"Aye, yii, yii, yiiii, I am dee Frito Bandito. I like Frito's Corn Chips. I love them, I do. I want Frito's corn chips. I'll take them, from you."
You remember the Frito Bandito (If not, click here). He went around stealing everyone’s Fritos Corn Chips. He was very happy doing it. When he was caught, he was totally unrepentant. There is no evidence that he was ever punished for his crimes and the stolen Fritos were never taken away from his possession.
What a disgusting role model for children!
Today’s parallel? No, we’re not heading to Arizona. We’re going to Wall Street. Wall Street, where some financial firms sold securities that were loaded with “toxic assets” as high quality products to unknowing investors. Knowingly doing this is a crime. It’s called fraud. This crime was committed thousands of times. So how many arrests have there been? Haven’t read about many. Some executives have lost their jobs, but overall accountability has been virtually non-existent.
Repentance? Very weak there also. The Goldman Sachs executives testifying this week offered many excuses, but no contriteness. They tried to say it was the investors fault for buying the securities. If you knew the securities were flawed (as internal e-mails indicate) and you marketed them deceitfully, you are guilty. If you didn’t know the securities were flawed, you needed to know because that’s your job. That’s your area of expertise. You are still guilty.
Not only are the guilty not being punished, some are being rewarded. Those risky securities deals didn’t work out so well? That’s okay, here’s a bailout. Oh, profits are down? Here’s a big bonus anyway. If there is no profit, there should be no bonus. That’s the way it works everywhere else. The argument that not paying a bonus would result in a significant pay cut is laughable. Don’t like taking a 30% pay cut? Hey buddy, try taking a 100% pay cut like 15 million people in the U.S. because the companies you worked for (bleeped) up the whole (bleeping) economy! And the argument that workers not receiving bonuses would then leave their companies for other jobs? That means they voluntarily get to seek other employment. Again, many people now wish they had that opportunity.
If a robber gets caught stealing $100 after breaking into your house, he goes to jail. Some people who are responsible for millions in fraud, drive by the jail on the way to the country club. You may have some compassion for a robber stealing to feed his family. It is more difficult to forgive someone stealing to obtain a bigger yacht.
And they get to keep the money! What a sweet deal. Wearing wingtips and cufflinks should not prevent you from being punished for your crimes. How have they evaded the government’s punishment? The people in the government wear wingtips and cufflinks also. They also get massive campaign contributions.
So the Frito Bandito was just ahead of his time. He would have made a great securities trader during the past decade. Still, I would advise him to stay away from Arizona. Better to steal your Fritos in some other place. Aye, yii, yii, yiiii, indeed.
Thursday, April 29, 2010
Wednesday, April 21, 2010
California Dreaming
News Item: 78% of Americans say they can’t trust the federal government and do not believe in its ability to solve the nation’s problems (Pew Research).
What it means: 22% of Americans are not paying attention.
A few weeks ago I wrote about the structural unemployment problem the nation is facing and the challenge of government to create an environment in which many new jobs are created by the private sector. To accomplish this we would need congressmen who have practical business experience in the private sector.
So quick, name all the current congressmen you know who fit this description. There may be some, but I can’t name them. Okay so let’s lower the bar. Quick, name all the congressman you know who show any understanding of business or basic economic principles. I can name two.
I knew there was a problem in late 2008 after the credit crunch hit. As I watched my company’s orders fall off the cliff because our customers could not obtain credit, I thought that unless this problem was addressed quickly a major economic plunge would soon follow. At the time Congress was engaged in discussions about many things regarding the economy, but this was being ignored. Finally, Rep. Eric Cantor (R- Virginia) clearly stated the potential impact of the credit freeze on equipment spending. Yes, I thought. Someone gets it, maybe we can be saved! No, members of both parties seemed confused by Cantor’s statement and went on discussing possible actions that did not prevent or even slow down the recession.
Another defining moment happened recently during the “Healthcare Summit” which was supposed to be a discussion and debate about the proposed healthcare bill. You remember what a debate is supposed to be. You give your argument without name calling, or stupid sound bites and then the other person gives his argument and then you productively discuss the issue back and forth. The audience is educated by the discussion and then has ample knowledge on deciding for themselves which ideas they prefer. This is essential in a democracy and oh so lacking today.
During the summit, Rep. Paul Ryan (R-Wisconsin) brought up some economic issues of the plan for discussion. The problem was that no one on the other side felt qualified or comfortable to engage him in debate. This was sad and embarrassing. President Obama was left hanging with no help. It wasn’t really his place to debate the details of these issues, so he made some meaningless comments and quickly changed the subject.
So we need many more people in Congress who have business and practical economic knowledge for the new challenges we face. We need small business owners who have experience building things, making payrolls and managing workers. We need people who have gotten their “hands dirty” and understand how the economy works at the ground level. We need these people in cabinet level positions also. We have plenty of buttoned down geeks who understand high finance, what we really need are people who understand low finance.
There must be a change soon. We send trillions of dollars of taxes to be spent by people who have no practical economic sense of how to spend it. Most are lawyers and career politicians. Again, would you give your investment money to a financial advisor who had no financial experience? Would you set up a trust with an executor who had no idea how to manage it? If you don’t understand business and practical economics, I don’t want you anywhere near my tax dollars and it doesn’t matter what party you belong to. And they are my tax dollars because originally they came out of my paycheck. Some politicians are so dense that they oppose the Tea Party movement not on principle, but because they really do not understand why these people are so angry.
But things may already be changing. In two house district primary elections near where I live, there are candidates with strong business experience. One has no political experience but owns several car dealerships. Would I vote for him (I don’t live in his district) in November over the political hacks who vote as the party tells them to and then read the talking points to explain their actions? I think I would.
Also it is interesting to see what is happening in California this year since this is where many trends originate. Two of the strong contenders in the primary elections are Meg Whitman former CEO of eBay (governor) and Carly Fiorina former CEO of Hewlett- Packard (Senate). While you can’t consider them “small” business people, these woman know how to balance a budget, manage people and make a payroll. I almost wish that I lived in California so I could vote for both of them.
