Monthly Archives: December 2016

The Danger of Being SO Wealthy

Politics, Sports

 

Call it one of the most generous severance packages ever.  Yesterday, the Los Angeles Rams fired coach Jeff Fisher 10 days after announcing a two-year extension of his $7.0 million annual contract.  Must be nice.  Not only for Fisher who will pocket $14 million without having to spend one more night watching game films.  But also nice for the team’s ownership.  If only we all had the luxury of making multi-million dollar mistakes without the attendant devastating impact on our balance sheets.

In entrepreneur classes, we warn our students about the danger of unlimited resources.  When funds are scarce during the start-up stage of most enterprises, one has to be strategic and shrewd.  When money is no longer an issue, it is easier to make mistakes. There is the unjustified expectation there will always be more dollars coming in.

Think of it as the “wealth mentality,” defined as the mindset of those who have so much money they can make decisions without worrying about the financial consequences.  We saw it in the “sub-primed” recession.  The banking community did not worry about disastrous lending practices because they were “too big to fail.”  Energy and chemical companies can violate environmental laws because, if caught and prosecuted, cash reserves more than cover the penalties which represent a small  percentage of the profits to be made.

My question du jour is, “What happens when you bring a ‘wealth mentality’ to arenas where return on investment is not the gauge of success?”  For example, the welfare of the global community.  I guess we may soon find out.  It is hard to argue the president-elect brings his own version of a “wealth mentality” to the oval office.  It was affirmed today when Rex Tillerson was nominated as Secretary of State.  The announcement played down his lack of diplomatic experience and focused on his business acumen.

Rex Tillerson’s career is the embodiment of the American dream. Through hard work, dedication and smart deal making, Rex rose through the ranks to become CEO of ExxonMobil, one of the world’s largest and most respected companies.

Respect in Trump World is measured by profits and market capitalization.  A laundry list of fines and other penalties for environmental, anti-trust and labor violations is an inconvenient nuisance.  Suppressing its own research on climate change to mislead investors is not the kind of “smart deal making” we need to stabilize a dangerous world.

One can only hope Donald Trump and his cabinet understand there are no bankruptcy laws or sympathetic judges to mitigate the negative impacts of public policy.  Or, unlike the Los Angeles Rams, rash decisions are not easily reversed with a waive of the hand.

For what it’s worth.
Dr. ESP

 

Domestic Abuse: Bizarro World Style

Uncategorized

 

There has been a lot of commentary about what Trump administration appointees have in common.  Generals?  Wall Street financiers?  Add one more to the list.  Domestic abusers.  As pointed out in a December 9 article in the Huffington Post, the president-elect, his strategy chief Steve Barron and Labor Secretary nominee Andrew Puzder all have been accused by ex-spouses of abuse.

There are certain things we know about domestic abusers.  First, their prime motivation is to belittle their victims.  In turn, the recipients doubt their self-worth.  Second, in most cases, abusive acts take place in private while the perpetrators go out of their way to present a public facade of domestic bliss.

It is now clear many voters do not think abusive behavior in one’s private life is a disqualification for president.  And we will soon learn whether the U.S. Senate considers it a factor in confirming or rejecting a cabinet appointment.  The question they should be asking is, “What does domestic abuse in one’s personal life tell us about how a president or senior federal officials will carry out their responsibilities?”

In the case of Trump and his appointees, that is where the the concept of “Bizarro World” comes in.  First introduced in DC Comics, Bizarro World (or Htrae as it is called) is a planet where everything is the opposite of what we have come to know.  Bizarro World got an additional PR bump in the 137th episode of the sitcom Seinfeld when Elaine associates with a new trio of male friends who are the polar opposites of Jerry, George and Kramer.

The president-elect is already giving us a good idea how abusive behavior will play out in Bizarro Trump World.  Consider his two latest victims: Mitt Romney and Al Gore.  Instead of belittling these clueless pawns in private while embracing them before the cameras, Trump has done just the opposite.  Gore emerges from a private meeting stating he and Trump had a good, substantive discussion on climate change.  The next day, he shames the former vice-president by appointing a vocal climate change denier as EPA administrator.  In Romney’s case, their kiss and make up charade takes place at an intimate dinner with incoming chief-of-staff Reince Prebus.   In public, Trump stands on the sidelines while surrogates, including his former campaign manager Kellyanne Conway and BFF Rudy Guliani, denounce Romney as a potential choice for Secretary of State.

Pun intended, we are also seeing how Bizarro World domestic abuse has gone foreign.  Warm private conversations with Chinese officials are followed by public rebukes.

