Something a Little Different

Not that I do not wish to write today on economics, that really jazzes me up, but today is Memorial Day, and without the ongoing work and sacrifice of our Soldiers, Navy, Air Force, Marines, Coast Guard, Merchant Marines, and all the National Guards and Reserves, we would not be free to pursue economic freedom.

So a slight pause to say thank you.  And I wish to remember several people close to me today.  My Grandfather Leo Stratmann, served in the Army in WWI, our family was not long in this country at that point, and he had distant relatives on the other side of the lines.  Thanks also to Leonard Wester, a Marine in WWII.  I'm not sure about you, I have never met a Marine that I didn't like.  After the war Leonard built a good life for he and his wife, they had no children so let me say thanks!  Both Leo and Leonard are buried in Jefferson Barracks National Cemetery in St. Louis.  My nephew, Jason Harl is currently serving in the Army, he and his family have made a commitment, thanks Jason!

It isn't totally about the military, at least for me, today.  My other Grandfather, Anthony Heller, was too old to serve in WWII and too young for WWI.  He spent his life in shoes.  From the age of 8 he went to work in the shoe factories in St. Louis to help support his family after his Dad died.  By WWII he was a Union Organizer and worked with the employers to make sure our soldiers had boots.  In the 1950's he helped to set up factories in Puerto Rico.  One story he told me was that in the 1950's a colleague at the Union offered him a Communist Party membership card, he refused in a very impolite manner.  You see even Union members are Patriots.  He is why I developed an interest in Economics.  I studied Labor Economics at the University of Missouri, because of my pride in him.  His son, my Father, Robert, was drafted during the Korean Conflict.  He reported as expected.  He was ready to serve,  he did not pass the physical and was released.  He, also, was a Patriot in the Democratic Party sense of the 50's and 60's.  They both followed the American Dream, protected by those serving our great country.  It is my family that gives me the optimism to expect that "freedom will not perish from the earth". 

The one thing in our culture that means the most is our undying belief in freedom and liberty.  As long as we believe something can be done, it will.  Adolf Hitler found out in WWII, as did the Emporer of Japan, and the rest of the Axis powers.  The Kaisser in WWI, and Osama Bin Laden more recently.  We believe in normality of our lives.  I remember watching the World Trade Center on fire and collapsing on the TV.  At some point after the second tower fell , my reaction was to not let the bastards win, and I went to work with a heavy heart, but also a mission to not let these terrorists kill our American Dream.

So shop today, swim, camp, bike, hike, or bar-b-que.  Enjoy life purchased with the Patriots Blood.  And tonight as you drift off to sleep think about how lucky we all are, if religious say a little prayer.  Make a comment here to remember your heros, and perhaps a brief story as to why they are heros.  And make that vow to keep pursueing the American Dream, through all challenges whether economic or war.  Say to the world:  I am an American, get used to it!

Thank You!

Why Government Should Stick to Governing

As I often do, I was reading news articles online.  Today I saw a headline that intrigued me, and so I read it.  If you would like to see the original article, it is here http://finance.yahoo.com/news/usda-is-a-tough-collector-when-mortgages-go-bad.html.  As I was reading it I noticed it started talking about how the USDA backed rural mortgages do not have the same rules as more conventional private sector lenders.  It was a pretty sad story.  A gentleman's wife is losing a health battle, he is past normal retirement age, had worked as a truck driver, quite the American persona.  Bet he even worked overtime to afford nice things like his house.  But when he couldn't make the payments, Uncle Sam swoops in and takes his tax refund, and garnishes his social security check.  Now he takes odd jobs to make ends meet, quite the golden years huh.  If Citi Bank did that all heck would break loose.  Occupy Wall Street would set up a camp outside the CEO's house.  So here is the question:  Why aren't the OWS peeps outside the government's CEO's house at 1600 Pennsylvania Ave?

The Constitution gives certain governing powers to the people we elect.  I highly doubt that our founders would have in their wildest dreams thought government would be in the mortgage business.  And they are not properly trained to be bankers.  Seems they only know how to withdraw, and not deposit.

Local banks built this country.  They were on the scene to know the borrower.  They would work with them if times got bad, and yes foreclose on them if all else failed, after all they are a business.  But years ago, maybe decades, local banks started to disappear from the scene.  Instead we have Citi, Bank of America, US Bank, and a few more who have vast chains of retail banking locations, but are headquartered far from most of their branches.  They do not have the local insight we relied on in generations past.  And now the Chinese are buying into the financial system, albeit a small investment, however, how long will it be before we have a few International Banks that control the financial system?  Perhaps that would not be all bad.  Then our government would have someone to answer to about their spending habits, or perhaps they would be forced to have a plan to pay off debt, that doesn't include borrowing more.  Maybe they could foreclose on the White House, or Capitol Building to cover debts.

