Empty Stores

As I drive to work on a daily basis, I have become accustomed to seeing empty store fronts.  There are buildings and stores open across our area, whether it is  a rich, middle class, or poor neighborhood.  Is this the new normal?  We see new shopping centers going up, in our town, two new outlet malls have opened this year.  The other outlet mall that is close by has been open for years, and they can't seem to fill all their space.  Yet the real driver of our economy is still mom and pop stores.  It is a family that dreams of owning their own business.  They dream of growing that business, expanding that business, and passing it on to the next generation.  And this is the best of wealth creation.  It is a tangible asset that spans generations.

When I was in High School, one of my classmate's dad owned a Ford dealership.  When my classmate graduated from college, he went to work for dad.  A few years ago his dad passed away, now he and his brothers and sisters run the business.  There is a furniture store here, the founder died several years ago, yet his kids now run it.  This is a great way to pass economic security, and sure it isn't for everyone, nor is it the only way.  It is one way generations of Americans have done it, and it works.

Today, we are not seeing family businesses popping up as regularly, or with as much vigor, why?  The big guys have always been a factor.  I am sure Frank Woolworth did not want to see Sam Walton succeed. Just like General Motors doesn't want a Delorean, or Tesla to succeed.  It is these businesses that change the world.  Thomas Edison's company is still around, but how much inventing is going on there?  What have they done to change the world?  Surely not as much as Edison did.  Big corporations get conservative.  They protect themselves.  They no longer see the business as the founder, and that is why small business is important.  And our system keeps it clean, if a founder of a business has a flawed goal, it will go out of business.  The reverse is true as well.  There are more than a few reasons small business is hindered in today's world.

First, and most important, in my view, is government.  As government has grown, more laws and regulation has stifled small business.  Government makes it more expensive to launch a business.  And government would rather have to work with a few very large concerns than thousands of small ones.  Why do NFL owners get their stores (stadiums) built with taxpayer money, yet John Smith gets no help building his widget store?  Why does Walmart get TIF financing, yet other businesses do not?  Why do states court large companies like AT&T or Boeing, and not Barb's Beauty Shop or Dale's Bakery?

Large companies have certain advantages of scale, making it hard for small companies to compete.  In our industry, a couple of concerns spend millions of dollars every year advertising.  A single store cannot.  The result is people are drawn by the advertising to their stores and they are successful.  Money flows out to the corporate headquarters.  Advertising sales people have less business to call on.  This meshes with a previous article on "Too Big to Fail".  Why is that true?  Resources should go to the best utilization, and that is not always the biggest company.  The biggest company, however, is easier to deal with, and more likely on first name basis with leaders.  Unions have an easier road to organization.  And people see jobs.  A win for the politician.

 The single person, with a revolutionary idea, is what drove us throughout the last century.  The Editions, Fords, Rockefellers, Woolworths, Sears, Kresskes, all made this country a better place.  Can you imagine a couple of brothers designing and manufacturing a new airplane in their garage?  The Wright Brothers did.  Do you see a new machine on the horizon, built in a basement that will help run the world?  Jobs and Wozniak did that.  We are losing that.  And that will be a loss to our nation as a whole.  We need to celebrate entrepreneurship.  We need a new generation of free thinkers, that don't say "yes sir", but rather "how can I do that."  We don't need to even the playing field, we need to get off the field and let them work.

That's not to say some interference isn't a good thing.  Some of the above companies had horrible reputations with their employees, and we as a community need to make sure there are ways to address that.  Today we don't really have that, sure there are minimum wage laws, and unions.  All sorts of Human Resource laws in fact.  But they do little good, in that they are enforced unevenly, and are generally used as tactics.

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Unions as an example love minimum wage laws, because their contract is generally tied to them.  If minimum wage goes up, so do their members wages.  So often you will see Unions lobbying for increases, not for the young couple trying to make ends meet, not to encourage fuller employment, but to get their people a raise, without working as hard for it at the negotiation table.  The result has seen a decline over the last 4 or 5 decades in teen employment.

Big companies can build factories anywhere.  Apple uses factories in China.  Most shoe companies manufacture off shore.  Even plumbing fixtures are coming in from overseas.  And that means we have less middle class factory jobs here.  Walk down the aisles of stores and look at how much is imported.  Brands that used to be made here.  Bigger is not always better.  As those jobs leave, minimum wage jobs are all that is left.  Fast food, and others are the only place more and more people can go, these businesses cannot offer a great middle class income, and skills are not as needed.  Skilled workers make more than unskilled.  How much skill is there in flipping a burger?  Or selling trinkets in a mall?  I remember people saying robots were going to take the "good" jobs, and while we use a lot of robots, I contend Big business takes more, by moving them away.  Should we not encourage those small businesses that work within their communities?

Instead we have empty stores.  Crushed dreams.  And we are the poorer for it.

Spend Wisely!

Middle Class Crash

From the very founding of our republic, a middle class developed.  It was unlike anything in Europe, where there were royals, and commoners, and rarely did the two interact.  Whether it was Ben Franklin, Henry Ford, or Bill Gates, there was hope, that with hard work, anything was possible in our country.  A poor person could, through sweat and a little equity, provide a product that people would buy.  You did not need to know the President, or anyone politically in control.  When you manufactured products, you employed your neighbors, and the community as a whole benefited.  Contrast that with a recent story from Cuba.  The Cuban Government is closing down small businesses that have popped up to provide a service or products that are not generally available.  As an example, they are importing clothing that sells for less than the government factory clothing, netting the business person profit, and saving the people money that they can spend on other things.  I guess the government does not like the competition.

Competition is the very nature of our economic system.  Competition for consumer dollars keeps our prices reasonable, and productivity high.  We have improved our standard of living immensely since the early days of our independence.  While not every new product or new technology has originated in our country, many have.  And those that did not, generally were improved by our citizens.  The assembly line, the light bulb, the phonograph,  the computer were all perfected here, if not outright invented here.  Rockets and missiles took us to space, and it was improvements to early designs that landed us on the moon.

It was the middle class that drove most of this, whether they were entrepreneurs, or just consumers of the products. A very wealthy person, generally has no more desires than a middle class person, oh they may be more ostentatious, however one person can only consume so much.  And that was the beauty of our economic system.  By "spreading the wealth" through hard work and aspiration, more consumers were born.  These people had money to buy Ford's cars or Gate's computers.  The United States developed in to the number one consumer market in all the world.  People immigrate here to be able to live their dreams, something the class system prohibits in many parts of our world.  In the 1990s, we hosted an exchange student from Russia.  He lived with us for a while.  His dream was to write software.  He studied hard, and worked his rear off to be able to write code.  After he returned to Russia, he prepared to go to University.  To enter the University, he had to take a test, to see if he was the most capable to write software, or if he should do something else.  The test did not go well.  We lost track of him at this point, we aren't sure what he ever grew up to be, but the government said no to writing software.  If he had grown up here, he could have pursued software engineering, and perhaps, because of his wants and dreams could have been successful.  Passion goes a long way to success.



Even in our country, not everyone is cut out to be a software engineer.  But if you have a passion, the market will decide if you are any good, not some aptitude test.  Some of us have seen our dreams crash, but others have lived a happier life doing what they are passionate about.  Is that true any longer?

To a degree, yes.  We are, however, less able to live our dreams than in the past.  We are losing our middle class.  You can see it in the current battle over wages at fast food restaurants.  Being a cook, or waiter, or buss boy was never considered a middle class position.  Skills is what made money.  So even truck drivers, or factory workers, if they had skills could make a good living.  Our problem today, in our opinion, is the "too big to fail" mentality.  We move money around today, instead of making things.  And many people who deserve a middle class income are shut out.  Big, multinational corporations, will produce their products where they can profit the most and not necessarily where they are needed the most.  So light bulbs, and TVs are made in other countries.  Those very skilled manufacturing jobs, are leaving, and not because of skills, or labor availability, but because of money.  Now don't get us wrong, money is an important consideration, but should not be the only consideration.  There is no way that a product can be produced in Asia, transported to North America, then distributed across the continent cheaper than the same product made here.  That is why foreign car makers when they grow to a certain size, look to open factories here.  VW, Mercedes Benz, Toyota, BMW, Hyundai, Subaru, and Nissan are examples of North American manufacturing of "imported" cars.  Fiat is a majority owner of Chrysler.  If labor rates were cheaper in Asia or the third world, would they not make the cars there and ship them to dealers here?

