Smart Toilets and How They Could Save Your Life

I have been thinking recently about an invention that could greatly improve information in the healthcare industry. In recent years, there have been toilets invented that can check blood pressure, BMI, urine analysis, stool analysis, and much more. TOTO makes a toliet called the "smart toilet". If a toilet was able to analyze all of this can send the results to our doctor or allow people to save the data everyone would have more information. Urine analysis alone can be used to diagnose high blood pressure, diabetes, kidney stones, kidney failure, urinary infections, and liver disease. Stool analysis can help find diseases of the liver and pancreas. In addition to this, it can screen for colon cancer. If the toilet could measure weight (most likely by the force pressed down on the seat) it could provide people with very valuable information. People are literally flushing down valuable information that could be used for preventive care and perhaps save thousands of lives per year. The toilets are currently in Japan but have not debuted in the United States. One problem could be the cost of the toilet. The cost ranges from $4,100-$5,850. Although, this sounds like a lot one group that could benefit from the toilets are hospitals that use the same room over and over again. The toilet could monitor patients without as required care since more tests would be done through the toilet. Competition and technology will ensure over time the prices will go down and the technology will get better. Once prices come down to levels that consumers can afford I believe there will be a better revolution when it comes to diagnosing and preventive care. Usually people don’t go to the doctor they feel or think something is wrong. Information can give people the power to make choices. This is especially important when it comes to healthcare. Not only could people get their results from their home but they would have to avoid going to the doctor and free up the doctor’s time to see patients with more important illnesses.

One problem however is how much people will reveal. Insurance companies could I suppose ask to have some of the information sent to them in order to figure out how much to charge in premiums to customers. Also it may take time before the stool and urine analysis for a toilet become as accurate as those found in a medical lab. Although, I think these are minor issues that I think will be solved in time. Just remember next time you flush what important health information could be going down the toilet too.

Driverless Cars: More GDP, Less Deaths, More Leisure?

One thing I have been thinking about lately is driverless cars. True, it does sound like something out of the future but I don’t think these cars are too far away. Google a couple of months ago made news with its driverless car. The car drove 1,000 miles without any human intervention and 140,000 miles with occasional human intervention. The technology will continue to improve and allow cars to go even more miles without humans. Driverless cars do pose some interesting questions though.

In 2005, the U.S. Census Bureau American Community Survey estimated that Americans spent more than 100 hours a year commuting to work. If people instead of driving could be doing something work related or thinking without having to worry about driving they could be more productive. If millions of people are able to do this then it could easily add a couple of billion dollars to GDP since people could become more efficient. If cars were able to drive themselves and people had a long commute and the car was able to take people to their destination people could sleep an extra hour or so and not have to worry about driving. This brings me to my next point. Driverless cars would also reduce the number of cars theoretically to zero. Around 40,000 people are killed each year in car accidents and in 2005 there were nearly 6.4 million auto accidents per year. The economic cost to America in 2000 was around $230 billion. People could go out as late as they wanted to party since they would have a designated car for them. Another point about driverless cars is that people would no longer need insurance which would be like a tax cut for everyone. Cars could also become more fuel efficient if they were able to drive themselves because the cars could figure out from traffic congestion who was driving and what paths to take. Sometimes drivers drive at speeds that are fuel inefficient if cars drive at a speed that optimizes fuel efficiency this could be beneficial as well.

While these are all positives I am somewhat skeptical of how long this will take. Driverless could be here in 10 years, 20 years, or even 30 years. Technology will continue to improve and get cheaper. The first cars might be $80,000 and only the rich will be able to afford them. Highways might have to set up sensors or signals to help cars get around and this could have problems and cost a lot of money. Although, they can claim it really is the information superhighway. Plus, people who really enjoy driving cars (Jay Leno) will not like this. I also think people won’t trust a computer driving them from place to place. However, this is odd when most planes run on auto-pilot. The first cars won’t be perfect and might lead to some accidents but they will improve over time. Police officers wouldn’t have to arrest people for under the influence, give people tickets for not obeying the law, or have to pull people over. This would free up a lot of police resources. Let’s review. Driverless cars have the potential to save thousands of lives, prevent millions from getting in accidents, increase GDP and increase leisure/sleep time, increase fuel efficiency, decrease traffic congestion, get rid of car insurance, and most likely decrease crime. Although this is assuming the driverless cars are actually safe and courts rule that they are legal to operate. Only time will tell what the future holds.

Walter Williams: An Autobiography

The autobiography of Walter Williams just came out (December 1, 2010). I can't wait to read it although the Hoover Press claimed I would have to wait 10 painfully long business days before I could get my hands on it. This book should be a great gift for any capitalist on your Christmas list! Hopefully Dr. Williams will live to be 100 so there can be many more editions.

Sowell: A National Treasure

From Kudlow November 10, 2010

Cut Baby Cut!

The Republicans have recently taken over the House of Representatives and gained seats in Congress. One thing I keep hearing Republicans say is that they will cut spending. However, few politicians actually have the courage to do this since their constituents want politicians to “bring home the bacon”. While Republicans the Bush years show otherwise. Here are the largest expenditures:

Social Security $678 billion
Medicare- $453 billion
Interest on debt- $164 billion
National defense- $663.7 billion

Clearly, we need to trim back what we are spending since the spending can’t continue. The interest on the debt is also very low. Increases in the interest rate will only make matters worse. Also why not get rid of some departments of government altogether: Department of Housing and Urban Development ($47.5 billion), Department of Education ($46.7 billion) Department of Agriculture ($26 billion), Department of Labor ($13.3 billion). In 2005, the United States spent more than $477 billion to fight poverty this despite around at the time 12% of the American population was in poverty. Also spending might have a positive effect on the GDP in the long term if people that work for the government actually have to find jobs in the private sector.

News Vaults and an Economic Puzzle

With so many hours of TV stored in news vaults why are stations like ABC, NBC, and CBS holding all this content and not selling it to the public? ABC and NBC license footage to organizations. These organizations have to pay some type of fee or royalty to use the footage. However, if all this footage was released to the public and sold on iTunes couldn’t these companies be making lots of money? Economics would tell us that there is some reason why these companies are not doing this or else they would already be doing it. C-SPAN recently put its archived footage since 1987 online for free. C-SPAN has over 116,000 hours of footage and shows like The John Stewart Show and the Colbert Report use it for research (mainly to do jokes). The cost to C-SPAN to digitize everything was around $1 million per year. C-SPAN does recover part of the money by selling the same content on DVD’s for around Vanderbilt University has a Television News Archive that goes back to 1968 and allows people to make a video request loan for footage at a cost of $12 per every half hour of TV. Also, a lot of video is already free online. For instance, YouTube has a lot of older content that really covers important or breaking news.

In time I believe the cost to digitize older footage will decrease and with the growing space that hard drives allow for I think one day we could see news footage for sale to the public. It would be interesting to one day have a TIVO device and just search for anything ever on TV like the 1996 World Series or a Presidential Election.

Government Spending

Blue line represents spending at the spending rates under Bush. Black line is actual spending and Cross over line is when Obama came into office. (H/T Steve Landsburg)

Don Boudreaux on Law and Legislation

Talk given October 4, 2010 by Donald Boudreaux

FFF October 2010 from The Future of Freedom Foundation on Vimeo.

