and of trust may be especially high among Jews. The Holocaust and generations of anti-Semitic laws and practices around the world made reliance on other Jews, and care for them, a survival instinct. As a result, Jews are often an easy target both for fund-raising appeals and fraud. But affinity plays a role in many groups, making members more trusting of appeals within the group.

“Affinity groups” (to use modern marketing-speak) may be particularly vulnerable to fraud because trust works both ways. Group members tend to be more trusting of other group members than of outsiders, and this caution toward outsiders protects the group. But it also means that group members tend to let down their guard against other group members. This is OK most of the time because the extra caution about outsiders keeps predators at bay, and business people who gain admittance to the group are more likely to be trustworthy than outsiders are. However, a sociopath who penetrates the group’s defenses may wreak havoc — the single-point-of-failure problem.

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Regulatory Overkill?

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The legislation to protect children from lead in toys and other products, however well-intentioned, is likely to cripple and even destroy hundreds of companies–especially small, home-based companies–whose products are perfectly safe. This from Evolving Excellence, who points out a number of practical problems with the legislation.

Problem #1: certification testing must be done by a lab on a “certified list”. This list isn’t exactly long, and their are hundreds of thousands of products. Guess what is happening to those labs: the waiting list for lab work extends out months and the cost per lab workup has gone from $200 to as much as $6000… per sample.

# Problem #2: testing must be done at the product level, not the component level. So a common component used in multiple types of products must be tested multiple times. What does this mean? Each SKU must be tested separately, even if they are virtually identical. One pair of jeans and a slightly different pair of jeans, both using the exact same raw denim, must be tested separately. See the video below, where a manufacturer of science kits has 40,000 SKU’s… and is looking at a $20 million dollar cost for initial certification testing. This is why many products, and companies, will simply cease to be sold.

These are only the first 2 of the 5 major problems that EE identifies with this legislation. Read the whole thing.

February 10, when this law take effect, is being referred to as national bankruptcy day.

Congresspeople talk endlessly about the need to “save good American manufacturing jobs”–but at the same time, they often pass legislation which is extremely damaging to the manufacturing sector, without bothering to take the trouble to understand what they are actually doing. And when it comes to small manufacturing companies whose employees do not represent substantial voting constituencies and whose managements do not represent a substantial source of campaign funds–there are many in Congress who do not really even care what happens to them.

Here’s an example of a toy which will no longer be available in the U.S. as a consequence of the new regulations. (via Glenn)

An Interview Entrepreneur

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I was walking near work recently when I saw this guy with a sandwich board (it was a few weeks ago because he isn’t dressed like an Eskimo) and a sign reading “I will buy an interview” and his own web site www.buyaninterview.com. At the web site you can see that it is the same person in the photos – his name is Javier Pujals. From a review of his resume he has a varied business background, acting as a project manager, business analyst, and having set up his own firm at one point. He also says he has five kids, which probably accounts for his zeal and ability to face ridicule by standing on the street corner like this.

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