Start It Up In NY?

New York wants new businesses to start up here!   Newly hired employees, innovative new services and products, new revenue and profits and tax income to the state and more!  I’ve heard NY politicians talk about it, “We’re making New York an attractive place to start and grow your company!” and the like.

Steve and Woz in Jobs' garage creating Apple.
Steve and Woz in Jobs’ garage creating Apple.

We’ve heard the stories about successful companies started in a garage or studio apartment with an idea and just a few hundred dollars in some cases. The next thing you know they’ve got a campus, thousands of employees and plans to hire thousands more.  Those stories are never about New York companies though, are they?  Coincidence?  Bad luck?  New Yorkers aren’t as smart as people in Washington state or Virginia or elsewhere?

Actually, just the opposite.  New York entrepreneurs are smart enough to know that New York state and especially the 5 boroughs of New York City have a unique “Publication” requirement for all new LLCs that will likely cost them thousands of dollars and 6+ weeks of hassles.  Open your business elsewhere, no such requirement and no such fee.  Hmmm…, NY and pay the fee or anywhere else and not pay the fee.  Tough choice for them, eh?  How does NY compare to neighboring states for formation of new LLCs per capita?  Terrible, of course.

The “Publication” requirement requires new NY businesses to publish an official notice of their existence in multiple printed newspapers for 6 consecutive weeks.  Any newspapers?  Of course not.  They select the newspapers and you have to call the county clerk to get the names of the papers who will get the $.  They say the requirement is so the general public is “notified” yet the New York Law Journal with its high rates happens to seemingly always be one of the required newspapers.  Big circulation of the general public for that one, eh?  Oh, and the information is already available online, for free, to anyone in the general public who wants it on the Secretary of State’s website.

How unique is the fee?  48 states don’t have it, that how unique it is.   If you’ve ever been curious about what a “special interest” group is and how their influence can drive lawmakers to do something for just them at the expense of virtually everyone else, here’s your case study at the state level.

$2000.00 may or may not seem like a lot of money to you but to some budding entrepreneurs it is money they could clearly use better elsewhere (elsewhere meaning anywhere other than New York).

NY and its lawmakers don't seem to love new business
NY and its lawmakers don’t seem to love new business

 

 

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Deficit, Debt and Income – What every household knows.

Imagine this situation; you’re working hard every day at your job, but your wife continues to spend a huge amount on clothes and shoes. She’s uses the credit card and while you pay the interest every month the principle keeps rising.

What do you do about it. Well firstly you stop buying shoes and dresses, and instead pay down on the credit card. Well at least you try, but your wife is so addicted to zappos that she can’t go cold turkey and still buys stuff, just at a slightly lower pace.

So you pull in the belt everywhere else you can. Go out a few less times and get that cheaper cut of meat. You do whatever you can to balance your income with your outgoings.

And of course you ask your boss for a raise.

That’s the only choices any of us have.

1. Spend less (block zappos on the home computer).
2. Pay down your debt as quickly as possible (to lower your monthly outgoings).
3. Make some more money.

Now I use the example of a wife, and I can think of very similar examples where it’s the husband. But the principle is exactly the same.

The conversation that needs to take place between the one acting like a drunken sailor and the one charged with fixing the issue will always be painful, but a practical way of dealing with the issue.

It seems to be that the federal government needs to take the same stance. The only issue is that there is no stable group that wants to stop the crazy spending. Every politician just wants to stop everyone else spending while they continue their addiction to spending like a drunken sailor with the black amex.

They (the government) need to do three things.

1. Stop spending beyond their means (turn a deficit into a surplus)

2. Pay off the debt (either print more money or negotiate a creative new model whatever just pay down on the debt to ensure lower (over time) interest payments)

3. Make some more money (increase the income from taxes by increasing tax rates and increasing the number of people paying taxes).

That means those who have more pay more. Those who has less pay something and that who have nothing are helped to the point where they can be active positive members of the “have something” group.

If you are rich and you are campaigning to get more for the rich, there needs to be a rail, tar and feathers in your near future.