Interception of the Worst Kind

John Elway and a "business partner" invested $15 million with a hedge fund manager named Sean Mueller who is now charged with running a Ponzi scheme. John Elway's net worth is around $45 million (according to celebritynetworth.com, although don't know how accurate these numbers are). You would think Elway would be a little smarter with his money considering he has an economics degree from Stanford. I wonder why professional athletes don't take their money seriously when they know their careers statistically are usually less than a decade. Of course there are few exceptions like Michael Jordan, Tiger Woods (before his divorce), and Magic Johnson. Hopefully, Elway learns from this mistake and will be more careful with his investing in the future. Mistakes are the best tool for learning.

Chile and Capitalism

I am glad to see all the miners in Chile are safe after spending 69 days below the depths of the earth. However, I am glad to see capitalism was at work. Companies and people trying to make money benefit society and don't take something away. The economy is not a zero-sum game but an economic pie that can grow or shrink. Companies in the United States are not only trying to get rich but millions of others around the world are also trying to get rich. Below is a list of how the Chilean miners were saved.

Drill rig- Schramm Inc. (US)

Cable-(Germany)

Fiber optic cable- (Japan)

Communication- Samsung (South Korea)

Self-sterilizing socks- Cupron Inc. (U.S.)

Allowing companies around the world to perform their core competency makes everyone better off and in the case of the miners saved their lives. Maybe 10 or 15 years ago the miners might not have been able to have been saved (since the technology or drill may not have existed). Greed is good and can even save lives.

Bryan Caplan and Case Against Education

I saw a post on Econlib by Bryan Caplan about the case against education. I found this talk given at a FEE meeting June 23, 2010. Caplan makes great arguments about why perhaps we might be overeducated. I agree with him on this point. No one should be forced to school if they don't want to.

http://fee.org/media/the-case-against-education/

Trial Lawyers and Unintended Consequences

Recently, I have been thinking about trial lawyers and economic value. Most people I believe don’t like lawyers. Although, if people don’t like shouldn’t they really hate law professors since they breed future lawyers? The major thing I have been thinking about is if trial lawyers really have any economic value. My own belief is that yes they do some function. Companies and people do cheat people. Companies deserve to pay for their mistakes I think the big question is how much and is the plaintiff at any fault. What is really interesting is that judges and jurors usually determine the verdict. However, judges are elected and can be republican or democratic. Judges to be shouldn’t have political affiliation since they are suppose to rule based off the law and facts. Trial lawyers can greatly influence the decision of the jury with anecdotes, stories, and pictures to convey the hurt and loss of their party. Trial lawyers are just doing their jobs. However, isn’t it a little bizarre that a jury can make a decision to award $x million to one party and they don’t suffer any consequences if they make the wrong decision?

The marketplace usually rewards people for innovation, entrepreneurism, and ideas. The court system seems to be more of a redistribution of wealth. What if a judge told a jury, “If your verdict turns out to be incorrect you will owe one year of your salary to the state”? Juries might spend more time thinking about their decision if they had something at stake. Currently, members of a jury really have no skin in the game which can lead them to suboptimal decisions than if they had to make decisions with something at stake. Trial lawyers have something at stake. Trial lawyers want to win to boost their egos, win the verdict, and convince themselves that they are doing something beneficial for society. Speaking of money some trial lawyers make lots of money. We can’t label them as greedy since they are helping the average harmed person. John Edwards is worth around $55 million. He made a lot of money claiming that women having a Caesarean delivery were more likely to give birth to infants with problems. However, time showed that in fact having a Caesarean delivery did not increase problems with infants but there was some other factor causing the birth defects. John Edwards got to keep his money though. I am no legal expert but it would only seem fair for him to pay back the money he won.

A few trial lawyers have become billionaires. In 1984, Pennzoil was trying to buy Getty Oil. Pennzoil made an offer and Getty Oil made a binding agreement to accept. However, Texaco came in and tried to bid for Getty. Joe Jamail defended Pennzoil and won a $10.5 billion verdict. The firm got around 1/3 of this ($3 billion roughly) and Jamail’s take was around $335 million. If you consider Jamail never took the LSAT, failed torts in law school, and barely passed the bar exam (he had to get a 75 and got a 76). In Forbes 400 list Jamail is worth $1.5 billion. I would argue that no one was really harmed with Texaco making a bid for Getty Oil. I agree that contracts have a role and Texaco can’t bid when two parties already have an agreement. However, I don’t think it’s worth $10.5 billion plus all the time and resources Pennzoil and Texaco had to spend preparing and endure during the trial.

Another lawyer that has made a name for himself is Mark Lanier. A graduate of Texas Tech law school Lanier won a verdict for $118 million for asbestos, $253 million for the Vioxx case, and $56 million against Caterpillar for a driver that was crippled. Clearly, Lanier is good at what he does. Lanier has extraordinary presentation skills and use to preach at his church while still in high school. For Lanier’s first case he called up already famous lawyer John O’Quinn who told taught him the O’Quinn system. The O’Quinn system was working over 100 hours per week (taking Saturday’s off). For the Vioxx case Lanier made a 253 PowerPoint slide. Lanier hosts an annual Christmas party that is as big as Texas. Usually Lanier and his wife host the party at their 24,000 sq foot estate in Houston with around 8,000 of their closest “friends”, with carnival rides, climbing walls, large moonwalks. Not only do they have games and enough food to go around but he has entertainment like Miley Cyrus, Dolly Parton, and Barry Manilow. The Lanier’s have been putting on this party since 1993 and it usually runs over a half million dollars per year. Clearly, Lanier is very good at what he does but also through litigation has raised the cost for the rest of consumers. Companies don’t want to go to court and have to pay out money. For this very reason companies have to have corporate counsels just in case of a lawsuit. Also companies usually buy insurance to limit their liability. This is money that could otherwise be spent on production, capital projects, or increasing efficiency.

No doubt that it can pay to be a trial lawyer. I also don’t doubt that these lawyers are extremely hard working and motivated. Although, I would agree that trial lawyers serve some purpose I think they are often overused. I am all for people, companies, and individuals paying for their mistakes but we can’t think that this doesn’t have a cost. Economics shows us that there are always unintended consequences even when it comes to trial lawyers.

Epstein Strikes Again

A recent podcast (August 30,2010) from the brilliant Richard Epstein. Epstein talks mainly about regulation mainly the FDA and what changes have taken place in the last few decades.

Link:
http://www.econtalk.org/archives/2010/09/richard_epstein_1.html

Hollywood and Capitalism

So I often have wondered if people in Hollywood need to create television shows, movies, and other media and all these things take capital why is Hollywood on average so liberal? I had some theories as to why this was true. One reason I thought people in Hollywood weren’t so capitalistic is because they have to playing a signaling game. If you are in Hollywood and you show (signal) that you only are concerned about money other artists will not take you seriously. When people in Hollywood donate money, participate in fundraisers, give their time, they are signaling that they care about something perhaps because they actually care about that cause or because they want people to perceive they care.

