Tuesday, December 23, 2008

Breaking News Is Broken

I think we reached some kind of new low for the 24hr news cycle today. As I got up at 8:30 am, every single channel was showing a flooded road in some city. There was somebody stuck in a car, and they all zoomed in to see the results of the rescue. CNN, MSNBC, CNN Headline News, and even stooped as low as FOX, but they all had this “nationally important story” breaking on the screen. Now call me cold if you want to, but there are 2 wars, millions loosing their jobs, an economic crash, millions without health care, the governor of a major city being brought down on corruption charges, billions in “bailout money” yet unaccounted for, a national debate over the merits of helping out the auto industry, a vocal VP admitting that he wanted to go to Iraq weather they were a national threat or not, and so on. These are things that they could report. But nooo, we are all forced to watch a car in the water. Like an hours later the water had died to a trickle and the lady who was stuck could have just opened up the door and tip toed to the curb.

I have to tell you, I am quite sick of seeing local stories on national news. I do not care about a car chase in LA. (As OJ proved sometimes you run even when you are innocent.) I don’t care about a foot bridge collapsing in NY. I don’t care about a house fire in Florida. I don’t care about some bad weather in Oklahoma. Now you are really going to think I am cold, but I don’t care about a missing and murdered child anywhere that the killer isn’t expected to be in my travel area. I don’t care about the family feuds of dead celebrities. I defiantly don’t care about their length of prison sentence. All of these stories could be delivered in a 5 min. news round up at the end of a major newscast if they really must be covered at all. However, the country and the world will be fine without such enlightenment.

I don’t think I have turned on any of the major news networks in the last 2 years where the words “BREAKING NEWS” isn’t splashed across the screen. It is like some drug that has long lost its affect, but they all feel they need it to survive. For the benefit of the major news producers reading this blog post, here are some suggestions of things I will never get sick of. I will never get sick of reporters hounding legislators about their bad vote decisions. I will watch tirelessly as you interview people who were convicted for obstruction of justice in a treason case. I will always find it interesting to hear debates between scientists on the topic of global warming. You can hold my attention with economist who debate the ways to strengthen the dollar. I will be mesmerized every single time with discussions of future costs of education. If you can get the CEO of CitiBank to cry on your TV show for ruining the lives of every hard working American and admit that credit is the cancer that has rotted this nation, then you have “Breaking News”. Other then that it is just drama. People have enough distractions in life with out the annoyances of Nancy Grace. And Lou Dobbs chases so many red herrings he should be forced to declare “fishing” as his actual occupation on his W-2.

So please, just one of you, step out and step up. Before you “run” a story, ask yourself, “If I lived 200 miles away from the scene, would I have a stake in the outcome of this event?” If the answer is “no” and you are running a national/ world news network, consider other options.

Sunday, December 21, 2008

Why would somebody throw away perfectly good shoes?

There is so much on the economic front right now. Or at least there seems to be. In the end it is the same crap on a different flavor of toast. Nobody with any ability to change things seems to A) know what needs to be changed, and B) know how to use policy to influence that change. We have pressing issues that need addressed now, and a lame duck legislative process that seeks only to pass the responsibility buck to the incoming incompetents. If you want endless takes on why’s, who’s, and when’s this situation, turn into the 24 hour news cycle that seems to never stop having “breaking news”. For at least this post I am going to turn to something that was highly reported, but severely overlooked this week in the news media. The waste of good energy to throw good shoes in a country where that resource is scarce.

So George Bush attempts to take a victory lap around the Middle East. The problem is that is kind of like Abraham Lincoln taking a victory lap around the south. Hey, he “won” the war. He freed a bunch of people from their oppressive chains. I bet the locals are going to welcome him with open arms. My guess is that Abraham Lincoln couldn’t do a victory tour in the south even today. The same sensibility should have been observed by GW. But if he had that kind of sensibility, we wouldn’t have been in this situation to begin with.

However, the fact that George Bush is a moron is hardly a fresh new perspective. The question asked but never answered this week, or for that fact, since the beginning of time, is “why can’t we bring peace to the Middle East?” At the end of every president’s time they try to find something to make their legacy. The Middle East, and especially the Israeli/ Palestinian conflict has emerged as the elusive “Holy Grail” of presidential legacies. Yet all return only to ring their hands and say, “why can’t we figure this out!”

The answer is a matter of perspective. We in the west will never solve the Rubik’s Cube Middle Eastern peace because we don’t define it the same way they do. As a matter of fact, we don’t define anything the same way they do.

