Just Say NO

This is probably one of the easiest economic principals of them all.  Just say no.  If you ever buy a big ticket item like a car, saying no will help insure you get the best price.  "So Mr. Jones, the list price on this fine car is $36,000; We can let you have it for $29,999, you would agree that is a deal!"  All Mr. Jones has to do is say NO, one word.  What can the sales person do?  There is no negotiation there, all he can do is ask Mr. Jones what he feels would be fair for such a nice car with leather, cruise control and a convertible top.  Then the real negotiation begins.  Assuming Mr. Jones did his homework, he should get a fair deal.

Same thing is true in other retail area, even WalMart and Target.  We read a story today about Nike.  Apparently, Nike has an endorsement deal with Lebron James.  Nike paid a certain amount to Lebron, to use his name and stature to sell their shoes.  The story talked about how these shoes were going to break the $300 mark, and stores should beef up security against shoplifting.  When our daughter was young, we took her back to school shopping each year.  One year in particular, I think it was like 6th grade, all the girls were asking for Nike Jackets and shoes.  Nike does market well.  The shoes she wanted were about $80.  I said no.  At the time there shoes of similar quality and design for as little as $15.  But she said:  "All the kids will have these Nike's, and I need them."  We re-set the argument telling her that it was not whether she was getting the $80 shoes or the $15, but rather whether she was getting the $15 shoes or going barefoot.  The $15 shoes from a company I had never heard of before, Sketchers.  Now they have a much bigger name, yet still not as big as Nike.  To my daughters surprise, she was not ostracized because she wore Sketchers, and in fact the next year half the kids were wearing them.

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Next, we went to the jacket department.  Of course, she went right to the Nike Jackets, again saying she "needed" one.  They were $100.  On the next rack were a similar design jacket from Adidas that was half the price.  But different enough.  Again we had to explain that she could have the Adidas or wear the same jacket from last year.  I am sure she was flustered.  At that point, we told her that when she was 16 she could get a job.  With her own money she could get whatever she wanted.  Funny how at 16 she never opted for the hot styles of the day.  She just said NO.  Now she did shop clearance sales, and still wanted the brand names, but would wait til the end of season to get them.  Smart girl!

Nothing against Lebron or Nike, but I will choose to say NO to $300 tennis shoes.  It's how the economy works.

The Economy

It is sometimes so darn confusing, The stock market is near it's four year high, yet unemployment rose in 44 out of 50 states.  Yet not all states are suffering high unemployment rates.  The drought has ravaged the mid section of the country, yet food prices seem to be going lower.  We have an election in November, yet the economy seems to languish.  Tech stocks like Face Book and Groupon are tanking, yet Apple is climbing.  What an incredible time we live in!  The Dollar showed gains against the Euro and the Pound Sterling, and is showing weakness against the Yen.  It seems no one knows what to expect.  Oil is just under $100 per barrel, and gas prices are in the mid $3 range per gallon. 

The first and last are probably the most important.  Unemployment is a problem that just won't go away.  High gas prices keep more money out of the economy, as people have to buy gas to get to work.  They are putting off the purchase of other things, especially higher priced consumer goods.  And it is these goods that for the most part indicate the health of our economy.  However, high gas prices are also encouraging domestic oil drilling.  Those states that seem to be in a better position with their unemployment rate, for the most part are resource rich.  North Dakota has the lowest unemployment rate at 3%.  This is the state that is finding oil reserves in shale deposits.  That part of oil is growing, while OPEC tries to control traditional supply.

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Until the United States regains control of our natural resources, and no longer have to depend on foreign supplies, we will continue to see wide swings in our economy.  The US was built by cheap energy, primarily oil.  We can not survive economically when the prices go too high.  We do not have state sponsored 'slave' labor.  We are still isolated from Europe and Asia by oceans.  We need high productivity, but we also need to be able to ship our products as cheaply as possible.  Exports rely on low cost shipping to compete in foreign markets.  One question we always seem to ask is, how can China make a product, put it on a ship, land that ship in California, then truck or rail road it to New York, and still be cheaper than a plant in upstate New York?  In China's case they have low paid employees, they use their resources, and their monetary policy is unjust.  Their central government controls resources and prices them to encourage the use.  They have much more lenient environmental laws than the US or Europe.  And they seem to not care about working conditions in their factories.  Here in the US we do care.  Our resources seem to more and more to be abandoned.  And our employees tend to make more.  That is why emerging countries like China and India can compete in our country.  While there are some things that are important, like a clean environment, it seems we need to level the playing field, and take our reliance off other peoples resources.