Consider personally pledging to, when all things are equal, patronizing local institutions, whether they are banks, stores, or craftsmen.  Maybe then we can grow again.  Perhaps we can take back the American Dream.

What if No One Pays Taxes?



Image from Drudge Report

 A recent headline on the Drudge Report tells the story from Bloomberg that the co-founder of Face Book renounced his US citizenship in September.  Wonder why?  It seems that he was a naturalized citizen who came to the US in 1992 and received citizenship in 1998.  So why go through the trouble?  Why study and earn citizenship, only to renounce it 14 years latter?  It's all about money.  Seems that Face Book is preparing an initial public offering of stock.  It is expected to value the company at $11.8 Billion, with his share just under $4 billion.  Taxes on this amount would make your head spin, so he decided to move to Singapore, ostensibly where the tax rate is lower.  Nice if you can get away with it.  Now he will have to pay some exit taxes, but that is an estimate, from the company of its worth when he renounced his citizenship.  Much lower, I would assume, than the market will value the company.

An earlier blog talked of unintended consequences.  This is one of them.  He is just one high profile person doing what 1780 people did last year, which is up 7 fold from the 235 in 2008.  The United States has been the bastion for intellectual property and finance for most of our lives.  Whether it is our banks, movies, software, or music, we are the most productive in the world.  Unlike manufacturing which is slowly moving away from us, intellectual property and finance has stayed here and thrived.  But for how much longer?  Now the intellectual property expert who helped found Face Book is leaving.  The other day I read a story of a Mainland China Bank buying controlling interest in a US Bank, for the first time.  Am I alone in thinking this cannot be good for our economy?  That once there are no large companies or wealthy individuals left, our economy will crash?

What if the economy crashes?  We argue now politically about expanding the safety net.  It is an argument about which part, not the argument of elimination.  For a politician to suggest Social Security needs to be remodeled is doomed at the polls.  One party even courts illegal immigrants to this country, promising health care and amnesty.  If the next big thing comes from one of these, they will not have to renounce citizenship at all, just move back.  So if we live through a crash, the safety net WILL break.  And, since the economy, in crash status, would have no jobs to offer, people will die.  There is nothing any president from any party can do about it.  The last momentous crash was in the 1929.  The politicians only fixed that through a World War where many people died.  Do we want to be the next Greece or Italy?  Just under 50% of Americans pay no taxes, but they can vote.  The candidate that offers them the most will win.  Sounds like raiding the treasury to stay in power to me.  How long before that price is too high?  Is it too late to fix it?  Is this why people are preparing for the worst?  An email from Sam's Club recently listed survival rations as one of their best sellers, do We the People perceive a crash?

We are the best country on Earth.  No other country is trying to clean up their environment like ours.  Our standard of living is the envy of most in the world, as is our freedom.  I contend that we will rise up to meet this challenge as a country, we will survive.  As we did in World War II, as we did in the Cold War, and as we did after 9/11, we will endure.  I'm just not sure of the cost.

The Internet is Always Cheaper?

Or not.  At one time, when the net was very young, earlier web retailers were anxious to stay in business.  They were able to not charge sales tax, which in itself could save from 5% to 12% on the sale.  But they did have shipping, the customer did not carry it out their door, it had to be delivered.  At first they charged delivery, but as competition heated up, some went to free shipping as a promotion.  These days, if they don't offer free shipping, many will not buy. 

What about sales tax?  Yes a true online retailer only has to charge tax in the state that he has a physical presence.  A retailer based in California, only has to charge California residents sales tax.  Currently there are any number of merchants selling their wares online.  Many are traditional retailers trying to combat the trend toward Internet sales.  Since they have stores in all sorts of states, often times sales tax must be charged.  I have worked for a couple of these retailers, they do charge tax.  An interesting tidbit as well is that if you buy from an out of state retailer and are not charged sales tax you are still not off the hook.  Most states have Use Tax laws on their books.  Use tax was used to battle sales tax loss from people like the Sears catalogue as early as the early 1900's.  You are required to file a Use Tax form, and pay the equivalent of the sales tax on goods coming from out of state.  In practice it is almost impossible to enforce, so most people ignore them.  If, however, the states decided to audit and share information there could be a big surprise coming to their citizens in the form of a tax bill, possibly with penalties for not filing the Use Tax form.

