Markets In Everything: Invest in your Star Athlete

How about investing in a financial security linked to the income stream of financial performance of your favorite professional athlete? 

From Deal Book New York Times: 

First, there was old-fashioned gambling on football. Then came the fantasy leagues. And now, thanks to Wall Street, fans can buy a stake in their favorite player.

On Thursday, a start-up company announced a new trading exchange for investors to buy and sell interests in professional athletes. Backed by executives from Silicon Valley, Wall Street and the sports world, the company plans to create stocks tied to an athlete’s financial performance.

After considering a number of possibilities for its inaugural initial public offering, the company found a charismatic candidate in Arian Foster, the Pro Bowl running back of the Houston Texans. Investors in the deal will receive stock linked to Mr. Foster’s future earnings, which includes the value of his playing contracts, corporate endorsements and appearance fees.

The company, Fantex Holdings, has grand ambitions beyond a Foster I.P.O. — it hopes to sign up more football players and other athletes, as well as celebrities like pop singers and Hollywood actors.

This is demonstrative of the market’s innovative process at work. Entrepreneurs think up ways and means to profit from what they see as economic opportunities by taking risks through the introduction of new instruments, products or services.

Innovation is a common feature of capitalist societies. As Austrian economist Robert Higgs pointed out

In his justly famous 1942 book Capitalism, Socialism and Democracy, Joseph A. Schumpeter described the dynamics of a market economy as a process of “creative destruction.” In his view, innovation—“the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates”—drives this process. Its most important result is that for the first time in history, the mass of the population in developed countries enjoys a standard of living that even the aristocrats of past ages could scarcely have imagined, much less have actually had.

In the above case, stocks linked to celebrities seem like a new form of entertainment.

Quote of the Day: Why Capitalism is Awesome

But the true genius of the market economy isn’t that it produces prominent, highly publicized goods to inspire retail queues, or the medical breakthroughs that make the nightly news. No, the genius of capitalism is found in the tiny things — the things that nobody notices.

A market economy is characterized by an infinite succession of imperceptible, iterative changes and adjustments. Free market economists have long talked about the unplanned and uncoordinated nature of capitalist innovation. They’ve neglected to emphasize just how invisible it is. One exception is the great Adam Smith…

The brilliance of the market economy is found in small innovations made to polish and enhance existing products and services. Invention is a wonderful thing. But we should not pretend that it is invention that has made us rich.

We have higher living standards than our ancestors because of the little things. We ought to be more aware of the continuous, slow, and imperceptible creative destruction of the market economy, the refiners who are always imperceptibly bettering our frozen pizzas, our bookshelves, our pencils, and our crayons.

This is from a wonderful essay by Chris Berg at the Cato Institute. (hat tip: AEI’s Professor Mark Perry)

Arts: How Socialism Sapped Creativity and Innovation

From Humanities Professor Camille Paglia on an OpEd on "How Capitalism Can Save Art" at the Wall Street Journal (hat tip Cato's David Boaz)

Capitalism has its weaknesses. But it is capitalism that ended the stranglehold of the hereditary aristocracies, raised the standard of living for most of the world and enabled the emancipation of women. The routine defamation of capitalism by armchair leftists in academe and the mainstream media has cut young artists and thinkers off from the authentic cultural energies of our time.

Over the past century, industrial design has steadily gained on the fine arts and has now surpassed them in cultural impact. In the age of travel and speed that began just before World War I, machines became smaller and sleeker. Streamlining, developed for race cars, trains, airplanes and ocean liners, was extended in the 1920s to appliances like vacuum cleaners and washing machines. The smooth white towers of electric refrigerators (replacing clunky iceboxes) embodied the elegant new minimalism.

"Form ever follows function," said Louis Sullivan, the visionary Chicago architect who was a forefather of the Bauhaus. That maxim was a rubric for the boom in stylish interior décor, office machines and electronics following World War II: Olivetti typewriters, hi-fi amplifiers, portable transistor radios, space-age TVs, baby-blue Princess telephones. With the digital revolution came miniaturization. The Apple desktop computer bore no resemblance to the gigantic mainframes that once took up whole rooms. Hand-held cellphones became pocket-size. 

