Category Archives: Economics

Union Queens

Economics

 

Image result for labor day mattress salesIn case you’ve not been watching mattress commercials on television or similar advertisements in newspapers, you probably did not notice we are supposed to be celebrating Labor Day.  And as is his habit, the narcissist-in-chief spent the morning patting himself on the back for not screwing up the economy in his first two years in office.   Though he is certainly making a valiant effort recently with non-existent trade deals and tariffs.  He followed this ego trip with a round of golf at his his Virginia resort (and I use HIS reluctantly since there is a good chance the majority owner is Deutsche Bank or the Kremlin).  I am so glad he cancelled his Poland trip to stay in the White House and monitor the situation associated with Hurricane Dorian.  Better to embarrass himself in the USA than in front of a worldwide audience.

But that’s not what I came here to talk about.  As we pay tribute to American workers let’s make sure we give credit where credit is due.  For far too many years Republicans and conservative economists have questioned the value of the social safety net by pointing out some beneficiaries abuse the system.  The targets of these accusations are called “welfare queens.”  According to Wikipedia, “‘Welfare queen’ is a derogatory term used in the United States to refer to women who allegedly misuse or collect excessive welfare payments through fraud.”

However, individuals on public assistance are not the only ones with a safety net.  The overwhelming majority of workers in America today are the beneficiaries of:

  • better wages,
  • reasonable hours
  • safer working conditions
  • health benefits
  • retirement programs
  • unemployment payments, and
  • aid if injured on the job.

EVERY single one of these worker gains were introduced and fought for by dues paying members of unions and labor organizers.

Yet more and more states are authorizing open shops (places of employment where workers are not required to join a union) and fewer workers are contributing to the cause for even better working conditions, higher pay and corporate accountability.  I ask you, do non-union workers getting the above perks sound like a class of individuals who are collecting payments and in-kind benefits through fraud?  I have yet to hear one corporate executive or open shop employee give credit to the likes of Samuel Gompers and other giants of the labor movement.

I am not quite sure when “union” became such a dirty word but it seems to coincide with economic downturns.  Organized workers often are portrayed as the reason American business cannot compete in a global marketplace.  If that were true, the decline of unions should have resulted in a massive increase in U.S. manufacturing.  Or the wages and benefits in non-union firms would be significantly lower than their organized counterparts.  But neither is the case.  So now the excuses de jour are health and safety regulations and immigrants.

So, this Labor Day, take a moment and thank the union workers and organizers who are responsible for many of the workplace advantages so many non-union workers take for granted.  And if you see one of these union queens driving the BMW or Mercedes Benz they built in an open shop, refrain from confronting them with the fact they are living off the teat of hard-working, dues paying union members.  Even though it is the truth.

For what it’s worth.
Dr. ESP

 

The Upside of Cheating

Economics

Based on the positive feedback to Sunday’s post about noise versus signals, I thought I would further explore the value of clear signals.  The operative word in the previous sentence is “clear.”  So much of what we see and hear is often internally inconsistent.  Just ask comedian Steven Wright.

My teacher told me, “Practice makes perfect.”  My mother told me, “Nobody’s perfect.”  So I quit practicing.

What does that have to do with the non-nonsensical, counter-intuitive title of today’s post?  Is there really an upside to cheating?  Is Dr. ESP suggesting cheating is a good thing?  YES and YES.

Cheating is the clearest and most non-transparent signal any individual or organization can transmit.  No one wants to cheat.  Yet it happens.  Not by choice, but by necessity.  During my nine years as a member of the faculty at Miami University, incidents of cheating was the single best indicator of student achievement.  Not because the perpetrator was dishonest.  In the most illuminating sense possible, students self-identified themselves as underachievers.  I did not have to give them a grade, they graded themselves. If they knew the content or adequately prepared, there was no possible reason to cheat.

