Category Archives: Economics
MODEST MONEY PLEASURES
Money fantasies. Nearly all of us indulge in them from time to time, whatever our position in life. And at times we’re even willing to talk about them. Grand prize in the lottery (a recent survey had eight of ten Americans dreaming about winning the lottery); two longshots in the daily double; an incredible run of luck at a gambling casino – any of these will do, as will other common fantasies, viz. finding a fortune, even stealing one. For some there is the insider’s stock tip just prior to a takeover bid, an exceptionally generous offer on a parcel of property previously bought for a song, the modest business investment suddenly a bonanza; or a work of art purchased at a garage sale, that is later determined to be a valuable original. What about marrying into great wealth, or inheriting a fortune? Each one is plausible, certainly more so than discovering buried treasure; nonetheless, they are unlikely. That’s why they are fantasies. They can happen, but almost always to other people. What then can the rest of us expect? A raise or promotion, an inheritance, all are possible. But far more likely are those occasional money “windfalls” familiar to all of us. Unexpected, limited, involving modest amounts. Still, they provide the sweet satisfactions of small triumphs. Consider the following list culled from a recent informal survey: Continue reading
BIG BIG BOX
It’s going to happen sooner or later. Mark my words. Go into a “drug store” like CVS or Walgreens and it’s no easy matter discovering the pharmacy section. That’s because they’re selling everything else from milk to laundry detergents, toys and greeting cards there. Enter a Target store and after picking up a vacuum cleaner, shoes and a wall decoration you can head over to the grocery section and do the week’s food shopping for the family. Drive into a gas station and after filling up you’re able to head into the attached convenience store to pick up soda, snack food, magazines and canned goods. Dollar stores know few limits either, though limited to the dollar price tag. There you’ll discover an ever-changing inventory of seemingly everything.
What’s going on? Commercial boundaries have been breached. Retailers are encroaching on one another Cannibalization cannot be contained. So where will it lead? The answer couldn’t be more obvious. Watch for the store that, under one roof, will offer just about every product category on the market. That’s right. Every item both large and small that you’ve ever shopped for will be there out on the floor or on the shelves. Consider it retailing on steroids, superstores supersized. Nothing like it has every appeared on the retailing landscape.
This new establishment will occupy an immense area, somewhat shy of 250 acres and will be, as a consequence, located in suburban or exurban areas. Miles of shelves inside, together with open floor selling spaces, will present shoppers with just about every consumer product in creation. Any listing here would be notably insufficient, could not possibly include all that will be available. For example, there will be automobiles and tires, furniture, carpeting, groceries, cosmetics, toys, party goods, games, sports and camping equipment, household appliances, computers, electronics, shoes, bicycles, medical equipment, men’s women’s and children’s clothing and accessories, books, etc., etc. – altogether hundreds of thousands of items.
How often in the face of economic slowdown is the government accused of simply turning on the printing presses, recklessly creating something out of nothing, flooding the economy with dubious dollars. The idea of artificially creating value seems to many to be altogether sinister and potentially catastrophic.
Now, I’ve been dabbling in the stock market for years, making some money, losing more, but never under any illusion that I was contributing to the overall economic advancement of the United States. I’ve always considered the stock market to be primarily an upscale gambling parlor for America’s middle and upper classes given respectability by generously designating as “investors” people who plunk money down there.
A case can be made for the stock market. A start-up company that shows great promise can apply for listing on an exchange, sell shares to the public and raise the money it needs to expand operations. An established corporation can use existing shares or issue additional ones to reward managers and other key personnel or for the acquisition of other companies. Admittedly this is useful and convenient although not altogether necessary. Companies can, after all, raise money from private investors, get loan support from banks, use untapped cash reserves and reward employees in a number of other ways.
CRIME AND PUNISHMENT
Like the Biblical Job Americans have had much taken away from them. Millions have lost their jobs, their homes and have watched the value of their pensions shrink. They are unable to move, consider having children, or even filing for divorce.
All of this they’ve brought upon themselves. They have behaved badly. They have run up excessive levels of indebtedness on credit cards. They bought homes they could not afford. They borrowed on the equity of their existing property, and withdrew funds from their retirement accounts. What profligacy. Worse, they stopped saving money and instead devoted themselves to unabated consumption. And they insisted that the government help maintain their life styles by spending more on education, health care, medications, housing, unemployment benefits, etc., forcing officials to borrow heavily and expand the national debt to unprecedented levels.
