Copyright © 1994 by Carl E. Person. Permission is given for non-commercial users to send a copy of the data processing file for this work by electronic means to a specific individual for his or her own use, and then only if the entire file is sent, including this copyright notice, but no permission is given for anyone to copy or transmit this file for or to any person for public viewing or downloading. It is intended by the author of this work that the work shall be made available in electronic fo rm only through LawMall.
Q. The title of your interview states in effect that you were a candidate for the U.S. Presidency during the 1992 campaign. I don't remember ever seeing or hearing your name. What type of a candidacy did you have, if any?
A. Basically, a very disappointing one. Through my experience during the past 25 years as a vocational school owner and lawyer for persons raising capital I developed an insider's understanding as to why there is a job shortage in the United States, and tried for several years to get the leading politicians and the press to learn the reasons and do something about the problem, but nothing ever happened. I even communicated with each person running as a candidate for the U.S. Presidency, and one of them (Curly Thornton) invited me to join his campaign as his attorney and economic advisor, which I did, in November, 1991. In my role as Curly Thornton's economic advisor, I formulated the economic issues for Thornton's candidacy and distributed the results to the media. A copy of the New Hampshire Platform, prepared and distributed during February, 1992 to the press by me in Mr. Thornton's name, is reprinted as Appendix 1 to this book. It dawned on me, after a while, that not only was Curly Thornton a cand idate for President, but I was running as well. Neither Curly Thornton nor I could get anyone interested in the reasons for the national shortage of jobs. It was beginning to dawn on me that there are many good reasons for politicians not to care, which has caused me to write this unique form of book.
Q. What experience do you have in economics?
A. I have been an antitrust lawyer from 1970 until the field was ended in the 1980's when President Reagan decided that the Federal Trade Commission and the United States Justice Department had better things to do than to enforce the antitrust laws. The federal courts responded to the Administration's message by making it exceedingly difficult for a plaintiff to win an antitrust suit against big business. During this period before the death of antitrust law, I was very active in detecting and analyzing restraints upon business imposed by big businesses and governments. I saw that there were many cases in which government illegitimately restrained small businesses from getting started or from operating, and instead of suing for violation of the antitrus t laws I sued instead for violation of the Civil Rights Act or for infringement of constitutional rights. It was becoming clear to me that what stops economic progress in the United States is a series of restraints imposed upon small business by big busi ness or by government. I learned that for every restraint there is a predictable effect, which enables anyone who thinks about these problems seriously to be able to be his or her own economist, especially if the person has a good business background.
Q. Do you happen to have a summary of your background handy for my audience? I think they might like to see the varied background you obviously must have to be able to involve yourself in so many areas of the economy.
A. My best summary, as I hope you will conclude, are my answers to your questions during this extended interview, which I think you'll agree are more important than any specifics in my background. But, to be more direct, I do have a "resume", which I off er to prospective clients in my law practice (Appendix 2 hereto). Click on Carl E. Person Resume
Q. Let's get right to the point. What do you think has caused the country's shortage of jobs?
A. In one phrase, the answer is: "Micro-economic restraints".
Q. What is "micro-economics" and how does this differ from "macro-economics"?
A. Macro-economics is the study of the larger factors which affect the overall economy, and could include a study of how a declining temperature of the earth will have an effect on the earth and its economies. But, generally, we think in terms of tax pol icy, governmental budget deficits and interest rates on loans as key "macro-economic" factors in our economy. Thus, the politicians find a great area for debate among themselves as to whether interest rates should be reduced as the way of curing the coun try's economic evils. The lowering of interest rates, as a macro-economic lever, would supposedly increase the demand for loans throughout the economy and increase the amount of capital and expenditure throughout the economy to create more economic activ ity, more jobs and more profits. The politicians are fairly safe in arguing whatever they want to argue about where the interest rate should be set because macro-economics is more political (founded on belief rather than hard information). For example, many persons are advocating an interest rate at the "discount window" (where banks borrow money from the Federal) of something lower than 3%. I have never heard anyone argue that the rate could go down to something close to zero, but there is no real rea son why the rate at which banks borrow from the government couldn't be set at -3%, which would really encourage borrowing. The real problem with setting the rate at any low rate is that the right persons don't get the money, for various reasons which exc lude small businesses from the borrowing marketplace. Thus, when politicians talk about interest rates, they are talking macro-economics, but the macro-economic lever does not cure the problem in our society that small businesses, where job creation is a dmittedly found, are unable to obtain loans no matter how low or high the interest rates are set.
Q. I understand that macro-economics has its limitations, and that we can't expect macro-economics relating to
interest rates to create the jobs we need. But aren't there other macro-economic levers which politicians can use to generate jobs?
A. Yes, but they have the same limitation. Macro-economic levers of interest and taxes (and deficits) do no more than direct more money and opportunity to the persons who are favored by micro-economic policies of government. Small business generally doe sn't pay taxes for various reasons, including heavy payroll taxes, heavy rent, heavy deductions for business expenses which are sometimes used for personal reasons as well, expenditures for business reasons (sort of a savings program) to avoid imposition of income taxes, and in many cases because the businesses are just not profitable. What good is a macro-economic tax policy which does no more than offer a refund of part of the income taxes paid. Such policy does not more than refund taxes to the large , wealthy, taxpaying businesses, which are shedding employees, and doesn't address the problems of the small business people who could use additional capital to hire more employees.
Q. Are you saying that the macro-economics practiced by both parties in Congress doesn't work, and that this isn't known to Congress?
A. Yes and I'm not sure. Yes, macro-economics does not work, because it does not cure the micro-economic restraints which cause many businesses to be cut out of the loop of benefits which could be derived from macro-economic policy. But I'm not sure whe ther many or even any politicians know anything about business and the restraints which make it difficult for small business to proper and create more jobs. In many cases, I believe, the politicians have inherited their position because of money earned b y forefathers or forefathers, and really don't have any idea how wealth is created through the growing of a business from concept to dollars in the bank, net after taxes. These people with their inherited money, costly training, and entry into government service without having to work for a living, are the persons who try to understand what the economy needs, and have not demonstrated that they have any idea what is needed. H. Ross Perot presumably does or did have a very good idea what business is abou t, but not necessarily from the standpoint of small business, which is the growth part of our economy. I suspect that he would be able to understand a lot more than politicians who never owned a small business.
Q. What does micro-economics contribute to the macro-economic problem?
A. Macro-economics deals with the overall economy, and by changing macro-economic levers there is assumed to be an impact to be expected in the overall economy. Micro-economics essentially defines which persons or groups are excluded from the macro-econo mic benefits. Thus, if we have a macro-economic policy which encourages borrowing by business at interest rates of 2%, and a micro-economic policy which excluded convicted felons from owning or engaging in business, then the 2% loans would not be made av ailable to all persons, only to the persons who are not excluded by our country's micro-economic policies.
Q. Are there any other types of persons excluded by micro-economic policy from obtaining business loans?
A. Yes, most of the people in the United States.
Q. That's a pretty broad indictment of our system. Could you please be a little bit more specific?
A. I'm glad you're getting to the heart of the problem so quickly, much more quickly in fact than any of the politicians and media representatives with whom I've spoken over the years. Our economy requires the creation of jobs, and through jobs we can re duce our welfare programs and social evils, and obtain a better quality of life for all persons in the United States. Yet, we have not given small business the opportunity to start up or grow because of certain restrictions which have been around for mor e than 70 years.
Q. What restrictions are these?
A. Let me answer that question with a question of my own. Are you aware that in every one of the United States it is illegal for a person who wants to start a restaurant, a car repair shop, or a newspaper, for example, to put an ad in the newspaper, penn ysaver, radio, TV or cable TV asking for capital? Don't be shocked at admitting you were unaware of this restriction. What I would like you to do instead is think about the consequences of this micro-economic restraint on the economy and on you.
Q. Do you mean what predictable consequences can you list, or something like that?
A. Yes, that is precisely what I'm asking. And since you have put the question to me, I'll give you my answer, off the top of my head. The first thing that comes into mind is that when you or I are prohibited from advertising for capital, there is a sub stantial barrier which most of us in the United States will be unable to overcome, and for such reason we will be discouraged from going into business for ourselves, and from hiring persons to do the work of the business. Therefore, I see millions of job s not being started in the United States because of such rules.
Q. Can you tell me more about these rules? What are they called and what is their purpose. Surely, these rules were not passed without any forethought or assumed justification?
A. It takes more time to discuss these rules than I think you may be interested in hearing at this early point in the interview, and I suggest that you come back to this topic later. I think other matters should be discussed before this important topic o f capital is more fully presented.
Q. OK. Let's talk about the individual's contribution to the economy. Does the typical employee know whether his or her job is of value to the economy?
