Unclear Thoughts

According to a Washington Post article, “Aughts were a lost decade for U.S. economy, workers”, the decade just ended was the “worst for the U.S. economy in modern times.”  There are many reasons presented in the article to support the conclusion, but a few of the main reasons listed are; zero job growth, a reduction of  net worth, and decrease in median income for a majority of Americans.  The article does point out that the decade was bookended by an economic bubble and the worst recession since the great depression.   What I found more interesting then the article were the reader comments associated with the article.

Many of the comments put the blame for the problems squarely at the feet of the Bush administration and/or pronounced capitalism a failure.  Although some Bush policies might have exacerbated the problem, they certainly were not the cause of the problems.  As for the people that think capitalism is a failure, I am not sure what planet those people are from. 

Economic bubbles have the characteristic of inflating net worth.  The increase of net worth in the 1990’s, at 58%, is well above the average net worth increase of for the previous three decades, 35%.  Much of the 1990’s increase came at the end of the decade during the height of the bubble. If you ascribe the difference between the averages, the 1990’s vs. the previous thirty years, as artificial then the 1990’s really gave us an increase of about 22% in net worth.  That 22% increase is hidden in the loss of the net worth due to the collapse of the 1990’s bubble.  The 22% is lowest of the past four decades, but still not that bad.

I am not sure that capitalism could be considered a failure when our economy is still the world’s largest, our standard of living is exceptional, and most of the world’s population still wants to move here.  That is not to say our economy is trouble free.  We have a debt that is way out of hand, our country’s health care costs are out of line with the rest of the world, and as a country we spent the last decade plus putting more money into short term economic activity stimulators, such as housing, instead of long term economic stimulators, such as manufacturing.  To put it simply, we owe more than we should, we spend too much on our health care and our nation was more interested in building McMansions then manufacturing.  To be fair, this process started more than ten years ago. 

Our loss of economic focus on manufacturing was encouraged by economists telling us of the “innovation economy” and economic policy encouraging us to spend instead of save.  Unfortunately, as I documented in one of my first posts on this site, the “innovation economy” is a myth.  Since we were not saving our nation had to borrow from the rest of the world.  Combining this with the misdirection of resources caused our nation to see its manufacturing, and other, jobs to leave and never come back. 

In the end, I would not call this past decade “lost”.  I would call it more of an “obfuscated” decade.  By that I mean it is unclear how bad, or good, the decade was.  I use the old saying “nothing is as good as it looks or as bad as it seems” to describe this past decade.    What is clear, however, is that we must learn from the events of the decade and improve our economy in this next decade.

Made in America Christmas

As the holiday season rapidly approaches, it is time to start thinking about gifts.    I, like many of my friends and relatives, will be limiting my holiday spend to less than last years’ level.   This is in line with many surveys that indicate consumers in general will be spending less this year.  If true, this holiday season will probably not bring much joy to a majority of retailers and out of work manufacturers.  The lower level of spend is why it is even more important to try to buy “Made in the USA” products.  Therefore, I ask people to do a “Made in America Christmas”.

I know it is unrealistic to ask people to go 100% “Made in America”, but it does not hurt to try.  I realize some families will want that iTouch, PS3, or some item that can only be imported.  I have a suggestion for those families; put off that purchase and switch to one of the many items that have domestic alternatives.   Whether you are buying socks, handbags, ties, jeans, a coffee maker, or a vacuum cleaner there are “Made in America” choices.  Even in electronics you can often find a domestic alternative.  If you have to have a product that is foreign made, then see if it is assembled here and/or the company does its R&D here.    Using the iPod, as discussed in my post “The Innovation Myth”, it is better that some of the money, more than just to the retailer and importer, stay in the United States then leave our economy.

Putting off that foreign purchase and focusing on domestic items helps our economy now, when we need it most.  When the economy gets better, then make that foreign purchase.  That way you help our economy now and also give holiday joy, to people you will never know, by creating a job for another American.  Also, please talk to your friends, neighbors and co-workers to do the same.   It is especially critical now because America, and most of the world, is purchasing less.  Each domestic purchase matters.

Tale of Two Stimuli

When the major economies of the world went into a deep recession many countries responded with stimulus packages.  The stimulus packages all had a similar goal; improve the domestic economy and, by extension, improve the global economy.  Unfortunately, different countries have different domestic drivers that resulted in differing methods used to stimulate their economies.  In several cases, the result of the stimulus will actually hurt the long term economies of the world.

Two specific cases are the burdensome national debt in the U.S. and the steel bubble in China.  While the U.S. stimulus is probably why we are seeing some life in the economy, many components of the stimulus did not provide the best bang for the buck.  In China, while some of the stimulus was used to increase domestic consumption, a significant portion of the stimulus was used to keep manufacturing humming even though there was little demand.

