Economics and Politics

Most economists are political.  John Maynard Keynes is of the near socialist school, Karl Marx was a socialist, Adam Smith documented a capitalist system, and Arthur Lafer is a free market capitalist.  The point is that political systems develop from economic systems.

The United States today is in a state of flux.  Not unlike many countries in history.  As a people we need to decide if we are going to change course, or if we are to go back to our roots.  To be clear, I am in the second school.  I am a free market capitalist, and I believe it is the best system for the most people to succeed economically.  Many of our political leaders are either on the side of changing course, not changing course or saying what they think their constituents want to hear.  The third group is dangerous.

Here's an admission, and I've made it before, but in some cases socialism works.  However, those cases require a certain smaller group that has a goal in mind, and all the members agree on that goal.  Socialism is central planning, where government types decide what is good for society and then implement programs and policies to guide the economy in the "correct" direction.  Individual members of a socialist society do not generally have much input in to the decision making process.  As an example green energy.  While most of us agree that energy is the problem of our time, there is disagreement over what to do.  A socialist will invest in companies that build green energy products.  They will force their way by telling people that our current energy policy is polluting, and running out.  So they will send tax dollars, and that is money they take from you, to companies like Solyndra.  The company manufacturers the products and the problem is solved, right?  Here is where socialism breaks down.  The United States is too large, and we have diverse opinions.  So in this example the money was spent, but the products were unable to be sold; Solyndra goes bankrupt.

A free market capitalist might also invest in Solyndra.  However, it would be private money.  Sort of like when Henry Ford invested his money in a fledgling industry making cars.  If the investment is successful, the capitalist makes money.  If it is not, he loses.  But the entire economy does not lose.  Therefore, it preserves capital, and still encourages innovation.

On the scale and size of our economy, socialism is to unwieldy to work.  It concentrates power in the hands of a few, and ignores the needs of the many.  If the State of California thinks solar panels are good, they can encourage the use.  If they guess wrong, only California is hurt, and the people can vote with their feet by moving in or out of the state.  On a national level, your only option is to leave or come to the country, and this makes the choice for the average person near impossible.  And in some socialist systems, they decide they need the population to stay put, and make it impossible to leave.

The worst are the politicians who have no true rudder.  They will go where the wind of public opinion takes them.  One day they are free market capitalists, the next socialist.  And that is precisely what is going on in Washington DC today.  And hear are the groups:  Democrats are pushing a socialist agenda, they are the ones picking winners with your money, you have little or no input.  Republicans are the ones floating in the wind, saying and doing what they think they need to do to win the next election.  Then there is a group without much national leadership that are pushing a free market, capitalist agenda.  Right now the third group is barely represented on a national level.



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As an economist, when we study wars, revolutions, and social turmoil, there is always an economic group that is underrepresented.  It can lead to new parties, death of existing parties, civil war, revolution, or best case social unrest until the system is rebalanced.  Right now in our nation, we have too many citizens that are not paying attention, at least not until their paychecks are affected as they saw early this year.  But now is not the time, election time is that time.  We the People of the United States are the driving force in our economic system.  We need to decide as a people which direction we want to go.  My vote is for the middle class, for the poor when I vote for capitalists, regardless of party label.

Spend Wisely!

Holiday Sales

Another quick hit, if you will.  There was an article published (read it here) that was mostly marketing in its investigation.  But marketing is part of economics... It was exploring different offerings for President's Day sales, and if they really was a bargain.  One part caught my interest, simply because I have followed the company and observed that they market bargains that are perhaps dubious.  They are an air mattress manufacturer, and they have a "special" bed at 50% off!  sounds good right?

Problem is that this company markets a normal line of beds.  When they come out with a special bed, they post it at their website for 30 days at a price they do not expect to sell it at.  After the 30 days they then start to discount.  This special mattress will cost you over $2000.  But is it worth more than other mattresses they sell?  Usually not.  The inflated price is to fit a marketing plan to show a huge discount.  And to make it even more interesting, they offer no refunds on these special beds.  And this site observed that they actually have had the same discount in the past on the same bed.  They will sell a lot of the beds, but the main drive is to bring people to their stores or web site.  The up sell then begins.

They were not alone, there are many companies that do the same thing.  But that is not a bargain, and people should know that if something seems to good to believe, it almost always is!  Instead, by doing research on a product you are interested in owning, and then shopping, you often will save money.  This is true particularly if you shop local.  The largest companies rarely give their people in the field the ability to change the "deal", however a local merchant can, and will if it is feasible and profitable.  We own a small retail store and people ask, "when does your sale end?"  Our answer is that the sale ends in one of two ways, you purchase from us, or our vendor has a price increase.  It is typically true of the big chains as well, but they market it as the best ever, even though as we saw above the price is constantly offered.



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For President's Day or Memorial Day, or any other Day, research, assume that it is not the best deal, and decide what the product is worth before you buy.  Stick to your budget and don't be confused by hype and marketing!  And...

Spend Wisely!

