Brain-Jockey

Crunch Time: Stimulus 101

Written by Audrie Zettick on February 9, 2009

No matter where you stand on the economic stimulus package, check out this graphic in the Washington Post.  Highlights of these numbers pulled from the Congressional Budget Office package on the House-approved version:

• The Democrats claim one-third of the bill is tax cuts.  CBO says 22% is tax cuts.
• About 64% of the $819 billion House-approved bill would get into the economy in 19 months, well short of the 75% Obama wants.  That’s $294 BILLION that’s clearly not  “we-don’t-have-a-moment-to-spare” ideology.  

Doubling our national debt is my biggest worry now.  See what these economists say about the stim package.

Think for yourself (be a Brain-Jockey).  If you can, explain to me why all this “stuff” is in a package designed to be a quick fix to the economy AND why nearly doubling our national debt isn’t going to be harmful to our future.  How are we going to fund things we REALLY need and what are we going to do when private investment dries up due to excessive debt?

I reserve the right to deploy my Nerf© bat, should I disagree with any pro-stimulus argument made here.

Stimulated to Call

Written by Audrie Zettick on February 9, 2009

I’ve been spending the day trying to call Arlen Specter’s office to voice my opposition to the stimulus bill, which he supports.  Specter (my Senator) is one of 3 Republicans in the Senate who support the package. 

Can’t get through on any phone–even tried contacting his remote offices, such as the one in Erie.  No go.  Apparently the phones are burning–and I doubt it’s with calls of support.  Or maybe they are just out to lunch.  At 9 a.m.  And 11:00 a.m.  And 2:00 p.m.

Out to lunch?  Did you know that means inattentive?  If Specter votes “yes” I’d say he’s out to lunch on the will on his constituents.

(Be) Holden to the Status Quo

Written by Audrie Zettick on February 4, 2009

I thought the country (or at least the millions who voted for Barack Obama) threw the status quo out the window this past November.  But the same-old, same-old reigns in the U.S. Congress these past weeks, especially from my Congressman, Tim Holden (D, PA-17). 

At first, I had hope.  Let’s review:  

• No Time for the Status Quo.  By most accounts, these are the most challenging times since the Great Depression; it calls for us to support elected officials who are acting for the long term, greater good of our nation. 
• Fast, Focused and Finite. Widely-accepted, economic stimulus wisdom from Lawrence Summers. (Here for David Brooks’ insight).
• Tim Holden noted that the economy is in “the worst state that I can remember in my lifetime” and that  “the economy is in dire straits, and we need to show some leadership and do something here.”   

Except that “leadership” meant sticking with the status quo, old-style politics.

The Commonwealth of PA is among the states whose budgetary woes result in part from a history of old-style vote getting: putting something for everyone in appropriations bills, so we “get support.”  Holden and most of the Democrat Caucus did the same with the stimulus bill, H.R. 1. 

Holden’s justification:  “I don’t know how I’d vote against $1.8 billion coming to Pennsylvania.”  ……except he also said “I can’t direct money to go anywhere.”   

The result?  Not a stimulus package that is fast, focused and finite.  More like flabby, frenzied and flatulent. Apparently, my district isn’t the only one “Be Holden” to the status quo.

Talking Points: The People Speak On Stimulus Package

Written by Audrie Zettick on January 28, 2009

Around the country, the grassroots are speaking out, calling and emailing their congressional delegations in opposition to the current so-called economic stimulus package–”The American Recovery and Reinvestment Act.”  Put forward as an “emergency” appropriation needed in time of economic distress, it looks more like a Christmas package for overzealous big government spenders.

In spite of some small changes made in the past 24-48 hours–such as pulling the inclusion of contraceptive programs as part of economic stimulus–the bill remains bloated and chock full of programs that either require more consideration or are downright detrimental to the country at this time. (note: it is my understanding that the programs for ”

Regardless of your political persuasion, we urge you to contact your elected officials NOW in Washington (and especially your Senator) and tell them to oppose the current bill.  (Contact info here).

Here are some quick, simplified talking points:

• This is too important to be partisan.  Republican proposals were shut out of consideration by the Congressional democrats, who operated behind closed doors. 

• The $825 billion stimulus package is actually estimated to cost over $1.1 trillion over ten years, according to the nonpartisan Congressional Budget Office.  (Some estimates take it as high as $2 trillion).

• Bloated excessive spending doesn’t work.  In the Bush Administration, spending was increased at the Departments of Transportation, Education and Health and Human Services to the tune of 2, 3, and 4 times the rate of inflation (respectively).  Look at where that got us.  Why do we think the same actions would work now and not worsen things? 

