Cruise Ships
One of the highlights of a cruise ship trip to the Bahamas is a visit to the local market. Some bargaining will take place; you will feel good about your purchase, getting a great price, and the vendor will have sold one of his wares. This system works and has stood the test of time because there are no price floors or ceilings.
For example if I want to buy a handmade blanket for $20 in the above example with a little negotiating I can buy the blanket for $16. Still not comfortable with the price, I can walk away and the vendor will make a finally offer of $14. Because I know there are three other vendors selling similar, not necessarily the same, blankets nearby I can refuse the offer. Both of us are free to negotiate, up or down, in this scenario. I can pay $14, the vendor can lower his price to $13, or the deal can come to an end.
What would happen if the cruise ship company decided to check each vendor to ensure they were worthy, provide them perks, and guarantee a certain number of customers each day or pay him for any lost business? Furthermore, the cruise ship company agrees they will take $5 from each vendor to guarantee these benefits. In this case, the vendor will be reluctant to freely negotiate; he knows there are additional costs involved in the transaction. And, he also knows the cruise ship will pay him for any lost customers. Suddenly, his willingness to negotiate has been eroded by the establishment of a floor (guaranteed minimum) of business by the cruise ship company.
We can further complicate this scenario by supposing the cruise ship company requires the vendor to charge no more than$15 per blanket for anyone over 62 years old. Of course, people over 62 have much more free time and travel much more because they are large consumers of the cruise ship company’s services and this perk helps the company attract more clients. However, the unintended consequence of this idea is the vendor loses revenue because his costs have not changed but yet he cannot charge more than $15 per blanket to those over 62. Thus, when I approach him, at age 42, his willingness to negotiate with me has been eroded further and I am forced to pay $20 or $21 for the blanket. Throughout the bazaar this is the case because all of the vendors are forced by the cruise ship company to charge less for blankets to older people, and pay the $5 fee (tax) for benefits and perks.
Free markets will work without a problem when left alone as they have for thousands of years. Buyers will always get the lowest price and sellers will maximize profits. Unfortunately, intervention by a single entity can have huge impacts within the market. The same is true in the current health care insurance debate or any other part of our economy where the government injects monies. Anytime this happens one group of individuals will benefit while the rest of the population pays more and subsidizes false market forces. The most recent example was the catastrophic failure and unintended consequences of “cash for clunkers”. As reported, dealers did not come down on prices because the consumer was subsidized by tax payers to take home a car, not to negotiate. Ironically, the biggest beneficiary of this program was foreign labeled dealers, thus monies were artificially transferred via the program to foreign corporations that benefited from the spike in sales.
Copyright (c) 2009 John R. Nelson. All Rights Reserved.
Thursday, October 22, 2009
Wednesday, October 21, 2009
Crisis Preparation
I have read a lot about preparation for TEOTWAWKI (The End Of The World As We Know It) lately. However, I think there are other issues of greater concern than that which one must consider. I am repeating, changing, and re-writing some of what I have read. But, I go back to the root of what I have always known; preparation is about facing a threat. A threat can be measured three: probability of occurrence, intensity of destruction, and duration. A matrix should be made to consider the likelihood of a threat, where you might be during the occurrence, and what preparations should be made.
Supplies need consideration next. Preparation for supplies can be broken into several categories. Once the categories are identified a second stage of analysis must be completed – do you require mobility or will this preparation be to hunker down and stay in one location?
I feel most people fail to make any preparations in their lives because it is overwhelming to analyze “what-if” scenarios and planning around them. At the same time, ridicule of preparations is easy due to the old stereotypes of bomb-shelter fanatics, in the woods survivalists, and hippies living in communes off the grid. Ironically, these are the people that the unprepared will flee to.
Living in New Smyrna Beach, Florida I constantly faced a hurricane threat, but yet, like many friends and neighbors, brushed off this threat. I felt I could go to Wal-Mart, Lowes, or Home Depot and retrieve what I needed on demand. Although not as destructive as a ground-zero events like Katrina I faced three hurricanes in six weeks time. We faced a long duration of inconvenience – no credit card machines, gasoline shortages, lack of groceries, building materials shortages, and no ice. I had friends without electricity for 10 days. I could not locate a chainsaw chain to remove and cut trees. There was no ice available to keep food safe because there was no electricity. Gas stations were closed due to lack of electricity, the pumps would not work and they had no credit card machines. All of the foods spoiled in the grocery store meat and frozen sections. Thus, they were forced to close to clean up their stores and no groceries were available. This was a modern crisis of long duration.
