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Business, Finance, Politics

Power Broker by Robert Caro – Summary & Analysis of Chapter 18

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Chapter 18 – New York City before Robert Moses

Nowhere had the Great Depression hit harder than in New York City. More than one person in every three had lost their jobs. The rest were often paid a fraction of their former salaries. Malnutrition was rife. Children missed out of education. There was fear and terror of the future.

Tammany corruption within the city was endemic. Federal relief payments were being syphoned off. The test for employment was politics rather than need. By 1932, New York’s debts were over $1 billion, equal to the debt of all the other states combined. The reckoning for Tammany rule had arrived.

The city’s failures were not entirely due to the Depression. They were also caused by under-investment in crucial infrastructure. Corrupt employment practices had resulted in a lack of qualified technical staff. Public works were either lacking or substandard. The development of parks and parkways driven by Moses stood out even more starkly as an example of what could be done. Road connections, both by bridge and tunnel, between Manhattan and the mainland were seriously inadequate. New York City, in terms of the state of its parks, playgrounds, statues and other public provisions, was a crumbling disgrace.

Central Park was a good indication of the demise of the city. The idealist construction of the 19th Century had been destroyed by the Tammany governance.  The zoo there stank from neglect, the animals either sick or malformed.

The city was surrounded by beaches, but their use by Tammany insiders restricted the general public to severe limitations. The beaches that were available were inhabited by lifeguards who couldn’t swim, or homeless people’s makeshift shacks.

During the Depression the parks started to fill with shack towns or “Hoovervilles.” There was a tremendous strain on housing and the slums were overflowing, with barely an acre of green space to provide relief. In 1932 there was only one playground for every 14,000 children. This did not prevent the construction of a casino in Central Park, at vast expense, by Mayor Jimmy Walker, who proceeded to use it as his own personal domain; somewhere to wine and dine his cronies.

Moses had other things on his mind, namely, the construction of metropolitan parks and parkways, the Triborough Bridge, the Brooklyn Bridge and connecting roads to alleviate the city’s traffic problems. Moses was planning to connect Manhattan with the northern states, Long Island and New Jersey. It was the most ambitious city development plan in the world. But was it achievable?

Moses persuaded Roosevelt to allocate funds as part of the State Budget. The rest of the money however, was to come from the city. Roosevelt’s successor, Herbert Lehman, was a champion for Moses and set up a special commission with Moses as chairman to start the development. Some of the initial funds were syphoned off for other purposes and it was a struggle for Moses to persuade the funders. New York City meanwhile, was unable to pay its employees and was close to being declared bankrupt. However, in the summer of 1933, Moses was to bring fresh hope to his plans by running for Mayor.

Analysis & Key Takeaways
  • The bridge is power, it’s the layers, public relations, and banks. Moses used the power of the bridge in order to leverage towards other projects;
  • Any jurisdiction runs the risk of being mismanaged when the same people get re-elected time after time; it goes from democracy to kleptocracy rather rapidly. Mismanaging funds is often the act of screwing the future to help the present (since we don’t know what the future may hold).
The Power Broker is a Pulitzer Prize Winner
Chapter 1Chapter 2Chapter 3
Chapter 4Chapter 5Chapter 6
Chapter 7Chapter 8Chapter 9
Chapter 10Chapter 11Chapter 12
Chapter 13Chapter 14Chapter 15
Chapter 16Chapter 17Chapter 18
Chapter 19Chapter 20Chapter 21
Chapter 22Chapter 23Chapter 24
Chapter 25Chapter 26Chapter 27
Chapter 28Chapter 29Chapter 30
Chapter 31Chapter 32Chapter 33
Chapter 35Chapter 36Chapter 37
Chapter 38Chapter 39Chapter 40
Chapter 41Chapter 42Chapter 43
Chapter 44Chapter 45Chapter 46
Chapter 47Chapter 48Chapter 49
Chapter 50
Business, Finance, Politics

Key Takeaways from Basic Economics by Sowell

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Basic Economics: A Common Sense Guide to the Economy

by Thomas Sowell (conservative/laissez-faire/libertarian)

Sowell constantly tries to show the virtues of the free market. He doesn’t claim that it has a social conscious but he does claim that it has positive consequences that could be seen as an invisible social conscious.
[Please note: Thomas Sowell is informed by libertarian principles, this article is not an endorsement of his views…I am intellectually free to explore different ideas. And so too should you be free to question and learn, am I right?!]

INTRODUCTION
• What is Economics? Economics is the study of the use of scarce resources which have alternative uses. A country’s legal and political system decides how their economic system functions and effects the all-important standard of living.

• The best example is the battlefield where medical personel must choose to use their resource between alternative uses. There will always be unmet needs. Some soldiers will need immediate attention in order to recover, some will recover on their own and some are too far gone to expend any energy on.

• Scarce = Reality. Scarcity is about the constraint on an individual institutions actions. Reality prevents us from building five swimming pools beside eachother. Reality constrains us. Scarcity constrains us.

• The basic tools and principles to analyse economics are shared between Oskar Lange and Milton Friedman. This book is about those principles. Economics can explain how the reforms in India and China have lifted 20 million and 1 million per year (respectively) out of poverty.

• Money doesn’t determine the standard of living (SoL) but the amount of exchange of goods and services does. Resources aren’t as important as the GNP. That is why Japan has a high SoL (with limited resources) and Urguay has a low SoL (with large resources).

[Please note: Thomas Sowell is informed by libertarian principles: the following is a précis of “Basic Economics”]

PART I: Prices and Markets

2: The Role of Prices

Prices dictate the underlying reality; the scarcity of resources. If you wanted to live in a beach house, your dreams would be stopped by the cost/price of that house. Cost/Price is not a barrier however but a representation of the scarcity of beach houses.

Even if government decided that beach houses was a right of every person and implemented a fixed price for the beach house, there would have to a lottery to use the beach house because of their scarcity. Rationing occurs despite government intervention. Rationining/Price/Scarcity = Reality

Thatcher said that Gorbachev did not understand free market economics because he was surprised that central planning was not used in Britain (wealthier than USSR). Prices dictate the rationing of food etc not a giant bureaucracy (Command Economy). Thatcher explains that bureaucracy can be rid of by the simple mechanism of price (Free Market Economy). If a company in Fiji finds a way to build shoes for cheaper prices then they will appear in Canada. Prices dictate how the free market functions. Prices represent needs, demand and supply. Prices convey a message about the worth of a product. We know that computer technology has improved because the prices have declined. Prices were the internet before the internet. They instantly dictated communications between individuals about how much something is worth and how much they are willing to buy it for. Like the internet, prices should not and cannot be managed by the centre. This is the demand supply interaction. Coordinated invisible hand works to help companies who are self-interested profit maximizers provide services for people.

In the Command Economy of the USSR, the prices of pelts was controlled centrally. This caused havoc when pelts piled up in warehouses and began to rot. Attempts to tell the Ministry of Light Industry that they should change the price was not heeded as the MLI had to control 24 million other prices as well. It is not humanly possible to do what Free Market prices do instantly. Yeltsin’s opinions of Free Market changed when he visited the US. The Lincoln Memorial was not as interesting as an organized Grocery store. How could it all be organized without massive lineups like in Russia?

Prices help to determine how scarce milk might be. For example, the yogurt, cheese and ice cream industries all rely on milk. If demands for cheese increase then more milk is required. This drives the price of milk up influencing costs for yogurt and ice cream. These producers will buy only as much milk as will repay its higher costs.

If a product is not profitable, the capitalist business will discontinue that product. The Command Economy is allowed to continue making those mistakes indefinitely at the expense of the SoL. Resources tend to flow to their most valued uses. Therefore, the market does not get flooded with cheese as the demand decreases once the market is saturated. From a society standpoint, the cost of anything is influence by how it might be used alternatively.

