Archive for the ‘globalization’ category

The Coming Week – Will The Big Kids Show Up?

July 25, 2016

The Democrat National Convention begins Monday. It will not be difficult to present a more positive message compared to the just completed Republican convention. But is that enough?

For example, will it be enough to speak of tweaks to the Affordable Care Act or should the convention assert “basic healthcare” is a right to which all Americans are entitled?

Or, with respect to jobs, is it enough to say a Clinton Administration will work to generate jobs, or should the convention acknowledge the reality of globalization and the disproportionate sharing of productivity gains during the last 25 years?

And what about poverty? Is it enough to declare war on poverty without addressing why poverty exists at all and especially why poverty appears institutional with some Americans?

Americans would benefit if Democrats considered aloud the larger subject of healthcare. In a country that fancies itself as the world’s most powerful, offering a healthcare delivery system which is often too difficult or too expensive for many of its citizens to access, seems bazaar if not outrightly shallow.

And Democrats should be clear that no government service is free and health care is no different. Government, of course, needs to be clever about how it finances healthcare so that it is available for all citizens when they need it, even if they cannot afford the insurance or the co-pay. (Most other countries use a VAT to underwrite healthcare costs.) But beginning with the notion that America offers the best healthcare one can afford is no longer acceptable.

Globalization is like the elephant in the room. No one seems to want to discuss how it is a fact of life. Political leaders also seem to deny the best way to deal with globalization is through open trading arrangements and not protectionist measures. Open trading, of course, must be fair.    Democrat leaders, however, fear their many Unionist supporters will not want to face up to globalization and globalization is a subject better left unsaid.

Poverty is as old as the ages. Never the less, systemic poverty is a serious problem and a potential security threat (as we have seen in Europe with poor disaffected immigrants). Democrats need to move beyond the notion the Government can simply give enough handouts to the poor that they will rise above poverty and enter the productive economic streams. Poverty is not just a state of wealth (like having no wealth).  Poverty seems also to be a state of mind. Will Democrats step up and say the poor bear some responsibility in improving their own lot?

IMO, behind closed doors, Democrat leaders could have these discussions. During the discussions, however, someone will remind these leaders that the election is theirs to lose.

Clinton-Kane should walk away with the election by simply not self destructing. My guess is that regrettably  platitudes and PC talk will dominate and once again an opportunity will be lost.

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The Republican Titanic?

April 29, 2016

In the wake of the Acela Primaries, news reports are coalescing around the inevitability of Donald Trump’s nomination. This outcome has been reinforced by the apparent rejection of Ted Cruz’ VP selection of Carli Fiorina, and the seemingly unexplainable coalition with John Kasich. With Trump’s opponents self destructing in real time, who is there to oppose Trump?

Politicians are many things but normally brave, predictable, and principled are heard less and less these days. Republican leaders are in a tough spot. They do not like Trump (and predict bad things in the general election with the Donald at the top of the ticket) but Kasich has not caught American’s interest and Cruz is held in lower esteem than even Trump. So, GOP big whigs don’t want to get caught without a chair when the music finally does stop. QED, hold our noses and get behind Trump.

There are certainly elements of the GOP leadership, including big money, who hold hope that Trump can be defeated in a contested convention. It simply unclear who the GOP could put forward to unite the Party and have a chance to do better in November.

A thoughtful Republican must conclude, one would think, that the Grand Old Party is about to disintegrate. This is probably an exaggeration. But disintegration into two or three large pieces is not only possible but long over due.

The Freedom Coalition (Cruz and Tea Partiers) present an evangelical/fundamentalist, no compromise approach to social values and an austere fiscal policy. Since the rise of the Tea Party, this group has been trying to hijack the Republican Party by claiming to be more Republican than any other Republicans. The views they hold and policies they endorse are backward looking and are not where US demographics are heading. The GOP would be wise to let them go.

Donald Trump followers are people who feel let down by Democrats and assign their economic worries to the “handouts” Democrats call entitlements. This group is largely uninterested in social issues and believes in “live and let live”. For this group the future is all about sensible policy which puts the American dream back in play. The GOP would be wise to build upon this base.

