A Duck Out Of Water

I was looking over my site just last night, and I got to thinking how I’ve failed my goals once again.   *Bangs head into desk* …Be emotional.  Show love…  Emotions… Emotions… Ok, I need to apologize.  The other day I was talking about Paul Sameulson’s textbook, and was saying some things about it.   I made some harsh comments, particularly when I said if you’re not making money, you have to ask yourself whether you’re providing value to someone else.

That’s unemotional Jason talking, and I need to apologize.  I need to be careful how I say things, and clarify things more.   I always fail in this area.  I say things unemotionally and don’t think about how it may hurt people.  I wasn’t implying that people who aren’t earning any money are not valuable in any sense at all.   I was referring to value on a per transaction basis.  What I was saying is kind of subtle.  I meant you only earn money WHEN you provide value to someone, and a lot of that depends on the circumstances. It’s really a complicated issue.  I should finish up that conversation.

There’s a lot of talented people who are great at what they do, yet due to all kinds of circumstances find themselves in a difficult situation.  Take the freelance computer programming industry for instance.  Years ago I could land all kinds of deals for companies, writing software projects for them.  Nowadays it’s rare for me to land a small to middle size deal.  Why?

Websites such as rentacoder.com have sprung up, where you can hire software developers from India, and other foreign countries, and they’ll do the work for dirt cheap.  And I really mean dirt cheap.  A job I would charge $1000 for, they’ll do for $45.  Obviously it’s impossible for me to compete.

Does this mean I’m not valuable?  No, not at all.  I could write software code far better than most all of them over there.  After all, I’ve been doing it for over 10 years.  But, they’re getting the deals because they offer to do everything for so cheap.  I used to make all kinds of money doing middle sized projects, but nowadays, not so much.

Ah well.  *Shrugs*  What can you do?  I’m just not the type of person to sit around and whine about things.  If we were in a warzone, I’m the guy who sits in the corner, not saying anything, looking out the window.  The other guys in the squad start talking about wanting to be home, missing their family, and complaining whether the war is legitimate or not.   I’m the guy who glances over, squints and says to myself, “Well, we’re not at home.  Won’t be for a while.” … *takes drag off cigarette.*  “Might not ever make it home.  Well, I sure as hell know I’m not dying here.”   Then I put out the cigarette on the floor, cock my assault rifle, stand up, and walk out the room.   No use whining.  Whatever may have led to this, for now we’re in the warzone, and need to stay alert and start making our action plan.

The other day I was talking with my older brother, who owns a PC repair shop.  We talked about how it sucked that there’s no way for him to compete with the big companies when selling people new computers.  When you study the economics of monopolies, you find that within any industry where prices drop due to the quantity ordered, a natural monopoly is formed.

Take Dell computers for instance.   They get their hardware and software cheaper than my brother ever could because they order everything in such huge quantities.  I sometimes walk through Wal-Mart in amazement when I see whole computers for $350.  How in the world can they make money?  Thing is, if they got their hardware at the same prices we do, no, it would be impossible.  Windows alone would cost almost $200, and the monitor would be another $100, and we haven’t even got to speakers, or even the computer, much less a year subscription to an anti-virus service!  But they bulk order everything and get huge discounts.

Obviously this is very unfair.  But what do you do?  It’s just one of those markets with an impossible barrier to entry.  My brother will never be able to sell new computers and compete.

Is my brother not valuable, because he can’t sell the computer for as cheap as Dell?  Not at all.  I’m sure the computers he would build customers would be just as good as a Dell, if not better.  It’s just he’s not given the opportunity.

The argument for the monopoly arrangement goes something along the lines:  well, you like the cheap computers don’t you?  If we all go through a handful of big companies to get our computers, we all get our systems for cheap.  The consumer is much better off.

But then we come to the socialist argument.  Ok, so society goes through a handful of mega corporations for all their computers, and nobody else can compete.  Well then, why does a small handful of owners reap all the profits?  Michael Dell reaps more and more money, and eventually takes over the computer market and nobody can possibly compete.  It’s not necessarily even talent which keeps these mega companies on top any longer, it’s just that they can order in such bulk, the barrier to entry keeps any other company out of the market.