Little did I know Larry Ribstein of the University of Illinois had already written a paper on this very subject. In his paper “Wall Street and Vine: Hollywood’s View of Business”. Professor Ribstein makes some good arguments for why people in Hollywood are probably not as capitalist as they should be. The goal of an artist is different than the goal for a capitalist. A capitalist is trying to maximize wealth while an artist is trying to show the quality of their work which has little if no relation to creating value. The interesting though is that artists need capitalists but capitalists don’t need artists. The capitalist usually has other alternative investments but the artists can usually only get financed by the capitalist. Usually investing in the production of a movie is not wise since very few movies actually make money. Only about 5% of movies make a net profit. This means when we take revenue- costs 95% of the movies we see are in the red. Economics would tell us that clearly this could not be sustained for a very long period of time.

In recent time The Hollywood Stock Exchange has got attention. This is an exchange where people can bet on whether or not movies will make or break their office receipts. The exchange can also predict who will win the Oscar (although I think Intrade is better). The exchange makes Hollywood more honest because it communicates information about the reality of the situation. Imagine if actors and actresses had Hollywood Exchange options along with getting paid for movies. They would have incentives to make sure people saw their movie. Similar to how employees are given stock options for people in Hollywood would allow actors, actresses, and directors to see how markets actually work instead of demonizing them. Are there any movies that portray businessmen in positive ways? Usually if there are any that show businessmen in the positive light they show that it is nobler to be charitable then to create more wealth (A Christmas Carol). The banker Mr. Potter in “It’s a Wonderful Life” is portrayed as a similar Scrooge. In theory Mr. Potter should have never gone to jail. Since Uncle Billy threw a newspaper and $8,000 into Mr. Potter’s lap this is considered mislaid property. Mislaid property is intentionally deposited property but the owner doesn’t remember where they placed it. Technically mislaid property is owned by wherever the property was placed if the owner doesn’t come back within a reasonable time to claim it. Since the property was placed in Mr. Potter’s lap at the bank (and Mr. Potter owns the bank) then it is in theory Mr. Pottery’s property. Also how do we know Uncle Billy wasn’t trying to gift Mr. Potter $8,000?

At any rate, the point is that Hollywood almost always portrays capitalists, businessmen, and corporations in a negative sense. One of my favorite quotes in the paper is from former director Sydney Pollack who said “economics is the most inhibiting factor for a mainstream director making a film”. Maybe one day Hollywood and capitalism will be meant for each other.

Link to paper:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=563181

Estate Tax and Impact On Economy

In a recent paper written it estimated that the estate tax could have consequences for the economy as a whole. The paper written by Dr. Doug Holtz- Eakin shows that the keeping the estate tax will cost jobs. Some of the major findings show that if the estate tax were to come back in 2011 (no estate tax for 2010 so far) a modest rate of only 2% would cost 24,000 jobs. A rate of 45% would be a loss of around 1.1 million jobs. It is important to consider that these are only estimations and use models to predict behavior. I would agree that bringing back the estate tax will decrease future economic growth. Consider this: If you are rich you only have a few things to do with your money. The first would be to spend it. A survey from Moody’s Analytics found that the top 5% of income earners were responsible for 37% of consumer outlays (consumer spending, interest payments, and transfer payments). From 2007-2009 the top estate tax rate was 45%. Clearly, it is cheaper to spend that money then have to pay taxes on it. Although, one could argue heirs would rather get 45% of something rather than 100% of nothing. The second option is to give the money away. Giving money away has a tax rate of 0%. Lastly, rich people can invest and or save their money. I think the common idea of rich people is to imagine Scrooge McDuck (yes, the one from Duck Tales). Scrooge McDuck likes to jump in his pile of coins, counts his coins, and generally doesn’t like paying for anything. People seem to think that the rich just sit around count their money, have luxurious, and led extravagant lifestyles. However, in order to stay rich, the rich have to continue earning money. Remember money is a finite resource. MC Hammer once had $30 million. So how do people earn money? People have to invest in people, resources, and equipment. By their nature rich people don’t usually sit around and waste their time (unless they inherit their fortune). The vast majority of rich people made the money on their own and did not inherit it. So when there is an estate tax the government confiscates that money that could have been used more wisely. Someone should ask “What has government done for me lately?”

The New Millionaire Jobs

The Los Angeles controller this week released a report showing that out of the $111 million of stimulus money only 55 jobs were created. This is a little over $2 million per job created. What this demonstrates is how little of a multiplier government spending is. Keynesian economics are concerned about aggregate demand to create jobs. One problem I have with this is the way they create jobs. For instance, if we wanted to build a road and create the most jobs we could have people building the road using outdated technology. Instead of using modern equipment to get dirt out of the ground workers could use spoons. This would easily decrease unemployment but it would be clear that productivity would be very low. Keynesians feel that if the private sector can't create jobs we should just throw money at the problem and try to create jobs. However, what they don't realize are all the jobs lost because we took $111 million from taxpayers and are subsidizing public works projects. Could you imagine what entrepreneurs or even consumers could do with $111 million? Although, $111 million seems like a lot of money it is just a drop in the bucket when we compare it to the $800 million in total stimulus. My point is that I suspect that there will be more stories like this, with few jobs created and government trying to throw good money after bad. This one quote sums it up perfectly

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."- F.A. Hayek

Bryan Caplan on Immigration

FFF Economic Liberty Lecture Series: Bryan Caplan from The Future of Freedom Foundation on Vimeo.

Slogan Excellence

Unemployment Benefits: Just Say No

In today’s Wall-Street Journal Professor Robert Barro of Harvard University makes a strong case that extending unemployment benefits from 26-99 weeks has impaired the economy and has halted the “summer recovery”. However, some like former labor secretary Robert Reich have argued that we need to continue the unemployment benefits and perhaps increase them. As pointed out in Barro’s article typically unemployment benefits have been extended from roughly 26 weeks to 39 weeks (an increase of 50%). An increase from 26 weeks to roughly 2 years is a 280% increase! An increase like this harbors a socialistic and European like welfare system. Unemployment benefits serve as an incentive for people not to work. Unemployment benefits do give people to become couch potatoes and lazy. Critics argue that unemployment benefits are needed to insure people can sustain living conditions while looking for unemployment. However, what these critics don’t realize is that when give people subsidies you also subsidize their expectations. In 1935, as part of the Social Security Act the government encouraged states to adopt unemployment benefits. The purpose was to provide people financial assistance in times of unemployment. Although, this program had the best of intentions the program has created perverse incentives. In Texas, the maximum benefit per year someone can make between $3,068 and $21,112. Assuming someone stayed on for all 99 weeks they could have between $5,841 and $40,194! This amount is just for one individual. Let’s say there is a married couple and someone is making $60,000 while the other is on employment benefits. This couple could potentially be making over six-figures even though one is on unemployment benefits. Why isn’t there means testing for unemployment benefits? A couple both on unemployment benefits could be making close to $80,000 per year without any work. It should be pointed out that the unemployment income is seen as taxable income. Last year however, as part of the American Recovery & Reinvestment (aka Bailout/Stimulus) the first $2,400 of unemployment income received in 2009 was not taxed.