Young people today are avidly immersed in this hyper-technological environment, where their primary aesthetic experiences are derived from beautifully engineered industrial design. Personalized hand-held devices are their letters, diaries, telephones and newspapers, as well as their round-the-clock conduits for music, videos and movies. But there is no spiritual dimension to an iPhone, as there is to great works of art.

Thus we live in a strange and contradictory culture, where the most talented college students are ideologically indoctrinated with contempt for the economic system that made their freedom, comforts and privileges possible. In the realm of arts and letters, religion is dismissed as reactionary and unhip. The spiritual language even of major abstract artists like Piet Mondrian, Jackson Pollock and Mark Rothko is ignored or suppressed.

Thus young artists have been betrayed and stunted by their elders before their careers have even begun. Is it any wonder that our fine arts have become a wasteland?

Bottom line: Economic ideology and policies affect people’s behavior, and thereby all attendant actions. It’s only laissez faire capitalism that brings on the ‘pareto optimal’ on creativity and innovation even in the realm of arts.

Quote of the Day: The Incompatibility of Innovation and Governments

It seems that as a general rule, then, the weaker the government, the better it is for innovation. With some notable exceptions, autocratic rulers have tended to be hostile or indifferent to technological change. The instinctive need for stability and the suspicion of nonconformism and shocks usually dominated the possible gains that could be attained from technological progress.

That’s from Joel Mokyr’s 1990 book, The Lever of Riches: Technological Creativity and Economic Progress (page 180) as excerpted by Professor Don Boudreaux

The fundamental objective of any government is the preservation of their political power through the sustainment of their political base.

And any activities that has the tendency to undermine this position will always be viewed as a threat. Thus government’s role, as pointed above, has mostly been about imposing conformity through control, and instituting dependency through political measures—such as safety nets or the welfare state—to shield against “shocks” (resistance to change) and or guard against social failure (fear of loss) through redistributive “stability” policies.

All these have been built upon the platform of centralized political institutions.

Meanwhile innovation stands at the opposite end. Innovation embraces the virtues of failure or losses through repeated trial and errors or experimentation or through the encouragement of bottom up based risk activities, which mainly operates on change-oriented and or highly competitive environments. Since innovation is about dynamism and diversity, they are usually products of decentralized institutions.

So governments approve of innovation only if it benefits them. Governments become “hostile” to innovation, if change threatens their power (this has been evident by repeated attempts to control the internet which has been counteracted by digital activists), and are “indifferent to technological change ” when innovation is seen as having neutral effects on them.

The bottom line is that innovation and the current welfare based governments represent as diametrically opposing forces, and therefore, incompatible with each other.

Quote of the Day: Economic Freedom Fosters Innovation

Places that are open and possess low entry barriers for people gain creativity advantage from their ability to attract people from a wide range of backgrounds. All else equal, more open and diverse places are likely to attract greater numbers of talented and creative people – the sort of people who power innovation and growth.

That’s from Richard Florida, quoted in a paper by Niclas Berggren and Therese Nilsson (hat tip Cato’s Mark Calabria)

Quote of the Day: Problem Solving as an Enabling Force of Innovation

When we fight constraints and eliminate them, we often gain access to new insights, new productivity and new solutions. It also makes it easier to compete against people who don't have those constraints.

There's a useful alternative: embrace the constraints you've been given. Use them as assets, as an opportunity to be the one who solved the problem. Once you can thrive in a world filled with constraints, it's ever easier to do well when those constraints are loosened. That's one reason why the best filmmakers learn their craft making movies with no budget at all.

That’s from marketing guru Seth Godin.

I would further add that this would work best in a competitive decentralized profit and loss driven environment.

Quote of the Day: The Limits of Innovation

Advancement is limited only by the extent of individual creativity. A decade or two from now you will enjoy the fruits of someone else’s idea, that you yourself simply could not have imagined prior to its development.

So, while the future is not necessarily picturesque, neither is it as dark as some people suggest it may be. We live in an age that places a premium on knowledge. This represents a giant step forward.

