Remember the Cash for Clunkers program? This was the part of the stimulus package that offered a $4500 government check for car buyers who traded in an old car for a newer, more fuel efficient model. A wildly popular program, Cash for Clunkers handed out $4 billion in tax payer money between late July and early August.
In addition to the “green” benefits of getting more fuel efficient cars on the road, the program was primarily intended to boost sales in the auto industry. And it worked, right? Car sales surged in August. So the program was a success.
Well, not so fast. You see, everyone who traded in an old vehicle for a new car got the cash rebate. But most of those people would have bought a new vehicle even without the government check that call along with it. The measure of how successful the program was should be the number of people who bought a new car that would not have made the purchase without the Cash for Clunkers program.
The automotive site Edmunds.com did the analysis to figure out how many people bought a car specifically because of the rebates. Their estimate of the number of additional buyers was only 125,000 out of the 690,000 total cars sold during the program. That means that the government subsidy per additional car sold was (drum roll, please) … $24,000.
For the folks who bought the cars, the government rebate was a great deal. In terms of stimulating the economy, not such a great deal. That would be bad enough if it was the end of the story. But as the telemarketeers say, “wait, there’s more!”
Car sales surged in August, good news for the economy. But then car sales collapsed in September, bad news for the economy. August sales were about one and a quarter million vehicles, and September was about 40% less, at seven hundred and fifty thousand. It doesn’t take a rocket scientist to realize that most, is not all, of the surge in business during August was comprised of buyers who would otherwise have waited until September to buy a new car.
To me, it sure looks like the government borrowed $4 billion from the Chinese and handed it out to car buyers for a net increase in new car sales of zero. Zip. Nil. Big goose egg.
But hey, that’s okay. I won’t mind eventually seeing my taxes go up to pay for this. After all, I’m getting my share. You see, I bought a new air conditioning unit last August when the old one on my house died. I would have ponied up the money for one anyway. Remember, it was August. Hotter than the hinges of hell. I wasn’t going one week without AC. Only, now, I qualify for a $1500 tax credit for buying an Energy Star rated appliance, courtesy of the Obama stimulus package. Woo-hoo! Spend that money!
I can’t wait to see what those brainiacs in Washington come up with for an encore.
Thursday, October 29, 2009
Monday, October 26, 2009
In the health care “reform” debate, the favorite villain of the “reform” forces has been the health insurance industry. The argument runs something like this: health insurance continues to increase in price because the insurance companies are for profit entities. In their quest to maximize profits, the insurance companies continually raise premiums, then deny coverage on the slightest pretext. If only we could find a way to trim their outrageous profits, then we could afford to extend coverage to more people.
Here’s a quotation from House Speaker Nancy Pelosi:
“I’m very pleased that (Democratic leaders) will be talking, too, about the immoral profits being made by the insurance industry and how those profits have increased in the Bush years.”
Immoral profits. Those rapacious bastards!
There is only one problem with this argument. Well, okay, there’s lots more than one problem with that argument, but here is a big one: it turns out that the health insurance industry isn’t all that profitable. According to a report by the Associated Press, the profit margin of the insurance industry hovers around 6%. In 2008, that level of profitability dropped down to 2.2%.
So, if ALL of the medical care in this country was paid for by insurance companies, AND ALL of those companies were for-profit, AND ALL of those companies were replaced by a non-profit government entity that operated with perfect efficiency, we might be able to reduce health care costs by an average of 6% a year.
Health care’s share of the national economy is currently about 17%. If we drop that by 6% of the total, you go all the way down to … 16%. Hardly an earth shattering change.
Insurance companies are big faceless organizations. It is easy to find stories of people who have been denied coverage because of pre-existing conditions in the face of massive medical expenditures. These two conditions make the health insurance industry a good whipping boy in the current debate. After all, everyone likes to root for the underdog.
But the people who are advocating rearranging one sixth of the economy, and creating a humongous new entitlement should be honest about why they want to do that. It doesn’t seem to be about saving money.
Here’s a quotation from House Speaker Nancy Pelosi:
“I’m very pleased that (Democratic leaders) will be talking, too, about the immoral profits being made by the insurance industry and how those profits have increased in the Bush years.”
Immoral profits. Those rapacious bastards!
There is only one problem with this argument. Well, okay, there’s lots more than one problem with that argument, but here is a big one: it turns out that the health insurance industry isn’t all that profitable. According to a report by the Associated Press, the profit margin of the insurance industry hovers around 6%. In 2008, that level of profitability dropped down to 2.2%.
So, if ALL of the medical care in this country was paid for by insurance companies, AND ALL of those companies were for-profit, AND ALL of those companies were replaced by a non-profit government entity that operated with perfect efficiency, we might be able to reduce health care costs by an average of 6% a year.
Health care’s share of the national economy is currently about 17%. If we drop that by 6% of the total, you go all the way down to … 16%. Hardly an earth shattering change.
Insurance companies are big faceless organizations. It is easy to find stories of people who have been denied coverage because of pre-existing conditions in the face of massive medical expenditures. These two conditions make the health insurance industry a good whipping boy in the current debate. After all, everyone likes to root for the underdog.
But the people who are advocating rearranging one sixth of the economy, and creating a humongous new entitlement should be honest about why they want to do that. It doesn’t seem to be about saving money.
Tuesday, October 20, 2009
Medical Marijuana?
The Justice Department announced a major change in drug enforcement policy yesterday. In states that have legalized medical marijuana, the Federal government will no longer go after sellers that appear to be in compliance with state laws. Dispensaries in California that have their paperwork in order will not have to worry about breaking Federal laws against the sale of controlled substances.
I’m conflicted about this decision. The libertarian in me is all in favor of expanding the rights of individuals to do as they please without government interference. The strict constitutional constructionist in me applauds the victory for state’s rights inherent in the decision. The social conservative in me is … troubled.
I think the thing that bothers me is the mendacity inherent in the system. If medical marijuana was really about resolving nausea in cancer patients undergoing chemotherapy, or helping glaucoma patients who don’t respond well to other drugs, I don’t think anybody would be bothered one way or the other. That was the protective cover used to sell the idea.
The reality is somewhat different.
In reality, medical marijuana is about legalizing a narcotic so that people who want to get stoned can do so without risking being arrested. In California, anyone who wants to can get a prescription from a doctor to acquire as much cannabis as they can consume. If you don’t know a doctor who will write a prescription for “anxiety” or “insomnia,” just visit a marijuana dispensary and they will be happy to recommend one to you. According to a profile in The New Yorker magazine, there are over two hundred thousand medical marijuana prescriptions written in California alone.
I’m uncomfortable with training the citizenry to lie about their health in order to indulge their vices. Of course, one of the truisms of a democracy is that when enough of the citizens want to participate in a vice, they will find a way to legalize it.
In my state, they passed a law setting up a state lottery a few years ago. The pretext was that the lottery was going to raise funds to “enrich” education in the state. Hogwash! Folks just wanted to gamble.
So if people want to spend a good chunk of their lives intoxicated, I guess we should let them, whether the drug of choice is pot or booze. But let’s not kid ourselves that the stoners are being treated with medicine.
I’m conflicted about this decision. The libertarian in me is all in favor of expanding the rights of individuals to do as they please without government interference. The strict constitutional constructionist in me applauds the victory for state’s rights inherent in the decision. The social conservative in me is … troubled.
I think the thing that bothers me is the mendacity inherent in the system. If medical marijuana was really about resolving nausea in cancer patients undergoing chemotherapy, or helping glaucoma patients who don’t respond well to other drugs, I don’t think anybody would be bothered one way or the other. That was the protective cover used to sell the idea.
