How to screw small business 101

May 31st, 2007 by De Onion

Has the government considered the cost of next Tuesday’s impromptu public holiday to small business?

A small business is now on the hook for a day’s wages without income, so that’s probably $300 per person x6 for a small construction crew, plus other incidentals = $2,000 out of pocket for the entrepreneurs being supported by the BSBDC’s construction incubator… to say nothing of bigger businesses for whom the cost is far greater.

Not everyone gets a pony.

Rational vs. Right

May 29th, 2007 by De Onion

The gap between rational and right – I think this is a really fantastic post, the key of which is the following:

…there’s a distinction between “rational” and “good,” and most of us know it when we see it. Thomas Jefferson, for example, kept slaves because it was, after all, a rational thing to do. He needed the money his slaves brought in and he was too weak-willed to forego that money and free them. However, he also argued that slavery was wrong and should be banned — a position that’s usually presented as an unfathomable paradox. But it’s not. Jefferson wanted slavery banned because he understood that individuals often lack the willpower to do individually what they know is right. Sometimes it takes the power of community action to force ourselves to do good things that we can’t (or won’t) do on our own.

Empty threat: Anyone who mentions slavery and misses the point will have their comments deleted.

The real lesson I think goes more for real estate developers and many builders, especially with the recent delisting and destruction of Island Coffee in favor of a big, ugly steel building. If one is in the position of owning a building like that then they are given the uncomfortable choice of choosing what is rational (knock it down and build a big, ugly building, making the commute ugly for thousands of people each day, and destroying a unique piece of architecture), or doing what is right (renovate it and rent it or sell it to the National Trust). This is where government should be doing its job and making it rational to do the right thing. Government sets the rules, we play by them.

I’m very sad to see it go, and in the context of the state of Bermuda’s environment and planning it’s hard not to call for resignations.

Talking heads…

May 29th, 2007 by De Onion

In policy discussion there’s a very real tendency to simply repeat an incorrect or unusual viewpoint until people accept it. The Bush administration were masters at this – they repeated the same thing until people believed it….

Turns out that repeating an opinion enough times is almost as effective as having a large number of people believe it. This is perhaps especially important on the Bermuda blogsphere where a small number of very loud and very repetitive posters make up a large percentage of total post volume.

Long-run investing.

May 27th, 2007 by De Onion

I’ve been neglecting writing recently… but when looking at education and the value of our investment I think that this post is particularly relevant to the investments we make in education.

Government is in the interesting position of being a corporation with shareholders in the form of every voting Bermudian and the ability to make investments that will earn returns not next quarter or next fiscal year, but in the next generation and beyond.

IMHO.bm is a little shop of horrors!

May 21st, 2007 by De Onion

Ok, so maybe the title was a bit of an overstatement… but it seems to me there there’s another misidentification of an issue in this post at IMHO.bm … In general I think he’s spot on, but there is perhaps a bit of a different spin that we can put on this part:

Don’t get me wrong, I’m a strong supporter of having as many Bermudians in all fields of work, but anyone who would suggest that we don’t need foreign works is a fool, plain and simple. We need something that is more mid ground. As I’ve said it before, I feel that we should have an apprenticeship program where a Bermudian is trained under a foreign worker, and I feel that it should be supported, and in cases, partially compensated by Government. The way it stands now, we are going to start to see gaps in many fields of work which are already under stress from a sheer lack of people resources.

I don’t think our goal should be to have as many Bermudians in all fields of work. Quite the opposite. In many cyclical industries – ie. construction, we should really hope to only have Bermudians as the owners and a fairly small number of Bermudian labourers and tradesmen. Why? Because when there is a building recession (and there will be one eventually, there always is) we will be able to export our unemployment by sending the foreigners home when the number of jobs falls. This way a competent Bermudian always has a job, even in a recession… although back to the very non-cyclical and less fascinating world of dental hygiene.