A. Usually, not.
Q. Why?
A. Because it presupposes that the employee has information and insight of the type needed to cure the economic disaster in which the U.S. finds itself. I have not read or heard anything which suggests that our political leaders or the press know what to do, and I suspect that the failure of our political leaders and the press (which creates our political leaders) to tell the public what's wrong has prevented most persons from obtaining the information they need to know whether a specific job (or the per son's own job) is valuable or not to the economy.
Q. What consequences do you see result from the public's inability to know whether they, as individuals, are productive for our economy?
A. The result is the present state of the economy. This is so because the voting public doesn't know what's wrong and fears the changes and dislocation which are necessary to correct the economy. Also, this factor prevents politicians from telling it li ke it is, for fear of losing votes from voters who find out that they [or the work they do] are the problem and will have to be changed.
Q. Give me an example of how an employee could really believe that he is a productive member of our society and economy, but in fact not be so.
A. Let's take a "meter maid" or as we call them in New York City a parking enforcement agent. New York City has an army of them, consisting of 20,000 parking enforcement agents, 1,000 tow trucks, 2,000 tow truck operators, 5,000 automobiles, 5,000 allied governmental workers, and an annual budget of $50,000,000, which is drawn from the $1,000,000,000 in tickets which the parking enforcement agents write each year.
Q. Explain how a single agent might feel justified in what he or she does each day and truly believe that he/she is contributing to the economy.
A. I have talked with some of them and I'm now thinking about Jennifer (not her real name) who gets up at 5:00 a.m. each day, five days per week, and travels by bus and subway for 1.5 hours to get to work. She earns little more than the minimum wage and for such reason chooses to live where rents are less, which makes her travel 3.0 hours per day to and from work. Actually, she would be as well off if she went on welfare (and, as you'll soon see, the economy would be better off too). Jennifer works har d, and does what she is told. She has only 9 years of schooling, and is smart but not well-educated. She doesn't understand economic matters, and certainly doesn't think that what she is doing is not important. She is told by her superiors that NYC nee ds to keep the streets clear for traffic, and at the same time NYC can use the funds generated from ticketing to pay her salary, the salary of her superiors, and some salaries for extra teachers as well. Jennifer accepts this, and knows that if she doesn 't produce a certain number of tickets each day, on the average, that she will be fired, and put back on welfare.
Q. OK, I get the drift. You're saying that many people in America are hard working and may be in for a rude surprise to learn that somehow, for reasons you think you can explain, that their work is of little or no value, or even destructive to our econom y? Is that a fair summary?
A. Yes. What I'm complaining about is, for the most part, the work which is most destructive to our economy. We can worry about the "little or no value" later, after eliminating the "destructive work". In fact, if we merely eliminate the "destructive w ork", we probably can afford a lot of the "little or no value" work in our economy.
Q. OK, I'd still like to hear why the parking enforcement agents constitute "destructive work" and should be eliminated, in order to benefit the economy.
A. Government should not be in the business of fining its citizens in order to make a profit. Government should be providing the framework for all persons to be productive and to have a satisfactory or higher quality of life. This is what government sho uld be doing, but is not when it turns its attention to profiting from issuing "violations" or tickets of any type.
Q. What's wrong with a government making a profit? Doesn't government need money to function?
A. Government should be providing the environment for its citizens to prosper, including the starting up and running of profitable businesses offering valuable employment opportunities to the residents. When a government fails in providing this environme nt, the businesses become less profitable or unprofitable, and go out of business or leave the city and reduce the amount of employment and valuable employment opportunities for the residents. The city then, to make up the shortfall in revenues by having less profits and salaries to tax, then turn to "violations" to increase their revenues, which is no more than an increase in taxes upon certain categories of persons. In New York City, where most who vote don't own cars, it is politically expedient to t ax New York car owners and others who live outside of New York City with a variety of car-related nuisance taxes which collectively amount to $500 million per year. But this has to be recognized as no more than a tax on persons who are earning or profiti ng less and creates an intolerable tax burden which persons often avoid by taking their businesses or residence out of New York City, thereby increasing the need for New York City to find more types of violations to raise money to replace the revenues whi ch are lost when more businesses are driven out of New York. Obviously, New York City cannot keep doing this forever, which is just one of the bases for the economic crisis which exists in New York City and other cities.
Q. I think I understand what you are saying, but do you really mean that there is a destructive cost to New York City above and beyond the $500,000,000 in fines which are levied each year on these parking tickets?
A. Yes. The $500,000,000 itself is a terrible price paid by the persons who use automobiles and trucks in New York City, whether they live in the city itself, or are merely driving into New York City for work or play. But the economic costs are much hig her, and should be analyzed from a micro-economic standpoint.
Q. Would you please start your analysis of the micro-economic effects of issuance of parking tickets for profit?
A. First, let me start with issuance of parking tickets for no profit, which used to be the law in New York State, until the case law was overruled about 20 years ago. Ideally, a government would set aside a sum of money needed to deal with the problem o f illegal parking, such as at fire pumps, in front of ambulance zones, in taxicab zones, and at meters. This amount might be $1,000,000. Schools would, at the same time, be allocated a much larger part of the budget; firefighting would also receive a po rtion of the city budget, and so on. Each of these government functions ideally would take their budget and try to spend the money to obtain the greatest result. None of the fines would be turned back to the agency which produced the fine, to avoid havi ng the agency be in the business of profiting from enforcement of law. The agency in charge of parking enforcement would hire only enough persons to use up the budgeted amount, and these persons would be assigned duties in accordance with the governmenta l priorities determined by the agency. At the end of the year, the budget would be expended, the results would have been maximized for the dollars so allocated and spent, and the number of persons involved in this governmental process would have been kep t to a minimum (freeing up tens of thousands of others to perform a valuable task elsewhere in the economy). I should quickly add that the reduced staff of parking enforcement agents would in fact be serving a legitimate and valuable governmental functio n under this approach of (i) fixed budget (ii) allocated in competition with all other governmental functions; and (iii) with all fines going back into the general revenues of the city, where (iv) the original budget allocation did not take into account t he dollar amount of fines which might be generated. In theory, the legitimate government function could be served if nobody violated the parking rules and no fines at all were ever collected.
Q. I see what you mean about how a parking enforcement agency could work under your conditions, but tell me what is so terrible and economically destructive for a parking enforcement agency to be based on making profits for the city involved?
A. The first thing which happens in the agency run for profit is that the top employees, to remain at the top and create the most profit, subtly or not so subtly, advise their agents that they are expected to produce a ticket quota or lose their jobs or j ob perks (such as a car, or time or location preferences). This leads to pressure on the agent to issue tickets even though the tickets are not deserved, and we then find that citizens are being ticketed without justification. Of course, you say that th e unfairly ticketed person can spend several days of his life trying to fight the $50 ticket (at a cost of legal fees, loss of income or profits from work or business) and the probability of loss of the case in any event because of the tendency of the cit y employees to find most alleged violators "guilty as charged" or the equivalent. Because so many persons were going into court (in spite of such high costs) to fight New York City's for-profit ticketing, the Court administrator issued a ruling which sta ted that no ticket cases could be brought into the court system in New York, and that all persons had to go back to the agency which issued the tickets to obtain "justice". I fought this unsuccessfully all the way up to and including the United States Su preme Court and lost at each stage except the lowest court, which agreed with me. The judge in such court, Judge Norman Shilling, was later removed as a judge, as the only judge ever to be removed in New York City. His removal was obviously caused by hi s willingness to fight the system, and the system's willingness and superior ability to fight back.
Q. So, what's so bad about issuing parking tickets for profit in addition to the fact that many persons will be ticketed illegally and that the courts will prevent anyone from obtaining justice?
