Wednesday, September 29, 2010

The Creativity Gap

Our country is credited with a history of creative adventures. From the Wright brothers to Bill Gates, ingenuity has had an apparent effect on our country's successfulness. However, in recent history it would appear that creativity has diminished -- more specifically, has been diminished. Now creativity is incidental as a means to wealth.

The effect of this is no more obvious than the invention of the iPhone, its applications, and the iPad. These technological devices are no more creative than a click-top pen, yet they have provided great wealth and comfort to both their users and inventors. Creativity no longer stems from a desire to do things no one has done (like making cars affordable to all consumers, bringing internet interface to the public, and flying), but is now only a means to make wealth -- usually from either tricking people into thinking they need things they seldom want or making life easier, more comfortable, or more controlled.

Let me start with two examples that are both locally applied and directly involved in my life. The first is a website called HungryBuffs. HungryBuffs provides an online interface for ordering food from delivery or takeout restaurants. The idea, in and of itself, is not necessarily bad; however, the site charges 50 cents per order. The order has to be filled in by the customer, faxed to the restaurant, and re-entered by employees. This typically takes the same amount of time for both the customer and the employee, but separates these incidents in time. People often call wondering whether the order had been placed or why it was taking so long and both answers can be explained by the different attentiveness given to a ringing phone and a ringing fax. A HungryBuffs order (once completed by the customer) takes 5-10 minutes longer than an order that has been phoned in. Customers don't have the opportunity to ask about specials and employees don't have an opportunity to offer cheaper prices on the meals selected online. A credit card number must be entered twice (once by the customer and once by the employee) instead of just once by the employee. So the real question is: What is the benefit? The answer is simple: the customer does not have to interact with humans to get their food. The transaction can be entirely mechanized on their end. Many people seem to prefer this to talking to someone on the other end. This manipulation of human weakness and isolationism earns the owner of HungryBuffs 50 cents per order.

The second example of "ingenuity" in my community is the Flatirons Meal Plan. The Flatirons Meal Plan (FMP) allows parents (usually of students) to provide their children with a food allowance. This food allowance can only be used to eat out at restaurants or shop at a select few markets. The markets sell alcohol, cigarettes, chips, ice, ice cream, and even hookahs. If students can buy cigarettes with their meal plan, the sense of control is mostly illusory. Secondly, the FMP charges businesses an 8% interest on all orders and requires a separate card terminal and line. The line is usually slow and often disconnects in the middle of transactions. Even though the price is not visibly adjusted for the FMP, the long-term cost of accepting the FMP causes prices to rise. For what purpose? So that parents can believe they have control over a certain part of their children's consumption? In all actuality, they still have no more control than if they were to have sent cash. Even if that goal was achieved, what would be the result? These college students would not know anything about handling money, formulating a budget, or being responsible for themselves in any way. The FMP also helps promoting eating out at restaurants for people who do not have budgeting skills. Could one ask for a better explanation of how our culture has become so irresponsibly consumptive?

If all ingenuity and creativity are geared towards increased consumption, has it always been that way? I don't think so. The internet was not created to sell goods or advertising space. It was created as a way for the military and universities to communicate complex information over long distances. As it gradually become more accessible to the public, it became a place where small businesses could do commerce at an exponentially lower cost. Hoorah! to that, but major suppliers gradually consolidated most online businesses and smaller businesses failed en masse in the 90s. The Wright brothers were nowhere near as financially successful as J. D. Rockefeller who did nothing creative, rather he used consolidated wealth to consolidate more wealth. Even today, the industry based on their invention is still borderline profitable. Yet, people fly with incredible frequency and trips across oceans take a fraction of the amount of time they used to take.

Henry Ford was a man who was idealized as a capitalist. Most Americans would pin him as someone who would fight for lower taxes, less regulation, and more corporate control. However, within his own company, he could have been loosely defined as a socialist. He utilized the assembly line to drive down the cost of production for his Model-T car. He focused on producing only one vehicle for all Americans to enjoy. The cost of the Model-T was $290 -- less than $3,000 in 2010 dollars. He often said that he wanted his employees well paid and products well produced so that all of his employees could afford one. His intentions were clearly noble, and they gave us the American car for Americans.