Image result for bait and switchThe true value of cheating comes from the signal received by the person a deceiver hopes to fool.  A few examples from the world of commerce.  Consider the time honored scheme referred to as “bait and switch.”  Based on an offer in a circular or on-line, you go to a store to purchase the “deal.”  When the sales representative suggests you will not be as satisfied with the advertised product versus the higher priced upgrade, what is he or she actually saying?  The fact they carry inferior merchandise?  Or maybe they do not even stock the advertised model?  Even if you participate this time in the “bait and switch” transaction, what are the chances you patronize that store again?  Or is it more likely you will share your experience with friends and family?  As we always tell our students in business classes, the ultimate goal is NOT to make a SALE but to make a CUSTOMER.

The second example demonstrates the value of cheating in commerce at an industry level.  We hear a lot about how the Chinese do not play fair.  They steal intellectual property.  Chinese companies use inferior materials and underpay their labor.  The government manipulates their currency to make products made in China more price competitive and foreign imports more expensive.  Read between the lines and you cannot miss the signals.

If we were as innovative as the United States firms, we would not need to loot their intellectual assets.  If our products were superior, price would not be as important a variable.

The true danger will come when China realizes its investment in industrial espionage and market manipulation is better spent on creating more innovative, higher-value products on its own.  Some of us remember when Japanese cars and Korean electronics were cheap knock-offs of American-based technology.  Today they are worthy international competitors for the right reasons–innovation and product quality.

Dr. ESP, are you suggesting we just let them cheat?  Not quite.  But I do question the allocation of resources.  Let’s return to the above example of the electronics industry.  A plethora of intellectual property (IP) infringement suits have centered on the design and functionality of smartphones.  Samsung sues Apple.  Apple sues Google. Google sues Samsung.  And who benefits?  The legal profession, which instead of chasing ambulances now tails Geek Squad vans.  As Willie Sutton would say, “That’s where the money is.” The more important question is how do these mega-corporations actually hold on to their markets.

Court battles have not crippled Google, Samsung or Apple despite the tens, if not hundreds, of millions of dollars spent on litigation.

  • First, they keep innovating.  Let competitors copy the iPhone 9.  By the time their knock-offs hit the market, Apple will release the iPhone 10 with new and better features and functionality.
  • Second, deliver what you promise.  Create real value.  Separate yourself from your competitors who can only offer inferior products.  Give the customer what they need and want at a reasonable price.
  • Third, create a community customers are proud to be part of and a support system where consumers know you care after the sale.

To prove this point, look at the reviews for anything offered on Amazon.  Consider individuals who bought “Hydro Mousse Liquid Lawn Kit.”  (The product is not worth explaining.)  Seventy-five percent of reviewers gave the product a one-star review with comments such as:

Complete waste of time and money. Was not even close to as advertised.

Wow. I don’t know what they do in the infomercials to make it look like it works but this is absolute garbage.

Comes with this “Mousse” conditioner that’s sealed in the plastic bag filled to the brim. It exploded on me when I opened it up and got green stuff all over my hands face, clothes, driveway etc.

Returned and have not received refund.

I world Not Recommend This to Anybody Not even My Worse Enemy!

Americans know a bad product when they see one, especially when they make a mistake and purchase it one time.  They are fast learners.  They quickly differentiate the perception in a staged infomercial and reality.  They understand “bait and switch.”   And they don’t like being conned.

So, do not waste your time and resources telling people what they already know.  Next time, they will look for a better product.  They want to feel like you really care, not just at the time of the sale, but all the time.  They want to be part of a consumer community they can be proud of.

Are you listening Democratic candidates for president?  (Oops, I think I just created my own “bait and switch” scheme. Sorry!)

For what it’s worth.
Dr. ESP

 

The Spy Who Loathed Me

Economics, Politics

Image result for the spy who loved meThe title of this morning’s entry is a clear reference to the 10th James Bond film The Spy Who Loved Me, starring Roger Moore as the fictional secret agent.  At the heart of the story (based on the 10th Ian Fleming 007 novel) is an attempt by a “man without a country” Karl Stromberg to destroy the world order to be replaced by an alternative of his own creation.  Today, the post-World War II geopolitical standard is the target of a real-life operative who, like Stromberg, sees success not by defeating his enemies, but setting the stage for his enemies to destroy each other.

