Browsing the archives for the Economy category.



Nobody Cares About Life-Preservers!

Economic Policy, Economy, Election, Politics

House Speaker Nancy Pelosi recently commented that “You don’t get any credit in campaigns for what you prevented from happening”.

I brought up this same point in a post yesterday. People don’t feel as grateful for a person who straps the life preserver on…but they are eternally grateful to the person who pull them out of the water before they take that last gasp of life.

This is the way people are. Nobody is going to make people understand otherwise that the economy was saved. I’m afraid there will be Republican good fortunes brought on the backs of Democrats for years to come.

1 Comment

Cash for Clunkers or Cuckoo for Cocoa Puffs???

Economic Stimulus, Economy, Infrastructure, Politics, Public Policy

Jesse

Recently, the most popular topic on the news outside of Jackson custody battles and estate issues is the Cash for Clunkers program, also cleverly (?) known as the CARS (Car Allowance Rebate System). The program is relatively simple based on its website: www.cars.gov and includes just five simple steps to keep dealers in business, minimize the exposure of underperforming dealers and cars from UV rays on dealership lots across the United States, and get gas-guzzling dinosaurs off the streets in favor of cars with better fuel efficiency. The biggest issue is that the CARS program is a 5-step program to keep more dealers from tanking when the real focus of any current and future economic policy should be a 12-step program to help the economy recover.

One thing to ponder is the basic economics and environmental logic of the situation. If you have a good, working car whose only flaw is its MPG, does it make sense to scrap it to take advantage of this program? Additionally, scrapping these cars might reduce the dependence on natural resources, but will the scrap industry properly dispose of all the additional transmission fluid, oil, gas, windshield wiper fluid, auto components like old brakes made of asbestos and other things that may be worse than gassing up? Finally, unless an incinerator is environmentally-friendly, there’s a good chance that we might be better off without a mad dash of clunkers to the scrapyard.

More importantly, from a free-market economy perspective, the numbers from the last 10 years show that the Big Three have lost significant market share from a demand perspective, but few dealerships perished until recently from a supply perspective. Based on data from the National Automobile Dealers Association, the Big Three’s combined market share was nearly 72% in 1997 and dropped to 52% by 2007, the most recent year with full data available. Interestingly enough, over this same period of time, advertising costs per dealership doubled from an average of $300 per car sold to $600 per car sold. Additionally, the average dealership has been losing money since 2006. So, dealerships were losing market share, losing money, spending more money on advertising, and cars weren’t moving off of lots.

Moving from cars that don’t move, at least not off of dealership lots, to the people who must sell them, the average dealership employs approximately 50 people per dealership. So, for each dealership that closes, 50 people lose their jobs, some right away, and some at a point in the near future. More importantly, dealership employees are classified in the retail sector of the economy, which has been hit significantly with losses for the last several fiscal reporting quarters. This reality begs the question…When will we have a Green for Jeans program that will subsidize the cost of new jeans when I turn in my old jeans? This way we can prop up the rest of the ailing retail industry, including The Gap, Abercrombie & Fitch, Macy’s, and all the other retail stores on life support.

Perhaps most important is the fact that the program only exacerbates the situation that got the nation into this mess…the American consumer’s insatiable appetite to buy. Only part of the current economic crisis is related to the cyclical nature of the economy; the other part of the mess is the impact of failed financial policies across the board, including consumer debt. If a dealership provides a rebate of $4,000 for a new car, and the government’s CARS program adds in another rebate of $3,500 to $4,500 that the dealer may or may not pass on to the consumer, where does the additional money come from? If the consumer does not have the cash, the consumer must take out an auto loan, thus adding more debt on top of an already impressive mountain of debt currently drowning the economy. If we just keep buying stuff regardless of the future implications, then at least the current implication is that we will buy less gas due to more fuel-efficient cars.

But, if those cars are only driving us to jobs that no longer exist, then we’re on a road to nowhere, which the Talking Heads (the group) seem to understand but not the Talking Heads I see on my TV. In July of 2009, the economic numbers from the Bureau of Labor Statistics show that for each current job opening, there are roughly 6 people applying for that job. This information comes from the Job Openings and Labor Turnover Survey, which carries the ironic acronym of JOLTS. So, CARS might save some dealerships from closure and stabilize this number, but if these dealerships have been underperforming for years, aren’t we doing our economy a disservice by throwing more money at the problem and generating more debt for American consumers who are already maxed out? Moreover, by the end of September, half a million people will lose their unemployment benefits and this number could top one million by the end of December. Given those numbers, are old cars that are not fuel-efficient really the problem facing the nation today?