A. In addition to destroying the image and reason for the court system, which it self is a terrible thing to do, there are other serious economic effects which a re destructive to the economy. There are many micro-economic effects, mostly bad . The two main "good" effects are that government gets more money to devote to education, and fewer people want to drive in New York City which tends to free u p parking spaces for others. But the destructive micro-economic effects overwhe lawmall these good effects: (i) a large army of people is working at the wrong j ob, which for them offers no skill or training useful anywhere else in our socie ty and is a dead end for them; (ii) society and the economy is deprived of the u seful work they could be performing in the public sector (as in helping the home less, aids victims, schools, playgrounds, soup kitchens for the poor) or in the private sector (such as rebuilding the neighborhood, making the streets safe, go ing into business for themselves); (iii) you can't fool all the drivers all the time and many of them choose not to return to New York City when they have an op tion to obtain their required business services and products or dining and entertainment elsewhere, which causes monumental loss of business to New York City businesses and in many cases causes them to go out of business or leave town and set up shop else where, with a devastating impact on the job opportunities and tax base for the persons who remain behind in New York City; (iv) the persons who fight the tickets spend perhaps 50 times the cost of the ticket in lost profits in their business and out-of-po cket expenses in lost wages and fees for attorneys, which collectively would probably amount to several or more times the $500,000,000 per year which New York City takes in fines, thereby increasing the real economic cost to New York City to an amount equ al to 1-3 billion dollars per year; (v) the employees who can't afford to pay the ticket either take off a day from the job (calling in sick) to fight the ticket at the employer's expense (which is perhaps $250 to $1,000 in lost profits by reason of the a bsence) or the employee doesn't pay the ticket and he loses his car by towing later, and spends lots of money and time to recover his towed car; and (vi) perhaps the main point of all, is that the efficiency of business in New York City is severely damage d and businesses in New York City are unable to sell their products and services to the rest of the world which include an amount to cover this additional parking-enforcement tax on the business. We are in a world-wide economy and all costs ultimately de termine the price at which businesses in New York City must charge to be able to remain in business (in New York City). When businesses find that the costs are too much, and if they find out the truth while they still have some money left, they merely pu ll up stakes and leave for other, less expensive areas of the country in which to do business, such as across the river in New Jersey, taking their jobs and tax payments with them to the competing state.
Q. Isn't this known to politicians in New York?
A. Of course.
Q. Then why don't they stop the practice?
A. I guess it's similar to a person who is caught on the roof of a 20-story burning building. He'll do anything to try to save himself, even by jumping off the building, which for a while is a lot cooler than being burned alive. The politicians who are in power in any city, not just New York, are there for a short while only, and have inherited the system (or the burning building, if you will) from other politicians, not necessarily from the same party. The public doesn't remember or care who caused th e problem, and doesn't even want to know about the problem. They just want results. They want their garbage removed quietly, often and with little or no involvement by them; they want their children to attend the best schools and to become successful, a nd so on. But politicians, who are elected by themselves (i.e., the politicians and their associates, through control of the political apparatus) are going to have to find the answers, but don't bother us, please. Just give us what we want and we'll ree lect you. If not, we'll elect somebody else. Thus, the politician is forced into continuing the services which are often excessive and unjustified. The politicians won't receive the benefits from attempting change starting today, and the best thing fro m their standpoint is to let the problem go until the politician's successor is elected, who has the same feeling, and nothing ever happens, except that the city continues to decline and seemingly has no way to recover.
Q. How far can a city decline?
A. Most persons assume there is a bottom below which a city cannot fall. A high level of unemployment and poverty predictably can or will lead to riots, and the overall percentages don't have to be too high. In Los Angeles during 1992, the rate of unemp loyment was less than 10%, except in the area of the 1992 riots and lootings, where the rate of unemployment among suspected rioters and looters was probably 80-100%.
Q. How can a city pull out of its economic depression?
A. I don't want to answer that question at this time, because the answer is quite complicated and I haven't given enough of an interview to enable you to fully appreciate the answer which I have. Therefore, please continue with your questioning, and I'll signal to you when I believe you and the reader are suitably prepared to fully appreciate the answer which I could not give, but respectfully decline to do.
Q. Are voters ever prepared to answer the important questions when it's time to vote? A. No. They don't even know the questions. In fact, once the right questions are known, the solutions become far more obvious.
Q. Can you give me an instance of this obviousness?
A. Yes. Let's take the issue of joblessness. The answer does not jump out because the issue is too broad, more like a "macro-economic question". If we focus, instead, on a specific possibility, such as toll booths, our analysis might indicate that toll booths do more good than harm, and that some of our nation's jobs are lost due to toll booths.
Q. Show me this micro-economic analysis. I'd truly like to understand what you are saying.
A. First of all, I direct myself to toll booths not at random but because I, as a business person, have been quite irritated at the treatment I've been subjected to a toll booths throughout the United States. Every time I wait in line for 15 minutes to e ven an hour or more waiting to give somebody a couple of dollars I can't help thinking there must be a better way and that there is a horrible waste going on. I try to look at toll booths from the standpoint of the governmental agency which receives the money to start my analysis. I recognize that new roads cost money and that tolls charge the user of the new road to pay for the road. Also, I recognize that governments will keep the toll booths open after the road is fully paid for because it wants to make money. Also, there are the attendants to be considered, what politician wants to fire the hundreds or thousands of governmental workers who work at the toll booths. There is often more political reprisal from an organized group of fired workers and their families than all of millions of motorists who suffer at the toll booths. Thus, I can see the political reason for keeping toll booths after the road is paid for.
Q. What is the other part of the micro-economic analysis as to the destructive aspect of toll booths?
A. In one word, "costs". The cost to our economy of using tolls booths is too great. Our economy suffers far more than one can imagine when handing over the $2 toll, after waiting in line for half an hour. I have made a study of the 3 toll stations of the New York Port Authority (a governmental agency by agreement between New York and New Jersey), located at the Lincoln Tunnel, Holland Tunnel and George Washington Bridge. I have reprinted this study for you at Appendix 3. My estimate of the cost of t hese three toll stations is about $x billion dollars per year. A subsequent article in The New York Times estimated that the total cost to our economy of highway delays caused by road construction in the United States is about $100,000,000,000 (one hundr ed billion dollars) which is another micro-economic story for someone to develop and deal with at a political level, to recapture these losses from our economy.
Q. I seem to be getting the point that macro-economics attempts (and you claim fails) to solve the country's economic woes by the simplistic device of increasing or lower taxes, deficits and interest rates, when in fact, you claim, none of these things ha ve anything to do with the real reasons for loss of jobs. Is that basically what you are saying?
A. Yes. Changes in taxes, deficits and interest rates do have economic effects, for example, lowering interest to retired savers, encouraging persons who don't really need the capital to borrow more because the rates are so low, increasing the value of bonds held by the rich or by speculators, and so on, but this doesn't change the loss of jobs caused by the unnecessary use of toll booths, or the loss of jobs caused by denying the right to small business to advertise for capital, or the loss of jobs cau sed by the tens of thousands of rules and regulations which are not cost justified.
Q. So, you see the economy as the sum of all of its micro-economic parts, rather than the result of the 3 macro-economic levers?
A. Yes, the way to stimulate our economy is to find a way for all humans to contribute to their maximum, through offering them equal opportunity to compete in business, including the right to compete equally for capital with as few restraints as possible, which requires a review of all rules and regulations which regulate our economy and the elimination of all statutes, rules, regulations and particularly government or quasi-governmental jobs which interfere with business unnecessarily, which means where the loss to the economy caused by the restraint is more than the estimated gain to our economy. I don't even believe that where the estimated cost is equal to the estimated gain that the government should get involved, because of the inaccuracy of the es timate. Unless government can prove to itself that regulation is far more beneficial to the economy than no regulation, the regulation should not be passed, or any such existing regulation should be taken off the books.
Q. I understand that you have proposed to President Bush and candidates Clinton, Perot and Tsongas that the United States Congress enact a law creating a Federal Deregulation Agency? How would this work, in your opinion.
A. Here is a copy of my proposal (annexed hereto as Appendix 4). I suggested during the New Hampshire primary in early 1992 that the CIA, which was casting about for new types of work, do a extensive and thorough (but fast) study of all the micro-economi c restraints which exist in the statutes, rules, regulations and practices of each state and local government and report back to the nation (including Congress, each state and local government and to the public) the results of its study. Then, I said tha t a Federal Deregulation Agency, to be formed, should be given the duty of helping or requiring the states (and local governments) to deregulate their economy by request and cooperation at first, followed by the commencement of federal lawsuits to the ext ent necessary to ensure that necessary deregulation takes place. Federal law should preempt excessive state (and local) regulation to protect the national economy, and it would seem best that a single Federal Appeals Court be established to hear appeals from decisions in such cases to have a single national policy instead of 12 different final decisions which would be the case if the cases were appealed to the existing U.S. Courts of Appeals. The most important part of any such deregulation would seem t o be the standard which should be employed, such as that economic regulation by the state should be overturned when the reasonably calculated economic costs to the economy of the nation as a whole are greater than the reasonably calculated economic benefi ts expected from the regulation in question. Also, there is a serious matter of whether the decision at the trial level should be given to a jury (if demanded by either side) or only decided by a judge. Personally, I get nervous every time I hear that f or the good of the country the matter is being taken out of the hands of a jury and entrusted to a politically appointed judge.
Q. Let's get back to the employee who wants to believe that he is producing in a positive way for the economy. What thoughts do you have for him or her?
A. My first thought is that from the standpoint of Joe or Mary Doe, who wants to do the right thing for himself/herself, is that Joe or Mary would want to work at a job which is in fact making a valuable contribution to the economy. The reason for this i s that if the job is not making a valuable contribution, the job may well be (and hopefully will be) eliminated as part of the restructuring of the nation's economy which is starting to take place at this time.
