First, the rules:

• The currency can’t resemble a US dollar
• Only paper currency can be printed – no coins allowed
• Any income received in local currency must be taxed as if it were federal dollars

So who’s using these alternate currency systems?  In the United States, there are already alternative currency systems in California, Wisconsin, Oregon, Pennsylvania, Michigan and Massachusetts.

Right about now you’re probably asking, why? Isn’t the green $20 bill in your pocket good enough? The point behind local currencies is to keep the currency within the community – forcing residents to spend the currency on local businesses instead of encroaching “big-box” stores such as Walmart or Target or even online retailers such as Amazon.com. The bills can usually be “bought” for around $.95, essentially giving holders an instant 5% discount on any purchases they make. When the time comes to pay that cable bill, however, the local currency can easily be exchanged back into “real” dollars.

While the purpose behind local currency might be a bit idealistic, running your own mini economy is not as easy as it looks. Just printing the right amount of local currency is a challenge. If you print too much currency, there’s the possibility of inflation. If you print too little, there are no economic advantages.

“They usually don’t hold up too well, or too long,” says Bert Ely, a banking analyst. “It’s something that applies only in simple and closed situations. It lacks the flexibility and geographic breadth that currency has.”

So what do you think? If your community offered a local currency, would you use it? If you were a merchant would you accept it?

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The Cato Institute provides analysis that I find helpful.  Below are two videos with Daniel Mitchell of the Cato Institute in the first discussing Keynesian economics and somewhat how it relates to the current situation and the second from 20/20 discussing the bailout situation.  I think it’s important to get differing perspectives on these issues, so these videos are not definitive.  I hope they help some of us become more enlightened and give us a desire to better understand what’s going on with our nation and world, economically speaking.

I think the first clip is good to watch, even if you don’t agree with everything he says.  His explanations are sound and he makes some great points.  The one weakness I found was the way he discusses Hoover’s implementation of Keynesian policies.  He uses this as an example of Keynesian’s failure as a policy, but Mitchell doesn’t provide enough support to show this to be specifically causal.  The years shown are the start of the depression.  This example would have been more useful had Mitchell attempted to show that Hoover’s policies led to or exacerbated the impact of the depression.  This is still a video that’s worth watching.

 

 

The second video is from 20/20, also featuring Mitchell, where John Stossel tries to find out where all the bailout money went.  He doesn’t discuss the philosophy behind the bailout as much as governments failure to manage the bailout properly.

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The major players are Naomi Klein, Noam Chomsky, and Michael Moore. Naomi Klein is of course famous for last year’s book The Shock Doctrine, in which she took a little known Milton Friedman phrase and morphed it into a doctrine she believes was used to justify the Iraq war (her book has been challenged by Johan Norberg of the Cato Institute). Noam Chomsky is of course professor of Linguistics from MIT. He’s notable for his anarchist views and outspoken criticism of US foreign policy and capitalism (it was a Chomsky book that Hugo Chavez said was suggested reading for all people during a UN appearance). Chomsky is also the subject of another film by Achbar, Manufacturing Consent. Most people should be familiar with Michael Moore. He may be the most famous documentary film-maker in history and he has a fairly strong following. Milton Friedman is also part of the film, though his time is somewhat short, his appearance is significant. Milton Friedman is the most important economist of the last 50 years with a very liberal position when it comes to businesses and how they operate. Friedman is the most significant counter-weight in the film. There are many other participants who contribute to the film, but these four were the most significant in my mind.

The movie analyzes corporations as “persons” and repeats the concept that a corporation is a legal person. This point is driven home like no other point in the film. This becomes most significant when the corporation is diagnosed psychologically. The tactic is treating the corporation as a person and then assigning it human traits, which conveniently fit the bill for a psychopath. The trait is cited and then a corporation is shown to have committed an act that fits the trait. I find this tactic very dishonest, because it’s easy to steer people’s minds down a track when you set such narrow criteria and cherry-pick examples. The film-makers also fail here, because each trait is “fulfilled” by a different corporation. If they wanted to show that corporations in general were psychopathic, they should have picked many corporations and shown how they all compared against the psychopathic traits. Because the purpose of the film is to maintain the effects of drama and not serve as a scientific analysis, it’s not surprising that effort was avoided. This is really just a straw-man argument and resembles some of the tactics used in the 9/11 conspiracy film Loose Change, which uses similar manipulative language and news reports to build a story that 9/11 was an inside job.

Like Loose Change, The Corporation needs some serious fact checking. I have not had the time to look into every claim made by the film. In fact, I don’t necessarily think that they are lying or making things up. I don’t doubt that much of what they show happened. The problem comes in the telling of the story and the way facts can be turned around a bit or motives assigned that may or may not exist. Two that stick out came from Michael Moore’s mouth. I already have enough trouble taking what he says seriously. He is not reliable source for much of anything. I believe he poorly understands information and does not sufficiently understand the counters to his arguments. In the film he talks about Coke selling Fanta in Nazi Germany as a way to make money on both sides. A simple search on snopes brings up strong counters to what Moore stated. While he wasn’t entirely wrong, he got enough wrong to create a great deal of distortion. He also referenced the Columbine Massacre and the fact that Lockheed Martin is the largest employer in Littleton. His point being that the parents fail to make the connection between what they do for a living, building WMDs, and the Massacre. The connection is a stretch and not very meaningful. I also take issue with the fact that he implies that all Lockheed Martin makes is WMDs. I am a Lockheed Martin employee (just to expose my bias) and I don’t work on WMDs; I work on satellites. A great deal of the work at Lockheed Martin has little to do with war or WMDs.