Energy and Economics

I recently clicked on a headline, Meet the MILLION DOLLAR government employee...   This article sums up why economics is misunderstood, particularly at the highest levels of government today.  At first glance it talks about outrageous salaries on our tax dime.  However, I believe that whether in sports, industry or government, you are worth what someone is willing to pay you for your labors.  So why be upset that someone in government is making a million dollars?  Precisely because he is not returning additional income from his labors.

In business, CEOs and other high ranking management types are well compensated.  But, they are only compensated to the degree the organization can afford.  The same is true in sports.  Your big hitting first baseman is paid well simply because people will come to watch him.  He returns money to the organization that pays his salary, and profits the owners.  Owners would not pay more than they can profit, or they would go out of business.  Last year Walmart's CEO made $35 million dollars.  He will get hit by the people who are jealous saying he is not worth it, etc.  But his company posted $405 Billion in sales, $35 million isn't even 10%!  And, I'm sure a big portion of that is incentives.  A company I worked for had a CEO that was in charge when the economy tanked in 2008.  He said that since the income wasn't there, he would not take his salary, admirable, but he did take incentives, and that kept him secure. 

Now, a million dollars is not that close to the $35 million paid to Walmart's CEO.  If you read the article you will see that the $1 million did not return profits.  After all government isn't a profit generator.  And that a few of his "projects" actually went belly up.  So it is not the salary that should bother us, but rather the loss of treasury funds to prop up the projects.  He runs an alternative energy research facility.  We should be all for new sources of energy, energy is what drives our economy.

Government can encourage investment, but should never run the investment.  Why?  Because they are not in the business of making profit.  I am a big lover of solar energy.  I believe hybrid solar systems would be a boon to transportation, at least in some form.  As long as oil is cheaper than solar panels, it will never happen.  So to prop up government investment, have you noticed gas prices creeping up?  Yet at historical high levels, oil is still cheaper than solar... Government is the vision of those that it governs.  Yet in this instance goes against the consensus.  And is failing, which is the primary reason government should not run the investment.  Look back at history, and ask yourself what government has invented anything?  TV?  Radio?  Computers?  Internet? Cars?  Farming techniques?  Airplanes?  Of all those listed, the only debatable one is the Internet.  The Internet started as a Defense Department network.  However, the current Internet is not what was the Defense Department envisioned.  And private enterprise has improved it to the point that the early users would not recognize it.

Without a profit motive, there is waste.  Without a visionary in control, there is no vision.  These two reasons alone should be enough to encourage government to stay away from ownership.  But it sadly doesn't.  The view at high levels of government is that they know what's good for you and me.  And that is their motivation.  Sam Walton, Henry Ford, Thomas Edison, Frank Woolworth, Marconi, the Wright Brothers, and others had vision.  They worked hard, and kept costs low, and they succeeded.  Government has no real reason to control costs, there has always been the attitude of "we have to spend it or they will cut our budget next year".

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Now, what can government do?  They can structure tax law to promote enterprise.  Or even offer prizes for the first person to do what ever.  The $1 million government man over sees a budget of $535 million.  Do you think a half billion dollar prize would encourage invention?  And that would be a one time payment, not every year into infinity.  They say they want to balance the budget, so why not try it another way.  What we have been doing for the last 40 years has brought us $16 Trillion in debt, and still oil and coal are the best answer... My favorite saying is "to do something over and over again, and expecting different results, is the definition of insanity."

Maybe that is why our Founders didn't include in the Constitution a section for Government investment.

Spend Wisely!

Economics Overload

There are so many things that have caught my eye lately, it truly is hard to decide.  Whether it is the State of the Union the other night, recent employment numbers, or even the ex cop that terrorized Los Angeles, the cruise ship in the Gulf, horse meat in the UK, the Euro zone recession, and more it is a remarkable time to observe the economic world.

So this is a quick hit blog, a little bit about each one!  Let's go!  In the State of the Union Address the other night, the President seemed oblivious to the fact that our country is in dire economic straits.  Some in his party have said that we don't have a spending problem, we have a paying for it problem.  I disagree, it is absolutely a spending problem.  There is finite resources, and our politicians, on both sides do not recognize it.  If we do not get spending balanced with income, we risk our very nation.  Whether to external threats, or internal, the pace of spending can not be maintained.

As for unemployment, and this ties back to the last, there are more people giving up on ever finding a job then have found one, and the United States has done better than our European neighbors.  But the entire world is poised to plunge in to a new Dark Age, if we the people do not do something to prevent it.  For over 200 years the US has had reasonable budgets, and we became the preeminent nation in the world, it is getting back to basics that can save us.

Do you think the ex cop (I refuse to use criminal's names) didn't get pushed to his rampage by his personal economics?  Can you imagine how hard it would be to find a job, if your a disgraced cop?  How does one live without a job?  But who cares... He probably voted for the President.

Can you imagine the lawsuits that are going to hit Carnival Cruises in the very near future?  I heard one pundit say it is difficulties in life that define us.  Now a days it is difficulties in life that win us the lottery!

