What’s The Right Theory?

Tax reform is on everyone’s lips – but is there a good solution?  The traditional supply side theorist (I use that term since there’s no guarantee the solution will work as predicted) says that lower taxes will help create jobs and grease the wheels of industry.  The other side is concerned about social benefits being curtailed and feels that higher taxes keep the predators in line.

The reality for most individuals and small business owners is that we need a balance on both sides.  I believe that lowering taxes doesn’t assure us growth.  I believe that we need some forms of social programs.  The question, as always, is what’s the right balance.  A tax on imports (call it what you want) will not guarantee more jobs will be created – and import “taxes” could be detrimental to our industry.  The answer is NOT getting rid of social programs, nor is it providing richer and richer benefits.  Remember, although no one is talking about it, our deficit is still a large one. With rising interest rates, a reduction in taxes without the hoped for growth would create long-term damage to our economy.

I have plenty of questions – but may be short of solutions. I don’t think it’s any different for Congress.  I for one, hope that they move slowly and remember that the economics underlying their decision is theory – and we are the guinea pigs.

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The World Of Economics and Politics

Do you notice all the promises that the presidential campaigns have been throwing around?  Bernie with stating how easily we can afford to pay for everyone’s college.  Trump with his making trade better by bashing other countries; and Clinton with her comments saying that we need a universal health plan.  I’m not going to get in a discussion of the merits of any of those issues – I don’t have the time or temperament at this time.  BUT, what I do find of interest, and have for many years, is what an OpEd piece in this morning’s Wall Street Journal touched upon.

“The Weekend Interview” was with Russ Roberts the host of “EconTalk” a weekly podcast.  Roberts is an economist by trade; so he’s no empty talking head.  For anyone who has studied economics, you know that there’s as much black art as there is science.  Yet, over the years, an entire priesthood (cult?) has been created by politicians to show their promises are backed by experts.  And if you don’t like the answer – get a new oracle!

My concern, and has been one for years, is that people take a sound bite from their media of preference and it becomes dogma.  To quote the OpEd, “All the incentives push us [economists] toward overconfidence and ignore humility  — to ignore the buts and the what-ifs and the caveats.  You want to be on the front page of the Wall Street Journal?  Of course you do.  So you make a bold claim.  Being a skeptic gets you on page A9.”

As Roberts opined in the article, economists are people who have bias and often that will influence how they approach an issue – and why we have so many contrary opinions.  He feels that economists should be more humble – and I don’ have an argument with that statement. I’ll take it a step further. Those of us who feel strongly about our side of the political argument should be the same way.  Be humble. Listen to the other side. Study the FACTS – not just one person’s or side’s opinion.  If we truly want to continue being a great nation, our electorate needs to be well-informed.  And if we really don’t know the answer to how many angels can dance on the head of a pin – say so.

Ever The Contrarian

I was reading a recent Dr. Joe Webb economic update – with heavy focus on unemployment numbers along with solid observations about industry trends.  If you enjoy wonky economic stuff, read this article on whattheythink.com – it’s good stuff.

On another note, ever-contrarian Webb had comments on the Paper & Packaging Board’s “How Life Unfolds” campaign.  Webb stated, “The most important way of increasing demand for a good or service is to be innovative in their application to the problems, wants, and needs of consumers and businesses. Campaigns strictly designed to make purveyors of those goods and services happy does not make the goods or services they offer relevant.

If you believe that there is unfounded marketplace sentiment against your product, you need to get into the trenches in direct combat and recruit like-minded allies on an incident-by-incident basis.”

Although I think the campaign “may” have some value, I have some concerns as to how relevant it is to our industry (Print Producers).  The $30 million a year which will be spent by the Paper & Packaging Board, will more than likely not shift the needle of print consumption a fraction.  It’s got be done in the trenches – and that where I totally agree with the aforementioned Joe.

The Living Wage

San Francisco has adopted a $15.00 per hour minimum wage.  Los Angeles will meet that threshold by 2020.  There are more and more companies adopting minimum wage structures above the federal minimum wage.  Some feel that it needs to be done to allow individuals to survive while others are reacting to keep from being castigated in the media.

From a social perspective, I accept the notion that $7.25 is not a “living” wage.  Yet, is $15.00 going to guarantee a “living” wage?  How is the person making $16.00 per hour going to react when the person who was making $9.00 is now making $15.00?  It ain’t going to be pretty – or cheap.  Are the folks clamoring for a “living wage” willing to pay more for their product/services as companies have to respond to rising cost of wages?  Or are they going to react as consumers have for decades and buy the cheapest product – which normally comes from overseas – and could very well cost those folks making $15.00 an hour their jobs.

As with all things dealing with economics, the answer will not be clear cut.  Some businesses will survive with a new minimum wage and others will fail.  Some folk will do better with $15.00 an hour and others will not.  Here’s the question I have for those clamoring for a “living wage.” Does raising the minimum wage REALLY going to help solve many of the social ills we’re seeing right now?

