Oh The Freight That You’ll Move

Oh the freight that you’ll move….

You can move in on a truck

With a driver who’s named Buck
You can put it on a train
You can fly it on a plane
You can put it on a ship
And hope it will not flip
You can flow it in a pipe
(Well actually you can’t do that because building one more pipeline would harm the environment and eventually kill us all!)

The first estimate of 2011 Q4 GDP came in at 2.8%.  Because replenishment of inventories was a large portion of that growth, it is a good time to check in on the freight market.

Trucking

·  The American Trucking Association Tonnage Index increased 6.8% in December.  This was the biggest gain in 13 years.

·   The Pulse of Commerce Index (based on commercial diesel fuel use) rose 0.2% in December

·  FTR (Freight Transportation Research) Truck Loadings Index increased 0.2% in December and was up 4.9% yoy.

 

What it means:  The ATA index number is useless because it is being seasonally adjusted according to historic factors and things are still far from normal.  Businesses are still trying to balance their inventories, but things may be getting more stable.  Truck freight is growing at a rate of 2.5-3.0% a year and was strong in December.

Railroad

·  Carload freight in December was up 7.3 year-over year. Intermodal increased 9.4%.

·   FTR December carload index + 1.0% (2.9% yoy).  Intermodal +0.4% (3.7% yoy)

What it means:  Carload freight is growing again after stagnating for six months in the middle of the year. It is still almost 11% below the peak year of 2006.  Intermodal (mostly imported consumer goods) has almost fully recovered and is very close to 2006 levels.

Port Traffic

Import freight at the ports had a strong month in December after being slow the previous six months.  Export traffic continued to grow, though at a slower pace than earlier in the year.

What it means:  Consumer spending is starting to pull through more imported goods.  However, exports slowed some in December and need to continue to grow for manufacturing (and job creation) to improve.

Baltic Dry Index

This index measures the price of moving raw materials by sea by comparing the demand for freight with the supply of shipping capacity.  Historically it was a useful indicator for future world economic growth.  In recent years it has been much less accurate due to Chinese growth and swings in the supply side.

The index has fallen 43% in the last month.  This would indicate the global economy is about to crash.  Realistically, it is reflecting a slowdown in the Chinese economy (especially iron ore demand) and a recession in Europe.  Economists in the U.S. think these events will restrict domestic economic growth, but not stop it.

 Inventories

 

·  November total inventories rose 0.3%, sales up 0.3%.  Wholesale inventories up 0.1%, sales up 0.6%

·  ISM (Purchasing Manager’s) Manufacturing Report stated that inventories were decreasing and that customers’ inventories were too low.  It also reported that imports and exports are growing and new orders are increasing.

 

The Scoop

Economists are concerned with the inventory build-up in Q4, 2011.  But this increase was due to inventories being too low in Q3.  Sales were higher than expected in Q3 which is a good thing.  Sales continued to grow in Q4, so businesses added to their inventories.  There is no evidence businesses are overstocked.  Freight was strong in December so companies are expecting stronger sales in January.

 Consumer confidence is increasing as is employment so sales should continue to increase.  We are one-third into Q1 and there is no indication yet that the economy is losing any steam.  China and Europe are concerns.  Iran remains as issue, but the more power it loses in this game, the louder it yells (similar to a 7 year-old on the playground).

The Forecast

My expert panel is predicting GDP growth of 1.9% and 2.1% in Q1 and Q2.  I think we can squeeze out an extra half point to 2.4% and 2.6%.  I know this is much higher than my forecast in October.  However this is when the much respected Economic Research Cycle Institute said we were going into recession.  ECRI either was too early on their prediction or else they’ve got some “splainin” to do.

The Model T also improved some in December after being stable for several months.

This Sugar Substitute May Not Be So Sweet

(I am co-authoring this post with Dr. Reginald Sheeply, Professor of Economics at Scotland University)

Last summer I vacationed in Hershey, Pennsylvania home of the world famous Hershey Chocolate Company. And while my family was fascinated by all the chocolate, I was fascinated by the company’s marketing, quality control standards and deep commitment to American manufacturing.  I was also inspired by the story of Milton Hershey who finally was a huge success in the candy industry after several devastating failures. 

We ended our day at “Chocolate World” with a visit to one of the largest candy stores in the world.  We are all “kids” in that candy store.  There must be a hundred different types of chocolate in addition to other candies sold by Hershey.

