Monday, October 20, 2014

Taxi Medallions in Alaska.

    Taxi business is not as profitable in Anchorage, Alaska as it was 10 years ago. Anchorage municipality has hired 10 new driver every year for the past 10 years. There is a huge surplus of Taxi drivers in the business. I have a friend who is going through the struggle of owning a taxi medallion. The way the money is made reminds me of some type of gambling system. He is required to pay 80.00 $ every day before money is even made.I don't think I would enjoy running a business where I woke up 'in the red' (in debt, owing money) before I even start to turn a profit. In order for him to maximize on his investment, he rents his cab to another driver. This means that the vehicle is on the road for nearly 72 hours at a time with extremely brief intervals. That can run into some heavier expenses later. And if the for-mentioned wasn't enough, its currently over 150k just to have a taxi medallion in the city of Anchorage.

     With all of the alternatives out there such as : phone apps, bus systems, trains, the shoelace express,etc, There is still a demand for taxis. I foresee the market leveling itself out. If everyone remains stubborn and tries to obtain employment then the profits will be low, kind of like they are now. But hopefully people will lose the incentive and then those who remain can make a decent wage. people who own a medallion do have an advantage. they can rent it out and that gives them leisure time, and if not, at least the business is still operating.

      Communities/municipalities hold too much power by granting entrepreneurs 'permission' (via permit) to make a living. People jump through hoops to get permits and licences. In return, there is  high risk and generally low profits.

I would say that due to the variables that create the price, its not really worth it.But we do live in a service economy and tips are probably appreciated! The article was interesting and seemed pretty true to life with experiences that I have watched people encounter.

Sunday, October 19, 2014

Taxi Medallion Cartel

I do not think the taxi medallions are particularly good to taxi drivers by them being compelled to work longer hours, which is not that much of a voluntary decision they would make otherwise, in my opinion. Forcing someone to behave differently shows the power of the taxi medallions on people who often struggle to make ends meet with such relatively low average annual incomes. There are many differing opinions on the internet about how taxi medallions either cause great harm or benefit, so this issue is a matter of opinion for many. In my opinion, taxi medallions cause harm to the economy by artificially limiting the number of taxis in many cities. Why should taxis be limited in number when it causes them to become very expensive and hard to find. Still, the regulations do cause great benefit by showing medallion numbers that can have the driver easily identified if there is ever a need by a rider in case there is some violation and the interior of the new taxis often have a camera mounted over the rear-view mirror for security, a dispatch radio on the console, and a credit card reader for the passengers to pay. There is even a fee for vomit cleanup to help protect the driver and there are many required stickers that would become fees for the drivers if they were not placed. Meanwhile the price of medallions have outperformed the S&P 500's stock index by far everywhere medallions exist. If the market was open then the medallions would lose their exclusivity and value, and many believe that the taxi industry would die if the right to transport the public was open to everyone.  The taxi industry without medallions would become subject to free market forces, which can be a good thing if the medallions created a cartel or monopoly that operates for its own benefit. Still, it would cause cities to lose control over the public service that is essential for any city to survive. There are many stakeholders that would stand to lose, but it would, in my opinion, be very beneficial to the market and the general public. Many even consider that the taxi medallion was the best investment that could have been made in the U.S. 30 years ago, so does this mean that the stakeholders have too much benefit for the taxi medallion being a sort of cartel?

Introducing Free Market Economics Into Archaic Systems

In the article "The Tyranny of the Taxi Medallions" the author describes the archaic system of Taxi Medallions that was introduced in the 1930's. At the time of introduction the idea made sense, have the government require a certificate or medallion to legitimize the taxi business and provide a safe environment for people needing a fare.
As the years progressed this need for safety dissolved as medallions were stuck on a specific amount in the marketplace and the price for one exploded from a simple fee to sometimes over a half million dollars for a medallion. This situation negatively affected the consumers as well as the cabbies in multiple ways. While the demand for taxis increased as cities grew the limit on the marketplace made it so that there were never enough taxis to provide for the consumers demand. The negative affect on the cabbies was even worse. The system allowed the distribution companies to hold a lot of power over the cabbies with their monopoly on the medallions.