Third largest segment might be the old fashion “establishment” characterized by Jeb Bush, Haley Barbour, and the Koch Brothers. This group knows best what is in Americans best interest. They also know what’s best for themselves and see any path forward as featuring a tax cut for the wealthy (no matter how a tax cut is packaged). Benign neglect and civility are the hallmarks of this segment.

How might this all play out?

If the world was perfect, the GOP would realize two things. (1) The Cruz followers have no place to go. Their world view is held by an ever decreasing number of people and their no compromise stand will prevent others from joining. (2) The GOP needs to take a drubbing again in the general election in order for it get real on its core beliefs and policies. (For example, person center healthcare (Paul Ryan’s proposal) in place of Obamacare is the same as “the best healthcare money can buy” and that will not fly.)

In this perfect world, the GOP would return bravely to the center (slightly right of center is ok). Repairing and improving the infrastructure which is necessary for jobs and commerce doesn’t know what a Democrat or Republican is. Income inequality is real but the idea that cutting taxes on the wealthy is somehow going to bring about high paying jobs is a cruel pipe dream. And, saber rattling (how the US is going to get tough with other countries) has no place in the real world of globalization, the US is either militarily strong or it isn’t, and oh by the way, that country the US just shook its saber at is a key trading partner).

If the GOP doesn’t think the middle is for them, then the GOP may need to receive a thrashing more than once.

America needs the GOP to regain its senses. There are important issues facing the country which needs a more diverse set of eyes and minds thinking about them. The budget is unbalanced and without more tax revenues, the only path to a balanced budget is by decreasing government spending… which moves quickly to reductions in entitlements as well as defense spending. Cutting entitlements and not defense spending at a time of income inequality is a prescription for social unrest.

There is a chance that the GOP can escape the Titanic’s fate but only if they move away from the destructive policies of the Freedom Coalition/Cruz faction. If the GOP doesn’t move, the majority of current GOP members will.

Should Anyone Be Surprised?

March 13, 2016

GOP pundits, political operatives, and big money donors are all aghast about Donald Trumps potential to steal the Republican Presidential nomination. These authorities claim Americans are angry and say Trump is just feeding voters someone or someplace to target their fears. Mexico, Muslims, or anyone who is not us allow Trump supporters to accept Trump’s promise to fix it.

Hmmm.

Listening to the GOP “establishment” Trump must be some type of low life to conduct his campaign by appealing to voters’ fears. So, what does the establishment think voters want to hear? How about defunding Planned Parenthood, repealing Obamacare, and tax code reform featuring lower marginal rates. The GOP is also keen on increasing defense spending while reducing entitlements (Social Security, Medicare, and Medicaid). Rounding out the GOP’s list includes applying religious freedom interpretations to discriminate against gays and same sex couples. Are any of the GOP’s “must do” list designed to deal with Trump supporters’ fears?

Consider, in addition, what if many voters are victims of income inequality? What if many believe the American Dream either no longer exists or at least is not within their grasp? What if globalization just hasn’t worked well for many Americans and they haven’t figured out how overcome this global change? Does the mainstream Republican pitch deal in any way with this view of reality?

Here’s a bulletin. Neither the GOP establishment nor Donald Trump appears to have a clue. Income inequality is linked to globalization to be sure, but it is also connected to workers’ skill base and the ethical behavior of business leaders.

At this time, too many Americans lack the skills necessary for higher paying jobs, and too many corporations simply see their workers as throw away commodities. Corporate leaders are more concerned about stock price and personal bonuses.

As a consequence, corporate leaders have lost sight that their employees are also in some way their corporation’s customers. A customer with no money cannot buy the corporation’s products or services. Hmmm.

So which policies might lead to increased jobs, salaries, and wages?

Attempting to deal with globalization by imposing tariffs and duties, while often popular, only leads to equal and opposite trade restrictions from our trading partners. Some workers might get old jobs back while others employed in export related work lose theirs.