After hearing numerous times during the day about the commitment to domestic manufacturing, I looked at the label on a package of Jolly Ranchers (a brand acquired by Hershey in 1996) and saw the words “Made in Canada”!  What in the name of Milton Hershey is going on here?

It all has to do with the economic “Law of Unintended Consequences” which states that actions by individuals and especially governments often result in unanticipated effects.  

In the 1980’s some congressman convinced his colleagues to enact high tariffs on imported sugar to preserve the jobs of domestic sugar beet farmers.  I believe he accomplished this very difficult feat for one of the following reasons:

A.     He was a very skilled congressman

B.     Many other congressmen owed him a big favor

C.     He had compromising photos of the Speaker of the          House and a farm animal.

Dr. Sheeply, what do think about this if it was in fact reason “C”?

“That’s baaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaad”

This sugar tariff which is still in effect has resulted in the following:

Higher Sugar Prices

Sugar prices are much higher than they should be.  It is in effect a tax on sugar that is estimated to have cost U.S. consumers around $2.5 billion in 2009.  A sugar tax?  Where have you heard that before?  Oh that’s right; the British enacted the Sugar Act on the American colonies in 1764.  It was one of the taxes that led to the Revolutionary War.  I guess back then we got upset, now we just blindly pay it.

Dr. Sheeply, what is your opinion of high sugar prices?

“They’re baaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaad”

Unintended Job Results

The high sugar tariff is preserving the jobs of sugar beet farmers; however the unintended consequences have been significant.  Products that use high amounts of sugar, Jolly Ranchers("hard candy") for example, cannot be competitively manufactured in the U.S. so every one of those jobs moved to Canada or Mexico.  It is difficult to measure the exact impact on jobs, but it very well could be a net job loss.

In addition, it puts every domestic manufacturer that uses sugar in its products (like Hershey chocolate) at a competitive disadvantage against imported products and limits export sales.  Sugar prices are very important to chocolate manufacturers.  Ironically two of Milton Hershey early business failures were caused when sugar prices spiked.  The Hershey Company survived because Milton solved the problem by growing his own sugar in Cuba.  Milton Hershey would despise the sugar tariff.

Dr. Sheeply, what do you think about losing jobs due to high sugar prices?

“That’s baaaaaaaaaaaaaaaaaaaaaaaaad”

A Questionable Substitute

Because sugar prices were so high, Coca-Cola and Pepsi started using a new sugar substitute called High Fructose Corn Syrup (HFCS).  This sweeter is derived from corn using a special manufacturing process.  There would be no market for this product if sugar was available at the free market price.

The problem here is that several credible medical studies have found there are possible health concerns in how HFCS is processed by the human body.  This impact is much more prominent in men than it is in women.

Of course the corn farmers and HFCS producers have run television and radio advertisements promoting the naturalness and wholesomeness of the product.  Remember these are the same people who think that burning corn as fuel in our cars is a great idea.

So who are you going to believe: medical scientists who are trying to keep us healthy and have no financial interest in the research findings or people who are making billions of dollars off the product?

I don’t know the answer, but it is a moot point with me.  You see this one is personal.  I have two health conditions that I am currently taking herbs and vitamins to control.  The medical studies say the main two health concerns with HFCS are the two conditions I have.  I am the canary in the coal mine on this one.  If the studies are accurate, HFCS will kill me before it kills you.  So I obviously try to limit my HFCS consumption as much as possible.  People always laugh at my McDonald’s meal of Quarter Pounder, large fries and Diet Coke.

Dr. Sheeply, what do you think about HFCS?

“It’s baaaaaaaaaaaaaaaaaaaaaaaaaaaaaaad”

Therefore policies by my own government may be “poisoning” me and my government is making me pay more to do this.  It’s enough to make someone a Ron Paul supporter.

Dr. Sheeply, what did you think of working with me on this blog post?

