Category Archives: Economics

Why Gun Control Won’t Work: The Economics of Human Behavior.

In recent days, the chattering class has spent a lot of time speculating about what kind of gun control regulations they might achieve in the wake of the national tragedy in Newton, Connecticut.

No_gun

I appreciate what liberals are trying to do. They sincerely believe that by banning firearms, they will make us safer and rid the country of a great evil. I agree with the objective of safety, but I reject their means because controlling the weapon will not work if the real issue is the heart of man.

Jeremiah 17_9

Get your MBA at Charleston Southern UniversityHere I will address the economics of the issue, and I will go beyond the abstract discussion of supply and demand, incentives, and deterrence to provide seven historical examples of how real people have reacted to weapons controls.

All Guns Are Banned!

Let’s start with a thought experiment. Let’s assume that liberals get everything they  want:

  • All guns are banned.
  • We have massive “Gun Disposal Days.”
  • We melt our guns into iPhones.

Everyone is blissful and the world will live as one.  But are we safer?

Any serious student of history should question how much better off we would be. If, as I have suggested, the problem is not with the gun but the heart of man (and, to a lesser degree, culture), we might be in a more precarious position. In fact, historically speaking, populations who have been disarmed have generally been oppressed by those with arms. Examples range from Carthage to the Third Reich.

Behavioral Economics & Arms Control: 7 Examples

1. CrossBows. Throughout the Middle Ages, Crossbows were loathed and feared because they were very accurate and they could penetrate armor, eliminating a knight’s battlefield advantage. The Magna Carta specifically mentioned crossbowmen among mercenary soldiers who should be banished from the kingdom as soon as peace was restored.

CrossbowThey were banned by the Pope in 1139, but they were so effective that even the threat of eternal damnation  did little to reduce the proliferation of crossbows in Europe.

2. Have you ever wondered why Martial Artists use such funny weapons?

Martial Arts Weapons from Karatemart

You can trace the use of these weapons to arms bans in feudalistic Asian societies. When farmers were occupied and disarmed, they used whatever they had at their disposal (e.g. farming tools) to defend themselves. Looking at the images above, you can see how these would be helpful in threshing grain or bailing hay.

Cane Defense3. The Cane.  Combat Hapkido, which was only developed in 1990, has adopted the cane as its weapon of choice. Yes, the cane–just like your grandfather uses.

Why? Because the practitioners of this modern martial art understand that the cane is 100% street legal. This is a selling point in Combat Hapkido classes, books, manuals, and training videos.

Gangland Season 14. Hammers. If I learned anything from the time I spent watching an entire season of Gangland,  it was that the Hell’s Angles motorcycle club members sometimes carry ball peen hammers. Why? Completely legal.

I would imagine a group of Hell’s Angels could do a lot of damage swinging ball peen hammers, but if they were stopped by the authorities, who could say that they were not just on their way to a habitat for humanity build?

5. Knives. Let’s go back to Modern day China. Recently there has been a wave of violent knife attacks. According to CNN:

Guns are strictly controlled in China, but until recently possession of large knives were not. Chinese authorities have recently issued a regulation requiring people to register with their national ID cards when they buy knives longer that 15 centimeters.

Note: 15 centimeters is roughly 6 inches. Is this where we want to go as a society–registering with the government when you buy a kitchen knife at Wal-Mart?

Box-cutter6. But what about the assault weapons used on 9/11? The AR-15s and M-16s used to subdue the passengers…oh wait, they used box cutters and claimed to have explosives.

At this point, the gun-control advocate might cry foul and ask, “But isn’t it better to just have a society armed only with knives. After all, if a would-be killer did not have access to a gun he could hurt a far fewer people.”

This argument assumes that criminals will not still obtain guns, leaving the law-abiding population at their mercy.  After all, criminals have a nasty habit of ignoring and violating the law. Moreover, it also assumes that those who can’t obtain guns will not turn to some other, more deadly means. Here, I am not talking about knives, but explosives.

7. Explosives. A 2011 U. S. Army medical study found that of 7877 combat casualties, “almost 75% resulted from explosive mechanisms; just 20% were gunshot wounds.”  More to the point, additional studies found that improvised explosive devices (IEDs) were directly responsible for roughly twice the number of casualties in Afghanistan and Iraq than in Vietnam.