The reality is somewhat different.
In reality, medical marijuana is about legalizing a narcotic so that people who want to get stoned can do so without risking being arrested. In California, anyone who wants to can get a prescription from a doctor to acquire as much cannabis as they can consume. If you don’t know a doctor who will write a prescription for “anxiety” or “insomnia,” just visit a marijuana dispensary and they will be happy to recommend one to you. According to a profile in The New Yorker magazine, there are over two hundred thousand medical marijuana prescriptions written in California alone.
I’m uncomfortable with training the citizenry to lie about their health in order to indulge their vices. Of course, one of the truisms of a democracy is that when enough of the citizens want to participate in a vice, they will find a way to legalize it.
In my state, they passed a law setting up a state lottery a few years ago. The pretext was that the lottery was going to raise funds to “enrich” education in the state. Hogwash! Folks just wanted to gamble.
So if people want to spend a good chunk of their lives intoxicated, I guess we should let them, whether the drug of choice is pot or booze. But let’s not kid ourselves that the stoners are being treated with medicine.
Wednesday, October 14, 2009
Hurricane Recovery
I haven’t posted in about a week because I was out of town. I took a long weekend and traveled down to New Orleans with some friends. This was our second trip. The first was in June of 2007.
Two years post-Katrina, the effects of the hurricane were still visible everywhere. On this trip, it was obvious that the recovery operations have come a long way. We did not have a car on this trip, so we could not get too far away from the tourist areas, so I cannot speak to the state of the recovery in the 9th ward and other outlying areas of the city.
Still, the amount of cleanup in the French Quarter, Warehouse District, and Central Business District was impressive. Two years ago, there were high rise office towers in the CBD with boarded up windows. The high water mark was still visible on many of the commercial buildings in the area around the Superdome that flooded. From my casual inspection, all of that damage has now been repaired.
Although the French Quarter experienced no flooding, hurricane winds had seriously damaged some buildings, especially along the riverfront. I looked for those same buildings, but it looks like they had been successfully rehabbed in the last two years.
We did see one lot on Exchange Place where a building had been taken down to the foundation, and a steel frame structure erected. Steel girders would support the second and third floor balconies. I suspect that once the building was finished, a façade would be installed on the exterior to fit the building in with prevailing historical architecture that surrounded it. But this looked more like the process of upgrading historic buildings than repairing storm damage.
The St. Charles and Canal Street streetcars were both running, a welcome change from 2007. We rode the St. Charles streetcar out past the Garden District to the end of the line. Once you got past Tulane University, there were more signs of disrepair. Gas lines were being reworked, and the sidewalks exhibited serious buckling. But we only saw one abandoned house with the spray painted markings the emergency crews had used. Two years ago those houses were everywhere, even in the high rent Garden District itself.
The biggest changes were to the businesses themselves. On our first visit, it was obvious that tourism businesses were suffering from the lack of workers. Every restaurant and retail store had help wanted signs out. Day and hours of operation were curtailed, due to the lack of staff. Levels of service were not what they should be, because the available staff were stretched too thin. In one coffee shop, the owner bussed the table before we sat down, took our order, then went back to the kitchen to cook it.
None of that was in evidence on this trip. All of the tourist businesses seemed to be operating at full capacity. I saw a few help wanted signs for retail counter help, but that was all.
From what I have read, rents in New Orleans have gone up significantly post-Katrina. However, the higher rents have not deterred people from moving back, rolling up their sleeves, and going to work.
New Orleans is a much smaller city than it was in summer of 2005, and it may always be a much smaller city than it was. But from one tourist’s perspective, the heavy lifting of recovery from Katrina appears to have been accomplished. It looks like the balance point between living costs and employment opportunities has been reached. Any future growth will have to be organic, driven by the dynamism of the local economy, instead of an influx of Federal money.
One more thing. I can personally attest that the oyster beds have recovered.
Two years post-Katrina, the effects of the hurricane were still visible everywhere. On this trip, it was obvious that the recovery operations have come a long way. We did not have a car on this trip, so we could not get too far away from the tourist areas, so I cannot speak to the state of the recovery in the 9th ward and other outlying areas of the city.
Still, the amount of cleanup in the French Quarter, Warehouse District, and Central Business District was impressive. Two years ago, there were high rise office towers in the CBD with boarded up windows. The high water mark was still visible on many of the commercial buildings in the area around the Superdome that flooded. From my casual inspection, all of that damage has now been repaired.
Although the French Quarter experienced no flooding, hurricane winds had seriously damaged some buildings, especially along the riverfront. I looked for those same buildings, but it looks like they had been successfully rehabbed in the last two years.
We did see one lot on Exchange Place where a building had been taken down to the foundation, and a steel frame structure erected. Steel girders would support the second and third floor balconies. I suspect that once the building was finished, a façade would be installed on the exterior to fit the building in with prevailing historical architecture that surrounded it. But this looked more like the process of upgrading historic buildings than repairing storm damage.
The St. Charles and Canal Street streetcars were both running, a welcome change from 2007. We rode the St. Charles streetcar out past the Garden District to the end of the line. Once you got past Tulane University, there were more signs of disrepair. Gas lines were being reworked, and the sidewalks exhibited serious buckling. But we only saw one abandoned house with the spray painted markings the emergency crews had used. Two years ago those houses were everywhere, even in the high rent Garden District itself.
The biggest changes were to the businesses themselves. On our first visit, it was obvious that tourism businesses were suffering from the lack of workers. Every restaurant and retail store had help wanted signs out. Day and hours of operation were curtailed, due to the lack of staff. Levels of service were not what they should be, because the available staff were stretched too thin. In one coffee shop, the owner bussed the table before we sat down, took our order, then went back to the kitchen to cook it.
None of that was in evidence on this trip. All of the tourist businesses seemed to be operating at full capacity. I saw a few help wanted signs for retail counter help, but that was all.
From what I have read, rents in New Orleans have gone up significantly post-Katrina. However, the higher rents have not deterred people from moving back, rolling up their sleeves, and going to work.
New Orleans is a much smaller city than it was in summer of 2005, and it may always be a much smaller city than it was. But from one tourist’s perspective, the heavy lifting of recovery from Katrina appears to have been accomplished. It looks like the balance point between living costs and employment opportunities has been reached. Any future growth will have to be organic, driven by the dynamism of the local economy, instead of an influx of Federal money.
One more thing. I can personally attest that the oyster beds have recovered.
Wednesday, October 7, 2009
Gee, this sounds like a great deal!
United Airlines has announced a new program this week. Premium Baggage allows the traveler to pay a single annual charge for the right to avoid individual flight baggage fees for a year. The fee for Premium Baggage is $249 per year, and you get to check two bags every time you take a United flight. The current fees are $20 for the first bag checked, and $30 for the second.
This plan works like a frequent flyer program, except that the incentives are reversed. With frequent flyer miles, the airline rewards your loyalty by giving you something. That reward could be upgrades to first class, or it could be free flights. Frequent flyer miles are the carrot the airline uses to affect the traveler’s behavior.
The Premium Baggage program is less about carrots, and more about sticks. Purchase the service, United is saying, and we’ll stop whacking you with extra charges every time you check in for a flight.
Basically, Premium Baggage is the frequent flyer program’s evil twin.
This plan works like a frequent flyer program, except that the incentives are reversed. With frequent flyer miles, the airline rewards your loyalty by giving you something. That reward could be upgrades to first class, or it could be free flights. Frequent flyer miles are the carrot the airline uses to affect the traveler’s behavior.
