Saturday, March 31, 2012

The 6 "P's" of Regulation

We have regulations upon regulations upon regulations and there is no end in sight. Regulation is intented to Protect someone or something and Penalize those that fail to follow the rules.  Unfortunately, too much regulation Proliferates government, kills business Profits and is counter to Productivity and Prosperity.  There needs to be a healthy balance.  Unfortunately, the pendulum has swung so far in the wrong direction that America as we know it is facing a 7th "P" or more appropriately a double "P", and that is Pending Protest

I know protests are nothing new...America has seen protests!  We have protests by unions, minorities, students, communities and the like for many reasons but we've not seen the biggest protest yet to come.  Common folks of the lower-to-middle working-class, entreprenuers, those that have created the largest constituency of small business in the world, folks that are the backbone of America will rise up and begin to take a stand.  To me, it is inevitable that the "commoners" begin to stand united against more government and more regulation.  It is at this point that change for the good in America will truly begin.

You see, these are the hardworking citizens that don't have the time to protest.  They feel they're better off continuing to bust their butts because the need to survive and the opportunity to possibly overcome regulatory obstacles have been somewhat disdainfully manageable albeit costly in the past.  However, we are now reaching the point where this is no longer true, and when the backs of America are broken you can bet there will be plenty of time for protest.  This huge, mostly silent voice to-date has yet to show it's united face!

Sunday, March 11, 2012

We Need Another Billion People Fast!

The world's population exceeded 6 billion in late 1999 and it will hit 7 billion soon.  By 2020, estimates put the world's population at nearly 7.47 billion.  That's an earth-load of people but not necessarily a lot of population growth in relative terms.  The world's population over this period of time is growing at a clip of approximately 1.18% annually.  Fairly enemic when compared to how much we expect our stock portfolio to grow annually or our business revenues or our country's GDP for that matter.  So what does this mean besides there being a lot of mouths to feed?

Well, I'm no economist but this seems to be the pace at which I would expect real economic growth the world abound to grow over the long-haul.  Real economic growth should approximate its mean which to me is tied to population growth and nothing more (not GDP or any other manipulated index).  The reason being is this is a zero-sum-game on earth: nothing more is created without something being used - creating people comes at an expense too but that's for another discussion (well briefly, in theory, there is no real growth at all on earth as earth and all it has to offer is finite).

For this discussion, I want to focus on real economic growth and how it is measured and why it should match population growth.  "Real economic growth" seems to be a fairly simplistic concept for the most part. "Growth" as the word implies is an increase from what it was previously to something greater like a seed maturing into a rose bush.  "Economic" then is simply a measure of demand (in the form of a currency) whether that be within one's household, a corporation, the United States or the world at large.  We all know what is real and what is imaginary or at least I once thought that.  It's amazing how big something can get that it actually masks itself to us and almost becomes our new reality.  It seems to me that today's world economy has become just that: a disguise of prosperity.

Breaking all of this down to my own situation I would have to say I'm not "growing" but contracting (and yes, since I've hit the proverbial age of 50 I actually might be physically shrinking too!).  This has been largely due to a drop in my annual earnings and then by my desire to deleverage my personal balance sheet (i.e., payoff debt at this time rather than spend or save any extra dollars).  For instance, every time I borrow money to purchase something when I don't shortly thereafter pay that money back, I temporarily increase my economic capacity at the expense of future economic capacity.  At some point, my borrowing has to get paid back which in theory reduces my consumption during the payback period. 

Of course, in reality my earning capacity could potentially always grow in relative dollar terms and thus my financial capacity to acquire could in theory never contract or decline.  However, remember as one person, I can only consume so much of anything.  At some point, there is a limit and thus my "real economic growth" gets smaller and smaller on a percentage basis over my life span and this holds true for the world at-large as well.

Accordingly, real economic growth should equate to population growth over the long-term (after factoring out inflation which is simply an element of perception.  We already know this is a zero-sum game and nothing can be truly increased - it's simply "inflated in value" based on perception that it has decreased in some manner - however, nothing concrete overall was created by this inflation element so it gets adjusted here).  That's as simple as it gets.  The problem is this growth gets skewed by inflated demand as a result of other influences or factors that during shorter periods of time have an immeasureable imbalance, but smoothed out over a much longer time horizon, it does not alter its trajectory.  The world's current combined debt is a great example of one of these influences.

Real economic growth over the past 30 years has been masked by this deluge of borrowed money by the developed world thereby creating an economic bubble inconsistent with how real economic growth should mature.  We might be at a crossroads of sorts while the world deals with its excess spending unless we somehow add a billion people fast to prolong this mess for the foreseeable future.  After all, we keep "kicking the can down the road" with shorter-term interim solutions so I just want to kick so far that all of us are dead before this ever surfaces again - adding a billion people today just might do that!

Author Note: This is a fairly fictitious post for the most part.  The intent was to boil supply and demand down to its vary basic elements as there is a finite amount of both in this world.  I know innovation, higher productivity, extracting more resources and all of that does increase per capita income/GDP and all of that…and we are nowhere near peak capacity or full utilization of our resources or efficiency of our resources, etc. and our appetite for more McDonald hamburgers for that matter!  What I concluded was demand was the final determinant of growth and population growth is the bottom line once other channels for growth are saturated or maxed out.

Let’s say earth resources could only produce iPhones and we innovated and innovated and worked harder, etc. and we could produce iPhones by the trillions.  Well, who would buy those iPhones once they were produced and everyone had one.  No one as there was no one else to sell them to.  So, my theory was true growth comes from population growth (and a small small portion of replacements that fail and not under warranty…ha ha).  Everyone can only consume so much and in this case only be able to use one iPhone at a time.