Economic & Political Wisdom

Give a man a fish, and you feed him for a day.

Teach a man to fish, and you feed him for a lifetime.

Steal a fish from one guy and give it to another–and keep doing that on a daily basis–and you’ll make the first guy pissed off, but you’ll make the second guy lazy and dependent on you. Then you can tell the second guy that the first guy is greedy for wanting to keep the fish he caught. Then the second guy will cheer for you to steal more fish. Then you can prohibit anyone from fishing without getting permission from you. Then you can expand the racket, stealing fish from more people and buying the loyalty of others. Then you can get the recipients of the stolen fish to act as your hired thugs. Then you can … well, you know the rest.

Larkin Rose

How to End the War of Drugs — Part 1

This article is a continuation of a previous article, Drugs, Violence, and Economics. In this article I shall outline the steps that can be taken to sensibly deal with our drug problem. Unfortuately, as an associate has indicated, this will be an uphill battle due to three factors:

The government mind-set seems to be:
1) He who does nothing (new) doesn’t screw up.
2) He who doesn’t screw up gets promoted or re-elected.
3) See rule #1 …

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Hurricane Irene Devastates the East Coast’s Economy

The recent destruction of Hurricane Irene on the East Coast left many Americans underwhelmed. The carnage and destruction of Hurricane Katrina were not as present for Irene, but billions of dollars worth of damage and flooding are still wreaking havoc on the eastern seaboard. In the already sluggish economy, Irene is hitting the pocketbooks of most Americans in a serious way.

The event was downgraded from a hurricane to a tropical storm, but because of the lack of emergency infrastructure, damage was more widespread and costly than if a more devastating hurricane were to hit a prepared Florida coast. If the storm became any stronger, it could have caused serious damage to all of the glass in the Manhattan skyscrapers or cause permanent damage to all of the towns by rivers and ponds in Vermont.

Many retailers and businesses were relying on decision analytics and a busy back to school weekend in order to optimize sales. For operations such as grocery, drug, and home improvement stores; the weekend was a huge success because of the need to stock up on emergency supplies. For outlets like department stores, clothing chains, and movie theaters; the weekend was a bust because of evacuations and the fear of leaving shelter. A family was more likely to purchase something like a power generator or an emergency supply of freeze dried food rather than a new wardrobe to show off at college.

In an AP article, market researcher Ken Perkins said that the $300-500 people spend on fixing their homes would be lost to discretionary spending and could be taken back from the back to school business. With the economy already in a bad state of being, it will be even harder for most retailers to recover from missing the second biggest shopping season of the year.

For those with hurricane insurance, there claims might not cover all of the damages incurred by the storm. As reported by The Christian Science Monitor, most Americans do not participate in the National Flood Insurance Program. Since most of the damage caused by Irene was through flooding and not wind, people will find a hard time getting compensation for damaged goods and property.

While the immediate impact of Hurricane Irene may seem less severe than other highly publicized natural disasters of the past; its effects will linger through the economy and infrastructure of the area for years to come.

Decline and Fall of the U.S.A.?

While conducting some  research to help a client locate a new plant location in the U.S., I came across this:

Census: Near-record level of US counties dying

… roughly 760 of the nation’s 3,142 counties are fading away, stretching from industrial areas near Pittsburgh and Cleveland to the vineyards outside San Francisco to the rural areas of east Texas and the Great Plains.”

… the U.S. population grew by just 9.7 percent since 2000, the lowest decennial rate since the Great Depression.”

This trend may help Canadian companies move into the U.S. to avoid the border clogging security delays, however, this is only a short-term advantage.

If the U.S. does not take decisive action to reduce its deficit, control immigration, reduce taxes so that young couples will have children, and reform its education system, then it will not be long before the U.S.A. enters the ranks of once-great countries like the U.K., Spain, or Portugal.

Greed or Self-Interest

This wonderful video clip features the late Milton Friedman. It is important for Investigators and Researchers to understand how things work, and why. This short clip shows how the most critical functions of society work and why they either produce a better life for us, or produce misery. No amount of fuzzy thinking or propaganda will change how things really work.

