Friday, January 27, 2006

if I click my shoes three times, can I go home?

"The US economy is doing fine even with rising interest rates and oil prices higher than they were 18 months ago." Alan Greenspan said addressing the Senate Banking Committee{link}

"The economy added 108000 new jobs in December and has added more than 400,000 jobs in the last two months.... tax cuts have helped create more jobs...", President Bush addressing the economic club of Chicago on January 6, 2006{link}

If everything is so wonderful then why are the top two carmakers doing massive layoffs and closing facilities?

Why is it every time you turn you see articles like this...

(Salem) Transit tax increase sought... "tax increase would cost the owner of $150,000 home an additional $74 per year Statesman Journal

Comcast will increase its cable rates an average of 4% Statesman Journal

Even the Direc TV which is always putting down the cable company for raising its rates announced a 4% average increase. Statesman Journal

This all has to be just a nightmare...

because it is just too crazy to be reality.


Anonymous gullyborg said...

just because the overall economy is strong, that doesn't mean that all companies are doing well. in fact, it usually means just the opposite. a good economy usually means that innovators will emerge from nowhere to dominate the economy, while stagnant companies flounder. and more often than not, these shifts occur across the boundaries of market sectors, rather than staying within them.

am I saying that it is good that Ford and GM are floundering? not at all! but I am saying that because of problems within their market sector, they are doomed to suffer even when other sectors boom. so what's their problem?

Ford and GM are doomed to fail, because in a good economy, when other markets are doing well and people have money to spend, they want to buy expensive things like cars. But Ford and GM can't compete with other car makers, so they lose money.

Why can't Ford and GM compete?

1) American labor unions have driven up the cost to consumers of cars made in America to levels that simply price them out of the market, and

2) American environmental and other regulatory agencies are taking over where unions leave off.

If, overnight, we could elimate the UAW, the EPA, and OSHA, we could cut the cost of a new American car in half. That would allow Ford and GM to either:

A) offer the same cars at half the price, or

B) increase the quality of their cars significantly without raising the price.

Since consumers are willing to pay $25K for a nice new Toyota or Honda, it would make sense for Ford and GM to increase their quality and produce BETTER cars than Honda and Toyota to capture this price point. But then, since so many consumers find themselves buying either ultra-cheap cars like Kia, or used cars, by introducing a new cut-rate line of cars under $10K, Ford and GM could dominate this price-point as well.

This would be good for the American people. It would also be good for the auto workers, even though the union doesn't want to admit this. After all, when 50,000 workers lose their jobs, this is more devastating for them than having their wages cut!

after all, would you rather see your wages cut from $40/hr to $20/hr (and yes, UAW workers with little skill, little education, and not much seniority can easily make that), or from $40/hr to ZERO?

But there is a lot more to it that just wages. In fact, one of the biggest problems, caused by unions, is protection of jobs that should be done by machines instead of people.

If companies liek Ford and GM didn't have union contracts to deal with, they could eliminate unproductive workers in plants that aren't being closed, and retro-fit those plants with automated manufacturing systems. But because union contracts protect the unproductive workers, the companies find themselves forced to shut down plants entirely, rather than become more efficient.

You might be thinking: if the workers are replaced by machines, that's just as bad as the plant closing; unemployment is unemployment...

yes... and no...

When progress occurs in a society, that means things change. When we got cars, it meant a loss of jobs for people specialized in using horses as transportation. Everyone from ranchers to saddle and tack manufacturers to animal trainers to feed sellers all lost jobs.

But affordable cars meant new opportunities! Are we better off as a whole today compared to 100 years ago? Cars have opened up whole new markets to whole new segments of the population. it used to be impossible for a person more than a few miles from the city to work in the city. It used to be impossible for the average person to ever really do anything more than a few miles from his birthplace!

Cars cost some people jobs. But most of those people, if they were willing to change, had never before opportunities opened up for them.

But unions oppose change.

Take the unions out of the picture. Then, let the automakers become more efficient. What happens next is that these companies turn out better products for less money. And that means a LOT of new resources become available. If your car payment today is $400, that's $400 you CAN'T spend on other things. If you could cut your car payment to $200, without giving up any quality, you now have $200 more to spend on other things.

That means new markets for new things, because it isn't just you: it's millions of Americans all suddenly finding themselves with either more money, or more mobility. That means other markets that are currently luxuries appealing to a small segment can suddenly market themselves to the masses.

Now all that growth means new jobs, and those displaced auto workers, if they are willing to adapt, can fill them. But if the displaced auto workers are the result of closure, rather than an increase in efficiency, there is no new market for them.

When Ford and GM lay off 50,000 workers because they can build more, better, and cheaper cars without those workers, it's a GOOD THING. Those 50,000 workers will be absorbed into growing markets. But when Ford and GM lay off 50,000 workers because plants are closing because cars aren't selling as well against foreign competitors, that's BAD.

It's especially bad when, as we face today, new markets are also stiffled by bureaucracy, taxation, regulation, and the threat of unionization. The result is outsourcing of American jobs without a matching insourcing of new innovation. Add in the importation of more workers (i.e., ILLEGAL ALIENS) who, because they are not subject to the same laws as legitimate citizens (i.e., taxes, minimum wages, etc.) can outcompete Americans for the same jobs, and you have a real catastrophe brewing.

So now you see that there are three things we must do:

1) break the unions
2) reduce the power of government
3) secure the borders

If I were running for office, that would be my 3-fold platform for the economy.

2:16 PM  
Anonymous Anonymous said...

I agree with Gullyborg's 3 point plan but I think reducing Governement should be #1. If we don't get a grip on it fast, our Democracy will become a Monarchy. Once that happens we will be unable to fight for anything else. The elite keep getting tax breaks and the regular citizen is picking up the tab. It has GOT TO STOP!

8:58 AM  
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