Since the psychopathy of corporations are the center of the film, you would expect that the film-makers would have had a solution. Not really. It’s mostly that corporations are bad and it’s in their DNA. The very existence of the corporation is the problem. What’s the solution, Government? The same group who had trouble handling Hurricane Kartrina? I’m not anti-government by any means, but I find that to be a lazy solution to any problem. It doesn’t really address the actual problems caused by corporations. It also negates all the evil that has been done by governments as well. It takes a very noble government to control itself when it has the kind of power it seems some people want to give it. Corporations may be legal persons, but they have no emotions. Milton Friedman is quoted with his famous line that corporations’ only obligation is to get a return to the shareholders. Because this is be true, it’s easier to hold corporations accountable than it is the government when something goes wrong. The only wrench is when government and corporations get too friendly.

While much of the film bothered me intellectually, there were some things I found beneficial. The inclusion of Sir Mark Moody-Stuart, former chairman of Royal Dutch Shell, I thought was a nice touch to the film. The film-makers included footage of a protest outside of Moody-Stuart’s home. The protesters hung a sign on the house accusing him of being a murderer of the environment, because he was the head of an oil company. In the footage, Moody-Stuart actually came out and reacted well to the protest and ended up having tea with the protesters and a rather nice discussion. This story added a human element and showed that the film-makers understood the fact that the heads of corporations are people too. I think this fit in the film without affecting their premise, because they are looking at corporations as something separate from humanity.

The Corporation could be a better film. I think it made some good point in showing what some corporations have done and the negative effects that resulted. Certainly, there are many instances where corporations have done horrible things, whether intentional or not. I think it’s important to know about those kinds of events so they don’t continue and the damage can be minimized. To really bring that home, the film-makers should have emphasized the good that corporations do as well. Rather than show the corporation as a psychopath, the misdeeds have been the center of the film with the people who committed the misdeeds held accountable. The film could have been an analysis of the market system and how bad things may occur, then suggest ways to fix the any problems. Unfortunately the film falls short and amounts to a propaganda film against the capitalist system. I still recommend the film, but more to know what’s being said than for any educational value. Part one can be found here; you can follow the trail to get the rest of the film. Part one of a critique can be found here.

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I was surprised to realize that many businesses, especially in the tech sector, learned from the mistakes of their ancestors. It has been this resilience that prompted me to put together a short list of ways small businesses can survive the current crisis – and even come out on top at the end.

1. Cash is King – Regardless of the size of your businesses, cash is going to be king over the next 18-36 months. Up to even a few weeks ago you could pretty much count on your local bank giving you a small business loan or being approved for a business-use credit card. Unfortunately, the liquidity of the market has “thickened” dramatically and has made those opportunities shrink to almost nothing. You’ll no longer be able to rely on loans and credit to get you through the month. From now on… cash should be your #1 priority.

2. Don’t Focus on Growth – This sounds like bad advice for any small business owner, but the truth is that many businesses are going to continue along the same growth pattern as before and find themselves beat to hell by the time they emerge from this crisis. This is the time when you need to hunker down and just wait out the storm. This will benefit you not only in the short term by ensuring you don’t go bankrupt, but will also put you in the perfect position to make strategic growth decisions after the crisis is over. For example, by keeping you expenses down and your cash account padded, you will be in a position to spend quickly right out of the gate – purchasing your competition or just beating them to key customers – because you have saved for what I like to call the “sunny” day.

3. Focus on Value – Since you’ll be cutting back on expenses, spend time on the things that don’t cost that much money but add value to your business. Instead of spending $10k replacing an old machine, spend $100 in phone charges to re-connect with your customers, or improve customer service. Invent new ways to add value to current products without spending a ton of money. That investment of time and energy will pay for itself 10x.

4. Collect – One of the things you can do to add value to your business and increase cash flow is by collecting on your accounts receivable. If there was ever a time to go after those delinquent customers… now is the time. If you don’t have an invoicing system in place there are tons of free and fee-based services out there – from PayPal to FreshBooks. You can even use Excel as long as you are actively trying to collect that cash.

5. Don’t Give in to Hoarding – During this time when “cash is king” you should avoid buying in bulk or otherwise stockpiling supplies or inventories. Although the parable of the ant and grasshopper might come to mind, now is not the time to be hoarding. That extra spending drives expenses up, depletes your cash reserve, and at the end of the day might be worth nothing. What good is a pallet of copy paper at a discount if you don’t have a business capable of using it. You will always be able to buy these items later even if you pass up a small discount now. That “savings” could prove disastrous to your cash flows.

6. Leverage Technology – There are tons of websites, web services, and other technologies that can help save you money. For example, trade in your $600 flight and $400 hotel for that sales trip to Chicago for an online meeting service instead. These days you can share a presentation, hold a conference call, or even converse via webcam – with nothing but a DSL modem and $50 a month for the services. You can also step up efforts to find better prices on products or services you normally use – by simply performing a simple Google search. Buying you your widgets from ABC Company for the past 5 years shouldn’t prevent you from searching for XYZ Corp who is offering the same widgets at 50% off.

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