An Expensive War That Hasn’t Happened

Fifth generation warfare hasn’t yet occurred, but our economy is being reshaped by it nonetheless. The insurance and re-insurance loses from 9/11 were between 30 and 60 billion US Dollars. The so-called war on terrorism is an attempt to prevent the formation of operational networks of 5GW actors. It strives to limit the conditions and circumstances that would foster an outbreak of 5GW attacks. I am not confident that the “war on terrorism” will succeed any more than the “war on drugs”. On the other hand, what choice do we have. The loses from a 1 megaton nuclear bomb in New York City that kills 1.9 million defies calculation.

9/11 was carried out by a network of religious zealots from one known terrorist organisation, yet they were not noticed until it was too late. Now stop and think about how hard it would be to detect and thwart a network of people from several disparate groups.

Insurgencies (4GW) and 5GW warfare are often described as “low-intensity  warfare”. This is a misnomer in the economic sense — just look at the cost of Vietnam, Iraq, and Afghanistan. One must accept at the outset that there will not be a clear winner in such a conflict, and that the participants involved will not value victory in the same way and that the fighting may end before total victory by one side. Unfortunately, many people have a hard time understanding this and in trying to win, spend far too much on the military effort. This lack of understanding of the so-called low-intensity conflict by both politicians and the public creates some opportunities while at the same time creates great economic risk.

My research identified 5 good news/bad news issues surrounding 5GW that are starting to shape policy.

  1. Who will do the fighting and how will this effect the economy? The US consumer represents about 20% of the world economy and between 60% and 70% of the US economy. Consumers in their peak buying period usually do the war-fighting.
  2. The Department of Homeland Security, and similar ministries in other countries, may become”ministries of everything” where every decision is considered for security ramifications. This bottleneck will strangle the economy, except for companies that have an “inside track”.
  3. Adding security costs to the deficit will further devalue the US currency. This is a retrograde tax on American citizens; even worse, to maintain trade with the US, other countries will have to follow suit.  This will really damage the economies of many allied countries. Retired people living on retirement benefits will suffer. This will force governments to raise taxes to pay supplementary benefits. This has the potential to become a destructive self-reinforcing trend.
  4. Power breeds a thirst for more power. The security apparatus of some countries may become overbearing and dangerous to civil liberties and democracy itself.
  5. Two lower cost solutions exist — developing a culture of preparedness and service at home, and extensive use of public diplomacy abroad. The development of a true militia to supply emergency manpower and a more active foreign policy based upon public diplomacy,  particularly by the allied countries such as Canada, UK, Australia, New Zealand, and the EU will lower the costs created by fear and uncertainty.

Each of these five issues present strategic opportunities, and risks, for service companies and manufacturers alike.

Previous articles on this topic:

Competitive Intelligence and the Economics of Warfare

Fifth Generation Warfare

Fifth Generation Warfare

While 4GW is primarily counterinsurgency warfare describe as “armed social work”, 5GW is an entirely different beast in many respects.

The nature of the 5GW is supposed to be a group of fighters who form a network. Their only common character is that they want to destroy the same thing, but their different reasons for doing so don’t affect the operation at hand. They use modern communication technologies to plan and direct their actions, then they disperse. The 5G beast doesn’t field armies or espouse a central ideal or idea. Worse still, by not losing, the enemy wins. The 5G war is about winning through political stalemate, instability, and economic stagnation or decline. This is warfare against economic success. With nothing to shoot at, how do you win? Without a rational idea to prove wrong, how do win hearts and minds?

5GW is the disaffected turning their hatred towards what they want, but don’t have. These fighters will use the lessons of 4GW and modern technology. The battlefield may become universal. Everything from  a Toronto water treatment plant, my bank’s computer system, and the Strait of Hormuz become the battlefield, and all at the same time. 5GW may originate with the current crop of Muslim terrorists and to some extent, narco-terrorists, but I doubt it will remain their province. This type of warfare just offers too many opportunities for a host of perverse sub-cultures — if they can make it work.

Responding with 3G type warfare won’t solve this problem. Genocide won’t eliminate this problem.  4GW techniques won’t make much of a dent in this problem. Current thinking indicates that until we find a global solution to this, risks of an outbreak of 5GW we will have to factor those risks into our planning and look for opportunities to become part of the solution, or to profit from the lack of a solution.