In most cases, domestic abuse begins as verbal assaults which only later becomes physical and violent.  This is bad enough when the offense involves just two people.  Imagine what the consequences could be when abusive behavior is applied on a national or international scale.

For what it’s worth.
Dr. ESP

 

So You Want To Be President

Culture, Politics

 

Consider the following.  There are approximately 231 million American citizens of voting age.  In the recent presidential election, approximately 96 million (41.5 percent) did not cast a ballot in the presidential election.  Not much of a rousing endorsement of America’s democratic process.

In a November 8 article in the New York Times titled “Millions on Election Day Make a Different Decision: Not Voting,” reporter Campbell Robertson lists a number of reasons behind low voter turnout ranging from voter suppression efforts to just being too busy or too lazy to make the effort.  But that does not explain a higher level of under-voting for president than in past elections (ballots cast for lower offices but not for president). For Catherine Bonneville, it was a conscious decision based on principle.

“I voted for sheriff. I voted for senator. I voted for county recorder and for judges,” Ms. Bonneville said. “I couldn’t in good conscience vote for president.”

You know the reasons.  Politicians are all alike. They will say anything to get your vote.  They flip-flop on the issues depending on the audience.  Whether or not there was a moral equivalency between the degree to which the two major party nominees fit these stereotypes is not important.  Both provided enough fodder to make it hard to argue with these widely held assessments.

Donald Trump railed against unfair competition from China but exploited foreign, low-cost labor to manufacture his own products.  He claimed to be a champion of the working class while stiffing contractors who worked on his hotels and casinos.  He proclaimed himself to be an evangelical yet violated the central tenet of biblicism by committing adultery and bearing false witness.  Trump was also charged with being a hypocrite for his multiple pro-choice and pro-life stances.

Hillary Clinton ran into similar criticism for her use of the term “super-predators” in a 1996 speech when referring to youth who committed gang related crimes.  (It should be noted the speech did not refer specifically to African-American youth though many, including the leadership of Black Lives Matter, felt it was implied.)  Likewise, Clinton had to reconcile what appeared to be a flip-flop on the Tran-Pacific Partnership.  Her multiple explanations for needing a private email server raised questions about the veracity of any of them.

Trump and Clinton supporters attempted to justify their candidate’s positions and behaviors by suggesting their nominee had “evolved on the issues” or “voters should not hold someone to actions a long time in their past.”  The cynic in me has to disagree.  Do these people expect us to automatically forget the past or accept political expediency?  Shouldn’t we expect more of those we choose to lead our nation?

As is my habit, I turned to movies to better understand this issue. I was reminded of a story from the film Now You See Me.  Explaining what it takes to become a member of “The Eye,” a society of the world’s greatest magicians, one of the characters presents the example of Lionel Shrike and the trick which earned him the honor of becoming part of this secret fraternity.


When he was 14, he saw a hole in a tree in Central Park. He had a guy, who worked at the carousel, sign a card for what looked like a routine little trick. At the guy’s retirement, 18 years later, Shrike performs, has the guy sign a card and presto! The card is in the tree. It was in the tree for 18 years.

The trick was not to look closely. It was to look so far that you see 20 years into the past.

Isn’t this a lesson for future presidential candidates?  View what you say and do today in terms of how it will be used 20 years or more in the future.  Only then should you expect voters to accept you as a paragon of moral consistency, not a captive of political expediency.  Perhaps, Americans might also welcome a renewed imperative to exercise their franchise to vote.

For what it’s worth.
Dr. ESP

 

Giving America the (Foam) Finger

Culture, Politics, Sports

 

Several pundits attributed the Trump victory to a desire by many Americans to voice their dissatisfaction with the establishment on both sides of the aisle. In politically incorrect terms, voters were giving the liberal and conservative establishment “the finger.” It did not matter if it was a direct vote for Trump or protest votes for Gary Johnson, Jill Stein or (in Nevada) None of the Above.

Saturday night, I realized they are half right.  At the end of the Big Ten football championship, Penn State fans were giving us the finger also.  Except, in this case, it was a big foam “We’re #1” index finger.  Their goal?  To convince members of the College Football Playoff selection committee to include the Nittany Lions in the championship tournament.  Equally important is what they didn’t say.  No one was making the argument based on the aggregate performance of the Big Ten conference or strength of schedule.  The message was clear and simple. We  won the championship game. “We’re #1.”

That’s when I understood it is also in America’s DNA to be #1, in sports, in business and in the geopolitical arena.  And that’s why a candidate who advocated “America First” won the hearts and minds of enough voters to become the 45th president.  Being “Stronger Together” is not good enough. Trump voters want to be #1.  PERIOD.