With incentives for people not to work some say we are moving closer a European like welfare nation. For example in France, the government guaranteed 5 weeks per year in vacation. In the United States, usually after someone has worked at a company for many decades they may get a month of vacation. In France, they also have 35 hour workweeks and overtime is not allowed. Instead of getting paid more in France for additional work people get rewarded with even more vacation. A 35 hour workweek translates in 22 fewer working days per year. In total, the French get an average of 60 days off per year. According to the OECD, in 2004, the average French 1346 hours per year, while Americans worked 1777 hours per year. South Korea led the way working 2390 hours per year. I would venture to say that America has the highest if not one of the highest ratios of GDP/average working hours. All this says is that American are much more productive and efficient with our resources. Extending unemployment benefits will only decrease the number of hours worked by the average American and also decrease long term GDP growth. Clearly, folks in Washington D.C. must be aware of this and put America back on track to prosperity and stop this socialistic utter nonsense.

Barro Article:
http://online.wsj.com/article/SB10001424052748703959704575454431457720188.html#mod=most_viewed_opinion24

Information on Texas Unemployment Benefits:
http://www.twc.state.tx.us/ui/bnfts/claimant1.html#qualify

The Case for Spending Less on Education

From the CATO Institute...

Cindy Crawford: Opportunity Costs

When economists talk about opportunity costs usually people have some idea of what they are talking about, but not always. One good case I thought of to demonstrate opportunity costs is Cindy Crawford. Cindy was graduated as valedictorian of her high school class in 1984 and was awarded a scholarship to Northwestern University to study chemical engineering, but dropped out after one semester in order to model. According to Forbes in 1995 Cindy Crawford made $6.5 million (highest paid supermodel). Clearly, it was better that Cindy Crawford was a model than become a chemical engineer. Being a chemical engineer might have lead to good money, but Cindy’s comparative advantage was modeling. Economics studies how people can take their comparative advantages and use those advantages. Let's assume Cindy was better than most at chemical engineering, but let’s also assume she was much better at super modeling. Cindy should become a supermodel because that is her core competency and since she is better at this than chemical engineering it would make sense for her to become a supermodel rather than become a chemical engineer.

Sowell (September 15, 1995)

Thomas Sowell on C-Span on September 15, 1995

Stossel Special Part I

A John Stossel special from 20/20 aired September 9, 1996


Are We Scaring Ourselves to Death (1of3)
Uploaded by InTheClassroom. - News videos hot off the press.

Stossel Special Part II

Are We Scaring Ourselves to Death (2of3)
Uploaded by InTheClassroom. - News videos from around the world.

Stossel Special Part III

Are We Scaring Ourselves to Death (3of3)
Uploaded by InTheClassroom. - News videos from around the world.

Insider What?

The Wyly brothers have been recently charged by the SEC with insider trading. The SEC claims that Sam and Charles Wyly tried to stash away $550 million by using clever and complex offshore accounts while using insider trading. The brothers were on various boards (Michael’s, Sterling Software, Computer Associates, & Sterling Commerce) which let them trade using non-public information. This most likely case similar to Michael Milken back in the 1980’s when he worked at Drexel Burnham. From the SEC’s standpoint they want the brothers to admit they committed wrongdoing and to pay hefty fines and penalties. However did the Wyly brothers really commit a crime? I have a feeling that the brothers will make some large payout and most likely avoid any hard time. When you have a billion dollars you can hire superb law firms to be at your beckon call 24/7.

Legislation from insider trading came from the Securities Act of 1933. The basic idea was that corporate insiders had more knowledge than the average person and it was unfair that the corporate insiders were making lots of money off their “insider knowledge” of the company. What strikes me is how few insider trading cases there actually are. The SEC usually goes after the big money in hopes to undercover a great scandal that can not only make the organization look better but also help their funding (think fines and penalties). There really is no fundamental reason why insider trading should be illegal. The premise that the “corporate insider” makes oodles of money.

Michael Milken paid out $1.1 billion in lawsuits when he was convicted of insider trading (around $200 million in fines alone). I am quite sure the SEC could find some great new programs to finance with this money. Even though Michael Milken is a criminal in the eyes of the SEC what about all the companies that were able to be started or able to avoid bankruptcy because of his genius?

Now back to the Wyly brothers. The SEC believes that the Wyly brothers have done something wrong through their overzealous regulatory eyes. Insider trading makes the market less transparent and less efficient. Since people who really know the truth (insiders) are unable to convey what they know by buying and selling, the market has less information for other investors to use. If someone knew that the earnings of a company were not going to be good they could short the stock sending the market a signal of the truth. By waiting until the actual earnings come out there would be more surprises. Allowing insider trading would also decrease corporate fraud because people within the company could sell their options to signal that they did not have faith in the company. If there really was a scandal the market would be made aware and the SEC could take action much faster since they wouldn't have to spend years and resources trying making a case since the market would do it for them. The average person could also benefit because if they had valuable information they could sell it to some hedge fund or institutional investor. Companies could still voluntarily have rules against employees selling information, but the more information the market has the better. Insider trading already exists in other realms. For instance, if a geologist is offering to buy a house under Farmer Ted’s land and if the geologist knows there oil under the land the geologist does not have to disclose this. Only if the geologist was working for Farmer Ted would he have to disclose this information. Clearly, there is a situation of asymmetric information where one party knows more than the other but this is considered a clean and honest business transaction.

Sam Wyly started and created businesses from nothing and built them up reselling them for even more. His first business UCC started with only $1,000 and in eight years had $125 million in sales. He also cofounded Sterling Software and sold it for $4 billion. These businesses not only made him wealthly, but they also gave people jobs, wages, healthcare, and made other people better off as a result. Although the SEC may believe the Wyly brothers are bad and "greedy" men, I would contend that they have done wonders for the economy and have improved the lives of hundreds of thousands if not more. While the SEC may disagree with this we must remember the words of Milton Friedman who said ,“You want more insider trading, not less”.

IRS, Mail, & USPS

Interesting the IRS the organization that can’t even seem to follow its own rules is now not even able to deliver notices to taxpayers. According to the Treasury Inspector General for Tax Administration “The IRS sends out approximately 200 million notices and letters each year to individual and business taxpayers and their representatives at a cost of $141 million. In 2009, approximately 19.3 million of those mailings were returned to the IRS at an estimated cost of $57.9 million”. In a sample of 331 notices 37% were deliveried to an address that didn't exisit, 35% were the wrong address , 24% were delievered to an address where the taxpayer wasn't home (certified or registered mail). 72% of e the sample noticed didn't even go to were they were suppose to go.

The United States Post Office is within the same city as the I.R.S. Yet what is even more interesting is that the USPS lost $3.79 billion in 2009. Let’s be reminded that the USPS does not pay taxes like ordinary businesses do! This story illustrates how comic if not tragic on how inefficient government programs are.

Link to report: http://www.treas.gov/tigta/auditreports/2010reports/201040055fr.pdf

Goodbye Hollywood

Well is looks like Hollywood futures will not be premiering anytime soon. The House of Representatives and Senate banned movie box office trading. Clearly, Congress and Hollywood don’t really like the futures/prediction markets. These markets usually try to accurately predict the future based on how people are betting.We already have this with Intrade which predicts the winners for American Idol and political candidates. Basically, the way this market would work is that people could bet on whether or not a movie would make a certain amount of money. Despite what Congress and Hollywood it would be good to allow people to put their money where their mouth is and bet on their convictions. For instance, people who don’t know anything about horseracing stay away from the track. The same thing would happen with the Hollywood futures market. People who only knew the most would bet and others would stay away. We already a predictions market for political candidates, the stock market, and the price of commodities why not extend this to Hollywood. However, what if we were already able to predict the winners and losers of the box-office?