The Heart of the Matter

From everything you have learned about how people react to these controls, does it stand to reason that bad men will recognize that Congress has passed sweeping legislation and change their evil gun-loving ways? A few might, but in an era where bomb building instructions can be found on the internet, do we really think we will be safer with more gun control legislation? Or, are we missing the point?

If the problem that we are trying to address is internal (the heart), an external solution (removing all guns) misses the point.

The heart can change voluntarily, but human nature is not easily subdued by legislation. Worse, an unintended consequence of robust gun control might be headlines about mall bombings and school bombings that take the lives of many more innocents.

Do you think Gun Control Legislation Will Be Effective?

-Darin Gerdes, Ph.D.

December 19, 2012

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Dr. Gerdes is the Director of the MBA Program at Charleston Southern University

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Filed under Economics, Misc., Motivation, Movies, Poltics

The More You Know, The More You See.

What do you see in the pictures below?

If you are like most people, you see two men. If you are like most Americans, you probably see Middle-Easterners, but you may not be able to tell much more than that.  In Brotherhood of Warriors, Aaron Cohen, a former Israeli Special Forces counter-terrorism solder explained what he sees. He wrote:

There are different types of dress in various parts of the [Palestinian] territories. The red-and-white keffiyehs are dominant in some parts, black-and-white or green-and-white in still others. Red-and-white means the neighborhood supports Hamas; black-and-white means it supports Fatah; green-and-white, which can be seen much less frequently, means Hezbollah. We would know in advance which areas we’d be going into on a mission, and if the color of our keffiyehs wasn’t correct, we’d have gotten [expletive deleted] up quick (p. 148).

The point of this article is that the more you know, the more you see. Aaron Cohen saw enough to avoid danger.  Where we sees keffiyehs, he saw the equivalent of Palestinian gang colors.

By the way, a FBI agent sees something else. He would see Khalid Ibn Muhammad Al-Juhani (left) and Muhammad Sa’id Ali Hasan (right). The are both wanted by the FBI.

Example #2

What do you see here?

This time, you see an X-ray of a human body. Do you see a 70 Year old? Do you see the prostate cancer? How about the  hypercalcemia and diffuse osteoblastic bone metastases? Follow the arrows. Still don’t see it? Your doctor sees it.

The more you know, the more you see.

Example #3

Read the list below:

1. Abolition of property in land and application of all rents of land to public purposes.
2. A heavy progressive or graduated income tax.
3. Abolition of all rights of inheritance.
4. Confiscation of the property of all emigrants and rebels.
5. Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.
6. Centralisation of the means of communication and transport in the hands of the State.
7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.
8. Equal liability of all to work. Establishment of industrial armies, especially for agriculture.
9. Combination of agriculture with manufacturing industries; gradual abolition of all the distinction between town and country by a more equable distribution of the populace over the country.
10. Free education for all children in public schools. Abolition of children’s factory labour in its present form. Combination of education with industrial production, &c, &c.

We all see this as a list of 10 items. Some will realize that it is a political agenda. Closer inspection will reveal that we have already accomplished #2 and #10 and we are actively working on #3, #5,  and #7.

Get your MBA at Charleston Southern University

The political scientist or well-trained economist (or perhaps a sharp history teacher) will realize that this is directly from the end of Chapter 2 of Karl Marx’s Communist Manifesto.

Again, the more you know, the more you see. It works the same way in any field–the military, medicine, politics, or business.

Example #4

Sam Wyly was a serial entrepreneur who founded University Computing Company (UCC), owned Bonanza Steakhouse, bought Michael’s Arts and Crafts, and co-founded  Maverick Capital.

In his book, 1000 Dollars and an Idea: Entrepreneur to Billionaire Sam Wyly  recounts the story of a skeptic who questioned how he could have made a 199% return on an investment. He wrote:

I answered, “I read a lot.” The questioner laughed. But I wasn’t joking. It’s true. I do read all the time. What I’m trying to say is that having good timing is a result of paying attention to the ideas and trends floating around out there, studying them, coming to some intellectual conclusions, and then, ultimately, listening to your own gut about how to apply your conclusions to the business ventures you elect to pursue (p. 224).

There is a reason that Warren Buffett is one of the richest men on earth. He is currently #3 on the Forbes list.

Buffett  famously quipped: “Some men read Playboy. I read annual reports.”

