The Way to Prevent the Looming Recession

Recently, the Fed has been in a crises with the current market situation. The Fed is expected to do something about the possible recession as a result of factors such as the housing market. In this article, Robert Reich claims that tax cuts are the answer to the preventing the recession and not the Fed cutting the the federal rate. With major concerns in the economy right now and many homeowners trying to sell their homes without much success, the nation is experiencing rapid loss in jobs in the mortgage, contractor, and many other related industries. Foreclosures are also at an all-time high.

I agree with the article, in that the Fed is not going to be able to turn around the market; however, I don't agree that tax cuts for the middle and lower classes is the answer to avoiding a recession. Doesn't there have to be more than just tax cuts to turn around the economy in a major crises? What else could be done to prevent a recession? With middle-class and lower-class Americans struggling to survive, I don't believe tax cuts will be sufficient because many people in these classes are too high in debt and will not spend the extra money from the tax cuts on other goods to prevent a recession. Also, I believe the article contradicts itself in saying that the middle-class will spend more with a tax cut because it also says that Americans are "so far in debt." With mortgage debt a huge part of the possible recession, payroll tax cuts wouldn't put much of a dent into the outstanding mortgage debt of Americans. Plain and simply put, many Americans purchased homes and expected to be able to get instant equity out of the home and turn it for a profit quickly. As a result, many Americans paid top-dollar for homes and are now stuck with the debt, which they can't afford. Is a recession inevitable?

The Rising Tide of Corn

This article was published in the Washington Post.

The rising cost of oil has increased the cost of gasoline. With that rising cost, consumers have pushed for alternative forms of fuel. Scientists have finally produced a substitute for gasoline known as ethanol, but the unintended consequence has been that the price of food products are rising dramatically. Ethanol is a green, or clean burning, fuel made from corn. With the increase in demand for corn, farmers are having to pay more for the feed used to raise their animals. In turn, the costs of milk, eggs, meat, and cereal are all increasing as a direct result.

This article is a great way to see a very direct and obvious shift in the demand curve. In the beginning corn was seen as a viable option to create a green fuel, since it was a renewable resource. Only after the fact was it made evident that an unusally high demand would be placed on corn and the effects it would have on prices in the food industry. Now we are seeing the dramatic effects.

One other thing I wanted to point out is that the market had a shortage of corn, which increased the prices dramatically. To take advantage of this, farmers have planted millions of acres more to keep up with the demand. The market will reach an equilibrium, and the rising cost of corn will eventually level out.

Baby Boomer Versus Generation X

When I read this article I soon realized that the facts are right, but I am having a hard time deciding if these facts are good or bad. The article points out the main differences between the "Traditional" workplace and the "New Generation" workplace. For instance, in the traditional workplace an employee's promotion is based off of longevity with the company. Whereas, the new generation expects promotion based on performance. I find myself caught in the middle feeling that both are extremely important. You want your employees to perform their best, but you also want them to stick around to avoid high turnover and unnecessary training costs. Is it possible to promote both, and if so, should you? Next, a traditional employee waits to be told what to do and then obeys. Whereas, the new generation has initiative to move forward on their own, but will challenge authority when questioned. Which is worse? That may depend on what type of manager you are. Finally, respect of a traditional employee is based on position/title. Whereas, the new generation does not give respect unless they feel it has been earned. Is one method right or wrong? Maybe as an employee you should work hard to earn respect while at the same time respecting everyone else, especially those who are in positions higher than your own.

Welcome Back!

For Fall 2007 this blog will be displaying the ideas of my MBA managerial economics class from St. George.

I read an article in Business Week about the growth of Google. The article, which you can find HERE, talks about the incredible growth that Google has had and continues to have. They are even outstripping their own projections for growth and are leaving their competition, Yahoo and MSN, far behind. As I read this article I tried to determine which stage of the business cycle Google is in right now. At first glance I had thought that it was in a more mature stage because Google has been around for a long time and has seen tremendous success and should be reaching a point where their growth will start to slow. However, I later decided that it is most definitely in a growth stage. Not just because of the growth they are now seeing, but because they are constantly doing what needs to be done to ensure that their company will not reach a stage of maturity and decline. Specifically, they are outstripping competition because they are being innovative, not because they are just lucky. They are constantly improving their software and adding new features that are appealing to customers. This is very inspiring because when I think of Google, I think of a company that is constantly striving to better meet the needs of its customers. That is a refreshing thing, and definitely a principle that is taking Google to new heights!

Average Americans and Experts Differ

I recently read an article found in Business Week entitled, "The Economy: Why So Gloomy?" The author of the article made the point that many experts of the U.S. economy and the average consumers do not see eye to eye on the current trend. Over the last three months of the year, the market has been a relative rollercoaster, with some very high days and a large amount of extreme low days. People question whether or not we will head into a recession within the next year, and the buzz has touched my interests. I have never lived through a recession that I can remember, but the idea scares me a little. The experts on the market are optimistic in the face of the declining consumer spending that has occured over the past few months. Some people feel that the consumer spending will drop from 3.6% growth from the end of last year to 2.5% growth for the remainder of 2007. This may not sound like much of a decline, but consumer spending accounts for around 70% of total G.D.P. Where is the market going? Are the experts right? Will the economy continue to grow over the next two years or are the scared consumers foretelling the inevitable future? I think that the consumers are trying to see into the future and may be right on this matter. We should probably prepare ourselves for a recession.

Follow-up on Menu Foods

Earlier in the semester I published a post concerning Menu Foods and their recall of approximately 60 million cans of pet food. I was curious what had happened and how the situation was looking for Menu Foods so I decided to follow up on it. They definitely did the right thing on recalling the pet food. Melamine, a fertilizer used in Asia and aminopterin, a rat poison were found in tests done on Menu Food products. As of March 20, 14 pets were declared dead by the FDA because of tainted pet food produced by Menu Foods. The original recall was on March 16. Since then the recall has been expanded twice to cover all of the suspect gluten used in various Menu Foods plants and products. An article in USA Today says that a “clerical error” was to blame for all of the contaminated gluten not being discovered the first time. While Menu Foods appeared to be taking the necessary steps to be socially responsible, they are now facing several law suits because they failed to properly track and record their shipments.