Researchers at the Hewlett-Packard's Social Computing Lab published a paper that Twitters in essence can predict box office returns. Based on 3 million “tweets” researchers were able to figure out whether people liked or didn’t like a movie based on what people tweeted. In fact, the tweets were able to perform better than the Hollywood Stock Exchange (HSX). If we had enough “tweets” we could predict many more things. For instance, couldn’t we predict where people would be likely to go, what their eating, and how they like to spend their time? This looks like a marketing goldmine to me. Although, I think it would be hard if not impossible for the House of Representatives or The Senate to ban Twitter.

Link to paper: http://www.hpl.hp.com/research/scl/papers/socialmedia/socialmedia.pdf

Financial Regulation and Unintended Consequences

Yesterday, the Dodd-Frank bill was passed in the Senate with a vote of 60-39. The bill is 2,319 pages long and doesn’t fix anything. I would be willing to bet that no Senator or the President has read every word of the bill. Why not have a bill that requires people in congress to read a bill and have a little quiz before they vote on it? If someone in the Senate of Congress can’t understand 70% of a bill why in the world should they be voting on it? The bill will no doubt have unintended consequences. Also there will be no doubt that when we have another “Great Repression” as Niall Ferguson has labeled it that politicians will be blaming: greed, greed, and greed for the cause of the financial crisis. The “greed” argument is weak because if greed was the cause in the most recent crisis why haven’t we had more recessions? I concede that banks and financial institutions made bad business decisions, but that’s part of the profit/loss system. The government continues to bail out not only banks but companies (Lockheed Martin, Chrysler, GM). Bailouts create future moral hazard and will lead risk takers to take even more risk. Why don’t we get Freddie and Fannie Mac out of the mortgage business? I don’t understand why “affordable housing” should be set as a national priority. Now politicians Washington D.C. (a.k.a. Jupiter) are trying to dream up a fix when what they really need is less regulation and not more.
Although no one in the world understands the bill completely let’s work with what we do know. The first part is the “Too Big To Fail”. Regulators would be able to break up trouble companies if the regulators felt the troubled firms posed a threat to the economy. Couldn’t regulators then break up BP if they felt it posed too big of a threat? Another part of the legislation regulates derivatives and requires hedge funds to register with the SEC. This is another idiotic move considering that many companies other than financial institutions use derivatives. In theory, insurance is a derivative because the premium is derived off the risk of the person who is getting the insurance. Stock options are also derivatives because they are based off the price of the underlying stock. Companies like Southwest hedge the price of fuel with futures or derivates contracts. Regulation will increase the cost of derivatives which will be passed on to consumers. The most damaging piece of part of the bill is that the bill establishes the Bureau of Consumer Finance Protection. The agency will establish rules for consumer finance and enforce regulations that cover mortgages, credit cards, and other financial products. Was the Senate aware that we already have the SEC, FTC, and contract law that already addresses this? Clearly, the Senate has not thought about all the unintended consequences that this will bring. As I write this (day after the regulation has passed the market is down -1.5% and the VIX (fear indicator) is up a whopping 10%. It looks like the law of unintended consequences is already at work. I am thinking of a new relationship between regulation and consumer knowledge. I see regulation and consumer knowledge inversely related since people “believe” that regulation will protect them. As regulation increases people will know less and have less incentive to know more. People today have more information than any other generation in history. Therefore there is no excuse to not know. My philosophy is when markets fail use even more markets.

TCU Admission Rates & Freshman Enrollment

The chart shows TCU acceptance rate and freshman since 1979. As the chart shows the acceptance rate has decreased from around the 90% range to currently a little below 60%. Freshman enrollment hasn't really seem to grow that much over a 30 year period. I attribute this to TCU wanting to keep smaller class size and since it is a private university it really doesn't need to worry about funding as much as public schools do. Hopefully TCU can keep decreasing the acceptance rate to be in competition with SMU, Rice, Baylor, and other schools within Texas.

Source: TCU Fact Book

Paul Krugman on Colbert

Either Paul Krugman is schizophrenic or he needs to give back his Nobel Prize in Economics...

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
Unemployment Benefits - Paul Krugman
http://www.colbertnation.com/
Colbert Report Full Episodes Political Humor Fox News

Walter E Williams:The Entrepreneur As American Hero

Speech at Hillsdale College: March 2005

Oil Pollution Act of 1990 & BP Part Deux

The Deepwater Horizon oil spill is still ongoing in the Gulf of Mexico as I write this. What is interesting though is how analysts, journalists, and other people are trying to predict the liability that BP will face. Too many variables are unknown in order to determine how much the true liability will be. Clearly, I think everyone agrees that BP deserves to pay some time of fine. The million or perhaps billion dollar question is how much? The Oil Pollution Act of 1990 was passed after the Exxon Valdez went aground. The legislation prohibited any vessel that had caused a spill of more than 1 million gallons of oil operating in the Prince William Sound. Obviously, this should have been renamed the Exxon Valdez Act of 1990 since the Valdez was the only ship to cause a spill. From March of 1989-2002 the legislation only prevented 18 ships from entering the Prince William Sound. However, what we don’t know is the unintended consequences such as higher costs and logistical problems in terms of oil companies not being able to enter.

Congressional committees are under way to figure out what caused the BP spill and who was at fault. As I have said before, I don’t believe it was solely BP’s fault but most likely a collection of BP, Transocean, and Halliburton. Since The Oil Pollution Act of 1990 limited liability to $75 million it seems as if BP lawyers will use this precedent as a rule. Another lingering question is whether or BP will even be in business. If BP were to file bankruptcy then everyone including the government would be creditors and have to wait in line until the company went through bankruptcy court. Although, I think the probability of BP going bankrupt is l know the probability isn’t 0% since the probability of any company (even Fortune 100 companies have gone bankrupt!) is never 0%. Some people in Congress want to make the Oil Pollution Act of 1990 retroactive before the spill and make the limit $10 billion. What also may be taken into account is that BP will have compensatory and punitive damages that they will face. Not to mention to date BP has spent over more than $1 billion voluntarily to clean up the spill. Will this be credited against liabilities? I am no lawyer but it doesn’t seem to make sense to be able to change laws in order to punish one party. What about the idea that precedent cases are part of the judicial system which makes the law predictable?

Freedom At A Bookstore Near You

This week I was a little shocked, surprised, and stunned that F.A. Hayek’s Road to Serfdom reached #1 on Amazon under the books section. For libertarians/very conservatives/capitalists this is a victory that should be seen in the November elections. On another note Milton Friedman’s Free to Choose is currently #70 on the books list even though the book was written in 1980. Could this knowledge and understanding lead the nation into leaning more conservative? Is the Tea-Party really code for libertarians? I think there is some disagreement within the Tea-Party among certain issues. For instance, I don’t know how they feel about pro choice vs. pro life. Rand Paul has stated that he is pro life although this violates the fundamental of libertarian principle of letting people be free to choose as long as they don’t violate anyone else’s rights. The Tea-Party/conservatives could face a crossroads if they can’t decide what their true principles are. Although, I am pretty certain that they want less government and to cut spending. Other issues such as terrorism, immigration, the drug war are important issues that could make or break either party in upcoming elections.