If you are making it, but see this as a time to demand more, then you are mistaken. This is a time to invest in the future.

If you are not making it, and need assistance to survive, then you should expect to see a change in your life, retraining, a lot of hard work, but with a light at the end of the tunnel. You should see a time where you can have a place to live, a job, basic healthcare and a plan for your life.

Anyone who doesn’t think that those with less than you need assistance have not listened to the greatest role models in religious texts or from history. You are part of a problem.

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Living within our means.

We all run households, and we know that the first rule is to make sure that the money you spend each month is no more than the money you bring in each month.

There are of course times when all of us use credit cards, and there may be a few times when you don’t pay the full balance off at the end of the month. But if you find yourself using the credit card continually to run up debts that you have no way of paying you know you have an issue that must be solved.

So there are two very simple rules when running a household:

1. First do whenever you need to do to make sure that your bills are no more than your income (eg. noodles for dinner, drink water and not the fizzy stuff, hold off on the new telly or holiday, and cancel the cleaner and the gardener if you have to).

2. Don’t run up credit, and if you have due to a tough time, stop running up any new debt and work out how to pay of the credit card bills as soon as possible (never just pay the minimum balance, put the cards away and don’t use them if you can’t afford to pay for them)

We all know these ideas. It’s quite basic. So how come businesess and (even worse) the government don’t seem to be able to grasp these rules.

Were hearing a huge amount about reducing the deficit, and were hearing all kinds of stories about fiscal cliffs, but I’m not hearing anything that makes much sense.

There are a million great ways to reduce the amount of money being spent to do the critical things without actually cutting those critical things, but of course if you spend less on stuff then some businesses will get less income (or government departments will lose employees). So there are continual fights between factions over which bits to cut, and it comes down not to the most practical solutions, but which businesses fight best for their corner of the pot of government cash.

We hear a lot about funding for education (for example), but instead of getting the bureaucrats out of education, government comes up with even more regulation continually, and ideas such as “for-profit” education.

For-profit education doesn’t hire better teachers, actually most for-profit systems pay teachers less, and require less professional teacher training. So the end result will always be poorer.

Teachers get paid crap to be teachers, they do it because they really want to.

So how about this for an idea, keep schools not-for-profit and let the teachers teach, remove 90% of the regulation and the overhead that goes with it.

This will reduce costs and maximize the quality of education for the kids, and surely that’s the goal.

Across every government run or supported function there are simple, practical ways to reduce waste and at the same time increase value.

And there are some government functions that are no longer needed. Do you know that the US government still funds a department of rural electrification. 100% of the US has electricity, but there is still money put aside every year to do more.

There are ways of managing the budget, so that the cost does not exceed the income. Doing these things can balance the books.

And there are things that can be done to encourage companies to invest in America. Tax is a great way to incentivize businesses and people to do the right thing. If jobs are brought back to America and businesses actively invest their profits in creating new business, there can be reductions in tax to reward this behavior, and conversely when companies and people choose not to invest their profit in things that increase the economy then they can be made to feel a greater tax burden.

Taxation that is aligned to the strategic goals of job creation and capital investment can go a long way to improving the economy.

So firstly balance the books and stop borrowing money, and then secondly drive up the economy to increase the overall revenue (and hence the collected taxes) to pay down on the debt.

There are no easy options, but you will notice I haven’t mentioned massive tax cuts as a way of driving up the economy. Taxation needs to encourage the right behavior.

If people do the right things, create new businesses in their home country and actively reinvest wealth in innovation, manufacturing and distribution, then the economy will grow. Reward the right actions and punish the wrong actions, that’s when taxation works best.

This is not a partisan issue, everyone knows the rules, so government (all of you) wise up and act like sane members of the human household.

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Machiavelli is alive and well.

Niccolo Machiavelli was a fifteenth century politician who practiced a form of politics designed to drive people towards his desired goals. The art was in telling people what they needed to hear to act in ways that may have seemed contrary to the eventual aims, but would cause the sum of the parts to meet that goal.

He described the complexities of politics in a way that at the time was amazing, and he countered the concerns many at the time would have had with a lot of discussion on ethics.