The burgeoning economy of apps designed to connect cabbies to the consumer directly are attacking the medallion problem head on. What negative affects could this potentially have on the consumer and cabbies alike? What other industries could this similair model be applied to?

Sunday, October 12, 2014

Nobody Knows What To Do

Income inequality has been growing since the early 1970's because of great support for free market capitalism. Free market capitalism causes such great income inequality to be higher than in other developed economies. Much of the population lives in poverty, while most of the income growth has been for the middle and upper class. Meanwhile, many Americans think income has not been increasing when in fact it has been for decades and for the most recent few years. There is much disinformation supporting income inequality, and many debate whether capitalism causes income inequality by questioning whether corporatism is the actual cause. Many economists have laid blame on other factors, but it is still not well understood exactly why income inequality has been growing so much for so long. Many supporters of income inequality argue that creates an incentive to create wealth, innovate, and product. Still, that notion in widely disputed. It is also important to address that more income inequality been argued by many to cause the harm to the economy by lowering output, which research appears to confirm. Why is real gross domestic product growing much faster than real median household income and how much harm does it cause to the national economy? These questions are the subject of many ongoing debates, and the great amount of disinformation and dishonesty from both sides only exacerbates the situation. Too many interests are involved in this issue to make a solution easy or quick. Simply slowing down the growing income inequality is a monumental task that even the president may not handle without painful consequences without even considering lowering that very income inequality. Income distribution may likely continue its current trajectory of increasing disparities between lower and higher earners, so is it in the best interests of someone to make the best out of the situation? How to make the best out of the situation without incurring huge costs? I believe nobody truly knows the answers to those questions, and anyone that claims to should do everyone a favor and stop claiming that. Furthermore, blaming a specific individual or program only demonstrates someone's incompetence and/or political or ideological bias on the issue because the issue is much deeper than that. Capitalism has important side effect called income inequality, and anyone that even tries to argue that income inequality has not actually been increasing recently or in the long-term should do themselves a favor and do some research because that is not what the facts indicate.

Distribution of wealth

     In the country ( USA ) we can tell that the distribution of wealth is not fair and hardly allows people to make a living wage. There are very wealthy families is controlling the entire country and other parts of the world. I have a hard  time with this heavily beaten dead horse of a conversation topic. It is multi-faceted in depth and meaning. It does exist no matter what people say and will continue to grow as long as there are wage and price increases occurring at a time when it may not be economical.
      People have a lot of opinions on the dynamics of inequality. I chose the article about the data showing the way the rich gained wealth while the poor got poorer. ( Tax situations were discussed but that isn't the only problem! Entire industries have disappeared. Outsourcing and technology development has left plenty of people out of a job. Also other factors that are just as oppressing that lead to the gap between the rich and the poor. Inequality is not a good thing but without the poor and middle class demanding, the rich would not supply. If everyone sought self Self sufficiency in the forms of subsistence then wealth wouldn't be an issue.

     Jamie Johnson of "Johnson and Johnson" ( a family company) created some opening eye opening documentaries bringing this topic into depth and perspective. one titled "born rich" (2003) and the other titled " the one percent" 2006. Very good explanation about the wealth gap.

Saturday, October 11, 2014

Blame Maestro Greenspan

The article containing all the graphs about income inequality really does tell the story of income inequality over the past few decades, it does bury it a little. The first graph it talks about shows inflation adjusted incomes since the 1980s. Looking at this graph, it appears that the bottom half of the income ladder was stagnant over this period, while the top half's income actually grew, with a drastic increase in the very top percentiles.

This picture is a little bit misleading. To understand why, consider this scenario: two men make deposits at a bank. One man deposits $100, the other deposits $1,000. The men return to their respective bank account in a year and discover they have earned interest; the first man has made $5, while the second man has made $50. So who made more money? Clearly, the second man made more dollars than the first did in interest, but the rate of return was exactly the same for both of them.