I see 5GW as the worst-case situation from an economic standpoint, even if we change our attitudes towards military service, security operations,  and international security.  Fear of 5GW is already reshaping our world and perhaps this fear will produce the dominant cost factor we face from this threat.

I’m not sure this type of warfare is really on the horizon, but certain elements of it have made an appearance. If 5GW comes to be, then the costs of trying to protect everything at once would be astronomical. In the an upcoming article I will explain the 5GW issues that are starting to shape policy today and their potential effect on the economies of the industrialised world.

Competitive Intelligence and the Economics of Warfare

Competitive Intelligence (CI) is a window looking out onto  the landscape that affects strategy and future prospects. Therefore, economic issues play a large part in how we view the competitive landscape. However, I never thought CI work would take me in the direction that it has recently.

Two or three years ago the economic issues were the effects of the asset inflation credit bubble and the effects of the resultant growth of the money supply. Now the strategic issue is the causes and effects of huge government deficits.

In this new strategic concern, there exist two subjects of importance for understanding the competitive environment. The first is the effect of stimulus spending and the second is the ongoing cost of warfare. Military spending has brought down governments and impoverished nations throughout history. Today, companies that produce products and supply services need to understand the markets that modern military spending have created and they must understand the effects such spending has on both the national and the world economy. To understand this topic, one must begin by understanding the evolution of modern warfare from the Napoleonic wars and onward.

Beginning with Napoleon, we have seen four generations of war fighting. The first generation of warfare (1GW) was the beginning of modern technological warfare involving conscription, industrial scale production of weapons, and financial systems designed to fund warfare. This also heralded the end of the Mercenary due to the formation of large standing national armies.

Next came the economic organisation of the nation state to put the full resource potential of the nation at the disposal of the war effort for financial gain. These were the wars of empire.

The third generation of warfare (3GW) was industrialized war fought for land and resources using established abilities from 1GW and 2GW. This evolved into the war of maneuver that we saw in WWII.

Fourth generation  warfare is a moral conflict often using ad hoc fighters with an ideal for command and control, not a unified command structure. This was Vietnam and it is Iraq today. Winning this is a matter of getting  people to reject an existing  ideal for something more productive, while maintaining military superiority that can overcome the actions of small flexible groups of enemy combatants. This type of counterinsurgency, to borrow David Kilcullen’s shorthand, is described as “armed social work.”

The industrialized world knows how to fight 3G type of war. The experiences of Vietnam and Iraq taught us what it takes to fight the fourth generation war (4GW). While the 4GW is expensive, a cost can be assigned to the war with some accuracy based upon experience. This reduces uncertainty which is the most hated thing in both business and military planning. It also creates business opportunities. For example, the mercenary has become important to the success of this type of warfare after a 200 years of absence from the battlefield. Secure computer networks for command and control are essential in this environment. New types of vehicles are required to move personnel around. All the housing and equipment must be serviced. All these areas, and more, offer agile companies an opportunity to make profit.

On the other hand, we shouldn’t downplay the economic damage a 4G war can do to the combatant nations. For example, the cost of the Vietnam war forced Nixon to abolish the gold standard to stop the redemption of US Dollar holdings by foreign governments which would have wiped out the US gold reserve. A devalued dollar, stagflation, and recessions followed — and so did the lack of monetary discipline that created the most recent economic crises.

The potential emergence of 5GW consumes much of my current research time. The costs of this are truly frightening. The next article will explain why this is so.

A Tale of Two Boxes

The two greatest inventions of the past century are two boxes. One sits next to my desk and the other delivered its guts to these shores. Of course, I’m referring to the PC and the shipping container.

The PC is a multipurpose box for communication, calculation, manipulation, and display of information. This led to lower inflation as it moved our production frontier outward making both production and trade less costly.

The BBC The Box site illustrates how important the shipping container has become to our lives. The shipping container, aided by the other box, allowed production to move to low wage economies, making goods less expensive here, while enriching the poorer countries of Asia.

Moving our own production frontier outward while moving manufacturing to low-wage economies gave us a protracted period of low inflation. The two boxes have made our lives much better; notwithstanding the current economic downturn.