Google buys ad firm DoubleClick for $3.1 billion

I recently read an article about Google acquiring DoubleClick for $3.1 billion in cash. According to the article this purchase is Googles largest purchase yet, which far surpasses its previous largest purchase of the online video company YouTube for $1.65 billion. Googles stock price recently closed at $466.29/share. According to the article Google is planning to pursue acquiring several other companies. My question is; is there any end in sight for Google? They seem to be everywhere and known by everyone. Similar to Wal-Mart, Google has grown so large that I wonder if they will be able to sustain the growth and momentum they have created? What do you think? Do you think that management will be able to create ways of sustaining and maintaining the growth? Do you think that it is possible for a company to become so large that they can no longer sustain or maintain their operations?

Jobs, Not Subprime, Continue To Drive Foreclosure Rates

I recently read an article on Yahoo entitled, “Jobs, Not Subprime, Continue To Drive Foreclosure Rates.” In this article, the author states that California leads the nation in sub-prime loans, yet its foreclosure rate is below the national average. The author of the article suggests that California’s ability to create new jobs is the reason for not having a foreclosure rate similar to or higher than the national average. I find this article very interesting, because there have been many media sources lately that have been blaming home foreclosures on the sub-prime market. In fact, most sub-prime lenders have recently shut their doors because so many of their loans have gone into default. My opinion after reading this article is that sub-prime borrowers are not entirely to blame for loan defaults, but the lack of jobs is the primary reason for foreclosures. Many companies in the United States are moving their operations overseas in an effort to cut costs. In my opinion, I think that this may be the cause of many foreclosures. I think that if we want to keep our economy strong and avoid foreclosures we must continue to create jobs and offer incentives to companies to keep their operations in the United States. What do you think?

Trade Gap Narrows

In the article “Trade gap narrows, but consumers wary” it points out that for the past two months the trade deficit has gone down, but not fast enough for Democrats. Now that Democrats have control of the House and the Senate they plan on increasing tariffs and putting pressure on WTO. I think it is great to try and close the trade gap but I don’t think we should try to limit products that we import, as much as try to increase the amount of valuable products we can produce.

Low saving rate in U.S. seen as danger

A recent article entitled “Low saving rate in U.S. seen as danger” the European Union’s monetary chief said “the United States low savings rate and large budget deficit pose a risk to the global economy”. He went on to say that “the world’s largest economic powers should take advantage of current prosperity to reform their economic policies”. I completely agree with the European Union’s monetary chief’s statement. I think running a deficit should be reserved for recessions. The United States should run a surplus during times of economic growth such as now.

Low U.S. saving rate

A recent article entitled “Low saving rate in U.S. seen as danger” the European Union’s monetary chief said “the United States low savings rate and large budget deficit pose a risk to the global economy”. He went on to say that “the world’s largest economic powers should take advantage of current prosperity to reform their economic policies”. I completely agree with the European Union’s monetary chief’s statement. I think running a deficit should be reserved for recessions. The United States should run a surplus during times of economic growth such as now.

Who is Right: The People or the Professionals?

I just read an article in business week about the economy in the US today. It talked about the direction our economy is moving presently in relation to how it is viewed by the general public. The article stated that most professionals are optimistic about our economic future and feel that the current low unemployment will continue to remain low for a while. The public, however, feel very differently about this. Specifically the lower income segment of the United States, those below $40,000 a year, view our economy much more pessimistically. The article went on to state that often times the public has been right regarding future economic downturns. This makes sense considering that the people who have these feelings about the market are the same people who influence the market through their buying habits. Personally, I agree with the article when it stated that many of these people are pessimistic about the future economy of the US only because it is an uncertainty and they are afraid of that uncertainty. I think that when people don't know the outcome of something they become more afraid in relation to that thing. With this in mind, people are afraid of what the economy might do in the near future because they are not positive of what it will do. I think that if we look at the economy today, it seems to be moving in a very good direction and I, for one, see that as a positive sign that it will continue to be good in the future.

Supreme Court Ruling

As of this month, the Supreme Court has found that the EPA has shirked its responsibility to regulate carbon dioxide emissions from vehicles. The article “Court Turns Up the Heat on Global Warming” states that the Supreme Court has ruled carbon dioxide a pollutant, and as a pollutant, it falls under regulation by the Clean Air Act of 1970. Environmental groups view it as “a crucial step in the path to federal carbon emissions legislation”. It is obvious that consumers that drive vehicles are not paying the full cost of their action, and they are putting a negative externality on society. I argue that this ruling by the Supreme Court could be a step in the right direction.

2008 Fundraising

2008 Fundraising.

A recent article in New York Times dated April 4, 2007, indicated that fundraising was more than four times higher than this same time period in the 2003 political campaigns. “The staggering sums are an indication that the American people want a conversation.” I disagree. Most of the money comes from big businesses who want a politician in their pocket. The majority of the American’s care but not enough to separate cash from their wallets to help the campaign member of their choice. I believe that this is supported by the lack of news the younger generation absorbs (recent reports indicated newspaper sales and T.V. news viewing are down; understandably they may be getting their news from the internet but I could find no statistics to back that claim) and by the numbers at the polls. Also, this same article clearly states that Obama’s money comes from selling a personal story in two best-selling books. This early in the race the different parties just use the amount of money generated to signal to the media that they are more wanted by the American public then the party with lower funds. Which is not necessarily the case, especially this early in the race.

Is Wal-mart a monopsony?