The bottom line is, we need to build our ability to tap our resources, whether it is oil, or rare earth elements, or people as effectively as possible to compete in the world economy.  That can be achieved in a number of ways.  Currently, we seem to favor letting market forces decimate our people and keep us from obtaining our own resources.  Maybe it is time to consider new trade policy that might level the financial side.  If a country is polluting their air, it eventually gets here.  Perhaps import duties that allow us to clean our air would be appropriate.  If a country uses prison labor or other low paid labor, perhaps a duty to compensate our unemployed.  If a country allows poor infrastructure, perhaps a duty to help the refugees.  It is time to reconsider everything, the status quo no longer works.

  

Rodney King vs. Adolf Hitler

Was watching the news today.  Seems that Paul Ryan is Mitt Romney's choice as second banana.  As I was reading, I came across two interesting comments.  One by Candy Crowley on CNN, the other was a story by Walter Shapiro on Yahoo! News.  It was almost stark opposites. 

Ms. Crowley claims that this pick dooms the Republican ticket to a loss, the quote was "Looks a little bit like some sort of ticket death wish."  I just wish I could ask her why?  Is it because of her bias against Republicans, or is there something deeper?  Paul Ryan is an economics pick.  He does not agree with Keynesian Economics that the Democrat Party has endorsed since John Kennedy was President.  If you regularly read this blog, Keynesian Economic Theory postulates that the Government, through tax policies, and spending can even out the business cycle.  That is, no recessions, but then again, no booms.  This is the reason the Democrats are called by some "Tax and Spenders", when the economy starts to heat up, they say Government should tax at a level to cool it off.  The Federal Reserve also can cool down a growing economy with interest rates.  When the economy starts to go backward, then Government should spend to stimulate the economy.  The largest problem I have with this theory is the US GDP is a little over $15 Trillion; even the massive stimulus plan was just $800 billion.  $800 billion did little to stimulate anything, it just wasn't enough.  In order to provide a stimulus to the economy would it not have to be more than 0.05% of the economy?  Seems that to be effective Government would have to spend $4 or $5 Trillion, or about twice the budget which is putting us so deeply into a debt we may never recover from.  Point is, Government cannot spend enough to stimulate the economy with out doing extreme damage to the economy in the form of inflation and high interest rates.  Inflation and high interest only cause lack of production, and then tax collections will only increase by the inflation rate, causing hurt to those on fixed incomes, primarily senior citizens.  Keynesian Economic Theory doesn't work.  Keynesian's brought us Jimmy Carter's Recession, and Lyndon Johnson's Vietnam War.  Even George W. Bush fell for the flaw that Government can stimulate, think TARP.  It is ego that our Congress and White House think they can affect the economy in any major way, except through the bully pulpit.

Mr. Shapiro said: " Romney opted for a free-market ideologue over a political man for all seasons. " about the selection.  He went on to talk about Keynesian's as well.  The only way to right the world is to have responsible governments.  The reason the United States became what we are is because of our economic responsibility.  When the Revolutionary War ended, we had massive debts for the times, our Congress and President worked through those debts.  It wasn't until the Civil War that we again faced a debt crisis.  Then World War II and Korea caused debt. Since the 1960's we seem to regularly face debt crisis's.  There are times when responsible use of debt is necessary.  But just like as individuals we cannot keep putting our groceries on a credit card, neither can the government borrow for every day expenses.  It is proper to support the country and the people, but we now find ourselves in the position where our politicians are using the Treasury to buy the next election.  As an economic plan, this is doomed to failure.  The one thing that the old Soviet Union did that made sense was their 5 year plans.  We need to look farther than just the next election.  The next Depression will be because of Government irresponsibility.

