The Cliff

Can't listen to the radio, or watch TV or read a paper, or surf the net without hearing about the impending 'fiscal cliff'.  And this is economics, so yours truly is in hog heaven!  I thought I would weigh in on this.

Last year, pre election, the two major parties in the US, refused to agree with each other on just how to mend our economy.  So, as politicians often do, they appointed a bipartisan committee of unelected political animals to work out a deal.  And, of course, they refused to compromise in a political year, so they put off the hard decisions until after the election.  Now they are locked into a political battle, which neither side wants to cave.  Basically Democrats wish to tax the pants off the rich, and Republicans want to prevent that.  There are a couple of things to look at here.

First, do we need tax increases?  It is one way to deal with deficits, but even the progressives in Congress, are not proposing enough increases to end the deficit.  We do, however, need economic sanity.  The debate will roll, and in the end, tax increases will probably happen.  Why?  Because that's what the people want.  Honest, see elections mean things, and in this case it means the people voted divided government, but with the progressives controlling the White House and Senate, the House will probably be bullied into accepting tax increases.  But wait, you say that they only want to tax the rich!  They need to pay their fair share!  It's the 1%! It's Wall Street!  It's the bankers!  It's Bain Capital!  They won't tax me right?  Wrong.  Corporations never pay taxes, they only pass your money to Washington.  It is an expense of doing business, so the price of things you need will be going up.

Add to that the tax increases in the Affordable Health care Act and the Alternative Minimum Tax, and the middle class Will be socked.  But wait, as the hawkers on TV say, so will the poor.  How can that be?  How uncaring!  True, but the taxes passed down through increased costs will hurt the very poorest the hardest.  The rich?  They will be OK.  Because they have options.  Perhaps it will be a minor inconvenience, but their life style will not be significantly impacted.

So the Middle Class and the Poor will shoulder the burden.  They are already struggling in a weak economy.  That is not fair.  So what would be fair?

As I was reading a article on line this week, the comments on the bottom always interest me, it is a great way to gage the left and the right.  One commenter said that the rich need to pay up, that tax rates are historically low.  I researched that claim, and it is a lie.  When Income taxes were first instituted the highest tax rate was 7%, a far cry from 35%.  Rates did peak higher, up to 94%, but that was to fund World Wars.  They stayed high until John F. Kennedy lobbied Congress to drop them in the 1960s.  The 1950s and 1960s were good economic times in the US, so why lower the rates?

The main reason our economy surged in the 1950s and 60s is because we were the only game left.  Europe was a shambles, as was Japan and most Asian countries.  America was the only place to buy manufactured goods, especially capital goods.  Toyota was non existent.  Volkswagen was rebuilding.  English factories were bombed out shells. 

Now Progressives, or socialists, or Liberals say we should be more like Europe.  Oh really?  Why?  But in some ways Europeans have it pretty good.  Centralized Health Care (Britain announced that patients will be Skypeing with their doctors to save money), $5 per liter gasoline, to just name a couple.  Is that what we want here? 

And we need to put a number on what is the fair share.  We have continually heard that said, without offering what that number is.  When taxes go up, and spending goes up, we will again hear "they have to pay their fair share".  I want to know exactly who 'they' are, and exactly what is their fair share.  Progressives, define yourself!  Maybe I would agree, but somehow I think they are afraid to tell you who 'they' are or what is fair, perhaps for political reasons?  Higher taxes are nothing more than a money grab by the political class, and that is why in the end your taxes will go up.

All this does is freeze you into your current class.  That means if you are poor, there will be no way out.  If you are middle class, you may go down, but never rise up the economic strata.  Same with the rich, they can move down, but not up.  Only those who control government will benefit.  We see it now, look at housing prices in Washington DC, or most state capitals, those are the markets doing well.  Now look at Detroit, or Las Vegas, they are not doing so well.  If you get the chance, watch an episode of Doc Martin on Netflix.  It is filmed in a coastal town in Britain.  Compare what you see to most of our coastal towns. 