Events like Katrina, 9/11, the Northridge earthquake, and spring floods make headlines. However, watching a crisis on the evening news is entirely different than living through it. One side of 9/11 often forgotten was the travelers stranded away from home – if you had boarded a plane on 9/10/2001 and traveled across the country for business you suddenly found yourself stranded without a way to return home. There was a sense of suspicion in the country and finding yourself stuck as an outsider with only business clothes to wear could create problems. Fortunately, the banking system stayed intact and credit card machines were not shut off. Had the financial industry been questioned, cash would have been required just to eat, pay hotel bills, and get new clothing. In this case it was not a significant event for those away from New York but an event of extreme inconvenience. Again, even telecommunications worked, but it is not hard to imagine the government shutting telecom to prevent communications among terrorists. In this case contacting family would not have been feasible, lending to panic among those stranded away from home.
Copyright (c) 2009 John R. Nelson. All Rights Reserved.
I have read a lot about preparation for TEOTWAWKI (The End Of The World As We Know It) lately. However, I think there are other issues of greater concern than that which one must consider. I am repeating, changing, and re-writing some of what I have read. But, I go back to the root of what I have always known; preparation is about facing a threat. A threat can be measured three: probability of occurrence, intensity of destruction, and duration. A matrix should be made to consider the likelihood of a threat, where you might be during the occurrence, and what preparations should be made.
Supplies need consideration next. Preparation for supplies can be broken into several categories. Once the categories are identified a second stage of analysis must be completed – do you require mobility or will this preparation be to hunker down and stay in one location?
I feel most people fail to make any preparations in their lives because it is overwhelming to analyze “what-if” scenarios and planning around them. At the same time, ridicule of preparations is easy due to the old stereotypes of bomb-shelter fanatics, in the woods survivalists, and hippies living in communes off the grid. Ironically, these are the people that the unprepared will flee to.
Living in New Smyrna Beach, Florida I constantly faced a hurricane threat, but yet, like many friends and neighbors, brushed off this threat. I felt I could go to Wal-Mart, Lowes, or Home Depot and retrieve what I needed on demand. Although not as destructive as a ground-zero events like Katrina I faced three hurricanes in six weeks time. We faced a long duration of inconvenience – no credit card machines, gasoline shortages, lack of groceries, building materials shortages, and no ice. I had friends without electricity for 10 days. I could not locate a chainsaw chain to remove and cut trees. There was no ice available to keep food safe because there was no electricity. Gas stations were closed due to lack of electricity, the pumps would not work and they had no credit card machines. All of the foods spoiled in the grocery store meat and frozen sections. Thus, they were forced to close to clean up their stores and no groceries were available. This was a modern crisis of long duration.
Events like Katrina, 9/11, the Northridge earthquake, and spring floods make headlines. However, watching a crisis on the evening news is entirely different than living through it. One side of 9/11 often forgotten was the travelers stranded away from home – if you had boarded a plane on 9/10/2001 and traveled across the country for business you suddenly found yourself stranded without a way to return home. There was a sense of suspicion in the country and finding yourself stuck as an outsider with only business clothes to wear could create problems. Fortunately, the banking system stayed intact and credit card machines were not shut off. Had the financial industry been questioned, cash would have been required just to eat, pay hotel bills, and get new clothing. In this case it was not a significant event for those away from New York but an event of extreme inconvenience. Again, even telecommunications worked, but it is not hard to imagine the government shutting telecom to prevent communications among terrorists. In this case contacting family would not have been feasible, lending to panic among those stranded away from home.
Copyright (c) 2009 John R. Nelson. All Rights Reserved.
Friday, October 16, 2009
Democracy or Republic?
One of my pet peeves is lexicon misuse. This was recently reinforced by an email link I received from a friend that offered to explain our form of government and make comparisons to other common forms such as oligarchy, monarchy and anarchy. Most of us believe the United States is a democracy. However, the video I received focused on the view that our founding fathers intended the United States to be a republic. My question, of course, was what’s the difference? More important, if there is a difference does it really matter?
A quick trip to the dictionary, or in this case the online version of Merriam-Webster, would most surely shed some light on the distinctions between the two words. I found a “democracy” is “government by the people; especially : rule of the majority (b) : a government in which the supreme power is vested in the people and exercised by them directly or indirectly through a system of representation usually involving periodically held free elections.”
Fair enough I thought, and it sounds like the United States. So how is a republic defined? A republic is a “government having a chief of state who is not a monarch and who in modern times is usually a president (b) a government in which supreme power resides in a body of citizens entitled to vote and is exercised by elected officers and representatives responsible to them and governing according to law.” Again similar to the United States in definition and at least not significantly different to help me distinguish the subtleties of the two words. Now, I felt thoroughly confused and I wondered if it mattered to the founding fathers whether our nation was to be a democracy or a republic. As a democracy our society would be subject to majority rule and the will of the people on all decisions. As a republic, it appeared that elected representation by the people would take precedence.