In the U.S. stimulus, money went to many initiatives that had little impact on the rest of the economy.  For example, the $2 million earmarked for swine odor research in Iowa.  As a stimulus, this project was an ineffective use of money and should have either been used in a better way or just not spent.  On the other hand, money spent on improving the country’s infrastructure has great value.  Local jobs are produced that require a resource such as steel and cement which creates other jobs.  Add to this the economic value of a better infrastructure and you get the most out of every dollar.  Admitted, the percentage of money that went to projects similar to the swine odor research was small, but that is not the point.  The point is that the benefit of the marginal projects did not justify the potential future damage.

China is estimated to have loss over 20 million jobs due to the global recession. Since they could not afford additional job losses, stimulus money went into keeping steel, and other, plants operating and people working.  The end result is that China is now producing more steel then ever and they have nowhere to sell it.  Steel industry analysts do not expect world demand to reach 2007 levels until 2012.  What China is doing is maintaining excess capacity and compounding the problem by producing an excessive stockpile, which only exacerbates the excess capacity problem.

In the end, the U.S. and China will have to deal with their own problems due to their stimulus packages.  What it means to the global economy ten years from now is anyone guess.

Teetotallers

I was watching the news last night when a story about “Teabaggers” came on.   As much as I agree with many of their issues, such as big government and the federal budget deficit, I was shocked at some of the statements being made.   Too many racist statements were being made, and sometimes shouted, openly in the demonstration.   Then on CNN, “Tea Party” leader Mark Williams calls the President “an Indonesian Muslim turned welfare thug and a racist in chief.” 

Whenever somebody argues against something using racist comments it always makes me wonder whether they are against the issue or the person/people. This makes me wonder how many “Teabaggers” are there for the issues and how many are there to protest again the President.

The problem is exacerbated by the fact that some people and organizations are either turning a blind eye to or, even worse, encouraging the racist component of the “Teabaggers”.  In a Pew Research Center for the People & the Press report, http://people-press.org/report/543/, a recent poll indicated that only about a quarter (26%) now say that news organizations are careful that their reporting is not politically biased, compared with 60% who say news organizations are politically biased. 

Even if the overall percentage of racist protesters is small, it has a broad, and often detrimental, effect on public opinion, politics, and our economy.  When a commentator on a cable news channel says that 1.7 million people (really only about 65,000) “Teabaggers” protested, some people will be swayed to go along with the crowd.   Politicians, whose job is to pander to their bases, will get a distorted view of what the populous wants.  The two political sides will get more polarized in their views, and the chances for the two sides working together to produce real change diminishes.  This hurts our economy in the long run since it reduces the effectiveness of an already slow moving process. 

Take healthcare reform.  Everyone, from a majority of individuals to most business groups, agree something should be done, but no real collaboration is being done.  In the end, something that is critical to our economy, and specifically our manufacturers, will either be left alone or changed in a trivial way.  More manufacturing, and other, jobs will leave our shores never to come back.  It should not be so hard to find a solution to a problem that everyone agrees exists.

Jumping the Shark

For those of you not familiar with the phrase “jumping the shark”, it is used to denote the point in time something moves past its original objective to a level of absurdity.  The phrase was coined in reference to a long running television program, Happy Days, which change the tenor of the show to attract viewers.  I think that this term can be applied to countries as well. 

A country’s government is there to serve their citizens based on the country’s style of government.  Different styles of government have a different set of pros and cons, but for the most part governments work to make life better for the majority of their citizens.  Sometimes governments go too far in their efforts and loss sight of what their overall goal is. 

Although I could pick from about a half a dozen countries that are either already jumping the shark, or are about to, I am going to focus on France.  France has long been a country on the cusp of jumping the shark.  Unfortunately, I think that they have now  jumped the shark. 

In documented in an article in Industry Week, France Threatens Boycott on U.S. Auto Parts Maker Over Plant Closure, the government of France is trying to force a company to sell a piece of their business to a French group in order to prevent the closing of a parts plant in France.  In the case of the Molex plant in southern Villemur-sur-Tarn, the company has decided that for many reasons, including safety and lower costs, the production needed to be moved to plants in the United States.

It is one thing to financially back a deal, or even take an equity stake in a business, but to threaten to do damage to a business if they do not agree to a deal is something more prone to criminal organization then a government.  Obviously the deal being offered to Molex was not good enough for them to sell that piece of the business.  As a business, Molex has both a right and a responsibility to do what is best for the business.  France does not have the right to use extortion to force a company to do a financially suspect deal.

Just by threatening a boycott, France has jumped the shark.   Let’s hope that they see their error and jump back.  If not, our government has to do its job or they might be jumping the shark.