These are the kinds of situations where I’m ALMOST a socialist.  I agree it’s unfair.  I also don’t think it’s good to break up the monopoly, because sure, we could break up the big computer companies, and make them all compete with one another, but then we can’t get computers for cheap.  Prices for a new PC double.

But say we go the socialist route… Ugh, here comes the can of worms.  Who owns and controls Dell?  Does it become owned by the state?  The employees there, in some democratic fashion?  Ugh, I don’t like either of those.  If it’s state controlled then nobody has the profit incentive any longer, and service quality goes downhill.  When you go to order a new computer the website will be horrible, like the government websites.  You won’t even be able to find your way around, and then you’ll go to order a new system and it’ll take six months before you get it.   Politicians will start borrowing money from it, making cuts because they need more money for their war machine.

If it’s democratically controlled by the employees, you get dumb people moving into decision making when they have no idea what they’re talking about.  The workplace would become like the government, with different party factions and standstills.  There’d be no nimbleness.

This is where Paul Samuelson’s income inequality arguments become valid, even though his textbook didn’t even bring up any of these arguments, because it sucks so bad.

Day by day it’s getting to where big corporations buy all their stuff in larger and larger bulk quantities, making it impossible for the small guy to start up his own business and compete.   These are the kinds of arguments Republicans don’t ever consider.  They act like it’s all about hard work and effort, and anyone who doesn’t succeed didn’t try hard enough.  That’s not the truth, though it does contain a germ of truth.  Effort does matter to an extent, but it isn’t the entire picture.

The big mega corporations are owned by the finance overlords of Wall Street, along with the super rich entrepreneurs.  That means all the profits flow to a handful of people in the society, the “owners”, and all of us have to work to earn petty wages.  Nobody can ever compete with them because they’re locked in.   This is a huge factor in income inequalities in this country.

Sure the monopoly makes prices cheaper, but it also leads to where all the profits go to a handful of people, and none of us make enough money to even buy the cheap computer!

This argument alone troubles me every day.  I walk in Wal-Mart to buy a gallon of milk, and think how there’s literally one or two guys who reap the profits from the entire store, and nobody can compete for those profits because they could never buy in such bulk quantities.  Where I live, the Wal-Mart is owned by two guys.  They pay their workers dirt.  Always cutting benefits.  Working people more and more.  Squeezing every last bit of efficiency out of the poor souls there.   And those two owners earn millions a year, and never even show up to the store.  Fat cats who live in a mansion, sipping champagne, driving their expensive cars.

So how can you fight back?  Minimum wage laws?  Labor Unions?  Taxing the rich?   Well, here’s what happens in the real world.   Here, let me search one of my economics texts.  Ah, here it is.  This is an economics textbook from the late 1990s, so it’s a bit dated, but it’s talking about Germany.   The principle it’s talking about still applies today.

“The Market is Mightier Than The Sword

A half century ago, German troops marched triumphantly into Eastern Europe to trigger World War II.  German focused economic activity there soon followed.    The idea was to use Eastern European resources, mainly its labor, to bolster German industrial output.  Germany’s ambitions were thwarted, and its economy was destroyed.

Fifty yeas later, the German economic recovery from the war is regarded by many economists as nothing short of remarkable.  Some refer to it as an economic miracle.  Its standard of living ranks among the highest in Europe, and Germany’s industrial capacity makes it one of the most powerful nations on the continent.

Here’s the irony:  Germany’s economic success has created the climate for a new invasion of Eastern Europe!  [Note:  He’s talking about immigrants flocking there in droves, looking for good jobs.]  Admittedly, the causes and circumstances are entirely different, and unlike the old, the new invasion is welcomed in Eastern Europe.  At the same time, it is causing a growing uneasiness at home.  Why?  What has happened?

