Be an Ethical Entrepreneur, Marketer, and Business Builder

Nearly half of Americans think 2008 will go down as one of the worst years in American history…

Wow. Were the past 12 months that bad for you?

As I was reading the Wall Street Journal on my Kindle this week I came across an article that references a Wall Street Journal/NBC news poll indicating that nearly half of the people surveyed think 2008 will go down as one of the worst years in US history. Since 90% of the respondents indicated that the economy has gotten worse in the last 12 months I’m going to assume that’s the primary reason everyone hates 2008. I must say, as a young entrepreneur who has put everything on the line to buy a small business and move across the country 8 months ago, I’m a bit shocked…

Here’s why I’m a bit shocked that people think things are so horrible:

  • I sold my house in Pennsylvania in about 3 months at a profit when I’d only purchased it 24 months earlier.
  • I easily got financing (at 95%) for my new place in New Mexico.
  • I’ve secured several commercial bank loans and still have access to low interest credit.
  • My business is about to have the highest grossing year of revenue in its 60 year history.
  • We’ve hired 3 new people this year and anticipate more growth in the next 12 months.
  • I bought and resold a motorcycle in less than 2 months at 30% profit this summer.
  • My personal net worth has increased more in the last 8 months then it has during the previous 25 years of my life.

Now the news isn’t all rosy:

  • At last count my stocks, mutual funds, etc. are down about 33% this year. However that doesn’t really bother me since most of my money is invested in other areas. Now I have an amazing opportunity to increase my stock holdings and take advantage of severely discounted businesses on the stock exchange.
  • I haven’t been able to sell my sports car. It’s a 2006 G35 coupe. Bright red. Not exactly the vehicle people “hunkering down” for a depression would be buying.
  • My debt has increased more in the last 8 months then it has during the previous 25 years of my life. However, the right kind of debt isn’t bad as long as it’s used for assets and they are appreciating.

So what does this all mean to you? It’s very simple, are you bracing for a recession, depression, or worse? OR are you finding the opportunities that are now greater than ever out there.

Right now you can buy businesses, houses, stocks and mutual funds cheaper than probably in the last 20 years. Particularly with the housing market, if you have good credit, with the tightening restrictions on lending, guess what’s going to happen? More people are going to have to rent. Housing prices are down and rental prices are going to start going up (rental rates don’t seem to have changed much in my area yet). Is there a more perfect formula for residual income and profiting from rental properties then that???

As Brad Sugars pointed out recently – In Las Vegas, where the housing market has been particularly hard hit, he talked to a realtor who said he’s getting killed because no one is buying anything. Shortly thereafter he spoke with another realtor who said he has more work then he knows what to do with. With all of the foreclosures, banks are scrambling for good realtors to sell for them.

Which guy or gal are you? Is it all doom and gloom or are you picking out the opportunities that are abound?

The possibilities that are created in 2008 may be the ones that allows you and I to create more wealth more quickly than ever before. And what’s the worst that can happen? You could buy a business and fail? You could buy a stock that goes bankrupt and lose your investment? You could buy a rental property that doesn’t get rented out? Well, here are a few quick ways to minimize the chance of any of those things happening.

  1. Buy a business – Make sure it’s a staple that everyone will need no matter what’s going on in the economy. If you have few or no competitors, even better. If you already own your business, buy your competitors and/or complementary businesses that can benefit from your current facilities and customer list to spread overhead between several entities keeping costs low. What’s your company’s niche??? The most important part is the PURCHASE PRICE. Buy it cheap. Make sure you tell the seller that the economy is horrible and they better take your offer while it’s still on the table. 😉
  2. Buy a house – If you’re looking for a rental property and you’re not too worried about tax deductions, single-family dwellings are always the best to start out with. Young families and couples are abound so there’s always a need. And with the current credit markets those people will need to rent. Keep in mind, just like with a business, what’s unique about your property that will make people want to stay there? Again, the purchase price is the most important part. If you can keep your costs down with a low mortgage then your profits will be that much better. Make sure you tell the seller that the economy is horrible and they better take your offer while it’s still on the table. 😉
  3. Buy stocks – I’m not a big fan of mutual funds. I bought my first one when I was 14 and never had great success. In essence you’re paying extra to have someone pick stocks for you and put them in a nice, neat little package. Do your homework. Learn about the stock market and particularly business valuation. Read The Warren Buffett Way. Buy stocks that have more cash on hand then their current market capitalization and also have strong cashflow. If you want to be even safer, invest in ones that are still paying a dividend. Historically they generally fair the best.