“It was baaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaad”

These Economic Predictions Will Bowl You Over

Hey my 2011 calendar just ran out of days and the Spud Bowl and Fight Boredom Bowl are over, so it must be the start of a brand new year.  Last year I made my “Economic Bowl Picks” versus the picks of my economic expert panel (the average of my seven favorite economists whose forecasts are presented by the Wall Street Journal).  Here is how I did against the panel (please note that the actual numbers are current estimates, but should not affect the final results):

	Don	Panel	Est.	Winner
GDP	3.8%	2.8%	2.1%	Panel
CPI  (Inflation)	2.2%	1.7%	3.2%	Don
Unemployment	8.7%	9.2%	8.6%	Don
Housing Starts	820K	700K	600K	Panel
Crude Oil  Price	$93	$89	$100	Don

Officially I won three to two, but there is no room for bragging when my GDP and Housing Starts forecasts were so bad.  The economy spurted after an early surge and took until the end of the year to get going again.  I erroneously thought the housing market would begin to recover after hitting bottom.  Instead it scraped along the ground for the entire year.

Here are the 2012 Economic Bowl Picks:

The GDP Bowl

Richmond Recovery vs. St. Louis Snails

Line: Snails by 2.3% (The line is the average of the expert panel forecasts)

The economy has some momentum going into 2012. However most economists are predicting slower growth in Q1 and Q2, but I haven’t read a good explanation why.  The Model T (which is based on commercial transportation factors) indicates growth of more than 3%; however the Model T Junior (based on total transportation factors) says that we are entering a recession.  The growth this year will be uneven, but I think we can do better than 2011.  My Pick: Recovery by 3.0%

The CPI Bowl (Consumer Price Index)

Boston Bouncers vs. Louisville Lows

Line: Lows by 1.8%

Most commodity prices have recently moderated, so inflation is expected to be lower than last year.  I agree with the experts.  My pick: Lows by 2.1%.

The Unemployment Bowl

Portland Paychecks vs. Kansas City Cutters

Line: Even at 8.6% (year-end)

This one is very tricky because the unemployment rate actually rises at the beginning of a recovery as thousands of people reenter the workforce.  I expect the unemployment rate to bounce all over the place this year.  However the employment market is better than most economists believe.  One of my colleagues was downsized in late 2008 and was unemployed for 13 months.  Recently he had to reenter the job market and it took him only four weeks to find a job.  Even though the unemployment rate may reach 9% again, there will be enough new jobs by the end of the year to drive the rate down.  My Pick: Paychecks by 8.2%

Housing Starts Bowl

San Diego Starters vs. Denver Dirt Piles

Line: Dirt Piles by 674,000 Starts

The housing market is showing good progress at the end of 2011.  However economists do not think this will continue.  Housing prices are still depressed and this is supposed to restrict housing starts.  Things are still so disjointed that I’m not sure how much prices of existing homes are impacting starts.  I believe the recovery in the housing market may have started in Q4, 2011 and will continue (although slowly) throughout 2012.  My Pick: Starters by 720,000.

Price of Crude Bowl

Fresno Frackers vs. Libya Liberators
Line: Liberators by $94.50 (year-end)

(I love the name Fresno Frackers because they wouldn’t frack in California if it was gold that could be extracted)

This is the most difficult “game” to predict.  World demand, the continuing Arab Spring, an expected stronger dollar, Iranian issues and increased Libya supply will move prices significantly.  I don’t think we can make it through 2012 without someone dropping a few bombs in Iran (Instead of sanctions we should threaten to send them Kim Kardashian). I think Iran will be the most volatile place in 2012.  They are overplaying their hand and I think the “Arab Spring” could reignite there this year.    The barrel price will fluctuate between $80 and $110 during the year.  My Pick: Frackers by $101.

Stock Market Prediction:

In my last post I told you that the Model T (last December) said the stock market would peak around 1400 and it peaked at 1370.  If I knew that I was going to be that close, I would have been more precise in the forecast!

The stock market should be volatile again this year as the European financial crisis get worked out, the Iranians get worked up and Obamacare either gets thrown out (maybe with Obama) or gets cemented.  In addition will the new supreme, fearless, bad haired, commander in Korea spend his time stirring things up or just playing video games? Should we call him the “Supreme Kidmander”?

My Pick:  The Model T says the S&P will reach 1435 in 2012.  This is consistent with several experts’ forecasts which use models way more sophisticated than mine.  The good news is the stock market should peak in Q4 and be able to better hold its gains, unlike 2011.

Buy Low and Sell High everybody.  Hope your 2012 is prosperous!