Adolf Hitler's government was a Fascist  government, which meant that the government favors one industry over another for the 'greater good'.  Can you say banking and automobiles in today's US?  And, if you oppose the people in power, rather than a open debate, you are labeled with some evil name, as in Hitler's Germany Jew was evil, so to today are homophobes and racists.  Your character is attacked, and they aim to crush you completely.  It is very uncivilized.  Recently there was the Chick-Fil-A controversy.  How dare the CEO have a contrary opinion to those in power, we must shut him down, don't you dare come to Boston, or Chicago.  Unlike this is the late Rodney King whose famous quote was "Can't we all just get along?"

If Romney & Obama are Collecting Millions...

Then how do businesses stay in business?  It seems every four years billions of dollars are sucked out of the economy to finance political campaigns.  No one seems to want to talk about how that is affecting the economy.  It may be, in good times, it has little effect, but in bad economic times it may.

There are several ways campaign fundraising affects our economy.  The shear value of the dollars is not very high, so in the grand scheme it doesn't hurt that much, unless times are bad.  If we look at what the campaigns do with their money, I believe there may be harm coming from it in monetary and non monetary ways.

The non monetary ways include sucking up available radio and TV time, blocking business from effectively advertising their product or service.  If they can't promote themselves, they cannot maximize sales.  When sales are maximized, then employment occurs.  Without sales, there is no need of employees.  Last night, as I had the TV on, every commercial break was full of commercials about this politician or another.  Most of them negative.  It angers me that a candidate, or their PAC is so uncomfortable with their position, that they have to tear apart their opponents.  All of them, up to and including the Majority Leader in the US Senate, Harry Reid seem guilty of negative advertising.  Opposition Research is one way they find stuff then spin it to their advantage.  I even noticed one PAC didn't endorse a candidate at all, who do we get angry at?  The truly savvy can probably figure out which candidate they are promoting (the only one they didn't bash), but will the general public, who aren't living and dying politics going to know?  It is a horrible practice, one that ALL parties and candidates seem to use.  There is a US Senate primary around here, I did notice the least offending candidate seems to be in the lead.  Perhaps this is a trend.

If money leaves the economy through expenditures by campaigns, which are not productive, then that money is not available to buy productive things like cars, furniture, or appliances.  Again in good times this may not affect the economy in a negative way, but in these days there are a number of small businesses that may not survive.  Yet the candidates are saying they got your back.  They want to put America back to work and other dribble.  If that were the case, lead by example; enact policies to enhance job creation.  Sadly, neither major party seems to really care, it is all about power, and who gets to sit in the big chair.  With power comes money.  With money comes corruption, at least in politics.  Many candidates seem at the beginning of their tenure to be more altruistic, then they get sucked into Washington, DC and corrupted.  Then they just switch chairs, Congressman to Senator, to VP to President, or Cabinet officer or Ambassador.  If your a good soldier, the Party will take care of you.  But what of the citizens who are not politically connected?

A third way that political campaigns affect the economy is by promoting attitude.  Our economy relies on the aggregate mental attitude of the population.  Negative ads spawn negative attitudes, only magnified in bad economic times.  In a way, the economy dips because of negative ads.  Yet each of these candidates would say they are for economic growth.  Really?

Revolutions are fueled when the political leadership becomes blind to the general population.  When they insulate themselves from the masses.  The Soviet Union comes to mind.  Or any other tin plated dictator in history.  Our political system is getting perilously close to that point.  But We the People, can still vote.  And vote we must.  An informed vote.  My grandfather sat me down at my 18th birthday, he said "voting is easy, you just yank the donkey's tail."  Isn't that one of the problems?  About 1/3 of the voters are Democrat, 1/3 Republican, and 1/3 non declared or independent.  Of the independents a number of them vote only because they feel they must, without preparation or research into the candidate.  As long as American Idol, or what ever other pop show continues, all is good and one side is as good as the other.  Believe it or not, it was even that way in 1776.  Then a King decided that he needed money from his colonies, without consideration of what it would do to their economy.  Today our elected national leaders want more and more of our money to fund unproductive things like the bridge to nowhere... Is there really a difference?