Popov and Shmelev said that USSR businesses would always ask for more resources than they actually needed. This is because they didn’t know how much they were going to need in the future AND the government would not question how much was needed. This was inefficient. The cost of making 1 ton of steel in the USSR cost 1000 kilowatts where in Germany it cost 300 kilowatts in 1988. Basically, USSR businesses were not forced to economize. These resources would not have been wasted if they could be purchased by alternative users in a competitive environment. The high level officials were not experts in the value of resources in a steel factory. If resources were denied, production would suffer and heads would roll in the central planning agencies of the USSR. If you compare Germany to USSR in 1988 you are looking at a price controlled economy and political/ bureaucratic controlled economy the effect is efficiency.

Similar comparisons can be made with Ghana and the Ivory Coast. Ghana had a government run economy while the Ivory Coast with much fewer natural resources was more free market. After independence from the UK, the Ivory Coast’s economy was so strong that the SoL of its lowest 20% was higher that Ghana high income earners. This changed with a reversal of roles when a socialist regime emerged in the Ivory Coast and a free market economy emerged in Ghana. The same occurred in the case of Burma and Thailand.

India gained independence in 1947 and was economically isolated for 4 decades. Its economy didn’t grow until the 1990s when they liberalized to a more free market economy. Now India is growing incredibly fast and the SoL (standard of living) is much higher for more people. The same is the case for China which liberalized some provinces slowly starting in the 1970s (with Mao’s death in 1976) and 1980s with agriculture being sold on the market at only 10%. By 1990, China realized that the liberalized areas were growing much faster than none liberalized areas. The economic growth rate meant more people rose out of poverty.

Knowledge is one of the scarcest of all resources. The USSR realized that they couldn’t coordinate their economy because the individual knows what the value of something is when they buy it. The key is that there are incentives in the free market that dictate when to correct mistakes and inefficiencies. Losses are as important as profit. Ironically, Marx and Engels understood the role of price fluctuations but their followers didn’t. Marx was concerned with efficiency. There were economists in the USSR who understood price fluctuations were important but Stalin shot them. Political control from the top was not something Marx wanted at all, n’oublion pas!

Price regulates how much a resource will be used. People buy more when the price is lower, people buy less when the price is higher. There is never a fixed quantity demanded. There is never a fixed supply either. The quantity supplied varies directly with the price. If the price of extraction of oil is lower than the barrel cost, the oil sands in Alberta make sense. With prices as high as they are, Alberta makes sense. There are always false predictions about running out of oil but those are based on prices as they are today. When people predict a shortage of engineers in the year ahead, they usually either ignore prices or impliclty assume that there will be a shortage at today’s prices. A larger quantity of something will be supplied if there are higher prices.

MythBuster: Prices cannot be controlled by an act of will on the part of the seller, therefore greed has nothing to do with high prices. There is the exception of cartels but that is rare. Competition will always rely on who can reduce costs of production in order to lower prices. Competition is the key to free market economics. The real value of something is fictitious. The price of something cannot be real or valid at some point and not at another.

When crops fail an area, “greedy” suppliers will rush to sell their grain because of higher prices. Compared to people motivated by ‘public interest’ who will not make risks and travel faster to sell their grain, the greedy suppliers will prevent starvation from occurring. They are so fast that they are better than humanitarian workers, so greed is good, according to Sowell. There is unfairness as part of free market economics, for example, when saddles were no longer worth much in the 1920s. Those economic areas collapsed and rewarded other people who were fortunate to be in the markets that they were in (i.e. oil). This unfairness to individual sectors is what allows for efficiency in the broader society and large majority of people. Ultimately, as Blanchet Dubois once said “I’ve always relied on the kindness of strangers.” This is true of everyone in a free market economic system.

[Please note: Thomas Sowell is informed by libertarian principles: the following is a précis of “Basic Economics”]

3: Price Controls 

Price controls are established to prevent prices from rising or falling past a certain level that would not be advantageous to a group of people. Price controls are always politically motivated and attempt to counteract the natural economic structure of society & they always have negative side-effects. They also may do either the exact opposite of what they were intended to achieve. Since price is a representation of scarcity, affecting price by government will not be able to change the underlying reality/scarcity that price is merely representing.

The housing “shortage” in New York during World War II implies that there were not enough physical houses but this is not the case. The number of houses before WWII and the number of people covaried together. The shortage was a representation of rent controls which made house scarce because the lowered prices allowed current tenants to take up more space and more apartments. The prices reduced limitations on space for current tenants. When a new family is created, they need more space but as they get older they don’t need as much. Rent controls don’t force them to economize. 1 or 2 persons could then afford to take up 2 kitchen, livingrooms and bedrooms. With rent controls, elderly couples have little incentive to sell their apartment. The consequence is that New York had a very low turnover rate compared to the national average. Tenants didn’t realize by taking up additional space more immigrants etc could not find houses, therefore price was removed as a barrier (if they can ever be considered as such) and were replaced with scarcity. When rent controls were removed, the scarcity ended and families economized into smaller houses to save their rent money which was now higher to reflect demand, according to Sowell.

Politicians love to take ownership of an issue that should not be under their perview. Their policies – turned into law – have unintended consequences because they don’t represent the scarcity/reality of prices. Government loves to demonize owners of apartment blocks as gouging renters but rarely are these people super-wealthy: with rent controls the number of abandoned buildings in New York is in thousands, and the government is forced to step in and buy up those properties that are not profitable for owners.

Rent controls also lead to deteriation of apartment buildings and houses and an increase in office buildings and non-rent controlled buildings. The business of building apartment buildings is not justifiable in a rent-controlled environment. This leads to increased construction of luxury apartment and houses for the affluent who aren’t effected by rent controls. Meanwhile, the affluent also can afford to have two houses, one luxury and one under rent controls thereby harming the poor people that the rent controls specifically aimed to assist. Poor people will still remain in the streets under rent control sometimes even more so, according to Sowell.

The 1906 San Franscisco earthquake created an actual scarcity in houses but there were less of shortage of houses then in New York during the rent control era. This is because people left or were absorbed into the current market until new growth and construction would allow most people to get new houses. Without rent controls, growth was fast as actual scarcity increased demand for new houses.

Price controls cause the shortages of gas during the oil crisis. Gas stations closed their doors because they could not afford to be open at the convenience of the customer. They were open for only a few hours a day causing large lines for the artificially lower gas prices. Black markets are created by price controls. Black markets have higher prices than the price controlled market and the free market as well because of the risk of providing the goods. Large black markets require bribing the government officials. In the USSR, most movies were black market because they allowed for more variety of what people wanted. Meat packing was on the black market causing meat sections of grocery stores to be empty not because of demand but because a preferred illegal avenue. Stats on the black market are difficult to track.

Surpluses in the Great Depression made it difficult for farmers to sell their grain. The government stepped in to cause the prices to rise to articifically high levels. This creates the opposite of artificially low rent controls: a surplus. The result is burning crops. Milk being poured into the sewers in order to deal with the unpayable surplus. Subsidies for family farmers actually benefit corporate farms far more in the same way that rent controls help the rich. The lose as a whole to the country are caused by the misallocation of scarce resources.

Simple as the economic principles may be, their ramifications are complex. The example of the Spanish blockade of Antwerp will elaborate this point further. The Spanish blockade meant that greedy ambitious people would try to enter Antwerp and sell the people food at higher prices given the risks. But the cost was too high for many people and as a consequence the Antwerp politicians surcame to pressure by deciding to create a price control. With prices lowered, the incentive of greedy ambitious types dropped until no food got into Antwerp leading their defeat by the Spanish using the blockade method.