BP = Beyond Pollution?

British Petroleum has recently come under fire for an oil spill in the Gulf of Mexico. BP, Deepwater Horizon, and Halliburton have also been accused of wrong-doing in the case of the BP spill. The spill started at 9:45 P.M. April 20, 2010 and will continue to spew out oil. At first the oil rig caught fire killing 11 employees. At first BP stated that they believed 5,000 barrels of oil per day were spilling but then later revised that number to 100,000 barrels per day. With the current price of a barrel of oil around $66 the company is losing $6.6 million per day on just the oil alone. This figure doesn’t include the clean-up costs, lawsuits, and other expenses related to the spill. BP claims that the cost per day to clean up the spill is around $10 million. What seems clear is that some party is at fault for the spill. BP, Deepwater, Halliburton or a combination of all three could be at fault for the accident. However, it might be hard for some people to understand that perhaps no one party cause the spill it could be shared among all these companies and maybe other contractors that worked on the rig. Obviously these companies didn’t want the spill to occur since they would lose their reputation which is worth billions of dollars. The companies involved have been hurt dramatically since the spill. As of today, BP is down close to 27% since the oil spill started. Halliburton has been down 17% since the spill started. These stocks could still continue to go down since the market does not know what the true liability for these companies are. Exxon had a spill in 1989 that took many months to clean up. The difference however was that Exxon Valdez ship only had so much oil as opposed to a rig that can keep spilling oil until it gets fixed. The plaintiffs that sued Exxon in 1989 didn’t receive their final judgment until June 15, 2009 nearly 20 years after the spill occurred! Not only did it take a long time the judgment was decreased from $5 billion to $507.5 million. I believe a similar situation will happen with the BP case since the company will voluntarily put in billions to clean up and have to deal with lawsuits. Should the government get involved in oil spills? I think the answer is somewhat of a yes since an oil spill does impose an externality onto the environment and the people. We have courts to dispute torts (wrongs against people). Not only can this but the no amount of regulation can make up for the loss of reputation of the firms involved in the spill. Also why were these rigs so far off shore? Was it because of regulations or just because it would have been easier to find oil? In addition to this, why don’t we have more above grounds rigs? At least if the rig is above round than it is easy to fix the spill. Drilling for oil is not an easy thing and risks are always involved. To say we should drill less or just not drill at all assumes people would be willing to pay European prices for gasoline. More drilling will result in fewer spills since people will become more experienced in figuring out what problems might arise or what could go wrong. This spill will make future oil spills less likely since companies will spend money on preventing oil spills or by making sure that if a spill occurs they have the resources to take care of it. People in Washington D.C. don’t agree with this logic and simply want to create new regulations which will increase cost not only to oil drillers but also to consumers since companies pass on costs. Perhaps less regulation would have not caused the BP spill. Time will only tell as to what the ramifications are of the spill, what parties were affected, and how things will be done differently in the future. However, it is a really good time to be a litigation lawyer or a fisherman in the Gulf Coastal area.

Genius of Richard Epstein

21:42-Introduction to Epstein
21:45-36:50 Explaining problems with Obamacare
40:40- 42:23 Insurance
After 45:00 Q&A

YouTube and Profitability

I often wonder how YouTube is still in business. YouTube is owned by Google and provides free video content to millions of people. Although, let's think about this if I never pay YouTube a penny for using it I get a free service since advertisers are paying to place their ads on the site. YouTube may have millions of viewers buy how many of them actually look at or use the product advertised? This is probably why I have a problem with marketing in general. Marketing can rarely be quantified or measured for success. It is not like investing where you can see your return or how much you made. With marketing it is almost impossible to quantify how much of an impact the advertisement made. This brings me back to YouTube.

"An April 2009 report from Credit Suisse did nothing to suggest that YouTube had finally figured things out: It predicted that Google would spend $470 million this year on YouTube, the result of high infrastructure costs without revenue to match" according to InformationWeek.

Google bought YouTube for $1.65 billion in 2006. YouTube manages 200 million uploads per day! The cost of storing data, video, and music on a hard drive has decreased dramatically. YouTube will eventually have to increase storage or figure out some way to get more revenue if they want to remain in business. My own personal view is that Google which is full of free cash flow will hold onto YouTube as a loss leader and either have to either a)start charging people b) restrict the amount of uploads c) go out of business. YouTube can't sustain its exponential growth rate without some serious changes.

However, the positive is that YouTube has benefited many businesses, doctors, performers, and entrepreneurs by allowing people to share their content and to use as a marketing strategy to leverage for their business. This group has benefitted from the ability of posting free content since it is free advertising to help get the word out.

I personally wouldn't mind paying for YouTube if it was relatively cheap and was constantly adding quality material. For instance, why can't I buy or find online an interview on The Tonight Show unless it was a memorable interview? Couldn't the companies that own this content release it and charge it similar to an I-Tunes system? With millions of hours of content somewhere companies that own the content could increase revenue but letting people buy it. The content has opportunity costs since it is isn’t broadcasted and could be making money for the owners of the content. Maybe Hollywood needs to take some business classes.

Markets in Everything: Trophy Wives

Recently, Larry King divorced for the 8th time. You would think after a few times he would get a hint. On April 14 Larry filed for divorce from his wife Shawn of 13 years. It should be pointed out that he is 26 years older than her. Mr. King has a net worth of around $144 million. He did not have a pre-nuptial agreement with his wife which could cost him big time. Let's examine this from an economic point of view. Larry for over a decade got the company of a much younger and attractive woman. Shawn got to be with a well known TV personality who was worth big bucks. Since they are divorced now they will get zero utility from the other person. Most likely Shawn will get at least half of Larry's estate which would be around $72 million. Remember this was for being with Larry for 13 years. Do you think more women would have done this if they had known the payout? A payout of $72 million would equal $5,538,461 per year, $106,508 per week, $15,215 per day, or around $634 per hour. Clearly, this is a large sum of money. However, it should be pointed out that in a sense Shawn is an outlier because Larry can only pick one woman out of many thousands to be his wife (okay maybe a few thousand - 7). At a rate of $634 this is clearly more than most conventional jobs and is probably more than a prostitute. However, prostitution is illegal and marrying trophy wives isn't. Both groups have incentives to engage in this type of behavior and their function is pretty similar yet one is legal while the other puts people in jail. How can we tell people it’s wrong to buy an hour of "fun" yet it’s okay to marry someone that you will have to provide "fun" for many years?

Michael Lewis

Seems like Michael Lewis is having a very good year… Some stats from Amazon.com

The Big Short- #5 in books as of 4/11/2010 has been on Top 100 for 40 days
The Blind Side (movie) - #3 in movies has been on Top 100 for 49 days
Liar’s Poker- #108 in books was at #65 last week however has first published in the 1989
The Blind Side (book)- #320 in books

I bet someone is seeing the money come on in…

Killer at Large: Obesity

Recently I watched Killer at Large the Obesity Epidemic. The documentary focused on obesity in America particularly looking at kids and their diets. When I was a kid growing up in the early 1990’s I remember we didn’t even have soda or candy machines until we got to high school. For lunch nearly everyone bought their lunch with a few people (including myself bringing their own lunch). This hasn’t seemed to change in today’s society. Kids are able to purchase candy, soda, and other baked goodies. I see no problem with this. People try to blame Coca Cola and Pepsi for being greedy and installing these machines. Don’t parents have a role in raising their children?

