Category Archives: Economics

The Invisible Brand


Italian artist Salvatore Garau recently auctioned an invisible sculpture for 15,000 euros ($18,300). According to, the sculpture’s initial price was set between 6,000 and 9,000 euros; however, the price was raised after several bids were placed.

~Newsweek/June 1, 2021

Was there a typo in the dateline?  Did the story actually come from the April 1, 2021 issue of Newsweek?  Or more likely, is Salvatore Garau an Italian descendent of P. T. Barnum or Mark Twain?

Artist sells invisible sculpture for over $18KOnce the story was verified, my interest shifted from Signore Garau to those who had bid on his non-sculpture sculpture.  And what would the unidentified owner do with his/her newly obtained “masterpiece?”  Would he/she loan it to the Galleria dell’Accademia in Florence, Italy where it would occupy its own alcove next to that of Michelangelo’s David?   Would it find a permanent home among the statuary in the gardens behind the owner’s villa, overlooking a pond filled with equally invisible fish?

As is so often the case, it was a totally unrelated story that caused me to break out in a cover of Johnny Nash’s 1972 hit, “I Can See Clearly Now.”  The headline?  “In a world first, El Salvador makes bitcoin legal tender.” (Reuters/June 9, 2021)  Salvatore Garau had brilliantly demonstrated art’s ability, if not responsibility, to help us better understand and appreciate the human experience through imaginative representations.  The purchase of an invisible statue was a creative, yet logical, extension of cryptocurrency.  Garau ‘s statue “I Am” was nothing more than a metaphor for invisible money being pursued by millions of investors and now a sovereign nation.

The only remaining question is whether other art forms will follow suit.  If Johnny Nash were still with us (he died on October 6, 2020) would he, ala Harry Chapin’s sequel to his hit “Taxi” titled (drum roll) “Sequel,” produce an updated version of his 1972 recording and call it, “I Cannot See It Clearly Now?”  Or will some modern-day satirist publish The NEW Adventures of Tom Sawyer with the following revised text in Chapter II in which young Tom practices what he learned as a finance major at a prestigious American university, how to create wealth without creating value.

CHAPTER II–Tom and the Magic Piggy Bank

One Saturday morning, Tom appeared on the steps of his home holding a piggy bank when his friend Jim came skipping by humming “Buffalo Gals.”  Jim stopped for a moment and saw what appeared to be Tom dropping coins into the slot.  However, there was no sound, and on closer examination, Jim realized there was nothing between Tom’s thumb and forefinger each time he positioned his hand over the porcine vessel.

“What are you doin’ Tom?” Jim asked.

“Getting rich,” Tom replied.  “I put these invisible coins in my bank, and magically, they are worth more every day.  Do you want in on it?”

“What do I have to do?  Can I just pretend to drop money in the bank like you do?”

“No, of course not.  Someone has to manage the process.  You buy the invisible coins from me with regular money and I drop them in the bank.”

“How do I get my money back?”

“You don’t actually get it back.  You wait until someone else thinks the invisible coins will be worth more than you paid for them and buys them from you.  They never actually leave the piggy bank.  And the more people who want to buy your coins the more you make.”

And sure ‘nough, another friend Ben stopped on his way to the swimming hole. “Wanna join me?” Ben asked.

“Nah, Tom and me is getting rich,” Jim replied.

By sundown, everyone in St. Petersburg, Missouri had gathered in front of Aunt Polly’s house, clamoring to get a share of the invisible coinage.  None noticed how there was no limit to the number of imperceptible discs the bank could hold.  And each left dreaming about how they would buy a new car, boat or villa in El Salvador with their new-found wealth.

CHAPTER III–Tom Relocates to the Cayman Islands

For what it’s worth.


The Gospel According to Warren


The Invisible Back of the Hand

Invisible hand, metaphor, introduced by the 18th-century Scottish philosopher and economist Adam Smith, that characterizes the mechanisms through which beneficial social and economic outcomes may arise from the accumulated self-interested actions of individuals, none of whom intends to bring about such outcomes.