What it means: 22% of Americans are not paying attention.
A few weeks ago I wrote about the structural unemployment problem the nation is facing and the challenge of government to create an environment in which many new jobs are created by the private sector. To accomplish this we would need congressmen who have practical business experience in the private sector.
So quick, name all the current congressmen you know who fit this description. There may be some, but I can’t name them. Okay so let’s lower the bar. Quick, name all the congressman you know who show any understanding of business or basic economic principles. I can name two.
I knew there was a problem in late 2008 after the credit crunch hit. As I watched my company’s orders fall off the cliff because our customers could not obtain credit, I thought that unless this problem was addressed quickly a major economic plunge would soon follow. At the time Congress was engaged in discussions about many things regarding the economy, but this was being ignored. Finally, Rep. Eric Cantor (R- Virginia) clearly stated the potential impact of the credit freeze on equipment spending. Yes, I thought. Someone gets it, maybe we can be saved! No, members of both parties seemed confused by Cantor’s statement and went on discussing possible actions that did not prevent or even slow down the recession.
Another defining moment happened recently during the “Healthcare Summit” which was supposed to be a discussion and debate about the proposed healthcare bill. You remember what a debate is supposed to be. You give your argument without name calling, or stupid sound bites and then the other person gives his argument and then you productively discuss the issue back and forth. The audience is educated by the discussion and then has ample knowledge on deciding for themselves which ideas they prefer. This is essential in a democracy and oh so lacking today.
During the summit, Rep. Paul Ryan (R-Wisconsin) brought up some economic issues of the plan for discussion. The problem was that no one on the other side felt qualified or comfortable to engage him in debate. This was sad and embarrassing. President Obama was left hanging with no help. It wasn’t really his place to debate the details of these issues, so he made some meaningless comments and quickly changed the subject.
So we need many more people in Congress who have business and practical economic knowledge for the new challenges we face. We need small business owners who have experience building things, making payrolls and managing workers. We need people who have gotten their “hands dirty” and understand how the economy works at the ground level. We need these people in cabinet level positions also. We have plenty of buttoned down geeks who understand high finance, what we really need are people who understand low finance.
There must be a change soon. We send trillions of dollars of taxes to be spent by people who have no practical economic sense of how to spend it. Most are lawyers and career politicians. Again, would you give your investment money to a financial advisor who had no financial experience? Would you set up a trust with an executor who had no idea how to manage it? If you don’t understand business and practical economics, I don’t want you anywhere near my tax dollars and it doesn’t matter what party you belong to. And they are my tax dollars because originally they came out of my paycheck. Some politicians are so dense that they oppose the Tea Party movement not on principle, but because they really do not understand why these people are so angry.
But things may already be changing. In two house district primary elections near where I live, there are candidates with strong business experience. One has no political experience but owns several car dealerships. Would I vote for him (I don’t live in his district) in November over the political hacks who vote as the party tells them to and then read the talking points to explain their actions? I think I would.
Also it is interesting to see what is happening in California this year since this is where many trends originate. Two of the strong contenders in the primary elections are Meg Whitman former CEO of eBay (governor) and Carly Fiorina former CEO of Hewlett- Packard (Senate). While you can’t consider them “small” business people, these woman know how to balance a budget, manage people and make a payroll. I almost wish that I lived in California so I could vote for both of them.
Wednesday, April 14, 2010
Beware the Devil Woman
This is the story of one man’s attempt at the pursuit of happiness and how it contributed to the Great Recession.
I won’t forget the first time I saw her. Bleached blond hair, heaving breasts, tight jeans, packaged all so right. You couldn’t miss her. I just stared at her from a distance, instantly realizing that she was oh so attractive and oh so out of my league.
I quickly passed by for a closer look when suddenly she spun around and said “Like what you see?”
I stood mesmerized, unable to speak a single word.
“Shy, I like that”, she cooed as she winked and bit down seductively on her puffy lower lip.
I still just stood there staring into her big blue eyes.
“My name’s Becky, Becky Housing, and I can make all your dreams come true”, she said.
“But I don’t think I can afford you”, I replied. “I mean I don’t think my assets are big enough to satisfy your requirements.”
“Oh don’t worry about that”, she said. “We will try a position I call “subprime”. It will give me all the pleasure I need and will be absolutely tantric for you.”
Then she slowly slid her hand down my body and squeezed my most private part ---my wallet.
Wow! She was a prime piece of real estate and I wanted in.
It felt so good being with Becky and my net worth continued to increase all because of her. There seemed to be no limit to the heights she could take me and it appeared to me that her assets actually grew more attractive every time that I saw her.
My friends marveled at my new found love. I was so in love with Becky and she had told me the truth: She was making all my dreams come true.
And she was so sexy and mysterious. When we had relations, the lights were always turned off. Becky said it was better for her if I was kept in the dark. I didn’t care, it was the best stuff I ever had.
I knew I had found true love and financial bliss and she kept taking my portfolio to higher and higher climaxes. I was determined to ride Becky wherever she wanted to take me.
But I was at work when I heard the news. There was a report that something very bad had happened to Becky. Some sort of “crash” that was related to this subprime method.
I rushed home and there was Becky lying motionless on the floor. Her fake breasts had ruptured and fluid was pouring out of her body and steaming out the door. Likewise liquid flowed from her fake lips. The beautiful hair was really a wig that was now lying on the floor beside her. I now realized that everything about Becky had been false. And incredibly, she wasn’t even a woman.
And it was even worse than that. There was this awful stench. It turns out her assets were toxic. I ran out the front door to warn my neighbors, but it was too late. To my horror I found out that other guys on the block had been secretly involved with some of Becky’s many sisters. One poor guy was involved in a threesome with Cindy Housing and Fannie Mae. He didn’t even realize that Fannie Mae would give it up cheap to just about anybody.
