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The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor.
The consumers are merciless. They never buy in order to benefit a less efficient producer and to protect him against the consequences of his failure to manage better. They want to be served as well as possible. And the working of the capitalist system forces the entrepreneur to obey the orders issued by the consumers.
The consumers are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old purveyors. With them nothing counts more than their own satisfaction. They bother neither about the vested interests of capitalists nor about the fate of the workers who lose their jobs if as consumers they no longer buy what they used to buy.
Here’s how I explained the role of ruthless consumers and the concept of “consumer greed” in a 2002 article for the Mackinac Center:
Here’s a dirty little secret about capitalism: consumers, not corporations, run the show. If you find something about the marketplace objectionable, it would be more appropriate to blame those who actually call the shots: the ruthless, cutthroat, and disloyal American consumers.Consumers are the kings and queens of the market economy, and ultimately they reign supreme over corporations and their employees. When corporations make mistakes and introduce products that consumers don’t want, which happens frequently, you can count on consumers voicing their opinions forcefully and immediately by their lack of spending.In a market economy, it is consumers, not businesses, who ultimately make all of the decisions. When they vote in the marketplace with their dollars, consumers decide which products, businesses, and industries survive—and which ones fail. It is therefore consumers who indirectly but ultimately make the hiring and firing decisions, not corporations. After all, corporations can make no money, hire no people, and pay no taxes unless somebody, sooner or later, buys their products.What consumer sovereignty in a free marketplace translates into is each person husbanding his resources for the greatest benefit to himself and his family, which in turn translates into the greatest efficiency in the consumption of the world’s scarce resources. If you don’t like the message of the marketplace, don’t assume that corporations and greed are to blame while consumer behavior and consumer greed play no role in the outcome. We should be thankful, in fact, that the marketplace puts consumers on such a powerful pedestal.
Bottom Line: Consumers ultimately run the market economy, and for that we should be thankful. Because what’s the alternative? The alternative is allow producers to run the economy, inevitably with the assistance of their government enablers who help erect barriers to entry and restrict competition for producers in the form of occupational licensing, protectionist trade barriers, artificial limits on the number of firms allowed to operate (e.g. taxi cartels), etc. In other words, the alternative to consumers running a capitalist market economy, is to have producers running an economy based on the corrupt, anti-consumer principles of “crony capitalism.”
Texas, the ‘great American job machine,’ is largely responsible for the +1.2M net US job increase since 2007
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The Texas Workforce Commission released state employment data today for the month of December, and job growth in the Lone Star State continues to lead, and in fact carry the nation’s improving labor market as the chart above shows. Here are some highlights of the December employment report for Texas:
1. Texas ended the year with the state’s largest ever year-over-year payroll gain with the eye-popping addition of 457,900 new jobs between December 2013 and December 2014. That’s more than 1,700 new payroll jobs that were added every business day last year in the Lone Star State, and 220 new jobs every business hour or almost 4 new jobs added every minute!
2. In just the last month of December, which marked the 51st consecutive month of employment growth, Texas added 45,700 new payroll jobs, which was more than 2,000 jobs every business day, almost 260 jobs every hour, and more than 4 new jobs every minute! The strong job growth in December brought the state’s jobless rate down to 4.6%, the lowest Texas unemployment rate since May 2008.
3. Total December employment in the Lone Star State reached a new record high of 12.45 million workers (11.783 million nonfarm payroll jobs and another 667,000 self-employed and farm workers), which was above the December 2007 level by 1,444,290 jobs (and by 13.1%), see chart above. In contrast, total employment at the end of the year in the rest of the country (US minus Texas) still remained 275,290 jobs below the pre-recession, December 2007 level (see chart above).
It’s a pretty impressive story of how job creation in just one state – Texas – has made such a significant contribution to the 1.169 million net increase in total US employment (+1,444,290 Texas jobs minus the 275,290 non-Texas job loss) in the seven year period between the start of the Great Recession in December 2007 and December 2014. The other 49 states and the District of Columbia together employ about 275,000 fewer Americans than at the start of the recession seven years ago, while the Lone Star State has added more than 1.25 million payroll jobs and more than 190,000 non-payroll jobs (primarily self-employed and farm workers).
