Economics for One

Over salads in Palo Alto, a friend and I started talking about online business models. As two serial entrepreneurs (he founded LinkedIn, among others), this is a favorite topic.

I’ve used FreeConference.com for years. They provide a great service–scheduling and hosting conference calls.  It’s easy to use, and 100% free. But recently I’ve been asking myself: How exactly do they make money?

I’ve become so accustomed to free services through the internet, that I tend not to think about them much. Most are either advertising-supported, or they try to upsell you on premium services. But I noticed that FreeConference.com has very little advertising, and never seems to be trying to sell me additional services. So that left me wondering: how exactly do they make money?

Fortunately, my friend had led a company in a related space. So he was happy to explain.

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Another great analysis by USA Today popped up last week: the fraction of individual income earned from private business (as opposed to government wages and programs) sank to the lowest level in the history of the United States.  According to their analysis, just 41.9% of US personal income was derived from private wages and salaries in Q1–down from 44.6% in December 2007 and 47.6% in Q1, 2000.

At the same time, government wages and benefits have dramatically increased.

Why is this significant?  Because all government payments come from taxes, which are ultimately derived from productivity in the private sector.  So as the private sector shrinks relative to the public sector, the burden on the private sector increases, and the overall stability and sustainability of the system decreases.

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G. Edward Griffin’s The Creature From Jekyll Island: A Second Look At The Federal Reserve will profoundly change the way you view the entire banking and monetary system in the US and abroad. It is a fascinating read.

The title refers to the creation of the US Federal Reserve Bank, which took place at a then-secret meeting in 1910 (later confirmed by the participants), at a resort on Jekyll Island, just off the coast of Georgia.

Most of us grew up thinking of the Federal Reserve as a quasi-government organization that helps stabilize our money supply. How it does that is often a bit of a mystery, although it involves interest rates, and possibly reserve requirements. And it isn’t always clear what the relationship is between the Federal Reserve and the US government.

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Here is a list of the banks that have failed so far this year. Read more…

Energy companies can often make a great investment. So it’s worth taking a moment to understand how these companies operate.

The energy business (more specifically the oil industry) can be split into two main areas: Upstream and Downstream. The Upstream business acquires “crude” oil (the raw material removed from the ground), while the Downstream business takes the crude oil and “refines” it, turning it into a finished product that end users want to purchase, and sells it to them. Read more…