If you combine Germany’s robust economic growth rates with its strong labor unions and the government’s willingness to tax, the resulting high wage rates and taxes make producing elsewhere — where wage rates and taxes are lower — look awfully attractive.  The average German wage level of $30 an hour (nearly twice that of the United States and Britain) plus six weeks vacation and an extra month’s salary as a Christmas bonus may explain the large emigration of Germany’s leading industrial firms.  This exodus of German capital — including Volkswagen, Mannesmann, Audi and Henkel — employs several million East European workers.

The consequences of this extraordinary exodus on employment at home has been troubling, creating more than 12 percent unemployment.  German workers are wondering whether they will be able to hold on to the dwindling number of jobs and to the wage rates and fringe benefits they have become so accustomed to.

A survey by Germany’s Chamber of Commerce and Industry showed that 28 percent of its 6,000 leading industrial firms plan to move their production out of the country over the next three years.  Nearly two-thirds of these companies cited high labor costs as the principal reason.  Germany’s central bank, the Bundebank, records that investments abroad by German companies nearly doubled in 1995 and rose another 40 percent in 1996, and it predicts the trend will accelerate unless measures are taken to stem wage costs.”

When I go to the Huffington Post online, and read some of their articles, I always hear them advocating the unions and how minimum wage needs to go up up and up!

Problem is, without tariffs, the business owners, out of greed, will relocate to places like Mexico and set up shop there.  Especially if the workers require very little skill to operate the machinery.  They’ll just exploit cheap labor there, and then sell the same products here in the US.  Why pay the high labor costs?  Thank you NAFTA!

That’s what’s happened here in the USA.  Blue-collar factory jobs have relocated to places like Mexico, where the corporations can get cheaper labor.  Factories where our grandpas used to work, and earn a good middle-class living, are now relocated in foreign countries for cheap labor.  Those jobs just don’t exist anymore.

I agree, in principle, that minimum wage should go up, taxes on the mega wealthy should be implemented, and so on and so forth.  Problem is, if the corporations can relocate, you’ll run off all your jobs, and then won’t have anything but flipping burgers at Burger King!

(Lol.  Sorry for the side note here, but it’s funny how any time I want to think of the most god-awful job you could possibly get stuck working, I always think of Burger King!  That’s where I worked when I was 16.  Oh my god, I hated that job so bad.  I can only imagine having to make such a place my career.)

And tariffs are icky business too.  Especially with us here in America.  We import everything!  Borrow borrow borrow, and buy things other people make.   Really, economically the more people can trade with one another, including foreign nations one with another, the better off we all are.  It provides a greater division of labor and specialization.

This is also why I think we need a one world government, and one currency.  Then we could actually do policies such as taxing the rich, minimum wage increases, forcing the fat cats to provide huge benefits to their employees, etc., and it not lead to unemployment.  But for now, such things just aren’t in our best interests.

Then again, sometimes I get to thinking about Big Brother, and them micro-chipping us all like dogs, tracking us with GPS.  A one world slavery empire ruled by an all powerful government enforcing the will of the big corporations on us all!  Puppet leaders, all bought off by moneyed interests. Ugh, that’s just as scary, if not more so.

*Sigh*  Why is the real world so complicated?

Thinking on immigration, I get mad when I read articles in the New York Times, acting like immigration doesn’t matter.   Floods of uneducated immigrants really do take away low-end jobs and raise unemployment.  Whether it’s right or wrong, I’m not really to say.  But I hate it when they act like people like me are idiots, when we state that increased numbers of workers pushes down wages in those areas,.  It’s simple supply and demand, and common sense.

That same economics text I was quoting from earlier had this to say about immigration:

“The U.S. Constitution guarantees citizens the right to move freely within and between all 50 states.  An economics graduate from Purdue University can gather her belongings in West Lafayette and head for the Phoenix labor market, where wage rates are thought to be higher, without having to consider passports, visas, or immigration quotas.