You don’t ordinarily associate driving with buying, but there is a connection. It relates to our informal “underground” economy, though but a minor feature of our vast network of undocumented exchange and commerce in America.
Rather, it’s about what ordinary people attempt to sell to those driving around in suburbia, and motoring along our rural roadways. Let us begin by considering the garage sale, long a permanent fixture of suburban life. It’s hard to miss those posted signs directing you to the addresses of those selling off sundry household contents (and often those of their neighbors as well).
On certain weekends, such sales are everywhere. Most have left the confines of the garage with items sprawled across driveways or, more commonly, covering front lawns.
For many, garage sales are irresistible – “You never know what you’ll find.” Besides which, stuff actually is cheap – and you can bargain (especially when you arrive just as they’re packing up). There’s always something you can use (and even if not, still you buy it). And it’s all so convenient. You just park your car along the curb and later deposit your purchases in the trunk or back seat. And let’s not overlook the social dimensions. In suburbia neighbors meet each other only occasionally (unless they walk dogs). They proceed from the house to the car and off they go. Garage sales feature that rare opportunity to chat, catch up, learn what’s going on and meet people informally. Commerce and camaraderie – a winning combination.
CAPITALISM: A LOVE HATE RELATIONSHIP
In the beginning God created America, but did not proclaim the gospel of Capitalism. Historians have discovered that though the Puritans were not averse to making a buck, the Capitalist mentality took time to take root within the thirteen colonies. After the Revolution, however, the pursuit of business and profits accelerated. But it hit a snag, or at least considerable resistance from the southerners in the decades before the Civil War. Apologists there argued that capitalist development in the North and West was creating a dismal society characterized by insecurity, fragmentation and sordid materialism. The southern system of slavery, on the other hand, they claimed, brought about a much more livable, more stable and compassionate society.
This was the first time in the United States that Capitalism had been seriously questioned. It would not be the last. Challenges came again in the late 19th and early 20th centuries by Populists, Labor Unions and Socialists. Later on in the 1930s, when the system seemed to have broken down, certain New Dealers decided it could not heal itself, that it required major overhaul. Later, communists insisted they had no use for it; neither did the 60s radicals. But, in truth, none of these assaults sent capitalism to the canvas. Some changes resulted. Still, it forged ahead confident, albeit a bit complacent.
But look what’s going on now! Capitalism is being challenged, asked to defend itself as never before. Why it’s become vulnerable is no mystery. There was Enron, Bernie Madoff, Lehman Bros., bank bailouts, a bloated financial sector, a nationwide housing collapse, accelerating inequality, all contributing to the coming of the Great Recession. And there was “Occupy Wall Street” raising questions as to why this had all come to pass and why extreme income disparities, hunger, homelessness and poverty had become all too common. The system’s Achilles Heel had been exposed.
But there was more. It had become too much a “winner-take-all” system. Strikingly outsized CEO rewards confirmed that point, as did a tax code that allowed them to keep the lion’s share of their gains. People saw the free market had no remedy for the emergence of giant corporate entities whose size dwarfed whatever competitors remained. Witness the emergence of banks “too big to fail”, and multi-national companies that spanned the globe. There was no controlling these mammoth entities. If pressured they were likely to shift operations abroad; if taxed they chose to leave profits overseas, and if threatened with regulation they dispatched legions of lobbyists to dissuade legislators or direct campaign payments toward representatives more compliant.
Capitalism had never shown much sympathy toward labor. It employed workers, but the pursuit of profits always took precedence over returns to labor. Labor’s efforts to organize met with fierce and often violent resistance from business. Today, labor is again on the defensive as wages lag behind inflation, benefits are being stripped away, firings are frequent and insecurity widespread. The pressure against government workers in particular has of late become especially intense. But, as services are reduced or disappear, public anger is likely to build.
Above all, Capitalism allocates power and places it squarely in the private sector. The public has learned how that power is exercised. It has automated the workplace and eliminated or outsourced jobs. It has used its authority to fire people, placed them on reduced work schedules, forced down the wages of new hires and insisted that large numbers become private contractors (not entitled to benefits). It has reduced benefits of long standing and insisted that workers themselves bear more of the costs. It has chosen to retain billions of dollars in reserve (or to use to increase stockholder dividends or for stock purchases) instead of investing in R&D or in new facilities. Capitalism celebrated for its dynamism and creativity has in recent years failed to deliver.