I don’t have a straight-forward answer to this problem, because someone who is willing to accept a minimum wage (at any level) has a variety of challenges in front of them ranging from lack of education, to lack of skills, to questionable legal status in this country.  These problems won’t be fixed with a few more dollars per hour.  The true solutions are much, much more than just wages.  Let’s have a good conversation about those issues and see what can be done to provide more opportunities.  Regardless of what folks on both sides are suggesting, cutting corporate taxes, or providing higher education, will not be THE solution — but it may include raising the minimum wage.

Wall Street Journal article to read – “Wage Pressure Hits Small Business”

Budget Wars

President Obama rolled out his long-awaited budget today and had both the left and right upset . . . maybe that’s a good thing.  Regardless we have a long way to go, but in this discussion there’s a lesson why government doesn’t run like a business.

The “big picture” economists in Washington like to talk about debt in relation to GDP and don’t want to get mired into the detail of how money is spent or collected.  It’s all good as long as you get what you want and the deficit falls within a certain range (about 3% of GDP) and growth in the economy is occurring.  Where’s that number right now?  It’s projected to be about 5.3% in 2013 — and Obama’s plan would bring it down to 4.4% in 2014. And if there’s good economic growth, that number drops dramatically.  And here lies the reason why the deficit doesn’t bother a lot of folks in D.C.

It’s all about the top line, and since we’re only talking about a few percentage points, it’s no big thang.  And we don’t need to discuss the TOTAL amount of debt (which as a percentage of GDP is only second to the amount of debt we incurred in WWII) or how we are going to bring that back down to historic levels.   Because once we get everything headed in the right direction, our economy will grow and the numbers will take care of themselves.

So, if we are a decision maker in Washington, all we have to do is find a way to grow the economy.  We can then spend like drunken sailors and get re-elected, and life is good.

The Anti-Wall Street Movement

Over the past few years, I have been wondering why do companies want to go public?  Yes, the biggest reason is capital to grow the firm, but more and more it’s about creating wealth for a small group of folks — and I don’t necessarily have a problem with creating wealth.  Yet, I wonder if that’s the only reason why some firms get created — but that’s a blog for another day.

No, my question is this.  Do the company’s creators realize how much they give up in controlling their company’s destiny when they go public?  Ask anyone who has worked in the publicly held world and you quickly realize that EVERYTHING is measured on three-month cycles — and maximizing this year’s earnings.  In my mind that’s not always best for the customer AND the company (and I include the employees as part of the company.)  No longer does providing a product or service that consumers desire or value the most important company goal.  The development of employee pride in producing that product and service becomes secondary to “did we beat our numbers.”

What we’ve seen in the past twenty years is the creation of wealth for a handful of individuals and Wall Street — who more than ever are influencing decisions company CEOs make to keep their shareholders happy.  And who are those shareholders?  It’s no longer the individual.  It’s large institutions and massive funds that are constantly beating the drum of “beat your earnings forecast for next quarter.”  Folks, the system is out-of -balance.

And that’s one of the reasons I applaud the move American Greetings is making (and hopefully Michael Dell will pull off) to go private.  AG has been getting flack on Wall Street because it can no longer produce the numbers it did in the past, BUT it still has a massive market of consumers who want to use printed greetings AND it’s profitable.  In the 12 months ended in February it reported $57.2 million in profits on $1.7 billion in sales.  Granted it’s not as profitable as it was in 1998 when sales were 29% higher and profit margin more than double — but that’s true for many companies in the US regardless of their industry.

AG needs to reshape its business model — and it has already started that process — but it needs to make long-term decisions.  Decisions that go against the concept of “we must make next quarter’s numbers.”  So, hooray for American Greetings, and I for one hope that more companies follow suit.  The over-riding goal of a company should be providing an outstanding (and desired) product/service for it’s customer.  The secondary goal should be creating wealth for its principles and company partners (suppliers/employees).  Wall Street should not be in the mix.

The Ugly Truth

There’s a fire storm in Chicago as Mayor Rahm Emanuel announced the proposed closing of 54 schools.  Per the Wall Street Journal, Karen Lewis, the head of the Chicago Teachers Union, said Mr. Emanuel is sending the district into “utter chaos,” and that closings are unnecessary, won’t save money and would expose students to academic and safety concerns. The “school-closing policies put our students at real, not imagined, risk,” she said.  Yet, Mr. Emanuel and his team are saying the closings would save the district $560 million over 10 years in capital costs and $43 million annually in operating costs.

So who’s right?

The ugly truth is that both are right – but when we start talking about education of children, especially inner-city children, it gets very emotional.  Yes, it behooves society to support educational efforts for the long-term betterment of society.  Yet, the uglier truth is how do we pay for it?  And I’m not going down that rabbit hole – but just think sequestration, or federal budget.  You get the idea.