In today’s time with Congress typically having the lowest approval ratings of all of the branches of government, couldn’t we, as a democracy eliminate the House of Representatives and the Senate? With technology today this seems feasible. Anytime an issue arises we could put it to a vote of the people using the internet, our cable television remotes, or a telephone dial-in system. Arguably, the establishment of the Electoral College, our Congress, and even the inauguration dates of the President appear based on the lack of communication technology existing in 1776 as much as they do with the intent of the founding fathers. Maybe our government is more an outdated concept tied obstacles of the time.
However, a careful review of the Constitution confirms our founding fathers intended a republic. The Pledge of Allegiance, "and to the Republic for which it stands", instantly reminds us if we have any doubt. Article IV section 4 of the Constitution is quite clear, “The United States shall guarantee to every state in this Union a Republican Form of Government”.
You may wonder why I am focused on the importance of what appears to be an argument in semantics. I believe our founding fathers carefully worded the Constitution to ensure its legacy would stand the test of time. Furthermore, they had personally shed blood to flee tyranny and knew that mobs and simple majority rule were not effective means of government. In a democracy, any group of individuals comprising the minority has no protection against the unlimited power of the majority. Thus, as we watch our elected representatives’ debate critical issues affecting future generations, trust in our founding fathers that our republic will facilitate the best possible outcome regardless of the intensity of the debate.
Copyright (c) 2009 John R. Nelson. All Rights Reserved.
One of my pet peeves is lexicon misuse. This was recently reinforced by an email link I received from a friend that offered to explain our form of government and make comparisons to other common forms such as oligarchy, monarchy and anarchy. Most of us believe the United States is a democracy. However, the video I received focused on the view that our founding fathers intended the United States to be a republic. My question, of course, was what’s the difference? More important, if there is a difference does it really matter?
A quick trip to the dictionary, or in this case the online version of Merriam-Webster, would most surely shed some light on the distinctions between the two words. I found a “democracy” is “government by the people; especially : rule of the majority (b) : a government in which the supreme power is vested in the people and exercised by them directly or indirectly through a system of representation usually involving periodically held free elections.”
Fair enough I thought, and it sounds like the United States. So how is a republic defined? A republic is a “government having a chief of state who is not a monarch and who in modern times is usually a president (b) a government in which supreme power resides in a body of citizens entitled to vote and is exercised by elected officers and representatives responsible to them and governing according to law.” Again similar to the United States in definition and at least not significantly different to help me distinguish the subtleties of the two words. Now, I felt thoroughly confused and I wondered if it mattered to the founding fathers whether our nation was to be a democracy or a republic. As a democracy our society would be subject to majority rule and the will of the people on all decisions. As a republic, it appeared that elected representation by the people would take precedence.
In today’s time with Congress typically having the lowest approval ratings of all of the branches of government, couldn’t we, as a democracy eliminate the House of Representatives and the Senate? With technology today this seems feasible. Anytime an issue arises we could put it to a vote of the people using the internet, our cable television remotes, or a telephone dial-in system. Arguably, the establishment of the Electoral College, our Congress, and even the inauguration dates of the President appear based on the lack of communication technology existing in 1776 as much as they do with the intent of the founding fathers. Maybe our government is more an outdated concept tied obstacles of the time.
However, a careful review of the Constitution confirms our founding fathers intended a republic. The Pledge of Allegiance, "and to the Republic for which it stands", instantly reminds us if we have any doubt. Article IV section 4 of the Constitution is quite clear, “The United States shall guarantee to every state in this Union a Republican Form of Government”.
You may wonder why I am focused on the importance of what appears to be an argument in semantics. I believe our founding fathers carefully worded the Constitution to ensure its legacy would stand the test of time. Furthermore, they had personally shed blood to flee tyranny and knew that mobs and simple majority rule were not effective means of government. In a democracy, any group of individuals comprising the minority has no protection against the unlimited power of the majority. Thus, as we watch our elected representatives’ debate critical issues affecting future generations, trust in our founding fathers that our republic will facilitate the best possible outcome regardless of the intensity of the debate.
Copyright (c) 2009 John R. Nelson. All Rights Reserved.
Tuesday, October 06, 2009
No Insurance Mandate
As the debate regarding health care insurance rages around me I have found myself frustrated by comments and concerns made by friends and family and the threat of insurance mandates. Currently, I have no health insurance. Arguably, this may not be the best decision in my case, but it is my current situation. I understand I am now “self-insured” and if something happens I have to pay for it.