Walking In An Economic Wonderland

A Golden Prediction

In reviewing my 2011 predictions made last December (Economic Bowl Pick post December 27, 2011), I discovered the Model T had forecasted an S&P 500 Index high of 1400 for the year.  The index peaked at 1370.58 in late April. Therefore the forecast was off by less than 30 points and just 2.1%.  I hope somebody was paying attention and sold at the right time.  Next year’s predictions come in two weeks.

A Surprising Observation 

A little over a week ago I made my annual Christmas shopping trip to the mall.  I had heard all the negatives about the holiday shopping season.  Yes Black Friday sales were strong, but consumers had spent all their money and recent shopping activity had been slow.  Yes consumers say that will spend more this year, but they really won’t. Internet sales are much stronger this year, so traditional retail sales will suffer.

Therefore I was expecting the number of shoppers at the mall to resemble those of the last three recession-weakened years.  I venture to the mall about the same day and time each December so I do have a good baseline for comparison.

But this trip to the mall was not as I expected.  My first surprise happened in the parking lot.  I always park at the end of the mall (by Sears) to avoid the mall traffic maniacs and so I can park close to a door.  Due to the weak economy I could park about 10 cars from the door the last three years.  In a strong year I would park about 25 cars back.  This year I parked about 35 cars back.  Could there be that many more shoppers here? 

There were more positive signs before I even got inside the door.  I passed several people leaving the mall loaded down with shopping bags. There was a help wanted sign on the Sears door.  Once inside the mall there were customers six deep in two lines at the first check out station. I actually had to walk around people to get through.  And this was at Sears!  I didn’t think anyone was supposed to be shopping at Sears anymore!

In the mall the crowd was huge. I can’t remember ever seeing this many people on my shopping trip. And they were buying stuff.  They were buying clothes, they were buying shoes, and they were buying knick-knacks. They also must have been buying expensive perfume because in one area of the mall the air was so thick with the scent; it was literally difficult to breathe.   The food court was extremely busy also.

I managed to complete my purchases fairly easily although I had to wait at the calendar kiosk because they ran out of shopping bags.  You know business is good when you run out of bags.  While I waited for them to get more bags, I had the opportunity to see which calendars people were buying.  One popular calendar is called “Nuns Having Fun”.  This is not what you expect.  It is totally “G” rated.  The cover shows nuns having fun on an amusement park ride.  Another popular one is a daily calendar called “Oh No Obama”.  It boasts that it lists 366 (leap year) stupid things Obama and his administration has said or done.  No, I did not buy this one.  Why would I want to start every day next year by getting upset?  To me, it ceased being humorous a long time ago. 

I stopped at another store at a “mega” strip mall to buy my final gift.  The store was very crowded and there was another help wanted sign on the door.  There is a whole lot of consuming going on!

The True Meaning of this Economic Wonderland 

I know this is just one person on one shopping trip, but can things really be that bad?  This looks like a recovery, this smells like a recovery and I really can’t believe we are in or headed for a recession when there is this much positive economic activity. There are still some negative economic indicators out there, but for now I’ll believe what I can see and what I see may be a Christmas economic miracle.

How bad can the economy really be when people are forking over cash for greasy mall food, expensive cologne, and buying overpriced calendars featuring everything from scantily clad lingerie models to fully clothed nuns?  And unemployment may still be high, but apparently companies are having trouble finding enough retail workers this year.

So my holiday message to the people who shopped like crazy in the stores and on the Internet this year: I thank you, the economy thanks you and Ricky Bobby would say that the baby Jesus laying in the manger thanks you.  

My holiday message to the economic naysayers is this:  Quit whining about how bad you think the economy is.  It doesn’t help consumer confidence and there is a good chance you are wrong. So just shut the (insert your favorite expletive here) up Scroogeheads and go buy some Christmas gifts. Shame on you for upsetting the baby Jesus on his birthday.

Merry Christmas and Happy New Year to all my readers.

 One Final Gift

If you haven’t had time to give anything to those less fortunate, you can buy Christmas dinner for the homeless at the Refuge of Hope in Canton, Ohio for only $2 per meal.  Click here to donate.

Housing Market Constipation

Two simple stories illustrate the sad and strange state of the housing market:

Story One:
I was considering moving due to my job change and improved finances.  However in the last year, the most valuable and the least valuable properties on my street both sold for 16% under what I considered the market value.  And it wasn’t just my assessment.  The widow who lived next door to one of the sellers was not very pleased with his selling price.  When the last conversation between two long-time, good, neighbors includes the phrase “You stupid son of a *****”, you know things are not good in the housing market.