The Penn State analogy explains something else.  When being #1 is the only criteria for success, fans are willing to forgive a few indiscretions.  Saturday night there was no mention of Jerry Sandusky or Papa Joe.  Penn State faithful wanted the controversy surrounding the university’s honoring Joe Paterno on the 50th anniversary of his first game as head coach during the September 17 home game to be just a memory.

Being #1 is clearly in Donald Trump’s DNA.  After 9/11, he bragged that his Wall Street property was now the tallest building in south Manhattan.  His hotels and golf courses have to be superior to any others.  “The Apprentice” could only have one winner (compared to “Shark Tank” where any worthy concept has a chance of being funded).  And he constantly reminds us he surrounds himself with the “best” people.  On election night, it would have been more appropriate for Trump to trade in his “Make America Great Again” ball cap for a red, white and blue foam finger proclaiming, “We’re #1.”

And just like Penn State, any transgressions in the past are forgotten.  Trumps conspiracy theories, insults, twitter tantrums and broken promises (e.g. releasing his tax returns) do not matter.  He is #1.  The consequences of policies and programs which focus primarily on a promise to make America  #1 in a global society are yet to be seen.

While boasting of being at the top Saturday night made Penn State fans feel good in the moment, raising the #1 foam finger did not get Penn State into the playoffs. And Paterno’s obituary in the State College, Pennsylvania newspaper still reminds us how Papa Joe was dismissed as head coach for turning a blind eye when informed of Sandusky’s criminal behavior.  The incoming president could learn a lot from the Penn State experience.  Above all, being #1 can be both fleeting and delusional.

For what it’s worth.
Dr. ESP

 

Corporate Ransom

Economics

 

In a previous life, I served as director of economic development and commerce policy studies at the National Governors Association in Washington, DC.  Among my responsibilities was organizing programs and events related to business, taxation and transportation during the association’s two annual meetings.  These gatherings provided the governors an opportunity to share their perspectives and engage experts before a national audience as most plenary and committee sessions were broadcast on C-SPAN and reported on multiple news outlets.


In February 1992, I was privileged to be part of one of the few sessions at which television cameras and reporters were absent.  The topic was state development incentives.  In attendance were five governors and the chief executive officers of five of the largest U.S. based corporations.  The impetus for bringing these individuals together was growing concern corporations were holding states “hostage” by seeking larger and larger public subsidies in exchange for locating a major facility (e.g. the United Airlines maintenance facility in Indianapolis) or not relocating their headquarters (e.g., Sears in Chicago).


By the end of the discussion, both sides agreed these payments were an inefficient use of public resources and not in the interest of either party.  However, both state governments and businesses were addicted to their use.  And addiction is the perfect analogy.  Development incentives provide a short-term high to the long-term detriment of the health and stability of the users.  Corporations receive tax benefits which amount to a rounding error to businesses with annual revenues in the billions of dollars.  Governments forego revenues which finance infrastructure and public services which support private sector economic activity.


The justification for continuing the practice of, in effect, paying ransom to influence corporate location and relocation decisions can be summarized in two sound bites from the NGA roundtable.  Governors talked about the political pressure they faced to “do something” to improve their respective state economies.  The CEO response was more telling.  “If states did not offer these incentives, we wouldn’t take them.  But how do we tell shareholders we turned down money which improves our bottom line.”


I was reminded of this particular experience as I read about the incentives which Carrier Air Conditioning is receiving to keep a portion of its work force in Indiana.  First, keep in mind Carrier is a subsidiary of United Technologies.  Second,  United Technologies’ net sales in 2015 was $56.6 BILLION (source: 2015 Annual Report).  The dollar value of the tax deferment is estimated at $7.0 million or .012 of one percent of the company’s net sales.

SONY DSC
Former New Stanton VW Plant

In an effort to help governors rethink the efficacy of providing tax incentives, our staff examined the cost/benefit of past state/corporate incentive agreements.  The poster child was the location of Volkswagen’s U.S. manufacturing plant near New Stanton, Pennsylvania in 1978.  To entice VW to chose this location, the State provided over $100 million in property tax exemptions and infrastructure improvements.  Additionally, the state financed VW’s purchase of the site for $40 million.  In return, VW promised to invest $250 million and operate for 30 years.  However, VW shuttered the plant less than 10 years later while expanding North American operations in Chattanooga, Tennessee and Puebla, Mexico.


What is the lesson to take away from the VW saga and similar stories?  The use of industrial incentives does not result in your “selling” your location to the company;  you are only “renting” it.  And as soon as another landlord offers a better deal, your tenant is likely to vacate the premises.  To the workers at Carrier and the communities in which the company operates, enjoy the high.  But be prepared for the “meltdown” when the drug wears off.


For what it’s worth.
Dr. ESP