December 26, 2006

Couldn’t Help But Notice (122606)

Patently Ridiculous — “Microsoft Claims It Invented RSS”

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More counties and cities should be doing this. More consumers with the patience of flea-market buyers should be scoping them out.

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Ohio can be assured that employers who decide not to locate or expand in the state because of its minimum-wage law at least won’t do so in Illinois. It’s just as bad, if not worse, there.

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Just before Christmas, the government reported that consumer spending rose, consumer confidence remained pretty high, and there was a rebound in demand for big-ticket items.

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Freakonomics reported last week (HT Techdirt) that the National Basketball Assocation “demanded that youtube.com remove all clips” of Dec. 16′s Denver Nuggets – New York Knicks brawl. They’re not so protective of the highlight reels, are they (at least for the first week or so)?

BHOO, What Are You Worried About?

Filed under: Scams,Taxes & Government — Tom @ 1:22 pm

Since I said I’m not going to go heavy on the presidential sweepstakes, I’ll just link to this Chicago Trib op-ed by John Kass (free e-mail registration required; it’s worth it just for Kass’s column) about Barack Hussein “Obambi” Obama (nickname noted by Kass). I think I’ll just take to calling Obama “BHOO” for short.

It has to do with BHOO, Chicago Mayor Dictator for Life Daley, Patrick Fitzgerald (yeah, THAT one), the “Outfit,” and massive bipartisan scandals and graft. Kass says that “There is no state in the U.S. as politically corrupt as Illinois.” Therefore, what Kass writes of, and especially BHOO’s handling of it, bears close scrutiny. Hint: Kass wonders if BHOO’s official last name might need to be changed to O’Bama.

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UPDATE: My, the Chicago papers are busy with BHOO stories. Here’s one from the Sun-Times about the son of a big contributor getting an internship at the request of BHOO’s indicted dealmaker, longtime acquaintance, and next-door neighbor.

UPDATE 2, 5:40 PM: Memeo is covering the blogging on the Sun-Times story.

The Long-Term Harm of SOX and Other Regs, Part 1: Where ARE the Initial Public Offerings (IPOs)?

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 10:34 am

Spacetropic beat me to this extremely important op-ed (“The Pump-and-Dump Economy”) by Michael Malone of ABC News.com from the subscriber side of the Wall Street Journal last week — so important that I’m going to excerpt it pretty heavily.

It’s way past time that someone takes notice that of what Spacetropic properly calls the “grim new trend.” Something isn’t happening in this prosperous economy that normally would be:

Take the Dow industrials blowing past 12000, and the attendant stratospheric valuations of companies like Google and Apple. While it is a welcome rebuke to those who smugly proclaimed five years ago that the tech industry was being punished for its excesses and would never see such good times again — Silicon Valley and other tech enclaves are now more prosperous than ever — it is troubling to note that something is missing from this new boom: Where are the IPOs?

Historically, stock booms have seen an explosion in the number of young companies making their first public sale of stock.

….. by the end of the third quarter this year, only 37 companies had offered IPOs — a figure comparable to 2001, when the entire economy seemed to be coming apart. The shortfall doesn’t owe to a lack of entrepreneurial fervor. Venture capital funds are swollen with money right now. Nor is it a shortage of new companies …..

….. In the past, the inevitable end-point of these (start-up company business) plans, the so-called liquidation moment, was an IPO. Not any more. These days, the goal of almost every new start-up is to be acquired by an established company. And in that little shift in orientation lies a potentially radical change in the U.S. economy.

Why do young private companies want to sell out now instead of becoming public corporations?

….. Not least — but worst — there is the Sarbanes-Oxley Act of 2002, whose self-monitoring rules Big Corporate initially resisted, but now embraces as an effective way to track internal financial operations. That alone should make you suspicious, because when established businesses like new rules it’s usually because it makes them more competitive against start-ups.