~F. Eugene Heath/Encyclopedia Britannica

Elizabeth Warren Slams JPMorgan Chase's Jamie Dimon on Overdraft Fees - Rolling StoneYesterday, a verbal sparring match between Senator Elizabeth Warren (D-MA) and JP Morgan CEO Jamie Dimon dominated the business news cycle.  At the center of the exchange (excerpted below) was Warren’s contention that JP Morgan’s excessive overdraft fees took advantage of customers at a time of high financial distress among their clientele.

WarrenSo Mr. Dimon, how much did JP Morgan collect in overdraft fees from their consumers in 2020?
Dimon: Well, I think your numbers are totally inaccurate, but we’ll have to sit down privately and go through that.
Warren: These are public numbers.  Can you just answer my question?  How much did JP Morgan collect?
Dimon I don’t know the number in front of me. Upon request we waived the fees.
WarrenWell, I actually have it in front of me. $1.463 billion. 

Sadly, this was the least of the moral lapses exhibited by large banks in 2020.  To counter the risk associated with loans to struggling business, the Coronavirus Aid, Relief and Economic Security Act (CARES), signed into law on March 31, 2020, included $349 billion for banks to lend to their small business customers.  To further support riskier lending, the act included certain regulatory relief.

There was one caveat.  Banks were prohibited from using the newly available funds for stock buybacks.  The following chart displays the difference in actual lending during 2020 by independently owned community banks (orange line) and large national banks (blue line).  Note that smaller banks used these resources to increase their year-to-year loan generation by more than 40 percent for an extended period of time.  In contrast, corporate banking giants showed an initial 25 percent increase which quickly fell to pre-COVID levels.  Why?  Anticipation the stock buyback exclusion would eventually be lifted, which it was in December 2020.  And right on cue, these corporate entities used their cash reserves for buybacks, enriching stockholders and corporate officers.


In response Warren has proposed the The Accountability Capitalism Act, best characterized as a return to classic Adam Smith economics based on his belief giant corporations should look out for American interests.  It is not socialism or Marxism.  It does not involve nationalization of ANY industry.  It relies on the “benefit corporation” model, which according to Warren, “gives businesses fiduciary responsibilities beyond their shareholders.”  In other words, Senator Warren is suggesting America is better served by an open invisible hand than a slap in the face with the back side of one.

From the People Who Brought You Trickle Down Economics

Where could the practices of exploiting a pandemic by imposing outrageous overdraft fees or using public assistance for stock buybacks possibly have originated?  That is a tough question to pin down.  What we do know is the timeline.  In 1981, the Business Roundtable, comprised of CEOs of the nation’s largest and most profitable institutions recognized their broader social and community obligations, issuing the following statement.

Corporations have a responsibility, first of all, to make available to the public quality goods and services at fair prices, thereby earning a profit that attracts investment to continue and enhance the enterprise, provide jobs, and build the economy.

However, by 1997, their tune had morphed into a different prime directive orchestrated by conservative economists such as Milton Friedman, who espoused the theory corporate directors had ONLY one obligation; to maximize shareholder returns.  What was the impact of the Roundtable’s adoption of this “us first” approach, “The principal objective of a business enterprise is to generate economic returns to its owners?”  In an August 2018 Wall Street Journal op-ed, Senator Warren provides the following clues.

  • In the 1980s, large U.S. companies returned less than half their earnings to shareholders.  Between 2007 and 2016, those same companies “dedicated 93 percent of their earnings to stockholders.”
  • Pre-1991, wages and productivity grew at about the same rate.  Over the past three decades, wages have stagnated while productivity continues to grow.
  • Shareholder maximization translated into an explosion in CEO compensation.  In the 1980s, executive compensation rarely included equity in the company.  “Today, it accounts for 62 percent of their pay.”
  • In 1980, the average CEO compensation was 42 times that of an average worker.  Today that ratio is 361:1.