Some thought exercises? England, France , Germany , Spain , and even and especially the US , when you think of “what kind country is ‘X’ country?” your answer is bound to be different. When “X” is replaced with any of these countries, you might think, “modern”, “democratic”, “free”, “capitalist”, and a plethora of other words. One thing that would might show up, but low on that list is “Christian”. We just don’t identify ourselves with our spiritual leadership. THAT is where we loose the perspective on the Middle Eastern status. Another quick thought to emphasize that point. If some foreign country invaded the US, there wouldn’t be an “evangelical region”, a “catholic region”, or “the Baptist triangle”. They would meet Americans. It wouldn’t even matter if the invading force were fellow Christians; we would kill them without prejudice.

In the west our emphasis on having a separation of church and state is only rivaled and equaled by the Islamic countries’ (See that, an identity in their spirituality.) desire to regulate through their religion. We in the west value materials and tangible life. We believe in country over God, patriotism over religion, and we have more faith and allegiance in our political leaders then we do our rabbis, priests, and preachers. Weather and which is wrong or right is not the point of this article. It is just “the facts Jack.”

In the east, and many of the “3rd world” communities around the world, a completely different flow of order exists. Where in the west we have a top down system of rules, the rugged loose fitting communities of the areas we identify as the most “problematic” are made up of communities that enforce laws from the bottom up. Our federal laws supersede our state laws. Our state laws supersede our city laws. Our city laws supersede laws laid down by our parents and our family leaders. This is 180 degrees different then a place like Afghanistan where tribal leaders hold more weight then national icons. In places like these spiritual leaders set interpret and set rules for the “family”. The state and local governments negotiate with the tribal leaders to form coalitions. The federal government seems only able to perform such activities as provide aid and step in to solve disputes between clans. Their inherent allegiances to their own tribes and spiritual ideologies often form conflicts of interest.

In the 1920’s Great Britain forced 3 major regions to become one country and called it Iraq. In the late 40’s the west paved the way for Israel to become a festering splinter in the side of the whole Middle East. History, especially recent history, is littered with the horrendous result of the west trying to force its moral perspective on the east. Since they are not a very unified culture, they are usually easily divided and corrupted.

Because we are a stable, rooted, “here and now” driven individuals, there is now way we, our politicians, and certainly not our soldiers can understand a flexible, nomadic, afterlife driven mentality. This is why no president can or will ever achieving that most prized of legacies. They don’t understand the complexity of what they seek, let alone a realistic plan to attain it. In the end our concern for their peace is driven solely by our own selfish need to have a stable and rooted entity to buy oil from.

So if GW wants to know why he is dodging shoes from the people he “liberated” this is it. These people didn’t want “liberating”. At least not all of them. If you had given them the choice of living under the oppressive rule of Saddam Hussein or having their friends, family, and countrymen murdered on a daily basis, many would choose to love under the oppression. Which they really didn’t find all that oppressive to begin with. Besides, Saddam would have been able to oppress them if the US hadn’t given him money, weapons, and training to begin with.

Saturday, December 13, 2008

A Case For The Big 3 Producing Junk

While listening to a couple of colleagues that other day say that they didn't want to buy an American car, because they were unreliable. Like myself they scorn NAFTA and the WTO. But there is an inherent problem with the idea of not buying "American Junk". There are only so many drivers in the country. If the policies are going to allow people from outside the economy to flood the market with product, there is going to be a point when there are more cars then there are drivers.

I read that Toyota reached a 15% market share by selling 2.5 million cars in ’07. That means 16 million cars hit the road in the US in one year. I have had a hard time figuring out exactly how many drivers are on the road. By divers license is wrong headed. Since an ID is so important, lots of people who don’t have cars have drivers licenses. Lot of people who don’t have licenses drive cars. Anyway, let us apply a little logic.

There are 300 million people in the US . I would say that if we remove anybody too old to drive, everybody under 16, the legal driving age, Those too poor to drive, and those who live in densely populated urban areas where driving is more of a hassle you end up with about half of the people. Let us call it 175 million to error on the side of caution. 175 million drivers.