The Premium Baggage program is less about carrots, and more about sticks. Purchase the service, United is saying, and we’ll stop whacking you with extra charges every time you check in for a flight.
Basically, Premium Baggage is the frequent flyer program’s evil twin.
Tuesday, October 6, 2009
Cap and Trade: It ain't easy, being green.
Last week Exelon, a giant utility company, announced that it was ending its membership in the US Chamber of Commerce, citing opposition to the Chamber’s positions on climate change and the EPA’s recent moves to regulate carbon dioxide emissions as an immediate threat to human health and safety. Other high profile companies that have recently left the Chamber are Pacific Gas & Electric, PNR Resources (another utility), and Apple Computer. Nike has resigned from the Board of Directors of the Chamber, but is retaining their membership.
It looks like the progressive companies, the leaders of the future, have embraced the need for a carbon free future, and are willing to do whatever it takes to accomplish that future.
The funny thing though, is that none of those companies is going to suffer very much from supporting climate change legislation.
Exelon, for example, like Pacific G & E and PNR Resources, owns lots of nuclear power plants. So under carbon cap and trade legislation currently under consideration, these companies would be awarded what are called carbon offsets. Utilities that have a lot of coal fired power plants (big carbon emitters), would have to purchase those offsets to compensate for the amount of carbon they emit.
Basically, Exelon stands to make a lot of money from cap and trade legislation. If I could pick up an entirely new revenue source, without having to do any work for the extra money, I’d be in favor of that too. Exelon doesn’t even have to worry about upsetting their customers. The utilities that are buying offsets from Exelon have to deal with that headache, when they raise their customer’s rates to pay for the offsets.
Now let’s look at the other two examples, Nike and Apple. What I notice is that neither of these companies has significant manufacturing operations in the US. Both are essentially design and marketing operations that outsource all of the actual work of building their products to Asian contractors.
So you can put all the restrictions you want on carbon emissions associated with manufacturing. It won’t hurt those guys’ feelings in the least. After all, they’ve got no skin in the game.
Now, maybe we really do need to make huge reductions in the amount of carbon we emit as a society. And maybe the best way to do that is to place restrictions on large point sources like power plants, instead of forcing individuals to change their behavior. Maybe.
My point is that it is easy to be in favor of something when somebody else is going to have to pay for it. Easy, but not particularly virtuous or laudable.
It looks like the progressive companies, the leaders of the future, have embraced the need for a carbon free future, and are willing to do whatever it takes to accomplish that future.
The funny thing though, is that none of those companies is going to suffer very much from supporting climate change legislation.
Exelon, for example, like Pacific G & E and PNR Resources, owns lots of nuclear power plants. So under carbon cap and trade legislation currently under consideration, these companies would be awarded what are called carbon offsets. Utilities that have a lot of coal fired power plants (big carbon emitters), would have to purchase those offsets to compensate for the amount of carbon they emit.
Basically, Exelon stands to make a lot of money from cap and trade legislation. If I could pick up an entirely new revenue source, without having to do any work for the extra money, I’d be in favor of that too. Exelon doesn’t even have to worry about upsetting their customers. The utilities that are buying offsets from Exelon have to deal with that headache, when they raise their customer’s rates to pay for the offsets.
Now let’s look at the other two examples, Nike and Apple. What I notice is that neither of these companies has significant manufacturing operations in the US. Both are essentially design and marketing operations that outsource all of the actual work of building their products to Asian contractors.
So you can put all the restrictions you want on carbon emissions associated with manufacturing. It won’t hurt those guys’ feelings in the least. After all, they’ve got no skin in the game.
Now, maybe we really do need to make huge reductions in the amount of carbon we emit as a society. And maybe the best way to do that is to place restrictions on large point sources like power plants, instead of forcing individuals to change their behavior. Maybe.
My point is that it is easy to be in favor of something when somebody else is going to have to pay for it. Easy, but not particularly virtuous or laudable.
Tuesday, September 29, 2009
Okay, this is creepy. This is a video of an elementary school class being taught songs of praise to President Obama:
It's a little hard to understand, so here is a transcription of the lyrics to the first song:
Barack Hussein Obama
He said that all must lend a hand [?]
To make this country strong again
Mmm, mmm, mm!
Barack Hussein Obama
He said we must be clear today
Equal work means equal pay
Mmm, mmm, mm!
Barack Hussein Obama
He said that we must take a stand
To make sure everyone gets a chance
Mmm, mmm, mm!
Barack Hussein Obama
He said Red, Yellow, Black or White
All are equal in his sight
Mmm, mmm, mm!
Now the sentiments expressed are completely innocuous. Equality and equal opportunity are laudable values, and I don't think anyone could find fault with them. What's nuts about this is that it looks like the teachers are indoctrinating a group of small children to worship an elected politician.
The right wing in this country has personalized the policy debate to a shameful degree. When I see pictures of the President photoshopped to look like the Joker in the movie "The Dark Knight," I'm appalled. Not only is it disrespectful and uncalled for, it does nothing to advance the policy debate.
But on the left wing side, there appears to have arisen a cult of personality around Barack Obama that is as polarizing in its own way. Teaching little children to sing paeans to the Dear Leader is something you would expect to see in a totalitarian dictatorship. Since these teachers thought it up on their own, it's a bit spooky.
There are beaucoup nut jobs on the right side of the debate in this country, granted. But there is a full complement of wingnuts on the left as well.
It's a little hard to understand, so here is a transcription of the lyrics to the first song:
Barack Hussein Obama
He said that all must lend a hand [?]
To make this country strong again
Mmm, mmm, mm!
Barack Hussein Obama
He said we must be clear today
Equal work means equal pay
Mmm, mmm, mm!
Barack Hussein Obama
He said that we must take a stand
To make sure everyone gets a chance
Mmm, mmm, mm!
Barack Hussein Obama
He said Red, Yellow, Black or White
All are equal in his sight
Mmm, mmm, mm!
Now the sentiments expressed are completely innocuous. Equality and equal opportunity are laudable values, and I don't think anyone could find fault with them. What's nuts about this is that it looks like the teachers are indoctrinating a group of small children to worship an elected politician.
The right wing in this country has personalized the policy debate to a shameful degree. When I see pictures of the President photoshopped to look like the Joker in the movie "The Dark Knight," I'm appalled. Not only is it disrespectful and uncalled for, it does nothing to advance the policy debate.
But on the left wing side, there appears to have arisen a cult of personality around Barack Obama that is as polarizing in its own way. Teaching little children to sing paeans to the Dear Leader is something you would expect to see in a totalitarian dictatorship. Since these teachers thought it up on their own, it's a bit spooky.
There are beaucoup nut jobs on the right side of the debate in this country, granted. But there is a full complement of wingnuts on the left as well.
Thursday, September 24, 2009
Off Topic Post
I watched the new Courtney Cox comedy, Cougar Town, last night. The set up is a 40 something woman reentering the dating scene after divorce. It is sharp, well written comedy. I’ll make a point of watching it again.
It’s odd what your subconscious will throw out. I woke up this morning with the following thoughts crystallizing in my brain.
In my younger years, before I met my wife, I would periodically go out on dates to expensive restaurants. On these excursions, I would invariable pay, and I would invariably not get lucky.
It occurs to me that this was the singles equivalent of hanging a pork chop around the neck of the ugly baby so that the dog will play with the kid. “You’re going to pay for dinner? And I can order anything I want? Okay, I’ll go out with you.”