So, to all of her critics who ask, “When and why did Elizabeth Warren abandon capitalism,” the better question might be, “When and why did the modern day barons of industry abandon Adam Smith’s vision of capitalism?”

How Dare Workers Act in Their Own Self-Interests

So corporate America loves to justify their business model as the consequence of a free market.  However, when these same forces produce an outcome inconsistent with the desired goals of conservative economists, they cry foul.  The best example is right wing media’s uproar over extended unemployment benefits.

Instead of accusing the labor force of laziness by choosing unemployment over a job, consider the following.  If you had a choice of staying home for $15/hour without the cost of transportation and day care versus $7.25/hour further eroded by associated expenses, what would you do?  Imagine the following policy statement from a hypothetical Work Force Roundtable.  “The principle objective of heads of households is to maximize return to one’s family.”

Where are the proponents of free market, invisible hand economics now?  Is this not an opportunity to test how elastic or inelastic the price of labor is?  If higher wages or better benefits bring workers back into the labor force, there is your answer.  Workers are merely stating the obvious.  Our time and well-being has a value.  And there is a price point where your demand for my value intersects with my willingness to supply it.

In other words, when the laws of supply and demand, elasticity, et. al. explain economic and social inequality and injustice, corporate America and conservative economists turn a blind eye, they claim the system is out of balance, that the “LEFT hand” is overly dominant.  But when those economic principles justify their greed, these same financial experts argue the “RIGHT hand” should not only be dominant, it should be adorned with gold plated brass knuckles.

Corporate Accountability, Not Marxist

When progressives like Elizabeth Warren raise these issues, they are not, as GOP talking points suggest, promoting Marxism or communism.  They are only preaching a reverse variation of St. Augustine’s declaration cum dilectione hominum et odio vitiorum (With love of mankind and hatred of sins), which evolved into the present day adage “Love the sinner; hate the sin.”  In pursuit of economic and social justice, they are merely stating, “Love Adam Smith’s theory of capitalism, but abhor false prophets who misuse it.”

For what it’s worth.


A Capital Idea


This morning I decided it was time to address the “big lie.”  No, not the one that has dominated the news since the November 2020 election.  Not the one about elections or politics, but the one about federal versus state and local government.  Or the related one about federal government versus the private sector or the average American household.

The timing for this entry is the coming barrage of Republican and conservative arguments why Americans cannot afford President Joe Biden’s “Build Back Better” infrastructure program.  (Or as Carol Tucker-Foreman, director of the Consumer Federation of America’s Food Policy Institute suggested, “You can irradiate poop, but it’s still poop.”)  Primary among them is the “big lie,” the federal government, when it comes to budgeting, should be held to the same standard as state and local governments, many of which are required by law to pass a balanced budget each year.  Or, the even more populist argument, why should the federal government continue deficit spending when every family in America knows it should spend not more than it takes in.

There is room for legitimate debate whether all of the items on Biden’s wish list meet the definition of infrastructure, but the “re-woke” pay-as-you-go Tea Party Caucus would rather focus on the proposal’s impact on the federal deficit.  Their argument being, the timetable for spending and revenues is a radical socialist plot which will bankrupt America and destroy our grandchildren’s future.  Who could possibly believe allocating $2.2 trillion in improvements over eight years and then taking 15 years to recover the costs is a good idea?  Ooh, ooh, I know the answer.  EVERYBODY!!!  State government.  Local government.  Business.  And the overwhelming majority of American households.

Ready?  It is called “capital budgeting.”  Why does everyone except the federal government provide for it?  Because it makes sense from an economic perspective, connecting the cost of major purchases or improvements to the timeframe required to recover the initial investment.  Does anyone believe Delta Airlines writes a check for $100 million dollars every time it purchases a Boeing 757?  It either finances or leases the equipment, making payments over the expected useful life of the aircraft.  Is that not the same as deficit spending?