The title came to me as I listened to several pundits question why Iran would risk overplaying its hand, seizing an British oil tanker in the Straits of Hormuz. [NOTE: Although bound for England, the ship is registered in Sweden.] The consensus opinion boiled down to, “if the U.S. sanctions cause Iran economic pain, the Iranians have decided to also cause some pain.”  However, that answer still begs the question, “Who benefits in the end?”

What if, in the style of Karl Stromberg (played by Kurt Jurgen), there is a third party manipulating the situation and who might that be?  To understand the situation, you first need to determine if this is an isolated event or view it in the context of a larger strategy.  And in the latter case are there “dots” that are not yet connected.  Like the detectives in any television or film crime story, you put a lot of pictures and notes on a bulletin board to build a case against the prime suspect, someone with the most obvious motive for committing the offense.  And then you draw the lines where the data points intersect.

At the center of my board is former KGB  director Vladimir Putin, the spy who has devoted his life to avenging the demise of the Soviet Union.  And how do you do that?   Disrupt the liberal democratic order which has dominated global politics since 1945.  Knowing he lacks the resources and military advantage to take on the Western alliance directly, he foments discontent between members of coalition and within each of the sovereign participants.  All you have to do is ask yourself, “If I were Putin, what would I do to energize disruptive forces among my enemies?”

  • Support Syrian president Bashar al-Assad’s response to civil protests creating millions of refugees.
  • Conduct a disinformation campaign in support of populist candidates in several European elections.
  • Manipulate public opinion in favor of Brexit.
  • Assist in the election of a U.S. president who games the electoral college to capture the White House despite losing the popular vote.
  • Have that president withdraw from an international treaty which pits the U.S. against NATO.

What do all these have in common?  Putin’s surrogates represent an activist minority of the population in each of the target nations.  Bashar al-Assad is a member of the Alawhite sect of Islam which makes up just 12 percent of the Syrian population.  In the latest United Kingdom public opinion poll, only 44 percent of respondents still support Brexit while 51 percent prefer to remain in the European Union.  According to the FiveThirtyEight average of polls, only 42.7 percent approve of Donald Trump’s performance since taking office.   A CNN poll just prior to U.S. withdrawal from the Iran nuclear agreement showed 63 percent of Americans preferred staying in the compact.  Disinformation results in confusion.  Confusion causes apathy.  Apathy assures minority rule.  Minority rule spurs majority dissatisfaction and political unrest.

Putin tapped into the anger of the Russian people as the West celebrated its Cold War victory.  American prosperity increased fueled partly by what became known as “the peace dividend.”   In contrast, the Russian economy struggled as the central government lost control of many of the resources in its satellites in the Soviet sphere.  The rise of Vladimir Putin was largely due to these factors.

Related imageThis post began with a movie reference and will end with one.  In The Mouse That Roared, the Duchy of Grand Fenwick, on the verge of bankruptcy, devises a plan to garner American economic relief.  They declare war on the U.S. with the intent of immediately surrendering upon launching an invasion of New York expecting the American government to provide assistance similar to that offered Germany through the Marshall Plan.

The plot of this film was not unlike the situation in the Soviet Union at the end of the Cold War.  Having been in Moscow in November 1994, two personal experiences provided insight into Russia’s future.  The first was visiting a flea market in Gorky Park.  Several acres were covered with tables at which Russians, desperate for any source of income, were selling everything from Soviet army uniforms to kittens.  The second was lunch with governor of the Moscow Oblast (region) Anatole Tshelov.  He told us the greatest challenge was to figure out how to transform an economy where the government took responsibility for providing basic necessities throughout one’s life to one where individuals were now expected to provide for their own well-being.

In other words, although not physically decimated, like Germany in 1945, Russia needed help to rebuild.  In addition, people needed income.  That meant they needed work.  And without a majority employer like the Soviet military/industrial complex and government purchase of many commodities, jobs were scarce.  One possible response, a second Marshall Plan.  International investment to upgrade Russian infrastructure and financial capacity.  It never materialized.

The lesson?  It is one thing to win a war, whether hot or cold.  It is quite another to win the peace.