Eventually, I did meet my wife, the one woman in North America who looks at me and thinks “wow, this is it.” She is a rare creature, as the taste for short, scrawny, balding geek is not universally shared in our culture.
Anyway, if I could take back all the lobster dinners I bought without romantic success, I’d be two house payments ahead, and whole ocean ecosystems would have been saved.
It’s odd what your subconscious will throw out. I woke up this morning with the following thoughts crystallizing in my brain.
In my younger years, before I met my wife, I would periodically go out on dates to expensive restaurants. On these excursions, I would invariable pay, and I would invariably not get lucky.
It occurs to me that this was the singles equivalent of hanging a pork chop around the neck of the ugly baby so that the dog will play with the kid. “You’re going to pay for dinner? And I can order anything I want? Okay, I’ll go out with you.”
Eventually, I did meet my wife, the one woman in North America who looks at me and thinks “wow, this is it.” She is a rare creature, as the taste for short, scrawny, balding geek is not universally shared in our culture.
Anyway, if I could take back all the lobster dinners I bought without romantic success, I’d be two house payments ahead, and whole ocean ecosystems would have been saved.
Tuesday, September 22, 2009
Silver Linings
Economically, we're not out of the wood yet. For the business I work at, sales continue to be greatly reduced from the same period a year ago. We saw some signs of recovery in the second quarter, but as we close out the third quarter, our order backlog has dropped back down.
September has been particularly slow. For our core business segment, the volume of product we are shipping this month is no more than what we shipped in August. However, due to the vagaries of our accounting system, we have five weeks of production this month, versus four weeks last month. For each week this month, we only have 80% of the activity compared to each week in August.
The bottom line to this it that there isn’t enough work for all the employees to have a full schedule. There is always the temptation in this situation to keep people busy by running extra inventory. Inevitably, however, you end up running the wrong mix of product, leaving you short of raw material to run what your customers will actually want. Also, by building inventory on the theory of “build it and they will come,” you make the correction that much worse when you finally recognize that increased sales are not just around the corner.
So I’m biting the bullet. I’m scheduling two fewer production days next week. At least this will give us a chance to do our end of quarter inventory on straight time. Normally we have the inventory crew come in at midnight after the last production shift at the end of a month, and they get time and a half.
The excess production only built up during the second half of this month. For the first couple of weeks in September, not only did we have a short week because of Labor Day, but we also had a lot of people out sick, which, in a perverse way, cut into our capacity. I needed all the healthy people who showed up for work. It was only after the wave of illness based and everyone came back to work that we began overproducing.
You know, not everyone can see the silver lining in a flu pandemic. And they call me a pessimist.
September has been particularly slow. For our core business segment, the volume of product we are shipping this month is no more than what we shipped in August. However, due to the vagaries of our accounting system, we have five weeks of production this month, versus four weeks last month. For each week this month, we only have 80% of the activity compared to each week in August.
The bottom line to this it that there isn’t enough work for all the employees to have a full schedule. There is always the temptation in this situation to keep people busy by running extra inventory. Inevitably, however, you end up running the wrong mix of product, leaving you short of raw material to run what your customers will actually want. Also, by building inventory on the theory of “build it and they will come,” you make the correction that much worse when you finally recognize that increased sales are not just around the corner.
So I’m biting the bullet. I’m scheduling two fewer production days next week. At least this will give us a chance to do our end of quarter inventory on straight time. Normally we have the inventory crew come in at midnight after the last production shift at the end of a month, and they get time and a half.
The excess production only built up during the second half of this month. For the first couple of weeks in September, not only did we have a short week because of Labor Day, but we also had a lot of people out sick, which, in a perverse way, cut into our capacity. I needed all the healthy people who showed up for work. It was only after the wave of illness based and everyone came back to work that we began overproducing.
You know, not everyone can see the silver lining in a flu pandemic. And they call me a pessimist.
Friday, September 18, 2009
The World's Single Most Destructive Thought
I ran into this post on a blog called I Luv SA. When I read the opening sentence, I realized that the blogger had perfectly encapsulated a specific worldview. "I am poor because you are rich."
This is a worldview that is gaining increasing currency in American politics and policy today. Whenever I read about concerns over increasing income inequality, and how the top 10% is grabbing all the economic gains, this destructive thought is underlying those concerns.
In college I took a seminar in Comparative Economics, taught by Franco Modigliano, who went on to win the Nobel Prize in Economics. If I had known he was going to win the Nobel Prize, I probably wouldn't have cut class as often as I did.
Anyway, in one of the class sessions I did attend, he spent most of the time demolishing Marx's economic theories. He showed how, over the last century, various economists had pointed out how wrong Marx's theories were.
Most of the arguments against Marx were fairly technical, and to tell you the truth, I don't remember a one of them. But the class did make an immpact on me. After spending most of the class knocking down Marxism, Professor Modigliano then provided the insight that has stuck with me over the last thirty years: "The important thing about Marxism is not that it is correct. The important thing is that every generation has to prove it false all over again."
"I am poor because you are rich." It is a wonderfully seductive idea. It absolves me of all responsibility, justifies any actions I take against you.
It just happens to be completely wrong.
This is a worldview that is gaining increasing currency in American politics and policy today. Whenever I read about concerns over increasing income inequality, and how the top 10% is grabbing all the economic gains, this destructive thought is underlying those concerns.
In college I took a seminar in Comparative Economics, taught by Franco Modigliano, who went on to win the Nobel Prize in Economics. If I had known he was going to win the Nobel Prize, I probably wouldn't have cut class as often as I did.
Anyway, in one of the class sessions I did attend, he spent most of the time demolishing Marx's economic theories. He showed how, over the last century, various economists had pointed out how wrong Marx's theories were.
Most of the arguments against Marx were fairly technical, and to tell you the truth, I don't remember a one of them. But the class did make an immpact on me. After spending most of the class knocking down Marxism, Professor Modigliano then provided the insight that has stuck with me over the last thirty years: "The important thing about Marxism is not that it is correct. The important thing is that every generation has to prove it false all over again."
"I am poor because you are rich." It is a wonderfully seductive idea. It absolves me of all responsibility, justifies any actions I take against you.
It just happens to be completely wrong.
Thursday, September 17, 2009
Job Seeking
I had an interesting conversation the other day. I was sitting at my desk, upgrading a spreadsheet to automatically notify us when it was time to order more components for one of our product lines, when the phone rang. On the other end was a salesman for a metals service center. He was just doing what salesmen do, cold calling to try and find potential new accounts.
We talked for a minute or two, and quickly established that my company doesn’t use the alloys he carries. He started to apologize for taking my time. I told him it was okay. After all, I’ve sat on the other side of the desk, trying to drum up new business. No reason not to be polite. If you never talk to salesmen, you’ll never find any new opportunities.
On a whim, I asked him how his business was doing. Business was slow, but he was surviving. Since most salesmen are at least partially paid on commission, he had to have been working harder, for less money, than a year ago. My bonus won’t be as good as it was last year, so I’m in the same boat. I told him that qualified us both for the category of under employed. Working, but not making as much as we used to. Of course, that beats the crap out of unemployment.
Then I mentioned that I didn’t understand how some people could fall out of the unemployment statistics because they had “stopped looking for work.” I don’t know about you, but about every six hours I get hungry. If you have no source of income, and you’re not looking for work, how do you keep buying groceries?
The salesman told me a story. He had two close friends, and all three of them had been laid off within a short period of time. One had found a new job within a month. He had looked for a couple of months before landing his current position. Then there was his other friend.