I have often mentioned how upsetting it is that the American car companies were bailed out in 2008. I wanted to see them collapse. They represented a short-term tactic of marketing and sales (and therefore production to meet the market needs) that was utterly unsustainable. After they failed to anticipate and adapt to the change in times, selective-oligarchic-"socialism" kicked in. This kind of socialism allows for no control for socialist stock-holders (taxpayers). The primary problem with this is that even after the bailout, the American automobile companies advertised using swinging trucks, fire, cliffs, and Big! Strong! Man! tactics. The cycle of advertising to create tastes and then responding to those tastes led these companies to be selling ridiculous and barely functional machines. Well, just the other day I saw a Toyota commercial with a spiral track of fire running up and up and up and this big, manly truck blasting up it with masculine disregard for reality and it made me laugh. It was basically a spit in the face to the American companies -- a way of saying "We can do it all and you can't do a thing!" Then, it went on to say that 90% of Toyota cars sold in America, were made in America. Toyota is expressing ingenuity in construction, productivity, durability, and functionality... while American car companies are expressing ingenuity in road-hogging, bone-crushing size, pretty buttons, new blinky lights, cup holders, and billions of dollars in marketing to our collective id.

So, in conclusion, I proffer my argument to anyone who believes that higher taxes will stifle ingenuity. This belief is rooted in the philosophy that those who create are motivated by money. However, I retort that we do not want these people in our societies. "Creative" ideas that come from people seeking wealth are seldom good ideas. They may seem incredibly profitable and useful in the short-term, but often provide significant negative consequences in the long-term.

Monday, September 13, 2010

Our Inheritance

Recently, I have been reading the literature of and speaking with members of my father's generation, Generation X. Thomas Freidman detailed the hardships of the Baby Boomers -- both in war and in the post-war, modernization era. He spoke of their difficult choices, the sacrifices they made, and the leadership spirit of the times.

I look now at the mind of the times. What great things have the entrepreneurial spirit brought us? iPhone applications? Twitter-ed down politics? Giant televisions? Wasn't there a time when capitalism brought us things that increase productivity instead of decrease it? Americans now spend more time than ever working. The average American works a 46 hour long work week, only to come home and spend 28 hours watching tv. No one seems to be happy with themselves.

But Generation X seems to be optimistic about our generation. They see the drive and initiative of a select youth to make the world a sustainable and better place to live. They see our intention to fight the problems they have created as proof the outlook is getting better for the U.S., but I don't see it that way. I think our generation will be just as selfish and shortsighted as Generation X. What sacrifices have we been forced to make?

What right do they have to be optimistic? While our generation strongly supported the election of Barack Obama and has shown the same gusto for environmentally sustainable goods and services as the youth in the sixties and seventies, there isn't much else to rely on. Even as the first Earth Day was celebrated, Generation X was preparing to ruin the country for the revolutionaries. What are the grounds for new expectations? I foresee history repeating itself: a generation showing support for sacrifices and selflessness only to be trumped by a generation who cares only about making a soft, cushy life for themselves at the expense of previous and future generations.

Monday, September 6, 2010

Tax Here!

Taxation without reconsideration.

Why do we pay income taxes? The answer most give has something to do with the 16th Amendment, but maybe that answer is not the right answer because that question is not the right question. Why do we still pay income taxes? There have been a number of advances in tax systems since the advent of income tax. For example, we now have the sales tax -- a flat-rate tax that usually has exemptions for food. In parts of the world, we have also seen the advent of petrol taxes, energy taxes, and CO2 taxes. Sin taxes make cigarettes in New York more than twice the price of cigarettes in New Orleans. There has even been discussion of a "Twinkie tax" and a "Fresh Patent tax" among fiscally responsible citizens.

But back to the income tax. Let's look at the upside. Income tax is fairly simple, often filed by employers, and easy to make progressive. However, the income tax system has several drawbacks. (1) Income tax promotes a consumption-driven culture. If you have already paid taxes on money that you haven't spent yet, there isn't much motivation to save it (thereby subjecting yourself to further taxation). Your motivation is to go ahead and spend it. (2) Nearly half of Americans don't pay income tax. Just because you make $20,000 a year doesn't mean you aren't buying diamonds, cable television, alcohol, and fast food. Many people who don't pay taxes fail to contribute substantially to this country, while still making a very cozy life for themselves. (3) The income tax system can be subverted by the incredibly wealthy through the use of tax shelters. Tax shelters allow individuals (but usually corporations) to pay taxes in a low-tax country simply by locating a trading post there.

