Day of Reckoning

# 002 February 27, 2009

Well, the DOW finished below 7100 today, and the S & P ended with a new bear market low… where are we headed? This was the worst February on record, it’s a good thing this is the shortest month of the year. Will March come in like a bear and go out like a bull?

You know, I was thinking. What happens if the American public makes a collective decision to not stay the “consumer” driven society we’ve been for the past generation. What will become of our economy if we become savers again… this very thought strikes fear and anguish in the hearts and minds of our political leaders. Why do you think this is?

Is it because we cannot be controlled if we are not totally in debt? It’s often been said, he who pays the piper calls the tune. What happens if we quit paying the piper and start keeping our money? Do we really need to drive one to two year old cars? Do we have to have the latest fashions, jewelry and so on? What happens to the economy if we all start washing our own cars, cutting our own grass, filing our own fingernails?

Imagine for just a moment what would happen if every consumer in America (which is not just adults, but teenagers and children) cut their non-essential spending by 10% or even 15%? Most people are not aware that consumer spending accounts for 70% of all U.S. economic activity. We are not a nation of producers and manufacturers, we have become a nation of spenders. Madoff has nothing on the American economy. Don’t believe me? Here’s the link to the Wall Street Journal article:

http://online.wsj.com/article/SB123574078772194361.html

Take a few minutes to think about this. For years we have heard that Americans are on a path to economic hell because we do not save. A couple of years ago the cry became louder when we became a nation of net borrowers and our savings rate dropped below zero. I’ve heard numerous radio ads telling us to “feed the pig”, a government funded advertising campaign exhorting us to save more. Now, guess what? Americans have started saving more due to fears about our economy. What are our leaders telling us now? “DON’T SAVE… SPEND! If we don’t spend the economy is doomed…” so what’s it going to be, save or spend?

Our leaders seem to be telling us to do both… sound a little schizophrenic to you? Guess it really does reiterate the time worn concept of “government intelligence”.

Why does the Federal Government want us to spend… maybe it’s to increase…. TAX REVENUES! Hmmm… could that be it? Just asking.

Maybe we should start thinking about what is going on a little more than just reacting to the latest news each day. Give what Thomas Sowell calls “thinking beyond stage one” a chance. Spending all your money today is fine… if there is no tomorrow.

We need to think beyond today and consider, “what is the logical result of my actions”? Of course, if we take no responsibility for our actions, then why do we need to consider the logical result of our actions? The key word is think. Aldous Huxley said, “They intoxicate themselves with work so they won’t see how they are.”

Our consumer driven society has done the same, “They intoxicate themselves with things, so they won’t know how they really feel.” We have refused to consider (think about) the results of our actions and we move forward blindly as though we will never have to take responsibility for our debts, both financial and emotional.

The “day of reckoning” it seems, may be at hand.

What path will we choose – personal self reliance and responsibility, or will we relinquish our authority to an increasingly powerful government? We are at a crossroads…

With warmth and regards (as always),
Allen

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How are High End Manufacturers like the Beleagured Auto Industry?

By: Allen Wells

NOTE: I originally wrote this essay in January of 2006, it seems it is more applicable today than when first wrote it!

Two articles I’ve read in the past couple of days have caused me to reflect on a dilemma. On one hand, you have American auto manufacturers laying off tens of thousands of workers because they cannot compete in the global marketplace. You also have a world wide epidemic of counterfeit goods flooding the markets selling “knock offs” of products from Cartier to Rolex.

How are these two issues similar? A January 30, 2006 article in the WSJ discussed how the U.S. auto manufacturer Ford makes trucks at the company’s Thailand manufacturing facility (built at a lower cost using less expensive labor), but cannot sell these trucks produced at a lower cost in the United States due to U.S. tariffs on automobiles imported from Thailand. These trucks must be sold in Asia and Europe, barring U.S. consumers from the savings created by lower manufacturing costs.

On the other hand, counterfeiters are using low cost labor are importing high end watch “movements” and installing them in counterfeit watches to be sold worldwide at tremendous savings. For example, a Rolex watch that will cost you $2,500 at a retailer; while a counterfeit can be bought at $25 on the street. Here’s the interesting point. I once bought a $25 counterfeit Rolex and I now own an authentic Rolex. Guess which one keeps better time? You guessed it, the counterfeit.