And while the oil and gas boom has certainly contributed to making Texas the nation’s No. 1 job creating state by far, the job gains in the Lone Star State have been pretty broadly based across many different sectors and industries. In percentage terms, the 11.5% payroll job gain in the “mining and logging” sector led the state’s 11 industries for job growth last year as that sector added 4,900 new jobs in 2014. An even greater absolute number of new jobs – 47,500 – were added in the state’s booming construction industry, which grew by 7.7% last year. As one example that highlights the construction boom in Texas, there were more permits for single-family homes issued last year through November in just one Texas city – Houston (34,566) – than in the entire state of California (34,035) over the same period. Other sectors with job growth last year above the state’s average payroll increase of 4% include financial activities (+5.1% and +34,800 new jobs) and professional and business services (+5.8% and +85,800 new jobs).
Bottom Line: Texas clearly deserves the title of America’s “economic miracle state.” It’s the most important energy-producing state in the US, and now produces so much crude oil that the state’s daily production of more than 3 million barrels represents more than 37% of the nation’s crude oil and would rank the Lone Star State as the world’s sixth largest oil producer as a separate country. Along with the gusher of shale oil and gas in Texas has come a gusher of more than 1.44 million new jobs since the start of the Great Recession, while the rest of the US hasn’t even yet recovered all of the non-Texas jobs lost during the recession, and employs 275,000 fewer people than in December 2007. Without the strong support of the Texas job machine and without the economic stimulus of the perfectly-timed shale revolution, the Great Recession would have been much longer and more severe, and the current US economic recovery and job market would be much weaker than it is today. Simply put, “Saudi Texas” is the shining star of The Great American Shale Boom, and the American state at the forefront of the US economic recovery.
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When government agencies or heavily regulated industries are insulated from market competition, the incentives to offer better service and lower prices, along with the incentives to innovate, upgrade and improve are either significantly weakened or non-existent. But when faced unexpectedly with some market competition, it’s amazing how the normally sclerotic, anti-consumer and unresponsive government agencies or protected industries can suddenly become responsive and consumer-friendly. Here are two examples:
1. The Kelston Toll Road in the UK. I reported last August on CD that an entrepreneurial UK grandfather built a 400-yard private toll in just ten days that allowed drivers to bypass a 14-mile construction detour. A landslide last February closed a road between the towns of Bristol and Bath and construction was originally scheduled to take until last Christmas to complete. The private owner was therefore expecting toll revenue through December to cover his $500,000 in construction and repair costs, along with the cost of staffing a toll both 24 hours each day, and hopefully generate some profit for his entrepreneurial efforts.
But the local government, possibly unhappy with the competition from the private toll road, suddenly made an emergency decision to spend an extra $1 million to speed up the road construction project, which was completed six weeks ahead of schedule in mid-November. Now the toll road entrepreneur and his wife are upset and have accused the local government of trying to bankrupt him with the early opening of the road five weeks ahead of schedule. And perhaps the road construction would have been completed early even without the private toll road, but it seems pretty likely that the presence of competition from the private toll road may have imposed some additional incentives that changed the normal “we don’t care, we don’t have to” attitude of the local civil servants (who often are neither very “civil nor “servile”).
2. Big Taxi vs. Uber. After being protected from competition for generations by government regulations that restrict the number of traditional taxis in most major cities like New York, Chicago and LA, the “taxi cartel” has recently come under competitive pressure from new ride-sharing services like Uber and Lyft that offer consumers a transportation alternative to taxis at lower prices and with better, faster service. Suddenly, the traditional, sleepy taxi industry is being forced to act and think more competitively in response to the upstart ride-sharing services, which is behavior that is completely alien to an industry that never faced the discipline of market competition before. For example, the LA Times is reporting that:
All taxicab drivers in Los Angeles will be required to use mobile apps similar to Uber and Lyft by this summer, according to a measure passed by the Los Angeles Taxicab Commission this week.
The order, passed on a 5-0 vote, requires every driver and cab to sign onto a city-certified “e-hail” app by Aug. 20 or face a $200-a-day fine. The move is seen as a way to make taxicab companies more competitive with rideshare apps such as Uber and Lyft.