His other friend had been laid off from his previous job last October. It’s closing in on a year without work. The last time the salesman had visited his friend, the guy had said he had given up looking for a job. Between unemployment compensation and side work as a mechanic, the friend was just getting by. When reminded that the extended unemployment benefits were about to run out, the friend replied “I don’t think that the government is going to let me starve.”
Well, this is ostensibly a democracy. So can I register a vote on that?
Seriously, this makes me think that a lot of the people who have “stopped looking,” have stopped because they are still getting benefits. When their benefits run out, they will rediscover a sense of urgency about generating more cash flow. This may not take the form of another job. Some of those people will work a lot harder at their side business. Or they may lower their expectations and take on multiple part time gigs.
If you lower your expectations while you are still on unemployment, you risk losing your benefit. If the jobs available pay only a little more than unemployment compensation, why take the job? But once the benefit checks stop coming in, your perspective will change.
After all, you gotta eat.
We talked for a minute or two, and quickly established that my company doesn’t use the alloys he carries. He started to apologize for taking my time. I told him it was okay. After all, I’ve sat on the other side of the desk, trying to drum up new business. No reason not to be polite. If you never talk to salesmen, you’ll never find any new opportunities.
On a whim, I asked him how his business was doing. Business was slow, but he was surviving. Since most salesmen are at least partially paid on commission, he had to have been working harder, for less money, than a year ago. My bonus won’t be as good as it was last year, so I’m in the same boat. I told him that qualified us both for the category of under employed. Working, but not making as much as we used to. Of course, that beats the crap out of unemployment.
Then I mentioned that I didn’t understand how some people could fall out of the unemployment statistics because they had “stopped looking for work.” I don’t know about you, but about every six hours I get hungry. If you have no source of income, and you’re not looking for work, how do you keep buying groceries?
The salesman told me a story. He had two close friends, and all three of them had been laid off within a short period of time. One had found a new job within a month. He had looked for a couple of months before landing his current position. Then there was his other friend.
His other friend had been laid off from his previous job last October. It’s closing in on a year without work. The last time the salesman had visited his friend, the guy had said he had given up looking for a job. Between unemployment compensation and side work as a mechanic, the friend was just getting by. When reminded that the extended unemployment benefits were about to run out, the friend replied “I don’t think that the government is going to let me starve.”
Well, this is ostensibly a democracy. So can I register a vote on that?
Seriously, this makes me think that a lot of the people who have “stopped looking,” have stopped because they are still getting benefits. When their benefits run out, they will rediscover a sense of urgency about generating more cash flow. This may not take the form of another job. Some of those people will work a lot harder at their side business. Or they may lower their expectations and take on multiple part time gigs.
If you lower your expectations while you are still on unemployment, you risk losing your benefit. If the jobs available pay only a little more than unemployment compensation, why take the job? But once the benefit checks stop coming in, your perspective will change.
After all, you gotta eat.
Tuesday, September 15, 2009
French Health Care, Part Deux
In my last post I talked a little bit about how the French pay for their health care system, the one everybody in the US media thinks is so fabulous. The French pay a 22% payroll tax rate, compared to 7.5% for American workers. This is, of course, more than matched by the employer. Also, it turns out that a lot of French households also carry private supplemental health insurance. This must be sort of like the Medigap coverage that many seniors in this country have, that supplements what Medicare pays medical providers. So that’s where the money comes from, the revenue side of the equation.
But we also have to look at the expense side of the equation. After all, the French pay about 11% of their GNP for health care, compared to over 17% of GNP in the US. Now call me crazy, but I have a hard time believing that the French are more efficient than Americans at anything. A French surgeon doesn’t do a bypass operation twice as fast as an American, and I doubt that French surgical teams have only half as many nurses and techs as American teams.
Although the man hours per procedure may be the same in both countries, it turns out that there is a huge difference in the cost of those man hours. On average, doctors in France make only about one third what doctors in the US earn. This is primarily because the French Social Security fund is the primary buyer of medical care, and they use their near monopoly power to keep reimbursements low.
Another place where the French use the monopoly power of their system is in pharmaceutical purchasing. Basically, the French government tells the drug companies what price they will get for their products. Since the alternative is to lose the French market, the drug companies take the deal.
As a matter of fact, most of the western world does the same thing. That leaves the US as the only unregulated pharmaceutical market. The result is that the US market ends up funding most of the research into new drugs.
So the French system does use the power of the public insurance provider (what we would call the public option) to keep costs lower than in the US. But here’s the rub: Their costs keep going up, just like ours. The French have raised their Social Security tax six times in the last 20 years to pay for their “free” health care.
Insurance companies are not popular in our culture. Neither are pharmaceutical companies. So maybe there is the political will to destroy their business model in the name of lowering costs. I’m not so sure that, as a people, we think it is okay to cut the pay of our doctors in half. Without those kind of savings, providing free care to everyone is just going to raise prices on everyone, healthy and sick alike.
But we also have to look at the expense side of the equation. After all, the French pay about 11% of their GNP for health care, compared to over 17% of GNP in the US. Now call me crazy, but I have a hard time believing that the French are more efficient than Americans at anything. A French surgeon doesn’t do a bypass operation twice as fast as an American, and I doubt that French surgical teams have only half as many nurses and techs as American teams.
Although the man hours per procedure may be the same in both countries, it turns out that there is a huge difference in the cost of those man hours. On average, doctors in France make only about one third what doctors in the US earn. This is primarily because the French Social Security fund is the primary buyer of medical care, and they use their near monopoly power to keep reimbursements low.
Another place where the French use the monopoly power of their system is in pharmaceutical purchasing. Basically, the French government tells the drug companies what price they will get for their products. Since the alternative is to lose the French market, the drug companies take the deal.
As a matter of fact, most of the western world does the same thing. That leaves the US as the only unregulated pharmaceutical market. The result is that the US market ends up funding most of the research into new drugs.
So the French system does use the power of the public insurance provider (what we would call the public option) to keep costs lower than in the US. But here’s the rub: Their costs keep going up, just like ours. The French have raised their Social Security tax six times in the last 20 years to pay for their “free” health care.
Insurance companies are not popular in our culture. Neither are pharmaceutical companies. So maybe there is the political will to destroy their business model in the name of lowering costs. I’m not so sure that, as a people, we think it is okay to cut the pay of our doctors in half. Without those kind of savings, providing free care to everyone is just going to raise prices on everyone, healthy and sick alike.
Thursday, September 10, 2009
"Who is this guy FICA, and why does he get so much of my money?": French Edition
The President gave his big speech on health care reform last night. It’s hard for me to believe that a single oration, no matter how inspiring, is enough to move the needle on getting this kind of major legislation passed thorough Congress in the face of entrenched opposition. “Gorsh, that Obama feller sure talks real purty. He convinced me to restructure one seventh of the American economy. I mean, he’s just so durn charismatic!”
But the occasion did spur me to start thinking about health insurance in this country again. Actually, it got me thinking about health insurance in France. After all, the French system is the model most commonly cited in the media as the ideal from the patient’s perspective. Everybody’s covered, the copays are small, and you can never be denied coverage.
Best of all, from all published reports, there is exactly zero interaction with the government run insurance company. You just call the doctor or drop in at the hospital. All the messy financial details are handled off stage. “Monsieur, let us focus on making you well.” What’s not to like?
The question that pops up is a simple one: How do they pay for this great system? More specifically, who pays for the system, and how much do they pay? After all, the money has got to come from somewhere, right?