By assuming that GM, Chrysler, Bank of America, Wahcovia, or any other large company are too big to fail, we tie up capital that might launch the next industry.  And since these companies have no real local ties, there is no incentive for them to care about communities you find them in today.  One company close to my heart, since I grew up near them, is Anhueser Busch brewing. They were at one time the largest independent brewers in the world.  And they were American owned.  Several years ago, an European brewer bought them.  Prior to that, AB was first on hand with canned water when disaster struck.  There middle managers all had "charity" budgets to provide t-shirts or other products to local schools or charities.  Since the merger, that has changed.  They are huge now, too big to fail.  Middle class jobs are no longer here sadly.  In prior decades, that merger may have happened, but AB would have been the buyer.  See, at one time banking was local, offering the Busch Family access to capital easier, with a phone call to a friend.  They did try to fight off the takeover, they just didn't have enough time to arrange financing.  But Bank of America, who bought one of St. Louis' largest banks was not helpful, and neither was USBank, the buyer of Missouri's largest Bank.  So they are now "too big to fail".

Big is not always best for the middle class.  Sure big companies employ a lot of people.  Big companies have less local skin in the game, GE has no reason not to produce light bulbs abroad.  Especially when you consider tax ramifications of doing so.  They move money, not products.  Where the cost differential is in tax policy, why not move a call center to India?  We need to fight for our middle class, or we will become like European monarchies, or third world dictatorships, where the rich get richer by taking from the poor, there is no dynamic economy.

We need to get past "too big to fail"  if GM mismanages its business, it needs to fail.  The fallout would be hard at first, but over time others would take its place, and all the talent and skills are still there, perhaps a bigger, better company would evolve.  In the 1980s, I was working retail management, at the time the four largest companies were Sears, KMART, Woolworth and Montgomery Ward, today Sears and KMART are one company (and still are not number one), Woolworth and Montgomery Ward are gone.  That list today is Walmart, Target, Costco, and Walgreen.  Crony capitalism is taking root in our country, and the public treasury is being used to support mismanagement and greed.

We do not need to be, nor should we want to be Cuba, we are better than that.  We need to believe in our people, the people who linked the world with radio and internet, the people who lit up our lives, the people whose skills and passions have driven us for so long.  Unlike some, we do not believe it is over for America, we're just having a tough time.  We do believe that our government is not helping, but even that will not stop us.  They talk as if China may overtake us as the largest consumer market, perhaps, but only if we allow it.  We need the liberties in our system to drive our economic machine, if government gets out of the way, watch what happens!

Spend Wisely!

Gas Tax, Tolls, and Other Stuff

A hundred years ago, there were no Interstate Highways.  In fact, most major roads between towns were dirt or rock.  There were not many cars on the road, but Henry Ford had other ideas.  As the car gained acceptance, roads had to be improved and built.  The logical choice was the community, and the government.  In those days mostly roads were built by local and state governments.  It was good in that they could promote tourism.  But where would the money come from?  Taxes of course.  The first gas taxes were collected in 1931.  With this money, roads could be built, and Americans started on our era of mobility. 

The other source of revenues were tolls.  Tolls helped pay for specific roads and bridges, and seemed fair in that those who used the infrastructure were paying for it.  Tolls still exist today.  Soon a National Highway system developed.   It used existing roads to link together our nation.  There was a dual use, in that the Army was able to move easier as well.  Under President Eisenhower, the Interstate Highways were born.  These too had a dual purpose.  When engineering these highways they were designed to accommodate aircraft as well.  If you noticed, there are long stretches where there are no obstructions over the roadway, they made pretty good back up runways, just in case, during the cold war.

Through all of this gas taxes and tolls paid for expansion and maintenance of the roads.  As needs rose, so did gas taxes.  The first gas tax was a mere penny a gallon.  Today, it is 18.4 cents.  There are also state taxes on gasoline as well, so the total tax would depend on where you live.  That is why if you travel the roads, some states have cheaper gas than others.

Another thing hit us in the 1970s, the supply crisis when OPEC cut off supply.  Prior to this time, gasoline was significantly cheaper than it is today.  But cars were becoming more important.  Suburbs that were getting farther away from the city center meant that not only did people have to drive more, but often they needed more than one car.  Two car garages became the standard people looked for in new houses.

As demand rose, supply rose, just not as fast.  OPEC has been pretty successful in controlling supply.  So much of our increases has been through artificial control of supply.  At the same time, fears grew that fossil fuels would eventually run dry.  Are you old enough to remember President Carter' "Be Thrifty, Drive 50" campaign?  Since that time, the regulators in Government have pushed for higher mileage per gallon of gas.  And auto makers responded. 

The other day, I read an article about how now the gas tax is just not enough.  I guess we have been too good at shepherding our resources, and now government says they cannot maintain and expand with the tax alone.  We are also more connected than ever in our lives.  Mobile phones, and smart cars have provided them with a new scheme.  Charge a toll based on how far an individual car drives.  They can install a device that would use GPS to track the total miles driven, and issue a bill for those miles.  I did not see an estimate of how much the charge would be, perhaps it is a trial balloon.

This blogger generally opposes new taxes, preferring that government learns to budget effectively, and works to use every penny as efficiently as possible.  And this is no different.  If the government, through our representatives decides this is a good thing, fine, but then the gas tax should be eliminated.  Somehow, I don't think the general population will support this.  Most of our driving is to get to work, and there is nothing we can do about those miles, except perhaps move.  This move would also probably cause the price of gas to rise, especially if they eliminate the gas tax, you don't expect the price to fall do you?

When I mention that government is not the most efficient user of revenue, let me give an example.  A few years ago, a major artery around here, which has been in use since the earliest days, was determined to need to be rebuilt.  That was probably a good decision.  They closed the roadway for a couple years to do this.  Most of us expected a much wider road with more lanes, after all this road backs up every day to congestion.  But that is not what happened, they literally tore up the existing highway, laid a new road bed, then paved over the top, not wider, not less curvy, just new pavement.  So today, back ups still happen daily, but at least when not backed up the ride is smoother.

It is important that we react to this tax grab, as it is with other tax grabs.  Our politicians, both sides, have a insatiable need for more revenue.  And the waste in government is not unknown.  It is time we decide that government needs to be more efficient, or they will not get new revenue.  After all it is our money.

Spend Wisely!

Government Shut Down and Politics!

If you are a regular reader, you can probably guess my political slant.  I try not to push an agenda, and would love to see more comments of a truly debate driven nature.  That is one thing we do not seem to have in our nation's Capitol.   Today, I am going to look at the Government Shut Down, and the politics that are driving it, and what it means to our economy.

First, the shut down is related to Congress NOT doing their job.  They are supposed to write a budget every year.  It is to originate in the House of Representatives, and then sent to the Senate.  The Senate can accept the budget, reject the budget, and suggest changes, but the Senate cannot write a budget.  The House has sent budgets to the Senate.  They have ignored them.  They have not voted on them in the last 7 or 8 years.  As a result, the House has sent Continuing resolutions.  The CR's are quick ways to keep funding up and running so the government can operate.  They are NOT budgets.  No line items are debated in the continuing resolution, it just extends the last budget for a specified period of time.  According to the "American Spectator"  the last real budget was passed in 1997.  That means that no government manager really knows how much his budget is, and cannot plan on how to spend it.  It would be like your boss, instead of telling you what your salary is, said here's a few thousand dollars, I'll get back to you later on your salary.  This is no way of running a nation; and this rests primarily with the Senate, and their leadership.