• This is billed as an emergency appropriation.  Congressional budget office revised estimates say that only 64.4% of the funds will be spent in 18 months from enactment.  Further, less than 21% of the funds are expected to be utilized in 2009.  At minimum, let’s cut the funds not being used on an immediate basis! 

• It is shameful to believe that the myriad of programs included in the bill are for economic stimulus. (Customize your response from this list of pork. Hat tip Glenn Beck and staff).  This bill is just an excuse to ram new programs through.  This legislation would create more than 32 new programs!

To help stabilize our economy, we agree with the tax cuts included in the bill.  However, we prefer less spending and a better focus on what tax cuts can do to immediately stimulate the flagging economy, such as that included in the alternative “The Economic Recovery and Middle-Class Tax Relief Act.”

“The American Recovery and Reinvestment Act”  is a “borrow and spend” bill that will burden our children for decades.  We demand that you vote “no.”

(Note: see also the “Melt the Phone Lines” initiative on Top Conservatives on Twitter.) 

Let Them Eat Chocolate: One Company’s Economic Stimulus

Written by Audrie Zettick on January 27, 2009

While continuing to read and track issues related to economic stimulus and HR 1, I stumbled across this article about Hershey Foods.  (Full disclosure: I live in the Hershey, PA area and like have a passion for chocolate.)

Seems that Hershey’s sales rose in the 4th quarter, to the tune of 2.6%, resulting in profits being up 3.8% for the year.  Improved management–including decreased costs, price increases and better advertising–went a long way toward achieving these results.  Perhaps the Big Three Automakers could learn something from Hershey. 

I’d like to offer another spin: with the Democrats controlling Congress, the economy in the tank and massive government debt growing, more people are turning to the endorphin-rush of eating chocolate to deal with anxiety (endorphins lessen pain and stress).   It’s been documented that chocolate also produces serotonin and that dark chocolate contains a similar ingredient to marijuana, creating a sense of euphoria.  (Wait, are they already serving dark chocolate in the House Democrat caucus?)

Whatever.  It’s economic stimulus for my hometown.  That works for me.

647 Pages versus One Simple Video: Wake Up America

Written by Audrie Zettick on January 27, 2009

Four words strike fear in my heart.  Well, more accurately, four names. Henry Waxman, Barney Frank, David Obey and Charles Rangel.  Power brokers in this Democrat-controlled Congress, these committee chairs are key sponsors of the “government stimulus” bill near-destined to pass in some form or another. 

I might be a brain-jockey but I’m no economic rocket scientist. With jobs dropping like flies here in PA and elsewhere, maybe there is some call for strategic government spending?  Figuring this is too important to the future of my kids, I found an online link to H.R. 1 “The American Recovery and Reinvestment Act” being discussed in D.C. this week.   (Glenn Beck and others have growing lists of spending proposals I’ll cover later).

Normally, a policy document of this length would be a good sleep-aid.  But this one’s more in the line of a nightmare. Still slogging through the mire, but let’s just say I’m having a bit of a problem understanding why billions of bucks for items like special education, health-information technology systems and broadband access in rural areas is an emergency.  (Yes, this is an “emergency” appropriation).

The Commonwealth Foundation in Harrisburg PA tweeted a link to a video that all of us should view this week. It’s by the Cato Institute and succinctly highlights how government spending can’t buy us out of this economic mess.  (Make sure you watch until the end, where they show Bush-era spending increases of 2, 3 and 4 times inflation—and THAT sure helped, didn’t it?).

I’ll be putting together some talking points and other links you can pass on to your friends, family and others who need to know how their future is being mortgaged. 

Meanwhile, back to the 647 pages of HR 1, and a stiff cup of coffee.  Wake up America.

Bailouts Are Blarney

Written by Audrie Zettick on January 6, 2009

I’ve never been to the Emerald Isle, but I may have to plan a trip soon. 

With bailout mania still underway in the U.S. and Europe, I read about the recent financial troubles of Waterford Wedgwood PLC with more than a passing interest. Waterford Wedgewood, also the parent company to Royal Doulton recently was placed in receivership, after cutting jobs in Ireland and de-listing from the Irish stock exchange in December 2008.  

While the Irish government has said it will do all it can to keep Waterford in Ireland, they’ve also unequivocally said “no way” to a bailout in the form of underwriting the company’s bank loans.  The parallel to the problems with the U.S. auto industry are not obvious at first, but become more evident as you dig deeper.  In the past 12 years, Waterford’s management practices were questioned–everything from what they were producing (moving away from their celebrated hand-cut crystal to machine-produced items) to disputes with the union over work practices. 