If we zoom in on the graph they give us, we can see a similar picture. From roughly 1982 until 2000, incomes rose across all income brackets (including the bottom five percent). After 2000, however, most brackets' incomes begin to fall, except for the very top income brackets, which remain stagnant. Due to the scale of small incomes relative to large incomes, however, it is difficult to see anything but the change in large incomes.

Why this occurred is an entirely different issue which I'm sure we will all debate on Wednesday, but I would credit the "boom" years from 82-2000 to Reagan (in part) and credit the 2000-present tragedy to Alan Greenspan (and his mindless minion, Ben Bernanke).

Monday, October 6, 2014

The Spirit of Serial Entrepenuership

Amazon has yet to limit themselves with any isolated capitalistic venture. Amazon has no profit because they are using capital to move on to the next department within the growth of their company. They are a multifaceted empire using innovative tools to develop a stake in as many industries as they possibly can.

I see this working because they are heavily employed and utilized by people who have their one business venture in mind. When amazon became the forefront for a more independent retailer's vision, they went through the roof.

Some people prefer to purchase businesses that have already been in existence. The reasons for this are because you have a name, a reputation, and hopefully a strong following of well established customers. I think the average person, small businesses, and larger established businesses apply this theory to their supply experience by using amazon. They don't have to pay a space rent, seek customers, and all the other potential hardships that may be stifling in the progression of a newer business.

I see a little bit of an intrepeneurial style on a mega global level  happening also if you were to look at the independent retailers and entrapenuers as employees inside the Amazon firm.


Regarding Amazon, its profits, and why it works.

Amazon was originally a novel model of business: a book sales website, offering new and used books at rates much lower than you might find at the local Campus Bookstore. The model was so successful that they expanded into, eventually, pretty much everything legal to trade. The prices are incredible because they have so many different competing suppliers all selling through the same website.

Amazon's income is no surprise, given the model. They provide what consumers want at low prices. So why is profit so low? Because of their investments. They developed the kindle, are considering drone delivery systems, are developing digital media streaming services, and are expanding internationally. Investment is an essential component of growth, and the people at Amazon are clever enough to know that investing essentially all of their revenues is a long-term move designed to get a larger payout eventually.

Investors may be upset with having to wait for their payout, but the people at Amazon have accounted for that too, of course. Whatever investors want out will certainly be able to find investors who want in: Amazon isn't going to be disturbed by a loss of investors any time soon.

Sunday, October 5, 2014

The Many Amazons

Although I have often bought stuff off Amazon, I never thought to think about their business model. This article provided a fascinating insight into it, and into the limitations of what numbers can show. Although Ali Baba is growing, and in a different market segment, Amazon appears to be the giant in the online retail industry. 

Its rapid growth at first appears unexplained by its revenue numbers, but the analysis done by Horowitz helps shed a light on this contradiction. Amazon simply yet efficiently re-directs all profit into further developing it's business. Of course, the answer to it's success is not so simple. As stated in the article, Amazon is really composed of many micro teams, which set their own prices and protocols. The logistics of running an organization like this are fascinating, and would require an article of their own. 

What would be interesting would be to examine how the profits are re-invested. Does each team get a percentage? Are key areas identified for investment? How are these determined?

Should Amazon Change Its Current Trajectory?