We know that a car now of days last easily 10 years. I am actually looking for a junker right now. Most cars on the list are 15 years or older. It is 2008 right now, but the ‘09’s have been out for 6 months. 10 years ago, was 1999. By today’ standards still isn’t that old. Many of the Korean companies are now offering 10 year warranties!! Just at this pace alone there would be 160 million cars on the road 10 years or newer. Can you see where I am going here? The reason that the auto industry is hurting, is because everybody who wants a car has one. Now does everybody have the car of their dreams? No, of course not. The junkyards would be filled with Escorts, Chevete, and Prisms if they did. But they have the car that they are “willing and able” to buy. So either their cars have catastrophically fail forcing them to be more willing to buy a new one, or the cost of one they want has to drop to the point they are able to buy a new one. We know that pricing profit margins are too tight for the later to happen with the US big three autos.

The problem is that everybody has a car. Most people trade in their cars and it becomes somebody else’s “new to them” car. When the US let foreign auto companies into the economy, they did exactly what free markets do. They drive product ingenuity and efficiency. The problem is that they have become too efficient, too durable. Ford has been in business for 100 years. The others almost as long. What do you do when you look at the market and you realize that you are producing your product at a rate that outpaces market demand? When entities like OPEC see that in petroleum production, they cut production. The problem is that there are no such unions in the auto industry. If one auto make cuts production, they will just loose revenue. Someone else will fill the market hole.

So how do you suggest that you make sure that your factory keeps people gainfully employed for 30 years? How do you pay form these employees to be paid and retired for another 20 years? Well, if the market isn’t flooded with outside competition, you will find that you can control the prices in a way that will allow you to experience slow downs and rejuvenations. Since the market for the product is symbiotic and local to the economy, it will remain self correcting. But if outside competition is allowed into the mix, ones that have a much larger profit margin, they can easily bleed the market dry. That is where we are at now.

If you are Ford, GM, or Chevy your bet is on an outside chance that you can build brand loyalty and inferior products in hopes that they will keep you employed. It is not a very good plan, but it was the best they had. As I mentioned in the earlier posts, there was no way for these companies that had to pay American wages, follow American safety and environmental standards, and pay the taxes that US companies have to pay. The sad part is that most of the parts from all auto companies comes from outside the economy.

Saturday, December 6, 2008

Economics from the CEO perspective

That bout with the foreign wage blog allowed me to create a couple of good analogies that are useful for explaining this current mess. The first one comes from courtesy of my buddy Pete who just returned to the sates from a little island in the South Pacific called Tonga.

Tonga, I am told, is an island of extremely content Polynesians. They have advanced medical facilities, some industry and a 99% literacy rate. Every Tongan male is guaranteed a plot of land. Most are self sufficient and self sustaining. It is the only South Pacific nation to never be conquered or colonized. It is ruled by a monarchy in which the king must approve every facet of the economy. Let us depart from what I am sure about to using “Tonga” to a more exemplary version. (Since it is a real place, I don’t want to hear from people saying things like, “I have been there, or I know people from there who say they don’t like it.” or what ever.) So our Tongans have existed for thousands of years on this island. They grow enough food to feed themselves. If someone wants to open a new shop in the nation, the King considers the affect on the surround economy.

Let us say that on one particularly small island, there are 25 fishermen. They supply all of the islands fish needs by traditional spearing methods during low tied. The average fisherman works about 30 hours a week which includes cleaning and processing the fish for market sale. The average fishermen spear a max of 10 fish an hour or/ but averages 250 fish a week. This results in a market price for fish of about $.25 a fish. The average fisherman makes about 62.50 a week or 2 bucks an hour. A major source of the fish are Skipjack tuna. It is a highly sought after breed of tuna in the US. The US market gets about $5 a fish. So a commercial fishing company approaches the king and says, “I would like to set up a commercial fishing operation in your kingdom.” The king says that if he allows that it will cause many of his native fishermen to become unemployed. The commercial company rep offers this deal. We will employ any Tongan that looses work to our operation. We will give them twice the average salary of a fisherman. As a matter of fact we will need twice the number of fisherman to work the fleet. With the increased supplies, we will ultimately result in a “per fish” price here in Tonga of $.125. that would be a 50% drop. This all sounding fine and good to the king, he allows it.

Well the first thing that happens is that the traditional fishermen resist. But soon the price of fish drops so low that they are finding themselves working 50 hours a week to get the same wage they had made prior to the commercial company showing up. They soon give up and join the fishing company and enjoy a new level of wealth. As the next couple of years tic by, the" trickle down" effect on the economy from the new wealthier citizens causes a rise on the cost of living. The Tongans that try to remain true to the traditional way and live off the land find it harder and harder to buy things that their farm doesn’t supply. Doctors stop taking 3 chickens and a bushel of corn as payment for an office visit. Meanwhile, the fishermen are being driven to work harder and longer for the same money. They could never quit because their bills are structured in a way that only the high paying commercial job will pay the bills. If they do, the commercial fishing company will just bring in others from other Polynesian surrounding cultures to do the job the Tongans wont do. That is right, they now have "bills". Soon Tongans realize that this "fair and beneficial" agreement is neither.