Crazily, I have friends and family who cannot imagine a life without health insurance. The government is also contemplating an insurance mandate; if you fail to buy insurance you will be fined. Since the IRS is the enforcer of this, I see it as a tax increase, especially considering the amount is approximately $3,800/year. What really bothers me is the idea of an insurance mandate when insurance, by definition, is coverage by contract in which one party agrees to indemnify or reimburse another for loss that occurs under the terms of the contract. Mandating a contract erodes the market forces that should lower prices.
This summer I was vacationing with my family and found myself in need of emergency care. I mentally debated for several hours my options: do not seek care, self-medicate, visit an urgent care, or head to the ER. Ultimately I spent seven hours in the emergency room, received outstanding service and a plethora of intravenous medicines. The doctors clearly discussed with me options of spending the night, further analysis, and how to proceed. Market forces were at work – no unnecessary tests were made, and I full participated in the decision making process. Upon returning from vacation the bill was waiting in the mailbox. At first glance the amount concerned me, but I quickly analyzed the numbers and realized the amount due was equal to two months of former family health care premiums. Since I had not made premium payments in prior five months I knew I was better off., and more than likely, I will not have any significant events before the end of the year.
I was disgusted when one family member recommended we not pay the bill. She said that she just ignores them and the hospital will ultimately write it off as indigent or uncollectable. Of course, they will just have to pass these costs onto others. Another friend was appalled that we do not have insurance and wondered what we would do if we had to go to the doctor. I made the economic argument above, it is cheaper to have high deductible insurance and pay as you go, but it fell on deaf ears. Of course, she depends on doctors for everything, has significant monthly prescription requirements, and does not have savings of her own to pay.
People make life choices and I believe too many consumers choose to live for the moment: buying a boat, car, cable television, or even a cellular phone. Losing material possessions due to an illness is sad, but not catastrophic, it’s just stuff. Failing to take personal responsibility should not result in mandated insurance programs and erosion of personal freedoms. My reforms and solutions are much simpler: require people to pay for the services they use and hold them accountable, and yes they may go broke in the process, reign in the cost of malpractice through tort reform, and modify regulations to allow interstate purchase of insurance thus equalizing premiums across the states. No one will be denied quality health care and the market will adjust prices appropriately.
Copyright (c) 2009 John R. Nelson. All Rights Reserved.
As the debate regarding health care insurance rages around me I have found myself frustrated by comments and concerns made by friends and family and the threat of insurance mandates. Currently, I have no health insurance. Arguably, this may not be the best decision in my case, but it is my current situation. I understand I am now “self-insured” and if something happens I have to pay for it.
Crazily, I have friends and family who cannot imagine a life without health insurance. The government is also contemplating an insurance mandate; if you fail to buy insurance you will be fined. Since the IRS is the enforcer of this, I see it as a tax increase, especially considering the amount is approximately $3,800/year. What really bothers me is the idea of an insurance mandate when insurance, by definition, is coverage by contract in which one party agrees to indemnify or reimburse another for loss that occurs under the terms of the contract. Mandating a contract erodes the market forces that should lower prices.
This summer I was vacationing with my family and found myself in need of emergency care. I mentally debated for several hours my options: do not seek care, self-medicate, visit an urgent care, or head to the ER. Ultimately I spent seven hours in the emergency room, received outstanding service and a plethora of intravenous medicines. The doctors clearly discussed with me options of spending the night, further analysis, and how to proceed. Market forces were at work – no unnecessary tests were made, and I full participated in the decision making process. Upon returning from vacation the bill was waiting in the mailbox. At first glance the amount concerned me, but I quickly analyzed the numbers and realized the amount due was equal to two months of former family health care premiums. Since I had not made premium payments in prior five months I knew I was better off., and more than likely, I will not have any significant events before the end of the year.
I was disgusted when one family member recommended we not pay the bill. She said that she just ignores them and the hospital will ultimately write it off as indigent or uncollectable. Of course, they will just have to pass these costs onto others. Another friend was appalled that we do not have insurance and wondered what we would do if we had to go to the doctor. I made the economic argument above, it is cheaper to have high deductible insurance and pay as you go, but it fell on deaf ears. Of course, she depends on doctors for everything, has significant monthly prescription requirements, and does not have savings of her own to pay.
People make life choices and I believe too many consumers choose to live for the moment: buying a boat, car, cable television, or even a cellular phone. Losing material possessions due to an illness is sad, but not catastrophic, it’s just stuff. Failing to take personal responsibility should not result in mandated insurance programs and erosion of personal freedoms. My reforms and solutions are much simpler: require people to pay for the services they use and hold them accountable, and yes they may go broke in the process, reign in the cost of malpractice through tort reform, and modify regulations to allow interstate purchase of insurance thus equalizing premiums across the states. No one will be denied quality health care and the market will adjust prices appropriately.
Copyright (c) 2009 John R. Nelson. All Rights Reserved.
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