[Please note: Thomas Sowell is informed by libertarian principles: the following is a précis of “Basic Economics”]

4: An Overview of Prices and Markets

Sowell argues that democracy is bad for the free market because people aren’t rational or educated about economics but have power to make decisions. In an era of democratic politics, not giving into temptation requires the general publics ability to understand basic economics and political leaders to be willing to risk their careers to do what needed to be done. It is hard to know which is less likely.

Economics is the study of causation. Why do poor people pay more for goods and service? Increased security in the areas where the products are sold. There are always unforeseen consequence for economic changes. This complexity from simplicity can be shown in the axis of the earth. Because the earth is on an axis, organisms, seasons etc are very complex. This simple fact leads to complicated consequences. Many humanitarian efforts have backfired because of a misunderstanding of prices.

Economics systems make individual actions stupid or intelligent. Organizational structures/economic systems control behaviour. Individuals are bound to the order of their government. For example, in the USSR, Stalin said all orders must be obeyed. He wanted all tractors painted red. The tractors were urgently needed in mines BUT there was no red paint. Individuals in the chain of command ASKED if it’s okay not to paint the tractor red because it was orders. It takes a long time to permit such obvious adjustments.

An incidental benefit of prices is that different groups aren’t likely to see eachother as enemies. If a Protestant and Catholic church are being built, the prices increase causing restriction on construction BUT they don’t blame eachother; they blame the market. If the government built the churches, the religions would never restrict spending/rationing and push to outdo the other, the government is likely to have to make decisions that would upset either church off and cause a feud between the two.

Incremental substitution occurs when a product’s cost increases leading people to move to using other products. This is essential to understand, politicians always try to find priorities when they should be looking at how aiding one good will influence others. Yes, health is more important than amusement but we don’t spend all our money on bandaids at the expense of music lessons. If someone is spending tax payers money they have no incentive to find how much the costs are; individuals worry about these things.

Cost means the labour needed to create something which is then quantified by price. Cost is often confused with price. We don’t want to reduce the cost of medicare: (the doctors training, hospitals, research etc). Economics is the dismal science because it frustrates the hopes and dreams that scarcity restricts.


[Please note: Thomas Sowell is informed by libertarian principles: the following is a précis of “Basic Economics”]

Part II Industry and Commerce:

5: The Rise and Fall of Businesses

Businesses rise and fall throughout human development. A&P grocery was the largest retail chain in any field, anywhere in the world. Its 15,000 stores in 1929 were more than any other retailer ever had in America before or since. In 2001, 36 businesses fell off the Fortune 5000. Schwarz toys once the grand toy store chain was crushed by Wal-Mart. The heart of this outcome is in profits and losses. It forces companies to use scarce resources efficiently. When compact discs began rapidly replacing vinyl records in the late 1980s, Japanese manufacturers of CD players ‘thrived’. But within a few years, CD-players only offered manufacturers razor-thin margins…There is variance in business success.

Why did A&P disappear? Social change: In the 1950s A&P charged less than competitors. It had exceptional efficiency. But eventually their competitors found ways to sell more efficiently. Suburbanization in America resulted in lots of decisive advantages over neighorhood stores. A&P locations were close and in neighborhoods. Refrigerators, freezers and automobiles all came to impact A&P’s bottom line. Larger centralized businesses began to immerge. Safeway responded to these changed rapidly while A&P didn’t.

BUT the fate of particular companies or industries is not what is most important. Consumers are the principle beneficiarires of lower prices made possible by the more effificient allocation of scarce resources which have alternative uses. An economy based on prices, profits, and losses gives decisive advantages to those with greater knowledge and insight. Knowledge of millions of people can be understood through price and market transactions. People are always voting with their pocketbook.

Economic Changes: Montgomery Ward was a department store chain. It was all mail-order in the 19th century. Under those conditions, with most American living in rural areas, the cost of delivering goods was reflected in its price. Ward cut costs with a mail-order warehouse strategy. They were able to cut prices and reduced cost per sale undercutting small community retailers. Then this poverty stricken guy named J.C. Penney believed that department stores should begin taking customers away from mail-order houses. It worked. JC Penney worked in a store in Wyonming but he saw trends that big department stores couldn’t. As a clerk at JC Penney, Sam Walton would go on to create an even more successful business model.

One of the great handicapps of economies run by political groups is that they can’t take new knowledge from the masses and implement those ideas. A society where the preselected few have control over development is disadvantaged. Competing in the market place decides who is more knolwedgable and can create greater wealth for the whole of society.

Coordinating Knowledge: The price-coordinated economy is superior. The free market economy does coordination by itself. The goods will “follow the money”. People at the local level have far more knowledge about how much gas needs to be pumped at their station than the Texas oil company. No single person can have all the knowledge of any business. The Texas oil companies job is much easier if they KISS by delegating tasks locally. The USSR failed to take this into account. When the U.S. government tried to control the price of gasoline and its allocation during the 1970s, it resulted in a surplus of gas in rural areas and shortage in urban. When government controlled gasoline prices were ended in 1981, higher prices led to a great quantity of gasoline being supplied and a smaller amount demanded. Business executives received instructions from consumers while government official give instructions. The difference is significant in the standard of living of your country. Wal-Mart forced its competitors to lower prices or shutdown. This enhances the standard of living for the entire economy.

[Please note: Thomas Sowell is informed by libertarian principles: the following is a précis of “Basic Economics”]

6: The Role of Profits – And Loses

The prospect of profits is just as important as the threat of loses in economic decision-making. Profits are incentives. In the absence of pressure, those who manage enterprises under socialism have far less incentive to be as efficient as possible under given conditions, and less pressure with keeping up with changing conditions. Socialist operations will resist change. India was a democratic socialist country from 1949 – 1990s. Innovation was not necessary. Motor cars were copies of old British cars, and there was a waiting list for cars in India. India’s economy exploded in the 1990s with liberalization. India society benefited in the same way that AMD and Intel created better computer chips. Capitalism has a visible cost which is profit while socialism has an invisible cost which is inefficiency. If a company makes 1 million in profits a non-profit organization or government-run enterprise would not be able to achieve the same objective. Without the incentives and constraints of profit, the same output might well cost millions of dollars more. The net profit is what is left after all input costs have been covered. Gross profit is before taking into account inputs. Net profit does not take into account profit on investment. A piano salesperson must hold onto a piano for a long time and thus must mark-up the price to cover his investment cost.

Costs of production: Henry Ford proved that the cost of producing 100 cars is very different from 100,000 cars. Mass production decreased the time necessary for production. Large fixed costs are among the reasons for lower costs of production per unit of output – what economists call ‘economies of scales’. In the turn of the century, cars could only be produced 6 per day. Efficeint production levels today runs into the hundreds of thousands. Cars are not affordable to most people in North America. The higher cost per unit in the smaller stores will not permit them to charge prices as low as the big chain stores’ prices. Advertising also reduces the cost of production.

But there comes a point where the cost of production will no longer decrease. Problems associated with size can affect quality as well as price. Smaller busineses can react to change better than large ones. Small companies don’t have the bureaucracy, in-flexibility and slowness of decision making. Soviet farms were notoriously inefficient. Ploughers needed to cover as much field as possible in a day, but this behaviour led to poorquality cultivation in the middle of the fields where no one would check their work levels. Counter-productive behavior from the standpoint of the economy was not irrational behaviour from the standpoint of the person engaging in it. Monitoring by McDonald’s was done by surprise inspections. Howard Johnson pioneered in restaurant franchising in the 1930s by supplying half the capital with a local manager supplying the other half. Local managers had a vested interest in a company’s success.