But a graduate of McGill University in Montreal, Canada, with Phoneix on his mind, may get only as far as the international border at Plattsburg, New York.  Without a work permit issued by the U.S. Immigration and Naturalization Service, the McGill graduate stays in Canada.

Are the U.S. immigration laws extraordinarily restrictive?  Not really.  All governments tend to be selective in admitting immigrants, designing laws to meet domestic concerns.

The supply curve of labor, then, depends not only on the supply conditions in the labor market but also on the government’s immigration policy.  A move to the less restrictive immigration policy, for example, could shift the supply curve of labor in the receiving economy to the right, creating downward pressure on the wage rate.

Hear that?  ALL governments tend to be selective in admitting immigrants, designing laws to meet domestic concerns.  Golly Gee!  That’s because floods of people taking away wages, and not having to pay taxes because they’re not citizens causes problems!

I must also say that this is from a Keynesian textbook!  Honestly, I think liberals have no conception of money or economics.  At all.  When I read the New York Times, they say such bullshit, all the time.  Same with the Huffington Post.  The crap they spew all the time is against common sense economics.

Progressives and liberals (How I hate those labels), are good about civil liberties, and ending wars, but have no concept of money.  No common sense.  They live in la la land.  They have these vague moral feelings, where they think everyone deserves everything, and we have to help every little cause, no matter the cost.  Republicans are war mongers, and have no respect for personal liberties.  They could case less if you lack medical insurance.  Rep. Grayson said it best.  The Republican idea of healthcare is don’t get sick.  And if you do get sick, just die.

I don’t like any of them.  Probably the guy who holds beliefs closest to my own would be Ron Paul, who is a libertarian/constitutionalist (…more labels), but I don’t agree with him on all things either.  I think college education should be provided to all as a right, and also medical care should be provided to all as well. I think the CIA and FBI are up to no good most of the time, and it’d be good to shut most of it all down.

Just the other day I read how Big Brother was collecting blood samples from every newborn baby.  They had built up a database of 5,000,000 new babies’ DNA, all stored in a big computer database.  Geez!  It just never stops.

I’m a duck out of water.  I waddle around, not fitting in anywhere politically speaking.

There’s a lot more to say about providing value, and monopolies.   Maybe sometime I’ll write about all the different types of monopolies, how they form, and different ways to think about them.  I only wrote about one type here.  This stuff really fascinates me.  I love economics.

There’s so much to monopolies, oligopolies, and the study of the big corporations and their control on things.  I’ll write more on it sometime.  I just barely scratched the surface.

When I talked about controlling value, this is the kind of stuff I had in mind.  The Dell corporation controls the “value” of new computers.  They build a high wall around that industry, and guard those profits from anyone ever entering.   The control of value, and all its effects, I think is the most fascinating subject there is.  In a sense, I suppose you could call it a study of power and control, but power is a bigger thing which includes more than just controlling value.

That’s what runs this world.  Control of value.

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3 Responses to A Duck Out Of Water

  1. I’m not sure if computers are a great example of that because not everybody wants a cheap $350 computer, or even a $1000 computer.

    The last 2 computers I bought, I typically spend around $2000 on a new desktop every 4 years, but this time it was around $1700 for my iMac and $1600 for my MacBook Pro. Apple is the ONLY computer company in the world who sells in this market at premium prices. They’re still a billion dollar company despite guys like Dell who cheapen the product.

    How they do it is through better design and marketing. They found little holes in the marketplace that are weak areas; things people typically hate about Dell and others. Then they exploit those weaknesses.

    Cheap milk is similar. If I were going to market milk, it’d be suicide to sell on the basis of price. Yet this is exactly what most dumb business people try to do. (Perhaps because they’re not creative or just plain ignorant)

    Instead I’d sell my milk as being from “organic free range cows who got daily massages, ate only the finest grass and were blessed by Jesus before slaughter” – now I can justify my $7 per gallon price.

    Not everybody will buy my $7 milk. But a certain segment will, and with better marketing maybe more. And surely enough of them will buy to make sure I have enough money to buy $2000 computers 🙂

    It’s time to stop pandering to the low-end.