Retraining workers and developing more competitive skills with new workers are positive steps, but who will pay?

Simply paying workers more or sharing productivity gains with all workers would help but why would a capitalist pay more for labor than he must?

Here’s the conundrum. The GOP and Donald Trump have no policies which will deal with globalization or to unilaterally improve the wages of average people. GOP policies either do nothing or aggravate income inequality. Trump promises much, for example “to make America great again”, but how?

It should be clear that making globalization work better (more and better jobs) and reducing income inequality would be a worthwhile focus for both political parties.  But focusing upon Planned Parenthood or Obamacare has nothing to do with globalization/jobs or income inequality. If the mainstream GOP continues on its same path, the unproven case Trump is making sounds a better alternative.

Should anyone be surprised?

Getting A Grip

January 23, 2016

News reports have been sounding a lot like “chicken little” recently. To be fair, news reports are just that, they are mostly reports of statements made by politicians and occasionally by those who claim to be financial experts.  If the report is sensational and full of sound bites, all the better.

For example, the Presidential candidates have attributed every foreign or domestic situation as either the fault of a President Obama policy or the lack of one.  Financial gurus are unable to explain the large drop in the markets and alternate between “China is not growing fast enough” to “oil prices have dropped too far and too fast”.  Between the politicians and the financial experts, what is one to do?

Let’s begin with China. China’s growth has been spectacular to be sure. But it is useful to note that China did not build a better mouse trap and the world beat a path to its door.  Rather, China managed to build an export economy by converting uneducated and untrained peasants into productive workers making everything from dresses to gym shoes to furniture etc., items already being produced somewhere else in the world.

China’s growth resulted from producing goods at a low cost and selling it to other nations whose citizens wanted those items. For many of China’s customers, it was good products at lower prices. For others it was products they could finally afford. China’s growth rate averaged about 10% per year, a growth rate which is mathematically unsustainable for extended periods. No one should be surprised that these heady days had to end.

News reports indicate that China is shuttering many of its factories. This can only mean that world demand for more Chinese produced products in not there. While some other low wage countries are probably taking some of China’s share, the main factor is the world is just not buying as much as it did before. In other words, the slow down is not a producer problem but instead a consumer problem. So forget about blaming China and start asking why aren’t consumers outside the US buying more?

But what about oil, isn’t low price good news? No, we are told. Oil has dropped to much and too fast. Hmmm. Of course the price of oil is mainly the result of supply and demand, and right now the world’s oil producers are bent on pumping and selling at what ever price prevails. Hmmm.

OPEC has had life quite comfortable for oh so many years, raising price when ever the urge seemed right. Oil sales were the primary engine for growth in the quality of life for their citizens. Then along came fracking and the Canadian Tar Sands, spurred on by the high price of oil. Hmmm.

Suddenly the supply side was tilted above the prevailing demand. And as any capitalist knows, when there is more of something than what consumers want, the price goes down. The Saudis, for reason of their own, chose to keep pumping and not reduce their output. The Saudis said they did not want to lose “market share”. Hmmm.

The good thing about capitalism is while a supplier can act irrationally, for example lowering the selling price below the cost to produce, there are consequences. One the Saudis have found is that maintaining market share has not prevented oil revenues from falling.  Revenues have fallen so much that their national budget has a deficit now. Hmmm.

While it might seem appealing to gloat at the Saudi misfortune, one might be wise to hope that they are able to adjust their national budget (which means reducing entitlements for their citizens) and avoid popular unrest.

Just imagine that another Sunni group replaces the royal family and what chaos might ensue (like when Saddam Hussein was toppled in Iraq). Imagine if the new rulers were called ISIS (they are Sunnis too).

There could be other unanticipated consequences of prolonged low oil price. Those companies and countries that have invested in new capacity have done so by borrowing. With income far lower than expected, the chance of default is high. Hmmm.

I wonder whether these lending banks are too big to fail? Hmmm. And who looks demon-like now over the XL Pipeline?