Consider this for a minute – retail sales after Thanksgiving this year are up 7% over last year! That’s right, last year when the stock market was soaring and everyone was making money and unemployment was low we bought less stuff at Christmas sales then we did in this recessed year of 2008…  Hmmm… are you seeing the opportunities yet?

Don’t be that guy who remembers when Buffalo Wild Wings and Netflix were trading for $21/share and if you’d have only put a few bucks into those stocks you’d be rich now… If you still think I’m a bit “off”, since the sky is obviously falling, check out what the greatest investor in the world, Warren Buffet, thinks about the economy.

To your success in making 2009 your most profitable year yet, Bryan

The economic policies that failed us during The Great Depression and the candidates who still support them


Firstly, this is a business blog and not a political one so I don’t plan to whole-heartedly endorse either candidate… We’re at a point VERY similar to 1932 when your options are to vote for the party that brought us the Great Depression (Herbert Hoover and the Republicans) or the party that extended it for 10 years (Franklin Delano Roosevelt and the Democrats) when it could have been over in 4 (or less) years as happened in every other previous economic depression in our country.

So either way we business owners can’t be real excited about our choices. However it is important that we understand what policies can adversely affect us so that as we see them coming (from either side of the aisle) we have a plan to react immediately. If you don’t own a business, this is still supremely important because we all rely on the strength of US businesses to provide our income, goods, and services. In other words, what bodes well for business bodes well for everyone.

Before getting into specifics we need to clarify a few things. There are many theories on the causes of the Great Depression – Keyneysian, Monetarist, Austrian, Neoclasical, and Socialist (i.e. the free markets collapsed on themselve) to name a few. To those I guess we can now add the Trillian economic theory which takes parts from each. The majority of the historical information regarding the following economic policies stem from Great Myths of The Great Depression by Lawrence W. Reed.

So here are the mistakes made, in chronological order with the responsible party notated:

  1. Unit Banking LawsHoover and FDR – the laws as I understand them were in place before either was in power and neither did anything to repeal them. These laws prevented banks from expanding to new areas in order to cover short-falls in their current business plan. In other words, they couldn’t expand the services they provided to clients in order to increase profits. Canada experienced a GD at the same time that we did and yet, without unit banking laws, not a single Candian bank failed while 9,000 failed in America.
  2. Federal Reserve kept raising interest rates (1928-1929) Hoover – The Fed raised interest rates up to 6% in 1929 making previously available capital scarce if not non-existent. For some reason they failed to effectively regulate interest rates for the next decade. This is what Ben Bernake was talking about when alluding to Milton Freidman and Anna Schwartz’s book, A Monetary History of the United States, 1867-1960, when he said: “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.” This is one reason I think Ben Bernake will be instrumental in ensuring we don’t have another Depression.
  3. The Smoot-Hawley Tariff (1930) Hoover – One of the most protectionist pieces of legislation ever enacted in America. It essentially increased import taxes on nearly everything and as a result, not only did imports grind to a halt, so did exports. Almost overnight he destroyed the jobs of 60,000 Americans employed to make clothing from cheap imported wool that now increased in price by 140%. That’s just one example of the 1000’s of items that were affected by such policy. As a quick aside, which presidential candidate is in favor of free trade and which prefers increased regulation???
  4. Increased income tax from 24% to 90% for top income bracket (1932-1940) Hoover and then FDR – Hoover increased them to 63%, FDR took it from there and even signed an executive order levying a 100% income tax on all individuals making $25,000 per year or more! In case you never noticed, a poor man never signed your paycheck. When my businesses make money I don’t want to pay corporate tax on it so I reinvest it in my business. I hire new people, I start new divisions, I invest in marketing or new products. Guess what? That’s what the majority of business owners and wealthy individuals do. We don’t bury it in our mattresses. You increase income tax for the wealthy and you slow the economy. Which candidate wants to increase taxes to people making more than $250k per year? With that in mind, why do we need new taxes? When do we start cutting government spending?
  5. Ridiculous government spending (1928-1941) Hoover and FDR – Hoover increased the government’s percentage of GNP from 16.4% to 21.5% from 1930-1931! FDR proposed a $10 billion dollar budget with $3.5 billion in revenue. From 1933-1936 government spending increased 83% while the debt increased 73% under the guidance of FDR. If a goverment spends money that it doesn’t have how in the world will the people ever be able to afford the taxes to cover that? Are either of the current candidates advocating MASSIVE reduction in government spending (like the 25% reduction in government that FDR lied about during his campaign). Has either candidate declared any specific reduction in government?
  6. Seized gold holdings and artificially set the price (1933) FDR – This is one reason why you can’t blanketly say that the gold standard by itself contributed to the GD. Some historians believe that this sole act devalued the American dollar by 40%.
  7. Declared Banking Holiday (1933) FDR – In theory this kinda made sense. Close all the banks so people can’t get withdraw all of their money and they will calm down in the meantime. The only problem was 5,000 banks didn’t reopen immediately after the holiday and 2,000 NEVER reopened at all. Thanks FDR.
  8. National Recovery Administration (1933) FDR – or NRA was estimated to increase the cost of doing business by an average of 40% – 5 months before the NRA was enacted, factory employment was up 23% and payrolls were up 35% – within 6 months after the NRA industrial production dropped 25%. Thanks again, FDR. Luckily the Supreme Court ruled this as unconstitutional though it was later replaced by the Wagner Act.
  9. Civil Works Administration (1933) FDR – Later to be replaced by the Works Progress Administration and the foundation for our modern welfare system.  These are the programs that paid workers to catalog 350 different ways to cook spinach and managed to hire 6000 actors (for what reason no one seems to know). It was true back then and it’s certainly true now, taking taxpayer money to pay people to do nothing does not improve the economy. The creative entrepreneurs at Google, Apple, Microsoft, and small businesses around the country will always put better use to that money.
  10. Agricultural Adjustment Act (1933) FDR – In a country where 25% of the public is unemployed why would the President promote a law that resulted in the slaughter of 6 million piglets, the destruction of crops, and payments to farmers for not working? That’s not a rhetorical question – I honestly don’t know the answer. Thank goodness the Supreme Court ruled it as unconstitutional in 1936.
  11. Social Security (1935) FDR – We’re still paying dearly for this program. Is there anyone in America who thinks this is a sustainable program and should be your main source of income in retirement? Which candidate is promoting Social Security reform and which is promoting Social Security tweaks?
  12. The Wagner Act (1935) FDR – Also known as the National Labor Relations Act. In theory it was a decent idea to help workers negotiate a fair wage and reasonable hours. However, coupled with the poor economy and higher corporate taxes (another FDR program), businesses couldn’t afford continually increased wages and the act provided excessive power to the union leaders without necessarily benefiting the rank and file members. Depending on which history books you read, it had its benefits but it also promoted violence by newly empowered militant unions that still continue at times today.
  13. Minimum Wage (1938) FDR – I imagine this one will receive the highest amount of disagreement as a failed policy. However when you can’t hire inexperienced, young, unskilled labor for simple tasks, jobs are lost.  In 1933 a similar act was passed that resulted in 500,000 blacks losing their jobs according to p.336 of ECONOMICS AND THE PUBLIC WELFARE.