Yuck, really?  Horse meat is being sold to unsuspecting customers in the UK?  Why??? Well I saw a story that said horses being used for meat can be bought for $50, well less than a cow.  Horses of the world should strike for fairness!

The Euro zone is at the top of the coaster, looks like they are going to fall back in to recession.  How's that Keynesian soft socialism working over there?  The good news for them is if the US can right our economy, they will come along for the ride, again.  Socialism in any form cannot work on a national or international basis, but can in small pockets.  People just get too lazy, but in small pockets with a defined goal it is amazing!

So now our quick hits are done, comment below if you would like to see a broader explanation of any of these...  Until next time..

Spend Wisely!

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Economic Observation

As I was driving to work today, I had the radio on.  It was tuned to a clear channel AM station.  The program was a syndicated program.  I have listened to this station most of my life.  I remember when they picked up this program.  It is one of the highest rated syndicated programs today.  And I want to use this to illustrate how observation can tell you more than some of the conflicting or hard to understand numbers that come from the government.

As with syndicated shows, they have breaks. During the breaks certain things happen, but in every break there are commercials.  It is how the station pays its bills, as well as the show.  I don't know which commercials are the stations, and which are the sindicators.  But the break I heard started with a satirical bit done by the show, followed by a public service ad.  We all hear public service ads, but keep in mind that if there is a paying customer, the public service ads are moved back, often to late nights or early mornings.

To have a national show that goes into break, at this time of day with two non paying slots is unusual.  And that is the point of today's blog.  When you notice unusual things you can make certain deductions based on what is happening.  In this case they did not sell out the ads on this program.  That means advertising dollars are dwindling.

Most companies that deal with the public advertise in some way.  When sales go down a little, these companies will often spend a bit more in advertising to try to get more people to buy their product.  The only time that doesn't happen is when sales are depressed for a while, and there simply isn't any money to budget to, in this case, radio advertising.

Be careful, though, one instance doesn't mean a bad thing.  Other factors can come in to play.  Perhaps the station or sindicator had turnover in their sales force, or even technical difficulties.  The point is to look at trends.  As I thought back a bit I remember seeing more public service ads and program teases on TV as well.  We also see print media in trouble.  Mergers, bankruptcies and moving to electronic publishing are showing that ad revenues are down.

I am seeing a weakness in our economy, simply based on the decreasing ad revenues.  The other day I read a story about how tax increases are affecting sales early in this current quarter.  In that story it talked about a couple who are giving up their date night, to pay taxes.  But we all know taxes only went up on the rich...  To quote Bill Engvall:  "Here's your sign."  You are the rich they were talking about, and they were patting themselves on the back (both sides) for stealing your date night.  But it's patriotic to give up something for your country, right?  Hmm I wonder what Washington gave up...

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Increasing taxes in a slow to recessionary economy is disaster.  As you drive to work or school, or anywhere else notice how many openings there are in store fronts.  How good has traffic been lately?  If you go out to lunch, how busy is the restaurant?  All of these things can be observed and give you an indication of the strength of the economy, at least in your geographic area.  Right now, our area is bad.

So what can we do?  One of my tenants is that the economy is group psychology, so we need to try to stay upbeat.  If you are employed have that sense of security.  Do what you need to do to secure your future, understand that we go through times like this, it is called the business cycle.  In my lifetime there have been 2 or 3 serious downturns similar to what we are experiencing now.  In the late 70s things were even a little worse because we had inflation to boot.  But it is my opinion that inflation is just around the corner, if not already here.  It is being caused by several things, but the largest controllable reason is the Federal Reserve, a quasi governmental agency.  Bottom line, try not to pull back from the economy, the United States is still the best economy in the world, and we will survive this time because of our people.

Other things you can do is observe what you are buying.  We are in a global economy, it is OK to have a nationalist sentiment and buy as close to home as possible.  Walmart, Kmart, and the rest may not like what I am about to say, but they are not as close as your local merchants, they will not offer the service a local merchant can, and they live on imported products.  Turn the box over, read the country of origin.  If a product is not made here, and there are some, at least try to buy from a local distributor, or American based company.

Let me give you an example from my industry, mattresses.  The Chinese make mattresses, they make them so cheaply that they can ship them here and still allow merchants to sell a Queen bed for just a couple hundred dollars.  Their quality is poor, and they even ship them compressed to save freight.  The brand we sell is sewn in South Carolina, granted there are some imported parts.  Some of the parts imported are because of government regulation making it too expensive to produce here, others are just way cheaper than the American alternative, so it is a balancing act, but at least the bulk of the production labor are from our South Carolina neighbors.  And yes our mattresses are more expensive, but they will last 3 to 5 times as long as the imports, but are not even twice as expensive.

My grandparents knew value.  They bought products that will last.  Grandma would do things like buy pillow protectors to make her pillows last longer.  When was the last time you bought a pillow protector?  And why?  Because the pillows are in relative terms cheap, especially from the big box stores, it is easier to throw them away.  Today we talk about the environment and landfills alot, why do we buy products that will go there too soon?  They never had a lot of money, and they even survived the Great Depression, perhaps we need to follow their example...

Spend Wisely!