….. The closer you look at Sarbanes-Oxley the more you realize it is almost perfectly designed to crush new business creation. The latest estimate for the annual cost of implementing Sarbox in a public corporation is $3.5 million. Pocket change for a Fortune 500 company; the entire annual profit of a newly public firm. Is it really any wonder that smart entrepreneurs look for a corporate sugar daddy instead of an IPO?

Which brings us to Google. One reason that few people have noticed the IPO dearth is that the one real initial public offering — Google’s legendary Going Public Day in August 2004 — was such a supernova that it blinded everyone to the changes taking place around it. Now rich and fat, Google has assumed a new role in the Silicon Valley ecology: buyer. The joke these days is that every new business plan has the same words on the last page: Sell to Google. That probably makes Chris Sacca, Google’s director of new business development, the most influential businessman in America today.

Google’s $1.65-billion acquisition of YouTube is emblematic of this shift.

In short order, former opponents of SOX (and the Big 4 accounting firms) appear to have made their peace with it. If this seems difficult to accept, think back to the 1960s and 1970s when the government began to exert regulatory force on the auto industry, then the near-exclusive province of the Big Three. Each successive regulation would be greeted with an almost-eager “yeah, we can do that” from behemoth General Motors (which only a few years earlier had bitterly fought Ralph Nader), a reluctant “OK, but we don’t like it” from Number 2 Ford, and screams from little-guy Chrysler.

Why? Because each successive government reg created new fixed costs that GM could spread over many times more vehicles than Chrysler could. Accepting regulations, even encouraging them, effectively became part of GM’s competitive strategy. And so it goes today with large corporations, the big accounting firms, and SOX.

The fact that fewer companies are going public is not only working to increase business concentration; it is also affecting how entrepreneurs are looking at their businesses from Day One of their founding — and not for the better. We’ll see how in Part 2, which if you are on the home page, follows immediately below.

The Long-Term Harm of SOX and Other Regs, Part 2: Innovation and Motivation

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 10:33 am

Part 1 covered the dearth of initial public offerings (IPOs) caused by Sarbanes-Oxley.

This part will talk about the short- and long-term effects of not having the IPO realistically available as an exit strategy for entrepreneurs.

I don’t think anyone seriously doubts that in the legal and regulatory environment of 1998, YouTube would have done an IPO instead of selling out to a bigger company. But today? Forget it.

Further, if YouTube’s goal had been an IPO, they might have extended their service beyond something that currently isn’t much more than a very convenient database of video content. But because selling out to one of The Big Guys was clearly the more viable option, YouTube can be seen as exemplifying an entrepreneurial community engaged in shorter-term (and by inference, less innovative) thinking, as Michael Malone described in the latter portions of his Wall Street Journal op-ed (“The Pump-and-Dump Economy”) last week:

The entrepreneurs who’ve started those companies know the situation better than anyone — and right now you’d be hard-pressed to find a Silicon Valley start-up that is building itself for the long haul.

….. Meanwhile, the one traditional force that might have propelled these companies forward to an eventual IPO is gone as well, also thanks to recent regulations. The Financial Accounting Standards Board, which advises the SEC, has been itching for years to force tech companies to put a value on their stock options — despite the fact that most such options end up valueless.

The result, as anyone but an accountant would have known, is that start-ups are far less willing to throw options like monopoly money to everyone from the chief scientist to the guy who waters the office plants. If that sounds good in principle, keep in mind that easy options were probably the most effective form of wealth distribution in modern life. The great stories are not about a Steve Jobs becoming a billionaire, but about his secretary becoming a millionaire.

Under the new options rules there will still be new T-shirt tycoons like Mr. Jobs, but a whole lot fewer of his secretaries will be able to retire young. And it will be interesting to see just how many of those secretaries (and code writers and marketing specialists) will be willing to put up with the long hours in a job that could disappear overnight — merely for wages. That is yet another argument for keeping your start-up to little more than the coterie of founders, and then selling out quickly to Google. No wonder big tech companies like Microsoft and Intel jumped on the stock option reporting bandwagon so quickly.

