The Unspoken Change in our Economy

Americans are changing their spending behavior.  The impact of this change could also result in a deflationary economy.  That is a situation where prices are dropping and everyone is waiting for the next drop in prices before making a purchase.  It’s great for consumers but businesses are forced to carry reduced inventories because they fear sales will not be sufficient to provide a return on their investment.

The ongoing recession could impact our country in a way that few people have discussed.  When so many people do not have jobs or have taken lower paying jobs a level of depression begins to set in.  Stores have less to sell and people have less to spend.  It is a cycle that is difficult to break.

The real unemployment is totaling about 17%.  That is the combination of the reported unemployment of 9.8% added to those working reduced hours, those working at jobs paying less than their historical pay rate, and those that have given up searching for a job.  All of those people have reduced their spending.  The impact is seen in retail sales.  Most retail businesses are reporting losses.  A walk through the malls tells the story with many vacancies and too few shoppers.  The Christmas selling season is expected to be slow.

For many of us our homes were our piggy banks.  With housing prices dropping by 30% to 40% and banks asking for higher credit card interest the outcome is obvious.

The stock market is up based on higher profits.  It is a temporary condition. Those profits are the result of reduced labor costs not increased demand.  This economy is based on consumers buying.  We the people have run out of money. 

American Competitiveness – Are We Serious?

The United States is the only industrialized nation that does not use the metric system as its predominant system of measurement.  We use a modified form of the English system of weights and measures.  The U.K. for the most part converted to the metric system in 1995. 

Both Canada and Mexico are on the metric system.   Mexico has an obligatory use of metric units established by law of June 19, 1895.  Canada made the change in 1971.

The voluntary plan for conversion to metric has met a wall of refusal.  The arguments are from those who say the change over will be too expensive and the change will be too confusing.  Interestingly the United States has been making the change but very slowly.  Soda bottles are now available in liter sizes, liquor is sold in metric sizes, and both prescriptive and non- prescriptive drugs are measured in metric weight.  Cameras/photo supplies, car tires, and a few other items are measured partially in both systems.

American competitiveness would be enhanced by a total conversion.  Still, neither The U.S. Chamber of Commerce nor The National Association of Manufacturers (NAM) has the question of conversion on their list of issues.  Why haven’t American manufacturers and scientists been more forceful in bringing the nation in compliance with the rest of the world?  I cannot think of one good reason.

The Great Recession of 2007 to 2010

Despite the stock market’s recent optimism there is nothing to celebrate!  No industries are in a growth mode now.

New claims for unemployment benefits declined from 574,000 to 570,000 for the week ending August 29.  It most likely is no change because the weekly report is a preliminary number.  In the previous week the preliminary number was 570,000 and was adjusted up to 574,000.  The September 4 report of 9.7% unemployment rate for August supports this column.  Retail sales are down for most national chains.

The very worst layoffs are probably over but the rate is still astonishingly high.  When there is no recession the weekly layoffs amount to about 350,000 people.  The lay off rate in excess of 600,000 people per week lasted for 14 weeks.  So now everyone is celebrating nine weeks of layoffs in the 500,000 to 600,000 range.  Even as I write this commentary the AP headlines a story Improving economy not likely to lower jobless rate.  This does support my contention that we won’t see  job growth any time soon.

The stimulus package has not done its job.  Those opposing it were correct. The government posted distribution confirms the argument that too little of the stimulus money would not be put into the economy quickly enough to create any short term benefit.     

Recessions are frequently the time for new business ideas.  I believe that will be the source of our next boom.

The 21st Century World Economy Has Arrived

The United States was not interested in the rest of the world until WWII.  Our nation kept up its protectionist and no alliance philosophy until that war thrust us (were we dragged?) into a position of leadership.  Exceptions to that basic idea did occasionally occur.  There was the famous bombardment of pirates off the north coast of Africa in the early 1800s.  That was an independent action that led to know alliances.  WWI is the outstanding example of working together with other countries to defeat a common enemy.  At the end of that war the United States did not join the League of Nations.  Instead the country reverted to its no alliances philosophy.

The idea of no alliances apparently dates back to Thomas Jefferson. He extended Washington’s ideas in his March 4, 1801 inaugural address: “peace, commerce, and honest friendship with all nations, entangling alliances with none.” 