So if these are some (maybe most) of the failed policies that lead to the Great Depression and its severity, what policies took us out of it?

  1. During World War II warring countries in need of supplies looked to the US to provide them once again opening up international trade that Smoot-Hawley Tariffs destroyed.
  2. After World War II international trade picked up again with the Smoot-Hawley Tariffs out of the way.
  3. The Fed helped free up capital for businesses and individuals to reinvest.
  4. FDR left office so businessmen were no longer afraid to reinvest in their own businesses for fear that their own commander-in-chief thought of them as “stupid” and “economic royalists”. Lammot Du Pont probably expressed the sentiment of most business builders (i.e. job creators) in 1937: “Uncertainty rules the tax situation, the labor situation, the monetary situation, and practically every legal condition under which industry must operate. Are taxes to go higher, lower or stay where they are? We don’t know. Is labor to be union or non-union? . . . Are we to have inflation or deflation, more government spending or less? . . . Are new restrictions to be placed on capital, new limits on profits? . . . It is impossible to even guess at the answers.” Obviously he was talking about all the uncertainty that the New Deal policies brought about.
  5. 3.7% of the World’s Population died during WW2. I don’t have any information on the exact number of unemployed people worldwide prior to World War 2 but with nearly 73 million less mouths to feed afterward that can reduce the unemployment considerably.

To finally wrap this up, my last blog referenced some of our similarities and differences between the current economy and that of the Great Depression and obviously I’m very optimistic that we’re not anywhere close to a Depression. However, with the stroke of a pen, several Presidents have proved that poor economic insight and a fundamental lack of business knowledge could quickly deteriorate any economy.

As for why FDR kept getting reelected – never underestimate the power of charisma. That’s the number one trait of cult leaders and though charisma in and of itself is certainly not bad (I consider myself to be rather charismatic), charisma used to promote a “Raw Deal” can be devastating.

You can do your own research to determine which policies of which candidates are going to take us further down the rabbit hole of our economy (as a Republican and Democrat have both done) and which policies will help get us out of this mess quickly.

To your success, Bryan