Or that a state or local government pays cash when it builds a new firehouse or upgrades water and sewer facilities?  They issue municipal bonds which are paid off over the “shelf-life” of those improvements. Again, sounds an awful lot like deficit spending to me. These examples are based on the very same economic principles a bank employs when it lends you money for 30 years to purchase a house.  Which, speaking of inter-generational obligations, becomes a liability for your heirs if not paid off before you die.

This is not a new idea, and if it has value, why has there been no movement to adopt it?  Non-believers offer a rationale for their position that deserves an Oscar for most inconsistent argument of all time.  On one hand, they claim the government needs to be run more like a business.  So, when they see a one-time payment of $1.7 billion for 17 additional F35 fighter planes in Donald Trump’s FY2021 budget, you would think they might ask, as does the CFO of Delta Airlines, “Does it make sense to fully pay for them at the time of purchase rather than spread the cost over the life of the equipment?”

Charles L. Schultze, economist in two Democratic administrations, dies at 91 - The Washington PostBut wait.  One of the primary reasons they are skeptics of federal capital budgeting is their belief (you guessed it) government does not operate like the business sector.  It does not respond to the same stimuli and incentives as private enterprise.  The underlying theory behind this position, held by both liberal and conservative economists, is the public sector is not subject to the same competitive forces in the marketplace when making decisions about capital expenditures.  In 1998, the late Charles L. Schultz, director of the Office of Management and Budget under Jimmy Carter, wrote the following:

In the case of private investment, competitive forces and the search for profits automatically exert some discipline over the quality of projects selected by private investors.

Of course, this is the same Charles L. Schultz, who as a member of Carter’s Council of Economic Advisors, warned the U.S. was losing its competitive advantage in the global marketplace to countries like Japan.  Some things do not change.  This is the same hypocrisy voiced today by those who decry how Chinese investment to grow their economy creates an unlevel playing field, but will not even debate the Biden infrastructure proposal.

What if we approach this issue from the opposite perspective?  If capital budgeting is such a bad idea, why not eliminate its use as an accepted accounting principle for everyone.  Business would have to pay for major improvements in the same year the costs are incurred.  School districts and local governments could not issue municipal bonds to cover school buildings or fire equipment.  You and I would have no option other than to pay cash for a new car, boat or home.  It does not require much imagination to realize what would happen.  In economic terms, America would become a dystopian society even Hollywood is yet to imagine. If such a film were made, I suggest it be titled, “Mad Mitch: Beyond Blunder Dome.”

For what it’s worth.


The No-Value Meal


Since its inclusion in the House of Representatives version of the $1.9 trillion American Rescue Plan and parliamentary exclusion from the Senate version, there has been a lot of discussion about raising the minimum wage to $15/hour.  Unfortunately, political debate over this issue has drowned out enlightening economic considerations.  So let me take a minute to talk about what the new standard represents.

At $15/hour a worker would have a gross annual salary of $31,200. This is still less than half or the 2019 average annual household income in the U.S. of $68,703.  And for the record, it is 17.9 percent of the $174,000 salary of a U.S. Senator or Representative each of whom has received three salary increases since 2006, the last time Congress raised the federal minimum wage.

But salary comparisons are only half the story.  After employee contributions to Social Security and Medicare ($2,387), plus income tax on taxable income ($1,920), net take home pay is $26,893 or $2,241/month.  Of that amount, the majority ($2090) goes toward the following three items.  NOTE:  West Virginia has the lowest monthly housing costs while New York and California are over $1250/month.

Average Monthly Rent/$725 (WV)
Average Monthly Household Food Budget/$552
Average Monthly Transportation Cost per Individual/$813

The situation does not improve dramatically for a two-income household which may now include daycare at an average of $972/month and additional transportation costs.  And neither scenario includes other necessities such as clothing, education costs, etc.  A $15/hour minimum wage is no walk in the park.  Anything less is a jungle.

