Sunday, October 14, 2012

Capitalist Markets v. Markets Investors Want for Their Companies

A Failure of Markets and Other Observations from Asia by Kevin Meyer
Observing how capitalism is thriving in supposedly communist countries is interesting. China is an easy example, and many argue that capitalism is now more vibrant in China than in the U.S.. I thought Laos would be different, but it’s not. Markets thrive (even when shopkeepers are asleep) and entrepreneurial folks are setting up new shops and services to get tourists to part with their dough.

Even in the boonies there are stories. Such as the tiny Hmong village downriver from Luang Prabang. A collection of thatched one-room huts with dirt floors… each with a TV. TV? Power? The government didn’t bring power to the outlying villages. An entrepreneur came up with a way to pay for the infrastructure, deliver power to people with no money but with rice to barter, and make a profit. The “people’s” government frowns but tolerates it.

As an economics major one of the things that annoys me is that the biggest difference between capitalism and what we have has nothing to do with what the politicians talk about (too many regulations or whatever).  The theory of capitalism fundamentally relies on "perfect competition" which essentially means no-one has "market power."  If anyone tries to charge more than the market rate people will just buy from the next place.  The markets are a extremely good example of this.

In the west I would say a vast majority of transactions are done with businesses that have huge market power (often sustained by government action and government failure to restrict businesses from creating market power) - (Verizon, Comcast, GM, Google, Apple, Sony, Toyota, Exxon, United, Fed Ex, Bank of America, NBC, Visa, American Express...).

As a businessman perfect competition is horrible.  You can't get huge profit margins with perfect competition.

There is a difference between market power based on monopolistic tendencies (which is most of the problem currently) and price differentiation based on better offerings.  Looking at say why Four Seasons can charge a great deal to those that can afford it.

Businesses want to grab market power in every possible way.  Adam Smith understood the danger in businesses using this to sap the societal benefit of free markets.  The current politicians don't even understand that.  But even if they did it wouldn't matter.  They are not interested in capitalism they are interested in whoever can give them the biggest stacks of cash.  And those with market power (almost always aided by past acts and refusals to act by the government) have the most cash to give the politicians).

The beautiful nature of capitalism to provide the economic benefits to society is most easily enhanced by reducing market power and increasing competition.  Sadly it is almost diametrically opposed by our political nature to allow those with the gold to make the rules.

As an investor looking for companies that have market power (which has great overlap with Buffett's "moat") is wise.

I love some of the solutions to get electricity to those in need: Solar Power Market Solutions For Hundreds of Millions Without Electricity - We Need to be More Capitalist and Less Cronyist - Anti-Market Policies from Our Talking Head and Political Class.

Thursday, October 04, 2012

Follow Wise Advice

Comments on: Leading By Example and Some Mistaken Beliefs I agree that you should follow your own advice. I tend to like to look at things a bit different than others. The advice you give is not uncommon - be honest, be consistent, don't be a hypocrite. Good advice. One of the things I find funny is that everyone accepts that people are excused from following your advice if you don't. I think that is stupid. If your parents tell you not to smoke but they smoke. There advice is equally good. They are less good than a person that is wise enough to follow that advice. But the advice itself isn't any more or less good based on whether the person giving it follows it, or not. I find it much more sensible to evaluate advice based on whether it is wise than based on whether the person providing it is wise (or foolish) enough to follow the advice. Related: Do What You Say You Will - Arguing For Different Policies Doesn't Mean You Have to Change Behavior Before the Policies Are Adopted - Performance without Appraisal

Monday, October 01, 2012

The Wonder and Curiosity of Children

The Birth of the Scientific Method
She examined the box empty, and examined it again with all the jacks inside it. She picked up one jack on the palm of her hand, and held it out to me, saying, “Dat?” (Which is her request for information about a thing). I said, “That’s a jack.” “Jahk,” she said. And she said it again, touching various jacks: “Jahk, jahk.” 
As I sat watching her, I realized in a way I hadn’t since my own kids were small that play at this age is entirely purposeful. She was learning everything she could about those objects and how they worked. She was creating and testing hypotheses as fast as her little fingers could try them out.
I love experiencing the curiosity of kids. It is so pure and wonderful. They see the world and want to understand it. You are absolutely right about how deeply this curiosity is within us. Sadly we can still have it stomped out by our lives. It doesn't have to be, but it often is. And I think we miss that wonder, even if we don't know that is what we are missing.

I have written about this topic on my science blog: Growing Curious Children - Naturally Curious Children - Sarah, aged 3, Learns About Soap - Playing Dice and Children’s Numeracy