Passing on costs and savings to the customer is a falsehood. The idea that sellers can charge whatever price they want is seldom expressed explicitly by the implication that this is possible in the background of such questions as what they will pass on to the customer. Rockerfeller found a way to succeed by producing at lower costs and thus lowering the price in order to take away customers from competitors.

Middlemen cannot be eliminated because of economic reality. A realestate agent knows more about realestate than anyone else. They have a certain expertise which others cannot do as effectively as that middleman. Production and distribution is long and complicated. Since goods tend to flow to their most valued uses in a free market, goods are more valuable to those who can handle them more efficiently at any stage. If the middlemen has no better alternative uses they still provide value to society even if consumers don’t value them.

Socialist economies forgo the advantage of specialization. Soviet inventories existed for over a year. Inventories cost money. Ford has a 3 week inventory while Toyota is more efficient at an hour of inventory time. Soviet enterprises had no real choice but to maintain costly inventories. The suppliers were not reliable. You might run out of vital components if there were slowdowns in other sectors. The reason General Motors could produce so fast is that it was aided by other specialized suppliers like Goodyear…Ironically, it is where no one is controlling the economy that specialization and efficiency thrive.

[Please note: Thomas Sowell is informed by libertarian principles: the following is a precis of “Basic Economics”]

7: Big Business and Government

Monopoly means one seller. An oligopoly means cooperative sellers. A cartel coordinates prices together. Non-competitive industries have a detrimental effect and government will try to prevent or counter these negative effects indirectly. Sometimes one company produces the total output of a given good or service in a region or a country. Local telephone companies in the US were monopolies in their region but that is no more….Consumers do not know how much it costs for an apple to be produced. In a monopoly, any price can be set and people will have no choice but to accept it. Monopolies harm society because it is engaging in internal transfer and do not change the total wealth of the society, Monopolies transfer from more valued uses to less valued uses (economically speaking).

Government keeps monopolies in place by protecting against competition. Monopolies were pushed out by educated people who recognized the problems monopolies caused. Monopoly is an artifical restriction. They will always try to keep the price high but competition will enter the market if profits are so high thereby driving down price. Cartels coordinate prices by setting supply at a level driving price upwards but when one member breaks the pact, the cartel quickly becomes worthless. Monopolies try to create barriers to competition but sometimes these fail.

Regulatory agencies end up creating barriers for competition to enter a market place, often by imposing price controls or other measures. The cost of turning on a light in the middle of the night is next to zero compared to the cost of turning on a light during a hot summer day. The cost of electricy can vary wildly so setting electricity rates based on average costs can mean a company loses money but politicians know that consumers will not want to pay above a certain price. So higher prices might seem to be due to gouging or greed.

There was a Supreme Court case where a business had the advantage of economies of scale in purchasing salt wholesale. This was deemed discriminatory and unfair to smaller companies. So, the accused was found guilty because the law used a prima facie decision to shift the burden of proof to the accused. The problem is that the law clashes with economic thinking. Pan Am ‘controlled’ a certain share of the market according to lawyers. But they did not recognize that those customers ‘controlled by PanAm’ could go elsewhere quickly. They did not really “control” them…using the word “control” ignores the rule of substitution. Law and government don’t accept the substitution of A for B as salient.

[Please note: Thomas Sowell is informed by libertarian principles: this is a precis of “Basic Economics”]

8: An Overview of Industry and Commerce

McDonald’s was able to combine Kroc’s hamburger knowledge with Sonneborn’s financial sense. Howard Johnson was destroyed by McDonald’s. Franchising McDonald’s required people willing to take risks but not necessarily knowledgeable about finances or hamburgers. Knowledge is shared between the local and the chain. The franchise knows how to make EggMcMuffins while the local manager knows which kids to hire. Specialized knowledge that is organized by price is essential. Lenin believed that ‘accounting and control’ were the key factors in running enterprises but he soon learned that he needed the bourgeois class to run the businesses in Russia. Lenin quickly learned with a crumbling economy that expertise was important.

Knowledge is one of the scarcest of all resources. Generalizations are abound but specific knowledge that is relevant to economic decisions is very different. The total knowledge of all people will always outweight individual actors. While specialized individuals allow the economy to work more efficiently, Lenin believed that business management would be easy given the education of their previous owners. He learned, however, that there is no hierarchy of knowledge based on centralize education practices. Experts cannot oversee an economy as effectively as individual actors. Orders from distant bureaucrats do not make sense, in some cases.

Monopoly is the enemy of efficiency, whether under capitalism or socialism. Competing government institutions performing the same function are referred to negatively as ‘needless duplication’ according to public perception. McDonald’s built itself on standardization of the hamburger. Quality control is a byproduct of price coordinated forces. Heinz was built on differentiating its products from crappier brands. SO capitalism might well be called consumerism.

There are winners and losers at times. But this is often because of changes, for example when computers replaced typewriters. GM manufacturers were replaced by Toyota. Resistance to change is a human reaction to economic realities. We fight these realities with legislation but it may not be wise in the long-term. It was not be accidental that coal-mining regions suffered economic declines with the rise of alternative fuel sources. There are lamented declines and changes but this is in the name of progress.

[Please note: Thomas Sowell is informed by libertarian principles: this is a precis of “Basic Economics”]

Part III: Work and Pay

Chapter 9: Productivity & Pay

Humans are key to economic input and output. Pay is what motives them. If you increase the pay for engineers, then students in math will switch to engineering. If all pay doubles, the more people about to retire will stay on the job. Supply and demand dictactes how much someone is paid.

Productivity: productivity of any input depends on the quantity and quality of other inputs, as well as its own. That is why South African has higher productivity than workers in Poland or China. SA have more or better equipment to work with. Even if workers whose output per hour remains the same can be of very different value if transportation costs in one place are higher than an other. If a country has a high risk of bribery, its production is lower because that corruption must be taken into account.

The Slugger example explains this further: Ted Williams’ had the highest percentage of home runs – in proportion to his times at bat – in the history of baseball. But he only hit 40 homers in his best season. This is because he would be walked since he was the big slugger. Roger Maris was right before Mickey Mantel, so Maris was able to hit many homeruns and was rarely walked.

Income Distribution: Pay differences are determined by a combination of supply and demand which determines pay. Some people make more money because they are older, have more experience, skills, formal education and on-the-job-trainning. Often the rich and poor are that way because of the stages in their lives: a 3 year old is poor while a 60 year old is rich. People rise out of poverty all the time. The age brackets are far more meaningful in economics than class distinctions, according to Sowell. Rich is always turning over in Forbes magazine, the Rich are transient. Income means how much money one has in a year. Wealth means accumulated moneys. Many frugal people have past on a surprising amount of wealth to their heirs. Income distribution is not disturbed at all.

Society does not distribute wealth. It is more like height or size. In the top 20 percent 19 million heads of household worked while in the bottom 20 percent of household only 8 million worked. Therefore, there are 68 million in the top 20% and 39 million in the bottom 20%. The size of the American family has decreased proportionally to capital income. Most rich were not born rich, while most poor do not stay poor. People are not either “haves” or “have nots.” Being poor is expensive because delivering groceries to customers in a surburban neighborhoods is less costly than delivering groceries in an inner city neighborhood.

Differences in skills: The time where a strong back and a weak mind were sufficient for many jobs is long past in most modern economies. In jobs where brute strength was the primary work requirement, pay tended to reach their peak in the youthful prime of life. Strength disproportionately supports male workers. The peak earning ages for most Americans today is now 45-54 years old versus 35-44 in the 1970s. Today, physical strength also reduced or eliminated the premium for male workers in an ever-widening range of occupations.