Traditionally a monopsony represents a buyer who buys less in order to force prices lower. Wal-mart uses their huge buying power to force prices lower. On the surface, this appears as a benefit to society and the end user or consumer appears to have an increased surplus – in the short run. I challenge that it in fact is a detriment to society. Wal-mart prides themselves on being the low cost leader and driving prices down. In order for a company to continue to have their product sold through Wal-mart, they must continue to cut their own costs in production. There are only so many cuts that can be made, and still make a profit, before the quality of the product starts to suffer. End user surplus is not increased in the long run due to cheaper products falling apart sooner and increasing the ‘durables’ replacement frequency rate. So the low price, cheap deal is not always the best deal. For an example, if I buy a pair of levi’s (red tag) at Target I will pay $50 and they will last a good six months. If I buy a pair of levi’s (orange tag) at Wal-mart for $30 they will last less than three months. So in one year I can spend $100 or $120 for the same time coverage for a product. Levi started the color tag to differentiate its product because it could not meet Wal-mart’s demands on price and keep its high quality standards, so it created a new lower standard for their product sold only at Wal-mart and continued to keep its high quality product that was sold at other retail outlets. If you go to Levi’s website , they won’t even list Wal-mart as a retailer that sells their merchandise. there is a point where a good name and quality go hand in hand. I hear (from teenagers) the new name is Wal-mart Fall-apart (the same name consumers gave K-mart in the late 80's).

Patents and Trademarks

In Chapter 8 we talked about Intellectual Property and using copyright and patents to protect that knowledge. Patents and copyrights protect an investment and are seen as a barrier to entry. However, at least one company and one industry are proving that the opposite is in fact true. Coca Cola has registered their trademark but has NOT patented their ‘real thing’ recipe. Copyrights only afford protection for 20 years. If Coca Cola had patented their recipe it would now be up for grabs and by not obtaining a patent they have been in business for over 100 years. The fashion industry also has trademarks. However, the clothing design itself is not patented AND there was a Supreme Court Case in 1941 that states that the practices of patenting styles was a violation of antitrust laws. So if you design a new jean and it becomes a new fashion trend, you can expect very quickly for other companies to copy your design and slap their own trademark or logo on it and start competing with you. Normally, this would be seen as an industry that you would not want to enter because it is too easily copied and there is no way to differentiate your product and protect it. However, the fashion industry is decidedly fickle. Cool is only cool until uncool people start to pick up on the trend. Then a new trend has to be designed and marketed, and if successful, then copied. This trend for the fashion industry is successful because clothes are out of style before they are worn out necessitating the need for a high frequency rate of replacement. So in this case, the lack of intellectual property protection actually promotes the fashion industry, challenges them to come up with the next fashion trend, and charges them with continuous business. Quoting from a New York Times article “In some cases, it appears that lack of protection can lead to more vibrant and dynamic industry.”

Higher Wage for Higher Age

In America, it is traditional that the longer you are with a company the higher salary that you will make. Therefore 50 and 60 year olds make more than 20 and 30 year olds. This tradition gives a surplus to society by allowing American salaries to keep pace with increasing living standards and to cover higher mid life expenses such as college tuition for children. There was a recent article in the New York Times about how Circuit City laid off 8% of its workforce because their workers were being paid too much. So they eliminated jobs and will replace the laid off employees with new employees who will accept lower salaries. Obviously, they laid off the older workers rather than the younger workers. This is not an employment law class so I won’t go into detail about age discrimination. Economically, we know that paying workers based on ‘time on the job’ isn’t the most productive way to have a salary base. Paying a salary based on performance or productivity makes more sense. Those with more experience would receive higher pay due to prior knowledge and learning curve that in turn would relate to a higher output. The move by Circuit City however, is a very aggressive move to cut costs. 3,400 people will now no longer be able to afford their product and the PR nightmare that will ensue is going to cost them in advertising and legal fees. So is this a good move? I am sure there are a lot of companies that will be watching Circuit City real close in the upcoming months to observe the fallout of this attack. If Circuit City escapes unscathed then more companies will follow suit and start eliminating higher paying positions and then rehiring those same positions at a lower wage. I seriously doubt that the overall benefit to society is going to be positive. Less pay to Americans leads to a lower living standard. We are so worried as a county about increasing every other country’s standard of living, maybe we need to look in our own backyard first. When did increasing the dollar to the shareholder become more important than the dollar to the worker who produces the product? How is the shareholder going to get that dollar if no one can afford to buy the product?

Tee Time?

To some executives in the business world, golf plays a major factor when cutting deals and making contracts. It gives business men and women the opportunity to wine and dine their current or future clients. However, I recently read an article in the Salt Lake Tribune about how golf may be losing popularity. The article stated that for the first time, more courses closed in the United States last year than were opened. It also stated that approximately 600,000 people in the United States make a living from businesses related to golf in one way or the other. Because of the recent decline, many of "the game's movers and shakers have been doing a lot of soul searching to find ways to get golf growing again." These efforts include free lessons, new products, marketing professionals such as Tiger Woods, and other ways to attract new golfers. Because I am a poor college student, the only way I would play more golf is if the green fees were reduced. However, there are many people who are willing to pay much more than myself. So, what is causing the decline in golf and what will it take to become more popular? As far as I am concerned, it is the cost. I think that even if new golfers are attracted, they may not have a motive to keep with it if the cost continues to rise.

Is the Luster of Luxury Cars Waning?

I recently read an article from the online version of BusinessWeek entitled, "Luxury Cars Losing Luster?" The picture at the right is an automobile of the super luxury class called a Maybach. It is produced by Mercedes Benz, which is owned by DiamlerChrysler, and can be purchased for a mere $1.4 million. This vehicle leads the pack as one of 2007's most expensive super luxury vehicles. This automobile is designed to be the answer to pulling up luxury car sales from a slump. The article states that in the 1990's many of the car manufacturers were looking to release models into the super luxury market (over $100,000 in price) due to the economic prosperity being experienced at the time. But, even despite record pay bonuses, sales even the luxury class sales have drifted downward. How can offering a more expensive product attract more customers? The answer given by car manufacturers to cure lack luster sales is the super luxury class, which will concentrate on great design and the feeling of exclusiveness for the buyer. The introduction of a super luxury class basically boils down to product differentiation. Each car manufacturer is trying to gain monopoly power by making the most exclusive automobile. But, can the market support rising price tags and unlimited customization? Or, will a super luxury class further dampen sales for luxury vehicles? In theory the product differentiation strategy should work to the advantage of luxury car manufacturers, but only time will tell. What do you think?

