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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.

Bloggers Wanted

I am looking to start adding more bloggers to this site. If you are interested in blogging about U.S. manufacturing, please send me an email at Michael@ProudlyMadeInAmerica.com so we can discuss bringing you on-board. Direct U.S. manufacturing expertise is preferred, but not required.
In general, I am looking for differing opinions about manufacturing. I have gotten some private comments and emails that I am overly optimistic about U.S. manufacturing. My intent is to have this site as an open environment to discuss all viewpoints. Hopefully getting different views will stimulate discussion.

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.

CARS

Who would have guessed that CARS, the Car Allowance Rebate System, program would be such a success? Well, to tell you the truth, I did. I was thinking about doing a post about the program before it started, but decided that since I did not have much to say, other then it would be a big success, it would be a useless post.

I previously posted about pent up demand for automobiles and my belief that Americans want to start buying again. With the recession reaching the bottom, the CARS program was the little nudge needed to get many potential car buyers to buy. From a domestic manufacturing perspective, the CARS program is a great success. My only major issues with the program are that the individual rebates are too large and there was no additional incentive to buy hybrids.

The CARS program is needed for many reasons. The most important reasons are to get the automobile selling, in significant numbers, again and to incent buyers to buy more fuel efficient vehicles. People did buy, as shown by the fact that the program “sold out” in only a couple of weeks. As for improving fuel efficiency, the Transportation Department reported that for the first 80,000 rebate application the average fuel efficiency of the new vehicles was about 61% better than the average for the vehicles they were replacing.

A big plus for domestic companies is that out of the above applications, 47% were for GM, Ford or Chrysler. This is great since it is better than the 45% those companies had over the past few months. The real good news is that 60% of the new vehicles were cars, which the imports tended have an even larger share. In any case, over 50% of the vehicles sold for this program were manufactured in the United States.

Did the government give too big of an incentive? Yes. Although this is not really a domestic manufacturing issue, should the incentive be scaled to provide more of an incentive to hybrids? Yes. I can live with these flaws? Yes. The vehicles are selling again and the incentive goes to individual families. Overall the program stimulates the economy, reduces the need for imported oil by about 85,000 barrels a month, and the vehicles are safer for the driver and occupants. Finally, there is a useful program that helps more than just Wall Street.