Los Angeles cab companies reported a 21% drop in taxi trips in the first half of 2014 compared with the same period the previous year, the steepest drop on record. Cab companies largely attribute the drop to the popularity of app-based ride services.
William Rouse, general manager of Yellow Cab of Los Angeles, says his company has utilized a mobile app for several years. The app, Curb, allows riders to hail and track a cab, provide payment and rate drivers. “If our industry is ever going to get a chance to move passengers from Uber back to taxis, each one of these companies should have an app,” Rouse told The Times. “It’s a shame that the city had to mandate it in order for this to happen.”
Last summer, ABC News reported that:
Meet the new secret weapon to get a leg up in the cutthroat competition among cabbies — charm school. Taxi drivers in Washington state are getting lessons that they hope will give them an edge against startups such as Lyft and Uber. About 170 taxicab operators paid $60 out of their pockets for a four-hour training session to learn about topics including customer satisfaction and developing relationships with institutional clients.
Pretty amazing how the taxi cartel is suddenly starting to change the way it operates now that its drivers are facing intense market competition/discipline from Uber and Lyft.
Bottom Line: Perry’s Law says that “competition breeds competence.” These two cases above help to illustrate that principle, and provide examples of how direct, ruthless, even cutthroat competition is often the most effective form of regulation, and provides the intense discipline that forces firms to maximize their responsiveness to consumers. To maximize the competence of producers and suppliers, we have to maximize competition, and to maximize competition we usually need to reduce the government barriers to market competition like occupational licensing and artificially restricting the number of taxis that are allowed to operate in a city. In other words, we need to move away from the ubiquitous crony capitalism that protects well-organized, well-funded, concentrated groups of producers like the taxi cartel, barbers, funeral home operators, and sugar farmers from market competition. Government regulation typically reduces competition, which then reduces the competence of producers, and reduces their willingness to serve consumers and the public interest, which make us worse off. I say the more market competition the better, for consumers and for the human race. As Bastiat pointed out in 1850:
Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.
As a separate country, the top 500 US manufacturing firms would have been the world’s third largest economy last year
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|10 Largest US Manufacturing Companies, 2014||Revenue (Millions)||Industry|
|1||Exxon Mobil Corp.||$424,328||Petroleum, Coal Products|
|2||Chevron Corp.||$221,321||Petroleum, Coal Products|
|3||Phillips 66||$171,736||Petroleum, Coal Products|
|4||Apple Inc.||$170,910||Computers, Electronic Products|
|5||General Motors Co.||$155,427||Motor Vehicles|
|6||Ford Motor Co.||$146,917||Motor Vehicles|
|7||General Electric Co.||$146,045||Electrical Equipment, Appliances|
|8||Valero Energy Corp.||$138,074||Petroleum, Coal Products|
|9||Hewlett-Packard Co.||$112,298||Computers, Electronic Products|
|10||Marathon Petroleum Corp.||$100,218||Petroleum, Coal Products|
|10 Largest US Manufacturing Industries, 2014||Revenue (Millions)||Examples|
|1||Petroleum & Coal Products||$1,617,688||Exxon, Chevron, Conoco|
|2||Computers & Other Electronic Products||$788,267||HP, IBM, Apple|
|3||Chemicals||$455,087||P&G, Dow, DuPont|
|4||Food||$377,850||General Mills, Kellogg, Hershey|
|5||Motor Vehicles||$350,695||Ford, GM, Harley|
|6||Pharmaceuticals||$311,292||J&J, Pfizer, Merck|
|7||Machinery||$284,866||Caterpillar, Deere, Xerox|
|8||Aerospace & Defense||$275,893||Boeing, Lockheed Martin|
|9||Electrical Equipment & Appliances||$239,477||GE, Emerson, Whirlpool|
|10||Motor Vehicle Parts||$141,430||Johnson Controls, Cummins, Lear|
IndustryWeek recently released its annual ranking of the 500 largest publicly held US manufacturing companies in 2014 based on sales revenue, and displayed above are: a) the top ten US manufacturing companies (top table) and b) the top ten US manufacturing industries (out of 28 total industries reported by IndustryWeek based on NAICS manufacturing classification categories here), with both groups ranked by 2014 sales. To put the size of US manufacturers’ sales revenue into perspective, here are some comparisons below to international GDP values in 2014 that help give context to the enormity of the US manufacturing sector.