In my opinion (remember I’m a marketing instructor), their paramount mistake was drifting from their decades-old competitive advantage: a niche providing high-end hand-cut class.  Instead, they muddied the Waterford brand with ancillary (machine-made) product lines until it’s hard to know just what it being made where–and consequently what the Waterford name stands for (apparently, low-cost overseas labor using machines somehow fits their target market—a trend that looks to continue).  Yes, they were trying to ride the trend of informal dining, but they did it at the cost of their core brand.  The response to cheaper competitors was to cheapen their own brand.  Rolex never responded to Timex that way.  And hard-core collectors of Waterford crystal willing to consider dropping $300 or more on a wine decanter will be hard-pressed to understand why the company touts links with Martha Stewart (whose brand is also found in Kmart).

(Of course, in weird sort of way, I’m reminded of how the Republicans muddied their “brand name” in the past decade or so…..)

But in all fairness, Waterford still touts its artisans and does use hand-cut techniques on the Waterford core crystal products.  But their higher union wages have forced them to look at how to compete with crystal products coming out of Eastern Europe at a lower cost.  

I commend the Irish government for sticking (so far) to their mid-2008 decision to avoid supporting a bailout. And I’m practicing for a trip to Ireland–even if it’s just a virtual one.  Here’s my first attempt:

Ni ceart go cur le cheile (there is no strength without unity).

Buying In to Bankruptcy

Written by Audrie Zettick on November 20, 2008

Heritage Foundation’s Morning Bell today shone a light on the need for GM to be financially responsible to stakeholders by making plans for bankruptcy (even if only included in a back-up plan).  Drawing on a WSJ article, they noted that Americans are accustomed to buying from bankrupt organizations. 

Some in the mainstream media (MSM) as well a few (conservative?) pundits have tried to make the point that the bailout is preferable to bankruptcy.  Primarily, their argument is twofold: 1) consumers would cease to buy vehicles from the Big 3 and 2) GM would find it difficult to get funding after bankruptcy. 

I don’t buy these arguments.   On the first point, why would consumers stop buying from GM?  We fly airlines which are in bankruptcy proceedings and don’t seem to be concerned that the jets will fall from the sky.  I take my car to the local garage (not always the dealership) and, if Ford disappeared, I have confidence I could continue to get it repaired (it’s run great so far, in spite of 126,000 miles of wear).  With so many vehicles already on the road, demand for parts would continue, although admittedly there would be some shake up in the supply chain with the Big 3 cutting back on production (but isn’t overproduction one of the issues anyway–see my post on this).

Rick Newman at US News and World Report observes the many ways that GM could benefit from bankruptcy, not the least of which is the opportunity for real reform.  Reform would include the need to condense their divisions, which contain a great deal of overlap between the models in the various lines (but union contract renegotiation comes to mind too).  I’ve frankly never quite understood (aside from some production savings) why the Big 3 historically had cars that were virtual images of each other in different lines (look, there’s Ford Taurus, no, wait, it’s a Mercury Sable).  

Not everyone is concerned with GM’s ability to get financing post-bankruptcy.  Newman, among others, notes that

A bankruptcy filing doesn’t mean GM would go out of business. Some bankrupt companies do, but many write off debt, shed costs, dissolve unprofitable divisions, and emerge as healthier companies.

 

You can’t tell me that there isn’t value in their brand, the number of past customers and the future plans for new vehicles (see Newman’s Ten Cars That Could Salvage Detroit ).  Yes, GM would take a hit, but some saavy investors would step in with funds.  Let the free market reign. 

Tough Love for Detroit: No “Just-In-Time” Bailouts

Written by Audrie Zettick on November 19, 2008

“Google” a phrase like “Detroit auto bailout” and you’ll find thousands of articles, many bemoaning the state of the Big 3 U.S. automakers.  Search on the terms “Honda Indiana Plant” and you’re likely to get a bunch of hits showing articles from 2006 (like this one from CBS News) lauding the possible opening (and lobbying for) an American Honda manufacturing plant in Greensburg, Indiana.  

Be careful when you read your list of hits, though.  You might miss the one or two about the Honda plant that opened this week.  Yes, opened.

On Monday, a Honda plant with over 1,000 employees (expected to eventually employ 2,000 or more workers) opened, beginning the manufacture of the Honda Civic.   This follows expansion of a Toyota plant in Lafayette, Indiana, where the Camry began assembly earlier this year. 

As it should be, Honda is able to respond to marketing and economic conditions by producing the smaller more fuel-efficient Civic.  Toyota is contracting in some areas, adjusting labor and lowering SUV and truck production, to respond to conditions that favor the smaller Camry and Prius hybrid. 