For what it’s worth.
Dr. ESP

 

Eco-NO-mics

Economics

Prologue:  The solitude and serenity associated with walking a dog are supposed to clear your head to make room for the processing of new ideas.  This morning it backfired.  On our daily stroll to view the wild life on the creek behind our home, I wondered how the Democrats could make a case against Trump’s claim of unprecedented economic success, especially after a day when the Dow closed at an all-time high.  The answer:  Precedent.

Coming into the 2020 election, you can bet the farm Donald Trump and the GOP will be touting the over-stimulated economic growth over the past two years, focusing on two data points.  First, the U.S. stock indices are at an all time high even though the recent spike in stock prices is due to indications of a weaker economy and a pending Federal Reserve decision to further juice economic activity with lower interest rates translating into a reduced return on investments from bonds and other long term financial instruments.  The second is the fact, on Monday, the current economic expansion reached 121 consecutive months, the longest in the nation’s history.

I can see it now, White House and Republic National Committee (RNC) propaganda, “If you like economic growth, vote GOP.”  Call it the Larry Ellison effect.  Ellison started touting Oracle, the company he founded, as the world’s largest supplier of connectivity equipment before they were even in the top 10.  And enough potential customers, minus any proof otherwise, made Ellison’s words a self-fulfilling prophecy.

Such is the claim the GOP as the party of economic growth.  On Monday, Axios published a chart of the 12 post WWII economic expansions.  And once again, the facts (damn them) do not support the RNC’s or Trump’s claim.

  • There have been three expansions lasting more that 100 consecutive months since 1945.
  • The first (106 months) started in February, 1961 and lasted until December, 1969.  During that period John Kennedy and Lyndon Johnson were in the White House 95 of those 106 month.  It ended during the Nixon administration after only 11 months.
  • The second (120 months) began in March, 1991 and ended in March, 2001. Of the total time span, Bill Clinton accounted for 96 months  while George H. W. Bush and son W. made up the other 24 months.
  • The most recent and longest (currently 121 months) began one month after Barack Obama took office despite being handed the worst economy since the Great Depression (Donald, that’s what I call real carnage).  While the recovery may have been slower than some had hoped, it remained intact for the remaining 95 months of his presidency.  To date, the expansion has continued during Trump’s first 26 months in office.

Notice a pattern?  In each case, whether a Democratic president was handed the beginnings of an expansion (Clinton) or it started during their time in office (Kennedy and Obama), growth continued unabated for the following eight years.  The first two times they were handed over to a Republican administration (Nixon in 1969 and W. in 2001) the expansions vanished in 11 months and three months, respectively.  The verdict is still out on Trump, but signs suggest, if a Democrat is inaugurated on January 20, 2021, he or she will be handed a negative growth economy.

But Dr. ESP, anyone can make a case with anecdotal information.  Okay, try this on for size.  Since 1945, Democrats have held the White House for 384 total months of which 362 or 94.27 percent of the time there was a rise in gross domestic product (GDP).  In contrast, a Republican president has occupied the White House for 461 months during which GDP was positive for 343 months or 74.40 percent (including Trump’s 26 for 26 start).

Just imagine you were forced to choose one of two opportunities to double your life savings.  One choice had a 94.27 chance of success.  The odds of winning for the alternative are 74.40 percent.  Only a fool would select the latter.  QED.

For what it’s worth.
Dr. ESP

 

A Fair Shake (and a side of fries)

Economics, Politics

 

[UPDATE:  I began drafting this post on Tuesday, June 11, largely in response to images of the unrest in Hong Kong as Beijing seems to be reneging on its commitment to that special administrative region’s political autonomy following British transfer in 1997.  In light of Thursday’s overnight news of attacks on two oil tankers in the Gulf of Oman, I realize the message is not solely one of alliances among nations with mutual interests but one of contrast between the haves and have-nots.]

Should Ray Kroc be posthumously nominated for the Nobel Peace Prize?

Related imageIn his 1999 book The Lexus and the Olive Tree, New York Times columnist Tom Friedman makes the following observation. Since McDonald’s international expansion, there had not been a war between two nations in which local residents could get a Big Mac or Egg McMuffin. It is hard to tell if that is still true, especially when post-1999 expansion includes foreign outlets in places like Iraq, where the Golden Arches marquee appeared in 2006, largely to serve deployed U.S. soldiers.