Now there was such a stream of toxic assets flowing down the street that it even destroyed the houses of people that never were involved with Becky and her sisters. It caused a chain reaction of pandemonium. Many people lost their homes. Many people lost their jobs. Some people lost both.
If only I could have resisted the allure of Becky Housing, my life and the lives of other would be so much better now.
I won’t forget the first time I saw her. Bleached blond hair, heaving breasts, tight jeans, packaged all so right. You couldn’t miss her. I just stared at her from a distance, instantly realizing that she was oh so attractive and oh so out of my league.
I quickly passed by for a closer look when suddenly she spun around and said “Like what you see?”
I stood mesmerized, unable to speak a single word.
“Shy, I like that”, she cooed as she winked and bit down seductively on her puffy lower lip.
I still just stood there staring into her big blue eyes.
“My name’s Becky, Becky Housing, and I can make all your dreams come true”, she said.
“But I don’t think I can afford you”, I replied. “I mean I don’t think my assets are big enough to satisfy your requirements.”
“Oh don’t worry about that”, she said. “We will try a position I call “subprime”. It will give me all the pleasure I need and will be absolutely tantric for you.”
 |
| She's a brick ---- house! |
Then she slowly slid her hand down my body and squeezed my most private part ---my wallet.
Wow! She was a prime piece of real estate and I wanted in.
It felt so good being with Becky and my net worth continued to increase all because of her. There seemed to be no limit to the heights she could take me and it appeared to me that her assets actually grew more attractive every time that I saw her.
My friends marveled at my new found love. I was so in love with Becky and she had told me the truth: She was making all my dreams come true.
And she was so sexy and mysterious. When we had relations, the lights were always turned off. Becky said it was better for her if I was kept in the dark. I didn’t care, it was the best stuff I ever had.
I knew I had found true love and financial bliss and she kept taking my portfolio to higher and higher climaxes. I was determined to ride Becky wherever she wanted to take me.
But I was at work when I heard the news. There was a report that something very bad had happened to Becky. Some sort of “crash” that was related to this subprime method.
I rushed home and there was Becky lying motionless on the floor. Her fake breasts had ruptured and fluid was pouring out of her body and steaming out the door. Likewise liquid flowed from her fake lips. The beautiful hair was really a wig that was now lying on the floor beside her. I now realized that everything about Becky had been false. And incredibly, she wasn’t even a woman.
And it was even worse than that. There was this awful stench. It turns out her assets were toxic. I ran out the front door to warn my neighbors, but it was too late. To my horror I found out that other guys on the block had been secretly involved with some of Becky’s many sisters. One poor guy was involved in a threesome with Cindy Housing and Fannie Mae. He didn’t even realize that Fannie Mae would give it up cheap to just about anybody.
Now there was such a stream of toxic assets flowing down the street that it even destroyed the houses of people that never were involved with Becky and her sisters. It caused a chain reaction of pandemonium. Many people lost their homes. Many people lost their jobs. Some people lost both.
If only I could have resisted the allure of Becky Housing, my life and the lives of other would be so much better now.
Tuesday, April 6, 2010
Very Important Mini-Micro Economic News
(Cue Elton John)
You could never know what it's like
Your blood like winter freezes just like ice
And there's a cold lonely light that shines from you
You'll wind up like the wreck you hide
behind that mask you use
I have important economic news to report: the number of unemployed people in the U.S. just decreased by one. One out of 15 million does not seem that significant except this report is very personal. I have found a job. I am back at work.
The nine long months of my job search have been filled with many contradictions. Last June I was preparing to speak as an expert at an upcoming industry conference. Industry experts are not supposed to lose their jobs. I cut short my vacation to come into the office on a Friday to pick up some reports so I could work at home over the week- long July 4 break. That was my last day. Loyal, hard-working, employees are not supposed to lose their jobs.
Don't you know I'm still standing better than I ever did
Looking like a true survivor, feeling like a little kid
And thus began the battle. You’ve heard the saying “What doesn’t kill you, only makes you stronger.” That is true, but “What nearly kills you, still hurts like hell.” And what a battle it was. I have stared down the devil, blinked many times, but never retreated. I have literally sweated blood (yes, really). I started off this journey weak, but I got stronger as it got tougher.
This was a battle of endurance. You get knocked down many times, but you learn how to get up and keep on fighting. That is the only way to win it. But winning is not so much the thrill of victory as it is survival. But survival is underrated; there is a deep satisfaction that comes from slaying the dragon and living to tell about it.
And did you think this fool could never win
Well look at me, I'm coming back again
Another contradiction is that out of negative circumstances come positive things. Through this trial I have emerged with a renewed faith in myself and a renewed faith in God. Through being helped by others in my time of need, I have learned how to give of myself in a deeper way. I have also met some outstanding people, most of them fellow jobseekers who should have never been put into this situation. And finally, I have rediscovered my ability to write. Writing this blog weekly greatly sharpened my skills and I am now writing better than I have in my entire life. Which leads naturally to the question you have right now…..
Are You Going to Continue To Write the Blog?
I never expected to continue the blog after I found a job. But I never expected to have this many readers. I knew I had a real issue a few weeks ago when people started telling me, “I hope you find a job, but I hope you continue to blog.” My friend Bob, who isn’t easily impressed, told me I have to keep writing the blog. So I will.
The blog will have to change some. Due to time constraints I will probably include more opinion and less statistics. I may not be able to post every week depending on my circumstances. The month of May will be especially tough since I am teaching two night classes. Please be patient during this transition. Also, please give me feedback on the new format and post comments to the blog when you think I am off base.
I would like to take this opportunity to thank everyone that helped me in my job search. Whether it was a job lead, an encouraging e-mail, a prayer, a suggestion, a kind word, whatever. It did make a difference.