Now what about the shut down?  It seems only about 17% of the government is shut down.  But the Executive branch, that's the one led by President Obama, has to decide on what positions are essential.  As I watch the news, that seems to be the areas that will provide the most pain for the American people.  Closing down public access to memorials and parks.  Instead of posting a sign saying there are no employees present, proceed at your own risk, they wish to inconvenience as many as possible.  This is pure politics.  You can tell by what is allowed, and what isn't allowed.  The example is the WWII memorial is closed, and barricaded.  Yet in the relatively same physical space a immigration rally is allowed.  It is simply a power grad by imperial politicians.  This is NOT to say Republicans in the House are blameless.  They are trying to grab power as well.  Depending on which side of the political spectrum you are on, your side is battling for the people.  The truth is, none are battling for the people, only for their own power bases, and each are spouting rhetoric to elicit their base's admiration, and that is not productive.  This shut down is also driven by President Obama not even entertaining a negotiated settlement.  Perhaps this is the one good thing to come of the shut down.  If we can't agree, isn't better to just not spend?  Isn't that what we do in our personal lives?

The shut down seems to revolve around the Affordable Care Act (ACA) or Obamacare.  There is a solution to our health care dilemma, but this writer doesn't believe that the ACA is it.  The ACA is increasing premiums, at a time that is not helpful to the general economy.  These increased premiums take money away from other areas that might be better at getting everyone working again.  The ACA is affecting unemployment.  Employers only have a finite amount of money, determined by profit margins and gross sales.  They have to structure their companies to be solvent.  This means small business may not hire, even if they feel a need, if that would push them over 50 employees.  It means larger companies are cutting hours, so they do not have a large expense for full time employees that they can't afford.  Rather than addressing these issues, Congress and the President are fighting in the media.  The reasonable man would delay implementation while Congress reviews, something the liberals dread.  The ACA is just an entry in to a single payer system, it was designed to fail, and they know it.  The intent was to rush to fix it with single payer, gathering even more money in to Washington DC, one of the places least affected by our current economy.

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Not to worry, because this is all about power, the shut down will not last.  Common sense politicians are hard to find, and they will be silenced.  They will be called names like tea bagger.  They will be impugned, all to save the power base by mainstream Democrats AND Republicans.  I recently watched a history show about the Founding Fathers.  In it was a break down on President Washington lamenting political parties, how smart that man was.  Some say we need a third party, perhaps, but when it goes mainstream, will it be any better than what we have now?  I would in fact recommend voting third party next year, send a message to the political establishment to work out differences and let the American people get back to the work of driving our economy.  I see some world governments, primarily using parliament systems, that must build coalitions to form a government.  It's a little messier at the beginning, but with many parties at the table it might be argued that those governments are more responsive to their people.  I know ours seems broken...

Spend Wisely!

Government Shut Down Economics

First an apology, my computer has been acting up, so it has been a while since I blogged.  But let's get on with it!  Earlier this week, the Federal Government had a partial shut down.  And it is partial, only select employees were furloughed, the military is still there as are the policing agencies.  As I watched all this unfold, I had some flashbacks...

The first time I saw a vindictive government agency was way back in the 1980s.  At the time, my sister was a relatively new teacher in a suburban north school district.  They had a bond issue on the ballot that would require a property tax increase to fund.  Of course, they had put their argument before the voters, and assumed that they would get it through, after all it was for the children.  The voters rejected their argument and the issue was defeated at the polls.  I believe that most government is bloated and has no concept of doing without.  I compared this issue to a vibrant private school system in our town.  The private schools of the time had a principal, maybe a couple vice principals in their schools, perhaps a couple of secretaries but that was pretty much it.  The public schools had all that and more.  They had administrators, who were the most expensive employees in the school, there to take care of "business".  Administrators make lots of salary, and besides sending reports to the Federal Government, I'm not sure what else they do.  To me this is a huge waste of money.  The average administrator earns over $100,000, and schools are only open 9 months every year.

But I digress, that school district needed to cut expenses because of the issue loss.  Now to me it is a no brainer, at least one administrator in every school needed to go.  Not one lost their job, but it was blood shed in the teaching ranks.  I was young at the time, and really didn't understand it.  As I aged, I spotted a trend.   When voters go against government wishes one of two things happen:  They find a way to sneak it through anyway, or they punish those voters.  Laying off teachers punished the voters.  I've seen other districts close sports, bands, and choirs to punish voters.  It is almost vindictive.

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Back to 2013.  We suffered the Sequester, perhaps the most infamous result was the closing of the White House tours.  Most people I have heard, say those tours did not cost very much, and didn't save much by stopping them.  Most of the Sequester featured items that would most affect the people of this country, but government rolled on.  Now we have the shut Down, and they barricaded outdoor monuments, that never had a lot of employee presence, and generally were open 24 hours.  You could go to the Lincoln Memorial at 2 AM just to meditate.

However, I heard two stories that bear repeating.  The first is the World War II memorial, like the Lincoln Memorial, it is open air, and normally could be visited 24/7 with minimal employee support.  So because of the Shut Down, the President (who is the boss of the park service) ordered the WWII memorial closed, and staff erected barricades.  Those WWII vets took back Europe and the Pacific, a few barricades would not stop them.  And the people reopened the memorial.  Now I saw a picture to where the Park Service, again by orders of higher ups, wired the barricades in place.  Wonder why?  Because it inconveniences the most people, not because it saves money.  To save money, post a sign saying that this area is in Shut Down, and there should be no expectation of support.

The second was on a national parkway, and frankly I don't remember which one, controlled by the Federal Government.  Along this parkway is a hotel, owned via concession by a private citizen.  There is no Federal funds supporting this for profit venture, in fact, it is a money maker through rents and fees paid by this company.  The parkway was considered important, so it was not shut down, traffic flowed pretty normally.  This owner received a letter from Washington that said he must close because of the Shut Down. Why?  No public funds were involved, and the road is open?  Do you think it might be to put an inconvenience on the traveling public?  Punishment?  The best, or worse, part of this is the company stayed open.  Not to be deterred, The vindictive higher ups, whose boss is the President, posted Federal cars with staff to block the entrance.  Costing the Government money.

Now let's go to the future.  With ACA Health Care Law, Obamacare, now a reality, assume there is a future shut down.  How inconvenient would it be to shut down a hospital?  Or a clinic?  Or just certain, noncritical surgeries?  This is how our government now wields its power, and the Democrats will blame the Republicans, who in turn will blame the Democrats.  Where are the Statesmen?

Spend Wisely!

PS.  This blog is not funded by the Federal Government, and is not Shut Down.  If you enjoy reading it, patronize our advertisers.

Good News fot the American Dream!

Just today, I was lamenting that there is no leadership in the economy to a friend.  Where is the FDR, JFK, or Ronald Reagan?  I asked.  Then I read this story on Yahoo news.  Finally, we have leaders, our youth!  Since my earliest days, I have had faith in the American public, unlike some on both sides of the political spectrum.  But let's look in to why these young people are the leaders.

As a child, grandma used to never have or use a credit card, she paid cash or check for everything.  In her latter years she saw her grandson get married, and wanted them to have something nice.  Every few months a fine china plate, serving dish or other parts of the china pattern would arrive at our door.  Now china is not something used every day, it is for special times, that family gathering on Christmas, or Easter, or Thanksgiving.  Grandma, and Grandpa didn't have a ton of money, but they knew the importance of family.  The important meals at Grandma's were always special, and though not known at the time, linked all the generations together in a indivisible unit.  I say all this because this was when they got their first credit card.  They needed it to order and ship the china.  It was paid for monthly and when they died, there was no balance.

Credit was hard in their lifetime.  Yes they had a mortgage, but it was paid off as quickly as possible.  Credit was something you treated seriously.  And avoided if at all possible.  My parents had credit cards, but again they rarely carried a balance.  Car loans were 12 months.  My generation embraced credit, seeing it as a way to accumulate wealth, and the lenders certainly encouraged that.  We had stuff, all supposedly ours, but bought with others money.  Was it truly ours?  After a few mistakes, my wife and I dismantled this credit lifestyle.  Presently we only have two items:  a mortgage, and a small loan on our business.  Our lives are pretty much our own.  Even if our business fails, we do not lose everything.  It makes one quite independent.