So now we all have health care, and higher taxes, and higher costs, and a weak economy.  Think that will help the unemployed find a job?  But it's OK our masters in Washington will take care of us.

Spend well!

Black Friday Economics

Wow, I woke up this morning, dressed and headed to work, yes some people have to work on Black Friday.  We own a small retail store, and contrary to popular opinion, Black Friday is one of the slowest days of the year for small, family owned retail stores.  Primarily because we cannot compete with the big boxes out there who scream their sales and bargains for what seems like 2 weeks in advance now.  People line up outside Walmart, Best Buy, Kohl's, Target, Macy's, JC Penney, Victoria Secret, and the rest to get "the bargains".  Funny, but I'm not so sure the bargains are there this year, however, they still go and buy stuff that they probably don't need all that bad, to gift next month at Christmas.

I grew up thinking Christmas was the time of ultimate peace.  But I was met with these headlines as I logged on to the Internet.

'Gang fight' at Black Friday sale...
Man Punched in Face Pulls Gun On Line-Cutting Shopper...
Woman busted after throwing merchandise...
Thousands storm VICTORIA'S SECRET...
VIDEO: Insane battle over phones...
Mayhem at Nebraska mall where 9 murdered in 2007...
Shoplifter tries to mace security guards...
Men Steal Boy's Shopping Bag Outside BED, BATH & BEYOND...
Heckler ridicules shoppers, calling them zombies...

Is this peace?  Although, I do like the last headline, because that's what it has become in recent years.  In the spirit of total honesty, I have been in those lines in the past, call me recovering! 

What is the economics of Black Friday?  It comes from the actual name.  Black Friday is the day that most retailers finally get in to the 'black'  instead of the red as sales take off and profits roll.  Did you ever wonder why all they ads state "at least X per store"?  Because they are promoting something that at the very least is at cost, and often below cost to draw people to their front door.  If, for example a store has a 32" LCD TV at the incredible price of $99, but limits supply to 10 per store, then after the 10th person in line, the bargain is gone.  The lines go on around the store, many more than 10.  But after 10, the store has other 'values' to entice the shopper to buy, but these values are making the store money.  And, psychologically the customer thinks they must get something, even if it is not what they really wanted.  It is just a marketing ploy to part you from your money.  Was it worth getting up in the middle of the night to be punched, pushed, pepper sprayed, intimidated, or any other such thing; just to get an average sale product?  Is it worth interrupting your Thanksgiving time with family?  Is it worth forcing the store's employees to have a shortened or non existent Thanksgiving Holiday?

While I am usually a person who disdains regulation and government intervention, I would like to propose a new law.  This law would try to put sanity into the season, without trampling on the rights of people to be stupid, or stores to run their business as they see fit.  It is a simple law, it can be added to truth in advertising regulations already on the books.  Simply put, there is no limitation on when stores can open, nor pricing they can advertise.  But require stores to fulfill all advertise items over a three hour time frame.  One hour before the store opens to 2 hours after the sale begins, any person in line is entitled to the sale price.  If the store runs out of stock, that's fine, they must issue a rain check for the product, and that rain check must be filled in a reasonable time frame.  Problem would be pretty much solved. 

From the store standpoint, they know that if XYZ Inc gets silly, then they will be hurt financially fulfilling the orders.  They can't say "sorry, your too late."  From a customers standpoint, they will know that if they show up at the opening, or shortly after, they WILL get the bargain they want.  No more camping out for days or weeks before, ignoring family life, to get a cheap TV or computer, or video game, that will be obsolete in a relatively short time.  They can enjoy their family and read ads and choose where to go the next day.  And all retail can participate, since a small store's owners would not have to stay awake for 24 to 36 hours just to have the open time, and they will have sanity in pricing which means they will have good bargains as well.