Q. But what can Joe or Mary do to obtain the information needed to understand whether the job is worthwhile or not?
A. This is somewhat complicated. In the case of parking enforcement, the structure of the agency may be the determining factor. If the parking enforcement agency meets the criteria set forth above for a non-profit governmental agency, then the chances a re pretty good that each job is making a valuable contribution to the economy. But if the agency is the typical agency found in many cities in the United States (i.e., run for massive profit), then most jobs are destructive and I would try to find work e lsewhere, especially if I had no seniority. Those with seniority could either switch to another government agency or probably keep their job (which will hopefully become a productive job) when the inevitable restructuring comes along.
Q. I've been thinking about the army of parking enforcement agents, tow-truck operators, and others who you would deploy into other areas of the city economy. Who would pay the salaries of these persons in their new employment?
A. If the parking enforcement agency fired most of its employees (which I think will come to pass), either they will have at least three choices: (i) to go on welfare as bottom of the ladder workers with little training, education and worthwhile experienc e; (ii) be hired by a different governmental agency and retrained (perhaps to rebuild deteriorated buildings or care for the sick or elderly); (iii) be retrained and hired by private enterprise to work in newly-freed areas of the economy which must develo p as part of the restructuring. But, to answer the question, the money will come from the employment which will make use of the terminated agents. If government becomes the new employer, then the money will come from the additional revenues which will b e obtained by the government when it provides conditions to help business grow, and to attract new businesses.
Q. Isn't this rather risky of a government, to give up $500,000,000 per year in sure profits for the possibility of recapturing that amount or more at some undisclosed future date?
A. The way you phrase the question reminds me of the way politicians have sold their losing programs to voters over the past years. They have been telling voters that the voters can have everything now and we'll pay the price later. We have now arrived at later, and we have to start paying not only the price for yesteryear, but we have to start paying the current price of whatever services we are able to have government provide. The answer to your question is similar to what every dieter knows but most find difficult to implement: start right now to eat for the weight you want to achieve, and you'll achieve that weight. We have to spend today for those things we want to achieve in the future (plus the cost of past indebtedness). If we build our econo my, we can pay for past excesses. If we put government on the right track today, we will build the economic base in several years which will give us the revenues we need to pay for all future services, and debt service from the past. By building a gover nment which encourages and respects if not idolizes legitimate business, we will be creating the cash cow which can be legitimately taxed to pay for all necessary government services (and debt service). We must start having the government make the expend itures required to create healthy and attractive business conditions, work on developing businesses, and work on attracting businesses back to the city. This will build the tax base which will pay for these legitimate government services without robbing taxpayers and driving them out of town through phony tax-raising schemes such as excessive, for-profit enforcement of parking laws.
Q. What other areas have you seen in which government is improperly and destructively making profits out of issuing "violations" or other tickets?
A. At 41st Street and Eighth Avenue in New York City, officer Ferguson or his successor stands every day waiting to give summonses to drivers who make a right-hand turn, to the North, onto Eighth Avenue while the light is still yellow. This one corner pr oduces about 20 tickets per day, or 100 tickets per week, or 5,200 tickets per year, for a total profit of about $100,000 per year for New York City for just the services of one cop working about 3 hours per day. There are 35,000 cops in New York City, a nd thankfully most of them do not issue 20 tickets per day, but they do work against a "productivity" expectation or quota which forces them to issue tickets to enable New York City to keep paying the bills.
Q. Are there any other ticketing or violation scams?
A. Yes, building owners are harassed with a flurry of tickets, court appearances and criminal and civil finds relating to such things as elevators, sidewalks, broken mailboxes, broken door locks, broken windows, dirty ceilings, barking dogs and burned out lights, just to name a few of the 10,000 different violations which are dreamed up by the army of building inspectors working for various New York City agencies such as the Fire Department, the Health Department, the Buildings Department, and the Housing and Preservation Development Commission. When the level of violations reaches a certain point (which the building owner can't cure because he has lost all of his money from rent strikes and earlier repairs), New York City takes over the building and hir es many people to manage and repair the building without fiscal restraint, except to add to the tax burden to residents, which drives them out and keeps the housing stock off the tax rolls, and provides a place for political operatives to get rich making non-existent high-priced repairs which are added to the tax bill against the building which has been taken away from its owner, usually forever. What a place New York City has become! There is no other like it in the world! Thank god.
Q. Any other ticketing scams?
A. Any New York City agency which issues tickets and assesses fines directly, through its own agency (such as the Taxi & Limousine Bureau) or through the courts (such as the Buildings Department, the Department of Housing Preservation and Development, Pol ice Department, and Fire Department) is deriving a profit, which motivates additional hiring, and additional profits. At the state level we have fines being levied against for-profit vocational schools, but for a different purpose. The purpose is to dri ve them out of business and force their business (i.e., students) to take their courses at the government or non-profit universities, to bolster their declining revenues. I will more so say about this later. I owned and ran a for-profit school in New Yo rk for 18 years and can say quite a lot.
Q. Much of what you say is new, or has a new slant. I'm wondering why I haven't heard most of this before. Is there any possibility that some of what you say is what Ross Perot knew but didn't say before he quit the Presidential race in 1992?
A. Yes. But this is true for most politicians, as well. They know that rent control is destructive in today's economy. They know that many jobs (which we haven't even touched upon) are destructive to our economy, or the rates of pay and the performance obtained are destructive. But they have been unable to articulate their concerns for fear of losing the votes they must obtain to win, and realizing in any event that they couldn't attract any political support for change from other politicians in any e vent, later on. So why bother to tell the truth. It would cost them the election, and nothing can be done about it anyway, or so their reasoning apparently goes.
Q. Why are you trying to tell all?
A. I'm not now running for office, and the country needs to be better informed, to enable voters to deal with politics and politicians on a more-informed basis.
Q. How does the press fit into all this? If you are correct in what you say, or at least if you are making an argument which should be heard, why is it that the press is not picking up on you and your explanation of why the U.S. has a job shortage and wh at can be done about it?
A. The press is part of the problem. The press does not publicize political and economic news. It makes the news, by publicizing what it wants (which then shapes political and economic issues and debate) and shuts out what it doesn't want the public to hear (such as the truth, as I'm trying to explain it).
Q. Why would the media in the overall sense do this?
A. I'm glad you say overall sense and not every single reporter, columnist, magazine, newspaper, TV station, radio station, cable show in the country. If I had a paper with 10 subscribers, I could tell my message all day long, but I would have to own or pay for the paper for that privilege. When a medium (such as a major daily newspaper or a television network) is owned, it by definition is owned by a wealthy person or group of persons who collectively have a substantial concentration of wealth, and it is hard to believe that the medium would go overboard in trying to tell the public that the things which have enable the medium and others like it to prosper is wrong, and should be changed. The major media, like George Bush, are not agents of change, bu t beneficiaries of the status quo. They (i.e., the wealthy individuals and businesses) are making most of the money and profits in the United States and are doing so at a time when most others are suffering. Nobody is going to be working long for a netw ork or daily newspaper which starts explaining the reasons for the rich getting richer. Some of the rich who are getting richer undoubtedly think or say "If the public can't figure this out for themselves, they they're stupid and deserve to be broke and without jobs."
Q. But doesn't someone on occasion make some of the points you are making?
A. Yes, but the public doesn't understand the importance of a quick news items, heard or read only once, which says the rich are getting richer. The public can't explain specifically how this works, and nobody is explaining it to them. The magazines and daily newspapers have articles every day on the candidates running for President, and they focus on alleged marital infidelity, referring to a group of black people as "Your people", or other irrelevant matter to the complete exclusion of the reasons why the U.S. economy is where it is. The press (executive from the seven major television networks, plus Ron Brown, Chairman of the Democratic National Committee) selected the 6 persons who ran against each other for the Democratic nomination. The voters d id not. The press has the power not to provide valuable information to voters and is exercising that power to the fullest, which is one of the reasons why the economy is where it is today. There is no public outcry stimulated by the press (for who else stimulates a public outcry) for change of the micro-economic restraints requiring change. When was the last time you even say the word micro-economic restraint in any major publication?
Q. So, you're telling me that you are trying to tell voters what the press has not been able to publish?
A. Yes, I'm trying to tell all persons (voters, politicians, bureaucrats, employees, businesspersons, homemakers and others) what they need to know to be able to make decisions which will help the economy to change for the better. If enough persons know what is required and demand that their elected officials do what is right, the country will get back on the right course. If not, there is going to be hell to pay in a variety of ways, including more poverty, more unrest, and an undoing of human and prop erty rights we want and count upon. Society is heading downhill in part because our economy is not doing enough for all persons. We've got to change this by eliminating various micro-economic restraints and creating the condition for more competitivenes s and opportunity for all, to enable the persons to earn what they deserve and make the maximum contributions they can to our economy and society. In this way our economy will grow, with the maximum number of persons having the opportunity to make a subs tantial contribution and be appropriately rewarded for the effort.