The question arises, is the truck made in Thailand a poorer quality product than the truck made in the U.S? Most likely not. In a word the U.S. government is protecting us, not from a poorly built product but from savings of our own money.

I ask again, how are these two issues similar?

Perhaps in a wake up call to the manufacturers of high priced “high end goods”. How far will a name get you in the global economy? If nothing else is proven by the rapid increase in counterfeit luxury merchandise it is that having a high end brand name does not necessarily mean better quality. I’ve seen Gucci purses for sale on the streets of New York… the difference between the knock off and the original is not earth shattering. What is being proven is that the global economy is opening competition to a level never before considered. When “criminals” can make product that sells for 1/10th to 1/100th of the price of the original, the high end companies better wake up!

Where do the governments fit into all this? New laws are being passed daily to combat the continued proliferation of counterfeit rings. It is now being stated that profits from selling “knock off” watches can equal those of selling cocaine. Governments receive no tax revenues from the sale of illegal drugs, yet spend billions to combat the “problem”. By the same token, governments receive no tax revenues from the sale of counterfeit “knock offs” and are now committing to spend millions (maybe billions) to combat this “problem”.

Perhaps the problem is tariffs, taxation and overpaid union workers who are the last remaining vestiges of the former industrial age. Technology allows goods to be produced at a higher quality, more quickly and at a larger capacity than was ever anticipated in the past. All people must understand, counterfeiting is wrong. It is theft, the stealing of ideas, names and reputations. Counterfeiting undermines businesses that provide health and wealth to our societies. This is not a discussion of the moral ramifications of counterfeiting.

What this is (or is intended to be) is a wake up call to consumers, businesses and governments around the world. If a truck can be built in Thailand for a fraction of the cost of a truck built in the U.S., consumers will buy the truck built in Thailand. This is assuming your government will allow you to purchase this truck. If a consumer can purchase a Rolex watch for $2,500 plus 5% - 10% sales tax, or a knock off that is otherwise unidentifiable as a knock off for $25 without sales tax (which I might add, the cost of the knock off is less than the sales tax on the original product), which do you think they will buy?

Will stronger enforcement of counterfeiting laws put an end to this “problem”? If we use the illegal drug trade as an example, then the answer is a resounding “NO!” Corporations need to look inside, master efficiencies, bring down costs, and provide products at a more reasonable price. With today’s manufacturing processes we can build products at a fraction of the cost today, but are not doing so. Onerous government regulations, outdated taxation policies that do not favor capital spending for new equipment, union controls and overpaid workers along with import duties and quota’s destroy competition are keeping this from happening.

It is sad to say, but the very government(s) that we think are here to protect and serve us are actually keeping us from better products, at lower prices with more choices.

The End of an Era

Or: The End of an Error!

By: Allen Wells

The current crisis with Ford and General Motors and Chrysler has brought forcibly to light the crashing, clanging, failing end of the famed Industrial Age. This age is going out with screaming, wailing and gnashing of teeth. The resounding cries of pain from the entitled members of the “United Auto Workers” can be heard throughout the world as their privileged world rapidly comes to an end.

For over 70 years the UAW has held the major U.S. automakers hostage to their collective bargaining in the name of fairness and workers rights while slowly and inexorably whittling away at the U.S. automakers dominance in the world market. This arrogance is indicative of the attitudes of the now defunct Industrial Age. It yet remains to be seen if “the BIG THREE” will survive or if they will become victims in the scrapheap of history like their predecessors Packard and most recently Oldsmobile.

The fact of the matter is Ford, GM and Chrysler do not need half the workers they currently employ. The technology available today can virtually build an automobile “untouched by human hands.” We have 30,000 – 60,000 future unemployed automobile factory workers “almost unemployed”, simply because they should be unemployed. The sad part is we have a choice – lose the workers or lose the automakers. Hard choices, hard world.

Peter Drucker aptly named the new millennium the “Information Age”. This is the age of freedom, of personhood… how do you attach collective bargaining rights to information? This “new” age is an earth shattering blow to the “status quo”. Those still caught (trapped) in the old Industrial Age jobs and work force are as doomed as the dinosaurs were in a different age. Should we feel sorry for these “left behind” workers? I say we should not feel sorry, certainly we should feel empathy for anyone out of work or in a dead end job, but not sorry. So goes the economy.