So I did a little digging, which is a shocking easy thing to do, what with this newfangled Internet and all. It turns out that the French health insurance system is part of the French Social Security system. So in addition to paying retirees, the system also pays for everybody’s medical bills. The interesting thing is that Social Security in France is funded via the same mechanism as in the US: payroll taxes.
In the US, the tax rate for Social Security and Medicare combined is 15%, with half that paid by the employer and half by the employee. The effective payroll tax rate for employees in America is 7.5%.
So what is the equivalent rate in France?
The equivalent rate turns out to be about 22%. That’s right, 22%. So let us say that you earn $10 an hour. In America, your take home is $9.25/hour. In France, say hello to $7.80/hour.
It kind of puts a different spin on the situation, don’t cha think?
I wonder why that number is being reported on more often in this debate. After all, the money for health care has to come from somewhere. There ain’t no such thing as a free lunch.
But the occasion did spur me to start thinking about health insurance in this country again. Actually, it got me thinking about health insurance in France. After all, the French system is the model most commonly cited in the media as the ideal from the patient’s perspective. Everybody’s covered, the copays are small, and you can never be denied coverage.
Best of all, from all published reports, there is exactly zero interaction with the government run insurance company. You just call the doctor or drop in at the hospital. All the messy financial details are handled off stage. “Monsieur, let us focus on making you well.” What’s not to like?
The question that pops up is a simple one: How do they pay for this great system? More specifically, who pays for the system, and how much do they pay? After all, the money has got to come from somewhere, right?
So I did a little digging, which is a shocking easy thing to do, what with this newfangled Internet and all. It turns out that the French health insurance system is part of the French Social Security system. So in addition to paying retirees, the system also pays for everybody’s medical bills. The interesting thing is that Social Security in France is funded via the same mechanism as in the US: payroll taxes.
In the US, the tax rate for Social Security and Medicare combined is 15%, with half that paid by the employer and half by the employee. The effective payroll tax rate for employees in America is 7.5%.
So what is the equivalent rate in France?
The equivalent rate turns out to be about 22%. That’s right, 22%. So let us say that you earn $10 an hour. In America, your take home is $9.25/hour. In France, say hello to $7.80/hour.
It kind of puts a different spin on the situation, don’t cha think?
I wonder why that number is being reported on more often in this debate. After all, the money for health care has to come from somewhere. There ain’t no such thing as a free lunch.
Monday, September 7, 2009
Interlude
Well, I haven’t blogged in over a week. This has a lot to do with the Office Manager at work going out on maternity leave last month. The added responsibilities have kept me pretty busy. It’s not that I’ve picked up so much extra workload, because we divvied up her work among four people. It’s that she is so damn competent at her job, whereas I am not. Oh, I’m competent enough at my work, just not hers. So it takes me twice as long to do a task as it would normally take her.
It gotten to the point where I’m ready to go to her house and knock on the door. Then, when her husband answers, I’ll punch him. “You did this to her, and don’t think I don’t know it! Miracle of life, my ass! Tell her that play time’s over, and she needs to get her butt back into the office.”
Kidding, just kidding.
It gotten to the point where I’m ready to go to her house and knock on the door. Then, when her husband answers, I’ll punch him. “You did this to her, and don’t think I don’t know it! Miracle of life, my ass! Tell her that play time’s over, and she needs to get her butt back into the office.”
Kidding, just kidding.
Wednesday, August 26, 2009
What was old is new again.
Remember Digger?
A couple of years ago the pharmaceutical giant Novartis launched a marketing campaign for their drug Lamisil. Lamisil was the tradename for an oral antifungal medication. The primary use of the drug was to treat toenail fungus.
As a prescription medicine, the idea of the marketing was to convince consumers to ask their doctor for a scrip for Lamisil. The biggest hurdle in doing that was to get people aware of the existence of toenail fungus. I don’t know about you, but I don’t spend a great deal of time critically examining my toenails for signs of health.
So the advertising brainiacs in charge of the campaign decided on a tried and true solution: they created an animated personification of the disease to explain what was so terrible about having toenail fungus. Enter Digger. A commercial from the original ad campaign is shown below.
As the animated avatar for a fungal infection, Digger walks the fine line between being cute and annoying at the same time. Sort of like the in-law with the store of great jokes, who stays three days too long on a visit. Or the bedraggled looking street cat that lets you pet it and purrs, then turns and claws the crap out of your hand and wrist.
Lamisil lost patent protection in 2007, at which time generic competition came onto the prescription market. That was about the time the TV commercials stopped running. With generic competition and the accompanying loss of market share, heavy advertising probably reduced the profitability of the Lamisil brand.
After all, if you’re spending big bucks on TV ads to make people aware of the existence of the disease your drug treats, and then people end up buying the generic because of lower copays, all your ads are doing is driving sales for your competitor. So you drop the ads, lower your price, and you can still make more money on lower sales volume. Television advertising is expensive. It costs vastly more to market a drug than it does to manufacture and distribute it.
Fast forward to today. Novartis has launched a topical version of Lamisil as an over the counter medication. The most common reason folks pop into Walgreens to pick up antifungals is to treat athlete’s foot. Now, profit margins on over the counter meds can be pretty good, but you have to support the brand with marketing.
So Digger has been resurrected, this time as athlete’s foot fungus. You can see the new ad here.
So not only are pharmaceuticals resurrected in new formulations, but now the drug mascots are being reused as well. Maybe there really is nothing new under the sun.
A couple of years ago the pharmaceutical giant Novartis launched a marketing campaign for their drug Lamisil. Lamisil was the tradename for an oral antifungal medication. The primary use of the drug was to treat toenail fungus.
As a prescription medicine, the idea of the marketing was to convince consumers to ask their doctor for a scrip for Lamisil. The biggest hurdle in doing that was to get people aware of the existence of toenail fungus. I don’t know about you, but I don’t spend a great deal of time critically examining my toenails for signs of health.
So the advertising brainiacs in charge of the campaign decided on a tried and true solution: they created an animated personification of the disease to explain what was so terrible about having toenail fungus. Enter Digger. A commercial from the original ad campaign is shown below.
As the animated avatar for a fungal infection, Digger walks the fine line between being cute and annoying at the same time. Sort of like the in-law with the store of great jokes, who stays three days too long on a visit. Or the bedraggled looking street cat that lets you pet it and purrs, then turns and claws the crap out of your hand and wrist.
Lamisil lost patent protection in 2007, at which time generic competition came onto the prescription market. That was about the time the TV commercials stopped running. With generic competition and the accompanying loss of market share, heavy advertising probably reduced the profitability of the Lamisil brand.
After all, if you’re spending big bucks on TV ads to make people aware of the existence of the disease your drug treats, and then people end up buying the generic because of lower copays, all your ads are doing is driving sales for your competitor. So you drop the ads, lower your price, and you can still make more money on lower sales volume. Television advertising is expensive. It costs vastly more to market a drug than it does to manufacture and distribute it.
Fast forward to today. Novartis has launched a topical version of Lamisil as an over the counter medication. The most common reason folks pop into Walgreens to pick up antifungals is to treat athlete’s foot. Now, profit margins on over the counter meds can be pretty good, but you have to support the brand with marketing.
So Digger has been resurrected, this time as athlete’s foot fungus. You can see the new ad here.
So not only are pharmaceuticals resurrected in new formulations, but now the drug mascots are being reused as well. Maybe there really is nothing new under the sun.
Friday, August 21, 2009
Will wonders never cease?
I didn't think it was possible.