Q. I'm going to ask an earlier question which you wanted me to defer for a while. Before I forget to ask the question, I'll ask it now: Can you tell me more about these rules relating to the raising of capital? What are they called and what is their pu rpose. Surely, these rules were not passed without any forethought or assumed justification?
A. Thanks for your patience. To understand how capital is regulated and restrained in the United States, I have to acquaint you with several concepts. The first is "fraud". The United States and most other countries have general laws prohibiting "fraud ". When a person is accused and found guilty of fraud, he is either fined (including possible restitution) and/or jailed (in a criminal matter) or he is held liable for damages and/or restitution (in a civil matter). Fraud is so general that the prohibi tion against fraud needs no further statutory explanation. The courts know what do if someone is accused of fraud in the running of a car repair shop, a butcher shop, a taxi, a lawyer, a banker, or an accountant. The definition of fraud as developed in case law throughout the country is sufficient to put a person away for 100 years, so why do we need any additional laws if what we are trying to do is prevent fraud. All we have to do is enforce our existing general laws prohibiting fraud.
Q. What else must I know before you give me your answer?
A. I would like you to know something about licensing, which is alawmallost the other side of the coin from fraud. Licensing is something which is urged by existing businesses in a given (unlicensed) industry in order to be able to give them added statur e as "licensed" businesses under state, federal or local law, but more importantly to exclude others from doing business because they are not licensed. State or city legislatures under pressure from (unlicensed) industry groups will enact laws requiring that specific types of businesses or businesspersons be licensed. For example, in New York City during the 1950's a law was passed requiring a license for persons who acted as an usher in a children's section of a movie theater. Of course, there are lic ensed barbers and barber shops, licensed cab drivers, and licensed taxis, licensed plumbers, electricians, architects, lawyers, doctors, stock salesmen, and hundreds of other types of licenses limited only to the imagination of the persons asking for the license and the need or greed of the politicians in adding more regulation to their already overburdened regulation of business.
Q. So what does this have to do with the raising of capital?
A. The answer is that anyone seeking to raise capital has to determine at the outset, before starting to raise any capital, what type of licensing scheme, if any, he or she has to comply with, and then comply with such requirements, before seeking to rais e any capital. The procedure for trying to raise capital by running an advertisement in a newspaper is substantially more difficult than trying to raise capital "privately", from rich people. If a business persons wants to raise money from the Rockefell ers, he is permitted with less regulation to try to get the Rockefellers in his project. But if he doesn't know any Rockefellers and instead wants to try to find capital from ordinary U.S. citizens similar to himself, he is required as a condition to run ning any advertisement to go through an elaborate procedure including the preparation of a "registration statement" and various filing procedures, involving lawyers, accountants, investment bankers, stock brokers, and others with a cost usually exceeding by far the amount of money which the small business person would want to raise, which makes it impossible to raise money publicly, if only a small amount of money is needed or wanted, such as $1,000 to $100,000.
Q. What does fraud and licensing have to do with the raising of capital and the government's justification for this type of control over the raising of capital?
A. Let's assume that a person who has worked in an insurance company, car repair company, or restaurant for 20 years wants to go into business for himself. His options are either to (i) draw from savings (which he may not have or be able to risk); (ii) g o to a bank and get a loan (which he cannot do because he cannot prove that he really doesn't need the loan, which is a practical condition imposed by most banks, to ensure that they don't lose their money in a bad loan); (iii) wait for his or her parents to die and leave them their worldly estate (which may not be very much after being depleted by medical expenses relating to a terminal illness); or (iv) by raising venture capital in compliance with the Federal Securities Act of 1933 and the "Blue Sky la w" of the state or states in which he plans to make an offering of securities. This procedure of compliance with federal and state law is a licensing procedure, to obtain permission from the governmental agencies to make the stock offering, which can be obtained only after a costly process (more costly in amount than the amount which a small business person would want to try to raise). By requiring licensing of a small business person as a prior condition to raising capital, the government tries to prev ent any fraud before it occurs, by requiring elaborate filings which details many things which a prospective investor doesn't even bother to read. An entire industry of accountants, lawyers ("securities lawyers" and "blue sky lawyers" and non-lawyer "blu e sky specialist" paralegals), financial printing companies or in-house desktop publishing specialists, proofreaders, and government officials for each of various different stages of the filing and approval process - is in place to facilitate this licensi ng process and absorb billions of dollars to pay for this licensing process before any money is raised.
Q. But what about the fraud aspect?
A. The whole purpose is to force such a full disclosure in documents which are seldom read by individuals to ensure that no fraud takes place if anyone cares to read the document. The process relates to stopping fraud before it occurs, for the purpose of protecting persons with money from giving it up (and perhaps losing it) to persons who would use the money to create more jobs in the country. The process is so costly and risky (of not getting the approval) that only 10 in a million small business pers ons per year go through this licensing process to raise capital. The others don't raise capital, or wait for their parents to die, or sell drugs, or go on welfare, or start a business without funds and shut the business down due to inadequate capitalizat ion. Of course, there are some small business persons who do succeed, but the economy needs enough new small businesses to provide additional jobs to offset the 8-10% (admitted) unemployment rate in this country. By eliminating the required licensing pr ocedure to stop fraud in advance of the offering, and by beefing up the general anti-fraud staff of the attorney general in each state which is supposed to be stopping savings and loan fraud, car repair fraud and fraud of all types, including securities f raud, we could get capital to small business on a competitive basis and put the crooks in jail (and recapture the money) after the fraud occurs by bringing criminal and civil proceedings against wrongdoers. This is all the economy really needs to obtain full employment at this time. This isn't much, and it's all that is really needed to provide the immediate impetus to creating new jobs by small business, the type that can't use lower interest because it can't borrow, and the type that can't use tax inc entives because it doesn't make much in profits. But it still creates more new jobs than large businesses for various reasons you may get around to inquire about.
Q. Who would object to your plan?
A. The persons with capital are not the persons who demanded licensing of persons who would raise capital. The licensing process has the effect of forcing persons into hiring lawyers, accountants and underwriting (stock brokerage firms) and they can be e xpected to provide some support for continuation of the existing licensing practices. Also, the persons employed in the state "Blue Sky" agencies in the 50 states and in Canada are quite vocal from their governmental platform about the need for stopping all sorts of fraud by virtue of the activities of their state offices. But the main beneficiaries of continuation of the present licensing practices are the existing businesses which benefit to the extent that other competing businesses do not obtain cap ital to compete with them. Thus, Macy's is benefited if thousands of persons who wanted to raise capital to open up a department store are not able to do so because of these enormous licensing restrictions. There are many industries in the U.S., and the companies already in each of these industries would tell you that they would not be benefitted by new companies coming into the industry, and you can be assured that the larger they are the less they would want any change in the current licensing require ments, which date back to the 1920's as to the state Blue Sky laws and 1933 as to the federal Securities Act of 1933.
Q. What do you believe that there are persons who would try to go into (small) business if capital were made more available to them through the elimination of these licensing laws?
A. I am a securities lawyer and have represented hundreds of persons who wanted capital, and I have talked with many hundreds of other persons who have wanted to raise capital. Most of them were unable to do so because of these licensing restrictions. A nd I can tell you at length my own unsuccessful experiences in trying to raise capital continuously from 1968 to the present, a total of 25 years. I have had about 15 different deals in which I have tried to raise capital, and was never able to raise ven ture capital except for $20,000 in 1968 (part of which I paid back several years later). Most of the deals were quite innovative, ranging from a private court system for profit to a company which would provide a variety of staff service s to newly-formed companies to enable them to focus on their main business instead of other functions (such as law, accounting, financial pr, financial printing, financial and comptroller services, and paying rent). Also, I have a patent on a portable electronic navigati onal system which gives me a patent on latitude and longitude as used in the device. I could go on with a variety of new ideas, but the problem has always been that it is exceedingly difficult for anyone (even a person with my education and experience) t o raise venture capital, especially because of the costs and delays inherent in the licensing processes. I have concluded over the years that a system which has stifled a person who is an expert in the system itself must present much greater and insurmou ntable obstacles to persons who do not have my background as a securities lawyer, antitrust litigator, inventor, businessperson with 19 years experience, Harvard Law School graduate and magna cum laude from Long Island University. Where does the capital go? It doesn't come my way, and I am sure from my own experience that it doesn't go to most small businesses.