The longer this continues, the larger the number of critics emboldened to question and challenge the system as never before. A majority of Americans now believe that high earners (heavily represented in the corporate sector) should be required to pay more in taxes and that companies must stop exporting jobs. More and more college grads are heading for the non-profit sectors of our economy. The rising tide of Capitalism once expected to lift all boats is instead scuttling them, witness the sizable contraction of the middle class. The “free market” has become too much of a free-for-all with inadequate safeguards or oversight. People have started referring to Europe, whatever economic system it has (actually it is a mixed economy), and noticed that in many of those countries, despite the current problems, citizens there ejoy greater security and a higher quality of life. Capitalism, therefore, may no longer be the sacred cow it has long been here. Some recent polls even indicate that Americans currently view Socialism more favorably than Capitalism? Imagine that!
Capitalism will not in the short term disappear, but it will have to defend itself, address its shortcomings and provide answers to the problems now laid at its doorstep. Will it be up to the task?
PENNIES FROM HELL
Is there anyone left to defend the penny? Once upon a time there was absolutely no need to. Old timers remember when pennies bought goodies galore at the candy store. They’ll remind you how pleased they once were when rewarded or gifted with a few pennies, when dispensing machines of all sorts operated on pennies , and when the local newspaper was yours for but a few cents.
Alas, the penny has fallen from grace, been rudely shoved aside. Once a necessity it has now become a nuisance. They cost too much to make and nothing on the market can be purchased for a penny anymore, or even several of them. People no longer stop to pick them up as they lay abandoned and forlorn on sidewalks. Dishes containing pennies can be found alongside cash registers, free to customers who are charged $4.03 or $2.52, etc., and therefore require pennies to complete the transaction. One could easily imagine pricing policies that eliminate the need to produce pennies.
Few today would offer “a penny for your thoughts”, or employ the term “penny pincher” to taunt a cheapskate. “Penny loafers” are unlikely to make a comeback while the name “Penny” is heard rarely these days.
Pennies fill the pockets of pants and jackets and frequently just remain there. At home they merely accumulate, have no further prospects. Offer them to children and you will be greeted with scorn. Decide to pack them into rolls, but don’t expect you’ll get around to actually doing it. Why not toss them out? You give it serious thought, but then are deterred by guilt – throwing money away – it’s just not right. And so they pile up, often out of sight, a challenge to our imagination and determination.
Now, the Canadians recently announced that they would be phasing out their penny. Americans, I know, generally resent taking any lessons from our neighbors up North, do not believe Canadians have much to teach us. In this instance, we might consider making an exception.
We’re suckers for sales. Retailers have long understood how to appeal to us with “clearances”, “liquidations”, “markdowns”, “discounts”, “reductions”, and the like. My favorite is the come-on offering products currently available “at popular prices”. Is this an all-too-clumsy attempt to link commerce with democracy? Are we to believe that prices reflect the will of the people? Maybe in a society where bargaining is standard practice, there is truth to it. But here, in the United States, prices are on display, after which it’s take it or leave it (notwithstanding the growth of auction bidding type websites).
Prices, most would agree, may be fair but are rarely popular. If it’s something you want or need, you look for the best deal, but hardly expect the price you paid was determined by popular referendum. Pursue democracy via the voting booth; don’t expect it in the price tag.
I enjoy shopping locally, strolling around the four or five blocks that make up the central business district of my village. Once you’ve lived there as long as I have, it’s as much of a matter of maintaining relationships, catching up on the latest doings, as grabbing a bite or picking up an item or two.
I’ve never been in business myself, but I have an abiding empathy, actually admire greatly, those who have or have tried. I understand the pressures they face and recognize the unpredictability of it all. What gumption it takes for people who begin with a hope, a dream, a passion then go to enormous expense and spend countless hours, weeks and more to prepare to open their shop where they then find themselves at the mercy of the marketplace.
