Coyote's Pre-Response to Obama's Budget Speech

No, Mr. Obama, the fecklessness of politicians does not obligate me to send more of my money to the government.

Three times in my life I have lent money to people in serious financial straits.  In every case, they came back to me for more.  "X more dollars and I will be home free and can pay you back."  In a few cases I came up with a second infusion and in one case I (embarrassingly) actually gave money a third time.   In no case was I ever paid back.    I haven't heard this phrase in years, but when I was young stock investors had a saying -- "your first loss is your best loss."  This was just another way of saying don't throw good money after bad.

Obama and Bush (I haven't forgotten your culpability in all this George) sold the country, or at least Congress, on emergency spending for wars and bailouts and stimulus.  This was supposedly one-time spending only for the duration of the emergency.  But now Democrats and Obama are treating the peak of this emergency spending as the new baseline, from which cuts are impossible.

This lack of desire to cut spending and a resetting of norms as to "what is normal" is not just a government problem, it is endemic to every organization.  Private organizations face this problem all the time.  The difference is that when times go bad, private organizations do not have fiat taxation power, so that when they are underwater, they must cut bloated budgets or die.  Either way, the problem goes away.  Private companies differ from government not in that they don't have problems with beauracracy and risk aversion and deadwood and bloat and bad incentives - because they do.  The difference is that private companies cannot get away with allowing this stuff to linger forever, and governments can.

Government will never, ever, ever, ever cut spending unless all hope of new taxes is removed, and even then they will likely try to cut spending on the most, rather than the least, popular programs to build public support for more taxes.

In the early 90's, after the fall of the Soviet Union, we talked about a peace dividend from reductions in military spending.  I want a sanity dividend.

Postscript: We like to think that financial problems are due to bad luck, but they usually are due to poor management.  The guy I lost the most money with was producing a really interesting boat concept, basically as fun and lithe and fast as a jetski but enclosed so boaters who were less daring would not actually be in contact with the water.  I wanted a bunch for rental service at our marinas.  But he kept asking for money, saying that he had bad luck with this supplier or that supplier.  Eventually, I found out he was in this incredibly expensive commercial lease, and was burning all the money I lent him on useless rent payments.  Stupid.

After I graduated from college, I cashed in about $7000 in savings bonds I had accumulated.  I was going to make a fortune in the market.  After three years I had lost almost all of it -- right in the heart of one of the greatest bull markets in history!  A few years later, I was in a situation where I could have really used this money.  This was not bad luck or circumstances, I did stupid things.  I recognized something that many dentists and doctors never learn - it was possible to be a smart guy who sucked at investing.  I was one of them.  My investing has been in index funds ever since.

  • http://tjic.com TJIC

    For the record, SmartFlix paid you back every dollar you lent us! ;-)

  • IgotBupkis, President, United Anarchist Society

    My experience in a number of small/startup companies has also been that it's usually management mistakes that kill an investment.

    The most important rule I've seen "not applied" is "Treat reserve/startup capital like it was inches off your dick, but spend cash flow however you want".

    At least several of the failures were exactly that -- due to the Men In Charge spending money way too much money to put on a Big Front before they had any actual business or product to sell. This is probably similar to the thought processes of your "expensive commercial lease" guy. If You Build It (if they look important), the Business Will Come.

    In another case, the Man In Charge spent all the money on development, but ignored the need to actually market the product once we had created it. He had budgeted virtually no money to hiring a sales staff of even one person. THAT one went under about a year or two after we were done, mainly because we managed to market a fairly advanced secondary product that we found was needed to produce the intended primary product.

    Another notable case, the People In Charge included a salesman who managed to destroy the company by overpromising what the product could do for the customers. While they owned a certain software niche for about 4-5 years, they were killed around the end of that period by word of mouth -- the number of cases where they sold the product by promising the sky, while the end result never worked at all for the "victims" had become legion. By the time I worked for them, it was hopelessly kludged by the chief software designer, against his objections, to try and fulfill the wide array of promised features and/or equipment connectivity. I never heard of a site install going correctly and the customer being satisfied in the entire six months I worked for them... they closed their doors permanently about 2-3 months later. Their name had gone from "Great product, saved me lots of money" to "pointless waste of money, it doesn't work at all, I lost thousands".

    Another failure is failure to verify a market existed. Three companies match this bill, two of them subsumed in the flaws above also:

    One attempting to develop software for the k-7 school market (a market that DID need the software we developed, but unfortunately k-7 schools generally wouldn't actually spend money on software, regardless of how good it was at the time, and this is likely still the case).

    The second was an architectural firm that assumed, apparently, if they built an office in a new city that they'd be able to capture a large chunk of the business there, and also draw in a number of employees from the office it spun off of, reducing labor expansion costs (near as I can figure, the Guy In Charge wanted to move from the smaller town the firm was in to the megalopolis that he had the new office built in. He didn't quite Get It that if anyone in the office had actually wanted to move to megalopolis then they would long since have left smaller office for megalopolis for better pay and job opportunities in the first place...)

    The third one, which still exists twenty years later thanks to a bit of luck, a business-savvy sugar daddy who set them straight before they went under, and talented software people who knew how to write a good product (they just needed to properly figure out what to write) -- They wrote a very good piece of software that would save the restaurant business which bought it about 50k a year in labor costs -- about 20x what the software cost to buy. Problem was, the typical managers at any one of these restaurants would simply not believe that figure, it suggested that they didn't know how to schedule their employees properly, and "they just couldn't be that bad". The sugar daddy helped them support themselves while they repositioned the product to aim for other organizations that used shift work -- typically nursing, police, and EMT type staffs. Similar goals, but the people involved weren't usually professional managers and were happy to find something that made their staff scheduling job faster and easier (saving money was a side benefit).