I'm still standing yeah, yeah, yeah
I'm still standing yeah, yeah, yeah
Video
You could never know what it's like
Your blood like winter freezes just like ice
And there's a cold lonely light that shines from you
You'll wind up like the wreck you hide
behind that mask you use
I have important economic news to report: the number of unemployed people in the U.S. just decreased by one. One out of 15 million does not seem that significant except this report is very personal. I have found a job. I am back at work.
The nine long months of my job search have been filled with many contradictions. Last June I was preparing to speak as an expert at an upcoming industry conference. Industry experts are not supposed to lose their jobs. I cut short my vacation to come into the office on a Friday to pick up some reports so I could work at home over the week- long July 4 break. That was my last day. Loyal, hard-working, employees are not supposed to lose their jobs.
Don't you know I'm still standing better than I ever did
Looking like a true survivor, feeling like a little kid
And thus began the battle. You’ve heard the saying “What doesn’t kill you, only makes you stronger.” That is true, but “What nearly kills you, still hurts like hell.” And what a battle it was. I have stared down the devil, blinked many times, but never retreated. I have literally sweated blood (yes, really). I started off this journey weak, but I got stronger as it got tougher.
This was a battle of endurance. You get knocked down many times, but you learn how to get up and keep on fighting. That is the only way to win it. But winning is not so much the thrill of victory as it is survival. But survival is underrated; there is a deep satisfaction that comes from slaying the dragon and living to tell about it.
And did you think this fool could never win
Well look at me, I'm coming back again
Another contradiction is that out of negative circumstances come positive things. Through this trial I have emerged with a renewed faith in myself and a renewed faith in God. Through being helped by others in my time of need, I have learned how to give of myself in a deeper way. I have also met some outstanding people, most of them fellow jobseekers who should have never been put into this situation. And finally, I have rediscovered my ability to write. Writing this blog weekly greatly sharpened my skills and I am now writing better than I have in my entire life. Which leads naturally to the question you have right now…..
Are You Going to Continue To Write the Blog?
I never expected to continue the blog after I found a job. But I never expected to have this many readers. I knew I had a real issue a few weeks ago when people started telling me, “I hope you find a job, but I hope you continue to blog.” My friend Bob, who isn’t easily impressed, told me I have to keep writing the blog. So I will.
The blog will have to change some. Due to time constraints I will probably include more opinion and less statistics. I may not be able to post every week depending on my circumstances. The month of May will be especially tough since I am teaching two night classes. Please be patient during this transition. Also, please give me feedback on the new format and post comments to the blog when you think I am off base.
I would like to take this opportunity to thank everyone that helped me in my job search. Whether it was a job lead, an encouraging e-mail, a prayer, a suggestion, a kind word, whatever. It did make a difference.
I'm still standing yeah, yeah, yeah
I'm still standing yeah, yeah, yeah
Video
Thursday, April 1, 2010
Don’t Be Messin’ With the Law
After all the political spitting, yelling, and backbiting (and that was among people in the same political party) over the healthcare bill, I thought a more objective, economic-based, review is needed. Because the Law of Economics doesn’t care if you are Republican or Democrat. It doesn’t care how many votes you have in the Senate or what deals were made in the House. It doesn’t care about your race or gender. It doesn’t care how eloquent you are and it doesn’t read opinion polls. The law is the law and it cannot be violated.
The original problem is that healthcare costs (and prices) have been steadily increasing overtime. This increase means that many people cannot afford healthcare services or the price of insurance. Healthcare costs also consume an increasing percentage of most people’s incomes, leaving less discretionary income for other things.
So let’s look at the economics of the healthcare bill:
Supply:
There is already a shortage of primary care doctors in some regions and now there will be an estimated 32 million more people with health insurance in 2014. This will lead to an estimated (industry report) shortage of 40,000 doctors by the end of the decade.
It doesn’t appear that the bill did anything to increase supply. It may have even decreased supply since more government control (perhaps more price controls) makes practicing medicine a less attractive career.
One major factor that impacts supply is the high cost of medical school. The medical school political lobby must be one of the strongest ever because I never heard a word from anyone, regardless of party, about this issue during the debate. Medical schools limit the number of students and charge outrageous tuition. They make millions of dollars, but the number of graduates is restricted and doctors start practicing with huge student loan balances. This results in higher fees for services.
If you allow more medical schools, you increase the competition for students, driving down tuition costs and increasing the number of doctors. Another strategy would be to give nurse practitioners more authority. Both these moves would increase supply, but the quality of healthcare would decrease. This is a fair trade off. If we want to provide healthcare for everybody, then something has to give. People wanting to see a real doctor who graduated from a top medical school can pay more for that privilege.
Demand:
Demand greatly increases under the new bill. As stated before, 32 million new customers in 2014. And these are likely to be active customers. If you give people access to inexpensive healthcare, they are going to consume it in mass quantities (although probably not as bad as the Coneheads).
Price:
Demand is expected to greatly increase. Supply is expected to remain the same or decrease slightly. Prices therefore are going up, way up. Since few things in the bill adequately address the cost issues, healthcare costs should continue to increase for the next few years and then really take off starting in 2014.
The Result:
The original problem is that healthcare prices are out of control. The “solution” will only make this situation worse. Sure if you like your doctor and current health insurance plan you can keep it, but only if you and your company can still afford it. If you think prices are high now, just wait. The healthcare bill did provide some needed benefits, but at what cost?
Because the government is more involved, there will be more waste and fraud which serves to drive up both prices and demand. I know there are supposed to be provisions in the plan to reduce waste and fraud, but it is ridiculous to believe the government will actually cut waste and fraud. The government is waste and fraud. It is comparable to hiring an obese dietician.
You: “Can I eat a doughnut?”
Obese Dietician: “Yum, doughnuts taste good. I like doughnuts. You can eat one and be sure to bring me one with sprinkles!”
Government involvement will also mean that people will figure out how to exploit the system. There are many people making millions of dollars legally “gaming” the Medicare system. It is incredible the amount of tests and products that are ordered simply because Medicare “will pay for it”.