But, as usual, that is not what I came here to talk about.  Understanding why we do not have a higher minimum wage is as important as whether we need to mandate one.  There are several but the one that gets the most attention is income inequality.  Yes, politicians and analysts will point to the growing disparity between management and worker salaries and benefits.  And they are correct.  In 1965, the CEO-to-average worker compensation ratio (salary and benefits) was 21:1.  In 2019, that same statistic is 320:1.

However, no one seems willing to tackle an underlying variable which may be the most significant deterrent to a living wage.  To address what I believe is this bigger and less obvious reason, I will compare two very familiar brands: Amazon and McDonalds.  In January 2018, Amazon announced it would begin paying all full-time, part-time and seasonal workers a minimum $15/hour.  [NOTE:  Pressure from Senator Bernie Sanders and others contributed to this policy change.]  How could they do this?  Did founder Jeff Bezos contribute a major portion of his $182 billion net worth to the salary pool?  Not that I am aware of.

Instead, Amazon was able to raise its minimum wage without tapping Bezos’ fortune because it operates on a value proposition that generates enough revenue to compensate its workers at the new standard and continue to make shareholders (not to mention Bezos or his ex-wife) happy.  Think about it. Amazon customers believe they get enough value from this service, not only do they patronize the company.   One hundred twelve million households pay an annual fee (Amazon Prime) to have access to a higher level of service.

In contrast, McDonalds provides the following schedule of average salaries by position.

Team Trainer: $9.28/hour
Cook: $9.36/hour
Fast Food Attendant: $9.79/hour
Shift Manager: $12.01
General Manager: $14.67

McDonald's CEO Chris Kempczinski on COVID-19's Impact | TimeYes, even a general manager is paid less than the proposed $15/hour rate.  [NOTE:  Individual franchisees can diverge from the posted schedule.]

One would expect McDonalds’ management to be a major opponent of a federally mandated $15/hour minimum wage.  However, during a January 2021 earnings call to investors, CEO Chris Kempcziski reported the company is “doing just fine” in those states in which wage minimums exceed the federal standard.  A four-year analysis commissioned by McDonalds management found there had been no closures, job losses or increased automation directly related to increased salaries.

The higher labor costs were absorbed by an increase in the price of the franchise’s signature Big Mac.  By how much?  Economists participating in the four-year study estimate “a 10 percent increase in the minimum wage led to a 1.4 percent increase in the price of a Big Mac.”  Equally important, “customers did not eat significantly fewer Big Macs as a result of the price hike.”  Imagine that.  McDonalds could raise each employees salary by 50 percent by increasing the cost of Big Macs by seven percent from an average of $3.50 to $3.75.  If the price hike was spread across multiple menu items, that increase would be even less noticeable.

The source of its value proposition is not important.  In McDonalds’ case I doubt if it is the food.  Maybe it is simply brand recognition.  Consistency of product regardless of overall quality.  Or maybe it is just keeping the kids happy for an hour.  Bottom line?  Their own analysts admit there is something about the company which makes their products inelastic enough to increase customer pricing to the point where a $15/hour minimum wage will not make the Golden Arches collapse.

My point?  We need to stop asking, “Are some employees worth $15 an hour?”  Maybe it is time to approach the question from a different perspective.  Should companies which provide goods and services be expected to create enough value their customers are willing to bear the price required to pay the company’s workforce a decent wage?  And, if they do not create that value, should they step aside to make room for other companies that can?

In other words, a fast food restaurant that survives if, and only if, to attract customers, it offers a sandwich, fries and drink at a price so low it cannot pay its workers a living wage, maybe they should advertise it as a “NO-VALUE MEAL.”

For what it’s worth.


The Greene New Deal


The sustainability of any business depends on its ability to either maintain and grow its current consumer base or develop and market new products and services to attract a previously untapped market.  Or sometimes both as has been the case of the Ford Mustang.  Facing competition from other automobile manufacturers for the “family car” buyer which had been the mainstay of its success,  Ford introduced the Mustang at the New York Worlds Fair in April 1964.  First year sales totaled 618,000 vehicles, more than five times the company’s pro forma projection.  For many of these initial model year owners, the Mustang was their first new-car purchase.