Whether this program creates more problems than it is worth won’t be known until we get out of the current mess, which many economists say we’re already headed toward a recovery. I am not an economic expert, but I do know that policies geared towards underperforming auto dealerships is likely not the best policy to stabilize a shaky economy. If everything works out, I promise to be relatively quiet and we can all drive happily ever after, even if we still won’t have any idea where we’re headed.

Adam

Jesse, I’m happy to see some conservatives showing concern for those Americans who have newly entered the unemployment world. I agree that the spending that has gone on for so long is one of the central issues of our current economic crisis.

Obviously, there are a few points that I hold a different opinion though. The first difference, and more important, is that I have never thought of the CARS program as a program strictly focused on propping up failing auto dealerships. The program’s most important goal was to get inefficient cars off the road and provide an incentive to the consumer to buy a vehicle that was more efficient (and very possibly more efficient than the car they would have preferred to buy).

So, rather than forcing consumers to buy more fuel-efficient vehicles through taxation (which is what I favor as a policy), the government provided incentives to effect the market. This market manipulation is the form so many conservatives have favored in the past across varying industries. A major difference this time is the level of the market that was reached. It effected small dealerships and consumers the most, not extremely large corporations.

The program brings two positives. One, it keeps people working at dealerships (no matter how inefficient they are). Two, it moves a large number of Americans to purchase fuel-efficient cars at a time where fuel costs are not the motivation. This short-term and long-term outcome are what the goal of so much of the economic stimulus package was about. Are we helping a person get a job for their life if they are working on laying tracks for public transit or building a new bridge on the interstate system? No. We are temporarily putting someone to work during an economic downturn, and at the same time making an important investment in the nation’s infrastructure.

A more fuel-efficient car will not save the environment over night or get our country off of foreign sources of oil, but it is a good first step in bringing positive change to both of those serious problems.

Government intervention is useful at times, and this time I feel it did help. Now, next on the agenda, updating the federal gasoline tax!

No Comments

Hopefully Tea Parties are as Big as the Ideas will get

Economy, Politics

Adam

The virtues of private interests ahead of public good have no age limit

The virtues of private interests ahead of public good have no age limit

 

The tea parties that were held across the country yesterday were idiotic for multiple reasons. There are enough bloggers and commentators discussing those reasons right now. Hopefully there is plentiful footage of all of those brave elected officials in the next election cycle to highlight what they did for their country during tough times.

I do not want to get into election strategies for the Democrats. What I would like to do is highlight the missed opportunity the conservatives/Republicans missed during one of their greatest successes at organizing their ideologically aligned citizens.

Every Republican official put in front of a camera over the past few months talks about the destruction of capitalism. Some of those take the time to speak to the point of how this destruction will hurt the middle class. Yes, based on what they are saying, higher taxes on the rich and government stimulus will only continue the crushing of the workforce found in the middle. It seems that the best way the people who attended these tea parties could have spent their time is by HELPING those who are being destroyed by socialism.

This could have been a bold statement for the Republican party to make. Imagine John Boehner being interviewed by Fox News and saying “We are here in Cleveland organizing this food and clothing drive because we know it is necessary to help those people who continue to lose their jobs because of the high taxes this administration and Congress are imposing on the people. When the Democrats have eroded away the life they once knew, the conservative community is here to help bring this country back.”

Wouldn’t that have been powerful? Instead of wasting time and resources, they could have used that organization to make a positive difference and at the same time got their message out that they are outraged by the changes that are taking place.

Obviously, this type of outreach would require each person to look beyond their own self interests. When that happens…well…then there probably would not have been any tea parties yesterday.

Rate this:
2.8
No Comments

Positive Economic Reports….I’m going to be rich!!!

Economic Policy, Economy, Politics

Adam

I’m not sure where the broad publics’ head is at with recent positive news coming out on the economy. Some commentators I have read lately (and Senators Schumer and Reid) are talking about the economy turning around. The fall has occurred and its all UP UP UP from here… Well maybe there has not been that much optimism from them, but its out there. Does this kind of optimism worry anyone else besides me? Luckily I am not the only one who is worried.

The economy has been taking a hit on a regular basis for quite a while. There is a good description of where all of this positive movement is coming from, but I would rather relate it to a very likely scenario out there now.

Try to imagine that you are an employee at RSPC (The Really Smart People Company) and, in order for the company to continue operations with the existing workforce, all employees are asked to take a pay cut…lets say a 25% pay cut. Okay, you have your pay cut, times are tough, so you just deal with it. When a couple of things begin to go better RSPC decides to give you a 5% raise. The RSPC is ecstatic over the news that they are making a profit in the first quarter of the year and they believe things are turning around. Now, as the employee, are you as excited about that 5% raise, or are you still upset and wary because of the total 20% hit you are still feeling?