The worst example is the scooters you see advertised from the Scooter Store. Who needs a scooter to go from the front room to the kitchen? But the commercial shows grandma on a geriatric joy ride. You wonder how much the scooter gets used after the thrill is gone and granny knocks over the big-screen television and runs over the cat. I bet the old guys even race their scooters down the main drag of the retirement village on Saturday evenings (because even the older chicks dig it!).
Don’t Ignore This
One of the best solutions is tort reform (limiting the amount and nature of malpractice lawsuits). The reason tort reform is important is that it is beneficial in several ways. It lowers the cost of production (malpractice insurance decreases in price) for the doctor. This means there will be more doctors and they can charge less for their services. Because doctors would not have to order so many tests to protect them from lawsuits, demand for those tests and thus the prices for the tests would go down. In addition, the system becomes more efficient since the money saved from not doing the tests could be redirected to someone in greater need of healthcare. Unfortunately, tort reform was only given “lip service” in the healthcare bill.
What I Don’t Know
I admit there could be errors in this analysis because I did not read the 2,400+ pages of the bill. But if you really want me to understand and then support a proposal, could you please give me something simple in 100 pages or less? Think about it. If a financial advisor presented you with a 200-page proposal that you didn’t understand, would you give him all your money to invest? If so, I have some shares of the Bernie Madoff Stock Option Fund to sell you.
Next Week: A Big Announcement
The original problem is that healthcare costs (and prices) have been steadily increasing overtime. This increase means that many people cannot afford healthcare services or the price of insurance. Healthcare costs also consume an increasing percentage of most people’s incomes, leaving less discretionary income for other things.
So let’s look at the economics of the healthcare bill:
Supply:
There is already a shortage of primary care doctors in some regions and now there will be an estimated 32 million more people with health insurance in 2014. This will lead to an estimated (industry report) shortage of 40,000 doctors by the end of the decade.
It doesn’t appear that the bill did anything to increase supply. It may have even decreased supply since more government control (perhaps more price controls) makes practicing medicine a less attractive career.
One major factor that impacts supply is the high cost of medical school. The medical school political lobby must be one of the strongest ever because I never heard a word from anyone, regardless of party, about this issue during the debate. Medical schools limit the number of students and charge outrageous tuition. They make millions of dollars, but the number of graduates is restricted and doctors start practicing with huge student loan balances. This results in higher fees for services.
If you allow more medical schools, you increase the competition for students, driving down tuition costs and increasing the number of doctors. Another strategy would be to give nurse practitioners more authority. Both these moves would increase supply, but the quality of healthcare would decrease. This is a fair trade off. If we want to provide healthcare for everybody, then something has to give. People wanting to see a real doctor who graduated from a top medical school can pay more for that privilege.
Demand:
Demand greatly increases under the new bill. As stated before, 32 million new customers in 2014. And these are likely to be active customers. If you give people access to inexpensive healthcare, they are going to consume it in mass quantities (although probably not as bad as the Coneheads).
Price:
Demand is expected to greatly increase. Supply is expected to remain the same or decrease slightly. Prices therefore are going up, way up. Since few things in the bill adequately address the cost issues, healthcare costs should continue to increase for the next few years and then really take off starting in 2014.
The Result:
The original problem is that healthcare prices are out of control. The “solution” will only make this situation worse. Sure if you like your doctor and current health insurance plan you can keep it, but only if you and your company can still afford it. If you think prices are high now, just wait. The healthcare bill did provide some needed benefits, but at what cost?
Because the government is more involved, there will be more waste and fraud which serves to drive up both prices and demand. I know there are supposed to be provisions in the plan to reduce waste and fraud, but it is ridiculous to believe the government will actually cut waste and fraud. The government is waste and fraud. It is comparable to hiring an obese dietician.
You: “Can I eat a doughnut?”
Obese Dietician: “Yum, doughnuts taste good. I like doughnuts. You can eat one and be sure to bring me one with sprinkles!”
Government involvement will also mean that people will figure out how to exploit the system. There are many people making millions of dollars legally “gaming” the Medicare system. It is incredible the amount of tests and products that are ordered simply because Medicare “will pay for it”.
The worst example is the scooters you see advertised from the Scooter Store. Who needs a scooter to go from the front room to the kitchen? But the commercial shows grandma on a geriatric joy ride. You wonder how much the scooter gets used after the thrill is gone and granny knocks over the big-screen television and runs over the cat. I bet the old guys even race their scooters down the main drag of the retirement village on Saturday evenings (because even the older chicks dig it!).
Don’t Ignore This
One of the best solutions is tort reform (limiting the amount and nature of malpractice lawsuits). The reason tort reform is important is that it is beneficial in several ways. It lowers the cost of production (malpractice insurance decreases in price) for the doctor. This means there will be more doctors and they can charge less for their services. Because doctors would not have to order so many tests to protect them from lawsuits, demand for those tests and thus the prices for the tests would go down. In addition, the system becomes more efficient since the money saved from not doing the tests could be redirected to someone in greater need of healthcare. Unfortunately, tort reform was only given “lip service” in the healthcare bill.
What I Don’t Know
I admit there could be errors in this analysis because I did not read the 2,400+ pages of the bill. But if you really want me to understand and then support a proposal, could you please give me something simple in 100 pages or less? Think about it. If a financial advisor presented you with a 200-page proposal that you didn’t understand, would you give him all your money to invest? If so, I have some shares of the Bernie Madoff Stock Option Fund to sell you.
Next Week: A Big Announcement
Thursday, March 25, 2010
Jobs are Job One
A few weeks ago the government announced the details of its great, new, “jobs” bill that is designed to generate jobs and lower unemployment. Two days later, the government announced that the unemployment rate would basically stay the same the rest of the year.