This is from Jonathan M.F. Catalán at the Mises Blog with bold emphasis mine. Mr. Catalán seems to be on a roll with a series of impressive articles as this

Bottom line:

For as long as people are allowed to unleash their creativity on the marketplace, innovation and economic progress will continue in spite of government intrusions

Quote of the Day: Innovation Drives Productivity Growth

Again here is another of Professor Donald Boudreaux’s provocative wisdoms, which makes my quote of the day... (bold emphasis mine)

Economic growth is overwhelmingly the proximate result of innovations that allow fewer workers to produce more output – thereby releasing that most precious of all resources, human labor, for use in producing goods and services that earlier were too costly to produce.

How Capitalism Saved The Chilean Miners

Daniel Henninger at the Wall Street Journal asserts that the successful rescue of Chilean miners as signifying victory for capitalism.

Mr. Henninger writes, (bold emphasis mine)

This profit = innovation dynamic was everywhere at that Chilean mine. The high-strength cable winding around the big wheel atop that simple rig is from Germany. Japan supplied the super-flexible, fiber-optic communications cable that linked the miners to the world above…

In an open economy, you will never know what is out there on the leading developmental edge of this or that industry. But the reality behind the miracles is the same: Someone innovates something useful, makes money from it, and re-innovates, or someone else trumps their innovation. Most of the time, no one notices. All it does is create jobs, wealth and well-being. But without this system running in the background, without the year-over-year progress embedded in these capitalist innovations, those trapped miners would be dead.

In short the technology, instruments and expertise used to save the trapped miners had been a product of capitalism.

This reminds me of the great classic, “I, Pencil”, from Leonard Read which states that market, using the pencil as example, is driven by spontaneous order: No no one exactly knows how to make the pencil in the entirety, yet people using division of labor, specialization and voluntary exchange concertedly allows the pencil to be produced and be used by us, the consuming public.

Here is an excerpt from Mr. Read, (bold highlights mine)

Actually, millions of human beings have had a hand in my creation, no one of whom even knows more than a very few of the others. Now, you may say that I go too far in relating the picker of a coffee berry in far-off Brazil and food growers elsewhere to my creation; that this is an extreme position. I shall stand by my claim. There isn't a single person in all these millions, including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how. From the standpoint of know-how the only difference between the miner of graphite in Ceylon and the logger in Oregon is in the type of know-how. Neither the miner nor the logger can be dispensed with, any more than can the chemist at the factory or the worker in the oil field — paraffin being a byproduct of petroleum.

Here is an astounding fact: neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me. Each one wants me less, perhaps, than does a child in the first grade. Indeed, there are some among this vast multitude who never saw a pencil nor would they know how to use one. Their motivation is other than me. Perhaps it is something like this: each of these millions sees that he can thus exchange his tiny know-how for the goods and services he needs or wants. I may or may not be among these items.

Capitalism is almost always the unheralded and unappreciated hero, for incidents like the successful rescue of Chilean miners, but has undeservingly served as the scapegoat for failures of the political order.

Cyberspace: A Battleground Between Socialism and Free Markets

Governments are going to have a hard time trying to control the cyber space.

According to the Economist,

GOVERNMENTS are increasingly finding ways to enforce their laws in the digital realm. The most prominent is China’s “great firewall”. But China is by no means the only country erecting borders in cyberspace. The OpenNet Initiative, an advocacy group, lists more than a dozen countries that block internet content for political, social and security reasons. They do not need especially clever technology: governments go increasingly after dominant online firms because they are easy to get hold of. In April Google published the numbers of requests it had received from official agencies to remove content or provide information about users.

Based on his recent article, security expert Bruce Schneier would say that web regulation is a folly.

That’s because of three things:

1. It would mean a massive war against deepening spontaneous order, division of labor and diversity.

Internet is the largest communications system mankind has ever created, and it works because it is distributed. There is no central authority. No nation is in charge. Plugging all the holes isn't possible.

2. To engage in cyberspace control means censorship. It’s also a war waged against the spread of knowledge with stark ramifications.

The second flawed assumption is that we can predict the effects of such a shutdown. The Internet is the most complex machine mankind has ever built

3. The complexities of the cyberspace extrapolates to manifold loopholes and action-reaction dynamics.

The third flawed assumption is that we could build this capability securely. We can't. Once we engineered a selective shutdown switch into the Internet, and implemented a way to do what Internet engineers have spent decades making sure never happens, we would have created an enormous security vulnerability. We would make the job of any would-be terrorist intent on bringing down the Internet much easier.