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When I read that young people dream of being debt free, it was how their leadership shines.  How many of their parents have long term mortgages?  Massive credit card debt?  And now look as if they will never be able to retire.  They learned the lesson many in our generation have not.  And this will translate politically in the future.  America's greatest time is just around the corner as these forward thinking young people enter the leadership void created by our current crop.  As they demand that government stays within their means, most of the problems of today will be solved.

Economically, it is the massive debt of our government that is holding us back.  We all want to live in a compassionate society, and nobody wants to see people hurt or poor.  However, that is not the governments job.  That is the job of charities.  They are much more efficient any way.  When you hear that every man woman and child in our country owes $52,886, what is your reaction?  How independent could we be if our government would pay their debt as most generations in the past have.  When you look at American History, all past Congresses have done what they could to pay their debt.  They did not look to passing it down to future generations. 

There seems no will in our current Congress to do their job and stay within their means, while paying the debt.  Debt does not build wealth, only servitude.  Until our leaders, right or left, Democrat or Republican, Conservative or Liberal, realize that this debt is a pox on all of us and develop the back bone and pay what they owe, we will not have the liberty that so many sacrificed so much for throughout our history.  These dreamers offer America the chance to be free again!  Thank you!

Spend Wisely!

Jobs, Jobs, and Jobs

There was a web article today about a fast food worker strike.  There have been a couple of those stories over the last few months, and maybe it is time to explore this story here. 

Fast food has been notoriously minimum wage in its pay structure.  This goes back to the very beginning of the category.  But why is that?  Obviously, a family cannot live comfortably at minimum wage, but that was never the intent.  Back in the 1930s, 40s, and 50s, we had soda jerks.  These were primarily high schoolers who were saving to buy a car, or other thing that was important to them.  The wage rate was at the bottom of the heap because how much skill does it take to do the job?  But generally the kids were happy, since they were gaining independence, and the parents were happy, because their children were learning a life lesson.

After High School, these kids would go to college, or perhaps get a job in a plant in town.  This was just a bridge from childhood to adulthood.  The same is true in grocery stores where baggers were employed at minimum wage, or theater ushers.  There were many things requiring little skill that kids could do.  There were very few, if any, that expected to do that job for the rest of their lives.  In our town, we had Steak and Shake restaurants that employed a great many teens.  There were ice cream places that were only open in the summer, a great place to make spending money.

Fast forward to today.  When you go in to a fast food place, have you noticed how many non teens are working there today?  It is no longer just a teen job, but rather many different age groups find themselves in that job.  The primary reason for this is we, as a nation, have lost a lot of manufacturing jobs to lower wage nations.  Places like China, India, Mexico, and others have grabbed these jobs off our shore.  This is where our economic system seems to be failing us.  We have the additional pressure of immigrants, both legal and illegal taking jobs that can't move.  After all, it would be hard to package a Big Mac in China, and have it show up on the tray hot and juicy.  When was the last time you saw a shoe that was made in the USA?  Or cell phone, or computer, or even a faucet?

Not everyone can be a CEO.  Not everyone can be even middle management.  There has to be good paying alternatives to those that can't be.  We used to build a lot of cars, with good wages paid, but how many shuttered plants are there.  My grandfather made shoes.  My dad was a printer.  It would be hard to have those jobs today.  The gap in our economy is those mid level pay jobs primarily in manufacturing. 

Before you say, but China has lower wages, we can't compete, let me say that I don't believe that.  Yes their wages are much lower, but their transportation costs are much higher.  So why are these jobs leaving?  And what can we do to get them back?

Some of it is government interference.  When a cell phone company makes a phone in China, they pay Chinese workers, they buy Chinese raw materials.  Then they sell those phones to companies in the US.  What those companies pay goes as a cost of business.  With those dollars going to China.  The factory there has made a profit, and paid their Chinese taxes.  When the company sells the phone, they profit and pay US taxes.  The problem is vertically integrated companies like Apple or GE.  These multinational corporations use their presence in different countries to minimize the taxes they pay.  As long as they leave the money in China, there is no US tax liability.  So those profits go to build more plants there, rather than coming home to the US.

The US has one of the largest tax burdens, especially compared to developing countries like China.  It benefits them to grow their business away from the IRS.  And yet the calls come to tax the rich, especially the corporations.  They are demonized for not paying tax.  Yet, have you ever not taken a deduction you were entitled to?  Why should they be any different?  It's only fair.  Where these companies make money is the lower tax rate in other places, not because those places have lower wages.  And they are encouraged by the tax code to leave it there, instead of bringing it back and using it to build domestic operations.

We need to level the playing field.  Once we do that, jobs will stop leaving.  Then we need to find ways to draw the lost jobs back.  I remember grandpa telling of the hard work done making shoes.  The factories were hot, the job was physical.  But for many, that is where their skills are.  They would not make good salesmen, or executives, engineers, computer programmers, doctors, lawyers, or even teachers, but they make a heck of a widget, and can be proud of that.  Unfortunately, these are the jobs we are losing.

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There are two things that will bring these jobs back.  First sanity in Washington, and a realization that our tax code is the problem.  Second, a concerted effort by consumers to reward those companies that produce here by spending their money with them.  A few years ago we needed a new faucet in our bathroom.  I went to a big box hardware store.  I noticed some big American brands were made over seas, primarily China.  Now these companies will tell you that the design is done here.  Perhaps their customer service line is here as well.  As I looked, I found two that were made here.  American Standard, and Moen, although Moen said they were made here of domestic and foreign parts.  I made a decision to buy Moen.  When I got home, I even sent an email thanking them for building my faucet here.

When companies find out that we are looking at where their goods are made, and giving preferential treatment to those made here, which will by economic law force down the prices of imports to a point where it will make sense to build them here, or cheapen the materials there, further eroding their brand.  The choice will be made for them.

The people are a massive force.  Governments can fall to the people.  Companies can go out of business by the people.  We need to use our people power to reinvent the manufacturing sector of our economy, then Fast Food can go back to what they do best, employ teens for spending money.

Spend Wisely!

War, Economics, and the Middle East

It concerns me watching the news from Egypt.  So many lives lost, so much suffering.  War is never a good thing.  As I watched the coverage, I remembered something a professor said once:  "All wars are over economic reasons."  As time passes, I have tried to disprove this theory.  I can't seem to do that.  Let's follow some examples, from American History.

The Revolutionary War.
We fought for our freedom, right?  Isn't that what we were told?  Yet if you dig in to the times, most of the rebels came to be because the King was trying to tax the colonies to pay for their protection.  The Stamp Act, Tea Taxes leading to the Boston Tea Party, are all examples of what they considered unfair taxes.  This led to rebellion, and the creation of our country.

The War of 1812.
This was more or less a continuation of the Revolutionary War, the British were trying to take back the wayward colonies, because of the value.

The Civil War.
Was fought for States Rights, with slavery as a major component of that battle.  The Emancipation Proclamation was an economic document.  It was intended to cause economic harm to the South.  The South needed, so they thought, slavery to run their economic system. 

World War II.
While we said we were fighting Fascist tyranny, this war was about economics as well.  Without Europe to sell our goods to, we would never get out of the Depression.  The Nazis came to power because of draconian reparations imposed after World War I.



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The same is true today in the Mid East.  It is a war over economics.  The Sheiks and Sultans, or the Islamists are in control of one of the biggest assets in the world today, oil.  They are not allowing their people to prosper, yet they are building large palaces, and other buildings.  The rebels want a cut.  This war can never end unless there is a more equitable distribution of assets.  This distribution occurs with freedom.  None of the sides, currently, seem to favor freedom.  In Egypt, Mubarak was a tyrant, free elections brought us Morsi, who seemed to be intent on turning Egypt into a religious country with him, and his friends as the major benefactors. 