Red Hat's Ideas for the Future: Linux for a Price.

I just finished reading an article about the company Red Hat, the leading distributor of Linux software. The article talks about the dilemma Red Hat is faced with as they try and sell software that is free. I was very interested in this article because I love Linux software and I've heard nothing but good about it. One very large selling point, of course, is that it is free. This article talks about what Red Hat is doing to try and make profits by selling this product. from what I understand of the article, Red Hat is starting to sell subscriptions to a new operating system. The article states that the operating system is an advanced version of Linux. Red Hat is specifically marketing this product to larger corporations with the hope that they will buy the product for its added benefits and better service capability. I am very concerned about the strategy because I question a company trying to make a profit off a product that has always been free. I think people love Linux because it is a wonderful product that doesn't cost them anything. I think that if consumers are going to have to pay for the higher-quality versions of Linux and only have low quality versions for the free price, demand for the Linux operating system will drop drastically. It's true that only moderate profits are realized now through tech support and services, but I think that is a much better plan than starting to charge for a service that is so famous because of its very attractive price.

Grad Salary

I read an interesting article found here. It talked of the rise of offers for certain graduates. This is of particular interest as I am about to graduate college and one wonders what all that time and energy spent on school work was for. Some of the biggest increases were in Marketing and Engineering. I think this is due in turn to the low unemployment rate that the nation is experiencing. With more and more employers looking for workers, it naturally causes the price paid for the workers to go up. An easy adjustment to the supply and demand curve. The low unemployment is also apparent in that more and more employers are looking at colleges for employees. With such a low unemployment, companies know that they are not going to be able to hire an already experienced employee, and thus turn to these graduates for employees. I am glad for the low unemployment and the benefits that it offers.

Focus on Global Warming Poises Firms to Profit

A recent article on CNN's economic news page describes how the increased focus on global warming is increasing demand for technologies that reduce greenhouse gasses, the generally-accepted culprit of the so-called crisis. Companies who have developed or are developing such technologies are well-positioned for high profits if this demand continues to increase. Just this week, the Supreme Court recognized the Environmental Protection Agency's authority to start acting to reduce greenhouse gasses, and large amounts of legislation regarding greenhouse gasses is also imminent. Some of these technologies simply create power more efficiently, so they could possibly pay for themselves in the long run. However, one new type of power plant (IGCC) costs 30% more to build than a regular power plant. The company developing this technology has received over $30 million in incentives to date. This is another example of a company making decisions that benefit all of society (no matter your take on global warming, less pollution is probably good for society), but only after incentives are provided to do so.

Raise Taxes!

Raising taxes is a necessity if we are to fix health care. This is what many Democrats will say in order to justify their wants of raising taxes. Republicans have usually said that by raising taxes the economy will fall. So, how do we fix health care? In an article I read the author says that all we need to do is take the costs of health care that businesses pay, which is around 500 billion dollars a year, and let the government assume the responsibility of paying it. After that there needs to be a tax that is equal in amount to pay for the newly acquired debt. The author suggests that the government could impose taxes in various forms such as carbon taxes. The tax would also help environmentally as well. This plan simply shifts the cost of health care from businesses to the general public. This plan should actually help businesses because it is cutting a big portion of their total costs. This idea may seem quite crazy, but it is one that is being discussed even as we speak.

Tax Time! Standardizing

There are some of us that are willing to dig deep to get a greater refund as we prepare our federal tax return. The one-time credit relating to a federal telephone excise tax is an example. An article in late January describes how individuals are willing to do great amounts of legwork to get a higher refund. For me I was willing to take the standardized credit instead of pulling phone bills for the past ten years and adding them up to see if I could achieve a higher refund for past payments of the federal excise phone tax.

Needless to say, time is valued differently for each of us. Some might assume that the government added all of the past federal telephone excise tax, estimated the number of returns to be filed and then set the value for each number of exemptions. For myself I would assume that the government estimated the value per exemption based on a price that would create a higher demand for taxpayers to take the standard credit and not do the legwork that would reveal the higher refund that they could achieve, meanwhile still having the greatest amount of surplus for government as possible. The government may seem greedy, but one may also say I am not greedy enough!

Rebates, don’t you just love them?

Did you ever get so annoyed with getting the rebate on something you purchased that you just gave up? I found a really nice article about this kind of pricing strategy that companies use:
http://money.cnn.com/magazines/fortune/fortune_archive/1994/12/12/80037/index.htm
The cynicism in this story is hilarious, but the author also brings up a good point. Why don’t sellers just keep it simple and cut prices instead? Yes it’s true that people are initially attracted by the lower price, only not to collect the rebate because it is too much of a hassle. I must say that I have figured out a long time ago not to be persuaded by such offers. Experience has taught me that companies always make things too difficult for me. I would rather search for a place where I actually get the discount right away. But there still are a lot of people that can be tricked with this pricing strategy. This article explains that such pricing strategies are partly driven by what is called the ‘prospect theory’. This theory is based on the idea that: ‘People judge the loss of any given amount as more painful than they judge the gain of an equal amount as pleasurable’. The rebate is viewed as a reduction in a loss, but after the deal is done the rebate all of a sudden starts looking like a gain, and therefore less important. That is why so many people don’t bother to collect. Furthermore rebate pricing is a form of price discrimination. The people that are more sensitive to money will put up with the hassle, whereas the less price sensitive consumers will not. In this way the seller can take away some of the consumer surplus. So apart from the vengeful types that become so annoyed that they will do anything to collect the rebate and might never do business with the seller again, in general this pricing strategy works. Or might the number of negative impacts outweigh the benefits?