A Cato Institute article on free trade confirms the philosophy of high tariffs. The article provides a U.S. Department of Commerce graph that shows 30% import duties on durable goods until WWII.  Pat Buchanan, the conservative talk show host and former presidential candidate, still contends that the United States would be better off economically if trade barriers were in place.  He repeated that position on the McLaughlin Group on Friday August 21, 2009.  When was the last time he went shopping?  Walmart, Target, Sears, Best Buy, etc. are all part of the global market place.

It’s understandable why Buchanan and others believe that protectionism is the salvation for the United States.  We can’t compete with other nations for many goods and services.  Our cost of living is just too high.

Listed on President Barack Obama’s top five books to read this summer is Thomas Friedman’s The World is Flat.  It’s a book that tells us something we already know but in horrifying detail.  This book tells us about the interdependence of every nation in the world.  The quote “President Obama will probably learn of the operation from CNN” evidences how well we have connected everyone.  Even Mayanmar’s (Burma’s) secretive government has been unable to keep events in that country a secret from the world.  Neither 10th century Muslims nor Asian dictators can stop the interconnected world.  Visit Toronto, Canada and it’s like visiting the United Nations.  You will realize the world cannot be turned back.

The answer to our dilemma is innovation and invention.  This nation gave birth to assembly line manufacturing (Henry Ford’s factories), the telephone, the computer world, and the internet.  It was Thomas Edison who invented the light bulb and the first recording devices.  The largest and most successful aircraft manufacturing companies were built in the United States.  It’s that creativity that will revitalize this nation.

What will it be?  I don’t know.  It could be new car batteries or new ways to generate electricity or something else.  The new world has arrived.  Get excited!

New Technology-Goodbye to the Post Office

Everyone reading this blog knows this reality.

A new world of high technology is making the post office obsolete.  A large portion of our population now communicates via email.  Even Seniors, the over age 65 group, are using email services as their primary communications tool.  I tutor computer use at a Senior Center one day a week.  Every one of those seniors wants to learn how to use email and the internet.

Soon Newsweek, Time, and all of our newspapers will be part of the past if they do not change to an internet version.  Those old commentators appearing on talk shows are wrong when they say newspapers and magazines will survive in printed form.  Newsweek has gone to an essay format in an effort to save itself.  Jon Fine of BusinessWeek forecast the end of magazines and newspapers well over two years ago.  Advertising revenues for all of these publications has seen a significant decline.  The growing advertising venue will be your ads and coupons on your cell phone.

The U.S. Postal Service is about to give an enterprising company a large retail distribution system when it closes about 700 facilities.  Congressmen will be trying to stop the clock and retain those operations.  If they are successful it will prove that the Federal government cannot manage its existing affairs let alone increase its involvement in health care services.

Health care aside think about the possibilities for the use of 700 strategically located facilities through out the country.  Perhaps UPS or Federal Express will step in to take over these locations.  If not, these facilities are an opportunity for 99¢ Stores or some other chain. 

There is No New Direction for Our Economy

I am mystified about the economic direction of our country.  Despite the optimism in the stock market there really is no new direction for the nation’s economy.  It may be accurately reported that net income of many companies has increased but it was mostly the result of reduced labor costs and reductions in inventory.  Cash for Clunkers was a great idea for clearing dealer lots but who will buy a car now that the program has ended?

With credit card interest rates up and with far fewer offers from the banks for new credit card accounts there has been an obvious reduction in card usage.  Most of us are burdened with too much credit card debt to buy very many new things. After all we consumers had a total outstanding bill of almost $1 trillion.  The reduced card use is a good thing for the individual but bad for an economy that relies on consumer spending.

The $768 billon stimulus bill was a great idea to jump start the economy.  The problem is that only $89 billion has actually been paid out.  That is about 12% of the allocated money.  This is particularly maddening to me when I see streets that need resurfacing all over my city.  Other projects are talked about but there has been no action.

We are left with actions by private enterprise to invigorate the economy.  The wealthy are too happy to care and the rest of us really are praying.

We need more than prayer and hope.  The world is changing faster than ever before.  Other nations have economies that are far better managed than ours.  Even our next door neighbor, Canada, is more successfully managed than the United States.  China and India are both reported to having seen a turn around in their economies.  Unless there is an inspired government that isn’t involved in political infighting or industries that quickly step up to the table, and that means within the next 12 months, the United States will follow Japan into a longer downward financial spiral.

Military Politics

The Military Industrial Complex Lives

Let’s be honest.  There is a big link between the Military and the industries that supply military equipment.  This is not news.  President Eisenhower warned of this issue in a 1961 speech.  In case you have forgotten, he was the supreme commander of our European army in WWII.