Mr. Schneier concludes,

Computer and network security is hard, and every Internet system we've ever created has security vulnerabilities. It would be folly to think this one wouldn't as well. And given how unlikely the risk is, any actual shutdown would be far more likely to be a result of an unfortunate error or a malicious hacker than of a presidential order. But the main problem with an Internet kill switch is that it's too coarse a hammer. Yes, the bad guys use the Internet to communicate, and they can use it to attack us. But the good guys use it, too, and the good guys far outnumber the bad guys. Shutting the Internet down, either the whole thing or just a part of it, even in the face of a foreign military attack would do far more damage than it could possibly prevent. And it would hurt others whom we don't want to hurt.

At the end of the day, one of the two forces (free markets versus socialism) would have to yield. Guess who?

The Free Market Evolution of 'Chinese Food'

The amazing video below is an account by Jennifer 8 Lee of how popular Chinese Food evolved. (hat tip: Jeffrey Tucker Mises Blog)

Jennifer 8 Lee concludes with...

``So, the thing is, our historical lore because of the way we like narratives are full of vast characters, such as, you know of Howard Schultz of Starbucks, and Ray Kroc with McDonalds and ASA Chandler with Coca-Cola. But you know, it’s very easy to overlook the smaller character-oops- for example like Lem Sen, who introduced chop suey, Chef Peng, who introduced General Tso Chicken, and all the Japanese Bakers, who introduced fortune cookies. So the point of my presentation is to make you think twice, that those whose names are forgotten in history can often have had as much, if not more impact on what we eat today."

Here is Friedrich von Hayek on spontaneous order...

``Many of the greatest things man has achieved are not the result of consciously directed thought, and still less the product of a deliberately coordinated effort of many individuals, but of a process in which the individual plays a part which he can never fully understand."

Unfortunately as Jennifer 8 Lee laments, such wonderful accomplishments has hardly been appreciated.

Globalization Trends: No Crisis In Research And Development Spending

The recent crisis negatively affected nearly anything BUT research and development spending.

According to the Economist, ``BIG carmakers and drug and technology firms devote the most cash to research and development, according to the European Commission’s latest tally. These types of business rely on developing new products or constantly updating old ones to compete for customers. Toyota was the world's leading R&D spender in 2008. The Japanese carmaker increased its annual R&D budget by 7.6% to €7.6 billion ($10.6 billion), knocking Microsoft off the top spot. Worldwide R&D spending increased by 6.9% in 2008, having also grown by 9% in 2007."

This only serves as proof of the well entrenched globalization trend in spite of the crisis.

To quote Dan McLaughlin, `` Modern society is highly dependent on the division of labor, on vast networks of traders, on information and communications. The goal of modern society is not full employment, but rather the increasing prosperity that comes from continuing innovation and increasing specialization, trade and capital accumulation, where even the poor are better off than most people in the world. Economic freedom in fact reduces unemployment to levels significantly below those in less free countries." (emphasis added)

Or from Peter F. Drucker, ``Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth."

Did You Know? Media Landscape Is Changing Rapidly

The Economist on the fantastic rate of changes in media convergence...

``The surge of new technologies and social media innovations in today's environment is significantly altering the future media landscape for marketers. Consumer behaviour is changing and the way marketers reach their audience must also change. Marketers are searching for new ways to not only reach their customers, but to understand them, to peer inside their minds. As the level of consumer understanding increases, so can the knowledge of how best to reach them. However the plethora of tools at a marketers disposal is not easy to navigate and real learning comes from a real understanding of the future of media convergence.

``Media Convergence forum gathers a unique speaking faculty of thought leaders, marketing psychologists, technology experts, futurists, media and marketing professionals to look into the future to consider the ideas, technologies and tactics that tomorrow's best organisations will adopt.'

Since the embed video doesn't want to appear on the blog, pls. watch the video by clicking on the link

Social Media Gains Acceptance From Older Users

An interesting observation from the Forrester on the demographics of social networking usage.

They reckon that most of the recent growth has emanated from the elder generation.

From Researchrecap on the Forrester study (bold emphasis theirs)

``Social media can no longer be dismissed as a quirky habit of young adults."