The kicker of the whole thing is that the CEO of the commercial fishing company can not figure out why everybody has spite towards him. From his point of view he has paved the way for the paying of twice the average wage to the Tongan fishermen and raised their standard of living. On top of that the cost of fish has been cut in half and more Tongan people can afford it more often. Meanwhile, back in the states, all of the unemployed Tuna fishermen that would have been unable to afford $5 a fish prices can now get the Tongan tuna for only $3 a fish. He is wondering why people don’t call him a hero.

The global point here is that two cultures and economies can not mix with positive impact. There are consequences when ethics, living standards, morals, and flat out economics don't mesh.

Wednesday, December 3, 2008

Economics 3.141592…..Whose to blame for the Big Three Failure?

If you are wondering, the number is a reference to the illusive solution to mathematical Pi. Because our lives and times and thought streams are not infinite, we eventually have to stop. However the “butterfly effect” of any economic policy change does not stop just because we do. Ever heard two people in an economic debate who have two completely different beliefs but you find they are both making agreeable valid points? First, you need new friends and a better life if you are listening to an economic debate. Secondly the reason is that they might both be right depending on where along the chain of events you would like to stop the reasoning.

Let us look at a few examples. Many Americans from both sides of the isle hold disdain for welfare recipients. What if the government just ended it. Money is no longer flowing into the hands of people who patronize small liquor stores to Wal-Marts around the country. Farmers and textile producers will no longer be receiving the revenue generated by these consumers. That will force these producers and distributors to cut staff. That means even more people who will no longer be able to buy goods. I mean, welfare is gone. Many of these newly unemployed actually made enough to buy cars, houses, and an occasional lap dance. Now you are starting to take a bite out of the consumer base of “hard working middle class Americans.” And the collapse will continue.

Now let us apply this ripple effect to how the Detroit Big Three ended up before congress begging for money. There are a few forces at work here and enough responsibility to go around. Overall, the encompassing problem is that American business decision makers and our legislators have made policy changes to the delicate economic system as if the effects were contained in a vacuum.

I remember in the 70’s and 80’s that Japanese auto reigned king in quality. Toyota, a company that introduced its first product into the world’s strongest economy in 1957. The fact that they were allowed to offer a fuel efficient, low priced auto into the system caused ripples. Until that point the big 3 had not competition. The winner of that local competition just hired more Americans and the accounting remained balanced. Their wage structure and benefit plans were based around wholly built American products. Even if the US had wanted to build the exact same car, it would have cost them at least 15 to 20% more. Some would argue if you look at the full impact of costs and lost opportunities it is closer to 50% more. The US allowing this product, not regulated by the same costs, into the market was irresponsible. Like letting an invasive species into to lake system.

Let us look at the pickle the big three were in at that time. If they manage to muscle the very powerful UAW into accepting a huge cut in wages and benefits in order to lower the cost of their current product and/ or retool to meet the new demand for Japanese type products, they are taking money way from the consumers who buy their product. The loss of capital of course being felt throughout the system as described in the welfare example. Not a problem for the Japanese manufactures to deal with. Wage cuts seemingly a bad idea for the Big Three, the other option is to cut quality. Spend less time on R&D and revamp the marketing strategy instead. "Buy American cause it is good for America." The problem was that many of the design flaws were not caught until after they reached the market. This developed a product image problem. The other option was to employ people outside the economy to lower costs and build new products. This was ultimately the medium that they settled on. There was no winning option for Ford, GM, and Chrysler.

Also in the 60’s instead of sending our crop of bright but maybe not financially endowed young men to college, the government was sending to die in the rice patties of Vietnam. Economically, this lead post high school entities with a smaller consumer pool. That required them to charge more to cover the expenses. High educational cost are certainly contribute to the high cost of health care today. And the ripple effect continues on infinitely and in all directions. I mean we haven’t even considered the global ramifications.