We are in the bowels of a recession that many believe was exacerbated by frivolous loaning, borrowing, and spending. A large portion of Americans have negative net worth from borrowing more than they can hope to reasonably repay. A system that motivates saving may seem like it would be bad for the country's businesses and therefore bad for us a whole, but for many individuals it will prove lifesaving. If we can retain 90% of the motivation to earn instead of 90% of the motivation to spend, we could be in a much better place as a country.

There are several changes to tax law that could motivate savings in various areas. The first and most obvious example coming to my mind is the energy tax. Energy companies are enabled by the government. You seldom see an energy provider trying to outbid a competitor for your patronage. That is because competition is stifled in energy. The government is responsible for that, and that is in the best interest of you, the consumer. I don't want to imagine a world where roads, electricity, and schools are run like airlines, the big three, or insurance companies. If you were motivated as an individual household to reduce your energy consumption you certainly could. However, you are not. Energy is extremely cheap because what you pay doesn't cover pollution, environmental degradation, future scarcity, or fluctuations in demand. If you had to pay a flat rate of 10 cents a kWh (about what you pay now), but a %100 tax between 3 and 6 PM, would you do your laundry right when you got home from work? If you had to pay a %100 tax all the time, would you double check to make sure you haven't left lights on inside as you leave for the day? A tax that motivates saving by eliminating things that are often unnecessary or untimely (peaking demand hours, construction of additional powerplants, dirtier air and water, and high overall consumption) can ultimately help do away with a burdensome and cruel income tax.

Another tax I am a big fan of is the "Sin" tax. As a smoker and a heavy drinker, you might find that a bit self-deprecating, but I enjoy these things as they truly are -- luxuries. Anyone who can afford to buy these things can afford a tax paired with it. For alcohol, a percent tax is important, but it might be more effective to also tax alcohol/ethanol/(C2H5OH), the ingredient that gets you drunk. I came up with this equation for the impairment tax:

(ounces*abv)/300=tax

Examples:
12-12oz bottles of Heineken (%5 abv)
normally $12.99
10% federal sin tax = $1.30
impairment tax = $2.40
new price = $16.69; % increase = 28.4%

22oz La Folie New Belgium beer (6% abv)
normally $12.99
10% federal sin tax = $1.30
impairment tax = $0.44
new price = $14.73; % increase = 13.4%

1.75L (59oz) McCormick's Raspberry Vodka (40% abv)
normally $15.99
10% federal sin tax = $1.60
impairment tax = $7.86
new price = $25.45; % increase = 59.2%

1.75 (59oz) Patron Silver (40% abv)
normally $79.99
10% federal sin tax = $7.80
impairment tax $7.86
new price = $95.65; % increase = 19.6%

Let's put that into terms of government dollars. The National Institute on Alcohol Abuse and Alcoholism reported that in 2000, the per capita annual consumption of alcohol was 2.18 gallons. Let's use 2 gallons to be conservative. 300 million people, of which about 40 million are under 21.

260 million * (128 ounces * 100%)/300
That's 11 billion dollars a year.
And what if it is not?
The result is less absolute alcohol consumed in this country.
Two good incentives, one great tax.

To some this may look like a regressive tax system, and in a way it is. However, in the big picture it is a luxury tax, because alcohol is a luxury good.

Petrol tax is even better. Imagine: cleaner air, similar gas prices (resultant of lowered demand), more U.S. government funds, and fewer funds for corrupt Saudi, Nigerian, and Venezuelan governments.

Most of all, I am in love with the "Twinkie Tax" that promises to revitalize the health of our youth. The algorithm for that tax might look something like these (although I admit, it needs improvement):

(A) = [(calories from fat * 3) - total calories] / 10 = %tax

(B) = fat + (saturated fat*2) - (carbs/4 - sugar) - (protein) = %tax
(units in grams)

throw a McDonald's Quarter Pounder in there:
calories:410, calories from fat:170
(A) 10% tax
total fat:19, saturated fat:7, carbs:37, sugar:8, protein:24
(B) 7.75% tax

then, to test the algorithm, a McDonald's Southwest Salad with grilled chicken:
calories:320, calories from fat:80
(A) -8% tax (subsidy or zero percent tax)
total fat:9, sat fat:3, carbs:30, sugar:11, protein:30
(B) -11.5% tax

I know I need to account for cholesterol and sodium as well, but as I said the algorithm needs improvement. It ought to be calculated using %DV. More on that later...



Isn't it time we stopped punishing people for making money in this country? Our government needs money. Let's get it from the fat drunks, lazy smokers, wasteful litterers, and those whose daily dealings aren't contributing to a better nation.