On line retailers sell for less.  Not as true now as in past days.  Most companies with online stores and regular stores price everything the same.  Occasionally there may be a bargain, which is generally something they were unable to sell, and the Internet makes a great clearance bin.  What 'deals' are found tend to be because the customer is unable to feel it or see more than a small picture.  Want those $49 sheets?  Seems like a great deal, until they arrive.  In a physical store you could have felt the sheets and known if they would suit your needs, now you just want to return, if the store accepts returns.  If not, how about craigslist or ebay?  Bargains to had there huh.  Again, not really.  This is not to say they are more expensive but that the perception that everything online is a deal is frankly wrong.  Years ago, when computers were first offering CD burners, I purchased one.  The local big box store had blank Cd's for around $15 per 50 count.  When I searched online, I found a 'deal'.  The way it was worded was ambiguous at best, fraudulent may be a better adjective.  $10 was the price.  I bought, after all I saved $5 and no tax, and shipping was minimal.  I saved big!  Then it arrived.  One CD in a plastic case.  No returns, I was burned, when I reread the offering I could see where it could be interpreted as one CD.

There is another trend today.  Shopping at the local store, then leaving and going home and ordering online.   Here is where the idea of no sales tax falls, there is a location in your state, they have to charge tax.  Then there is shipping.  At the store, often times you can just put it in your trunk and go home, hard to do with a warehouse in another state.  How much more are you paying to ship?  How will the shipping company treat your product?  Did you see the videos last Christmas of the flat screen going over the fence?  Now you have a problem... So who do you call?  There is an 800 number!  Press 1 for English, press 3 for warranty, press 2 for damage, oh wait, is it damage or warranty, press the wrong one and you start again.  From the store, normally a quick call to the store and they will tell you to bring it back and exchange it.  Probably in less time than figuring out the phone tree.  And if the trend continues, why have the physical store?  Save the labor costs, which means layoffs, and not in another state, but right in your neighborhood.  Ask some of our rural friends who's towns have dried up.  How do they now fund streets and other services without the sales tax that used to come from a vibrant shopping district?  Can you say higher property taxes?

The Internet is also faceless.  You have no person to go to.  In a physical store there will be employees, possibly the same person you bought from to take care of any problems.  That will make life easier for you.  I had a customer once who spent over an hour looking at product in the store I was working.  All kinds of questions.  When we narrowed his choice I asked, "so should we order that for you?"  "No", he said, "I want to think about it some."  A few days latter he came back to the store.  I welcomed him back, yes I did recognize him.  Asked if he was ready to order.  He responded that he had gone home and ordered off our web site.  Now he had a problem.  He couldn't seem to get to talk to a live person at the 800 number and wanted to know if I could fix the problem.  Turns out that on that order, when you included the tax charged on line and the shipping the total difference in a $2500 sale was about $50, and it was cheaper in the store.  AND the order would have been right the first time.  Here's the next thing, that company separated retail from online, so there was nothing I could do for this customer except give him the 800 number he already had, and an apology.  And the sadness that I would not earn my commission on the over an hour I spent answering his questions.

All of this is not to say bargains cannot be had online.  Or in the store.  The true shopper would always look at both, compare total price and then decide.  In our current business, we have product that is as good as any product available.  We regularly undersell our main vendor's web site.  We regularly undersell our main competitors web site.  We can show the savings, and for those who come in; we will make the sale.  And our customers get true customer service.  Which is the best deal for the customer, his local shopping area, and me.

Lastly, there are some cheats out there too.  They prey off major manufacturers.  Selling something that may even sound like you are getting the manufacturers product.  Names may be misspelled or reversed.  Be aware that generally these people have a vastly inferior product, check closely on the company before buying anything from them! 

Definition of Value

We all see it, the ads touting they are the best "value" in town, but what is value?  Is it the lowest price?  Is it the highest quality?  Answer, not necessarily. 

Value and price do have a relationship.  Recently we bought an outdoor antenna, it was the lowest price one we could find.  Value not so much.  Seems the electronics were made in China, and they have lasted all of a couple days.  The merchant was gracious, replacing the bad part.  The replacement lasted just as long.  If it doesn't work, it cannot be a good value.  So lowest price was not the best value.

Is it the highest quality?  Again, not necessarily.  We are in the mattress business.  There are a number of high quality manufacturers out there, high quality does not equal value.

Value is a combination of price and quality.  It is an intangible for the most part, since it is hard to equate those two items.  That's what makes it hard to define value.  Each person has different expectations of value.  And value can differ for different purchases.  The antenna case, if the electronics would last a year or two, perhaps we would judge that as value.  However, the bottom line is, have your expectations been met?  The answer here is no, so it is a low value, with a low price.