The documentary starts out with a 12 year old girl getting liposuction by a plastic surgeon (I really wonder if he is board certified). The girl gets liposuction after years of emotional eating. The girl gets her liposuction but the liposuction is short lived because she puts the weight back on. I see a few problems with this. First, no reputable plastic surgeon would be doing this to a 12 year old girl. Although, I am not a doctor I do know that children by that age have not reached their full potential in terms of growing and development. Also the emotional eating part was interesting. The girl claims that she used to get really stressed when her parents fought and she just began to eat. How do we know that this wasn’t part of some deeper psychological issue? Instead of eating for comfort she could have turned to some other vice such as spending too much, drinking too much, or becoming a drug addict.

Around 15 percent of children ages 6-19 are overweight during the 1999-2000 period. The percent of obese and overweight kids is much greater than this. My question would be why do we as a nation have to care so much about our children’s weight? Just because healthy weight is desired doesn’t mean we all have to achieve it. What if children and adults would like to be obese? We can’t make assumptions on what other people want. For the sake of argument let’s assume we want to solve this problem what needs to change? I would go out on a limb and say that the public school system is partly to blame for this. Since the public school system is virtually a government run monopoly parents and students have little say in what goes on at the schools. If we were able to let the schools compete with one another this would create competition between schools. For example, if the Myers family felt that Johnny was overweight and wanted a school that focused on getting their child fit. By allowing parents and students choices in the school system could to students that were not as obese. Schools could compete on what types of meals they offered students , what type of physical exercise was involved, and what type of curriculum students learned about fitness and health. Yes, school choose could reduce the number of obese and overweight kids by creating competition.
Being overweight sends signals to not only our friends, but the general public. Robin Hansen professor of George Mason University was on EconTalk and discussed signaling. In essence, signaling is economic jargon for how we want to be perceived through the eyes of others. For example Hansen argues that people that show up to the hospital to see an ill or dying relative to signal that they care about that person regardless of whether they actually do. Being overweight is no different. If a person if overweight they are signaling to others that they don’t burn as many calories as they take in. Also people can’t lie about being overweight like they can about their status, power, or money because people can obviously see how big or small they are.

If you read this far you might be wondering what solutions I might have. Since you asked I have a few. First, if the government rewards good behavior in the form of tax credits why not give people tax credits for working out. Especially with Obamacare being passed it the government will have more of a say in what people eat and how they treat their body if the government is paying for it. Next, I would break up the government run monopoly for schools and allow parents and children to choose what they fitness and workout regimen is taught in school. Lastly, I would not place a tax on soda, candy, and other assorted goodies because this would just make people fatter. You might argue, “Well if you tax anything you get less of it!” I understand this principal however a “sin” tax on these goodies would just induce people to create their own sinful goodies. If the taxes were too high it could lead to smuggling and people would just find a way around higher taxes like they do for nearly everything else. We have to remember that we ultimately control our destiny and we can’t blame it on genetics because genetics did not simply overnight make us fat. We might want that extra piece of pie or extra chocolate chip cookie but we have to remember the future might be uncertain.

Bryan Caplan on Healthcare

Bryan Caplan on the healthcare debate.

Debate: Separation of Health & State from GMU Econ Society on Vimeo.

9 Billion Problems?

Houston billionaire Dan Duncan recently passed. Mr. Duncan had a net worth of over $9 billion. His story is pretty interesting. He started his career as a roughneck in the 1950’s. By 1968, Mr. Duncan with only $10,000 and a truck he started Enterprise which is now worth over $21 billion. Truly this a great story in capitalism. Man starts with nothing then turns nothing into a lot of something. Mr. Duncan not only made a lot of money for himself, his family, and shareholders but also has donated a lot to charity. He and his wife gave $100 million (a record level donation) to Baylor College of Medicine. The family also gave $50 million to Texas Children’s Hospital (another record donation). He also gave $35 million to M.D. Anderson Cancer Center. It should be noted that Houston was noted for a world class medical center even before these donations.

Despite all this generous giving I would imagine the there are still billions of dollars in the Duncan estate. The estate tax on the Duncan estate could be enormous. The estate tax is usually 45%. For example if an estate had $10 million the estate tax that the estate would owe the government is $4.5 million. However, the estate tax in 2010 is 0%. Congress could of course make the estate tax retroactive for 2010. I have a feeling the Duncan family is quickly filing paperwork to try to make sure the estate doesn’t owe a dime to Uncle Sam. However, the I.R.S. will flag this down and I could see a Supreme Court case in the works. With an estate of over $9 billion the government would want their 45% or $4 billion. What miracles and wishes could the government grant with this money? A case like this will force Congress to do something about the estate tax.

It will be interesting to see how this case plays out. If the case goes to court it could take years to settle leaving estate planners and attorneys in the dark with regards to the estate tax law. However, one way the Duncan family could avoid paying any estate taxes is to give all the money to charity. Although, one should remember 45% of $9 billion is better than 100% of nothing.

Regulating Flying Hours

Recently, I watched the Frontline story called “Flying Cheap”. The PBS documentary details the tragic case of the Colgan Air Flight 3407 crash on February 12, 2009. Everyone on board was killed. The main point the documentary was trying to make was how regional airliners aren’t as safe as commercial airliners. The documentary also describes the atmosphere at Colgan Air when it came to safety. Regional airliners have contracts with major airliners and some like Colgan Air are paid for every flight that they complete. This arrangement can lead to some perverse incentives for pilots. I am not a pilot but I would assume flight safety would be the number one priority when it comes to flying. Former Colgan Air pilots were interviewed and described how Colgan was interested in completing flights with very little concern for what condition the pilots were in. One pilot at Colgan Air reported an incident of another pilot trying to fudge the numbers when it came to reporting how many passengers were on board (even though reporting an overweighed plane could increase the chances of disaster) In the crash of Flight 3407 the first officer Rebecca Shaw had commuted a long distance, and was sick the day before the crash. In addition to this it seemed she had little sleep and yawned during the flight. The documentary points how regional pilots have less flying experience than commercial pilots. At Colgan Air some pilots got promotions from First Officer to Captain within 9 months.

Proposed legislation wants to increase the number of hours co-pilots must have from 250 hours to 800 hours. The family members of Flight 3407 wanted co-pilots to have a minimum of 1,500 hours. The proposed legislation would not have stopped this fatal accident considering both the pilot and co-pilot each had over 2,200 hours of flying experience. This legislation will of course of unintended consequences. The legislation did not mention how many hours of flying time captains would be required to have. What if the co-pilots have their required hours but the captain isn’t experienced? Increasing the number of hours is a burdensome cost for people that want to become pilots. From what I understand pilots in training have to pay per hour for flight instruction. This legislation will triple the cost for pilots in training.