``Social technologies continue to grow substantially in 2009. Now more than four in five US online adults use social media at least once a month, and half participate in social networks like Facebook. While young people continue to march toward almost universal adoption of social applications, the most rapid growth occurred among consumers 35 and older.

``Adults younger than 35 approached universal social participation. As we noted last year, adults ages 18 to 24 and those ages 25 to 34 adopt social media similarly. Only three percent of 18- to 24-year-olds and 10% of 25- to 34-year-olds are socially Inactive. What’s more, a staggering 89% of the younger crowd are Spectators, while nearly as many are Joiners. And almost half create content, far higher than any other age group. Adults ages 25 to 34 also grew their participation across all categories — especially in social networks.

``Adults ages 35 to 54 rapidly adopted Joiner activities. Much of the growth in social networks today comes from people older than 34. Compared with last year, this group grew its participation by more than 60%, and now more than half of adults ages 35 to 44 are in social networks. Adults ages 45 to 54 grew their Joiner behavior nearly as much, but still lag behind the 35- to 44-year-olds; 38% of those ages 45 to 54 use social network sites regularly. These consumers also increased their Creator activities to the point where one in five produce social content.

``Adults 55 and older started to share and connect with each other online. Seventy percent of online adults ages 55 and older tell us they tap social tools at least once a month; 26% use social networks and 12% create social content.

A graphic on the technology ladder

Empirical experience suggests that this could be true even outside the US. And this likewise suggest that many traditional activities (radio, tv) could be replaced by social media networks bearing the same features.

Amazing innovation from free markets that has increasingly been advancing our standards of living.

Innovation Trends In Mobile Banking

The wonders of the markets is that the competition to satisfy consumers (and thereby profit from it) function as a major pillar to technological innovation.

Take for instance, in the realm of mobile banking innovative products and services are rapidly being introduced.

Check deposits, money transfers and bills payment have expanded beyond the computers and can now be accessed through the mobile phone.

This should extrapolate to added mobility, greater financial access and savings (time, effort and resources) for consumers, as well as, efficiency and added productivity for the economy.

From mysanantonio.com, (HT: Mark Perry)

``The San Antonio-based company is testing the feature for its iPhone application among its employees and plans to release it to the public soon.

``It is similar to USAA's Deposit@Home program launched in 2006 that allows its customers to deposit checks from home using a computer and a scanner.

“To my knowledge, they will be the first bank to offer it broadly,” said Bob Meara, senior analyst with Celent's banking group in Atlanta. “I'm aware of some very small pilots going on with banks that plan to offer it to their business clients.”

``In mid-May, USAA released an iPhone app that allows people to access their accounts, pay bills, transfer funds and locate an ATM.



``With the application, USAA members simply sign the back of any check and then use their iPhone camera to take a picture of the check's front side and back side.

``They enter some information into the application — including the amount and where it's to be deposited — and then the funds are credited to the designated account.

``Most checks will get immediate availability of funds,” Dennes said."

Innovation, according to Murray Rothbard (Man Economy and State, Chapter 8) is one of the processes adopted by entrepreneurs.

``Entrepreneurial activities are derived from the presence of un­certainty. The entrepreneur is an adjuster of the discrepancies of the market toward greater satisfaction of the desires of the con­sumers. When he innovates he is also an adjuster, since he is ad­justing the discrepancies of the market as they present them­selves in the potential of a new method or product...

``By launching and producing more of the new process, he is pur­suing the entrepreneurial function of adjustment to consumer de­sires, i.e., what he estimates consumer desires will be. If he suc­ceeds in his estimate and reaps a profit, then he and others will continue in this line of activity until the income discrepancy is eliminated and there is no “pure” profit or loss in this area."

In other words, innovation thrives best in free markets.

How Innovation Have Improved Our Lives

In "100 Things Your Kids May Never Know About" Nathan Barry enumerates the casualties of rapid technological innovation.

From wired magazine, ``There are some things in this world that will never be forgotten, this week’s 40th anniversary of the moon landing for one. But Moore’s Law and our ever-increasing quest for simpler, smaller, faster and better widgets and thingamabobs will always ensure that some of the technology we grew up with will not be passed down the line to the next generation of geeks.