Q. Where does it go?
A. It goes to buy existing large businesses such as Macy's, or to expand existing large businesses such as General Motors. In other words, the way in which capital is regulated makes it impossible for small business to get its share, and the only persons who can compete for capital are the large businesses, who do not have the greatest need for it.
Q. How then does small business get started? With enormous difficulty and delay, using sweat equity, a 2nd mortgage on a person's home, borrowing against multiple credit cards, or the death of a close relative who had money to leave behind. Certainly, m ost small businesses are not started with bank loans, public offerings of stock (i.e., the costly licensing routine) or by the private raising of money from persons like the Rockefellers. They want deals of several million dollars or more, and won't even look at a small business seeking only $25,000 to $100,000, for example.
Q. Let's get back to the purpose of the laws which prohibit the public raising of capital (through advertising or direct mail solicitation, for example) without costly compliance with these licensing laws. What is the stated purpose of such licensing law s.
A. The stated purpose is to provide full disclosure to prospective investors so that they are not defrauded out of their money.
Q. Why is this not a legitimate objective?
A. The answer that the objective is legitimate, but the means are not. I'm reminded of the bank loan officer who was being given a dinner after 35 years of faithful service and particularly because he had never made a bad loan. Can you guess what he rec eived as his reward from the new owners of the bank? He was fired, because he had cost the bank a fortune in lost opportunities. His job was not supposed to be to lend money only if the bank was absolutely guaranteed that it would get the money back. H e was supposed to lend money by taking suitable risks, and he refused to do the work which was needed and therefore turned down a lot of good loans which other loan officers would have taken for the bank. We have a similar situation with these licensing laws. They have a noble purpose (advocated by persons who don't care in the slightest whether the protected investors lose their money or not). But the damage to the process of financing new businesses and creating new jobs is far in excess of the cost to these investors for the amount they might lose if fraud were prosecuted after the fact instead of prevented by prior licensing requirements. The destruction to the nation's economy is that we have a growing unemployment rate which traditional macro-ec onomic levers cannot offset, and we now are forced into restructuring our economy by eliminating or relaxing certain micro-economic restrictions which heretofore had restrained our economy. Our economy was so good for such a long time (probably as a resu lt of excessive governmental spending) that the need for encouraging other businesses to start up was hidden. But now that macro-economic policy has failed, we have to start restructuring our economy by eliminating various micro-economic restraints to en able our nation's economy to survive, prosper and produce enough additional gross national product and taxes to pay for our past mistakes.
Q. I have a feeling that we have touched upon an undisclosed "industrial policy" that has been in existence for some time. What is your feeling about that?
A. I agree with you. The micro-economic restraints in our economy have prevented 90% of country's population with savings to invest from having any opportunity to put those savings into investments offering a very high return (with high risks, of course) . For years, the government required savings banks and savings and loans to offer no more than 4% interest on savings, so that the U.S. policy was to limit the amount which Joe and Mary Doe could earn on their savings, but encourage the banks to lend out these savings to persons who would build homes and buildings. The profits on the investors savings were shared by the banks, land speculators, builders and the construction company workers. The savers never knew they were being fleeced, and kept their funds in the savings banks and S&L's, only to be fleeced again when our nation's industrial policy encouraged S&L fraud with consequent closings, and direct losses to the savers if their accounts were not insured, and losses to all taxpayers now and in th e future to make up the billions of dollars in federal money which is needed to guaranty the losses of the savings and loans.
Q. I think I get the drift. What good was all this licensing scheme to protect the savings of Joe and Mary Doe when the money was ultimately taken from them this other way?
A. Yes. What I'm saying is that government regulation seldom cures a problem. It makes people think the problem is being taken care of when it is not. Government regulation can be counted on to create a host of additional problems which will tend to ne gate the original need for regulation, as adopted. Thus, if small business had been allowed to compete for capital, much money would have gone into new small business and new jobs, and less or no unemployment, and the country would have had a larger tax base and less of a S&L deficit because less money would have been deposited in banks. What we need is freedom of choice and less regulation. When there is fraud, whether by the owner of an S&L or by a small (or large) company raising capital, the same f ederal or state agency should be vigilant to prosecute for fraud, or permit free enterprise to do the job for them (through class actions or qui tam or "informer's" proceedings).
Q. What about industrial policy generally? Are you for or against it, or have you decided?
A. The Blue Sky administrators in many states have been making decisions on who is permitted to raise capital in their states for the past 70 years. Nobody has ever claimed that they were able to pick winners and exclude losers. At best their efforts ar e no better than random selection, but I fear that their selection has been based on financial strength rather than on the strength of the idea for which the capital was being raised, about which the regulators often know so little (and why should they kn ow anything about a new business idea). Thus, I fear that industrial policy by George Bush or his successor will direct tax money into favored friends' hands and not into the hands of small business. Instead of industrial policy for the favored few indu stries, we need an industrial policy of permitting everyone quickly and inexpensively to reach the nation's savers and ask them for capital in competition with others who want capital. Organized markets will develop to facilitate this process (by categor ies of ideas, location of country, amount being sought, types of income statement and balance sheet, and other relevant categories to enable savers or their representatives to sift through the capital offerings and find deals of interest to the persons wi th savings to invest. The effect on the job market would be staggering. Thousands of new businesses would open up each day, with consequent new employment being created in the amount of millions of jobs per year. By turning many people into entrepreneu rs we will be reducing the number of persons seeking jobs, which will also bring down the joblessness rate.
Q. Is this going to protect the unsophisticated investor?
A. At what cost to the economy? If we stop all capital raising, we will protect all investors from losing their capital through bad investments but take the same capital away from them through higher cost of goods and services, and through higher taxes n eeded to pay for our nation's industrial policy folly. We can't have it both ways. To the extent we try to protect the public from losing their money in investments, we cause the public to lose the jobs they need to preserve their capital. By taking aw ay job opportunities through excessive regulation of capital, we cause people to lose their jobs and then eat up their capital while waiting for another job. Why nobody talks about this is difficult for me to see.
Q. Have you tried to tell any one about this?
A. Yes, for years. I have gone to Washington, D.C. at my own expense (I think it was in 1978) to knock on various Congressional doors to talk about these capital restraints, but nobody seemed interested. I guess they have too much invested in knowing ho w the regulation takes place to want to change the regulation. Also, there is no demand from the public for change because the public has no idea that this regulation exists and the consequences of this regulation to them, the economy and the availabilit y of jobs. I'm offering this interview to you to bring out this point, which is the most important part of the interview in my opinion. The so-called "job shortage" is artificial. It stems from the micro-economic restraint which prohibits small busines s from raising capital. Eliminate this barrier and jobs will open up all over the place, particularly now that the interest rates are so low for the wealthy. They can expect to earn far more in small business than in fixed-dollar investments paying a lo w interest rate. The licensing requirements for the raising of capital are like handcuffs on all small business, which prevent small business from expanding quickly and hiring the people they would like to hire, if they had the capital they needed. The most remarkable thing about small business is that even with the handcuffs on it is creating more new jobs than big business. Imagine what small business will do when the cuffs are taken off.
Q. I gather from what you are saying that the economy is quite intricate, and that if you tinker with one part of it you may find some unpleasant developments in other parts of it.
A. That is correct. Both the intricacies and the tinkering (other than the macro-economic levers) suggests micro-economic concerns. The traditional macro-economic levers of interest and taxes should be supplemented by at least two new levers: One of th ese levers is the raising of capital. As part of our macro-economic adjusting of the economy, we should adjust the lever of "small businesses' access to capital". By eliminating all prior restraints at the state and federal level, we would be maximizing the creation of jobs; when jobs are too plentiful, we could move the lever somewhat to reduce access to capital, but this should be done after interest rates and taxes have been restored to appropriate political/economic levels. Preferably, the access to capital lever should be wide open at all times to enable our economy to produce as much as possible.
Q. Why do you think many Americans would try to start there own business if capital were made more available to them?
A. Because even without availability of capital we have millions of Americans st arting, and trying to start, their own small businesses. Farms are small busine ss, and there are millions of Americans working in their own small businesses on millions of farms in the United States. There are millions of unemployed perso ns trying to survive who out of necessity are offering there services soliciting and doing odd jobs, which constitutes a thinly-capitalized business. With capi tal available these people could expand their operations and hire others to do s ome of the work. Farms hire people. Barber shops hire people. Taxicab compani es and restaurants hire people. Perhaps the greatest area for expansion of smal l business is among those who do not have even the smallest amount of capital to make the leap from employment to entrepreneurship particularly because they haven't become jobless. If capital were made more available, through advertising on a competitive basis, many persons would take a shot trying to raise capital and those who succeeded would (i) leave their job and create one more new job openings at the former employer; and (ii) start a new business and create one or more new job openings at the new business. I know. I have tried without success for years to raise capital for a variety of ventures which I believe are worthwhile. The plans for one of these ventures (which is very much alive at this time) is to hire as many as 10,000 salespersons th roughout all parts of the United States. If one person can make plans such as this, dependent on raising a modest amount of capital, it would seem that the power of millions of persons seeking to raise capital could quickly create full employment for the nation, provide higher quality jobs in many instances in new fields, increase the tax base and taxes for all governments, lower the cost of goods and services for all persons, including businesses (to make them more competitive in the world marketplace) and provide a higher quality of goods and services for the nation and to sell to other nations. But, with business as usual, which consists of an intricate series of micro-economic restraints which sap the vitality from our economy, in a million ways, la rge and small, the country's economy will not be able to produce the taxes needed to provide the even the legitimate services which are currently being demanded of government. The solution is to end the unwarranted micro-economic restraints, of which the blue sky laws and federal Securities Act of 1933, which prohibit small business from raising capital through public advertising without prior governmental licensing, are the main destructive forces in our economy, it seems to me.