(Note: Even though dollars of corporate sales revenues are not directly comparable to dollars of economic output as calculated to compute a country’s GDP, these comparisons are being used illustratively to put the trillions of dollars of US manufacturing sales into some perspective.)
- The combined sales revenue (including global sales) of the top 500 US-based manufacturing firms in 2014 was $6.07 trillion, almost identical to manufacturing sales revenue in the previous two years ($6.01 trillion in 2012 and $6.07 trillion in 2013). To put those sales amounts in perspective, if the 500 largest US manufacturers were considered as a separate country, their revenue last year of $6.07 trillion would have ranked as the world’s third’s largest economy behind No. 1 US ($17.5 trillion) and No. 2 China ($10 trillion), and even more than $1 trillion ahead of No. 4 Japan’s entire GDP of $4.8 trillion in 2014 (GDP figures are based on International Monetary Fund estimates).
- The top ten largest US manufacturing companies (Exxon, Chevron, Phillips 66, Apple, GM, Ford, GE, Valero Energy, Hewlett-Packard and Marathon Petroleum) had combined revenues of $1.78 trillion last year (see top table above), slightly more than Canada’s GDP in 2014 of $1.76 trillion and not too far below India’s entire GDP last year ($1.99 trillion).
- The sales revenue from the top ten US manufacturing industries totaled $4.84 trillion in 2014 (see bottom chart above), which was equivalent to Japan’s entire GDP of $4.8 trillion last year, and about $1 trillion more than Germany’s entire estimated GDP of $3.875 trillion in 2014.
- Annual sales of $1.62 billion in 2014 for America’s single largest manufacturing industry – petroleum and coal products – was almost as much as Canada’s entire GDP of $1.76 trillion in 2014.
- Annual sales of $788 billion for America’s second largest manufacturing industry – computers and other electronic products was more than the entire GDP last year of Saudi Arabia ($772 billion) and Turkey ($767 billion). Just one of those American computer manufacturers – Apple – has a current market value of $642 billion, placing it between the value of the entire Saudi stock exchange ($483 billion) and all stocks on the Singapore stock exchange ($759 billion).
Bottom Line: The comparisons above helps bring some perspective to the enormous size of the US manufacturing sector and helps to demonstrate that American manufacturers are not withering and disappearing, but thriving and prospering. In 2013, US manufacturing companies as a group had their best year ever in terms of after-tax profits, with more than $600 billion in earnings according to the Department of Commerce. Based on data through the third quarter of 2014, manufacturing profits will likely increase slightly to a new record high of about $610 billion for the entire year when data for the fourth quarter 2014 are released in March. Despite the frequent rumors of its demise and decline, the American manufacturing sector is alive and well, as the $6 trillion in sales last year for the top 500 firms and the estimated $600 billion in total profits for the entire industry in 2014 clearly demonstrate.
It’s something of a miracle that gas is only $2 per gallon and cheaper than any other liquid consumers buy
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John Stossel wrote this at the end of May 2013 when the price of gas in the US was about $3.65 per gallon:
Annoyed by the price of gas? Complaining that oil companies rip you off? I say, shut up. Even if gas costs $4 per gallon, we should thank Big Oil. Think what they have to do to bring us gas.
Oil must be sucked out of the ground, sometimes from war zones or deep beneath oceans. The drills now bend and dig sideways through as much as 7 miles of earth. What they discover must be pumped through billion-dollar pipelines and often put in monstrously expensive tankers to ship across the ocean.
Then it’s refined into several types of gasoline, transported in trucks that cost hundreds of thousands of dollars. Finally, your local gas station must spend a fortune on safety devices to make sure we don’t blow ourselves up while filling the tank. And it still costs less per ounce than the bottled water sold at gas stations.