Job Discrimination: discrimination is defined as judging individuals from different groups by different standards when hiring, paying or promoting. “No Irish Need Apply” was coming in the late-19th century New York. The idea of treating people the same, regardless of what group they come from, that is new to human experience. Substantitial differences in skills have been interpreted as discrimination: for example, Mohawk Indians in the construction of United States skyscrapers. Mohawk had experience. US industrialists moving to the USSR also had experience. Statistical information on discrimination does not detail skills, experience, performance, or absenteeism, much less work habits and attitudes, to make possible comparisons between truly comparable individuals from different groups.

Gender Discrimination: Women have lower incomes than men, but most women give birth to children at some point in their lives and many stay out of the labour force until their children reach an age where they can go to daycare. This costs women, experience, seniority, which in turn inhibits the rise of their incomes over the years relative to that of men who have been working continuously in the meantime. Women who become mother’s are punished by economic reality. If women were paid only 75% of what men of the same level of experience and performance were paid, then any employer could hire four women instead of three men for the same money and gain a decisive advantage in production costs over competing firms. Why would businesses do that? The truth is that experience and performance need to be taken into account when assessing pay. Women with children earned 75% of what men did while women without earned 95%, in 1991. The possibility of having children makes certain jobs more attractive to women, like librarians. Also men tend to take on hazardous occupations where 54% of the global workplace is men, 92% of all job-related death are male. Differences shrink with the same age and literacy levels of competing ethnic groups.

Racial Discrimination: If a landlord discriminates against the wrong group, that can mean leaving the apartment vacant longer. Racial discriminiation tends to be greater when the costs are lower and lower when the costs are higher. In apartheid South Africa, whites would hire blacks illegally to save money. Women were hired during war time etc etc.

Capital complements labour in the production process. When transit workers unions forces bus drivers’ pay rates much above what they would be in a competitive labour market, transit companies tend to add more capital, in order to sace on the use of the more expensive labour. This comes in the form of two piece buses.

Efficiency: All the energy generated by the engine will be used in some way – either in moving the car forward, overcoming internal friction among the moving parts, or shaking the automobile body in various ways. It is only when we define our goal that we can regard the percentage of the engine’s power that is used for that task as individating its efficiency and the other power dissipated in various other ways as being wasted. Output per acre in the US is lower than in Europe. But output per agricultural worker was much higher in the US than in Europe. An American farmer would spread himself thinner over far more land and would have correspondingly less time to devote to each acre. Whereas European land is more scarce and labour more available. Third World countries don’t have the machinery to be very efficient. The most fundamental question for efficiecy is that what are the alternative uses of these workers’ time and the alternative uses of the railroad boxcars?

What are the alternative uses of capital and labour?

The USSR boasted that the average Soviet box car moved more freight per year than an average American box car. But, far from indicating that their economy was more efficient, this showed that Soviet railroads lacked the capital of the American railroad industry and that Soviet labour didn’t have anything more valuable to do as an alternative to unloading box cars. Automobiles tend to have longer lives in poor countries than in richer countries. Dubai sells used Japanesse cars. It pays richer countries to junk their cars, refrigerators, sewing machines, and other capital equipment in a shorter time. The wealth produced in American can replace the older vehicle more effectively than trying to fix that car over and over again. In the USSR, the average service life of most equipment is forty-years, as against seventeen in the United States. This is not something to brag about. That equipment was mediocre.

[Please note: Thomas Sowell is informed by libertarian principles: this is a precis of “Basic Economics”]

Chapter 10: Controlled Labour Market

Job Security: France, Germany and India all have job security laws that make it difficult and costly for a private employer to fire anyone. Countries with such laws typically do not have lower unemployment rates, but instead have higher unemployment rates, than countries without widespread job protection laws. Firing is so difficult that some companies don’t even bother hiring. The constant quest for newer and better ways of getting work done and more goods produced makes it impossible to keep on having the same workers doing the same jobs in the same way. Agriculture is an excellent example where there was no job security. In that business, millions of farmers realized that their profession was not profitable and moved to industry. More than 17 million workers throughout the American economy lost their jobs between 1990 and 1995. But there were never 17 million Americans unemployed during this period. Job security policies save the jobs of existing workers, but at the cost of reducing the flexibility and efficiency of the economy as a whole, thereby inhibiting production of the wealth needed for the creation of new jobs for other workers. Ironically, when France tried to deal with its high youth unemployment rate of 23% by easing its stringent job security laws for people on their first job, students at the Sorbonne and other French universities rioted in Paris and other cities across the country in 2006.

Minimum Wage: Governments confer the benefits of minimum wages solely on the workers, but even these people can be harmed. The real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum-wage, because they lose their jobs or fail to find jobs when they enter the labour force. Making it illegal to pay less than a given amount is an artifical imposition on the economic system.

Unemployment: there is a correlation between unemployment and minimum wage laws, according to Sowell. Canadian minimum-wages cause a higher unemployment rate than America’s lower minimum-wage rates. Newfoundland had an employment rate of 16.7%. Countries have allowed the real minimum wages to not change despite inflation to avoid the political risks of trying to repeal these laws. Labour unions benefit from minimum-wage laws even if they always get paid more than minimum wage because their experienced labourers compete against unskilled minimum-wagers for employment. Employers aren’t going to want to hire an inexperienced worker at $10 per hour. The higher the minimum wage goes, the more the unskilled and inexperienced workers are likely to be displace by more experienced and higher skilled unionized workers. Unions protect their workers using minimum-wage but pretend to have a social conscious. The poorest people have been the ones who have most often lost jobs. 85% of Canadian and 90% of American economists believe that is the case. When governments decree higher pay, there are unfortunate side-effects.


[Please note: Thomas Sowell is informed by libertarian principles: this is a precis of “Basic Economics”]

Part V: The National Economy

15: National Output

Unions drive the cost of production upwards leading to reduced competitiveness of American car manufacturers versus the rising Japanesse car makers. By the 1990s, Japan had moved non-unionized plants into the US which would take on the GM labourers who lost their jobs because of being in a union, according to Sowell.

The Great Depression came from the fact that the money supply declined by 1/3 while the sale of goods and hiring wages were set at the old prices. If the prices and wages had also declined then real output and employment would have continued normally. Complex national economies can never adjust fast enough so there are massive declines in total sales, with corresponding declines in production and employment. In 1929, 1931, 1938, unemployment went from 5% to 9% to 25% in the US, respectively. The Great Depression led to unemployment at 30% in Germany in 1931 leading the rise of Hitler. The Depression has thus shaped 20th century history profoundly.

The Fallacy of Composition is the mistaken assumption that what applies to a part applies to the whole. For example, in the 1990s, there were massive job losses in certain industry sectors but a net increase in job opportunities nation wide. What was true of certain sectors was not for the whole. The Fallacy of Composition confuses many aspects of the study of national economies. Any individual who doubles the amount they have will be richers, but if a country doubles the amount of currency produced, the prices will increase accordingly because of the money circulated to bid for any good. Another example is the burning building where if everyone runs, they will bottleneck doorways resulting in more deaths versus everyone at their own pace allowing for smooth escape and saved lives. If everyone stands up during a football game, not everyone will have a better view of the game. If a government needs to ‘save 10,000 jobs’ in some industry, any given firm can always be rescued by a sufficiently large government intervention. The interaction that is ignored is that the government is taking money away from tax-payers at the expense of taxing resources in another sector losing 15,000 jobs. The net savings are minimal in an economy. These are some of the ideas behind the Fallacy of Composition.

The growing abundance of output is always equal for the real income of that country. Output and income are always covaring because it is the same concept from different angles. The two can fluctuate over time though, leading to the Great Depression where people held onto their money in uncertainty. The economy myst continued to operate at full capacity with investing in spending in full capacity.