Q. Do you think that there is any relationship between (i) the issues which politicians and the press do focus on and (ii) the micro-economic restraints about which you complain?
A. Yes. The issues which politicians and the press focus on seem to be diversionary, to divert the public's attention away from who's getting the money (which are the results of the micro-economic restraints) and create controversy among groups of a tota lly irrelevant nature upon which the various elections will be decided. Thus, abortion ideally splits the country as to the issue of who should become President to enable both parties to stay away from the true micro-economic issues. Although abortion i s also a micro-economic issue (because of the economic costs to society relating to the care and problems involved with unwanted children, especially unwanted children borne to an unmarried welfare recipient), the debate is not so much about the dollars i nvolved, which in any event are a small fraction of the cost to the economy of not permitting small business to advertise for capital. The latter restraint seems to account for an 8-10% unemployment rate (if you accept the Administration's method of calc ulation, which eliminates people who have given up looking for jobs in today's declining job market) and probably closer to 15-20% joblessness if counting these dropouts. The abortion issue would account for less than a 1% unemployment rate, but this is only a quick guess by me, since the debate has not been the cost as much as the human-rights principle, which doesn't readily translate into the economic equation. Our economy has certain given parameters, such as the right to free speech, the right to p ractice religion, and the right (or not) to have an abortion at will, and these rights are determined by the nation's highest court as fundamental rights which presumably are preserved at whatever cost to society as a means of preserving our society.
Q. How can a person who is unemployed, or even an employed person who wants to leave his job, create a small business for himself or herself, assuming that he or she is free to advertise for capital?
A. This is no secret. A person would first get an idea for a new business. I'm going to think of a new one right now. Give me a second, please. OK. I've th ought of a new idea (one which I haven't heard about before, but could well exis t in the minds of hundreds of other would-be entrepreneurs). The idea is to sta rt a repair service which will handle the small repairs on automobiles which car owners find it difficult to have done. For example, my door lock doesn't work all the time; one of my dash board lights is out and needs replacing; my radio d oesn't work or has too much static; and I have a problem with starting the car w hich I never could fix. My idea (subject to change) is to categorize the types of nuisance repairs which car owners cannot readily obtain from existing shops. (Existing car-repair shops tend to specialize in tires, mufflers, oil-changes, gasoline sales (without repairs), transmissions, motor repairs (when the repair needed is obvious). But many shops do not want to do the collection of odds and ends in repairs which accumulate and cause the quality of the car to decline in the owner's estimate. The business idea is to offer the miscellaneous repair s ervice to take care of the whole list, and to either hire competent persons to d o more of the repetitive jobs (perhaps at the customer's own place of business o r residence, for his convenience, or with a pickup and delivery service), and to create a database of specialists who I can call on to repair the more difficult jobs (such as a hard starting car, or the repair of a radio, or the repair of e lectrical components). The business would be a one-stop low price repair servic e for the owner's list of needed repairs which ordinarily cannot be obtained els ewhere. In part, the business could be called an "Auto Repair Broker" to reflec t how some of the repairs would be done, and the business itself could be franch ised to every city and town in the United States, if the name were trademarked a nd strong enough. Another aspect of the idea would be to develop data bases on c omplaints to try to ascertain causes, and have persons on hand by telephone call who could differentially diagnose the probable causes of a chronic problem for a small fee. Also, the business would maintain contacts with auto junk yards an d buy and install used parts to reduce the cost of many types of auto repairs. Finally, the business could even find car owners (its customers) will for a fee or other consideration to lend their car for testing parts needed to repair a si milar make and model, which would do away with the problem of paying hundreds of dollars for a repair job which doesn't work. Instead, the borrowed car could be used for lending several parts, one at a time, to be installed in the car being repaired, to see which substitute part if any cures the problem. The business would fill a niche created (i) by new car dealers who charge a minimum of $25 fo r each item on a repair list and who charge too much for new parts; (ii) because the types of repair are too small for repair services to advertise or specializ e in; and (iii) because the types are too small and too many for owners to devot e the time needed to find and then deal with a variety of different repair firms willing to do the individual jobs. The business idea reminds me of Merrill Lyn ch during the 1950's, which decided that servicing the unwanted small individual investors would be a good way to build its business, which it did, and is now t he largest securities firm in the nation. Now, you may or may not like my auto repair idea. If you are not a car owner, you may not appreciate what this busin ess offers. If, on the other hand, you are one of the 35 million registered car owners or lessees, you might well be interested in patronizing such a business. The next step is to determine if your idea has merit. Big business might pump millions of dollars into testing an idea, but I find that small business is bet ter just starting the idea and trying to get the business going with very little testing costs and delays. The money otherwise to be used for testing can be th e amount you need to finance the business. Next, try to estimate the costs you will have to meet to start the business, with enough monetary reserve (called ca pital) to carry the business through its first year of expenses (including your own personal expenses), on the assumption that the business will have little or no income during its first 12 months. This will include such amounts as $20,000 for lease deposit (2 months rent); $120,000 for 12 months rent; $60,000 (at $5, 000 per month) to cover your own personal expenses; $12,000 for advertising; $5, 000 for professional fees; $5,000 for computer and programming; $6,000 for telephone; $5,000 for insurance; $20,000 for inventory; $52,000 for 2 employees; $15,000 for two used trucks; $5,000 for two-way radio communications; etc. Let's assume that you f ind that you need $500,000 to start the business. How much do you expect the business to make per year. If you have 10 sales per day and the average cost of repair to the customer is $150 (plus parts), you would be taking in a gross of $1,500 per day, f or 6 days per week, let's assume, which is $9,000 per week, or $450,000 per year. Your annual costs might be $300,000 (including payment to you of $5,000 per month in salary). Thus, you anticipate that you would have profits of $200,000 per year from th e business (assuming only the first location). If you were free to compete for capital, you would write this up in a proposal, advertise for capital, and tell interested persons about your idea, and that based on these projections of income and expense, if the (or a group of persons) provides you with the needed capital, you would give them 40% of the company, which would produce at return to them of $80,000 per year (40% of the 200,000 profit), or a return of 16% ($80,000 divided by $500,000) on their i nvested capital, with a very good growth potential. With low interest rates of 3% per year in California savings banks, a sound business plan offering 16% anticipated return and high growth would seem to be an attractive business proposition. With some additional pencil work, you could legitimately decrease the expenses and/or increase the anticipated revenue, to dramatically increase the anticipated return and make the deal even more attractive. Of course, we now get into the area of fraud. The impor tant thing to do when making projections, is to spell out the assumptions which are made in detail, so the underlying premises are known to the prospective investor and can be investigated.
Q. Can you prepare projections for this new business idea and give me a copy.
A. Yes. (A copy of the projections is attached as Appendix 5.)
Q. Is there any summary of how to go into a new business?
A. Yes, just find a need and fill it. In fact, from my answer about the car repair business, you will find that there are various new businesses which could be created, such as a business servicing all car repair firms in an area with some of the service s described (finding a needed part in a junk yard, maintaining or accessing databases of complaints to point to the probable cause of a problem; finding cars to borrow for testing parts on a similar make and model, just to name some of the services which could be the basis for a less-costly business servicing existing car repair businesses.
Q. So, you feel that many persons would start their own business if they had sufficient capital.
A. Yes, as evidenced by the fact that many persons start their own business without sufficient capital, and run a much greater risk of losing everything. In America, there is a very strong desire to own one's own business by many millions of persons. Du e to the lack of opportunity as well as various other factors, some of these businesses are the unlawful sale of drugs. With legitimate business opportunities opened to all (by making it easier to raise capital), some of the persons who are in unlawful b usinesses would be induced to become legitimate businesspersons.