China

A few years ago, I was in the need of a new faucet in my bathroom.  The old one was probably installed in the 1980's and had worn out.  Being a do it your selfer, I went out to the local hardware store to look at various offerings, a totally economic thing to do!  I went into a major big box store which had a counter at lest 30 feet long and 6 feet tall of faucets.  There were kitchen faucets, bathroom faucets and utility faucets.  Most major brands were represented, many of which I was familiar with.  Which one, I thought would my wife like, which do I like.  By happenstance, I turned over a box to see this American brand was manufacturing in China.  I started looking at all the brands, out of that 30 feet counter, I could only find two brands that were either made in the USA or assembled in the USA "of foreign and domestic components".

As a small boy, I could remember my Grandfather telling me to buy American. He was a Union guy, and we have all seen the bumper stickers cajoling us to eat our imports.  As an economics student, I refined that to say:  Buy American, especially if the quality and price were superior or similar.  Competition after all is a great thing.  However, to see all these imported faucets gave me pause.  China was starting to be the world's provider of many things.  A Chinese company even owns a car company that Ford sold off a few years ago.  As a citizen, I realize that manufacturing is important to our security as a nation.  During World War II, if it wasn't for American production, we all may be filling out our tax forms in German or Japanese.  Converting shoe factories to make boots, car factories to make tanks and planes allowed the Allies to push back Fascism and eventually end its reign of terror.  What if, I thought, we had no production plants.  Could China become imperialistic?  Would the debt they hold make them our masters?  After all the borrower is slave to the lender, I did not want to be a slave.

I chose the American assembled faucet and installed it.  A couple days later, as this experience weighed on me, I searched the web and sent an email to the company, thanking them for a good product and for making it here.  So often, we don't acknowledge the good, only when we feel slighted.  And I started looking at different stores to determine if indeed I was worrying about nothing or if there was an issue.  As I looked, at Walmart, Target, Kmart, Walgreens, and various other stores I felt like there was no longer a manufacturing base in this country.  Even the company I worked for, Select Comfort, was selling bedding products imported from overseas, and some bed parts were made in Eastern Europe and China.  Nothing wrong with that, but I thought, why?

It didn't seem to be price, the faucet I purchased was mid priced, there were imported faucets that cost more.  I thought, how can China, or any other company, with all things being even, produce a product, ship it thousands of miles and sell it cheaper.  Was it dumping?  If it was, why were the products not the cheapest?  There are several reasons why China is producing products that could be made here.  Let's explore.

Taxes.  The US corporate tax has been in the news.  Some say it is the highest in the world, and because of it many multinationals leave money made overseas outside the country to avoid taxes.  One way they can make that money productive is to set up factories overseas, employee foreign workers, produce products for import, and the manufacturing portion of profit (the largest portion by the way) avoids US tax law.  Should we change the Tax Code to tax even that?  That would be a mistake, businesses would just relocate to other countries to avoid the tax and still avoid the tax because they are not a US company.  A prime example of this is AB Inbev, the beer giant.  AB used to be headquartered in St. Louis, MO.  Now St. Louis just houses the North American office, the corporation is headquartered in Europe.  We really do need to rethink our tax code, to bring back jobs to the USA.

Environmental Regulations.  Air pollution is a big issue in the US.  But are we over zealous?  If, for instance, a rubber part for a bed can be made in Eastern Europe and avoid the EPA, then the pollution is still in the atmosphere, but the jobs are not in the US.  I am an environmentalist, I believe we need to clean up our messes, however, we need productivity to do that and without jobs there is no productivity.

Other regulations.  Quotas for hiring, American with disability Act, Environmental studies and other regulation impact the establishment of manufacturing jobs.  In all fairness these regulations are from people that are trying to make the country a better place.  So Apple builds iPhones in China where they don't seem to mind working their people 12 hours a day and 6 days a week.  Perhaps we should rethink some of these regulations to bring jobs back the the USA.

Do I advocate dirty air or water or overworking employee?  No but we need to play on a level field or lose our sovereignty.