National output is measured in Gross Domestic Product (the sum total of everything produced within a nation’s border) and/or Gross National Product (the sum total of all citizens production anywhere in the world). The difference between GDP and GNP is about 1? In the US, the GDP is measure between the flow of real income. The country can live beyond its real income means by using its accumulated stock of wealth. After WWII where everyone was wearing out their clothes, there was unprecedented growth because everyone was buying new durable products. Measuring the GDP is very complicated because of changes of price overtime. The real goods and service also change. The quality of a car in 1950 versus 2000 is vast BUT they are both one unit car. The size of houses has increased from 1983 to 2000 from 1,585 to 2,076 feet in the US. So a qualitative measure of the GDP is difficult. The value of a videocassette player in 1980 was 30,000 dollars but by 1985 if was under $200 and yet this is still one unit. Prices have declined dramatically over time. Luxury goods have become common place and it is difficult to quantify that change empirically.

Making International comparisons can be difficult because a country that produces sugar might be compared against a country that exports cars. It’s not just an “apples and oranges” difference! If you note the age gap, you must remove all the aids that older people need (from Viagra to wheelchairs) in order to get a representation of real income to wealth of that nation. In 2005, if you looked only at exchange rates you would believe that Japan’s income per capita is higher than the US but it is in fact only ¾ that of the US. US purchasing power is much higher because output per person in the US is higher. The countries with the five highest GDP aren’t necessarily the five highest GDP per capita or have the highest standard of living. China is on the first list but low on the 2nd and 3rd items. Measuring Third World countries is even more difficult to quantify because of the lack of measuring mechanisms and under the table dealing. As a Third World county rises out of poverty, more poor people can survive the horrors of famine & desease thereby leading to an increase in the number of poor as the country overall rises out of poverty. Statististiaclly this understates the economic growth because of the number of poor.

Statistical Trends: In 1960, JFK said he wanted to ‘get the eonomy moving again’ after the growth rate for the 1959 year was only 1.9%. In reality, JFK was making a comparison using the base year of 1945. But compared to 1955, the growth rate 4.4%. So statistics depend in the base year you choose. Compared to 1963, an investment in a Standard & Poor’s 500 mutual fund would have earned nearly 10.5% in 2003 versus 0.0% if compared with 1998.

Deflation: is where the money supply decreases making an individual’s buying power smaller given the scarcity of money. Deflation is harmful when individuals cannot pay for basic contracted agreements like rent or farm equipment because the value of their money has deflated while the cost of purchasing said items remains constant. During the Great Depression, less money was circulated while goods and services were at the old prices. Meanwhile contracted jobs such as in the government where their salary was fixed: they had to be paid BUT many ended up losing their jobs because of the deflation in money. Deflation is made even worse because people will try to hold on to their money longer. In the mid-1903s, less money was circulated causing mass unemployment. FDR and Hoover wanted to keep the wage rates at their previous level so that people could maintain their jobs BUT people were losing their jobs because no one could afford to pay them. By doing the same with agricultural products, FDR forced farmers to burn their produce because no one would buy it at those high costs.

milkThe Gold standard was tied the monetary system in the US to control the supply of money. What eventually happened was that the gold reserves were decreasing at the turn of the century causing deflation. William Jennings Bryan a populist farmer called for the end of the gold standard because of this. McKinley won anyway and new gold reserve were discovered in the Yukon, South Africa and California.

The Banking System: is a financial intermediary between individuals. It aggregates large number of modestly wealthy individuals in the economy of scales. This makes the standard of living increase because regular people can use banks to transfer and supply money. Banks allow borrowing of money from everyone while you collect interest on your funds. Goldsmiths stored everyones money in a centralized place: they gave out receipts that were ‘as good as gold’. This fractional reserve banking means that the total amount of bank credits tends to exceed all the hard cash issued by the government. SO if everyone removes their money at the same time there is a crisis: Everyone runs to the bank at the same time, trying to withdraw their money avialbale as the total depositors were entitlted to and ne-half of the depositors asked for the ri money, the bank then runs ou of money and collapses wth depositor losing everything. Mney stolen by bank robbers is less serious than the run on the bank that followed. Banks can’t turn some things like a 30-year mortgages into a liguid assets.

The Federal Deposit Insurance Corporation was created, to reimburse depositors whose money was in an insured bank when it collapsed. The runs were no longer happening. The Federal Reserve System is a central bank run by the government to control all the private banks. It has the power to tell banks what fraction of their deposits must be kept in reserve. Allan Greenspan, the head of the Federal Reserve, would make statements that were mis-interpreted having massive effects on the stock market. Lenin grossly under estimated the complexity of the banking business. The legal infrastructure needs to be strong for anyone to make a loan.

[Please note: Thomas Sowell is informed by libertarian principles: this is a precis of “Basic Economics”]

17: Government Functions

Government has played a major role in the political history of the 20th century. Communist, Fascist, British, Indian and French governments have all engaged in massive government intervention but that tide turned in the 1980s with Thatcher and Reagan. The neo-conservative movement has led to reduction in the role of government, and in Thomas Sowell’s view, this is for the better.

Kinshasha Airport The great role of government is to establish law and order. This is not easily achieved. Corruption affects investment, prices and business behaviour. Kinshasa, Congo is one of the poorest cities in the world, managers were paid extra to turn on the landing lights to the Kinshasa airport at night [because a) managers can get away with this manipulation, b) people really need to be able to see where they are landing at night.] Bribes were ubiquitous. In Boliva, the police are linked to trafficking and stolen vehicles. The delaying of laws is also a problem where bureaucrats create delays as an opportunity for them to collect bribes to speed things up – all of which adds up to higher costs of doing business. Because scarce resources have alternative uses, the real costs are the foregone alternatives which include delayed or aborted economic activity, the enterprises that are not started, investments not made etc. The Russian education system prior to the Fall of the Berlin Wall was driven by cash bribe payments to the teachers from affluent parents. There are high levels of corruption in politically linked firms. Birla, one of India’s leading industrialists notes that the bureaucratic process in India prior to the 1990s, made his business options to places elsewhere so he can invest freely without the need for brides, or have to endure law implementation delays etc.

Britain’s legal system is the more dependable in the world, and according to Thomas Sowell, it is no wonder Britain became a super-power. The industrial revolution led to unprecedent growth. A dependable legal framework had encouraged both domestic and foreign investment. Where the rule of law is weakest, business does not function well. For examples, areas of high crime suffer from having bad stores, lower quality goods with higher prices because of the risk of having those stores in that area.

Property Rights: property rights benefit those with a lot of property but we need to assess this in terms of the allocation of scarce resources. If you look through history, the Soviet Union carelessly packed their fruit leading to spoilage because the workers had fixed wages no matter how they packed those goods. If the food is owned by the people, there is no given indivdual with sufficient incentive to ensure that this food did not spoil needlessly. The Soviets tried to deal with the problem by having Communist Party members honeycomb throughout society for dereliction of duty. However, the widespread corruption and inefficiency found even under Stalinist totalitarinism suggests there were limitations to official monitoring, as compared to the automatic self-monitoring induced by property ownership.

Property-rights create self-monitoring, which tends to be both more effective and less costly than 3rd party monitoring. Colonel Sanders is not going to let chicken become extinct. McDonald’s won’t allow cows to become extinct either. Species that are disappearing off the face of the earth all tend to not be owned by people.