So my house is now worth 16% less that I was expecting.  When I subtract the home improvements (windows, deck, structure) that I have made in the last 16 months, I would be selling my house (after 17 years) at an effective $10,000 loss.  You may argue that I should not subtract the improvement expenses, but that is a tough psychological sell.  Therefore I am not selling my house and I am going to stay put and enjoy my new deck and windows

Story Two:

My friend’s wife got a new job about ten miles from where he works.  By moving closer to their workplaces they could cut their total daily commute from 165 miles to 35.  So they fixed up their house and put it on the market.  Under normal conditions it would have sold in three months or less and life would be good.  But the house still sits there months later, drawing little buyer interest with the winter commute approaching.    

Multiply these two stories out by the hundreds of thousands and you begin to understand why the housing market, and the economy, is so weak.  The alarming thing is the two housing markets described above are probably “better than average” locations.  They did not experience overbuilding or rapid property appreciation, yet property values have sunk nonetheless.

Recent information from the Census Bureau indicates that only 11.6% of people in the U.S. moved into a new home in 2010.  This is down from 12.5% in 2009 and is the lowest rate since tracking began in 1948.  Many people can’t move because they can’t sell their houses (either the poor market or one of 10.7 million with negative equity).  Also, more young adults are living at home because they can’t find jobs. And in this recession many older workers lost their jobs and are less likely to move across the country to find work.  The result is that when people aren’t mobile, they don’t spend money on new houses, new furnishings or any other expense associated with establishing a new residence.  This is a major drag on economic growth.

Housing Constipation

The housing market is “constipated”.  It is straining to move.  It is pushing, it is wheezing, it is cramping, but it still won’t go.  The other industries are standing outside the bathroom door, impatiently waiting for the housing market to let loose.  They know that housing has to start producing first before they too can find relief.  But housing is bound up due to poor diet (toxic assets) and poor life style choices (sub-prime mortgages).  So it just sits there producing very little and sometimes emitting some very disturbing gas.

The government has tried to stick its hand in there and provide help with the mortgage modification program, but that failed.  The banks are modifying the mortgages of people that they determine should be helped.  They have a vested interest in not foreclosing on more homes because they already own too many foreclosures.  So the government should just stay out of there and let nature (banks making sound economic choices) take its course.  There is no magic enema for this situation and the laxative of low interest mortgage rates has been futile to this point.

Scraping Along the Bottom

I believe that the housing market hit bottom around February or March of this year.  But I was way too optimistic on the rate of recovery.  Most industries that hit bottom after the great recession skidded and scraped “along the bottom” for an extended period of time before starting to recover.  Housing is doing the same.  It was the last industry to hit bottom because it had the furthest to fall. This skid has been long and continues to be painful.  The industries that fell the furthest took approximately 12 months to begin a recovery.  If housing follows this pattern, look for things to start to improve around March 2012.  The recovery will start slow, but has the potential to grow faster as market slack begins to be reduced.

Here is a review of the current statistics in the housing market.  The number on “where we need to be” and “when we will get there” are my forecasts.  Note that the “where we need to be” numbers are much lower than the housing peak.  This is because the housing marketing in the aughts (00’s) was on steroids.  Those numbers are artificially pumped up and won’t be seen again for many years.

Housing Starts

Oct 2011 = 628,000 (Annual Rate)

Oct 2010 = 529,000

Where we need to be = 1,600,000

When we will get there: 2015

New Home Sales

Oct 2011 = 307,000 (Annual Rate)

Oct 2010 = 282,000                 

Where we need to be = 1,000,000

When we will get there: 2016

Existing Home Sales

Oct 2011 =4,970,000 (Annual Rate)

Oct 2010 = 4,380,000

Where we need to be = 6,900,000

When we will get there: 2014

Who Shredded My Cheese?

It is the “Game” and we are all players.

Once there was a company in Northeast Ohio that made vacuum cleaners.  Time after time the salary negotiations for the workers went something like this:

The Union:  “Give us more money and benefits or else!"

The Company:  “Or else, what?”

The Union: “Or else we will go on strike and you will have no vacuum cleaners to sell!