Adam Smith’s “invisible hand” predicts that natural events will correct supply-demand imbalances, and argues governments should not intervene. Keynes, on the other hand, recommends government spending to restart a sluggish or stalled economy. For the past 6 years, by default, the US has followed more the invisible hand approach. In effect the Country accepted higher unemployment for a longer period in exchange for unremarkable but steady growth. Said differently, there is no “bubble” in the US economy to burst now.

In comparison to the rest of the world, except China, the US economy is performing the best. Hmmm.  I wonder what the GOP Presidential candidates will say about the economy?

Waking Up Unions

June 16, 2015

Most people reading this post’s title will immediately think, “oh its about time Unions got their backs up and protected their rights and their jobs”. Well that is sort of what this post is about but it has an entirely different twist.

Wisconsin Governor Scott Walker has provided a case book method for bringing public sector unions to heel. (1) While running for office, do not mention unions as a problem waiting to be fixed. (2) Once in office, move quickly and target only non-police and fire public sector unions (divide and conquer). (3) After the heat dies down, target all other unions by changing State law to a “right to work” State. Quick and efficient.

Wisconsin public service unions never figured out what was happening or why. To protest, unions resorted to the time honored practice of marches and demonstrations. Apparently union leadership did not recognize that much of Wisconsin voters did not understand why State employees should have pay and working conditions so much better than the average worker. Hmmm.

The Trans Pacific Partnership trade proposal is providing another example of unions out of touch with current times. Listening to union representatives crow about having defeated fast track authorization for President Obama, one can only ask, “tell me why again?”

Unions respond, “we want a better deal, one that preserves American jobs”.

At first this seems eminently reasonable. Why should the US make any trade agreements that syphon American jobs away? The problem is no deal does not prevent the economic migration of US jobs to lower wage countries. When that happens, Americans lose their jobs full stop.

European countries have instituted various types of labor protections should a business want to reduce local labor or even in the event of full plant closure. These countries impose a cost upon the business for each job lost. Part of the money goes to the worker and part goes to fund “retraining” programs. These costs make businesses think carefully about outsourcing or taking large risks which might endanger the businesses’ long term health.

(In truth it also encourages businesses to not expand employment until they absolutely must. Opportunistic employment, like we see in the US oil industry where many are hired when the sun shines and let go when oil prices fall, is not seen in Europe.)

The obvious first step for US labor is to begin dialog with businesses and acknowledge the high cost legacy pay and benefits represents to US business’ globally. Negotiating two tier wages and benefits has been tried in many situation and is worthwhile expanding. Businesses, however, would prefer to de-certify existing unions or block the certification of new ones. In that manner, businesses could hire and fire with impunity.  This behavior begs the need of Federal statues.

A longer shot but potentially more powerful would be for unions to shape public opinion especially around businesses who employ greedy hiring practices or give workers a poor deal. Think about the many consumer goods which carry special labels such as “sustainable”, “organic”, or “does not contain x, y, or z.

Consumers, therefore, should be capable of understanding that company X has reduced American labor, put the profit in their pockets, and given nothing to either the laid off worker or the consumer.  What should the consumer do?  Hmmm.

Disney recently began a practice of importing lower wage workers to replace home grown workers at their Amusement parks. While there can be no argument that replacing Americans with “better” foreign workers at the same pay and benefit levels, outsourcing work by importing lower wage workers seems over the top. And, what would Mickey Mouse say?

Of course not all workers are victims.  Anyone who observes government employees at city, county, State or Federal levels cannot help but notice that over the years these workers gain weight, slow down, and often get sick at very high rates. These are people to be sure but low productivity in the private sector results in business going out of business.

On one hand, blatant disregard for workers as Disney has shown should receive a public’s disapproval vote through lower attendance. On the other hand, unions truly interested in providing productive and competitive workers needs to work with companies on adopting new productivity tools and well as continuous worker training. If necessary, unions should insist upon adequate separation pay for displaced workers as well as funds for retraining.

Blocking the TPP and then blasting about it is a great disservice to union members and to the country as a whole.