What Sets Some People Apart From Others?

There is no mystery or magic here. Insight comes from investigation. What do you need to see? What are you doing to learn about the subject?

Darin Gerdes

November 30, 2012

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Dr. Gerdes is the Director of the MBA Program at Charleston Southern University

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Filed under Books, Economics, Effectiveness, Efficiency, Interdisciplinary, Leadership, Management, Military, Success, Vision

If You Do Not Read This Article, You Will Simply Hate How Much Money You Will Lose.

The Christmas season is here and it seems that everyone is having a once in a lifetime sale. Deals are everywhere. But listen closely to the advertisements and you will notice a funny trend. They all say: “buy now,” “limited time offer,” or “quantities are limited.” These companies are not out of merchandise. Instead, they are setting psychological traps intended to play on your fears of scarcity.

What is Scarcity?

Definition of Scarcity from Investopedia.com

Scarcity means that you cannot have everything you want.

Corporations understand that you desperately want certain items. Parents want to get particular toys for their children. Dad wants the largest TV possible. Mom wants some alone time (and for those of you who cannot get it, you truly know the meaning of scarcity).

Corporations Use Scarcity to Inflate Profits

Do you remember when cabbage patch dolls were all the rage?

It was the 1980s and I was in junior high school. I recall how difficult it was for Aunt Gail to get one for my cousin Amy. The lines at the toy store stretched around the block. People paid unbelievable prices, and they were thrilled if they could get one even at that price. Black markets formed where Cabbage Patch dolls were scalped.

I was only in junior high, but  I remember thinking that the company must have lousy executives to plan so poorly before the Christmas rush. With a little forethought, I thought, they could have produced plenty for everyone to buy.

Ah, but I was young and na·ïve. I did not understand that they were intentionally manufacturing scarcity in order to inflate profits.

I saw the same phenomenon repeat itself in 1996 with Tickle-me Elmo. The $29  toy was resold for as much as $1,500 because they were so scarce. Parents did not want to refuse their children the one toy that they most wanted.

Do not think you are immune. Apple uses this strategy when they roll out each iteration of the iPhone.

Scarcity Inflates Value.

This can be done in many ways: Producing fewer items produces scarcity Limited time offers create scarcity. As the clock counts down to Christmas morning–scarcity.

Get your MBA at Charleston Southern UniversityCorporations know how scarcity works and they use this understanding to manipulate you. They intentionally say things like “But you had better hurry. These deals won’t last long.” Then they have the After-Christmas sale, End of Year Clearance, and New Year’s Sale where they repeat the same line.

How To Protect Yourself From the Scarcity Mentality.

Understand what is happening.

1. Companies sometimes intentionally limit distribution in order to induce scarcity. Remember the Black Friday sales? Limited quantities drove consumers to camp outside in the cold for hours in order to purchase an artificially scarce item. Did the company have more in the warehouse? Of course they did.

2. Sales with limited time-frames also create scarcity. Companies want you to think that if you do not buy now, you will never have the opportunity again, at least not at this price.

3. Specific items that do not have substitutes are scarce. For example, when I was a kid, I wanted Star Wars action figures. These were more expensive than any alternatives on the market. To my dismay, I got Star Trek Action Figures. To my mom, it was all the same, but on the play ground Mr. Scott and Dr. McCoy were not welcomed on the Millennium Falcon.

Now, here is where parents get into trouble.  Remember the large TV dad wants? There are many brands and most have similar ranges of quality or substitutability. Dad will likely be as satisfied with a Panasonic, Sharp, LG, or Sony as long as the screen is 60 inches.

However, if your little darling desperately wants a Doc McStuffins Time for your Checkup Doll, there really are no clear substitutes. A knockoff simply is not the same, and Disney knows it. They have been selling Doc McStuffins through “commercial-free” Disney Channel cartoons all year. This is non-substituability.

What To Do

1. Recognize that if you are chasing a popular but limited item, the laws of supply and demand are working against you.

2.Do not be duped by limited time offers (e.g. Black Friday or Cyber Monday are the only times you will see great deals). Deals will ebb and flow.

3. If you simply must have the  Doc McStuffins Time for your Checkup Doll, you will pay dearly to have it. But you can lower your bill  for adult items by overcoming scarcity with substitution (e.g. a different 60 inch TV than the particular brand you want) or time (e.g. the After Christmas Sale).