The uncertainties are many. Is it a viable business? Will people shop there? Does it demand much more time and effort than one imagined? I know the odds are stacked against them. A majority of new small businesses never make it. I also question the need for many of these new start-ups and often their choice of location. Excess appears to rule. Are we not in fact overbuilt, far too commercially congested in America? My village would seem to confirm that proposition. There are nail establishments all over the place, numerous gift shops as well, together with an abundant selection of gyms. There are three ice cream or ices stores within a block of each other. Branch banks – I can’t, I won’t count them all. Why so many here? The community is aging: how much fresh money is out there, available for new deposits? Our town is also regarded at the restaurant mecca of the area (over 60 existing locations and counting). Many close, but then there always seems to be others to take their place.
I root for every new store or restaurant that opens. The village newspaper consistently features the standard Grand Opening photo and story. It’s a picture most familiar. The owner or owners standing proudly in front of their shop flanked by the mayor, Chamber of Commerce executives and other local officials. An oversized ribbon and mammoth pair of scissors complete the picture. The ribbon will be cut, and the store already in operation, is now open for business officially.
I follow developments. I listen for local chatter about the new place. Are people shopping there? What’s it like? What do they offer? How about their prices? I try it myself – buy a gift, have a frozen yogurt, order a meal. I wish the owner well. Is he or she friendly, gracious? I hope so. Is it, in my estimation, a business that can make it in the village? (Sometimes I just have to scratch my head and wonder what prompted the opening of a store that just doesn’t seem like the right fit.)
I make sure to look in (from the outside) on each new place hoping to see customers in the store. When they’re empty it upsets me greatly (just as I find “Going out of Business” and “for Rent” signs terribly depressing). I understand that sometimes it takes time to get up to speed, for word to circulate and for satisfied customers to show up, then re-appear. Some stores hit the ground running; others require more time.
I will not become a customer of every new place in town, but be assured, I’m sure hoping most of them succeed.
“IT’S THE ECONOMY, STUPID!”
First-time unemployment claims ticked down this week. That’s good. Two days later, consumer sentiment figures come in lower than expected. That’s not so good. But then we learn that the manufacturing index in the New York region moved higher – most encouraging. What’s going on, you say. What numbers best measure the current state of our economy? Are we any better off than the proverbial blind men describing the elephant? Maybe not. The U.S. economy is, after all, a massively complex mechanism generating a GNP close to $15 trillion; by far the largest in the world. Peering inside at its internal workings and figuring out which vital signs to rely upon is a challenge. It is undertaken by legions of economists, analysts, statistically-sophisticated chart makers, pundits, stockbrokers, hedge fund managers, treasury and Federal Reserve officials, financial consultants and planners and individual investors who have staked their reputations and their capital on figuring out what the economy is up to and where it’s going. Indeed, a not insignificant proportion of economic activity is generated by those very people whose task it is to provide clues almost daily about these crucial matters. Much of their efforts go into taking countless test borings into our economic activities and producing mountains of data which, if gathered accurately and correctly analyzed, promise to provide answers or at least informed guesses as to what is happening.
Many have their favorite index which they believe to be the most revealing barometer of current economic conditions, viewing other gauges as unreliable, volatile or prone to miss important data points. For some, it is the price of gold or of a barrel of oil, or the direction of interest rates. Plenty of folks eagerly wait for the start of corporate “earnings season” when large companies disclose their bottom lines and project future earnings and profits. Some counter by observing that since many multi-nationals secure much of their revenue overseas we’d best look elsewhere to gauge the state of our domestic economy. Accordingly they focus upon inflation rates, hourly wage levels, unemployment numbers, hours worked per week, personal incomes, savings rates, inventory levels and retail sales as best reflecting conditions here. Manufacturing, others say, is what holds the key to America’s future economic well-being. So what’s happening in this area is critical. Others point to service businesses as the driving force of our economy currently and in the foreseeable future.
The debate is endless; the outpouring of data mind-numbing. Imports, exports, productivity levels, housing construction, sales of existing homes, mortgage rates, mortgages under water, levels of commercial loans by banks, the value of the dollar, and of course data from overseas – China, India, Japan, Brazil Europe. Toss this all into the mix. What does it add up to? Do we end up just drowning in data? Can we actually get a handle on something so complex, fluid and subject to changes in sentiment, mood swings and irrational behaviors? Still we have to make do with what is currently available.
Sure, “it’s the economy, stupid”, but wading through the mountains of information selecting the right data, devising appropriate policies will ever remain the challenge.