We need to ask why people need jobs? This may seem like an absurd question – but let’s be honest. People need jobs so that they can earn money that can be then used to consume the necessities of life (shelter, nourishment, entertainment, etc). The problem of government “encouraging” things is twofold – one problem with specific attempts to favor an industry either through training or tax subsidy is that there is an increase in dead weight loss, and also cost us more in higher taxes and dead weight loss than we gain from having a Bermudian in that position. I know this kind of thing makes most people’s eyes glaze over quickly, but please bear with me. The other down-side of government “encouragement” is that supply of Bermudians for specific positions is completely inelastic short-run and still very inelastic long-run. This is Economics for “even if you offer people huge amounts of money, it’s still going to take them a few years to get qualified (short-run) and there still aren’t going to be many people who would decide to make a career of staring down people’s throats”. What this implies is that most government attempts to get people into specific industries are very likely to cost us all more than the benefit of having someone say “Hey bye! You bin flossin’?”

To make a long story short: If we really want to be all better-off in terms of being able to have the most people in our population who are able to afford a decent level of basic consumption (housing, nourishment, entertainment) then the way to do that is make it easier for people to invest in themselves and choose their own by ensuring that finances are not a barrier to entry into careers… letting the market decide how to allocate our subsidized investment in human capital. In the mean time let me go see the cute Irish hygienist every six months. Thanks.

Harmful tax practices… local edition.

May 20th, 2007 by De Onion

I think this is quite probably really terrible legislation… why? Because it creates a domestic tax haven… and does little, if anything, to deal with the structural problems of income inequality and poverty.

Here’s another related question: How much are we paying per small business created by the BSBDC?
(With no income tax and no capital gains tax, there is nothing magical about entrepreneurship as a source of wealth – unlike most countries it is much easier to get rich in Bermuda by having a job.)

Republicanism in Bermuda…

May 16th, 2007 by De Onion

I’m afraid that this is bordering on partisan, which I said I wouldn’t do. I hope that this can be seen not as a condemnation, but a warning – that if reality matches the appearances then Bermuda and the PLP may be in very grave trouble. No political party is perfect – and I think that Thomas Jefferson was right when he implied that a change of government every few years was important for a nation. I have to live on this island for the next 60+ years if I’m lucky… I’d rather have a well-intentioned, ineffectual leader like Alex Scott over an effective but ill-intentioned one as it appears that Ewart Brown may be.

I think I finally get it… after making some early conjecture in this post. The New PLP under Dr. Brown are big government Republicans – American style. They are going (as this letter to the editor pointed out) on the attack on social welfare programs while arguing that we need to shrink the size of government and make people responsible for themselves. At the same time they are going to increase government spending (and consequently the tax burden) like modern American Republican presidents while simultaneously pursuing “privatization” in the name of efficiency, which really involves giving government money to their friends to run profit-making businesses with no competition.

The following keys of American Republicanism:
– Attack progressive social measures for being expensive.
– Significantly increase government spending on other things.
– Promote market fundamentalism in speech.
– Destroy market advantages by awarding no-bid government contracts to profit making businesses.
– Refuse to be accountable for actions.
– Accuse people who question appearances of being un-patriotic (or racist, or whatever).

In the USA the result of these policies is an average of 1% per year lower GDP growth during modern Republican presidencies, as well as being associated with a shift in wealth to those of higher incomes (which I don’t think is a bad thing in Bermuda, but only in the context of very rapid economic growth and policies that allow the lower quartile to consume reasonable amounts of housing and other necessary goods, which are at odds with the outcomes of the above policies.)

Thoughts on Club Med…

May 12th, 2007 by De Onion

My primary content creation this week (outside of work) has been over at this post on 21square.com

Here are my comments:

Posted by: De Onion | May 10, 2007 at 08:19 PM

The real pessimists ask “What’s the opportunity cost of two decades of undeveloped Bermuda land with a large eyesore on it… and also “How much would that land be worth if we were to sensibly subdivide it into small lots, park, and commercial areas to allow the Town of St. George’s to be expanded onto that land, complete with modern small lanes and cute houses.

Urban village style… except of course… just another village, complete with fast ferry service down North Shore (which is where the St. George’s Ferry should leave anyway to be fast enough to compete with car travel).