Some of us would like to deny that military is not a necessity.  There are people and nations in this world who would like to see the United States fail.  The problem is that many Americans love military things.  They love the fight.  They love the equipment that helps the military carry out its assignments.

Military equipment needs evolve as the world changes.  Some of that old reliable equipment is not necessary or appropriate in the year 2009 and beyond.  That is obviously the result of new items that are technologically superior to those old reliable things.  The most obvious item I have seen in news reports is the drone aircraft.  Those drones are controlled from points thousands of miles away from the field of battle.  60 Minutes’ Lara Logan provided a report telling how the control of the “unmanned aerial vehicles” is accomplished in Nevada.  This equipment really does make many of our manned aircraft obsolete.

The Boeing Company launched its own attack on public opinion by advertising the need for the C-17 cargo plane.  A full page ad appeared in the Los Angeles Times.  The Times reported that similar ads appeared in major newspapers around the nation. The same article provided interviews with people who are calling the continued manufacture of this plane as corporate welfare.  There is a UAW union that of course contends that there is a need for this plane but they are interested in protecting the jobs of its members.  The coast will be $275 million each.

I do not know how many other old reliable pieces of equipment are still on the “buy” list.  Shouldn’t these decisions be made by the Secretary of Defense?  It appears that politics and a need to provide welfare for various companies is taking priority over the nation’s real needs.  Those 14,000 people that will be effected by closing down the Long Beach aircraft factory could be utilized manufacturing high speed trains, wind turbines for power generation or other needed products.

Stimulus Money Well Spent

I have ridden on the subways in D.C., New York, Boston, Philadelphia, and Toronto.  All of them provide a marvelous means of transportation.  Here in Los Angeles we really only have one subway line.  It stretches from Downtown to North Hollywood for 17.4 miles.  The usage proves that the city needs a subway system.  Seats are difficult to find at mid-day.

Angelenoes love their cars.  I have grown up in this city and have driven through some of the worst traffic nightmares.  They were on the 101, 405, and 5 freeways.  Some traffic has made a 30 minute drive into a 3 hour nightmare.  A trip from my home to LAX (using the 101 and the 405) is 30 miles but you should allow 1½ hours and that is the time without serious accidents.    

For two years I worked on Wilshire Boulevard.  It always amazed me that conventional buses would travel down that street in group of three to accommodate the extraordinary need for public transportation.  That was happening at lunch time not at rush hour times.  If you missed a group of three there will be another group in 5 minutes.  In spite of the obvious need for a subway under that boulevard it has been resisted by many people.  The NIMBYs have succeeded and in the process have hurt the city’s poorest people and caused major traffic congestion.  Who cares about the poorest among us?  The have no political voice and so they are ignored.

In the mid 1980s NIMBYs successfully had a federal law passed prohibiting the construction of a subway under Wilshire Boulevard.  Now that the congestion has become overwhelming, that law has been reversed.  The mayor wants to see this project completed in less than ten years.  Building that $6.1 billion subway would employ many thousands people and the resulting mass transit would be eco-friendly.  This would be a worthwhile project for stimulus money.      

Update on Health Insurance Company Profits

This information was obtained from Yahoo’s financial reports site (http://finance.yahoo.com).  This is Operating Income.  You could argue that their income per share is low.  I would argue that the job they fulfill in our society requires that their profits remain even lower given their purpose.    

Quarter ending   6-30-09:	Aetna	$2.475 billion
	Coventry Health Care	$619 million
	CIGNA	$378 million
	Humana	$1.073 billion
	UnitedHealth	$859 million
	WellPoint (Blue Cross/Blue Shield)	$3.592 billion

Barack Obama Brings No Change

The very wealthy people of the United States have convinced the rest of us that we are all part of the “middle class.”  The poorest of us are part of the “lower middle class.”  There are very few “poor people” in America.  You see the very wealthy hired some very brilliant marketing experts to sell the rest of us on the idea of a “middle class.”  In other countries we would be called “the peasants”.  After all which sounds nicer 1) middle class or 2) peasants?

The average family income in the U.S.A. is $70,000.  The median White family income in 2003 was $48,000.  Read William Domhoff’s “Who Rules America?” and you realize the enormous disparities in wealth in America.

Now we have a new CEO for AIG.  That is a company that received loans from the U.S. government totaling $85 billion.  The loans have not been repaid.  Newly-appointed CEO Robert Benmosche will receive an annual salary of $7 million and is eligible for a performance-related bonus of $3.5 million. 

And you thought that things would be different with Barack Obama as president.