If this is done state by state, then each state can write the law to match their values, adding more sanity to the whole mess we have now.  While I was growing up, my home state, Missouri, had 'blue laws', and while I do not support reenacting these laws, if a state did, there would be no reason not to, again matching the values of people living within their borders.  The blue laws did help retailers more than they would like to admit, the laws helped control cost and offer better customer service, which translates into less shoplifting and a better overall customer experience; and less expense to cover in gross margin spreads.

If you agree with me, I would urge you to send a link to this blog to your law makers, to friends, to the press.  Let's put sanity back into the season.  As my Christan friends say "remember the reason for the season".

Be Sane!

The Holidays

Economics of the Holidays in America is a hard topic.  We all celebrate, if nothing else Thanksgiving, but Thanksgiving is the start to several religious seasons as well.  Each has its own tradition, and drive the economics during the fourth quarter each year.

Some say that this time has gotten too commercialized, that the religious significance should take precedence.  Some people find economic stress growing this time of year.  We fall into debt to try to show our love.  Debt can be good in some instances, but please be careful.  What most of our loved ones really want this season is your love.  While we can demonstrate love with that special toy or engagement ring, or any other trinket, true love is in your heart.  If you find yourself in economic bad times, make sure you show your love, even if it is in a small way.

Your economic health is one way.  If you find yourself without a job, as the unemployment rate remains pretty high, or if circumstances are causing economic stress like a foreclosure, remember the big stuff can wait.  Work your way to good finances.  And that goes for our leaders as well.  We know that there are competing scenarios for you.  Whether it comes from the free market Adam Smith side or the controlling Keynesian side, there must be compromise, and we need to kick start this economy.  Please do not be so closed minded that you cannot form policy for all of America!

It is important to consider possible unintended consequences, but know that the American people, We the People if you will, are a resilient lot.  It is these hungry masses that built this great country, so whatever you do, keep the people in mind.

It seems like we make petty things our goals, and by doing that we miss the big picture.  In the just past election, a lot went into things that in the big scheme mean very little.  In fact, much of what was campaigned on could rightly be done by the individual states.  And in my opinion done better than an over reaching federal government.

Honestly, how did contraception become a campaign item?  Or marriage?  Why not leave it to the states to determine.  That would end a lot of bickering and in fighting in our National Capitol.  That is why our founders wrote the Constitution, to tell us their vision of a nation.  And their vision was independent states, banding together for the common good.  But they only wanted the national government to be referee, or judge of disputes between states.  And to keep state governments from getting out of control.

But this is also a time to celebrate America, to applaud our accomplishments, to spread our love to our families, to honor our predecessors.  God Bless America, and Happy Thanksgiving to ALL Americans!

Black Friday Specials, and Free Naps!

Hide the Taxes

Economic facts are just that, facts.  The problem comes in how those facts are perceived.  And the ruling elite do their best to show the facts with their spin.  Is it really surprising then that the Keynesian's won the election last Tuesday?

I started thinking, because it seems clear enough that when mean income is down over $4,000 a year, and falling, and gas has doubled in price in four years, and health care costs are up over four years, AND food costs are up close to 25%, that people would have voted with their pocket book, and changed course.  That didn't happen, in fact, the opposite happened.  The question I have heard is why?  I believe the answer is two fold.  First, most people do not think they pay too much in tax.  And second, they believe government is a bottomless pool of money.

I think it has been a concerted effort by the ruling elite, on all sides since the early part of the last century to hide taxes, and to pick on small groups.  You may be confused, how can government hide taxes?  Here's how:

Income tax.  Each time we receive a paycheck we look at the amount, and deposit it in the bank to pay bills.  How many times have you studied the stub to see the withheld tax?  FICA, Medicare, Income taxes, unemployment taxes, and some local taxes all come out before you see the total.  Then you also have the payroll tax that your employer pays, so he can employ you.  You don't even see this, but if it were not there, your employer would have more money to pay you.