Make way for John Deere!

Who would have thought that tractors would become in high demand again? I read a recent article that spoke of how agriculture equipment for the next couple of years will be hot items. This is because of the demand for ethanol. With gas prices rising and the scare of global warming, researchers are finding ways to substitute gasoline and/or create fuel that will result in cleaner air. One way to produce ethanol is through the use of corn crops. It is estimated that there will be an 11.5% increase in acres planted this year over last. This, along with farmers needing new tractors, results in a high demand for tractors and other equipment. It is interesting to me to think about how the economy would change if this trend keeps on going. Currently, Brazil uses ethanol-powered vehicles in its domestic market. If we follow suit, there might be a lot of changes in the economy. Many products may become obsolete while others back in high demand like tractors.

Yellow vs. Red

Yesterday I bought a pack of Starbursts and as I opened them up I was disapointed to find only two reds and one pink in the whole package of twelve. This means that the remaining nine were orange and yellow. Now I consider myself somewhat of a candy expert, because I love candy and I eat a lot of candy. Finding only three good flavors in the package isn't unusual but it still is depressing. I tried my hand at Mambas today hoping for luck to be on my side. One package strawberry, one lemon and one orange; only one-third good flavors. I have always wondered if red coloring and flavoring was more expensive than orange and yellow, or if there was some sort of economically efficient profit maximizing reason for these candy companies to put in less of the good flavors. Now I understand that everyone has different tastes and there are probably people out there who prefer lemon or orange over strawberry or rasberry, but shouldn't that mean at least equal amounts of each color? According to the National Confectioners Association, red is the most popular color of gummi candy. When you go buy penny candies, or candy in a specialty candy store where you pick out exactly which ones you want and scoop them out yourself, which colors do you pick more of? I know I always pick out the reds, pinks, purples, blues and whites. I always skip past the yellows, oranges and sometimes greens. I wondered if anyone else had this same concern as me, and upon searching I found one opinion from a few years back asking, "does anyone like the green Gummi Bears"? The author of this article tried to contact the "Gummi Bear people" to find out why there were always more greens. The president of the company manufacturing Gummi Bears said that kids love green and that there are on average, equal amounts of each color produced. Thinking in terms of profit maximization, wouldn't it make more sense to put more of the good flavors in a pack of Starbursts? Wouldn't this encourage more repeat purchases if consumers knew they weren't going to be stuck with over half yellows? Why are there less reds? I am still unsure on the answer. For now though, I'll stick with chocolate because I know it will always be good.

One product fits all?

I read an article in Red Herring about how Cingular Wireless (AT&T) made an agreement with several banks to allow bank customers "to manage their accounts and pay bills electronically by using an application on their cell phone." The article states that this new feature is taking "a step toward the long-promised notion of phones replacing credit cards, checks, and cash." As I read this, I couldn't help but think about what the future will hold. It seems that many products we use today are already a combination of older products. In many instances, the key to innovation is not to create a new idea, but to simplify or combine other tasks into one simple step. We have seen how cell phones have already begun to take on more uses as they are now used for phones, music, videos, internet, email, cameras, games, and many other features. By adding these extra features, do you think that it is taking away from other products? For example, I can play the game Monopoly on my cell phone. Because of this, I currently have no desire to go out and buy the board game. In conclusion, it seems to me that products today are enabling consumers to accomplish many tasks with a simple device. Again, we could consider video game systems and DVD players. If this trend keeps on going, we will have no need for many of the products we use today. They will be combined with other products. However, there may always be competition to see who can come out with the best or the fastest device. It will be interesting to see what the future has in store for us.

Kobe Bryant Is Good For The Economy

In the article "Kobe Bryant Is Good For The Economy" it talks of how because of Kobe's recent success the economy is going to do better. I hate to say this, but I think it is right. Kobe has 4 nights where he has scored over 50 points in a basketball game. This is making history and because of that people are going to want to spend more. Nothing stimulates the economy better than a little consumer spending. Businesses are starting to ask more money for Kobe products. From jerseys to pictures it is getting pricey. People who want to be a part of the excitement and a part of the action are dishing out the money. Will this trend continue or is it a short term expansion in the economy? I believe that it will be a short term expansion and will shortly return to normal. Although the NBA records will always remember it, the effect on the overall economy will only be short lived.

World Economy

I recently read the news article "IMF chief continues to be bullish on world economy" and found it quite interesting how they treated the United States role in the global economy. The author looked at the world as a whole and believed that as a whole it was doing well. It praised countries such as China and India for its growth. It looked at the US with a little hesitancy because of some turbulence in the financial markets. It suggested that there would be a slowdown in the US. This was interesting because no longer are people looking only at one country. The US may be slowing, but China and India are booming. I think this is good for everyone. No longer are people restricted to the confines of one country. It they are looking to invest or improve, they can look to other places besides their own country. I see the economy of the world as almost always increasing. No matter what there will always be one country that is doing well. The only hope is that it is not at the expense of another country. I think the Global economy will continue to grow. The only thing that would slow it down is if multiple big countries experienced a slow down. I just don't see that happening any time soon.

How high will gas prices rise?

A recent article in CNNMoney discussed the impact that the capture of fifteen British Marines had on crude oil prices. This caused me to consider the volatility of gas prices. We have seen how many different factors affect the price of crude oil, including supply, demand, war, government, and others. With spring coming upon us, consumers have begun to watch gas prices very closely. We all seem to wonder if and when gas prices will rise above three dollars per gallon. Some analysts predict that prices will not get as high as last year. They say that consumers are more price conscious and are finding ways to reduce gasoline consumption. However, it seems to me that gas prices are already creeping up pretty fast. Demand in China is growing and the war in the Middle East is far from being over. With growing economies, rumors of wars, and corrupt governments throughout the world, the price of crude oil seems to be unpredictable. We could be in for a roller coaster.

