Saturday, October 15, 2011

My Brilliance Shared

I have a brilliant new business idea I would like share. As Free Racine readers may know, I own a retail business. On any given day, I probably have ten or so folks enter my store for the very first time. From now on I am going to charge them $500 each just to step into my store. That's $5,000 every day from now on. I can retire in a few years.

I can almost hear you skeptics out there. Nobody is going to pay the money, you say. I won't get any new customers and I will lose business, you say.

No worries. Let's suppose you are right. I have a Plan B. I will raise prices on existing customers by 50%. Problem solved!

OK, I have a confession to make. I have stolen this brilliant idea from the Racine Water Department.

A few years back, I rehabbed a commercial building and built two apartments above my retail store. In order to become a customer of the Racine Water Department I had to pay about $2,500 per unit for the water hook-up. Full disclosure: I had the total fee reduced to $2,500 because of previous water use in my building - should have been reduced to $0 but wasn't. Anyway, Racine didn't actually hook up anything - my plumber did at my expense. The $2,500 was a penalty for being an entrepreneur in Racine. But I had it easy. I later learned that new businesses that used significant quantities of water were subject to a prohibitive introductory water use penalty. Perhaps you heard of the laundromat that didn't open because of the fees or the car wash that didn't open because of the fees. How many businesses didn't open because of the Water Department business model? How many jobs have been lost? Who knows? Who cares?

Have you looked at your water bill lately. It is going up. Why? Well, recently I heard Mayor Dickert on the radio mention that we have not been using enough water to keep the water rate steady. So they need to raise the rate.

Only in government can you get away with such a ridiculous business model.


GearHead said...

Silly you. The $2500 wasn't a penalty. It was an "opportunity processing charge" - or as Obama would say: "spreading the wealth around." The price paid to be dealt into your own right to earn by the sweat of your brow by our friends at the city.

But the water model is far from unique. Look around. As automobiles become more gas efficient (partly because of federal mpg and alternative energy mandates) logic dictates gasoline consumption will decrease. Which means all taxes at the pump will decrease. Which means government will raise tax rates at the pump because everyone knows government can never do with less. Along with sticking it to those socially consious electric golf cart (oops, I mean car) owners with a flat road tax fee (aka mobility fairness processing charge). And why aren't our lefty friends decrying yet another out-of-control monopoly like the water dept? Queue the crickets.

GearHead said...

Do I need to add those sqiggly lightbulbs nobody likes (but have been mandated by our fed friends) are supposed to be saving us bookoo kilowatt hours. By law the monopoly electric company has to make a profit. By law!

So as consumption goes down, rate will have to go up! (Skyrocket, as Obama says if he ever gets his way with cap and trade, which was voted down, but he is still back-dooring through the EPA and energy dept. But I digress)

GearHead said...

OK, one last example of the water business model. As RUSD continues to lose students, they will lose out on some of the taxpayer loot. But instead of realizing the savings of not having to educate so many kids they will naturally raise taxes because of the illogical need to reduce the student-teacher ratio of 13-1, or whatever ridiculous number they foisted on us. The budget will never go down, but we will continue to pay more for less.

Denis Navratil said...

Indeed, GearHead, the Racine water model is far from unique as you point out. It is the current way of doing the business of government in this country, Europe, Greece etc... and it can work ok for a while until you simply run out of other people's money and chaos ensues. As a country, we are damn near there and the days of reckoning will not be pretty. The best case scenario would be a wrenching return to smaller government favored by the Tea Party. The alternative is autocratic rule by OWS folks and a nasty, brutal, and short life for many. I see no moderate, middle of the road alternative nor will our fiscal problems just go away. Thanks GearHead for your humorous contributions to FR.

Sean Cranley said...

Another failed analogy by Denis. You run a business with purpose of making a profit.

The water utility is not a business, it's purpose is to serve the people of Racine with clean, healthy drinking water.

The money to operate and maintain the infrastructure necessary to this purpose must come from fees or taxes, both of which you no doubt find abhorent.

The water is essentially free thanks to continental glaciation over the last million years or so. Using less water doesn't shrink the infrastructure in proportion to the reduced use, therefore per unit rates go up.

It's really not that difficult to understand. That is unless you try to shove the round peg of public services into the square hole of your Cult of Con privateering orthodoxy.

Denis Navratil said...

Yes Sean, I realize there are differences between my operation and that of the water department. If they were identical there would be no point in making comparisons. Focus if your able on the similarities. Both entities have customers and costs. Like a dog licking itself, the water department charges a hook up fee because it can. When that doesn't work, it raises rates, because it can. I have no argument with your point that lower usage rates don't reduce the infrastructure costs sufficiently. But then you miss the whole point. WHY is there less usage? Because, as I explained and illustrated, the WD charged really high hook up fees that discouraged new customers. You are right about one thing though. It really is not that difficult to understand.

GearHead said...

Choking because I'm laughing so much. Hoisted on your own petard, Fiddy. So many misconceptions because you have your head stuck in the sand (with or without glaciation.)

The water utility IS a business. By definition, any entity that sells a product to a willing consumer is a business. How obtuse and ignorant of the market can you possibly be? And you are still able to walk around?