Some mattress manufacturers trade on quality, but also their name.  They figure that the brand is worth extra money.  This is true to a point, because it makes it easy to spot quality if the brand stands for it.  It is a benefit to the consumer.  But digging a little deeper, often times we can find the quality at a lower price than its brand equivalent.  When a lesser known brand is trying to make an impact in the market, the best way is to keep quality high and prices low.  If there is an alternative like this, it should provide the best value.

In our case we use a lesser known brand.  The major competitor has more stores.  The major brand has average quality, and over the last several years have removed components that the consumer might feel in the show room.  These components do serve a purpose, they increase the longevity of the product.  Our vendor has not removed these components, and their pricing is actually slightly less than the major.  They are the better value.

In the same segment, there are also those that sell, primarily on auction sites, a vastly inferior product to either the major, or our vendor.   However, they are extremely cheap on price and low on quality, which moves product; the consumer is not getting a value.

The good news is that in today's world we have more tools to explore value, the primary one is the Internet.  What ever product you are looking for a simple search for that company plus the word problems will give you an idea of other people's experience.  In some industries there are sites that will diagnose different offerings.  There are organizations like the Better Business Bureau or Consumer Reports that can give insight as well.

Any product you are looking to buy, first consider your own expectations.  Then  look for companies and their alternatives that you believe would meet those expectations.  Lastly, consider the customer service offered by individual companies offering what you are in the market for. 

So value equals price and quality and customer service based on your expectations.  Now go out and find some value!

Unintended Consequences

We the people are always looking for a way to save money, it is almost instinctual.  We look for the easiest way to live, conserving energy for more important things.  When government institutes a tax, it causes us to labor longer to accomplish goals.  As a result we look for ways around the tax.  Often times there is.  Look at the largest corporations, how many stories do we read about how this company or that one paid no income taxes.  We believe that they are cheating us, but are they not doing what all of us do?  Warren Buffet as an example is said to pay a lesser percentage of his income in taxes, than his secretary.  Mr. Buffet is a very well off man.  In fact there is something called the Buffet rule going around Congress recently. 

He could pay more.  There is no law against sending a check to the treasury.  And he has structured his finances to minimize taxes, as any of us do.  Some find that by limiting deductions for example, we can save more using the standard deduction, and it makes tax time easier as well, not as much record keeping.  Companies and very wealthy individuals can move money around the world to avoid taxes.  I remember a time in Missouri, where retailers were required to pay tax on their inventory, like a property tax.  One local department store chain had stores both in Missouri, and in Illinois.  They would ship inventory to Illinois before inventorying their warehouse, to avoid taxes.  A few weeks later the stores would ship the inventory back.  Seems shipping charges were less than the tax, so it saved money.  The saved money did not line the pockets of the CEO, but was used to finance expansion, or other activities that would improve the company.  The taxes would just disappear to the state capital.  Is that cheating?

Now a days, companies will do business all over the globe.  They leave the money in their foreign operations, rather than bringing it home, to avoid income tax on that money.  That money funds the enterprise and helps it to grow.  Are they cheating?

One dollar in taxes, taken from any person in the country, goes to a central location (Washington, DC) then is doled out as some politician prefers.  Once spent that dollar is gone.  One dollar spent by private enterprise, helps that enterprise grow, producing more dollars.

I read a story today.  It was all about how smokers are shifting to pipe tobacco and rolling their own cigarettes, rather than pay the high taxes on cigarettes.  It reminded me of a few years ago seeing a store in Kentucky selling tobacco seed in small packets.  The taxes on cigarettes was supposed to fund education.  Now, the taxes are down about a billion dollars.  Are smokers cheating? 

If we tax pipe tobacco, will buying seeds from Kentucky become a trend?  Maybe, but many will not want to process the seeds, either because they don't have the space, or the ability to grow the plants.  Aren't taxes like this and others on liquor actually playing to peoples puritanical desires, rather than the over all economic benefit?

It's all unintended consequences.  Gambling in Missouri was sold to the voters as a way to fund education.  When the lottery and riverboat revenues started rolling in, the state congress rolled money currently funding education to other things, because they were getting all the gambling money.  Did the politicians cheat us?

I remember finding a plastic 'coin' years ago.  My grandmother told me it was a sales tax token.  It seems that at one point in time, sales tax was so low it was fractions of pennies.  The current rate in my area is now almost 8%.   Not only did the rate go up, but inflation increased the cost of basic goods bringing more money into the state's pocket.  Did politicians cheat us again?

One final thing.  In a recent election, the county I live in felt it needed to rebuild the court house.  It was out of date.  It's also a bad economic times.  They proposed using an expiring tax to do that.  The tag line was "this won't raise your taxes."  Bottom line was it stopped taxes from going down, far be it from a politician to do with less of our money.  It passed in the election.  Are they still cheating us?