Property rights are often seen as advancing the special privileges for the rich, many property rights are actually more valuable to people who are not rich because they can aggregate their value as non-rich to influence decision making. Wealthy people have attempted to restrict property rights by setting land laws so that poor people cannot buy the land. Zoning boards, historical preservation agencies all limit the sale of private property for use in ways not approved by those who wish to keep things the way they were. Under rent controls, landlord have been known to damage their own property so that tenants will want to move out of their buildings…

Business, Finance

TRUMP: How To Get Rich

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TRUMP: How to Get Rich by Donald J. Trump

Business Rule #1:

If you don’t tell others about your success, they probably won’t know about it. The Art of the Deal was a best seller, selling 3 million copies. Trump doesn’t do it all for the money, BUT money makes dreams possible. Trump is a billionaire author with a hit prime time television series called The Apprentice.

Business Rule #2:

Keep it short, fast and succinct.

Part 1: Donald J. Trump School of Business & Management

Trump has 20,000 employees and running a business is like being a general. Your employees’ lives are dependent on you and your decisions. Be careful when choosing new employees. Don’t get mediocre people. Attitude is important. Have people around you that you can trust. All of Trump’s senior officials are trusted people. Sometimes your employees need a jolt or they need to be cajouled. Cater your inspiration to the specific worker you’re dealing with.

STAY FOCUSED:

The Late 80s, Trump lacked attention to his business, he loved Fashion shows and beautiful women. The real-estate market crashed in the late 1980s almost runined Trump. A begger on the street was worth 9.2 Billion dollars more than Trump was in 1989…Forbes was very pleased with Trump’s crisis. Fortunately, Trump has allies in the banks, at 3am Trump walked to CitiBank. He phoned Japanese, Austrian banks. Trump personally guaranteed a billion dollars. Trump suggests that you never guarantee anything in life.

MAINTAIN YOUR MOMENTUM: don’t marry the wrong women, don’t retire from you business. Mr. Levitt lost his momentum. He left the world of business for 20 years. No matter how much you think you know your business, you need to be re-trainned regularly. Whatever you are managing, don’t assume you can glide by without constantly refreshing your knowledge.

GET PEOPLE YOU TRUST:

It’s good to be paranoid but not with your own team. Hire people you can trust. Hire loyal people. People who have pride in their work and save the company’s money are the employees you want. Watch out for the bottom line. Don’t expect smooth sailing. A business is an extended family. Problems should be seen as an opportunity. Your company is a living breathing organism; watch out for bad cells while allowing good cells to grow. Having a passion for what you do is crucial. If employees can see your energy.

DON’T EQUIVOCATE:

Politicians do it all the time. It’s condescending. Be blunt and fast not intellectual. Don’t be on both sides of the fence, don’t triangulate. Make sure you and employees take a stand on an issue.

Don’t back stab, if people have time to be petty, they don’t have enough work.

Don’t be pushy, be assertive:

Don’t interrupt someones tempo. If you idea sucks it may not be instep with other plans. Recognize when not to press an issue. Don’t give up, but don’t be a pest. Keep your entenna up. Your idea might not be a terrific idea. Or perhaps you should leave the company to pursue that idea on your own.

DON’T UNDERESTIMATE PEOPLE:

You need to focus on the talent instead of the title. Try to find the hidden potential that everyone has. Be a leader by recognizing it. Look for fresh possibilities in a company. Trump has turned his body-guard into a VP at Trump International.

“How LONG had you been working here? Since they threatened to fire me!!!”

DON’T DEMORALIZE PEOPLE:

Your words are extremely powerful. Don’t force people to do things, persuade people. Lincoln said: all men can stand adversity, but to test a man give him power. Don’t forget to keep your door open.

Don’t be a know-it-all!!!

CULTIVATE A LEARNING HABIT:

Read, write and study all your life. You don’t have to be a scholar. But you do need to continue to learn. Expand your horizons, try to learn about other cultures. Americans should pay more attention to things outside the American realm. Make an effort.

Part 2: Career Advice from Donald Trump TAKE CONTROL OF THE INTERVIEW:

First impressions are deceptive. Don’t always assume that the boss will hire with a great interview. People are looking for a skilled intelligent person.

ASK FOR A RAISE AT THE RIGHT TIME:

Don’t ask the boss on the worst possible day. If everyone is down do not ever ask for more money. You should seriously consider asking for a raise on a sunny beautiful day.

BE TENACIOUS:

Trump is building Trump Place. It is an example of why tenacity is a good move. He has been trying to build this for 30 years. Trump built a golf club: Trump International golf club. Trump is extremely supportive of golf courses. People with passion will never give. It is a momentum that will make you indominable. Some people should stay out of business. If they aren’t passionate then they should move onwards to something else. Don’t do something you don’t like for a living.

Turn your passion into profit.

NEVER CONFUSE FACTS WITH FICTION.

DON’T FEAR THE BRAND NAME:

Brand names are a way of holding standards. Who is going to eat a No Name brand hamburger? Who would you sue? The name is crucial. We all know the power of brand names. It is a viable outlet for creativity. Becoming a brand name is an excellent thing. An unknown developer is not going to be successful. The problem with brand names, the media will take a shot at you. Don’t be afraid to brag a bit. Toot your own horn. Celebrate your successes.

It’s not personal, it’s business.

GO WITH YOU GUT:

Have some instincts, and follow them. You need to gain strong business instincts. Trump knew within seconds that Mark Burnett was going to make The Apprentice excellent. Our conscious minds are useful but the unconscious tendencies will be crucial for decision-making. Learn to read people’s gut reaction.

BE OPTIMISTIC BUT EXPECT PROBLEMS:

Don’t be surprised. Be prepared for problems. Always be optimistic publicly but anticipate the horrors of failure.

LOOK CLOSELY BEFORE CHANGING CAREERS:

Know all about what you are getting yourself into. You need to equivocate in politics which is the significant problem with transferring from business to politics. This is why Trump decided not to run for the Reform Party in 2004. You need to be blunt in business.

Donald Trump’s Rules for Public Speaking

GET OVER SPEAKING IN PUBLIC:

• Be prepared by reading.

• Have examples and references.

• Make anecdotes as vivid as possible.

• Don’t read a speech: it will be boring.

• You need to cover your bases mentally.

• Be a good story teller.

• Involve everyone. Tune people in.

• Story Telling is a skill.

• Learn to think on your feet be flexible.

• Be aware of the common denominator.

• Keep it all in perspective.

1. Think about your audience first

2. Get your audience involved.

3. Be prepared

4. Be a good story teller

5. Be aware of the common denominator.

6. Be an entertainer.

7. Be able to laugh at yourself

8. Think on your feet

9. Listen

10. Have a good time.

11. Study Regis Philbin

NEGATIVITY MUST BE AVOIDED:

Negativity is a form of fear. Don’t fear the problem. You need to start thinking positively or you will sabotage yourself. If you have received a lot of hard knocks. Don’t open the door to more knocks. Hard knocks are an insight into more trouble. Think about how more fortunate you already are. You can always better you best day. Engage in positive thinking and have a little blind faith.

Change your attitude and gain some altitude.

NEVER GIVE UP:

Children with handicaps seem to fight for everyday they have been given. When you’re down another day can be another chance. Keep going, keep on trucking. Feed yourself some positive thoughts. Certain people keep going because they stay positive. Lincoln had a lot of faith, he didn’t receive much encouragement. Some people are losers unfortunately, they’re attitude is so low that they are below sea-level.

“Imagination is more important than knowledge” Albert Einstein

READ CARL JUNG:.

People become persona’s that they forward in public. In private we are very different people, according to Jung…By not assuming an EGO, you will defeat you opponent…

HAVE AN EGO:

It is the centre of our consciousness. Get an EGO, Get a LIFE. No EGO means very little life force. Strive for wholeness. Knowledge is power. Your mind can build castles but make sure the foundation is in place first.

PART 3: Money, Money, Money

STAY WITH THE WINNERS:

Beware of instant stars in the world of finance. Trust the people who are successful consistently. Invest simply, don’t take unnecessary risks. Some people have extremely complicated explanations for market trends BUT Warren Buffet knows how to break it down simply. Invest with companies you understand.