The Company: “Okay, here you go.”

The union’s goal was to maximize the salary and benefits for its members.  The company played along and paid higher wages and benefits because it could raise prices and still make profits. 

But one day the salary negotiations went like this:

The Union:  “Give us more money and benefits or else!”

The Company:  “Or else, what?”

The Union: “Or else we will go on strike and you will have no vacuum cleaners to sell!”

The Company:  Sorry, you are not getting an increase.  In fact, this time you aren’t getting anything.  The Mexico plant can now make and assemble quality vacuum cleaners so we are expanding capacity there and closing this plant.

The Union:  “What?  Wait, why would you do that?  Okay, okay, let’s negotiate.” 

The Company:  “There is really nothing to negotiate.  You drove your compensation up so much over the years that it is three times higher than the Mexicans.  We can’t raise prices anymore because of increased competition.”

The Union: “But this is not fair.  You cannot do this!”

The Company:  “Oh yes we can.  Here we go. Adios.”

The company closed the plant and over a thousand workers lost their jobs.  Most of the people worked in assembly.  Many of them had worked for the company for over 20 years.

Unfortunately the skill these people had developed over the years was “vacuum cleaner assembly”.  In the new world economy, this is not a very valuable skill because Mexicans can assemble vacuum cleaners, Guatemalans can do it, and of course the Chinese. 

In this new world economy, you are not competing for work with the people in your city.  You are competing with everyone in the world.  It therefore is very important to have or be developing skills that are of increasing value in the world economy.

The people who assembled the vacuum cleaners were at one time winning the Game.  They had a marketable skill, but then the Game changed.  Somebody didn’t just move their cheese, they ground it up and scattered it around the world.

The “world economy” has had a significant impact on personal incomes in this country.  If you have a competitive skill, your value rises.  If you don’t, your value, and income, falls.  Even if you are not competing directly with foreign workers, you may be competing for domestic jobs with workers who have been displaced by foreign labor.    This means there is a surplus of workers for the “lower skill” positions and this drives salaries down.  As some workers rise up from the center and even more workers get pushed down from the center, the “middle class” shrinks.  Nobody caused this to happen, it’s the Game that changed and these are the results. 

Two weeks ago I said I supported the Occupy Wall Street protests because of legitimate outrage over unethical behavior of banks and financial firms.  However since then, OWS has taken a distinct “left-turn” and the focus has been on “income inequity”.  If this is now the rallying cry, it is no surprise the movement is producing more violence, more crime and basically more anarchy.

In a free-market economy there will always be income inequity.  The people who are risk takers, entrepreneurs and have exceptional skills will always be able to make more money than your average manual worker. The problem is that winning the Game has become tougher because the competition got larger, worldwide larger. Camping in the street and complaining about the Game may make you feel good, but it does nothing to change the rules of the Game, or to help you win it.  To win today, you have to work harder and the protesters don’t seem to want to do that.

And you may complain that the Game isn’t fair.  But guess what, few things in life are fair.  Today a baby will be born in Bangladesh and may not survive the week.  Another baby will be born in the Hamptons and will be wealthy his entire life.  The Game is not fair and sorry comrade, you cannot make it fair.  Karl Marx thought you could, but the reality is, that you can’t.

It doesn’t make sense to tax the successful people excessively and give the money to the least successful.  That would be punishing, not rewarding success.  In addition, the manager of this redistribution of wealth is Big Government, which means most of the new tax money will disappear down a rat hole.

However, our society must determine how much support the people at the top of the Game need to contribute to provide basic life services to the people that have been squeezed by the Game.  And due to changes in the Game caused by the world economy, they probably need to contribute more than they do now.  And you cannot ignore this issue.  Remember, the revolutions of the “Arab Spring” were all economic in nature and were a result of the people at the top hoarding too much of the wealth.  We must figure out a way to make the "new" Game work for everyone, but the solutions will not be easy.

Interesting Side Note:  The closed vacuum cleaner factory mentioned above was remodeled and is now used for light production and assembly work for several different companies.  A new company just rented space in the building to assemble, get this --- vacuum cleaners.  The product was previously assembled in China, but was redesigned to make assembly much easier.  This change made domestic assembly cost competitive so the vacuum cleaner will now be assembled here.  The jobs pay much less that the old jobs, but I would make the argument that the new jobs are paying the competitive wage for that skill, just as the old jobs paid the competitive wage at the time.    