``That is, of course, unless we tell them all about the good old days of modems and typewriters, slide rules and encyclopedias …"

The 100 list...

Audio-Visual Entertainment

1. Inserting a VHS tape into a VCR to watch a movie or to record something.
2. Super-8 movies and cine film of all kinds.
3. Playing music on an audio tape using a personal stereo. See what happens when you give a Walkman to today’s teenager.
4. The number of TV channels being a single digit. I remember it being a massive event when Britain got its fourth channel.
5. Standard-definition, CRT TVs filling up half your living room.
6. Rotary dial televisions with no remote control. You know, the ones where the kids were the remote control.
7. High-speed dubbing.
8. 8-track cartridges.
9. Vinyl records. Even today’s DJs are going laptop or CD.
10. Betamax tapes.
11. MiniDisc.
12. Laserdisc: the LP of DVD.
13. Scanning the radio dial and hearing static between stations. (Digital tuners + HD radio b0rk this concept.)
14. Shortwave radio.
15. 3-D movies meaning red-and-green glasses.
16. Watching TV when the networks say you should. Tivo and Sky+ are slowing killing this one.
17. That there was a time before ‘reality TV.’

Read the rest here

The lists simply shows how our quality of life have vastly been improved by market based innovation.

Technology: From Imagination to Reality (and Business Opportunities too!)

New Scientist suggests of “Ten sci-fi devices that could soon be in your hands ”(pictures from New Scientist)

1 Super-vision…

The Super-vision technology will be introduced by ``the Prism 200 which can detect people through a brick wall by firing off pulses of ultrawide-band radar and listening for returning echoes.”

2 Disappearing act…

Harry Potter’s ‘invisible cloak’ turns real based on the technology of steering electromagnetic waves by virtue of metamaterials!

3 Hands-free healing…

A band aid kit in the future will possibly include high-frequency sound waves based portable scanner that would not only spot internal injuries (e.g. torn arteries), “but also heal them in a flash.”

4 Spider vs gecko…

Spiderman technology or hair based nanotubes that may allow vertical “stick to the wall” movements!

5 You power…

Gadgets like pacemakers that can be implanted and powered by electricity generators from our heart!

6 Jet packs…

James Bond move over, personal rocket belt jets are coming!

7 My other car is a spaceship…

Space travel coming to reality?!

8. Breathe underwater

Swimming with artificial gills ala Man from Atlantis…

9 You speak, it translates

Forget language barriers. The evolving revolutionary technology in speech recognition and translation software is coming to close that gap!

10 Smell-o-vision

To make watching TV attain a vicarious experience, smell-o-vision will give off scents/smells that fit the scenes.

Our observations:

Technology, like any businesses undergo transformational cycles as they get accepted into our lifestyles (see above chart).

Such advances may dramatically progress if they are allowed to develop by means of competition and less regulation.

And dramatic improvements of technology should improve our lifestyles or business process flows the way the cellphones and the web has done (lower communication and transaction costs, ease of flow of communications or data, and etc.)

Moreover, technological progression also translates to huge potential investment opportunities, as the transformational cycle allows for greater diffusion of its application. In Austrian economics lingo: lengthening of the production structure.

Read the entire article and its gallery from New Scientist

Web based Auction Markets: Virginity for Tuition

The sex trade is supposedly the oldest profession in the world. Nonetheless, today’s technology is giving the trade a facelift.

The web space has introduced a semblance of an auction market to those willing to offer their services. Not only that, services for niche market-virgins.

Excerpts of the new trade from the Telegraph…

``A student who is auctioning her virginity to pay for a masters degree in Family and Marriage therapy has seen bidding hit £2.5million ($3.7m)…

``Last September, when her auction came to light, she had received bids up to £162,000 ($243,000) but since then interest in her has rocketed.”…

``She said: "I get some men who are obviously looking for a girlfriend but I try and make it clear that this is a one-night-only offer…

``"I think me and the person I do it with will both profit greatly from the deal."…

$3.7 million for a ONE NIGHT STAND with a virgin! Wow. You can bet on a new market trend to emerge from this. And maybe this may expand to include other niches, especially with today's financial crisis. As an old saw goes, necessity is the mother of innovation.