So as outsiders what can we do?  We can try to contain the problem to that region.  Or we can work for a permanent solution, and that solution has nothing to do with Israel.  The main reason that the Arab states have targeted them is not religious, well maybe a small bit, but rather economic.  Israel has been an example of democratically elected leaders, that has thrived economically.  The Saudi King, the Iranian President cannot allow that to be seen in their backyard.

If we proactively make that asset worth less, then maybe cooler heads will prevail.  We can accomplish this in a couple ways.  We can find alternate sources of energy.  That means using our natural gas reserves, developing solar, wind, and nuclear options, and, of course, drilling in other areas where there is petroleum.   This might also bring down the price of energy, and be less enriching to those that are our problems anywhere in the world.  Without Petrol Dollars, Iran's nuclear program will stall.  Venezuela's hard core anti Americanism would subside. 

In our country alone, we have the resources to do this, but imagine if all countries would join, maybe peace can come to the region.  Arab countries would have to diversify, and reasonable people will find reasonable ways to live there.  Not only live, but coexist with Israel.   It's no secret as to the Egyptian / Israeli peace accord, both had diversified economies with people to some degree able to direct their own destinies.  Is that true in Iraq, Iran, Syria, Afghanistan or any other oil country of the region?  Think about it!

Spend Wisely!

Economics and History and Housing

There was a story this week.  It involved housing.  Housing may have been the leading reason for the recession in 2008, that we still feel the effects of in 2013.  There is a quote:  "Those who ignore history are bound (or doomed) to repeat it".  In 2008, we were at the end of the housing bubble, and when that bubble burst, it took down the entire economy.

What was the housing bubble?  In a nut shell, it was a run up in house prices that became unsustainable.  In the early 1950s, my grandparents built their first house.  It was a simple Cape Cod style post war house in the suburbs.  It was under 1000 square feet in size.  It cost them around $3000 to build this house.  In the early 1980s when my last grandparent died, we bought the house from the estate.  It appraised at just under $60,000. roughly doubling every seven years in value.  We owned the house until 2005, when we sold it the price was over $200,000, doubling in about every 4.5 years.  Meaning inflation in housing doubled over the previous period.  How did the market get out of whack?

Over the last 20 to 30 years there has been a push to make home ownership, some say a major part of the American Dream, a reality for as many people as possible.  Neighborhood organizers, the President, and Congress pushed for relaxed loan requirements.  It was an attempt, and probably with good intentions, to help marginal families finally own their own home.  The problem was with more buyers in the market, prices went up.  As prices went up, the move was to lessen the requirements even more.  When I was rather young, possibly in the early 1970s, I remember hearing a "rule of thumb" that said you should not spent more then 25% of your take home pay on housing.  By the time the bubble burst, that rule was out the window.  People were spending as much as 45% on housing, meaning any little blip could cause insolvency.

In 2007 and 2008, globally there was a downturn in productivity.  That blip caused the very marginal to go in to default on their mortgages.  From there it snowballed as the economic conditions worsened to a major loss in property values.  With property values down, those who were meeting their mortgage could not sell, they were upside down.  Housing stopped selling.  Interest rates did fall as a result, but being upside down precluded owners from taking advantage of the lower rates.  As unemployment rose more people fell in to default, and a banking crisis was upon us.



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Big banks bought smaller competitors, and we lost competition as a result.  The top 5 banks today control almost 40% of the market.  As late as the 1990s, in our town, not one of those banks had a branch.  Now they all do.  Bank of America owns the assets of the formerly largest bank in the state, and US Bank the second largest.  This took most lending decisions away from local people.  Which will contribute to the next crisis.

So what did I read that set me off?  Didn't you see something about history?  Yes you did.  In a total disregard, or maybe lack of understanding, President Obama last week called for loosening of lending regulations.  It is noble to yearn for ownership of a house, in many parts of the world it is near impossible to impossible to imagine owning land.  That ownership is enhanced when it isn't easy.  When there is a major investment of sweat and nerves, the payoff is much sweeter.  When was the last time you went to a mortgage burning party?

Government intervention in the housing market has pushed up prices, in the past, many people owned their house free and clear by retirement.  Now reverse mortgages are all the fad.  Government loves rising housing prices, as it increases property taxes.  They are not in it to help people achieve their dream, just to take more money.  If our President achieves the goals he stated, there will be another housing crisis.

None of this is to say ignore your dream.  Just understand the costs.  Research what you need for ownership.  Minimize the amount you borrow, either through a larger down payment or smaller house.  Work towards paying any loans as quickly as possible, so the next bubble doesn't burst in your house.  And as we like to say...

Spend Wisely!

Umemployment News

There was an AP story I read over the weekend saying that 4 out of 5 American adults struggle with poverty.  It detailed the plight many people find themselves in, even though our government says the unemployment rate is under 8%.  Earlier today, I heard a report on the radio that a woman refused a raise at work, so it didn't affect the aid to help her children.  Both of these seem to confuse people, so I thought we should spend a few minutes exploring why these stories mean anything at all.

Poverty has just a little to do with unemployment, especially the unemployment number the government likes to use.  And this is not new, past administrations have also used this number, because it makes them look good.  And on one level, I agree with their use of that number, however from a strictly economic stand point, it is misleading.

The number the administration is using counts only those who are actively seeking employment.  It does not count parents that choose to stay home with their kids, it also does not count people who have given up the search for meaningful employment, and lastly it does not count the under employed, those capable of performing at a higher level, but are forced into fast food or retail clerking.  Or those working part time, because they can't find a job that is full time.  These are the numbers that play into the AP story.  And these are the numbers we need to be concerned about.  These numbers give us a better picture of the state of our economy.

This is the health of our economy.  And it is, in some cases, the result of unintended consequences of policies.  Why do so many people need to work 2 part time jobs, instead of one full time job?  What can we do to change this trend?

The new healthcare law has also been in the news, talk about unintended consequences, the way it is written encourages companies to remain small, or only hire part time.  Some have even reduced hours to make formerly full time employees part time to avoid the law.  This is especially true in retail and food service organizations.  The margins, because of a lack of consumer confidence, have contracted.  One company I follow, reported a sales increase last quarter, but profit was down 25%.  Without profit, no one has a job.  Sales increases for them would indicate that their retail outlets are busier, but profit decrease would keep them from hiring additional clerks, trainers, or other support staff.  This company also hires primarily full time employees, and does supply health care.  If they looked at the occurrence of sales, they might be better off hiring part time, so they can have more people available when their stores are the busiest. 

Most companies have a strategy, specific to them to generate enough profit to run the business, and provide a good income for stakeholders of the organization.  And maybe that is one way to help the economy.  Over the last few decades, big companies are getting bigger, and the acceptance by the public of a company regardless of where they are head quartered, has encouraged this.  Government prefers large concerns as well, it is easier to watch fewer players to make sure they are paying their taxes.  Look on the street of your business district, how many small businesses are there?  Is it full of the national companies like McDonald's, Mattress Firm, Home Depot, Macy's, Target, Wal-Mart, and the like?  Think of where the profits go, to your town, or to the head quarters towns?



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Small business can be our salvation.  Small business can react quicker than large business.  Small business cares more about their home town.  But small business needs profits to do that.  I'm big on small, small business, and small government can react more efficiently and quicker than large bureaucracies, and they spread the wealth more effectively.  The closer a decision maker is to the decision, the more compassion and intuition they can use.  And this is key to the second story above.

The woman was making a sound economic decision.  She needs to care for her children.  If she takes the raise she will lose all her children's benefits.  The $1 raise would not replace those benefits, so it makes sense to refuse it.  Now if the agency applying those benefits were closer to the situation, perhaps they could change policy, enabling her to make more money, but not eliminating all the benefits.  A sliding scale if you will that would gradually allow this woman to care for her own children, reducing what we need to spend as tax payers.  How does a manager in Washington know that for one individual?  He has millions of cases he is responsible for, he can't take the time to review each one independently.  If it were decentralized, with local over sight, then maybe the case load would be more manageable and decisions would make more sense.  And part of our spending problem might be affected in a good way.  And she would benefit from the higher esteem of taking care of her own. 