Monday, December 1, 2008

Response to Foreign Wage Blog

My regular readers know that wages and the way we are compensated is a platform issue for me. The root of all that is evil and wicked. So when I cam across an article titled, “Why Are Wages Low in Developing Countries?” http://mises.org/story/3218 I couldn’t resist. I have never read more delusional, greedy driven ignorant dribble in my life. This was my response. I was trying to be brief. But that was impossible. It is this kind of backasswards thinking that put us in the sinking boat we are in now.


Wow, I have no clue what you just said. I even read it 8 times. That is double of how many time I usually read things. I am slow reader with a high comprehension level. But I guess that is what you were talking about. My productivity level is low. If one wants to justify paying me a low wage, they can say, look how slow he is. That is until somebody points out that the results is 90% less dysfunctional products make it to the market. If it was the other way around, then people would seek to say, “yeah, but look how cheep and dysfunctional the product that reaches the market is.” In which case the business you are herofying would justify paying less. This is an old magician’s trick. Ask an audience member for the answer then show them the question it fits. What do you say to the 100,000 mile warrantee with sound quality KIA and Hundi that have flooded the market? They are made with cheap labor at an efficient pace and with many of the same manufacturing statistics.

The author’s assessment that “more sweat shops” are needed in developing countries dizzies me with irrational and inhumane rhetoric. That is the nicest way I could say it. (here on my blog I can say it. He is an asshole. A clueless one at that. Look the fact is that we would round up, prosecute, and perp. march a manufacturer in say Chicago who employed 8 yr old children, worked them 60 hours a week, for $.40 a month, while billowing pollutions into our waterways and national air space. However, we don’t think twice to stampede a poor Wal-Mart security guard to death in order to get our hands on a bicycle made in China under those exact same conditions. This is an unsustainable and narrow sighted thought stream. It is one that will not allow the human race to exist for more then 3 or 4 more generations. Not at least in the capacity as we know it.

The auto industry, being from the “auto belt”, is near and dear to me. What happened was that with out trade restrictions, it was cheaper to build a cheap structure in south America and China that didn’t require the billions of dollars in environmental and human safety regulations that required millions yearly in upkeep. With them went all the supporting manufactures and the jobs they offered. The big 3 would have no problem paying the pensions if they were the only game in town. People would have no problem paying the cost of the Big 3’s prices if they all had good paying jobs themselves. The problem is that the opportunity to go to less regulated markets cost the companies who tried to remain their “national pride” two ways. They couldn’t compete with the labor costs by the wholly foreign companies, and they lost the income that was once in the hands of the local economy.

Put in an analogy. Say you live on the border of Southern California and the thought that you might like a burrito comes into your head. You have two favorites. They are your favorites because they both taste about the same. You know about the one up north because you did a plumbing repair for the owner last year. The border crossing is something you do a couple of times a week and it is no big deal. The only difference is that the restaurant in Mexico will cost you about $.40 for the dinner and a margarita. The one equally north in California will coast you about $10 for the same. So you say, “What the heck, I’ll go to Mexico and even give the guy a $1 tip and make his day.” Then one day you (Jose de fontanero) notice that your northern customer is closing his restaurant. You stop in and ask why? It turns out most people decided to make that trip down south. You just ate yourself out of a job. Take that job and multiply it time a few million, add about 10 layers of bureaucracy, and you get the impact of globalization on the auto industry. The big 3’s failures were not a result of not being able to pay pensions. Sure that is the way it looks now. They are the result of developing a business on the wrong side of the industrial development curve. All of their hard work has ended up benefiting the spoiled hands of the children who feel they deserve it. The truth is that the only thing that kept our tiny towns from being devastated by poverty earlier is that the auto industry as well as the steel industry had to pay decent wages.

The numbers you are making up are not even close. I can tell you stories that have been told by steel industry execs. That talk about the insane productivity and efficiency of Asian labor markets. One of my favorites is about a plant manager who went to see the plants in Japan. A coil came off the mill with a scratch down the side. The guy who caused it stayed after on his own time to polish it out. The next morning he apologized in person to everybody on the line for wasting their time.

What we have are two distinctly separate economies that have been raped and pillaged by people of this caliber of ignorant greed. In reality what counts is not the amount of money brought home from work to help meet basic needs, but how much time is spent away from work while still making those ends meet. If you want to equalize wages, We need to stop viewing them as hard currencies and instead as the result of labor hours. What is fair? What is the average cost of housing, groceries, and wardrobe for a year? How many labor hours does it take in the foreign markets to purchase these same necessities? That is how you judge equality.

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