    So -- in general, any one of several forms of bad management.

  • IgotBupkis, President, United Anarchist Society

    The above reminds me of a good rule of thumb, too -- always remember that you have to market the product once you have it, and assume you're going to have to hire people to do that. Marketing/sales, while most people laugh at them and sneer at them as lying bastards, DO somewhat know what they are doing, and the average person usually DOES NOT have the ability to do what they do effectively. Even if you're the CEO and will be involved in signing all final contracts, you usually need sales people to find you the people with whom you'll be signing those contracts, and convincing them why it is they want to sign a contract with YOUR firm and not some other one that had sense enough to hire sales people while you didn't.

    That has a flipside, sorta -- if you ARE good enough at salesmanship to do without a sales staff, then the chances are your capacity to handle the technical end of the business -- typically either logistics for a pure service business or tech development for a tech-related business -- or both of those in some cases -- are outside your Native Special Abilities. So you need to allocate funds to hire good people there and give them the true power to stand up to you and tell you What You Should Not Do (see the above issue of overpromising salesmen).

    A well-run business usually is three parts in daily operation -- Development, Daily Logistics, and Sales. Never neglect any of those three, there will be variations in how important each is, but upon each of them will determine the success of the company's efforts -- none of them are ever likely to be less than 25%.

  • http://counterrevolutionaryact.blogspot.com Chris K.

    Travis,
    So Smartflix is in a position to loan me money now?

  • NormD

    Congress spends money.

    Blaming/crediting the president is silly.

    That said, I agree with you that if we give the congress more money they will not pay down the debt. They will spend it on whatever and come back screaming they are out of money.

    Out here is California we have been in a budget crisis for years and yet we still spend money on "redevelopment" and affordable housing (even though we have excess housing units) and high speed rail and green energy and...

    The only solution is to deny the politicians money.

  • IgotBupkis, President, United Anarchist Society

    > The only solution is to deny the politicians money.

    No, there are other solutions, usually involving lead propelled at a high velocity, a rope, or hemlock.

    But they tend to get you talked about.

  • Will

    I have loaned money with the knowledge that I would likely never be repaid. I did so believing that the recipients would be too embarrassed to come back for more. I was wrong.

  • Ignoramus

    With Obama's Deficit Buster speech today, I hit on all my drinking games words. Pretty easy actually: "balanced" "fairness" "shared sacrifice"

    Little surprise in Obama's speech. On the surface it was post-partisan rhetoric, underneath it was all political calculation.

    As expected Obama is setting up Republicans as the meanies who want to make entitlement cuts, paid for with Bush tax cuts for the rich.

    Obama is not totally innumerate. He included a reference to Ryan's proposed cuts on 33 seniors equating to the Bush tax cuts for one average rich guy. The man can count votes.

    Obama sounded quite reasonable, so long as (1) you believe things like " ... Already, the reforms we passed in [ObamaCare] will reduce our deficit by $1 trillion", and (2) you ignore inconvenient facts like "we could double the personal income tax on everyone and still not close the gap we already have." Seriously, what good will Obama's proposals like phasing out the mortgage interest deduction for high earners do, given our current predicament. Lost in all this is how we get government out of the way of private sector growth.

    So Obama's response to the Ryan plan is "not while I'm President !!" So we have no chance of even starting to address the deficit in 2011. I doubt that the Republicans have the balls to not raise the debt ceiling indefinitely.

    So unless we have some unexpected End of Days event, the 2012 election will be a referendum on this. If you take out the Carter years of 1978 to 1980, fifty years of post WWII American politics says that Obama will win this referendum. Pick your Republican nominee with this in mind.

    But can Bernanke keep 20 plates spinning on sticks into late 2012? I for one do not, and expect early 2012 to be worse than 1979. Developing ...

  • perlhaqr

    *applause*

  • http://www.leletrade.com/ Designer Wholesale Handbags

    but when I was young stock investors had a saying — “your first loss is your best loss.” This was just another way of saying don’t throw good money after bad.

  • Dan

    Great, great post. Applause from me, too.

  • marco73

    Solid post. The president finished his speech, and my only take away is: hold on to your wallet.
    I've never been any good at investing either - I just use index funds and allow smarter folks to handle it. Kind of like when I've tried blackjack: I should just hand my money to the dealer when I walk in, that way I won't waste my time. My wife is much luckier. She will just feed the quarter slot machine for maybe 5 minutes, and it will ring up "You've won several hundred dollars!" Then she cashes out and we go to a show. Did I mention she is much smarter than I am?

  • tomw

    Ignoramus:
    and (2) you ignore inconvenient facts like “we could double the personal income tax on everyone and still not close the gap we already have.”

    I heard on FNC that you could raise the tax rate to 100% and you could not fund the deficits the Obama administration is ringing up. All Of It. Why Not Take All of It? [regrets to Willy]
    Someone[not me, I can't do a dam thing right these days] should prepare a graphic showing the 'volume' of the $$ in taxes, expenses, etc, where it comes from, where it goes.
    I honestly believe the average citizen doesn't 'get' the amount of money being discussed. Nor the amount of deficit rung up since the tail end of 2008, and how the interest on the debt will grow to equal ALL tax receipts by 201X, and how SS, Medicare, etc will grow to reach full share of the tax receipts by 2030.
    Someone's gotta say it: "There ain't no more money to spend." And Harry Reid can still mumble "there's no problem with Social Security, it is fiscally sound." My God, if he were Pinocchio he would have problems...

    tomw