Neither side of the political arena seems to care for this, it takes their power away.  Our government was originally set up to be decentralized.  It was set up to be by the people, a diverse Congress of shoe makers, bakers, factory owners, and yes lawyers that came to Washington for a brief period to set direction and provide for the defense of the nation.  Now we have a more or less permanent ruling class, not unlike the Royals we revolted against.  Large companies do not like it either, they would not be so large, and executive compensations would fall.

Bringing government closer to the people would make it more accountable, and more able to meet expectations of those governed.  But that would require the power brokers in Washington to take a pay cut, and they don't want to.  Who is to say Carl Rove, or Lanny Davis is any smarter than local people?  What makes Barrack Obama or George Bush any more able to run local issues than a mayor or governor?  Why is Congress' and the President's approval rating in the toilet?

I live in Missouri, our beliefs are substantially different than those of say New York.  And that is ok, if there is more local business and government.  Locals can set policy within their area, and if there are people who disagree, they can educate, run for office or move to a more hospitable area in their opinion.  In general, what the majority of who vote want, the whole population must accept, why should New York have to listen to Missouri, or vice versa, but that is where we are now.  Localities will always differ, why make all people the same?  Maybe the next step is green peasant uniforms and a little red book?

Spend Wisely!

National Debt, Why is Our Economy is Weak

Japan, Zimbabwe, Greece, Italy all have a debt to gross domestic product (the total of all goods and services produced by the people of that country) that exceeds 1.  That means that if they sold everything and applied it to their national debt, they could not pay it off.  That would seem to be the very definition of insolvency.  And the Euro zone is in recession.  Austerity has caused economies to remain slow, so there is no growth to provide incomes for the people.  We have read all about it in the news.  One thing they do not tell us is the countries doing better at their ratios.  France, Canada, and Germany all come in under 1, which means by liquidation, they could pay their debt.

The United States is also still solvent.  But our debt keeps climbing, and soon we fear we will be in the same situation as Japan, Greece, and Italy.  The free spending of the last several years has to be reigned in.  Our national spending originates, by law, in the US House of Representatives.  They may be influenced by the White House or the Senate, but it is their responsibility to originate spending bills.  The Senate then must agree, as does the President.  At that point money is spent.

There is an adage used by auto mechanics:  "pay me now, or pay me later", and the later usually costs more.  We also know that no mortgage lender would lend us more money than we earn, in fact it is usually less than half of what we earn they will lend.  So how does Washington justify this unreasonable amount of debt?  They don't. 

There is supposed to be a debt ceiling that the government can not cross.  That is designed to keep our debt manageable.  But when we have to continually raise it, the purpose is defeated.  In our personal lives, we see what happens when we fall too deeply into debt.  Our homes are foreclosed on, our cars repossessed.  We need to be careful with our money, or risk losing it all.  Is that not also a risk for government?  If we fail to meet debt payments is it possible that people to which we owe money to foreclose?  After all there are substantial assets owned by government.  How about the Old Faithful, brought to you by Germany?  Or how about The red woods, brought to you by the People's Liberation Army?  Are these possibilities?  Why wouldn't they be?

The Japanese debt has wrecked their country, yes they still have an economy, but it doesn't grow like it used to.  It is harder for them to bring jobs to younger people entering the job market.  Same in Europe, it is the young who will bear the burden.  Yet here we hear lip service to caring for the children.  The First Lady struggles to try to encourage good diet in schools.  If we are burdening them with debt, why worry?

The good news, if there is some, is we are not yet to a point of insolvency, but it is close.  What our leaders in Washington do, will affect future generations.  Should we hand to them a country that can, or a country that can't?  It will not be easy,  politicians do not like to say no.  In the 1980s, we as a nation started on a path to surplus. When we got there in the 1990s, there was no restraint by Congress to save those excesses for the future.  And they made no move to seriously try to pay down the debt.  Shame on them. And this is precisely why Keynesian Economics does not work. Our forefathers worked hard to pay off the debt of the Revolution.  The next generation worked hard to pay off other debt, and our economy thrived.  Since World War II, there has not been a similar attempt to pay down debt, instead we just let it ride, and that is through Democrat AND Republican administrations.

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We saw a story about Detroit.  Apparently Detroit is going to have to not honor pensions.  People worked diligently through their lives, with a promise.  But that is all it was, a promise.  Now when these people are old and some frail, can they go out to work again?  Is this the future of Social Security?  Yet IRAs are still there, but even they can be affected by this debt as our markets lose value.  So we the adults of our time are pushing our responsibilities on to our children and our parents, that seems rude to me.  And we spend all our time talking about illegal immigration, and other minutia that will not do anything but offer cover for the free spenders in Washington.

All wars are fought over economic inequalities, even our Civil War.  Is a new Civil War in our future?  Or a split of our country into several new countries?  Is that what we want?  Would that be good economically?  Unless We the People make a concerted call to our leaders, that may not be too far off base.  How do we call them?  The first wake up call is usually real effective if it happens at the ballot box.  We have the power to prevent these spend thrifts from enriching themselves on our tax money.  You have heard the rags to riches stories, middle class guy goes to Washington, makes a lot of money, leaves office to be a lobbyist, never stepping back to where he came from.  At least if we keep the door spinning, the potential of that would be minimized.

So to you, and especially to the Congress of the United States...

Spend Wisely!

What is Econocentric?

Sometimes economists make up terms. I am sure there are other groups that do the same thing.  Here is a new word out there.  Econocentric.  But what does it mean?

Econocentric can be broken in to a couple pieces econo and centric.  The word means to buy from the closest source, assuming all other things are equal.  In other words, if you have access to let's say furniture, in a retail store,  Econocentric would be to shop for the quality and price that is acceptable to you, but then consider where the furniture was manufactured.  So let's say you find 3 chairs you like, each does what you need it to do.  Chair one is made in China, chair 2 is made in South Carolina, and chair 3 is made in Texas.  If you lived in Asia, you would be Econocentric by buying the chair made in China.  If you lived in Pennsylvania, you would buy chair 2.  And if you were on the West Coast of the US you would buy chair 3.

Why is being econocentric important? My grandfather would probably have said, cause it supports the working man in this country.  From an economic point of view, it supports people closer to you.  If you lived in Texas, as in our above example, maybe you even had a neighbor who worked for the manufacturer.  Assuming you are friendly, isn't it a good thing to support a neighbor or friend?  But even farther, doesn't that give that person the ability to spend money they made at work within the community, perhaps even from the company you work with.  This goes deeper than "Buy American"  because it is buying equal quality at equal price.

It is also how our government should function.  Most governments try to protect local jobs by imposing tariffs on imported goods.  Which is their prerogative, as long as it is not artificially inflating the real price of the goods.  It is a way that government can prevent other companies from polluting the air or treating their people as serfs.

Tariffs should even the field for domestic producers.  It is vital to our sovereignty that we have a manufacturing base.  How could we have won World War II if not for our production facilities?  Think German companies would have sold us bullets or planes?  It is OK if there needs to be conversion of plants, like during that war, to shift from consumer to military production, but to not have the plants to convert would be catastrophic. 

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But what of companies headquartered here, that manufacture outside the country?  Treat the origin of the products as the way to determine the econcentricity of the purchase.  If a shoe company has a plant in India, the product is sold as Indian, even though the company is headquartered here.  So Apple's iPhone is from China, that makes it Chinese as far as our discussion here is going.  Even though it is developed and designed in California.  If Samsung opened an American plant, even though they are not headquartered here, their product would be more econocentric.

Some countries just don't care for their people, their environment, or the benefits of having a thriving manufacturing base, they just care about the money they skim from the top.  China today may be the most polluted country in the world, they are killing their citizens, and more, since pollution doesn't stop at the border.  Their people are committing suicide from over work and inability to save enough to get out of the cycle.  Just as in the 1920s, some American Companies abused their labor.  Or even later when companies polluted.  We fix our problems, or are in the process, which is why tariffs should be imposed on countries like China that don't.  As those countries fix the problems the tariffs should decrease, then the field is equal, and business in both countries can thrive, and consumers will benefit from competition to keep prices down but will not die because of unfair competition.