Neither Denis or I find paying taxes abhorent. We find institutionalized sloth to be utterly abhorent. Can you say TEA party? Taxed Enough Already!

In order to have glaciation, that means it was really cold here. So what if it warms up a degree? What was the perfect temperature, anyway? Back when you were philospysing life when living in your mom's basement? Isn't that whole argument of where the global temp should be pretty arogant of your types? I'm on this rant because this is the same group-think that has lectured us for decades about "saving water," and now you are saying it's "essentially free?" What a hippocrate!!!! So why should we be taking it in the shorts for being socially responsible? Sinking fast, Fiddy.

Sean Cranley said...

Why is there less usage Denis? Seriously?

Because we're in a deep recession capping off a couple of decades in which Racine lost huge portions of it's manufacturing base. Water usage is down because we're using less water in the process of making things.

Furthermore, your argument is predicated on blaming a public utility for discouraging ADDITIONAL use through fees. Were that the case usage would have remained flat, not declined. The decline is the result of forces FAR beyond the control of the City of Racine's Water Dept.

But you hate gubmint so that's where you lay the blame. Like I said, your apples to oranges analogy is a failure.

Sean Cranley said...

Poor GH.

The Water Department is not a for-profit business. It is a public utility and a natural monopoly that provides water at some cost to customers within service area. It's not a free market, fool!

It exists so that we can have this thing called a "city". Perhaps you've heard of them, they're ofter associated with a condition known as civilization.

"Taxes are the price we pay for civilization." - Oliver Wendell Holmes Jr.

"Teabaggers are the price we pay for aggregated ignorance, indifference and ill will" - Sean Cranley

"So what if it warms up a degree?" There is a ton of science on that available to any non-intellectually hostile person. And since we are now influencing that change (unlike diring the pleistocene) it behooves us to pay attention and try to face it responsibly.

Just because something is free, doesn't mean that it's infinite and that you should waste it. Furthermore, the energy, materials and labor to collect the water, treat it, distribute it and clean it up again before discharging it are NOT free.

It's also true that Racine is in a fairly unique position, since it does not rely on groundwater and if it returns the water to Lake Michigan it has essentially an endless supply. Try that out west in Tucson, AZ or Burlington, WI!

Well that was easy. That choking I hear now is from your "arguments" being deftly shoved back down your proverbial throat.

GearHead said...

"Excess taxes guarantee government sloth" - GearHead

As always, we don't have a revenue issue, it remains a spending issue. We are taxed planty.

Denis Navratil said...

Sean, I did not mean to suggest that the fee was the sole reason for the usage decline. There may well be other factors. Also, the factors I mentioned may have only a minor impact on overall usage. However, you are missing the point. The point can still be made that discouraging new users via exorbitant fees creates upward price pressure on existing users.And that it is not a good business model. And that only government with its monopoly power can get away with it. Not that hard to grasp really.

Anonymous said...

It's simple economics. Large supply, diminishing demand, prices necessarily skyrocket

Sean Cranley said...

Hey GH, in your quest for simplicity you conveniently left out the costs for infrastructure, labor and other necessary equipment and supplies, which constitute the bulk of the cost for running the water utility. Those don't go down.

Therefore, in order to pay the costs for those services and equipment in downturn with decreased demand for the water itself you can either raise the rates for water on all consumers or charge new consumers a fee, bacuase they haven't been paying the rates for water all along like everyone else. It's THAT simple.

Or I suppose as the utlimate tip of the hat to your free market god you could let the water utility fail. Imagine how well would work out for City of Racine, its citizens and businesses. Sheesh!

GearHead said...

Hey Sean, "in your quest for simplicity you conveniently left out" the third option of your "THAT simple" false two-option scenerio. It isn't just about raising rates or assessing start-up fees. How about cutting expenses?

Who hasn't seen a manhole party where one water guy is in the hole doing the actual work, and seven others are looking into the hole, sitting in their running vehicles wasting diesel, and whistling at the pretty girl walking by?

When the incremental cost of pumping or not pumping an additional gallon is practically nil, OF COURSE you have to look at "the costs for infrastructure, labor and other necessary equipment and supplies." Business does it every day, because we are accountable to ownership expecting a return on investment. Government monopolies NEVER face such scrutiny, and are chronically bloated.

Sean Cranley said...

G-head said: "Government monopolies NEVER face such scrutiny, and are chronically bloated." Another Cult of Con confession of pure faith.

Do have any specifics where cuts should be made? No, you just believe, that's all. A triumph of the subjective!

Checked your bills lately? businesses also often raise their prices to cover their costs.

Ever been on a work crew? If there is a man down a manhole that REQUIRES at least one other person to stand watch for safety reasons. They also serve who stand and wait. You of course presume he's just wasting time because you're predisposed to such "thinking".

I've often been on job sites (all private sector by the way) where to get the work done a number of workers, an equipment operator, a truck driver perhaps, maybe a technician/engineer, some laborers, it depends on the job.

Unfortunately the reality is (if I may be so bold as to invoke such a discomforting concept) that there is not always something for everyone to do all the time. What are they supposed to do, waste more time and gas by leaving and hidding so that jerks like you don't see them their waiting for their turn to perform their task?

Amazing, just amazing.