Don’t kid yourself — motivating employees through stock options in anticipation of going public is not just a tech-company phenomenon. Plenty of non-tech start-ups (pre-SOX) have used them to motivate employees in their earlier stages.

And don’t forget this point: It isn’t just that techs aren’t going public; almost no one is. In previous times, some of the smaller non-techs that went public, even if they didn’t use pre-IPO options as a motivator, were able to achieve explosive post-IPO growth (e.g., Wal-Mart, Home Depot) that almost certainly would not have occurred if the IPO had not taken place. These companies were able to motivate their workers, and especially key employees, by offering rapidly appreciating company stock through their 401(k), stock ownership, and executive-bonus plans. A company choosing to stay private, getting bought by another company, or for that matter, going private after having been public, won’t have that motivator in its toolkit.

Here’s Malone’s chilling wrap:

….. Let’s do our own accounting: Thanks to this troika (SOX, stock options treatment, and what are known as “Fair-Disclosure” regs — Ed), fewer new companies are going public; economic power is being concentrated in the hands of fewer companies; competition is reduced; new wealth is less widely distributed; the rich are getting richer; fewer talented people want to join entrepreneurial ventures; and corporate boards are getting stupider and more paranoid. And, please note, one of the crucial triggers for economic booms — a burst of young tech company IPOs — has now largely evaporated.

Just curious, but is this really what federal regulators, Congress and shareholder rights activists had in mind?

Answering Malone’s final question — It may not be what they had in mind, but each of the three groups identified will become comfortable with it now that it’s here. All three have a vested interest in creating their own version of an “orderly” environment with a smaller number of larger players, free of the potential “chaos” and upheaval that feisty start-ups who can’t be bought off can cause. 50 years after John Kenneth Galbraith wrongly predicted that a few large corporations would become ever more dominant, SOX and the other poxes, if allowed to run their nefarious courses, may accomplish that very thing.

Imagine this — How different (i.e., NOT better) would the world be today if Apple’s or Microsoft’s exit strategy in the early 1980s had been to be acquired by IBM? What kind of computer would you be looking at (or would you even BE looking at one)? Or what if Yahoo’s founders or Amazon’s Jeff Bezos had planned only to sell out to Microsoft? (Or even Wal-Mart or Home Depot to Sears or K-Mart?)

Everything I have covered in the this post and the previous one explains why I’m rooting for Ken Starr in this instance — and you should be too.

Psst: Wages Are Not Stagnant, AND (Gasp!) They Are Outperforming the 1990s

Despite all the proof, Paul Krugman and most of Old Media will probably never let go of the “stagnant wages” meme to describe the Bush 43 prosperity. Their failure to acknowledge the obvious becomes clearer with nearly each passing day.

Tuesday’s OpinionJournal.com feature editorial (may require free e-mail registration) doesn’t merely show that the favorite meme of Krugman and his economic brothers and sisters is a folk tale. It also reveals a completely unreported item about this prosperity compared to the 1990s that even yours truly was not prepared for — a truth (in the third excerpted paragraph) that needs to be trotted out on a weekly basis for about the next year — or ten (bolds are mine):

The latest reports on wages and income have been rolling in, and with them we can discount one more canard about the current economic expansion–namely, that wages are stagnant and workers are doing far more poorly than they did in that second Age of Pericles known as the 1990s.

Over the past year, the real average wage for non-supervisory employees has risen 2.8%. That equates to about a $1,200 increase in purchasing power for the typical household this year. Last year, real median household income was also up 1.1% after inflation. This rise in take-home pay helps to explain how Americans have had the disposable income this Christmas shopping season to pay $600 for PlayStation 3 computer games and $150 for the Kid-Tough Digital Camera for three-year-olds.

It is true that income and wages are still about 2% below the peak they hit in 2000 before the dot-com bust and recession. But a new Treasury Department analysis finds that, measuring from the start of the peak of each expansion, wages so far in this decade’s cycle are running ahead of the recovery pace during the 1990s. Thus the “stagnant wages” story can join the “jobless recovery,” the “outsourcing” crisis and the runaway budget deficit as other tales of woe that have all turned out to be evanescent.