Image result for mustang mach eMore than a half century later, the average age of Mustang buyers is 51 years old.  As they became empty-nesters, many loyal Ford owners have stuck with the Dearborn-based company, trading in their Escapes and Explorers for the latest version of the “muscle car” including the 2020 Mustang Mach-E, an electric SUV crossover (pictured here).  In other words, Ford used the Mustang brand to first attract the untapped youth market and later to recreate that experience for an older generation.

Based on an article in this morning’s edition of USA Today, I realized the same principle applies to political parties.  When their traditional base begins to dwindle they have the same choices.  Tap a new market, provide policies and programs that appeal to long-time loyalists or both.  Such is the case with the Republican party.  To fully appreciate its transformation, the first task is to ask, “What happened to the traditional base which produced presidential victories in all but four years (Jimmy Carter’s single term) between 1968 and 1992?”

The answer is pretty simple.  Between 1950 and 1980, real family income rose almost equally for all households regardless of economic status.  Since that time families in the top five percent have seen real income increase by 180 percent which median income gains equal 130 percent and lower income growth is less than 120 percent.  (Source:  Center for Budget and Policy Priorities based on U.S. Census data)  In partisan terms, for the first three decades after World War II, an overwhelming majority of Americans were benefiting from the post-war boom and viewed the GOP as the conservative force that would protect those gains.

As upper class households continued to flourish while middle and lower class family income was stagnant, the percentage of voters who identified as and voted for Republicans decreased.  Best evidence?  The GOP won the popular vote for president once (2004) in the last 28 years.  The Republican party was the partisan equivalent of Ford Motor Company in the mid-1960s.  To continue its viability on the national scene it had to stop the loss of traditional voters and fill the gap with new voters.

Which brings me to this morning’s report on a mid-February Suffolk University/USA Today poll of 1,000 Trump voters.  It suggests, even though the GOP hoped to hold on to upper income voters with tax cuts and deregulation, its ability to make the 2020 election closer than predicted is largely due to an increase in voter participation by Donald Trump cultists.  Consider the following Statista exit poll data for 2016 and 2020.  In 2016, voters with annual income between $50,000 and $99,9999 supported Trump by a margin of 50 to 46 percent.  Compare that to a 2020 Biden advantage of 56-43 percent for the same demographic.

But for one income cohort, the tax and deregulation strategy worked.  The 2020 margin of Trump support among voters with an annual income of $100,000 or more increased by almost 10 percent (54-43) compared to a less than two percent margin in 2016.  Unfortunately for the GOP, those voters made up a smaller percentage of the total vote in 2020.

With the decrease in voting power among upper income voters, the GOP needed to look elsewhere to make up the difference.  The USA Today  analysis by Susan Page and Sarah Elbeshbishi makes it pretty clear where they came from.

  • 73 percent of Trump voters still say Joe Biden was not legitimately elected.
  • Trump voters by a margin of 46 to 27 percent would abandon the GOP and join a Trump party if he decided to create one.  A similar margin believes the Republican party should be more supportive of Trump.
  • 80 percent think the seven GOP senators who voted to convict Trump “were motivated by political calculations, not their consciences.”
  • 58 percent believe the January 6th attack on the U.S. Capitol was “antifa-inspired.”
  • 76 percent would support Trump for the 2024 Republican nomination for president and 85 percent would vote for him in the general election.

If half the 2020 Trump vote totals came from those whose first loyalty was to the candidate, not the party, it explains both the continuing hold Trump has over the GOP and the willingness of Republican officials to dance with him and down-ballot candidates like Lauren Boebart and Marjorie Taylor Greene.  If you think Texans were left out in the cold by an increase in renewable energy, that is nothing compared to what the GOP will face if its future is fueled by renewable conspiracy theories which are at the heart of this other “Greene New Deal.”

For what it’s worth.