Do you ever wonder why the Republicans keep screaming to LOWER TAXES? The obvious impression is that the Republicans want the really rich people……(OOPS…not the Obama $250,000 poor rich people, but the $25 Million dollar to Billions rich people) ……to hoard all of the money. Ok, if your cool with that then go slink off somewhere and bathe in your narrow minded ignorance, because that’s exactly what it is if you don’t READ, CONSIDER and then make your DECISION. As a former young Palm Beach stockbroker in the late 1960’s I quickly observed that BIG MONEY SEEKS SAFE HAVEN. In other words, big money liquidity (that’s cash, green, folding stuff, bank deposit money and not illiquid assets) seldom was invested in the stock market, but went into TAX FREE MUNICIPAL BONDS. That’s right, the really rich people usually buy municipal bonds because they are better off with a tax free income yield and the higher our government raises the tax rates, the more money flows into tax free investments and even out of this country. It’s all about RATE OF RETURN ON INVESTMENT, so the lower the rate of return drops and the higher the tax rate, the less the rich are inclined to invest in the good old U.S.A.. If you haven’t figured it out yet, business expansion requires more building, equipment, inventory and JOBS, JOBS and more JOBS.

Now stay with me on this because i’m going to give you another great example of this HUGE MISCONCEPTION and one you might relate too. Most everybody has had some experience with Ebay or at least knows what ebay is. Well, when times were more robust in the late 1990’s Ebay had a commission rate fees which were much more seller friendly. The reserve rate was not pegged to the value of an item a seller wanted to protect (reserve protection price) and it was fixed at a few dollars per reserve listing. High quality expensive goods and very important RICH people, companies and gallerys filled Ebay with America’s finest Art and Antiques. Then a few years later, some Ebay management research geeks who obviously didn’t understand sales and sellers decided that Ebay wasn’t getting their share (sounds like the higher tax group?) and Ebay decision makers bought into this fallacy and changed their reserve rate from a low fixed dollar fee of a few dollars per listing to a max or 10% of $100 whichever was less per reserve auction. Within a few months that followed, the quality goods people and RICH people, companies and gallerys all but disappeared on Ebay. In the final analysis, Ebay became flooded with cheap junk and reproductions which overwhelmed and replaced the world’s best and most valued authentic art and antiques. The buying public really doesn’t go to Ebay to purchase junk and reproductions, they are attracted by the good stuff and while on the Ebay site might buy a few junk items.

What Ebay decision makers did not (and still do not) realize is that the higher priced an item is, the longer time it usually takes to sell at a market price (not below market). In the old days a $10,000 work of art would cost $3.00 per reserve listing and if listed for five weeks would cost $15.00 plus other fees. With Ebays reserve fee change that same $3.00 reserve listing would cost $100.00 per listing or $500.00 for five weeks. To most people outside of Ebay (and Ebay’s decision makers) it doesn’t sound so bad since it’s only 5% of the selling price, right –WRONG! If the painting sells on Ebay you still have the Final Value Fee which amounts to about $200 and miscellaneous listing fees, so let’s say that the total real fee cost is $750 more or less which still nets $9250.00 OK, that’s not a big deal either so Ebay management thinks, but they are dead wrong because they are not considering the sellers costs of the 10 to 200 fee paid listings other expensive paintings that DID NOT SELL and that is the heart of the problem. In reality, more ebay auctions and offerings do NOT sell then sell and the ill-conceived reserve fee structure (Please Do the Math) drove quality sellers away from Ebay in droves, never to return. Buyer’s with deep pockets are attracted by big name merchandise at a possible bargain price and when the high end merchandise disappears, so do those buyers.

Most people think that Ebay’s auction business is off because of fraud and the subprime depressed economy (these did not help) but the unrealistic commission structure is by far the main reason Ebay has lost it’s glitter. Too much junk is the reason for Ebays demise and even worse in a bad illiquid economy when real buyers only want to buy the big name merchandise. Oh, later on Ebay’s bad decision makers compromised and lowered the max reserve fee from a 10%/$100 max to 5%/$50 max which was a little too late because the damage was done and the reduction in the reserve costs are still proving disasterous and hideously expensive to the few remaining loyal Ebay sellers.

If you stand back and look at the a comparative situation between Ebay’s Reserve Fee Obsession and the Republican Tax Cut obsession compared with the Democrat Tax The Rich ($250,000 or more) obsession, one gets an enlightened picture of reality. If you still don’t get it, let me make it easier to understand. Cause and effect is seldom 1+1 = 2 because many times cause and effect is really something like 1-1+1+1=2. The abstract nature of “cause and effect” is what makes things difficult and what seems to be simple lazy logic can cause many people to fall into a dangerous trap leading to gargantuan mistakes and total economic failure. Cause and effect has no room for false pride and prejudice, since the result is truth and not fiction.

By Rick

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