….. Contrary to popular myth, worker benefits have also been rising, not falling. Yes, many companies are changing to more sustainable 401(k)s from traditional pensions, and most are passing along some of the costs of rising health insurance to workers in co-pays and higher premiums. But the Labor Department measures employer pay packages and finds that fringe benefits paid to workers have risen 39% since 2000, or nearly twice the 22% rate of increase in nominal wages.

In the interest of continuing the march of real wage increases, the OpinionJournal.com editorial advocates making the Bush tax cuts permanent (which, after three years in effect, really means “keep the current income-tax rates in place”) and reducing the corporate income tax. Though there is empirical support for both ideas accomplishing the desired result, they would surely get a reaction from Krugman and his acolytes less cordial than a meeting between Rosie O’Donnell and Donald Trump.

Digging deeper, your humble servant found the official December 15 announcement from Treasury Secretary Snow, where I learned that the OpinionJournal.com editorial really didn’t go far enough. The second paragraph of the Treasury release is a real mythbuster (bold is mine):

One way to look at the health of the economy is to view where we are compared to previous business cycles. Real hourly wages are up 1.1 percent versus the previous business cycle peak in early 2001. That means workers are today earning more per hour in real terms than they did at the height of the 1990s expansion. By comparison, at the same point in the business cycle of the 1990s, real hourly wages were down 2.1 percent.

Isn’t it “amazing” that the contents of Treasury’s press release didn’t make it into any of Old Media’s news reports — not even on the business pages? This Google News Search on “Treasury Snow” (without quotes) for stories between December 15 and 18 returns no results relating the this news, nor does this Dec. 14-26 search on “Treasury Snow wages” (without quotes).

Does anyone believe that a similar announcement from Robert Rubin’s Treasury Department during the 1990s would have been ignored?

Cross-posted at NewsBusters.org.

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UPDATE: Redhawk Review noticed — “….. further proof that the economic recovery under W has been what he has declared it to be: a recovery that has helped all Americans.”

UPDATE 2, 5:40 PM: Memeo is covering the blogging on the editorial.

Amy Hoak at MarketWatch: Get This Reality Check Over to Rex Nutting

Filed under: Economy,MSM Biz/Other Ignorance — Tom @ 6:17 am

From Amy Hoak at MarketWatch.com last week (link requires free registration):

For many residential real-estate markets in the U.S., this year started with an advantage to sellers and ended with buyers holding the upper hand. But, unlike some people had expected, the switch didn’t follow the deafening “pop” of a massive real estate bubble.

That spells good news for both buyers and sellers in 2007, as markets return to balance, prices moderate and, if interest rates remain subdued, sales begin to edge higher.

Memo to Amy — Make sure your co-worker Rex “The Sky Is Falling” Nutting reads your story.

Not Previously Known Fact of the Day

Filed under: General — Tom @ 6:12 am

Not known by me, that is (not that there’s a shortage of those) — I had no idea until reading Hugh Hewitt’s pre-Christmas post (primarily about how the Woolworth’s department store chain handled the Christmas season during the earlier years of World War II) that Canada declared war on Germany on September 10, 1939, over two years before Pearl Harbor.

But I Thought We Should Be Imitating Old Europe?

Filed under: Economy,Taxes & Government — Tom @ 6:07 am

Think again:

Little to cheer for Germany’s underprivileged
21 December 2006

Berlin (dpa) – When the champagne corks pop and fireworks light up the night sky to herald in the New Year, some Germans will find there won’t be much to celebrate in 2007.

They are among a growing number of people at the lower end of the social scale who live off state benefits or poorly paid, insecure jobs, with little chance of earning a decent wage.

This group, described by a leading politician as the underclass, has been left behind by the upswing that has propelled Europe’s biggest economy to its highest growth rate in six years.

“There are far too many people in Germany who feel they have no chance of advancing in society,” said Kurt Beck, chairman of the Social Democratic Party (SPD). “They have resigned themselves to their situation.”