It’s not that the Big Three don’t adjust.   They have tended to overproduce regularly, resulting in having too many cars to move (much to dealer complaints) and the resulting special incentives and worker layoffs.  Of course, prices then rise as, eventually, demand and supply meet a critical point.  This past summer, Chrysler shut down all plants for two weeks.

On the other hand, Toyota historically has held fewer days of inventory than the Detroit automakers.  Most of the time, this keeps them in strong financial position.  Sometimes it backfires, such in this past summer when consumers seeking smaller fuel efficient cars were forced to look elsewhere due to a 6-month waiting list at Toyota.  The irony: Toyota’s demand was up at a time when sales dropped dramatically for U.S. automakers. 

The difference between Toyota’s and Chrysler’s periodic shutdowns is more than scale.  These include:

• Lean Manufacturing: Toyota’s just-in-time inventory (or Lean Manufacturing) approach is part of a larger strategy that allows them to adjust where and what models they make.  Toyota’s renouned approach allows them to cut waste all along their production process. 
• Business risk:  The downside of running lean–running short of cars–has less of an impact on them then overproduction and carrying the inventory at the plant or at the dealers. 
• Economic Impact:  Toyota’s temporary labor reductions and model reshuffling affects the local economies less than Detroit’s actions.  Among the strategic measures implemented by Toyota: shutting production at all plants for two extra days in December, laying off some temporary workers and eliminating one shift making the Toyota Tacoma at the California-based plant they share with GM.  Compare this to Chrysler’s shutting down for two weeks or laying off 1,000 workers.  

We’re not talking cost of labor here, we’re talking plain old business planning.  What makes lawmakers think that bailing out the Big Three will change their management practices?  Or, more frighteningly, having government at the helm (a la Pelosi) will result in effective management? 

Yes, there will be regional economic fallout, but it’s time for tough love for the U.S. auto industry.  Detroit sees us as a source of funding.  Toyota and Honda see us as consumers, and plan accordingly.  I vote for the latter. 

Gluttons for Tax Dollars: Bail-Outs R Us

Written by Audrie Zettick on November 17, 2008

I’m not a big advocate of slippery-slope syndrome.  You know, thinking that every action or policy leads one down a road of incremental steps, until you inevitably end up with some undesireable outcome.  With some exceptions, I don’t look for that slope behind every vote, executive order or policy proposal.  Perhaps it’s because I’ve a healthy respect for less government and assume people see the world the way I do. 

I initially saw the bailout as one of those rare circumstances where government intervention was warranted because one sector of the economy threatened to take down the whole.  Silly me (nerf bat to head).   The $700 billion bailout is a slope with a big incline and we’re careening toward the bottom fast.  Or, more accurately (mixing my metaphors)–the bottom of the trough.

We’ve done government bailouts before and the economy and country lived successfully through them.  The savings and loan crisis (good background here and here) of the 1990s and the Chrysler bailout (see Heritage Foundation here) come to mind.  But as some policymakers point to the (debatable) success of these past efforts, the “gimme” syndrome is upon us, and everyone’s lining up for some of the goodies –unions, automakers (and their supply chain), wall street, even main street.   We’re all shopping at Bailouts R Us. 

I couldn’t agree with Michael Barrett more.   

“Small businesses still cannot get money, people are still getting laid off, and most of the people in our government still have their heads up their butts refusing to acknowledge that the real problem is trying to bailout these companies and banks in the first place. How can a capitalist system work if the government keeps trying to monkey it all up?”

 

 We got into this complicated mess for many complicated reasons, not the least of which is that the federal government injected its policies into the mortgage business via Fannie and Freddie, revised Community Reinvestment Act guidelines that resulted in banks lowering lending standards but passing the risk to others, and HUD directed Fannie and Freddie to make loans to those with below median incomes for their areas of residence.  

Attempts at bailing out AIG are already backfiring, as more funds are needed (they are now also feeding at the $700 billion trough) and its become apparent to some (especially the AIG stakeholders) that private investment might now be a better rescue alternative.   TARP money may be used to bailout Detroit’s bloated union pension obligation.

 Buying Off Main Street – 

Main Street’s trough is ready to be filled:  enticing us to go more in debt on car purchases by allowing write-off of interest, sales tax (see B. Mikulski proposal) and allowing certain mortgage holders to negotiate for lower mortgage payments IF they fall behind by a couple of months payments (FDIC proposal here).  (Don’t get me started with the law of unintended consequences on that last one).  And let’s not forget the proposed Economic Stimulus Package, Round Two. 

Collectively, we all need a bib from chowing down on the slop of tax dollars.  But our kids are going be doing the mopping up.