Q. What would be the effect on wages if capital were available to everyone?
A. As it is now, because of the restrictions on raising capital, too many people are forced into being employees, which creates an artificial surplus of persons seeking jobs and a corresponding shortage in job opportunities, with the result that wages are kept artificially low. If, on the other hand, capital were more readily available, we would have fewer persons seeking to become employees, and more businesses wanting to hire employees, which would drive wages up. In either case, capital could be used by an employee to increase his or her skills to enable such person to obtain higher wages in the job market.
Q. Would everyone wanting capital be able to obtain capital if the restrictions on raising capital were eliminated?
A. No. The amount of capital available for investment would be limited (increased by the added profits to be expected from the increase in businesses and profits). This available capital would be given to the persons competing for the capital, including the persons who wanted to open up an "auto repair broker" firm as described earlier. The quality of the overall presentation to investors, the amount of money put into the deal by the businessperson (perhaps by putting a mortgage on his house), the perc entage of profits offered to investors, and the amount of money being sought, plus many other factors, would decide who gets the money. The first to seek capital might have an advantage over others who seek capital much later.
Q. Would the capital go to the best ideas?
A. The answer to that is that capital is attracted to investment opportunities which offer the highest rewards consistent with the perceived risks of loss of the capital. If an idea is quite novel, has some protection (possibly through know-how, patent, trademark or copyright), and the plan is perceived as workable, including a proposed management which appears to be able to do the job, the needed capital has a good chance of being raised. Certainly, the business idea has a lot to do with the raising of capital, but not everything. A person could have a mundane idea like selling orange juice, and ultimately grow a business into one worth billions of dollars. Every opportunity has to be given individual consideration, with all factors being taken into account by investors, including factors such as whether the investors have the money you need, and whether they feel comfortable investing in your type of deal instead of types which they have invested in during past years.
Q. What other micro-economic restraints are there which concern you?
A. Well, I am concerned about the requirements which are placed on small business to be able to contract with governments. The requirements are set so high, that 99% of small businesses are unable to obtain any government business. The requirements vary , but often include a minimum size or net worth, the posting of a costly bond or undertaking to guarantee performance, having a friend in city hall who can steer the contract your way, and the lack of true competitive bidding.
Q. What changes would you like to see in this area?
A. I would like to see governments or someone on their behalf act as the general contractor to put out invitations for bids to which the smallest businesses could be tempted to respond. The greater the breakdown of the overall project, the greater the ch ance that a small businessperson can be a successful bidder, if various size, net worth and bond/undertaking and insurance restraints are eliminated. In other words, government should not invite companies to bid on the construction of a skyscraper. Inst ead, the components of that work should be broken down far further than is customarily done to enable smaller businesses to bid for an win some of the contracts. Perhaps the cost of insurance and bonds should be borne at the top and deducted as a percent age from the winning bid, to eliminate the requirement that small business actually purchase the required bond or insurance, which would ordinarily be too costly for the business to buy merely to have the opportunity to win a single bid.
Q. Are there any micro-economic issues which you care to discuss relating to health insurance?
A. This is a complicated problem and a country as great as our should be able to come up with a workable solution. Any solution requires, in my opinion, that the medical profession not be destroyed, especially as to small and individual practitioners, an d in fact anything done should be done with them in mind, to make the needed changes workable. I suggest that there be a single form used for claims; that "National Health Credit Cards" be issued to all persons with social security numbers permitting the doctor who renders the service to be paid immediately, thereby encouraging such doctor's participating and giving him or her the money needed up front, without piles of paperwork, argument and delay. Also, the doctor's essential information should be on a card which can be handed to the patient to facilitate completion of the required form; and the form itself should be in a computer at convenient points throughout the United States, such as every post office, with private-enterprise on a competitive ba sis providing and training the persons to operate the terminals and make the claim-making process with as little red tape for the patient-claimant and the providing doctor. This is all obvious, but I haven't seen much discussion of this. Existing health insurance providers would have to fit into my suggested mold to participate, I believe, and I'm sure they can do this. Of course there are various other issues which must be addressed, such as price, unnecessary medical procedures, cost of prescribed dr ugs, generic or brand name, and so on.
Q. Isn't there a more delicate question involved here which few people want to talk about?
A. I know what you're hinting at, and let me be perfectly frank. The answer is "Yes". The real problem seems to begin at the logical place, at the beginning of the medical profession's source of supply - the training of physicians. The American Medical A ssociation, a trade association of the nation's physicians (or at least purporting to act of behalf of them) has a national capability of refusing to permit the creation of new or expanded medical colleges, with the result that there are fewer doctors in the United State than the public wants and needs. Furthermore, the high cost of education (discussed elsewhere in this work) become alawmallost unbelievable in total amount because of the number of years of education involved, with the result (not unexpec tedly) that graduating doctors often seek the most money they can to pay off their student loans and try to accumulate some money for themselves; thus, many of them seek to become higher-earning specialists, which deprives most of the country of the avail ability of lower-cost but needed medical services. The real solution to the nation's health services problem seems to be to liberalize the creation of medical colleges perhaps by eliminating the restrictions upon their creation, and depending more on tes ting of individual graduating doctors to determine the adequacy of their overall education. This is just a suggestion to start the argument, I might add.
Q. What about existing health-care programs for government employees? Should they be treated any differently?
A. I am troubled by the extent to which government employees and welfare recipients are entitled to health care not made available to the persons who pay the taxes for such care. Thus, I think that a case can be made for the proposition that it is an unn ecessary and wasteful expense for a city to provide health care to its workers and welfare recipients which is not also made available in the same way to all residents and/or taxpayers in the city. If equal access to health care were made the rule for al l, then the cities would find a way to provide the required services which are now being made available only to several political pressure groups (unionized city workers, court employees, including teachers, policepersons, firefighters, sanitation workers , other bureaucrats and employees of the vast governmental agencies, retired governmental workers, workers and retired workers for the utilities which are close to government jobs due to their lack of competition and regulated rates, and welfare recipient s). With this much taxpayer-purchased health care already in New York City, for example, it would seem to be very possible to be able to include all persons without much fuss, along the lines I suggested before.
Q. I think I detected that you believe there is a right of the persons who are excluded to be included in this government giveaway program in New York City. Am I correct?
A. Yes. I believe that a lawsuit could be commenced, and perhaps won, claiming that a person such as myself, who has no health insurance for himself or his family, to be entitled to receive the same amount of health care which New York City provides to i ts workers, the utility workers, the retired workers and utility workers, and to welfare recipients, and to their respective families. The legal basis might be denial of equal protection of law under the 14th Amendment to the United States Constitution; the constitutional doctrine of special legislation, which makes special legislation favoring some but not all unconstitutional in some cases; or perhaps the doctrine of waste. I'm sure if I had enough time to consider the matter that I could come up with other possible legal bases for any such suit.
Q. While you are thinking about the difference in treatment between the workers for New York City and the taxpayers of New York City, do you have any other ideas for micro-economic change?
A. Yes. I have been giving some thought to the way in which New York City worke rs (and I presume the workers in many other large cities) are able to extract ma jor salary and benefit concessions from the city in good times, thereby giving t he workers a very high level of income for the type of work they do, and then in bad times (when many taxpayers in the city have been laid off of work) they thr eaten to strike the city unless they receive a further pay increase. The power of a municipal or state-workers union needs some standard from the private secto r to establish a ceiling for pay, since the politicians find themselves unable to stand the political pressure when resisting the union demands. I have often suggested that the level of income of the average cab driver in New York City (which income is e asily calculable and is earned during a work week far exceeding the number of hours of the average municipal worker) should be the maximum amount earned by municipal workers. Of course, this is only for discussion. There could well be a more scientific and broader-based survey taking lawyers, doctors, truck drivers, waiters/waitresses and others into account. But in any event, I would like to see that government employees be paid no more than the private sector, and that government employees receive cu ts in pay during bad times (after unnecessary governmental workers have been terminated). Government work should have incentives, just to take a more positive note, and I would like to see government workers receive incentive compensation along the follo wing lines: A person who is required to review and approve or reject proposals (such as requests for building permits) should be charged for delays and given additional compensation for buildings which are started and then completed within certain time f rames. In other words, governmental workers should feel that they have a stake in the timely and quality performance of their work. I am always reminded of the waitresses at Chock Full of Nuts, a chain of restaurants in New York City which became insolv ent. Any customer could tell you why. The waitresses took five minutes to get you a cup of coffee and a doughnut. The restaurant finally gave up the ghost. I always thought that offering the team of sluggards 5% or 10% of their sales after a minimum o f say $25 dollars was rung up would have saved the restaurant chain. But nobody asked my advice. I registered my opinion in another way, along with many other patrons. We quit eating there.
[End of Part I of III Parts not including table of contents, appendix and appendix materials.]
Copyright © 1994 by Carl E. Person (see extended copyright notice above.