Although tragic the cause of Colgan Flight 3407 was the Colgan’s corporate culture and not the number of hours the captain or first officer had. I would imagine less people would be willing to fly Colgan Air after people learn of the company culture. No piece of regulation could ever do this because the market itself is a regulating mechanism. I often wonder why there is not more competition within the airline industry. For instance why is the TSA in charge of security? Why can’t airliners have their own line for security and different airliners could have different standards. Another thing I wonder is why airliners don’t post online which pilots are flying, how much experience the pilots have, and perhaps a customer feedback of passengers that have flown with them before. The airline industry is heavily regulated by the FAA but we must remember that flying statistically is still one of the safest forms of transportation.

Blockbusted: An Era Over?

Recently, Blockbuster announced that it lost $435 million dollars in the last quarter. Blockbuster also has close to $1 billion in debt. Competition from companies such as Netflix and RedBox have put enormous pressure on Blockbuster. Netflix and RedBox primarily rent movies through online and kiosk DVDs. Netflix has $320 million in cash with only 6% debt. Clearly, Netflix is in a better financial position than Blockbuster.

A lot of people especially those born in the 1980’s and 1990’s grew up with Blockbuster. Blockbuster has a nostalgic feel to it. Memories of Friday’s and weekends staying up late renting VHS (in the 1990’s) while eating pizza, having sleepovers, and spending time with friends is what this generation will remember. However, all we will have are these memories especially if Blockbuster goes out of business.

People should remember though that when a company goes bankrupt it doesn’t always go out of business. Sometimes other companies can purchase the bankrupt company and try to turn it around. Also bankrupt companies can try to reorganize and restructure their company and try to come back, but I doubt this would apply to Blockbuster given their dire financial situation

In understanding why Blockbuster is bankrupt it is important to realize that the company did not satisfy enough customers to cover their costs. People sometimes forget that it is the profit and loss system that markets operate under. The main reason however I believe Blockbuster went out of business is they didn’t keep up with the times. The digital media for DVD’s has changed in the past 5 years. Netflix allows people watch movies online and also transmit movies to televisions provided the user has the proper equipment. Equipment to transmit Netflix movies from the internet to the television can be purchased for only $80. Netflix also allows users to rent movies through the mail. One problem I see with Netflix is the selection of movies you are allowed to watch on the computer isn’t very wide. Hopefully, this will change in the near future. Perhaps, if Blockbuster really does go out of business it will allow Netflix to purchase content at a very cheap price.

RedBox is another service that customers to go to various kiosks usually at grocery stores, McDonalds, or various drug stores. RedBox allows people to rent movies through the kiosk but is only limited to the inventory that the kiosk provides. Also bringing back the movie to the location might get some people turned off. Maybe RedBox will allow people to watch movies online like Netflix.

At the end of the day, I think Netflix might come out as a major winner given they customers can get movies not only online but also through the mail. If Blockbuster really does go out of business this will increase Netflix’s moat and allow them to increase their profits. I don’t know what the future holds for RedBox for the reasons mentioned above but it will be interesting to see what the future holds for both companies. Although, I could be completely wrong and there could be an entirely different company that comes along and gives both Netflix and RedBox a run for its money.

Biotech Bubble

In the 1990’s the internet bubble came and left. Hundreds of technology companies were created for inventors, venture capitalists, and investors to try to cash in on the “next big idea”. The internet bubble was filled with different companies coming up with often creative and interesting ideas on how to make money through the internet. Some of the ideas were really good and some were really bad. I remember Kozmo.com in the early 1990’s that promised to deliver goods to people within an hour. This service was mostly for people that lived in New York and had busy lives. Although, in theory this sounds like a good idea in practice it was much harder to execute and ultimately led to the company’s failure in 2001 (only three years after being founded). Many of dot.com companies were like this in the early-mid 90’s. Companies had extremely high price-earnings ratios without making a penny of profit. A strategy like this leads to disaster. However, we did have some successes from the dot.com era including Amazon, EBay, and Google. These companies are still around and making profit. This type of creative destruction is good because the market rewarded the companies that did something right. The companies that weren’t prudent went out of business. This brings me to what I predict will be the next bubble…

For years the drug and biotech industry has been on the rise. One key area I see becoming changing rapidly is the genomics area. The Human Genome Project was a government project that was created to untangle the human genome. It is estimated that humans have more than 25,000 different genes. From my understanding mutations of these genes are what cause cancer, illnesses, and diseases. Since the human body is made up of millions if not billions of cells one tiny change can change these genes and cause a mutation. For instance, eating chocolate cake could “mutate” a gene. Obviously, just doing everyday activities could cause mutations in these genes. Another example is smoking. Smoking just 15 cigarettes a day mutates genes. Environmental factors also can play a role in gene mutation. What I think is really interesting is figuring out what genes cause what cancers. I think once biotech companies understand the patterns of the genes and can accurately figure out what mutations cause what cancers people will be rushing out to get tested to see if they carry certain genes. Many people talk about personalized medicine. I don’t think that personalized medicine will be taking a pill customized for a particular person, but rather having a genetic test in order to figure out how different medications and treatments could affect you. Right now the genetic testing is still in the early stages, quite expensive, and hard to tell if it is accurate. Over time the technology will improve, the quality of the results will increase, and the cost will decrease. However, this will provide and interesting situation for insurance companies. If someone were to get a genetic test and understand what they are predisposed to a certain condition would they be required to share it with their insurance company? Current law does not allow insurance companies to discriminate against people who get a genetic test performed. However, this leads to a problem because if someone gets a genetic test performed and they don’t have to share it with the insurance company it could lead the person to make certain lifestyle choices without informing the insurance company. This is also known as asymmetric information where one party has more information than the other party leading to an unfair advantage to one side.

One company Myriad Genetics sells testing equipment for doctors to test for certain things such as breast cancer, colon cancer, and most recently prostate cancer. One legal battle that Myriad has faced has been trying to get a patent on certain genes. For instance, Myriad owns the patent to the BRCA gene which a test to determine if a woman has breast cancer. If a woman wants to get tested for the BRCA gene she has to have the test done by Myriad Genetics since they own the right to the gene. This offers and interesting intellectual property battle between Myriad and other biotech companies. Could Myriad really own the right to a gene? It would seem as if they own the right to a gene it might induce other companies to enter the market and try to patent other genes for other cancers. It should be noted that the genetic tests from Myriad run in the thousands of dollars. However, I would assume insurance companies would pay for the test since it gives them a better idea about the true condition of the patient. I am excited though that we are at the infancy of this biotech process and truly believe breakthroughs will come within the industry that will help consumers and doctors. Right now tests can only show if we are predisposed to one gene. Just testing for one gene can cost hundreds to thousands of dollars. In the future, I could see testing for all genes (once scientists decode all 25,000 genes which could take a decade or more). After this is done, people can get a genetic test and see what they are predisposed to. This could maybe give the person incentives to change their lifestyle or behavior and see what clinical options are available to avoid trouble in future years. Hopefully, doctors can introduce this more preventative medical approach. Maybe in the future we could have experts on certain gene mutations. Even if drug companies stopped producing drugs tomorrow with the help of genetic testing doctors and scientists could figure out who responded better to certain medications and treatments which could greatly improve the quality of the diagnoses and deliver better results when compared to conventional processes. Time will only tell though which of companies in the biotech industry are here to say and which ones will be left in the dust.