4. Budget. The best plan is to know how much you plan to spend ahead of time. Do not exceed this total.

A good deal, such as 20% off, becomes a bad deal when you pay 120% because of the credit card payments.

5. Don’t believe the lie that your love can be measured by how much you spend.

6. Remember that scarcity is a mindset. Corporations attempt to inject it into the equation. You will pay less when you reject a scarcity mindset.

I am not a financial Planner, but I highly recommend Dave Ramsey’s Financial Peace University, which I have used  in  my classes.

The Professor’s Recommended Reading

Financial Peace University

November 26, 2012

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Dr. Gerdes is the Director of the MBA Program at Charleston Southern University

2 Comments

Filed under Books, Economics, Leadership, Profitability

How to Watch TV and increase your Business I.Q.

If you could increase your business I.Q. by sitting in front of the TV, would you do it? What if I told you that as a bonus, it would be entertaining too?

Shark Tank – Friday at 9PM on ABC

Free Education

If you want to get a free business education, watch Shark Tank. Shark tank airs Friday Nights at 9 PM on ABC.

Here is the premise of the show from the Shark Tank Website:

The panel of five Sharks [Venture Capitalists] will hear pitches of the best business and product ideas from some of America’s brightest entrepreneurs, ranging from start-ups from stay-at-home moms and dads, to simple yet brilliant ideas in a wide range of areas including children’s products, music, sports, automotive, and even the nightclub scene….

The entrepreneurs who dare to enter the “Shark Tank” must try to convince the tough, self-made, multi-millionaire/billionaire tycoons to part with their own hard-earned cash and give them the funding they desperately need to jumpstart their business ideas. But the Sharks have a goal, too. They want a return on their investment and own a piece of the next big business idea.

In exchange for the Sharks’ cash investment, the entrepreneurs give up a percentage of their companies’ equity. When the Sharks hear a great idea, they’re ready to fight each other for a piece of it. Then the once-desperate entrepreneur can rejoice that the Sharks find value in their product, service or business. But if the pitch is poor, the Sharks will tear into the ill-prepared presenters and pass on the idea with a simple “I’m out!”

What Will You Learn?

These businessmen will teach you how capitalism really works.

Sometimes they expose the dark side of business–as when they attempt to buy a business in order to liquidate it. The sharks are looking to maximize profits even though they may destroy the entrepreneur’s dream. It is not personal; it’s just business.

Sometimes they tell an entrepreneur to stop doing what he is doing. This is merciful, as when the business model does not make sense and doing more will only lead the entrepreneur (who already has a second mortgage on his home) into greater debt.

These VCs do not suffer fools gladly and they do not provide false hope.

Get your MBA at Charleston Southern UniversitySometimes they spot a great business. When they do, they fight each other to obtain a stake in the viable business. Pay close attention when they fight  each other for a piece of a winning business because they are exposing the secrets of entrepreneurial success.

By watching the show you will learn:

  • How venture capitalists (VCs) think about money
  • How VCs decide to bet on a successful business
  • How to price a business (business valuation)
  • What entrepreneurs need to do to be successful
  • Why VCs bet on the entrepreneur as much as the product
  • What does not work and why

Now, you can watch passively and simply enjoy the show, but I would suggest that you watch with a yellow pad and take notes. Keep a dictionary handy or Google terms you do not understand. If you do this, you will be taught valuable concepts that we teach in our students in our MBA program.

Look for trends. Within the first 5 shows that you watch, you will begin to see certain patterns emerge (e.g. what makes a business attractive to an investor).

Teach Your Children Well 

Want to teach your children real lessons about economics?

Download full seasons and  watch them together. In 12 hours, you will teach your children more about how the economy works than they learn from 12 years in public school.

The show airs Friday at 9 PM on ABC, but you can watch a few back episodes on the Shark Tank Website. You can also download the first 4 seasons from Amazon. Single episodes are $1.99, but when you buy a season, each episode is only a buck.

Here are the links: Season 1, Season 2, Season 3, and Season 4.

What other educational TV shows can you recommend? I would love to hear your thoughts.

-Darin Gerdes, Ph.D.

November 21, 2012

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Dr. Gerdes is the Director of the MBA Program at Charleston Southern University

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