Should investors feel so much frustration about the lack of profits at Amazon? Amazon grew to be the largest world's largest online retailer, and even the ninth largest retailer overall by 2018. The business opened in 1995 has grown so large that it has revolutionized retail and entertainment, but it fails to deliver a profit many investors would wish to see from such as large company generated a revenue of $74.4 billion in 2013 with only $274 million in net income or $745 million in operating income. Furthermore, the quarter 2 earnings showed a net loss of $126 million when revenues rose 23% in a year, but there as an expected operating loss of $410 million to $810 million in the third quarter. The losses caused a drop in shares of around 10% in after-hours trading after the losses were announced, which shows that the company is losing many investors that do not wish to keep their resources invested in an unprofitable company. Many investors were patient in the past because of how shareholders believed in the founder's statements that short-term profits are not as important as long-term growth and evolution, but is the future of Amazon today? Why should investors wait to receive their payoff if the company is already so large when it has never even paid a dividend? Amazon's long-term prospects are questionable because its invests are not certain to payoff and there are other online retailers that are matching and often exceeding the quality of customer service offered at Amazon, so the widespread admiration of Amazon may start to fall and cause the company to be an over-valued logistics company that may become forced to play by the same rules as everyone else by needing to deliver and dividends shareholders need. It's noteworthy that Amazon's shares grew by 255% in the last five years when the S&P 500 increased 85%, but year-to-date in 2014 the shares of Amazon fell around 20% when the stock market is up 7%. I understand many people admire Amazon, but the numbers are much more important to me and they do not paint an optimistic picture for the company. There are many ways Amazon may try to justify such bad financial performance by mentioning how revenues are increasing and how its portfolio is changing, but the bottom line is that the company is NOT profitable and that is what matters in any business. Thus, should Amazon change its current trajectory somehow to not compromise its achievements because its growth may become severely undermined by delivering losses to the shareholders that may lose their patience?

Is Amazons Business Model the Ideal Model to Benefit the Consumer?

         In the article "Why Amazon Has No Profits (And Why It Works)" the author Benedict Evans examines Amazons business model, specifically in regards to the fact that despite being a wildly successful company they have yet to show significant net profits. The Benedict explains that the consistent net profits so near zero for every quarter comes from the fact that they invest all net profits directly back into the company at the end of every quarter. This results in a better service for the consumer of amazons products and services but less of a return for investors in the promise of a big payoff down the road.
     My question is if this is the ideal model in terms of what the consumers want. As the customer base for amazon has increased and the money flowing into the company have dramatically increased Amazon has continuously made customer satisfaction and service assurance their priority. This service isn't cheap and it requires Amazons continuous growth to  meet the growing demand. As stated investors seem to currently have the bum end of the deal but regardless Amazons stock has consistently risen (with a small drop since 2013) for the past 5 years as they have instituted this plan(see end for link to stocks). As it looks now if everyone is happy with the situation why don't more companies have this business policy.

Saturday, October 4, 2014

Free Market Monopolies

Amazon is not a monopoly. But it seems to be getting closer to attaining "monopoly status", for all the reasons this article points out. If Amazon ever did overtake its competitors entirely (which seems impossible, given all the different markets Amazon is involved with), I don't believe it would be a bad thing.

The way monopolies are usually taught in entry-level economics classes, it seems clear that monopolies are inefficient; monopolies restrict the quantity of the good produced, and jack up the price. However, this conclusion requires us to assume the cost of production is the same for a monopolist as well as a perfectly competitive firm. If a monopoly can greatly reduce the cost of production as compared to a perfectly competitive market, that monopoly can turn out to be even more efficient.

Now consider a natural monopoly, i.e., a monopoly which arises solely because they have lower costs than anyone else. A classic example would be an automobile manufacturer. I know these aren't "monopolies" per se, but the cost advantage Ford has due to its size allows it to price its cars relatively low, keeping me from building trucks in my garage and competing with them, which would be very expensive. This is called Limit Pricing, and it serves as a barrier to entry for potential competitors.

To get back on topic, this is exactly what Amazon is doing. By reinvesting any and all profits into the company, they are lowering their costs: more warehouses means lower marginal costs for shipping. This allows them to lower the price, which attracts more customers, lowering the average costs of other services (such as amazon prime). In other words, more reinvestment, while consolidating the industry more and more, helps to make Amazon "leaner" as it grows.

If this trend continues, other businesses will have to follow suit. If they continue paying their CEOs multi-billion dollar salaries, they will (at some point) not have the cost-savings required to compete with the "leaner" companies. Thus, the free market will, in the long run, eliminate "wasteful" companies and replace them with efficient, well-oiled companies like Amazon. Whether or not these companies exist in monopolistic, ologopolistic, or perfectly competitive markets is irrelevant; they will be efficient.