Good news is still good, but lets take it with just a little perspective.

Rate this:
2.8
4 Comments

Why the Geithner Plan is Bad

Bailout, Economic Policy, Economy

Adam

Nobel Prize winning economist Joseph Stiglitz provides a solid and down to earth description of what will take place with the Geithner Plan in his NY Times editorial.

Its a worthwhile read and should help bring some clarity to the situation that will unfold.

I thought about running through the scenario for myself, but decided a comparison to a mortgage would be ridiculous. $12,000 on a $138,000 mortgage is a lot stronger than banks were accepting a couple of years ago. So I want to stay away from that comparison. Instead, lets say I am in Vegas and there is a heavyweight fight with 50/50 (never would happen, but lets imagine). Sure, I’ll put money down and see if I can double my money. But, what if there was a way for me to triple my money? Well, yeah of course I’ll take that. Even better, I can triple my money without taking on more risk. I just have to take a huge no risk loan out.

So, I take the loan, put up my 8% share along with the 92% loan and bet. If I win I can pay back the loan and take my tripled winnings.  If I lose, I lose the money I put up and forget about that l ever took out that loan.

Tough break on the guy who loaned me that money. Now, enough with betting on boxing, I’m off to the black jack table where the odds are REALLY in my favor…

Rate this:
2.8
1 Comment

Can you fix a broken nation with a broken record?

Bailout, Barack Obama, Economic Policy, Economic Stimulus, Economy, Election, Infrastructure, National Infrastructure Reinvestment Bank, Obama, Politics, President Obama

Adam

I am going to say that it is probably difficult to fix our current situation with tax cuts.  I know…I know, the crazy liberal wants to raise your taxes and then spend all your hard earned wages. Not exactly.

I have a difficult time grasping the notion that the conservative chorus can only recite the same tune we have heard during a very recent 8 year administration.

“The only way to stimulate the economy is with lower taxes and tax incentives.”

Everyone is skittish now. Consumers, producers, and lenders. The argument that tax incentives will create job growth does not work.  Lets take a look at a couple of scenarios.

-  We create an incentive where an employer gets tax breaks for hiring new employees. (Currently part of the Obama plan, but really done for the purpose of appeasement)

So, under this theory, a company will hire a new employee for the purposes of expanding production of a good that a consumer is buying less of. Does not really work out in my mind.

- We lower taxes…

Well, with all of that extra money from lower taxes, companies will be able to expand production. Okay, so they expand production after borrowing to purchase what is necessary for the increase in productivity. They have to borrow because lower taxes do not mean available cash. This also seems to be a difficult challenge due to the well publicized reluctance of banks to give our money.

So why is it that the party that got a strong message from the American public this past election is grasping hold to its oldest idea?

I would like this cartoon to be an exaggeration, but right now it doesn’t seem to be.

Rate this:
2.8 (1 person)
1 Comment

Finally…A Movie on Current Events

Economic Policy, Economy

Adam

I can’t believe how long it has been since I posted. It has been distracting…difficult for most people to catch their breath and understand what is happening. I think its either that everyone is so excited for Keanu Reeves new movie The Day the Earth Stood Still or because it seems that the world is literally going to stand still in the near future.

It seems that you can’t go anywhere without hearing someone talking about layoffs (either their story or someone they know).

It used to be that listening to the news could induce depression, but now a visit to Starbucks provides a feeling a despair to go along with a jolt of caffeine.

Despite the abundance of despair in the world today, take heed that things could be worse…Keanue Reeves could come to our planet (or back to our planet) and announce the end. We’re not there yet….

Rate this:
3.2 (2 people)
No Comments

Detroit Broke City

Automaker Bailout, Bailout, Big Three, Economic Stimulus, Economy, Politics

Robert

Recently US Senator Carl Levin from Michigan stated that in regards to Honda locating in Alabama:

[Alabama] has cheaper labor, younger labor, no legacy costs (for retiree health care) — younger work force means lower medical costs. They have certain competitive advantages that are not the result of brilliance or greater skill.

Holy sh*t. Has Levin been smoking too much green or what?

I hate to keep throwing around the phrase “basic economic principles”, but I learned about competitive advantages on my first day of Econ 101. “If Country A can produce a widget for $1 and it costs Country B $2 to produce the same widget, Country A has a competitive advantage.” If Honda can produce cars in Alabama more cheaply than it can in Michigan, then why wouldn’t they build a factory in Alabama? It is really difficult for me to sympathize with the state of Michigan on this. 