….. Beck’s remarks in October coincided with the release of a study showing there was a large group of underprivileged Germans who feared social and political isolation and felt abandoned by the state.

But that’s the nub of the problem. The expectation has built that “the state” has a duty to ensure a person’s “advancing in society,” when it is at bottom a person’s responsibility to do that. Old Europe has had decades to show that its socialist approach can provide economic mobility, and it has utterly failed. The same cannot for the most part be said of the relatively capitalist USA.

So Which Is It, AP? (On Iran and Nukes)

On December 24, in a unbylined report on the reaction of Iranian leader Mahmoud Ahmadinejad (you know, Time’ Magazine’s “Champion of the dispossessed“) to United Nations sanctions, The Associated Press told us:

Ahmadinejad: U.N. Will Regret Move

….. On Saturday, the Security Council voted unanimously to impose sanctions on Iran for refusing to suspend uranium enrichment, increasing international pressure on the government to prove that it is not trying to make nuclear weapons.

….. Iran insists its nuclear program is intended to produce energy, but the U.S. and European nations suspect its ultimate goal is the production of weapons.

That’s “funny.” Here’s an AP story from December 11 by Alicia Chang, AP Science writer, about potential global cooling that might occur as the result of a nuclear war that says:

Small Nuclear War Could Lead to Cooldown

….. In October, North Korea announced that it had tested a nuclear bomb. Iran is also pursuing the development of nuclear weapons. Other members or presumed members of the nuclear club include India, Pakistan and Israel.

So AP’s editors will allow an admission, I would suppose in the spirit of “responsible journalism,” that Iran is trying to make (“pursuing the development”) of nukes in an article that is essentially a mini-rehash of Carl Sagan’s “nuclear winter,” but won’t acknowledge the same in a current-events story about the potential threat that Iran may pose.

Does AP’s Science writer know something those involved in the Ahmadinejad-UN sanctions story have “somehow” missed?

Oh — And what about this unbylined story from Christmas Day?

Egypt slams Iranian president

….. Iran has consistently denied it seeks to build nuclear weapons, saying it aims to use its nuclear technology only to produce electrical power. But President Mahmoud Ahmadinejad’s ambiguous statement stirred fears about its nuclear ambitions.

Maybe Alicia Chang deserves a promotion for scooping her colleagues.

Cross-posted at NewsBusters.org.

Positivity: Infant, Declared Dead, Miraculously Revives

Filed under: Positivity — Tom @ 5:57 am

From California — Do you believe in miracles? What follows is a short excerpt; read the whole thing:

After being declared dead, infant takes breath
INLAND: A couple’s baby is stillborn, then revived to life. They say she is proof of the power of prayer.
10:00 PM PST on Sunday, December 24, 2006

With her smiles and gentle cooing, Siara Hernandez is nothing less than a Christmas miracle to her family.

When she was born in November, she was not breathing and had no heartbeat. Her body was limp and her skin was blue. A team of doctors, nurses and specialists tried to resuscitate her for about 21 minutes, but they finally gave up and declared her dead.

After her grief-stricken father laid his hands on her chest in prayer, and her mother caressed her cheeks, she began to breathe.

Her parents, Maria and Manuel Hernandez, of Hemet, now say their infant is proof of the power of God and of prayers.

“There’s no explanation,” said Maria, 36, a stay-at-home mom who gave birth to Siara Nov. 27 at Hemet Valley Medical Center. “I really, truly believe this is a miracle.”

Manuel said his faith was tested when his baby was born, and has been tested every day since.

“God has a special plan for her,” said Manuel, 35, a carpenter. He said his daughter is growing stronger each day.

Miracle Baby

The doctors who presided over the birth have tried to find a scientific explanation for what happened, but have no firm answers.

“I’m a believer in miracles,” said Dr. Renato Judalena, Maria’s obstetrician, who delivered Siara. “This is a special baby. I think the Lord really has his ways. Things happen for mysterious reasons.”