This means you are admitting that your plan isn’t going to work before you even implement it. Can you image doing this is the private sector? “Hey boss I’m going to spend big bucks on our new campaign, but I don’t expect sales to increase at all.” And they don’t understand why people have a problem with this. Brew some tea.
However, the $17.5 billion “jobs” bill enacted last week is a huge improvement over the original $150 billion version. Why? The original cost $150 billion to provide few jobs, but the new bill costs $132.5 billion less to do almost the same thing. It’s a bargain!
In reality, the government cannot do much to create jobs in the short-term. If it could, we would have full employment all the time. The private sector has to create the jobs and the government’s role is to create an environment that promotes job growth while maintaining the general well being of the people. But the people demand that the government do something, so you get expensive programs that don’t accomplish much.
Unemployment is expected to improve very slowly in this recovery. Most forecasts have unemployment just above 9% by the end of 2010 and still around 8% for 2011. The government’s forecasts are actually now more pessimistic that most economist. I believe they are trying to lower expectations after woefully failing to meet expectations in 2009.
Two Types of Unemployment
There are two types of unemployment (sounds like a Vytorin commercial) impacting the job market right now. Cyclical unemployment is the unemployment that results due to the periodic drops in the business cycle, commonly referred to as recessions. When the business cycle rises, companies start hiring, and unemployment drops. There was considerable cyclical unemployment during this recession and most of the current job openings are the result of improvements in the business cycle.
Structural unemployment is much more complicated and has a much greater impact. Structural unemployment results from a mismatch between the sufficiently skilled workers seeking employment and demand in the labor market (Wikipedia). There was a huge, unexpected, impact of structural employment during this recession. To understand why, we need to review the economy of the aughts (00’s).
A Tale of Two Bubbles
The dot com bubble was created by people overestimating the growth potential of the Internet. Too much money flowed into the sector, pushing up stock prices and propping up weaker companies. When the bubble burst, the excess capital left the sector. But some good things came out of this. We were left with a strong Internet- related industry that was right-sized and ready for future growth.
In a free market economy, capital flows to where there is the greatest return on investment. After the dot com bubble burst, the capital ran straight into the housing market. You could make great money building, buying, and selling houses. Because housing is related to so many other industries, money flowed into these places also. The companies offering the highest returns on their bonds and preferred stock were all connected to housing since they could take the capital and get a high return on investment. (I still own some awful bonds from GMAC. I thought they were only financing cars!).
Of course we now know the bubble was created using risking mortgages and toxic assets. When this one popped, the result is huge inventory of empty houses, a damaged financial system, huge government debt and much of the “false” wealth the bubble created evaporated. Worse yet, the repercussions rippled through the economy crippling industries and resulting in our current unemployment situation. Because this bubble was based on falsehoods, there are no positive results.
And it is even worse than that. Because during the aught’s capital was flowing into the housing market and related industries, it was not flowing into true growth industries and small start-up companies that provide long-term economic growth. Instead of money being available in 2005 for the new company “Growth Industries Inc.” which would have employed 100 people today, it went to “Skipper the house flipper”. Think about it, what is the macro-economic benefit of flipping houses? Now he’s known as “Skipper the burger flipper”.
So there are many skilled, unemployed, people looking for work, but there are few jobs available that require their skills. This is the reason the under-employed numbers are so high. The WSJ economic panel estimates that 2.1 million jobs lost during this recession will not return. The scope of the “structural” unemployment problem also is impacting the business cycle (and thus cyclical unemployment) by limiting consumer spending.
Even if the government cannot create jobs in the short-term, it does need to create a better environment so the private sector can create more jobs. Because housing made things appear so good before the recession, the government neglected some issues that are restraining job growth today.
Issues to Address:
1. Develop a national business strategy
There needs to be a strategy of assisting the small, high-tech industries that will create the jobs of the future. An education strategy needs to compliment this to provide the workers needed for these jobs. China has a business strategy and I hear that it just may be working for them.
2. Develop an energy policy based on economic factors
Energy is considered too much to be just an environmental issue. It is primarily an economic issue with national security implications. If all the solar panels and wind turbines are produced in China, what have we really accomplished? It is a great strategy to promote the conversion to electric powered automobiles. This would generate innovation and jobs in the battery industry and create the need for many nuclear power plants to be built throughout the country. We create jobs, decrease pollution, and improve national security at the same time.
3. Develop “fairer” trade policies.
“Exporting” jobs may have worked when housing was propelling the economy, but it doesn’t work now. We have to export more products and fewer jobs.
4. Enforce the immigration law
There may been an economic reason to ignore illegal immigration when unemployment was at 5%, but can you really continue to do this with unemployment at 10%?
5. Increase market competition
The trend has been to promote business consolidation to create greater efficiencies. If you go too far, you reduce competition and limit job growth. It causes other problems also (Hey, how about them giant banks!). Again the strategy worked when housing was strong, but we went too far. It is time to strengthen the anti-trust laws and deconsolidate where needed. The increased competition will result in new companies, new technologies, and new jobs.
This means you are admitting that your plan isn’t going to work before you even implement it. Can you image doing this is the private sector? “Hey boss I’m going to spend big bucks on our new campaign, but I don’t expect sales to increase at all.” And they don’t understand why people have a problem with this. Brew some tea.
However, the $17.5 billion “jobs” bill enacted last week is a huge improvement over the original $150 billion version. Why? The original cost $150 billion to provide few jobs, but the new bill costs $132.5 billion less to do almost the same thing. It’s a bargain!
In reality, the government cannot do much to create jobs in the short-term. If it could, we would have full employment all the time. The private sector has to create the jobs and the government’s role is to create an environment that promotes job growth while maintaining the general well being of the people. But the people demand that the government do something, so you get expensive programs that don’t accomplish much.
Unemployment is expected to improve very slowly in this recovery. Most forecasts have unemployment just above 9% by the end of 2010 and still around 8% for 2011. The government’s forecasts are actually now more pessimistic that most economist. I believe they are trying to lower expectations after woefully failing to meet expectations in 2009.