Property Tax.  Property taxes are assessed against houses.  If you have a mortgage, then there is generally an escrow account.  Your total monthly payment is the principle, the interest, and a payment to escrow.  When your property taxes are due, the lender writes a check to your government taxing agency from that escrow account (your money).  Most people only worry that they can afford the monthly payment, and in our minds we often have a disconnect that a chunk of it is paying a tax.  And this tax seems to grow yearly, regardless of property values, as politicians assign a value to your property, whether or not it is realistic.  In my taxing jurisdiction, schools can not lose money, if taxes collected go down, they can force, without a vote the rates to go up.  Remember, government should never have to do with less.

Excise Tax.  If you have a smoke, drink a drink, put gas in the tank, or even buy tires for your car, you are being taxed.  The tax on a pack of cigarettes goes as high as $3.76 in New York.  But there aren't many smokers left, and the money funds stop smoking efforts, and education.  If smoking is so harmful, the government is killing its people by allowing it to continue, not only that, but they are profiting from the death of their citizens.  At the very least they have isolated a small group of people, and taxing them to death.  Of course the rich are the only ones who smoke, right?  If you drink, then you are being taxed.  A gallon of beer can see up to $1 in tax, and that is before sales tax or other taxes.  Wine tax mean is 69 cents.  Your phone has excise tax imposed on it.  Your tires as well.

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Sales Tax.  Quick, what is your local sales tax rate?  Some will know, many will not.  In the 1950's in my home state of Missouri, sales tax was so small that the state produced little plastic coins you would buy to pay the tax, they were called "mils" because a mil was .001 cent.  Sales tax was almost nothing.  It might cost you $5 or $10 to pay the tax on your new car.  Now dinner for two has more tax on it.  Since sales taxes are a percent of the sale, the actual burden is easy to figure.  Missouri has gone from .001 cent to now in some locations over 7.5% of the sale.  And still they say it is not enough.

The point is, none of these taxes are usually noticeable by the average citizen.  They are hidden, or have slowly grown over time.  Most of these hidden taxes affect lower income citizens more than rich citizens.  And yet last Tuesday, there was a ballot measure to increase the tax on tobacco in Missouri.  Taxing the poor.  Where was Occupy Wall Street?

The second reason why the election ended as it did; is because of the bottomless pit myth about government.  It is real hard to imagine what $1 million dollars is, much less a trillion.  But if you get laid off, off you go to get unemployment, and or food stamps.  If a hurricane blows through; you ask what is FEMA going to do?  Government gets the money they spend in one of two ways.  First is taxes.  The second is by printing it. 

Taxes are collected two ways, either direct taxation, or mandates, mandates is another whole discussion.  Taxes take money out of the economy, for the common good.  Let's put a number to it.  If you are making $20,000 per year (well below the poverty line) and smoke a pack a day, drive 5 miles to work, and enjoy drinks after work and on the weekend, you have paid $1500 per year in taxes, that you don't even know your paying.  Sure you get a refund on income taxes, because they collected more than you owe, so they give you back your own money, without interest.  That's 7.5% of your income, and that is before sales tax, real estate tax, and property tax.  This is where our system lacks fairness.

  If the government prints money, then you don't pay right?  Wrong.  If the government prints money, then each previous dollar is worth less.  So prices increase to compensate, it is called inflation.  My grand parents bought a small, but nice house in 1952 for under $5,000.  The mean price of a house around here today is probably over $250,000.  $245,000 in inflation since the 1950's, or over $4000 per year.  So if our $20,000 earner owns a modest house, then their hidden taxes go to $5500 a year or 28%.  So we are taxing the poor 28%.  We could continue, adding sales tax of $1350, and other fees, but you get the point (35% taxes paid).  So our leaders tax the poor 35% or more, and Congress and the President say it isn't enough, God only asks for 10%.

Finally, look at the areas less affected by the recession and you will find about 51 of them.  Washington DC metro area, and each state capital.  Isn't it time we really consider making what we pay in taxes efficient?  Isn't it time we consider cutting the cost of government?  When is enough enough?