Default or fixed rate mortgages

From consumer loans to installment loans to credit cards and now to interest-only adjustable rate mortgages. The old adage, “If it sounds (looks) to good to be true, it probably isn’t,” is still as true today as it was in 1959 when newspaper headlines read “Never have So Many Owed So Much.” Every week since September, the Business Week magazine has run an article on the housing market. Newspapers run stories each week either focused on families that are losing their housing due to inability to meet changing rates based on the adjustable rate mortgages or focused on the ever increasing mortgage defaults on the side of lending institutions. Alan Greenspan has already warned that the housing fallout will impact other areas of the economy and he “puts the odds of a recession by the end of the year at one in three.” (according to a New York Times article.) Wouldn’t it just be smarter for banks to leave the interest rates alone, or rewrite the loans at a fixed rate. This way families can continue to make their mortgage payments and banks don’t have to worry about default loans. This seems like a win-win situation to me that would help the overall economy and prevent a further recession.

Doctors, Drugs, and Money

For close to ten years now there has been discussion regarding doctors and the drugs they prescribe. Topics range from investing in certain pharmaceutical companies to receiving payment from drug companies to promote their product. These issues have become more heated in recent years with publicized research that indicates doctors are prescribing new and pricier drugs for their patients according to an article in the New York Post . The same drugs that the doctors have a vested interest in through some sort of financial benefit from the drug companies to the doctors. Drug companies state “In the end, patients are well-served when technically trained pharmaceutical research company representatives work with health care professional to make sure medicines are used properly.” This sounds like a fancy way to skirt around the issue of conflict of interest. Where is the doctor’s responsibility, legally or morally, to prescribe for patients a cheaper but just as effective drug that reaps no financial benefit to the doctor. I believe the drug companies should have a responsibility to NOT increase the costs of prescription medication (which effects the patients) in order to cover the ‘side’ payments to the doctors to prescribe those same pills.

Pay to sing Happy Birthday

Could you ever imagine that the popular childhood song titled “Happy Birthday” was worth a cool $5 million dollars? How many times have you sung the popular song “Happy Birthday” without paying the royalty dues that are required as part of the copyright regulations. The popular version that we all know the words to by heart was actually copyrighted in 1935 by the Summy Company as an arrangement by Preston Ware Orem, and according to Wikipedia
is scheduled to expire in 2030. Actually royalties are not required for private renditions of the song, however public performances of the song are technically illegal unless royalties are paid to the owner of the copyright. Who knew when Marilyn Monroe sung her lustily rendition to then President Kennedy that she was actually in violation of a federally protected intellectual piece of property. The company holding the copyright was purchased by Warner Chappell in 1990 for $15 million dollars. (It is merely a rumor that Michael Jackson or Paul McCartney own the copyright.)Restaurants such as Applebee’s must pay royalties when they sing the Happy Birthday song to their customers. Perhaps that is why they have come up with their own rendition:
Happy Happy Birthday
From Applebee’s to you
We wish it was our birthday
So we could party to, HEY!
I just hope I don't have to pay royalties for typing "Happy Birthday" in the title of this blog.

Will XM & Sirius radio create a monopoly?

There have been several articles lately about the possible merger between XM and Sirius radio. A current article in Forbes discusses the situation and the possible outcomes. The argument is if XM and Sirius merge, will a monopoly be created? I think that the answer to this question is no. However, it may depend upon what time horizon is looked at. Currently, satellite radio, in my eyes, is considered to be a competitor to land-based radio, I-Pods and other hand held devices, and internet radio. It seems that if a business takes customers away from another business, they are competitors. So, if XM and Sirius merge, they are still left with competition. Thus, they would not become a monopoly. However, this may change depending upon the future. If satellite radio is the future of radio and other music devices, then this possible merger may be the beginning of a monopoly. On the other hand, many people do not like the idea of paying for radio. Because of this market segment, it might not be possible for XM and Sirius to create a monopoly. Free radio and other music devices may always be in demand. In the end, it must be determined who satellite radio competes with.

Pet Food Recall

I was reading an article this morning in the New York Times about a recall on over 60 million cans of pet food by Menu Foods, a pet food manufacturer for companies including Proctor & Gamble, Nestle and Colgate-Palmolive. Gravy-style pet food that was made between December 3 and March 6 is being recalled due to ten pet deaths so far. Kidney disease is the cause of death among these animals and has been linked to the pets eating Menu Foods manufactured pet food. The cause? They do not know for sure but the timing coincides with a change in supplier of wheat gluten; however, Menu Foods will not name the supplier. Menu Foods is taking responsibility for this incident, whether it is the suppliers fault or because of something that happened inside their own plant. The recall and compensation effort is estimated to cost Menu Foods $30 to $40 million. When they announced these figures, stock prices dropped 26%. While this is surely going to hurt Menu Foods right away, I think it will help them in the long run. People who love their pets enough to buy them gravy-style pet food are going to appreciate Menu Foods for taking responsibility and trying to reconcile the mistake (whether ultimately theirs or not). It reminds me of the major Tylenol recall by Johnson and Johnson in the 1980's. This time we are obviously dealing with pets rather than human lives, but isn't dog man's best friend? I think this is a good move on Menu Foods part. It will help them to keep big names like Proctor & Gamble as customers. I think Menu Foods needs to be generous to the grieving pet owners, which will keep them out of court and better their image for the future. Consumers trust responsible companies.

No Smoking...In Casinos?