In the information age we all have opportunities… more than ever. There is more money, more opportunity and more ability to succeed than ever before. We are now entering the age of the true world economy. Digital masterpieces are on every corner. Will America continue to lament the loss of Industrial Age jobs, or move into the new millennium with force and purpose?

These are questions that must be answered, thoughts that must be considered and paths that must be traveled. The average American must understand, the Industrial Age is over. This is an age of bytes and chips. The old rules do not work in the new society.

No matter what company or organization the Federal Government bails out… the end of the error is near…

Let's Bail Them All Out!

# 001 February 27, 2009

This is the first of what I hope to be many informational newsletters that I will be writing. It’s not that I think my opinion is far better or superior to anyone else’s; I want to start dialogue and ideas with others. Your opinion and ideas interest me, as I hope mine interest you! Please, feel free to send me your comments and thoughts. I will print your thoughts and ideas in future newsletters.

What a time we are in today! The stock market is bouncing around like a drunk on a trampoline… and if you’ve ever seen a drunk on a trampoline then you know that’s more down than up! I guess it would be funny if it wasn’t our money and livelihood at stake. The Federal Government is getting more involved in private business every day… nationalize this, tamper with that – where in the world is this going. Some say “Atlas Shrugged” is coming to pass. This may be true, but I can’t seem to find Gaults Gulch, does anyone know where it is? I hope they aren’t excluding me.

I read today that Congress is considering new ways to get Americans to buy new cars by making the total cost of auto loans tax deductible, and adding rebate and incentive programs they are trying to persuade those with older vehicles to trade in on new cars… the bill is straightforward – anyone with a new auto loan will get a deduction for loans up to $49,500. The other proposal is for “environmental benefits” – if you sell and older car for scrap you would receive a voucher to aid in the purchase of a newer, more fuel efficient vehicle. Will this increase auto sales? Who knows. Of course, these are proposals, not laws – it’s anyone’s guess what this can look like when it gets out of committee. Since our Federal Government has now invested billions of tax dollars in Chrysler and GM they have a vested interest in the continued success of these companies.

Hey… I have an idea – Let’s get the government to bail out Kroger, Publix and Whole Foods – then we can get a tax break for buying new groceries… and we can turn in our old spoiled groceries for an “environmental tax credit”. The old groceries can be composted by a non-profit organization funded with our tax dollars, helping the environment and creating jobs… what more can you ask for – green, healthy and job creation. The perfect trifecta of government intervention (uh, I mean assistance).

It seems to me that the more we allow the Federal Government to involve itself in private business, industry and our lives we are allowing them to usurp our personal authority and responsibility. When we allow others authority over our financial future, aren’t we in turn relinquishing responsibility for our lives? Maybe, Americans think that in doing this (relinquishing authority) it frees us from the responsibility of our actions. Hmmm… or maybe we’re just not thinking!
Where do we go from here? I don’t know, but this I do know… this next couple of years will be very interesting, from many viewpoints.

If anyone of you have ever read Ludwig von Mises timeless essay “The Anti Capitalist Mentality” you may recognize the following concepts. The argument today is not about capitalism vs. socialism, that battle is being won handily (by the socialists). The argument has now moved to the playing field concerning the choice of the method by which the greatest possible portion of the income of the producers (non- government employed workers) may be distributed to the public [at large] at the whim or the ruling political class.

To quote Alexis de Tocqueville in his book “Democracy in the America’s”, “when the American public realizes they can vote themselves wealth from the public largesse, it will cease to be America as we know it.”

We no longer have an argument about having or not having a socialist state, the question is, “to what extent the socialist state?” The average American today considers receiving benefits from the “public largesse” not only possible, but also their endowed right. It’s very interesting that the very capitalistic system that creates wealth to make this expropriation possible is also the same system that is considered the worst of all evils by the socialists (excuse me, Democrats and Republicans). If not the capitalist system (free market), then what?

Wall Street Journal NEWS ALERT – Feb. 26, 2009
“President Obama delivered Congress a $3.6 trillion budget blueprint with a sharp shift toward expanded government activism, tax increases on affluent families and businesses and spending cuts targeted at those he says profited from ‘an era of profound irresponsibility.’”

I wonder if Citibank, Wachovia, J.P. Morgan, GM, Chrysler and the rest of the gang will be considered “affluent businesses”… or will they get another break at our expense?

With warmth and regards (as always),
Allen
To reply or comment:
http://voicecafe.blogspot.com/
or:
allenwells@mindspring.com