Rule Or Ruin?

Many technical advances present two faces. For instance, we have an unrealistic view of life in the “Horse & Buggy” age. In the motor vehicle age we see death and injury rates and imagine that things were better in earlier times. They were not by any measure; horses are difficult to control at best and the drivers then were no more responsible than they are now. The key to reducing the downside of motor vehicles has been to make cars, trucks and big boy’s toys safer through technical improvements. The rules of the road -among other things- have to improve as well.

A new book, Automate This: How Algorithms Came to Rule Our World, came out last week. Former tech journalist Christopher Steiner delves into the rise in the use of this digital tool as well as its impact on our society. In a Fast Company interview, he says he initially planned to just cover the use of algorithms on Wall Street. But from that starting point his research took him out further and further into our lives like the concentric waves when a rock splashes in a lake. Algorithms make Google search work. They drive customer service programs, they are everywhere.

Many of us know that algorithms underlie the high-speed traders who dominate our stock markets these days. They carry out most of the billions of trades the markets see every day. The upside is that the cost of trading has been going down with this volume. One downside is that some high-volume traders use this tool to shadow trades being exercised by pension funds and other wealth management entities. They can race ahead of these traders scooping up their target stocks and selling them to the funds at a higher price seconds later. The effect is to drive up the cost of the securities in your 401(k) or Grandma’s pension plan.  

Worse, they have contributed to the market’s abandonment of its only benefit to society, as a source of capital for business. In fact the markets have veered from the view of arguably the most talented investor in the world, Warren Buffett, who famously said, "The best time to sell a stock is never." Businesses are obsessed with daily prices and struggle to meet the quarterly expectations of the market instead of the long-term goals that could make them hugely more profitable.

There is a simple solution for this problem. Tax capital gains based on the length of time an investment is held. Just for fun let’s say if you hold an investment for twenty years or more, there would be no tax liability. Ten to twenty years, 5%, five to ten years 10%, two to five years 15%, one to two years 25%, one month to a year 50%, one week to a month 75%, less than a week 95%. Better than pirating value from Grandma’s pension, better for investors, better for business and their employees, better for America. Ethically there is no basis for the gambling hall culture on Wall Street; high speed trading is one gaming table we don’t need.

A New Path?

The unemployment rate in the United States dropped precipitously last month (11.11) to 8.6%, the lowest it’s been since the early days of the recession in 2009. The disturbing note, however, is the contributing factor of those “no longer looking for work.” In addition to giving the merchants of gloom something to point to, it raises the issue that we would hope would concern us all. What happened to all those people? They didn’t just fall off the edge of the earth.

If they are still receiving unemployment benefits, they must be near the end of that lifeline. Odds are they have other family members who are still working, and while they may be tightening the family budget, they are not out on the street. In some cases they and perhaps their families are headed for disaster, loss of their car, even their home. That raises an ethical question for those cutting funding to our safety-net programs. How ethical is that effort? Is that the kind of nation we have become? Times are tough, crush the poor.

On the brighter side, maybe those no longer hunting for work have found it, at home: on the computer, in the basement, in the garage. History teaches us that tough times are when new enterprises are likely to be launched. Counterintuitive as it may seem, even comfortably employed individuals will leave their employer during dark times to launch the business they have been thinking about for years. And of course others, who have been thrust into the world of the unemployed unexpectedly, think “What the heck, I might as well give my dream a try.”

A series of articles in the business journal Fast Company got us thinking that there may be more going on in the current episode of lean times. Launching a business is never as easy as it looks, but it’s a whole lot easier today than ever. Depending on where you live, you can get set up with your local governing entity for a few bucks and open a bank account in the business name. Then your major problem is having something to support you and your family until it catches on.

A century ago, your prospects for customers when you opened a shop were those who happened by as they walked down the street, or those who heard that you offered sewing services from your home. These days, with a tad of social network skills the world is your marketplace. You can do business with someone a world away as easily as your next door neighbor. There are services that will connect you and guarantee that you get paid. You can even take credit cards without a major investment in technology.

And some of those with manufacturing skills that seem unwanted in today’s work force are finding that they can use those skills to create things in a world where handcrafted quality is appreciated. From welding to woodwork, handmade goods are in demand. So perhaps those who are no longer looking for work have created their own little corner and are very happy there, thank you very much. And if they do well, they may hire a helper or two. That’s where jobs are created.  

 © 2011 GLG