Two Types of Unemployment
There are two types of unemployment (sounds like a Vytorin commercial) impacting the job market right now. Cyclical unemployment is the unemployment that results due to the periodic drops in the business cycle, commonly referred to as recessions. When the business cycle rises, companies start hiring, and unemployment drops. There was considerable cyclical unemployment during this recession and most of the current job openings are the result of improvements in the business cycle.
Structural unemployment is much more complicated and has a much greater impact. Structural unemployment results from a mismatch between the sufficiently skilled workers seeking employment and demand in the labor market (Wikipedia). There was a huge, unexpected, impact of structural employment during this recession. To understand why, we need to review the economy of the aughts (00’s).
A Tale of Two Bubbles
The dot com bubble was created by people overestimating the growth potential of the Internet. Too much money flowed into the sector, pushing up stock prices and propping up weaker companies. When the bubble burst, the excess capital left the sector. But some good things came out of this. We were left with a strong Internet- related industry that was right-sized and ready for future growth.
In a free market economy, capital flows to where there is the greatest return on investment. After the dot com bubble burst, the capital ran straight into the housing market. You could make great money building, buying, and selling houses. Because housing is related to so many other industries, money flowed into these places also. The companies offering the highest returns on their bonds and preferred stock were all connected to housing since they could take the capital and get a high return on investment. (I still own some awful bonds from GMAC. I thought they were only financing cars!).
Of course we now know the bubble was created using risking mortgages and toxic assets. When this one popped, the result is huge inventory of empty houses, a damaged financial system, huge government debt and much of the “false” wealth the bubble created evaporated. Worse yet, the repercussions rippled through the economy crippling industries and resulting in our current unemployment situation. Because this bubble was based on falsehoods, there are no positive results.
And it is even worse than that. Because during the aught’s capital was flowing into the housing market and related industries, it was not flowing into true growth industries and small start-up companies that provide long-term economic growth. Instead of money being available in 2005 for the new company “Growth Industries Inc.” which would have employed 100 people today, it went to “Skipper the house flipper”. Think about it, what is the macro-economic benefit of flipping houses? Now he’s known as “Skipper the burger flipper”.
So there are many skilled, unemployed, people looking for work, but there are few jobs available that require their skills. This is the reason the under-employed numbers are so high. The WSJ economic panel estimates that 2.1 million jobs lost during this recession will not return. The scope of the “structural” unemployment problem also is impacting the business cycle (and thus cyclical unemployment) by limiting consumer spending.
Even if the government cannot create jobs in the short-term, it does need to create a better environment so the private sector can create more jobs. Because housing made things appear so good before the recession, the government neglected some issues that are restraining job growth today.
Issues to Address:
1. Develop a national business strategy
There needs to be a strategy of assisting the small, high-tech industries that will create the jobs of the future. An education strategy needs to compliment this to provide the workers needed for these jobs. China has a business strategy and I hear that it just may be working for them.
2. Develop an energy policy based on economic factors
Energy is considered too much to be just an environmental issue. It is primarily an economic issue with national security implications. If all the solar panels and wind turbines are produced in China, what have we really accomplished? It is a great strategy to promote the conversion to electric powered automobiles. This would generate innovation and jobs in the battery industry and create the need for many nuclear power plants to be built throughout the country. We create jobs, decrease pollution, and improve national security at the same time.
3. Develop “fairer” trade policies.
“Exporting” jobs may have worked when housing was propelling the economy, but it doesn’t work now. We have to export more products and fewer jobs.
4. Enforce the immigration law
There may been an economic reason to ignore illegal immigration when unemployment was at 5%, but can you really continue to do this with unemployment at 10%?
5. Increase market competition
The trend has been to promote business consolidation to create greater efficiencies. If you go too far, you reduce competition and limit job growth. It causes other problems also (Hey, how about them giant banks!). Again the strategy worked when housing was strong, but we went too far. It is time to strengthen the anti-trust laws and deconsolidate where needed. The increased competition will result in new companies, new technologies, and new jobs.
Thursday, March 18, 2010
The Economics of Underwear
In December I listed men’s underwear sales as an unusual economic indicator. This indicator was first developed by former Fed head Alan Greenspan in the 1970’s. My initial thought was that the men’s underwear market is much more complex now and so I questioned if this was still a valid indicator.
I couldn’t find an update on men’s underwear sales, so I started thinking about my own underwear purchases over the last three years:
2008 – The economy was still strong and I had plenty of disposable income. I purchased six pair of underwear. It was the most expensive underwear I have ever purchased in my life. It was underwear that is sold on individual hangers, not in packages. It was colorful, it was flashy, and it was totally unnecessary. My wife is not going to be impressed by my choice of underwear after nearly 30 years of marriage. I don’t have a hot, young, girlfriend. And the underwear looks “slightly” out of place on my aging, baby-boomer, body.
So why did I buy it? Because I could. My underwear selection is representative of the wild conspicuous consumption, over- the- top spending, that characterized the years prior to the Great Recession.
2009 – The Great Recession was in full gear. My disposable income was gone due to job loss. I bought no underwear, even though the pair I was wearing when they told me I was downsized had to be destroyed.
2010 – The recession has ended and a subdued recovery has begun. My disposable income is still low; however underwear is still a necessity even in these times. I do not recommend “going commando” to save money and it is certainly not acceptable attire for job interviews. I agree with Kramer on this one, “my boys need a house”.
However after a year of no underwear purchases, some existing inventory is wearing thin. So I recently have made my first underwear purchase in almost two years. But did I buy the fancy, high-priced, stuff on the hangers? Of course not, but I was able to purchase very good underwear at a close-out store. This underwear cost 70% less than the ones I bought in 2008. Why was it sold at close-out? Because the maker of this formally expensive underwear went out of business when the recession hit. His sales were dependent on people having significant disposable income to spend on “high-end” (not tight end) underwear.