I found a thoughtful, well-written article on the CBS website. It points out the Obamacare healthcare reform proposals are being sold on the basis that "reform" is necessary to reduce health care spending, but that the current proposals will, in fact, increase health care spending and make access to healthcare scarcer, not more availible.
The idea that it was thoughtful and well-written doesn't surprise me. Across the political spectrum, there are many excellent writers. For example, Paul Krugman irritates the hell out of me, but he writes well. Robert Reich has been known to cause me to actually froth at the mouth. Real foam, no kidding. But it is because he scores his points so well that he irks me so badly.
And it is not that the article pointed out flaws in the administration's healthcare proposals. I completely agreed with the points that were made. I am, after all, only slightly to the right...of Attila the Hun.
No, it was that the article appeared on the CBS website. I would have thought that as a bastion of the Eastern establishment, a pillar of the mainstream media, CBS would, if anything, be cheerleading for the administration's proposals.
What's next? Will Rachel Maddow start opposing sending more troops to Afghanistan?
I found a thoughtful, well-written article on the CBS website. It points out the Obamacare healthcare reform proposals are being sold on the basis that "reform" is necessary to reduce health care spending, but that the current proposals will, in fact, increase health care spending and make access to healthcare scarcer, not more availible.
The idea that it was thoughtful and well-written doesn't surprise me. Across the political spectrum, there are many excellent writers. For example, Paul Krugman irritates the hell out of me, but he writes well. Robert Reich has been known to cause me to actually froth at the mouth. Real foam, no kidding. But it is because he scores his points so well that he irks me so badly.
And it is not that the article pointed out flaws in the administration's healthcare proposals. I completely agreed with the points that were made. I am, after all, only slightly to the right...of Attila the Hun.
No, it was that the article appeared on the CBS website. I would have thought that as a bastion of the Eastern establishment, a pillar of the mainstream media, CBS would, if anything, be cheerleading for the administration's proposals.
What's next? Will Rachel Maddow start opposing sending more troops to Afghanistan?
Tuesday, August 18, 2009
A new milestone in American eating!
Who says the spirit of innovation is dead? Who claims that nothing is invented here anymore, that America's best days are behind us? I cry No! The spirit that inspired our forefathers breathes within us yet.
The Wisconsin state fair is in full swing up in West Allis, WI (part of the Greater Allis metroplex). On the midway, inbetween the Ferris wheel and the prize steers, along with the funnel cakes and corn dogs, a new champion has emerged. Chocolate covered bacon. You heard me aright, citizens. American ingenuity has found a way to marry pork products and milk chocolate. Not stopping there, this new food item is actually served on a stick, for the culinary convenience of the consumer.
Bacon on a stick would be invention enough for some, more timid nations. Combining meat and milk chocolate would be too radical in lesser peoples. But in this great land of ours, the sky's the limit when it comes to increasing the caloric density of foodstuffs, whilst simultaneously making it easier to eat one handed.
Is this a great country, or what?
It makes you wonder what new comestible is still merely a gleam in some bold entrepreneur's eye. Caramel coated spam, anyone?
The Wisconsin state fair is in full swing up in West Allis, WI (part of the Greater Allis metroplex). On the midway, inbetween the Ferris wheel and the prize steers, along with the funnel cakes and corn dogs, a new champion has emerged. Chocolate covered bacon. You heard me aright, citizens. American ingenuity has found a way to marry pork products and milk chocolate. Not stopping there, this new food item is actually served on a stick, for the culinary convenience of the consumer.
Bacon on a stick would be invention enough for some, more timid nations. Combining meat and milk chocolate would be too radical in lesser peoples. But in this great land of ours, the sky's the limit when it comes to increasing the caloric density of foodstuffs, whilst simultaneously making it easier to eat one handed.
Is this a great country, or what?
It makes you wonder what new comestible is still merely a gleam in some bold entrepreneur's eye. Caramel coated spam, anyone?
Monday, August 17, 2009
Ancient China
I just finished reading a translation of Annals of the Grand Historian by Sima Qian. Annals covers the history of the Qin dynasty, the revolt against the Qin, founding of the Han dynasty that followed, and includes much of the early years of the Han dynasty. Written about 100 BC, it covers the period from about 350 BC to the author's immediate past.
In my translation, the last chapter is titled The Money Makers. The chapter is a short account of some of the ways of earning money in ancient China. More generally, it lays out Sima Qian's understanding of the motivations that drove what was, to him, the contemporary economy.
Some of the historian's remarks jumped off the page at me, and I thought I'd share them:
"... when it comes to those impoverished men with aged parents and wives and children too weak or young to help them out... who must depend upon the gifts and contributions of the community for their food and clothing and are unable to provide for themselves--if men such as these, reduced to such straits, still fail to feel any shame or embarrassment, then they hardly deserve to be called human." You have to wonder what Sima Qian would make of the modern idea of entitlements. No need to feel shame over not being able to feed your kids. You're entitled to food stamps.
Or this:
"Therefore, when men have no wealth at all, they live by their brawn; when they have a little, they struggle to get ahead by their brains; and when they already have plenty of money, they look for an opportunity for a good investment. This is in general the way things work."
Or this:
"As for the ordinary lot of tax-paying commoners, if they are confronted by someone whose wealth is ten times their own, they will behave with humility; if by someone whose wealth is 100 times their own, they will cringe with fear; if by someone whose wealth is 1,000 times their own, they will undertake to work for him; and if by someone whose wealth is 10,000 times their own they will become his servants. This is the principle of things."
With very little modification, these statements would accurately describe economic life in today's capitalist societies. What is amazing about this is that Sima Qian was writing around 100 BC, over 2000 years ago.
The more things change, the more they stay the same. And people wonder why I'm a conservative.
In my translation, the last chapter is titled The Money Makers. The chapter is a short account of some of the ways of earning money in ancient China. More generally, it lays out Sima Qian's understanding of the motivations that drove what was, to him, the contemporary economy.
Some of the historian's remarks jumped off the page at me, and I thought I'd share them:
"... when it comes to those impoverished men with aged parents and wives and children too weak or young to help them out... who must depend upon the gifts and contributions of the community for their food and clothing and are unable to provide for themselves--if men such as these, reduced to such straits, still fail to feel any shame or embarrassment, then they hardly deserve to be called human." You have to wonder what Sima Qian would make of the modern idea of entitlements. No need to feel shame over not being able to feed your kids. You're entitled to food stamps.
Or this:
"Therefore, when men have no wealth at all, they live by their brawn; when they have a little, they struggle to get ahead by their brains; and when they already have plenty of money, they look for an opportunity for a good investment. This is in general the way things work."
Or this:
"As for the ordinary lot of tax-paying commoners, if they are confronted by someone whose wealth is ten times their own, they will behave with humility; if by someone whose wealth is 100 times their own, they will cringe with fear; if by someone whose wealth is 1,000 times their own, they will undertake to work for him; and if by someone whose wealth is 10,000 times their own they will become his servants. This is the principle of things."
With very little modification, these statements would accurately describe economic life in today's capitalist societies. What is amazing about this is that Sima Qian was writing around 100 BC, over 2000 years ago.
The more things change, the more they stay the same. And people wonder why I'm a conservative.
Wednesday, August 5, 2009
A Bad Place to Get Lost
A leading story in the news today has been the release of two American journalists by North Korea. The two women were working on stories in a border region between China and North Korea when they were scooped up and arrested for spying by the North Koreans. There is some question as to which side of the border they were actually on when they were grabbed.