An article in USA Today talks about the ban on smoking in Atlantic City, the second biggest gambling city in the United States which brought in $5.2 billion in revenue in 2006. New Jersey has previously outlawed smoking in all bars, restaurants and other working places. Beginning in April, smoking will only be allowed in a designated 25% of the gambling floors and proposals are currently underway to outlaw smoking altogether in New Jersey casinos. Colorado, Rhode Island, Pennsylvania, Illinois and Lake Tahoe are not far behind New Jersey in putting bans on smoking. Many are arguing that this ban on smoking will hurt these casinos profitability and make them unable to compete against casinos in other areas that permit smoking. I personally don't think that it will hurt business that much, in fact from other information I've looked at banning smoking has actually increased business. Maybe some avid smoking activists will travel to other destinations that allow smoking, but how many new non-smokers will come out to the gambling floor because they won't have to worry about that constant overhead cloud of smoke and go home smelling like a bar? As long as there are designated smoking areas, even if outside, I think the casinos will be economically better off and a much better environment.

Bill Gates' Visa Petition

For years there has been an argument about the border system. Many people feel that the U.S.A. should close its borders to all immigrants, whereas others believe that we should allow everybody to enter. It seems that the Chairman of Microsoft Corporation, Bill Gates agrees with the latter group. In a recent petition to congress, Gates pleads that the high-tech industry in the U.S.A. needs all the brilliant, and educated minds. He felt that many of the bright scientists of the world are being sent away from the U.S.A, because of the strict visa policy in our country. Gates feels that there should be an "infinite" number of H-1B visas, which allow well-educated foreigners to work in the United States for several years. Recently, people have spoken out against Gates for his opinion. People with a knowledge of economics feel that an increase in the wages for the domestic workers would help bring supply and demand of high-tech jobs back into equilibrium. This argument seems to be a double edged sword. If the U.S. companies were to employ more immigrants, then the domestic market will suffer the loss through increased unemployment. However, if the U.S. companies increase the pay for the workers, then the U.S. consumers would probably pay a higher price for the domestic goods. It is an issue of economics, and I think that Bill Gates is right. We need to bring all the brilliant minds in to keep the U.S.A. competitive, it is the best business decision for America. It may lead to higher rates of unemployment, but it might also force people back to school and then once again into the high-tech industry. I think that the U.S.A. needs to stay ahead in this industry.

J.C. Penney, Back in Fashion?

I recently read an article in Business Week about a strategy that the CEO of J.C. Penney hopes will bring life to the slowly declining image of the department store. According to the article, J.C. Penney has had the image of being, “your parents store.” The CEO has introduced a trendier line of clothing in an effort to attract younger crowds that are more fashionable. The new line of clothing has already caused a slight increase in the companies’ profits. I think that CEO has made a good move in introducing a new line of clothing. I do not know that the increase in profits will be sustainable however. According to the article, Kohl’s is J.C. Penney largest competitor. In reaction to J.C. Penney’s new product line, Kohl’s has introduced its own trendy product line that is back by celebrity endorsement. Do you think J.C. Penney has a chance at reviving its image? Do you think they have made a good move? If not, what would you suggest that a company do to change its image?

Practice What You Preach

Ever since I started studying in the U.S.A the same topic has been coming up a couple of times now: Developing a mindset that will make you financially successful in life. Next to individuals trying to live the American dream there is a growing interest in what factors influence employee attitudes, especially the kind that stimulates financial success. In a book excerpt of ‘Practice What You Preach’, by David H. Maister, it is explained how important it is to be able to create a culture that supports the drive for success. His research has shown that as companies get bigger a lot of the key profit drivers such as valuing input, listening, trust, practicing what you preach, etc suffer and loose ground in the companies culture.
Even though this research did not include any financial performance data it seems obvious that the bigger the organization the harder it is to achieve the employee attitudes that drive success.

http://www.businessweek.com/smallbiz/content/nov2001/sb20011109_069.htm

Best Buy

I read an article recently about Best Buy called, "Smashing the Clock". The article states that Best Buy has totally rearranged how they work. The company used to be run by hard-nose executives that thought success only came about by hard work and long hours. Now they have reenergized the company with a so-called new experiment. They call this experiment, "ROWE". It stands for, "result-only work environment". They are not the first to come up with this idea, but they are the first to be successful at it. The whole idea is to give employees the freedom they deserve. They are not evaluated on how many hours they put in a day, but on their performance only. Some employees are able to work at home, or come in the office only for a few hours a day. The only thing that matters is that the job is done efficiently and effectively. Once the job is complete, the rest of the day is theirs to do what ever. How would it be?
Best Buy did not want to hit a plateau like most companies. The article stated that most large companies fail to grow with inflation because their employees fail to work as hard as before. They see their success and basically stop performing. This experiment has really worked for Best Buy. Since starting the experiment, the employees have become more productive and happier with their jobs. In return, Best Buy is not hitting a plateau, but are finding themselves more effecient. This is why they are the nation's leading electronic retailer. However, the question I find myself asking is "Will Best Buy's employees be able to continue to self motivate and how can Best Buy help them stay motivated?". Other companies have tried this before and failed.

Minimum Wage Increase May Not Cause Inefficiency

CNN (http://www.cnn.com/2007/POLITICS/02/16/minimum.wage.ap/index.html) and other news sources have reported on the House and Senate passing a bill that would increase the minimum wage from $5.15 to $7.25 over the next two years. Minimum wage is clearly a price floor, which can cause an inefficiency in the market if it is set above the free-market equilibrium. I do not think the minimum wage increase will affect the market equilibrium. Most people in the lowest income bracket are already being paid above minimum wage. Even companies in Cedar City -- like Smead, Convergys, etc -- who primarily hire unskilled individuals without a college education, are paying above minimum wage. Also, many states have higher minimum wages -- also called living wages. I don't think the increase to $7.25 exceeds the free-market equilibrium and should not cause excess supply of labor. I think that the only companies that may see an excess supply of labor and a higher labor cost is fast-food restaurants, which primarily hire high school students at the minimum wage.