If you agree with this reasoning, why not lead an econocentric lifestyle? Even if you don't...

Spend Wisely!

Is Our Problem Unemployment?

I read an interesting story, one that looks at an issue that is important to our economic well being.  It seems that only 47% of working age Americans have a full time job.  That is incredibly low.

Why is the economy weak?  It seems there is not enough jobs to go around.  Most news organizations have been dutifully reporting the Administrations unemployment figures.  Even Vice President Biden has been crowing about the numbers.  The problem is, they are manipulated to make things look better than they are.

There are approximately 245 million working age adults in our country.  Out of this number only 144 million have jobs at all.  Would that not make the real unemployment rate 41%?  But wait, as the TV hawkers say, some of those are people not looking for jobs.  People who are disabled, stay at home Mom's and the like, would not be actively looking for a job.  Most economists would say you can't count those, which seems pretty fair. 

Then there is the underemployed.  Just because some one has a job, doesn't mean it is a job they are qualified for, or even want to do.  Maybe it is part time, or way under the person's skill level, the point is they are not necessarily happy in the job they have.  Underemployment seems to be where we have a problem.  Again, looking at the numbers, only 53% of working age adults have a full time job.  Much more work would have to be done to determine skill matches in those full time jobs, like a PHD working full time at McDonald's. 

There have been some surveys I have read that indicate that many people are not satisfied with their current job.  That would be a non scientific indicator that underemployment is a major issue in today's economy.  And it would seem needs to be researched to find solutions. 

When a person is underemployed, or unemployed, they are less likely to make major purchases, especially if it can be put off.  Many employed see the weakness, and they resist buying because of their worry that the economy may put them in a similar position in the future.  So how does the economy heal?

One of the tenets of my economic philosophy is that the economy is driven by a certain group psychology.  That is mostly about the feeling common people have towards the potential in the macro economy.  The economy goes through cycles, as much as our Keynesian friends want to deny it or say they can mitigate it, these cycles have endured since the beginning of time.  Studying history can shed some light on how to correct this problem.  There has been little experience in the down times of the cycle in recent memory.  The United States has over all been in a distinct upward tact since the mid 1980s.  Yes there has been some pull backs, but over all things have been growing.



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If we look at the late 1970s, and early 1980s, we may be able to find a solution.  What caused us to leave "stagflation" behind then?  What started our economy moving again?  It was a change in attitude by the American public, as much as anything else.  It was not the stimulus per say, but a general feeling that things were getting better, allowing them in their own situations to buy a new car, or appliances, or even a house.  The snowball effect of these purchases raised all other levels.

That is what will happen here as well.  One thing to take into account is how that change of attitude was precipitated.  That is where politics came in.  It is the vision of the President that excites the most change.  Yet this administration seems intent on not displaying any excitement.  One reason our current President was elected originally was his phrase "Hope and Change."  Yet after the election, he seemed to throw it under the bus.  That was not productive in an economic sense.  What he seems to believe is closer to Herbert Hoover or Jimmy Carter than to Franklin Roosevelt or Ronald Reagan.

Things can change, although the potential under the current administration is not high.  Our next Presidential election will prove critical to our status as the leader of the economy of the world.  But right now there is considerable political disarray in our nation, and even the world.  So what do we do in the mean time?

We the People of the United States can change things regardless of the politicians, we consent to their governance, we can change things, even if they show no interest.  We still have substantial liberties and freedoms to affect our lives economically and in other ways.  We need to stay up beat, we need to say enough.  We need to...

Spend Wisely!

Failure Economics

While it has been awhile since the last post, it is not because of lack of news.  And so I wish to plug forward and address an issue that seems to be aggravating me, and I'm sure others.

Recently the President has gone on the offensive for climate change issues.  One of these issues is the Keystone Pipeline.  He has pretty much said it will not be built.  Why?  Because of environmental concerns.  And he is entitled to his opinion, here's the opposition.

So we don't build the pipeline, what's the big deal?  The oil this pipeline would transport is under Canadian soil after all, so what good does it do us?  Isn't it better that that oil not be refined to restrict the carbon impact?  All good questions, don't you think?

True it is Canadian oil, not US reserves.  Do you think the Canadians won't find a way to get this oil to market?  Or do you think they will say oh well.  It will go to market, it will be refined, just not by the US.  Since this reserve is middle to west in Canada, will they take it to the Atlantic or the Pacific?  The reasonable answer is the Pacific.  So who might be interested in buying and refining this oil?  The Japanese?  The Chinese?  Wouldn't the safe money be on one of these two countries?  When another country refines it, they can use it domestically, or sell it internationally.  So saying that this move will stop the "carbon footprint" is inaccurate at best, in fact Japan or China is much further than Texas increasing transport costs and pollution.  On the other hand, it will increase world supplies, and hopefully help bring down the price of oil, it will be used.  Now consider, do we have any control over refineries in other countries?  Can we force them to clean up their emissions?  No.  If the oil were refined here, our laws would refine it cleaner than we can assume other countries would refine it.

And what of jobs?  Has not the President promised to be laser focused on jobs?  Is not the Vice President touting the economic success of the Administration?  Of course.  But oil refined outside our borders does not employ Americans.  There is no income tax if there are no jobs.  And when we need oil, we will have to buy it from those refining it, sending dollars to other countries.  Refining this oil would produce jobs in our country, and the President apparently doesn't care.  Building the pipeline would be a great stimulus project, that the government would not have to fund.  But I guess it is better to fund the Solyndras of the world, look at all the jobs... never mind.



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It is not about the environment at all, it is not about economics either, this is strictly a political decision, and political decisions usually cause failed economic policy.  If it were about the environment, we would want to build that pipeline, so we can ensure it is as clean as possible, search China pollution to see what the carbon footprint would be if we don't refine it.  If it were about economics, we would build this pipeline for the jobs and tax revenue it would generate.  A political decision just buys votes of who, most would say are zealots, wanting to eliminate the use of fossil fuels. 

Sometimes it is called the law of unintended consequences, like electric cars that charge up with electricity from coal.  Or Detroit.  We need to grow our economy to solve many of our economic problems.  We need a Congress that doesn't spend every penny, because they can.  We need jobs to get out of the malaise that is still affecting many sectors, regardless of the "rosy" numbers touted by the Vice President.  Statistics are just ways to manipulate numbers.  That is why unemployment numbers no longer include those that have given up.

It is not too late to turn our ship around, it will just take good people to do it.  Good people which we seem to lack on all sides at the moment.  We are the largest economy in the world, we can remain the largest economy, but not by refusing to do things that are in our economic interest. 

Spend Wisely!

Free Trade

Today a story appeared that said President Obama was pushing aggressively free trade globally.  I had two separate reactions.

The first was from growing up as the grandson of a union organizer, and the son of a union member.  That reaction was why would a Democrat president work against the working man?  We know that these countries don't play fair, so why not even the playing field on those wishing to take American jobs.  But I guess he cleared it with his union buddy.

The second, coming from a student of economics, was that free trade is a great thing, as long as it is fair trade.  Did you ever wonder how a trinket from say China could travel thousands of miles on a boat, then hundreds to thousands of miles farther on truck or train, and still be cheaper than the trinket made in the next county?  While most of the time people blame labor costs, that is not entirely true.  All governments, ours included, find ways to subsidize certain industries.  When that subsidization occurs, the trade is no longer fair, and throughout history the target country has put a tariff on the product, to protect their workers.