Now that gas is approaching $2 per gallon (national average is currently $2.05 and below $2 in more than half the states), let’s consider a long list of liquids besides the bottled water sold in gas stations that are more expensive than gasoline, and in some cases, a lot more expensive. The table above displays the prices of 38 beverages and other common liquid household and food products, based mostly on the retail prices I observed at a large grocery store I visited yesterday.
At the top of the list is the cost of the liquid ink in a typical Hewlett Packard printer cartridge. At a cost of $18 for about 15 milliliters of ink in a cartridge, that works out to more than $4,500 per gallon for the ink you use in your deskjet or inkjet printer. Some of the other more pricey liquids on the list are Nyquil, which costs more than $100 per gallon based on a cost of 84 cents per ounce, and premium vodka at a price of more than $75 per gallon when you’re paying $30 for 1500 ML. Household cleaning liquids and detergents are pretty expensive per gallon — you’re likely paying more than $20 per gallon for Windex window cleaner, more than $18 per gallon for Tide laundry detergent and almost $18 per gallon for Dawn dish detergent. Your mouthwash, shampoo and hair gel will set you back anywhere between $15 and $45 per gallon. Orange juice is almost $12 per gallon and milk is almost twice as expensive as gas today at $4 per gallon. Sure, you can find some bottled water cheaper than $2 per gallon, but then consider that the price of gas includes an average of almost 50 cents per gallon in federal and state taxes, and I’ll bet that you’ll find almost no other liquid that you buy is cheaper than gas at today’s price of $2.05 per gallon (and about $1.55 before taxes).
As Stossel commented almost two years ago when gas was almost double today’s price, we should really be thanking Big Oil for the miracle of today’s $2 gas. On a per gallon basis, gasoline is one of the cheapest liquids consumers buy – only some bottled water is cheaper as the list above illustrates. And think about how easy and cheap it is to capture and bottle water compared to the very complicated and expensive process requiring billions of dollars of capital equipment and infrastructure that is required to extract crude oil from miles below the ground or from deep below the world’s oceans. And that’s just the beginning. The crude oil then has to be transported globally to the refineries that also require billions of dollars of capital investment and infrastructure to convert and refine crude oil into the gasoline that goes into your car’s gas tank. Likewise, producing all those other liquids like milk, orange juice and mouthwash is relatively easy, simple and cheap compared to producing gasoline.
We should also thank America’s risk-taking petropreneurs who spent billions of dollars and many decades trying to “crack the code” that eventually unlocked oceans of unconventional oil trapped in shale rock formations miles below the ground that had previously been inaccessible. Thanks at least in part to the revolutionary drilling technologies of hydraulic fracturing and horizontal drilling, we now have the cheapest gas in history when adjusted for increased fuel economy and higher wages.
Bottom Line: When gasoline is the cheapest liquid you buy (except maybe for some bottled water), as the list above illustrates, you know that gasoline is a real bargain at $2, just as it would be at $4! It’s something of a miracle and an amazing blessing that gasoline is so cheap, and something we should all stop and appreciate the next time we stop at the pump and fill up our cars with one of the cheapest consumer liquids on the planet, perhaps while drinking some $28 per gallon Red Bull!
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With all the talk about “disparities” in innumerable contexts, there is one very important disparity that gets remarkably little attention — disparities in the ability to create wealth. People who are preoccupied, or even obsessed, with disparities in income are seldom interested much, or at all, in the disparities in the ability to create wealth, which are often the reasons for the disparities in income.In a market economy, people pay us for benefiting them in some way — whether we are sweeping their floors, selling them diamonds or anything in between. Disparities in our ability to create benefits for which others will pay us are huge, and the skills required can develop early — or sometimes not at all.Gross inequalities in skills and achievements have been the rule, not the exception, on every inhabited continent and for centuries on end. Yet our laws and government policies act as if any significant statistical difference between racial or ethnic groups in employment or income can only be a result of their being treated differently by others.Nor is this simply an opinion. Businesses have been sued by the government when the representation of different groups among their employees differs substantially from their proportions in the population at large. But, no matter how the human race is broken down into its components — whether by race, sex, geographic region or whatever — glaring disparities in achievements have been the rule, not the exception.