  2. There’s never a market which includes everyone, but the primary market in computer sales is cheap desktop systems, primarily PCs. Dell has nearly 3.5 times the market share of Apple. As of 2009, the top 5 computer vendors are as follows (market shared listed as well)

    1. Dell (26.3% market share)
    2. HP (26% market share)
    3. Acer (12.6% market share)
    4. Toshiba (7.7% market share)
    5. Apple (7.6% market share)

    It should be noted that Dell lost market share last year, down 18.9% in growth. Apple too lost ground, down 12.4% in growth. Acer did great last year, with 51% increase in growth, and Toshiba was up 33.9% growth. HP stayed about the same, slightly gaining a bit of market share. Who is gaining ground and making the huge bucks? Foreigners selling computers for dirt cheap, because we’re in a massive recession. They’re making billions.

    Dell is now continuing to lose market share to HP and Acer, and has dropped to 3rd.

    When I was speaking of natural monopolies, I suppose to be technical I was talking about oligopolies. I was referring to the nature of these kinds of markets to be dominated by a few key players with NEAR IMPOSSIBLE barriers to entry. I don’t agree with your take on Apple. If I’m not mistaken, Apple was the first main seller of home computers. If they had played their cards right, the masses would be using Macs, not PCs and Windows. They had every opportunity.

    All these companies are either old computer manufacturers, or foreigners entering our U.S. market. There’s no up and coming guys, gaining significant market share. Acer is based in Taiwan, and goes back to 1976. Apple too goes back to the same time. Toshiba goes back to 1939. HP goes back to 1935. Dell, 1985.

    I’d be interested to see someone just step in and start making money selling systems. I think it’s next to impossible, even with clever marketing.

    “It’s time to stop pandering to the low-end” ? So stop selling to the primary markets which bring in the most money? There’s not infinite segments out there, and some are more profitable than others. A LOT more profitable. The core argument I presented is still the same. Why a few key players, backed with lots of money, can buy in bulk and out sell everyone else. Sure there’s skill to it. It’s a ruthless battle between the key players, but outside of huge Wall Street backings, you’re never going to get into this game, and that’s my point. And why all the profits are entitled to a handful of people is also a question of society’s concern, especially when it requires a special ticket of opportunity to play the game.

    You’re either one of the first guys in the market, because you yourself create it, and get an early head-start position and secure it, or you force your way in with huge amounts of capital. So 1) you get a unique opportunity presented to you available at the time, or 2) investors.

    Getting investors and fighting to get in an already dominated market will be much harder.

    As for selling organic milk, there’s money to be made, but it’s nothing compared to what the big dairy corporations are making. Examining the 2008 figures, only 3% of all milk sales are from organic milk. It’s probably a slight tad bit higher now, but as you can see, that already limits you to a small fraction of all profits. I suppose if we’re satisfied battling for the crumbs from the master’s table, we can all do so. But no matter how clever you are, I doubt you’ll ever win a place at the table with the big guys.

    So as the big guys battle for all the money, the average man is pretty much confined to petty wages, watching his savings eaten away by inflation, due to the fractional reserve banking system and Fed policies. And as the corporations push their employees harder and harder, there’s nowhere else to go. They have no choice because they need to provide for their families, or starve to death.

    It takes a certain type of ambitious temperament to fight your way to build a company. Telling everyone that they’re too lazy, or not clever enough, is no way to build the world we all desire.

    There’s a strong argument for socialism. But as I said in the post, fighting back through taxing the fat cats, labor unions, etc., will lead to the big corporations moving elsewhere where they can find cheaper labor, unless they need very skilled workers. Then even the “low-end” jobs no longer exist.

    When I carefully examine the arguments found in all these economics textbooks, the system is rigged against us. But how to implement socialism successfully, I don’t know. For now, I think capitalism works out better. At least if you can be creative enough, you can create your own market, and get in early. Or if you’re really clever, design some awesome technology and start competing with the big guys. Easy to do? No. But at least you can try.

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