Since the fifteenth century, Machiavelli’s writings have been core to the teaching of politics around the world.
In the last couple of decades the Machiavellian skills of business executives and politicians have greatly improved, to the point that today’s world leaders far surpass the teachings of the middle-age expert whose name has been used to mean all the worst aspects of the art of politics.

Machiavelli did try and keep his goals in mind when he implemented devious tactics to deliver his strategies. And the same can be seen today. The huge difference is that the goals of politicians and business executives are now all too often focused purely on their personal wealth and not on more noble and longer-term goals.

Business leaders who focus on meeting short-term sales targets at the expense of the long-term health of a company are far too common. At the extreme end of this we see despicable people like Bernie Madoff, who created an entirely fraudulent business to allow him to prosper at the cost of thousands of others.

But many companies of all shapes and sizes are driven to make choices, which hurt their long-term viability just to meet Wall Street expectations that are linked to large bonus payouts, but at the cost of the future.

A very common technique is to encourage customers who lease products or pay for an ongoing service agreement to renew that agreement earlier than they need to, in exchange for a large discount. This in effect allows the balance sheet to reflect the right numbers for right now, but leads to the volume of revenue over the years to decline. This technique is incredibly common. The customers who get these discounts then find the quality of products and services decline months or years later because the vendor had to lower their costs to keep up future months profitability. In the end of this cycle (nearly) everyone loses.

Now add to this the really creative accounting models of the finance industry, including banks, insurance companies and venture capital companies. This whole industry is designed to move capital from the production to the pockets of financial institutions.

Politicians then get paid by the Machiavellian elements of business to change their policies to further enhance the wealth of themselves and their funders.

What we have today is a Machiavellian form of capitalism, that isn’t about innovating, creating and distributing, but is instead focused on today and not tomorrow.

Luckily not every business follows the concept of Machiavellian Capitalism, but I am at a loss to find a single politician that doesn’t.

Every time I hear about a political decision that sounds nuts, it always turns out that many people have been feeding at the trough of the people who are happy with the outcome. It happens on every side of a political argument and everywhere in the world.

If Machiavelli’s memory were to find out about how his ideas are being used, it would be turning over in his grave.

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The cycle of Society

Everyone would like to be rich, but of course everyone cannot be rich.

The concept is simple, if everyone had loads of money, then why would people want to work, and so they would prefer to hire people to do things for them. But of course there would be no one to hire, as everyone else is rich and in the same situation!

So to get anything you would have to find a price that would motivate these other rich people to do things, and they in turn would have to find ways of motiving you. So if everyone had loads of money, the value of money would just decrease. What once cost $1 would now possibly cost (for example) $1,000,000.

Quite simply if everyone was rich then all that would happen is we would suffer hyper-inflation, a massive devaluation of money.

Economics requires disparity; there must be people who want more and are willing to work for it, and people who have more, who are willing to spend in exchange for services and goods.

The challenge comes if the spread of wealth is too big. If too many people are too poor, then society fails. While if too many people are too rich, then there isn’t enough people to work and society fails.

I’m not sure there is a perfect balance, but there is a healthy balance where everyone is motivated to make society better. A balance where there is enough chance for poor people to become less poor, creating motivation to be part of society. And the wealth of society is active rather than sitting in accounts doing nothing of any value.

Society works best when wealth is active, meaning it is used to create more things.

Banks have a very positive role to play in this, they should be able to loan money to businesses to allow for investment in new ventures, and in exchange receive a fair level of interest on the loans. But if banks take too much, then we get back to that place where there is too much in the hands of the richest, and not enough in the active part of the economic system to be healthy.

It’s a tough thing to get right, and it’s very rare that it will stay right for long. This capitalist system that we have is without a doubt the best system that mankind has ever used, but no one would honestly say it’s perfect.

When it gets out of balance in most respects it is destined to eventually work itself back to a manageable system. But there are times when the process of correction can be extremely painful for many involved.

Some of the rhetoric from extremists at either end of the economic scale will always sound preposterous to the majority of people. If it doesn’t sound scary to you then you may be part of the problem.

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