And that’s why this recovery will be subdued. People are not going back to their previous uninhibited buying habits either by necessity or choice. This recovery is being led by cheap underwear!
Unusual Economic Indicator Check-Up
It’s time to check to see what some of the unusual economic indicators that were identified in December are telling us now.
Baltic Dry Index (measures international shipping) – A slow, uneven, climb upward.
Scrap Metal Prices – Very positive increases across the board.
Coal Futures – Very positive. Prices expected to be 17% higher a year from now.
Men’s Ties – The big trend now is subdued pastels. This would be consistent with the start of a subdued recovery. Maybe this indicator has more credibility than you think.
The Hot Waitress Index – I have not seen any hot waitresses lately, so maybe they have all found better jobs. So this would be a positive indicator.
Some Other Indicators
Woman’s clothing – Sales are down. This is a negative because women control the disposable income in most households. If women are not spending money on clothing, they probably aren’t spending much money on other things either. Men’s clothing by the way (which includes underwear) was up 5.7% in the last report.
Beer Sales – Were down 2.2% for all of 2009, but increased 1% in Q4. This is great news. If only there was some appropriate way to celebrate this occasion.
Coca-Cola Sales – Expected to be flat in 2010. Don’t you just hate it when Coke goes flat?
Mc Donald’s Sales – Up 1% in December after two months of decline. Mc Hopeful.
Charitable Giving – Initial indications are that donations are lower than last year, a negative.
Short Skirting the Issue
Several readers pointed out to me that I did not include the “hemline” index in my December analysis. This states that women’s hemlines rise in good economic times and fall when things get tough. This index actually was first developed in the 1920’s and was very logical. Women raised their hemlines to show off their silk stockings which were a both a status symbol and an attention getter. When bad economic times hit, women could no longer afford the silk stockings and lowered their hemlines to hide the fact they weren’t wearing any. When things improved, hemlines went up to reveal the new stocking purchases.
This indicator is still cited, but the original logic behind it is no longer valid. Regardless, short skirts are a very hot fashion item for this spring.
What It Means: short skirts are back in fashion just as all the hot waitresses are going back to other jobs. I absolutely hate this economy!
I couldn’t find an update on men’s underwear sales, so I started thinking about my own underwear purchases over the last three years:
2008 – The economy was still strong and I had plenty of disposable income. I purchased six pair of underwear. It was the most expensive underwear I have ever purchased in my life. It was underwear that is sold on individual hangers, not in packages. It was colorful, it was flashy, and it was totally unnecessary. My wife is not going to be impressed by my choice of underwear after nearly 30 years of marriage. I don’t have a hot, young, girlfriend. And the underwear looks “slightly” out of place on my aging, baby-boomer, body.
So why did I buy it? Because I could. My underwear selection is representative of the wild conspicuous consumption, over- the- top spending, that characterized the years prior to the Great Recession.
2009 – The Great Recession was in full gear. My disposable income was gone due to job loss. I bought no underwear, even though the pair I was wearing when they told me I was downsized had to be destroyed.
2010 – The recession has ended and a subdued recovery has begun. My disposable income is still low; however underwear is still a necessity even in these times. I do not recommend “going commando” to save money and it is certainly not acceptable attire for job interviews. I agree with Kramer on this one, “my boys need a house”.
However after a year of no underwear purchases, some existing inventory is wearing thin. So I recently have made my first underwear purchase in almost two years. But did I buy the fancy, high-priced, stuff on the hangers? Of course not, but I was able to purchase very good underwear at a close-out store. This underwear cost 70% less than the ones I bought in 2008. Why was it sold at close-out? Because the maker of this formally expensive underwear went out of business when the recession hit. His sales were dependent on people having significant disposable income to spend on “high-end” (not tight end) underwear.
And that’s why this recovery will be subdued. People are not going back to their previous uninhibited buying habits either by necessity or choice. This recovery is being led by cheap underwear!
Unusual Economic Indicator Check-Up
It’s time to check to see what some of the unusual economic indicators that were identified in December are telling us now.
Baltic Dry Index (measures international shipping) – A slow, uneven, climb upward.
Scrap Metal Prices – Very positive increases across the board.
Coal Futures – Very positive. Prices expected to be 17% higher a year from now.
Men’s Ties – The big trend now is subdued pastels. This would be consistent with the start of a subdued recovery. Maybe this indicator has more credibility than you think.
The Hot Waitress Index – I have not seen any hot waitresses lately, so maybe they have all found better jobs. So this would be a positive indicator.
Some Other Indicators
Woman’s clothing – Sales are down. This is a negative because women control the disposable income in most households. If women are not spending money on clothing, they probably aren’t spending much money on other things either. Men’s clothing by the way (which includes underwear) was up 5.7% in the last report.
Beer Sales – Were down 2.2% for all of 2009, but increased 1% in Q4. This is great news. If only there was some appropriate way to celebrate this occasion.
Coca-Cola Sales – Expected to be flat in 2010. Don’t you just hate it when Coke goes flat?
Mc Donald’s Sales – Up 1% in December after two months of decline. Mc Hopeful.
Charitable Giving – Initial indications are that donations are lower than last year, a negative.
Short Skirting the Issue
Several readers pointed out to me that I did not include the “hemline” index in my December analysis. This states that women’s hemlines rise in good economic times and fall when things get tough. This index actually was first developed in the 1920’s and was very logical. Women raised their hemlines to show off their silk stockings which were a both a status symbol and an attention getter. When bad economic times hit, women could no longer afford the silk stockings and lowered their hemlines to hide the fact they weren’t wearing any. When things improved, hemlines went up to reveal the new stocking purchases.
This indicator is still cited, but the original logic behind it is no longer valid. Regardless, short skirts are a very hot fashion item for this spring.
What It Means: short skirts are back in fashion just as all the hot waitresses are going back to other jobs. I absolutely hate this economy!
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