And this morning the media woke up and declared that insurance carriers are privately telling brokers that rates could possibly double for small businesses and individuals in 2014.

Are we having fun yet?

Here We Are Again

I was just re-reading some of my posts over the past month or two — gotta make sure I don’t repeat myself — and discovered that we are back on the edge again.  On December 27, I wrote that I expected us to go over the Cliff and that Congress would hopefully get it right by March.  Well, here we are and it should be  no surprise to many of us that the stalemate which started last summer continues.  Neither side is willing to say that the other side has valid points and that the right decision WILL be painful for everyone. Yet, how painful will the results of sequestration be?

As was mentioned on ABC’s  “This Week” this past Sunday, the “slow-down” will affect some areas more adversely than others.  Fort Worth  with its major defense contractors may be affected more than it’s neighbor Dallas, 32 miles away.  And of course there’s all the rhetoric.  Homeland Security Secretary Janet Napolitano was recently quoted talking about the long waits already occurring because of sequestration.  Yet, today’s Wall Street Journal ran an article supporting the fact that long waits were not occurring — or not yet.  Regardless, there may be something good that comes out of this mess.

All of us need to realize how much “big” government affects us.  Yes, there are many things we may dislike, but there’s also a lot of benefits Uncle Sam provides.  So, let sequestration run for a while and maybe it won’t be as bad as the politicos are telling us — or maybe it will be.

Scattershooting – February 2013

No one was really surprised with the recent USPS announcement of going to five day delivery this coming August.  At this point in time, no one really knows what the affect will be to the print and direct mail industry, but check out this recent article in Forbes.

I continue to hear of various print producers struggling to find skilled employees — especially in bindery and customer service.  This may very well become one of the industry’s major challenges over the next decade.  Recruiting and training will play a much more important role than in the past.  On another level, keeping skilled individuals from leaving an industry they see is dying, or no longer challenging, is being faced by more and more companies.  Read this interesting blog, which was also posted on Print Production Professionals on LinkedIn.

OK.  I’ll admit it.  I didn’t turn on the tube to watch the State of the Union speech, I had more important things to do.  Before my Democratic friends “get Medieval on my . . .,” I haven’t watched one in 15 years.  I’d rather read it, or read about it.  It’s much more interesting that way.  From what I have read so far, or listened on the radio, as expected President Obama will work to move the ball more left of center.  Whether it’s done through Congress or Executive Order.  My concern is if he tries to move too fast or too aggressively that there will be economic harm to our country.  We are at point in time like we’ve never seen before and where serious economic harm could occur, which would last decades.  I may not like some of the ideas — but I accept that there are different perspectives and that there are no absolute rights.  Let’s just move a bit slower.

I was recently asked to be a judge at two print competitions — Printing Industries of the Carolinas (PICA) and Printing Industries of Southern California (PIASC).  Now I won’t get into who were the better printers (it would be tacky for me to say they’re found in Missouri, Kansas, Oklahoma, and Texas), but what was thrilling was seeing the continuing role that print plays in communication.  No, we are not going to go the way of the Dodo Bird.  Yes, change is occurring — but not the fundamental role of print to communicate. It’s tactile, colorful, dimensional, and in many instances provides a much better ROI than other media.  It was also warming to see print providers entering the competition so they can be recognized for their company’s (employee’s) ability to transform raw materials into  outstanding communication pieces.

A Free Lunch

One of the concerns that I had with the Affordable Health Care Act (AHCA) was the first word — affordable.  In all the spinning going on several years ago, people were being led to believe that health care was going to be cheap — or at least cost less.  Many of our legislators truly believed it, as Ms. Pelosi said, “Everybody will have lower rates, better quality and better access.” How she, or anyone in Congress, could believe that by expanding coverage and creating massive bureaucracies (insurance exchanges) was going to be cheaper, I don’t have a clue.  Now the chickens are coming home to roost.

Per the trade organization American Health Insurance Plans (AHIP) representing the health insurance industry, there are several cost drivers which will adversely affect premium rates over the next several years — this excludes internal drivers which already have medical costs rising at 6-8% a year.  Although The Affordable Care Act (ACA) will help millions of people get coverage for the first time, there are three areas which could accelerate health care costs:

1.) A new health insurance tax on carriers;

2.) Mandated benefit requirements, and

3.) Age rating restrictions.  This could lead younger and healthier Americans to decide not to get coverage, which could further increase costs (less bodies to absorb premiums).

For those of us who get wonky on health care costs, visit the AHIP site for more information. Although I applaud some of the issues which were covered by AHCA (preexisting conditions, mandated coverage), this piece of legislation is going to create turmoil in the marketplace that no one expected — and it’s not going to reduce costs.

Now, if we could just get those chickens to roost in that proverbial pot that Herbert Hoover promised everyone over 80 years ago, we can get our free lunch!