If this was a causal relationship, our federal government could dramatically decrease defense spending by investing in fast food restaurants in North Korea and Iran (where the last McDonald’s closed in 1979 following the Islamic revolution) rather than new weapon systems. Create a “military/intestinal complex.” Under this strategy, McDonald’s choice of locations is a modern day tribute to Willie Sutton, where banks have become countries where, instead of money, the currency is paying customers.  For the record, the threshold appears to be Andorra where five franchises serve a consumer base of approximately 75,000 residents.

If this theory is more than a “Kroc,” the Dr. ESP corollary states, “The strength of U.S. bilateral alliances should be directly related to the number of Mickey D outlets in the partner nation.”  In which case, China comes in second with over 2,700 franchises compared to #1 Japan, home of the クォーターパウンダー(translated Quarter Pounder) with 2,975 and #3 Germany (1,480),  #4 Canada (1,450) and #5 France (1,419).  [GASTRONOMICAL NOTE: The most popular menu item in Japan is the “satokohda” or “cheese tsukimi burger,” two slices of bacon, over-easy fried egg, ketchup and mayo, cheddar cheese and a chicken patty on a sesame seed bun.]

Of course, one could argue it is just a coincidence the three countries with the highest gross domestic product (GDP) are (drum roll) #1 the United States, #2 China and #3 Japan.  Or look at the imperial behavior of the current G-7 members–Canada, France, Germany, Italy, Japan the United Kingdom and the United States.  Since it’s formation in response to the 1973 oil crisis, none of the members of this “group of seven” have launched a preemptive strike against another sovereign nation with one exception, the U.S. invasion of Iraq in 2003. (American exceptionalism?)

Image result for mayor mccheesePerhaps, it’s not Mayor McCheese who is keeping the peace.  As mentioned above, the global location of McDonald’s franchise has more to do with disposable consumer income than the tastes or dietary habits of the location’s residents.  In other words, when you have a functional economy which, for the most part, serves both domestic purposes and international financial transactions, why would you put that at risk?  In fact, it would seem to make more sense to develop joint trade and intellectual property agreements which ensure continued stability and success.

Which brings me to the U.S./China trade war.  According to the latest data provided by the International Monetary Fund (IMF), the combined GDP of the United States and China is $37 trillion dollars (US/21.4; China/15.6), more than the sum of the next 17 national economies.  The last thing Americans should want is a major downturn in the Chinese economy, especially at a time when the Chinese government faces a growing political confrontation with Hong Kong.  A wounded China is much more dangerous than a financially healthy one.

There is another option.  The model for future U.S./China relations surfaced in 1975 when Doug Chamberlain, a student at Adrian College coined a word which describes “conflict over how to divide up the benefits produced by cooperation.”  That word was “coopetition.”  Beginning in the 1980’s, it became the modus operandi of the emerging high-tech industry in Silicon Valley.  Representatives from competing firms would meet regularly in formal settings or socially after work.  The topic of conversation?  If we can grow the industry as a whole, there will be plenty of profits for all of us.  In colloquial terms, together we can bake a bigger pie, and everyone will get a larger slice.

Now, take a look at the flip side, the have-nots.  According to the IMF, Russian GDP currently stands at $1.8 trillion, less than a tenth of the U.S.  Iran’s is at $413 billion.  North Korea’s is estimated at $40 billion.  You might call this national income inequality.  And what do we know about behavior when people face desperate economic conditions.  They start to look outside legal sources of income.  They covet what others have and want “their fair share.”  They steal property (Russian appropriation of Crimea).  They extort (Iran threats to close Straits of Hormuz or North Korean development of nuclear weapons).

Maybe it’s Bob Dylan, not Ray Kroc who should be honored in Oslo.  I know, he already has been.  But this time for economics and peace, not literature.  In his 1962 classic “Like a Rolling Stone,” Bob Dylan laid out the unified theory of economics and militarism, “When you ain’t got nothing, you got nothing to lose.”

For what it’s worth.
Dr. ESP