Of course, then housing prices would fall, capacity for productive expats would increase, and we’d all have a higher standard of living.

…and nobody wants that, because it robs the politicians of a political point scoring and a photo opportunity. Which, let’s face it, is what really matters.

Posted by: Denis Pitcher | May 10, 2007 at 09:37 PM

De Onion,

I’d agree with you if you were referring to southlands. I would rather see that turned into a mix of urban living and parks that best utilized the space.

As for Club Med, I’m still on board with it being turned into a decent hotel.

Posted by: De Onion | May 10, 2007 at 10:11 PM

The advantage of Club Med site vs. Southlands is that it has the non-road links to the City of Hamilton in the form of a fast, convenient ferry route that could replace St. George’s, as well as continuing the general urban pattern of the town St. George’s… which is one of Bermuda’s true wonders in terms of being aesthetically pleasing for visitors as well as a really nice place to live.

The question that needs to be asked is “What’s the value added by a hotel in St. George’s?
– As far as I can see it’s pretty minimal since it’s using a large amount of our limited transport, space, and other resources for economic activity that really doesn’t generate the kind of foreign exchange to really compete with international business in terms of value added. What I mean is that it does not create many high-paying jobs, since a hotel must hire low-rent workers from third world countries to be cost competitive and secure a reliable labour force, the profits will flow offshore into a foreign shareholder’s pocket, the financing will likely be done by a foreign bank, so you end up with really low local economic multiplier beyond a very temporary construction income – which is not a true capital asset and is akin to the government spending money to boost the economy – looks good for a few months but in the long run nobody is better off.

You have to ask – what would the market do if this piece of property were to be given to its highest economic value – ie. what would the land sell to a hotel developer for per square foot? What would it sell to individuals for per square foot (assuming it was well designed to allow quality high density living). There’s not much room on this – on a per square foot basis we get far more from housing.

Not only that, but the potential hotel deals also essentially involve selling part of Bermuda to a foreign company which is at odds with my belief that we should own Bermuda, as well as own as much as possible of the rest of the world.

I would much rather see a decent effort to figure out how to allow the market to create a few hundred extra houses that are really nice places to live. It’s a bit of a false dichotomy, but following this I would like to see government stop trying to piss off international businesspeople by making their and their staff’s lives difficult and instead figure out how to make it easier for foreign businesses to make more money by being in Bermuda – ie. make it easier for them to attract/retain the best people, then you end up with higher-level business going on here, more competition for talented Bermudians, higher wages (since there’s still a limited labour pool, by increasing the housing stock there are lower costs of living, so those people not able to participate directly in the wealth increase at the elite level are still better off through both general wage inflation and greater supply of the most restricted consumable item – housing. By making Bermuda a better, easier place to do business we give ourselves more leeway to have really high salaries (because we can create more compelling reasons to have a presence here to overcome the high labour cost). Maximize wages while lowering housing cost with minimal cost to traffic additions and no destruction of Bermuda’s distinctive look – in fact it’s better after removing that huge eyesore – and we all win. Big time.

These things are all connected, but the simple summary is that with a hotel nobody wins but the people in the photo op.

Required Reading.

May 3rd, 2007 by De Onion

Clearly I’m a huge fan of economics – as an empirical study of human decision making. If that made no sense to you or you just want to have more fun then check out The Undercover Economist’s site or perhaps read Freakonomics.

I think all policymakers should be required to pass a basic economics test. Not because I don’t value diversity, but because it’s impossible for people to comprehend the impact of their decisions (like rent control) if they don’t understand basic economic concepts. Not all economics is entirely intutive, there is some serious misconception of the role of government spending in economic stimulation – which is huge for Bermuda because we have a huge dead weight around our economic ankle in the form of a huge civil service that does useless things like fund long-lining and fish docks. Here’s a neat article about the US military – replace that with government subsidy of tourism, fishing, etc in the name of “jobs” and enjoy the read….

Love and money

May 3rd, 2007 by De Onion

Hilarious article on cheeky monkeys and the real role of government…