Occupy This Thought

When there are people protesting in the street, something is wrong.

Last year people took to streets to protest the expansion of Big Government. Big Government growth had been a problem for years, but the increased spending and governmental intrusion of the new healthcare plan was enough to push people over the edge.

This protest became know as the Tea Party Movement (it’s a movement, not a political party!). The movement was very effective, working through the political system in stopping (maybe just slowing) the growth of Big Government and changing the attitude and actions of many politicians. It also raised awareness of the issue in the general population.

Now Occupy Wall Street has caused many people to protest what I will refer to as Big Money. While it is easy to criticize and any find reasons to discredit many facets of this movement, I repeat:

When there are people protesting in the street, something is wrong.

At first I thought of these people as misguided hippies who were acting very stupidly. Now no one dislikes hippies more than me (except Eric Cartman), but the protesters do have some legitimate concerns even if they have problems communicating them.

It took awhile to figure out, but the issues driving the protests are: The lack of accountability of banks/financial firms for causing the housing market/financial system collapse, the cozy relationship between Big Money and Big Government, and the growing inequality between the “rich and poor”. The first two issues are very valid. The third raises some complicated factors which I plan to address in a future post.

The main issue is that Big Money made billions promoting the use and abuse of sub-prime mortgages. It also used derivatives, insurance abuses and anything it could to exploit the situation. Corporate profits are good, corporate greed is bad. Remember greed is a sin, one of the seven “big ones” by the way. Sometimes profit and greed are divided by a thin, gray, line, but in this case Big Money went way over the line.

Sin always has a cost. In this case because of Big Money greed, millions of people lost their jobs, millions more are underemployed, many college graduates are working at Mc Donald’s and many people have lost their houses. And millions of unemployed people are still suffering from the sins of Big Money.

Taking in one step further, from lower wages and benefits, lower home values, lower stock values, higher taxes, etc., it is difficult to find someone who has not been negatively impacted by the Great Recession.

And what is the punishment for Big Money for being so irresponsible, for being so greedy? Not much. No one has gone to jail for their role in this fiasco. Remember that Bernie Madoff and the other Ponzi pals did not do anything to cause the financial crisis; their crimes were merely exposed by it. They were the super-greedy, so their penalties were either jail, or in one case suicide. Sometimes the wages of sin are indeed deadly.

Sure, some corporate CEO’s lost their jobs. They had to take their million dollar separation settlements and go sit idly by the pool. Ouch! That’ll teach ‘em.

So the banks took all these great financial risks. The banks raked in enormous profits. The executives all collected huge bonuses. And then it all fell apart and we all had to pay for it all through blood, sweat, tears and bailouts. But the bankers got to keep their big bonuses. It makes you so mad, so mad, that you just want to run out in the street and well, scream. Which I guess is the whole point.

This brings us to the friendly relationship between Big Money and Big Government. Big Government was way too willing to bailout Big Money and become its savior by paying for Big Money’s sins. Big Government was supposed to be watching Big Money, but it clearly saw what was happening and looked the other way.

Yes, this time Big Money was making so much big money that it had enough loot to buy off both the Democrats as well as the Republicans. We expect Big Money to buy off the Republicans and for the Democrats to serve as the watch dog. This time the watch dog had a big bone stuck in its mouth and did not bark.

I don’t know what the penalty should be for the people who caused the financial crisis at this point. The Democrats are now trying to punish Big Money for its actions, but that is resulting in the industry (even the banks that were “sinless”) having problems functioning effectively. And we need the financial system to heal and to be able to function well to get us out of this mess.

And then we read that not enough has been done to safeguard the system (still too big to fail!). More important than anything, laws should be written to ensure that this never, ever, comes close to happening again. Please use some common sense and just fix it! These guys were stealing cookies from the cookie jar, got caught, but received no penalty from grandma for doing so. What are the chances they will go for the cookies again since there were no consequences last time? We must make sure that grandma puts the cookies on the top self where Big Money can’t get them (joke to hockey fans, eh).

There are serious problems in how the Occupy Wall Street protesters are behaving. However peaceful, lawful, protests are protected by the First Amendment. You may disagree with their methods, their politics, etc, but on substance, in the words of that great philosopher M.C. Hammer: “Too legit, too legit to quit”