Donald and Ivana Trump (Photo by Bob Sacha/Corbis via Getty Images)

GET A PRENUPTIAL AGREEMENT:

People have a right to protect their assets. Don’t let a women trick you into not signing a prenuptial. Ivana’s lawyers were extremely vicious but we signed a prenuptial agreement. There is nothing wrong with common sense.

DO IT YOURSELF:

You need to be direct with people and meet them directly. Lawyers will try to get rich by churning billable hours. Go right to the top and get something done. Whenever possible settle, it saves a lot of time.

MAKE SURE YOU UNDERSTAND THE VALUE OF MONEY:

Money is extremely serious. The sooner you understand the value of money, the better. Don’t be careless with money. Children learn from what they see. If you enjoy gambling, your kids will like gambling too. Don’t have goof-off kids. You cannot enter the financial world without understanding money.

PART 4: The Secrets of Negotiation

“If you have them by the balls, their hearts and minds will follow.”

BASIC PHILOSOPHY:

It’s all about persuasion, not power. Just because you are successful doesn’t mean you have to act like a bulldozer. You don’t need to coerce people into following you. Power is not just about calling the shots. It’s about ability. No one will take notice if you call bad shots. Know what you’re doing: convincing others. Study the art of persuasion. Don’t expect people to believe your bullshit. Give people analogies, if you go to far over their heads they will be upset. Use humour and you will be successful. We all need to have a healthy dose of confidence. Don’t bulldoze. There is a fine line between acceptance and resignation. Don’t brow beat them into believing you. Let them think they are in control. He Who has the Gold Makes the Rules: let the others talk and observe your body language. Most negotiations should be calm. The best negotiators are chameleons. Learn the value of saying “NO”. Know what they want from you.

CONSIDER WHAT THE OTHER SIDE WANTS:

The Kinson group, that Trump was doing business with, had no idea about renovations in 1995. Kinson was failing at renovating 40 Wall Street. Trump wanted a restructure ground lease. The Kinson family wanted out fast and Trump knew it. 40 Wall Street was bought by Trump. If you want the truth, you should try to get direct contact with the decision makers. Trump made a deal where that the lease would need quality tenants + no fees during the renovations. In the mid-1990s, Trump was able to make a great deal from 40 Wall Street. Trump knew what the other side was thinking. Afterwards, the market started working in his favour in 1995. Trump won big.

BE REASONABLE & FLEXIBLE:

40 Wall Street had tenancy and a vacant building. Trump was asked to pay the broker 60 G per month as a retainer because the broker had no faith in Trumps abilities to make the property viable again. The broker was inflexible and Trump fired him. A new broker came in and made millions.

TRUST YOUR INSTINCTS:

The depressed market for office tenants made it suggestable to rent out to a residential conversion of 40 Wall Street. Trump believed it would be a private office building location. They decided to have the building turned into 3 sectors. They turned the top 700,000 Square feet into boutiques who wanted a high view. The middle 300,000 would be office buildings. Today, the building is worth hundreds of times it’s value in 1994.

KNOW EXACTLY WHAT YOU WANT & KEEP IT TO YOURSELF:

Be careful about what you reveal, you will know about the contours of the deal. Trump had crucial information during negotiations. He led the people he was dealing with to believe that he was only interested in the air-rights for a Trump Tower when he wanted to buy the lease. He gained leverage by controlling knowledge and expectations.

WHAT WE THINK WE WANT MIGHT NOT BE CORRECT:

You might learn that what you wanted was not really what you wanted. Trump assimilates new information quickly as negotiations proceed. Trump loves negotiating. There is a duality with negotiation. Before you begin negotiating, write down your objectives and their objectives. Know what you want and reveal it at the appropriate time.

Hyatt Hotel Donald Trump
MAKE SURE BOTH SIDES COME OUT WINNING:

In purchasing the Atlantic City Casino’s, the battle over the property helped his negotiating opponent’s popularity. In a good negotiation, all sides win.

LET YOUR GUARD DOWN:

See what the reaction is to a planted comment. This will help you, study the person’s history. Let your guard down to learn something about your opponent.

BEING STUBBORN IS AN ASSET:

Trump wanted to transform the Commadore in New York into a viable property. His plan was:
1) buy the land from the landlord,
2) induce the railroad to pay the back taxes with the purchasing power gained from Trump’s purchase,
3) convince the city to accept a deed to the land to end all existing leases,
4) fixed rental and share of the profits in lieu of taxes,
5) have hotel operators to join the project since Trump had no hotel experience,
6) convince a bank to loan Trump 80 Million dollars.
This was a difficult deal. His lawyer thought this would have been crazy. BUT it worked out. It is now called the Grand Hyatt of New York City.

BE PATIENT:

Know when to be patient. One good way to make the deal accelerate is by not looking to eager for a deal. Trump would delay a deal until his opponents were getting itchy enough to settle for a lower bid. These folks waited the time to give Trump what he wanted to get. Distract the other side. In gambling, if you have no bankroll, then others will target you for obviously having much more to lose in a deal. Trump was having trouble with an impatient opponent so he threw out his false concern about the building’s history, thus delaying negotiations so that he could get his bearings.

BE STRATEGICALLY DRAMATIC:

Kofi Annan tried to stop Trump’s construction near the UN. Trump didn’t say anything critical about the UN. Trump knew that some ambassadors might want to live in Trump’s building. NY City Lawyers tried to tax the hell out of Trump’s project. Trump sued the City of New York. Trump reached a deal where he would take 17%. Trump had to support Bronx’s housing.

SOMETIMES YOU STILL HAVE TO SCREW THEM:

Go after someone who has attacked you as viciously as possible. Live by your principles. Like it says in the Bible, an eye for an eye.

BE PARANOID:

It’s a jungle out there. We are worse than lion’s. Getting retribution and paranoia can be a waste of time, however. If you can dismiss a negative you should do so. Save time and focus on bettering yourself and your family. But again, sometimes you have to screw people back.

Some people deserve to be screwed back:

For example, Trump gave money to two restaurant entrepreneurs. A year later, the owners hadn’t given him a single dollar even if these owners were making a great deal of money. Trump felt that these people had screwed him out of money for his investment. Suing them would have cost a lot of time and wasted effort given how much he gave those dudes. They knew they could get away with it. But now, Trump won’t even recognize these entrepreneurs in public.

Also, Mario Cuomo was given a lot of funding from Trump during his run as governor. Then, after Cuomo was removed from office (for hiking real estate taxes) Trump wanted some help with a simple above-board request from Cuomo. Cuomo said “NO”. Trump screamed at Cuomo for being disloyal for a proper simple request.

In addition, Pete Dockings had a charmed life. Rhodes Scholar etc. Dockings wanted a Vietnam monument in New York. Trump provided over a million dollars. Trump used the best unions he could find to help build the monument. Trump did a lot of work to make the project a success. BUT Dockings took all the credit for the creation. Later, Trump wanted some help but Dockings didn’t want to help Trump for some unknown reason.

Sometimes you have to hold a grudge.

LEARN THE POWER OF SAYING “NO”:

Trump disagreed with CBS’s partnership with The Miss Universe Pagent. Trump bought the CBS out of the project. Trump had to say “NO” to CBS’s tactics which were not working. Trump took control and made sure they got back to focusing on beautiful women. Trump made a new partnership with NBC. The ratings were higher than ever and Trump created a great opportunity elsewhere with NBC.

DON’T KNOCK EVERYONE:

If you attack everyone, you will lose a lot of friends. Don’t attack everyone; that is foolish. You can knock some people but never everyone.