After five months of captivity, during which North Korea threatened to send them to a hard labor camp for their "crimes," there was a recent break in the negotiations for their release. Bill Clinton flew to Pyongyang, sat through a photo op with Kim Jong Il, and whisked the women back to the States.
Meanwhile, three Americans who strayed across the Iranian border while hiking in Iraq have been detained by the Iranians since last Friday.
When the authorities in the United States find citizens of other countries wandering across our borders without authorization, we call them illegal immigrants and boot them out. We actually send them home on our dime. When Iran and North Korea find people crossing their border, they snatch them up and toss them in a dungeon.
Maybe there is something to this "Axis of Evil" thing, after all.
After five months of captivity, during which North Korea threatened to send them to a hard labor camp for their "crimes," there was a recent break in the negotiations for their release. Bill Clinton flew to Pyongyang, sat through a photo op with Kim Jong Il, and whisked the women back to the States.
Meanwhile, three Americans who strayed across the Iranian border while hiking in Iraq have been detained by the Iranians since last Friday.
When the authorities in the United States find citizens of other countries wandering across our borders without authorization, we call them illegal immigrants and boot them out. We actually send them home on our dime. When Iran and North Korea find people crossing their border, they snatch them up and toss them in a dungeon.
Maybe there is something to this "Axis of Evil" thing, after all.
Friday, July 31, 2009
Summer Jobs V
Heckyl, our summer intern, has, like Elvis, left the building. Although the original scope of the program called for working ten weeks over the summer, the bureaucrats administering the program ran out of money early. They cut the program off after seven weeks.
Heckyl made such a difference to our operations that it was three days before I noticed that he was gone. Put your hand into a pail of water, than pull your hand out. Does the water miss you?
His lack of impact was not his fault. Completely untrained and inexperienced workers cannot contribute a lot in any organization, and if they’re not going to be around for a long time, there is no point in giving them much training. I would have liked to provide Heckyl with more technical training while he was with us, but I didn’t push the issue with my staff. It would be fair to say that I had higher hopes, but not higher expectations.
What makes this interesting is that last week our HR manager went to a meeting where the speaker was with the Tennessee Career Center, the agency that administered the make work summer jobs program. Part of his talk was about the Summer Works program. (The title of the program was “Summer Works.” Who knew?)
Regarding the Summer Works program, the salient points of the briefing were:
1. Tennessee as a whole got $65 million.
2. Our slice of Tennessee (area #11), got $4.2 million.
3. Approximately 1000 youth in our area participated in the program.
4. Total impact in goods and services was over $6.5 million, according to a study by the University of Memphis.
A thousand people got jobs! The economic impact was a dollar and a half for every dollar spent! This must have been money well spent, right?
Hogwash.
If you look at these numbers with a more jaundiced eye, a different picture emerges. Let’s start with the 1000 people who got jobs. If you’re trying to make your numbers look good, you include everyone who you sent out to a job site. At our company, we tried out five people through the Summer Works program. One never showed up for the first day of work. One was late on the first day, then lied about the time he was told to show up, so we fired him before he began. Two started work and lasted less than two weeks. The last was Heckyl.
One data point does not make a trend, but if other companies’ experience is anywhere close to ours, the number of people who actually worked for the whole summer was only a fraction of what is reported.
But let’s assume that the 1000 jobs actually represents the number of full time equivalents for the length of the program, i.e. even with all the churning, 32,000 hours a week were actually clocked in for the duration of the program (program participants were limited to 32 hours a week). At $6.75/hour, and with a ten week duration, wages paid out would be $2.16 million. $4.2 million was allocated, but less than half of that actually went to the participants. Half the money was chewed up by overhead.
Finally, let’s look at the alleged $6.5 million dollar impact. I would love to see the methodology used to arrive at that number. I suspect they simply took the amount spent, and used a multiplier to arrive at the total amount of economic activity generated. The idea behind economic multipliers is that when you pay someone, they go out and spend their money, in this case the $4.2 million. It doesn’t stop there, however. The people you spend your money with then go out and spend their paychecks with other vendors who then pay their employees, and so on. Based a $6.5 million impact produced by $4.2 million in spending, the multiplier effect is about 1.5 for this program.
In terms of being effective or productive in a job, producing 1.5 times your wages is incredibly low. In manufacturing, the value of goods and services produced is normally a minimum of six times wages. The multiplier effect for this program is about the same as for consumption spending in general.
In other words, the estimated impact of the Summer Works program was no higher than it would be if they simply handed out the money to the applicants, without actually requiring them to show up at a job.
Frankly, based on my experience with the program, I tend to agree with the estimate.
Heckyl made such a difference to our operations that it was three days before I noticed that he was gone. Put your hand into a pail of water, than pull your hand out. Does the water miss you?
His lack of impact was not his fault. Completely untrained and inexperienced workers cannot contribute a lot in any organization, and if they’re not going to be around for a long time, there is no point in giving them much training. I would have liked to provide Heckyl with more technical training while he was with us, but I didn’t push the issue with my staff. It would be fair to say that I had higher hopes, but not higher expectations.
What makes this interesting is that last week our HR manager went to a meeting where the speaker was with the Tennessee Career Center, the agency that administered the make work summer jobs program. Part of his talk was about the Summer Works program. (The title of the program was “Summer Works.” Who knew?)
Regarding the Summer Works program, the salient points of the briefing were:
1. Tennessee as a whole got $65 million.
2. Our slice of Tennessee (area #11), got $4.2 million.
3. Approximately 1000 youth in our area participated in the program.
4. Total impact in goods and services was over $6.5 million, according to a study by the University of Memphis.
A thousand people got jobs! The economic impact was a dollar and a half for every dollar spent! This must have been money well spent, right?
Hogwash.
If you look at these numbers with a more jaundiced eye, a different picture emerges. Let’s start with the 1000 people who got jobs. If you’re trying to make your numbers look good, you include everyone who you sent out to a job site. At our company, we tried out five people through the Summer Works program. One never showed up for the first day of work. One was late on the first day, then lied about the time he was told to show up, so we fired him before he began. Two started work and lasted less than two weeks. The last was Heckyl.
One data point does not make a trend, but if other companies’ experience is anywhere close to ours, the number of people who actually worked for the whole summer was only a fraction of what is reported.
But let’s assume that the 1000 jobs actually represents the number of full time equivalents for the length of the program, i.e. even with all the churning, 32,000 hours a week were actually clocked in for the duration of the program (program participants were limited to 32 hours a week). At $6.75/hour, and with a ten week duration, wages paid out would be $2.16 million. $4.2 million was allocated, but less than half of that actually went to the participants. Half the money was chewed up by overhead.
Finally, let’s look at the alleged $6.5 million dollar impact. I would love to see the methodology used to arrive at that number. I suspect they simply took the amount spent, and used a multiplier to arrive at the total amount of economic activity generated. The idea behind economic multipliers is that when you pay someone, they go out and spend their money, in this case the $4.2 million. It doesn’t stop there, however. The people you spend your money with then go out and spend their paychecks with other vendors who then pay their employees, and so on. Based a $6.5 million impact produced by $4.2 million in spending, the multiplier effect is about 1.5 for this program.
In terms of being effective or productive in a job, producing 1.5 times your wages is incredibly low. In manufacturing, the value of goods and services produced is normally a minimum of six times wages. The multiplier effect for this program is about the same as for consumption spending in general.
In other words, the estimated impact of the Summer Works program was no higher than it would be if they simply handed out the money to the applicants, without actually requiring them to show up at a job.
Frankly, based on my experience with the program, I tend to agree with the estimate.
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