For far too long the owners of the Big Three have been getting rich while at the same time producing inferior products. When a few companies have total control of the market, the average consumer can do little. I mean seriously, I am going to start riding a bike instead? Do you know how sweaty I get? I’ll just pull a quick hobo shower in office bathroom and be good. Via an open economy, foreign cars started to make an appearance on American roads. And you know what?  They were nice and, more importantly, they were cheap. They were cheaper because they were produced overseas where employee wages are substantially lower. They were nicer because without all of the overhead, the foreign car companies could put more money into the vehicle and still charge a lower price. An additional $2,000 is added to each car just to cover retirement benefits for employees. 2 Gs!!! Unfortunately, unions have a strangle hold on the auto industry. They have had far too much power for far too long; they have paralyzed the auto industry. They are just one more gigantic rock around the neck of the albatross that is the American auto industry.

Enter bankruptcy. Bankruptcy is the only chance that these companies actually have of recovering. Filing Chapter XI would give them a chance to break the shackles of many of their past poor decisions. They could renegotiate their union contracts, so that the autoworkers begin to earn wages that are more competitive. The new leaders would have to work in harmony with federal bankruptcy regulations that would prevent them from making bad decisions that would slow down the recovery process. As horrible as it is to see so many people lose their jobs because of greedy decisions made by those in charge, I see a basic purge as the most logical way to solve this problem. Break down the Big Three so that they can be built back up through the free market. Make them compete and they will either flourish or perish, but their success will hinge on the quality of their products and their company overall, not the artificial infusion of government funds.

 

 

Adam    

 

Robert…its bad news. This whole situation has been difficult to gauge my feelings. I have had somewhat unflattering things to say about the American auto industry for years. The market manipulation they have been able use to their extreme benefit is unbelievable. I don’t want to get into a history of how this industry (along with a couple of other cooperative industries) has brought our society to the slow and mind-numbing pace we found ourselves at now.

That being said, I should point out that the American consumer has a great deal of power and control in shaping the auto industry. Unfortunately price along with product choice can easily fool consumers.

Glad to get that bit out of the way. What about the proposed bailout of the Big Three? Well it sure is tough to advocate for some of the largest corporations on earth who have ignored the need to help themselves. The way I have thought about this issue is not in terms of “The Big Three”, but in terms of the Big Three Million plus who will lose their jobs if these companies fail.

In the economic stimulus package I wrote about in a past post, I advocated for investment in infrastructure to, partly, create millions of jobs. So, although it is beyond frustrating for me to advocate helping these slow and inefficient companies with a bailout, I have to. 

This $25 billion bailout is necessary to save jobs. In regards to the Big Three failing, Jonathan Cohn points out that three million people would lose their jobs in the first year after such a Big Three meltdown, swelling the ranks of the unemployed by nearly one-third nationally and leading to hundreds of billions of dollars in lost income.

A bailout of the Big Three could provide our country with a unique opportunity. One point to be made is the billions that would be spent in unemployment by the government if these jobs were lost. A bailout would mean billions of dollars saved in this context (I know…it’s a stretch). The other point is that the Federal government is in a unique position to put standards in place to force the Big Three to modernize and help the United States become less dependent on foreign oil.

It may be argued that the free market would force these companies to adhere to new standards without government intervention. This type of restructuring would take place in the Chapter 11 process described above. As pointed out at The 7-10 “Who wants to buy a car from a bankrupt company?” This is where the Chapter 11 scenario becomes a problem.

This situation is not similar to letting the airlines go into Chapter 11 in the 1980’s. A warranty is not necessary for me to fly from one part of the country to the other. It is, however, necessary for me to want to buy a new car. If any of the Big Three were to begin the Chapter 11 process their ability to continue to do business would be dramatically diminished.

So…where do we go from here?  I feel Robert Reich provides the best way to proceed in this brief summary:

In exchange for government aid, the Big Three’s creditors, shareholders, and executives should be required to accept losses as large as they’d endure under chapter 11, and the UAW should agree to some across-the-board wage and benefit cuts. The resulting savings, combined with the bailout, should be enough to allow the Big Three to shift production to more fuel efficient cars while keeping almost all its current workforce employed. Ideally, major parts suppliers would adhere to the same conditions.

Remember: The underlying goal is to help Americans through this crisis and come out of it with a stronger economy.

We need the Big Three to continue to exist. We need the three million jobs to continue to exist. We need a better American automobile fleet. The bailout of these companies, if done properly, can help us achieve all three of these needs.