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I’ve argued many times before on CD that when it comes to regulation of markets, businesses or industries, it’s never a choice between: a) government regulation and b) no regulation. Rather, it’s a choice between: a) government regulation and b) regulation by arguably the most ruthless, meticulous, and conscientious group of regulators imaginable: consumers. These ruthless consumer-regulators waste no time trashing products they don’t like on websites like Amazon (see example here), trashing restaurants they don’t like on Yelp (see example here), giving bad sellers negative reviews on eBay, giving bad movies negative reviews on Rotten Tomatoes (see example here), giving contractors negative reviews on Angie’s List, giving bad Uber drivers negative reviews,
giving bad taxi drivers negative reviews (that would never work), etc.
The one million companies that typically file for bankruptcy every year have also felt the wrath and strict disciplinary actions of the swarm of millions of pesky, ruthless consumer-regulators who have no tolerance for bad service, poor quality products, and high prices, and never hesitate to express their dissatisfaction when they regulate every day of the year with their regulatory certificates of approval, knows as dollar bills. When enough consumer-regulators withhold their regulatory certificates of approval from a restaurant, store or business, bankruptcy is often the inevitable collective decision of the nation’s most callous, cruel, ruthless and cold-blooded consumer-regulators.
On the other hand, the ruthless consumer-regulators also waste no time praising, endorsing and recommending the products, restaurants, movies, services, sellers, contractors and businesses they like, both by supporting them with plenty of their regulatory certificates of approval (dollars), and by giving them positive, sometimes even glowing reviews on Amazon, Yelp, Rotten Tomatoes, eBay, Angie’s List, Uber, etc.
The distinction above between regulation by government/politicians/bureaucrats versus regulation by consumer-regulators was explained exceptionally well by economist (and old friend) Howard Baejter in his excellent article that appeared in FEE this week titled “There’s No Such Thing as an Unregulated Market: It’s a choice between regulation by legislators or by consumers,” here’s a key excerpt:
We never face a choice between regulation and no regulation. We face a choice between kinds of regulation: regulation by legislatures and bureaucracies, or regulation by market forces — regulation by restriction of choice, or regulation by the exercise of choice. There is no such thing as an unregulated free market. If a market is free, it is closely regulated by the free choices of market participants. The actions of each constrain and influence the actions of others in ways that make actions regular — more or less predictable, falling within understandable bounds.
Government regulation is not the only kind of regulation; market forces also regulate. Recognizing this, communicating it to others, and getting the awareness into public discourse are key steps toward greater economic liberty. The benefit of this semantic change — opening up the meaning of “regulation” to include regulation by market forces — is to raise the question, which works better? Regulation by market forces works better, but that’s another argument. The first step is to recognize that market forces regulate, too.
So we have a paradox: the less a market is regulated — no, that’s not the right word; the less a market is restricted — by government, the more it is regulated by market forces. Conversely, the more government restriction, the less regulation by market forces. There is a direct trade-off between the two.
Bottom Line: The choice isn’t between government regulation and a completely unregulated economy; the real choice is who gets to serve as the primary group of regulators: a) government bureaucrats and legislators who are often captured by regulated industries like taxi cartels, or b) the consumer-regulators. And there’s no question that captured government regulators almost always put the special interests of the well-organized, concentrated groups of regulated producers like the taxi cartel over the public interest of the dis-organized, dispersed thousands/millions of consumer-regulators. As Howie points out, government regulation often “crowds out” regulation by market forces and consumer-regulators, and markets therefore operate less efficiently because the interests of the producers take priority over the interests of consumers. I’d say in conclusion that if the goal is to protect consumers, we need a lot more regulation by impersonal market forces and consumer-regulators and a lot less regulation by the government/politicians/bureaucrats.
Related: See John Stossel’s recent article “Trust,” where he ends with this observation:
Today I don’t go to a movie without checking movie ratings at RottenTomatoes.com. People go online to check the reputations of potential girlfriends and boyfriends, songs, professors, doctors and — almost anything. I trust these ratings much more than any certificate of approval from the Department of Business Regulation.