Think of the inequalities between the Chinese and American economies.  China has much more lax pollution regulations.  While keeping our house clean is a good thing, the messy neighbor is able to save capital which is a part of the price of our trinket.  To bring this in to the real world, I worked for a company that manufactured air chambered beds.  They did not make the chambers here, simply because of expense.  Regulations prohibited the manufacture, since too much pollution came off the process of fusing rubber together.  They were forced to out source the production to a former east block nation.  So while their beds are assembled here, the parts are made elsewhere, because of inequalities in law.  But does not pollution carry in the wind?  Does not what the Chinese do or don't do affect the entire globe, including us?  How about the Indians, or Vietnamese?  Or even Mexicans and other South American countries?



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Before we should pursue free trade, we should pursue fair trade.  Fair trade is when both economies play by the same rules.  So as an example since Canada and the United States are similar in regulation, free trade can ensue.  Or even many countries in Western Europe.  We need to decide as a nation whether we want to clean up the planet, or not worry about it.  Many political discussions in our country focus on regulation.  Some regulation is required, and in our system that regulation is decided by our elected officials.  By buying items from nations that do not protect their environment, we are tacitly saying the environment is not important.  We are being hypocritical.  We point to our environmental laws and regulations and pat ourselves on the back, then allow those who do not give a wit about pollution to cut us off at the knees.  That is not fair trade.

Tariffs are the mechanism that equals the playing field.  They do increase the price of imported products, but that only makes them equal to domestic products, this encourages good environmental stewardship.  As other countries come up to our standards, those tariffs should be reduced.  Assuming that eventually all countries would come to our standards, then free trade makes sense.  Until they come to our standards, tariffs are logical and appropriate.  There are some inequalities with the price of labor, those also tend to go to equilibrium as the less developed country becomes more developed, and when matched with transportation costs are actually minor in the pricing of products.

So we would urge the President to pursue fair trade agreements aggressively.  Free trade is unfair trade.  We saw that with NAFTA under President Clinton.  All the US companies that opened plants just across the Mexican border, did so because of unequal regulation.  The same did not happen just across the Canadian border, because Canadian regulation would not offer the same savings.  We lost too many manufacturing jobs because of this.  If the President must promote free trade, then he should advise the EPA and Congress to change our laws, reducing regulation and environmental controls to make it truly free trade.

Spend Wisely!

Political Economics

Can we all agree that there is a political side to economics?  And it runs much deeper than to just say "I am a free market capitalist" or "I'm a Keynesian believer".  The type of economic system a politician believes in, can shape policy, and affect the over all economy pretty deeply.

Another thing we can probably all agree on, is our economic well being in the US is precarious at best.  The morass seems to trudge on, with no apparent end in sight.  We read news (or at least I do) that says the Chinese currency may over take the Dollar as the world's reserve currency.  Reserve currency is the money people prefer to be paid with.  Before World War II that currency was the British Pound Sterling.  Since World War II the US Dollar has enjoyed that distinction.  When the Japanese or Chinese or British buy oil as an example, it is priced in Dollars.  That means they have to buy Dollars from us and use those Dollars to pay the oil producers.  Reserve currencies are generally perceived to be stable in value, and readily accepted.  So why now is the Chinese Yuan challenging the Dollar?

The Chinese have built their economy, almost on a free market system.  They are attempting to beat us at our own game.  While their government remains a totalitarian communist regime, their ability to unleash the entrepreneurial spirit in the people seems to be propelling their economy.  But for the same reason that the Middle East will never be the reserve, there is strict  controls by their government on the supply of money.  However, the more economic freedom they allow their people, the more likely it is that their currency will keep bubbling to the top.  There are pitfalls in the Chinese model, and unless their luck holds out, this blogger doesn't think the Yuan will be the reserve currency as soon as other experts.

Most market traders look at the present, and consider a little history.  Yahoo recently paid over a billion dollars for Tumblr.  Tumblr's assets are not worth near that, Yahoo believes they can improve Tumblr, and save money on the start up costs, and it does take a competitor out of the mix.  Traders also trade on emotion, more so now than ever before.  Sometimes, they ignore economics just because they believe they know where the future lies.  And sometimes they are right, think plastics in the 40s and 50s.

Many now assume that the Chinese economy will never have a hiccup.  That isn't true either.  While they have a vast internal market and seem to be growing their export market there are inequities in the Chinese market.  We have heard of the Apple plants, seen government plow over villages, and hear about the low wages.  Twenty or so years ago, it seemed Japan could do no wrong, the Japanese have had a rough couple of decades since, and the Yen is not as important as it was back then.  Consider what would happen to the Chinese economy if a general strike occurred, or a hard line Communist leader came to office.  And neither of these is too far fetched, considering what we know of their economy and political system.

There is still one nation that has political flexibility, a stable work force, and infrastructure to build itself into a power house.  That country is the United States.  For all our flaws, we really do know how to do business, and to do it in a sustainable way.  We have learned how to protect ourselves from pollution.  We have the ability to regulate business to ensure fairness.  The Chinese have none of that.  Their political system will be their undoing.  Will the Dollar always be the reserve currency?  In a word NO.  But our good years are far from behind us.  But as a people, we need to keep our political leaders on their toes.  We need to vote, not along party lines, but by who will promote the economy the best.

The Great Depression of the 1930s could have sunk us.  But our leader, Franklin D. Roosevelt, said "We have nothing to fear, but fear itself."  And we promptly went out and saved the world.  Japan could have unseated us in the 1980s, but we had a president, Ronald Reagan, who said "I see America as a shinning city on the hill."  Igniting a favorable economy for almost 15 years.  When we elect a leader with as much vision as these two, the Yuan is in trouble.  Remember, economics is as much psychology, as it is real measurable numbers.  When the American people wake up, and they will, our economy will reignite once again.  All we need to do is to balance regulation and tax policy to help fan the economic fire. 

Spend Well!

Productivity

A lot is said about productivity today.  Worker productivity is crucial for a businesses profitability.  Productivity is attacked by several outside forces.  The intent today is to help you with your personal productivity.

When we talk about outside forces, that includes things like the Internet, email, and other things that might take your attention from the task at hand.  But there is another more insidious productivity sapping appliance, the smart phone.

Much is said about time management.  And it is all good.  However, things like the smart phone and email impact that time management plan.  You can not ever set the time when another person will send a message.  You can determine when you will respond. 

Let me give you an example.  In the early 2000s I worked for a company called Nextel Communications.  During my tenure, they were merged with Sprint.  With Nextel, I received very few emails, just a couple a day.  So it was natural to check these emails on a regular schedule and accomplish the intent.  On the day of the merger, emails zoomed and stayed at about 30 a day.  If I were to answer or accomplish each one as they arrived, that is all I would be doing.  Corporate policy gave me 48 hours to respond.  As smart phones (first Black Berry) came to the market, as a manager I could have had one.  It was all the style back then, it made you look important.  At a training class an associate asked me when I was getting one.  I said never!  But they are cool he said, and I agreed, so why not?  I pointed at my boss in the corner of the room and said that's why.  While I had 48 hours, I knew that if I had this on my hip, and I didn't immediately respond, he would call to see why.  If I didn't have it on my hip, he would assume I wasn't at the computer, so no big deal.  My decision was all about productivity.



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I had a scheduled time to answer email.  Other more productive things then had their time as well.  Flash forward to today.  The smart phone is almost universal.  And they are still real cool!  However, do you pick it up every time in alerts you to a new message?  Do you answer it on weekends or days off?  If so it is impacting your productivity.  Many years ago, and no I won't say how many,  I worked for a fortune 500 company.  It was before email, and mobile phones were for the very rich and anchored in a car or boat.  Time was much less a problem, the mail from corporate came once a week.  It was the number 4 retailer at the time, and my store was open 6 days a week.  I worked 7 days at first.  After all, it was my first store, and I wanted to prove myself.  Eventually that schedule was too much.  The store was closed Sunday, and I decided to stay home.  All I had was my family and friends on Sunday.  The result:  I got just as much done, as working 7 days, I would no longer put things off to do on Sunday.

So on this Memorial Day, turn off the phone, get away from the computer.  Concentrate instead on your friends and family, you will catch up tomorrow!  Be productive.  Set times to read email.  Don't look at the phone as often as you do now, do what is important to get your job done, and done well.

Spend Wisely!