 

Rate this:
3.3 (7 people)
8 Comments

Can You Stimulate Me Economically?

Barack Obama, Economic Policy, Economic Stimulus, Economy, Infrastructure, Obama, Politics, President Obama, Public Policy
Adam    

I heard a crazy thing the other day; things are not going in the right direction for our economy. Actually, I think I heard that a couple of years ago. You remember those days don’t you? There was a housing bubble still, sub-prime mortgages were parts of conversations, and the positions on the wars in Iraq and Afghanistan would decide the next U.S. President.

Today, we have a President-Elect whose stance on the wars most likely did not help him get elected.  The call for change of the way things have been going brought him to victory. Now, what change is going to take place is a couple of months away from being realized. One issue that is absolutely necessary is an economic stimulus package to go into effect as soon as possible.

The potential second economic stimulus package has been in the news for a couple of months now.  There are opinions flowing at both ends of the discussion. That being stated, I thought it was important for me to throw my thoughts out there.

First, checks being handed out to citizens should not happen again. That was like my cup of coffee at 1:00 pm after a late night…I’m still going to crash.

Second, Federal spending on infrastructure is necessary and has always been necessary. Its not spending for the sake of giving money back to the poor. Its an investment in the future.  I racked up a lot of student loans, which was an investment in my future prosperity. I didn’t go out and buy a bunch of stuff with credit, which I would say is not an investment.

These two scenarios are the way I see the two sides of the argument over the economic stimulus.

The current number most commonly being suggested is $150-$200 billion in economic stimulus. This should go heavily towards infrastructure investment. Liberals and conservatives are calling for this type of Federal spending. But why so little?

The United States’ GDP for 2009 is projected to be at $15 trillion. The package being talked about would only amount to roughly 1% of GDP. This past week China unveiled an economic stimulus package in the amount of $586 billion, 16% of their GDP. 

Some economists (liberal) are calling for more spending to make up the gap in output. Paul Krugman thinks the stimulus package should be 4% of GDP, or $600 billion. Similarly, Robert Reich states “government may have to spend $600 or $700 billion next year to reverse the downward cycle we’re in.

Now, to assuage any fears that the federal government is going to throw money at anyone who asks for it, there are actual needs for funds. The American Society of Civil Engineers puts the needed expenditures over the next 5 years to bring the nation’s infrastructure up to good condition at $1.6 trillion. This number is what is needed for “improvements”. What about the new investments that are needed for the world economic leader to continue to grow throughout the 21st Century?

We need infrastructure improvements, we need new infrastructure investment, we need economic stimulus, and we need jobs. All of these needs can be met with a strong economic stimulus package. The money needs to be spent at some point, so why not have the government spend that money when everyone else is hoarding their own money?

 

 

Robert

There is one basic flaw in your plan, Adam:  America is broke and it is time to start acting like it.  No one is talking about where this $200 billion dollars is going to come from.  “Oh, just skim it off the top of the GDP.”  It is important to realize that that money is going to have to come from somewhere and it will not be from the Defense budget (sorry, liberals!)  Who is going to fork it over?

The bottom line is that the last thing we need right now is for the government to meddle with the free market.  Their manipulating is what got us into this problem in the first place.  Though I may have slept through most of my economics courses, I know that basic supply and demand is the ultimate balancer of prices.  All that the government’s proposed stimulus package is going to do is continue to artificially inflate the economy.  Well, my friend Peter Schiff* and I have a better idea: bleed the pig.  It is time for us to let things get bad.  The economy is absolutely decimated and the only way that it is going to get better is if we let things occur naturally.  Save some money.  Tighten our belts.  Why is everyone looking at this like it is a bad thing?  It is a chance for America to get out the filth that has been poisoning the economy for so long.  We have got to go back to the fundamentals of our founding fathers: hard work, dedication, and savings.  This is how we are going to save the United States of America. 

The last thing we need right now is for the government to pump a bunch of cash into America’s infrastructure.  You do not buy new shoes right after you lose your job; You make do with the shoes you have until you are in a comfortable enough position to get a new pair or until your old pair is completely destroyed.  Same goes for the infrastructure.  Let the market dictate when the roads are improved, not the government.  There is no overnight fix and until the government is willing to stand aside and let nature run its course, Americans are going to continue to suffer. 

 

*Disclaimer: I am in no way an acquaintance of Peter Schiff.  He is the ultra successful CEO of Euro Pacific Capital, as well as a best-selling author and I am writing for a blog that even my mom won’t read.

Rate this:
3.2 (9 people)
10 Comments