Starbucks vs. Ethiopia

In a recent article entitled “Starbucks vs. Ethiopia” Stephan Faris explains that for a $26 bag of premium coffee sold in the United States, Starbucks only pays the growers in Ethiopia $1.43. The debate lies in the words Starbucks uses to ensure the coffee’s premium status. The words Starbucks uses are the names of the places where the beans are grown in Ethiopia. This means Starbucks can charge a premium and not pay a premium on a name they don’t own. This does not sound fair and according to the article Ethiopia is taking the issue to the United States Patent and Trademark Office in order to trademark the names of the regions where the beans are grown. Starbucks argues that this is unconventional for a region to use a trademarked and is pushing for Ethiopia to protect its products by using geographic certification instead. I support Ethiopia in its decision to go after the trademark and if it fails, they should push for a geographic certification because in my opinion something should be done.

Airline Food

If you have flown on a commercial airline recently, you may have noticed that there are no free airline meals on most airlines. The Capital Freedom Blog discusses this point and concludes that airlines must have found that passengers are very price sensitive about the cost of their seats – much more so than about the amenities on flights. Many airlines are charging $1 to $5 for snacks and meals aboard flights. Personally, I think this is a great change. Even when airline meals were free, I almost always preferred not to eat them. Now, I know that I am not paying for an amenity that I am not consuming. The article also cites Continental Airlines as being one of the last holdouts to offer meal service on domestic flights. Their research (very limited) indicates that while there may be a slight cost difference between airlines with and without meal service, the flight options (timing and number of connections) are still the #2 factor in deciding between airlines, with price being the #1 factor. For me, that is about right, although #1 and #2 are pretty close. I suspect when it really comes down to it, most consumers care very little about meal service, and the airlines were very wise to cut it as a cost-cutting measure. This will allow them to build their business with very price-sensitive consumers.

Gaming System Skirmish

I don't own a gaming system but was fascinated by an article that I read from a magazine in my boss's office. It focused on the power struggle between the three major companies; Sony, Nintendo, and Microsoft. First, Microsoft launched the XBox 360 for the Christmas of 2005 in order to beat Sony and Nintendo in the release of their most current gaming systems, and hopefully steal some of their market. They focused on building a strong on-line connection between gamers. The PS3 and the Nintendo Wii both came out this past Christmas. The PS3 incorporated Sony's new Blue Ray technology and felt that graphics were the key to gaming systems sales. Nintendo, on the other hand, forewent graphics and focused their research and development on a more interactive game controller.
Sony Playstation has held market dominance since they introduced their first playstation. When they launched the PS3, it seemed as if they didn't account for what the XBox had done with on-line interaction or what the struggling Nintendo was doing with their new interactive controller. They seemed to think that just because they always have had market dominance by having better graphics that they would continue to hold their market strength.
Nintendo was considered dead in the water after the Nintendo Game Cube failed. They responded by NOT trying to keep pace with Sony's graphics. It could have been the perfect response. The Nintendo spokesman may have stated it best when he said, "people want fun not graphics" (Electronic Gaming Monthly, March 08).
The Nintendo Wii has made twice as much as the PS3 in the past few months. Has Nintendo taken the right approach with their new game controller or is it just a novelty? Will we start seeing Nintendo Wiis resold on ebay in a year? Is Sony's focus on technology more profitable in the long run?

Illegal Immigration & Capital Spending

A column in the Washington Times recently cited the many negative effects that illegal immigration has on U.S. citizens. Lower wages for all workers due to illegal immigration makes sense from an economics standpoint. When the quantity supplied increases, the price will decrease. Businesses can also be hurt. For example, in the construction industry, companies that do not hire illegal workers are expected to compete with companies who do hire workers for whom they do not face such costs as workers compensation. The most interesting effect cited was one I had never considered. The author claimed that a supply of cheap labor served as a disincentive for companies to invest in technology. Why should a company invest in capital, if they have a large supply of cheap labor? In the long run, this can hurt the entire U.S. economy. This has become a very hot issue lately and the reemergence of white power groups (yes, even in southern Utah) is alarming. However, I think these points would allow a productive discourse to begin.

Hualapai Antics at the Grand Canyon.

I read this article about the Skywalk created at the Grand Canyon by the Hualapai Tribe. This Skywalk was created to allow visitors to have something new and exciting to see at the Southern Rim of the Grand Canyon. The main reason the Hualapai Tribe decided to do this was to help boost their struggling economy. The Hualapai hope that this new attraction will cause more people to want to come and take part in the Grand Canyon experience on the Southern Rim. Though this seems beneficial for the Hualapai, environmentalists have expressed their dislike for the Skywalk. They say that it tarnishes the beauty and natural look of the Grand Canyon.

I think that the Skywalk is a great idea. It does change the look of the Canyon where it stands, but allows many people to see a part of the Grand Canyon that was almost impossible to see before. I think that this is a wonderful thing! It should, in my opinion, increase the demand of that tourist site. I think that providing something like this increase the demand by providing better sight-seeing possibilities is a very smart economic move. Also, I think that no matter what venture one chooses to take, there will always be people who will want to take issue with what is being done. Often times environmentalists are more concerned about providing negative externalities than with trying to see the benefits of what is being done. I feel that this is the case with the Skywalk. It will only enhance peoples experience at the Grand Canyon--and that is a great thing.

Click HERE to learn more about the Hualapai and the Skywalk.

Technology Today!

I read an article about "anywhere marketing".
The article talks about how new technology is giving companies more of a competitive advantage. Technology today allows us to run a business from home, or on the road. It allows companies to hire across the country and their employees will never have to go into the office. Laptops, mobile internet, and cell phones make all the difference. Technology is changing the business world, and for the most part it is doing alot of good. Companies are catching on and are drastically increasing their profits by becoming more efficient. This is a good thing, but I see that there can be alot of disadvantages too. Does new technology make running a business easier or harder and in what ways?

Why Toyota is Afraid of Being #1

I read an article recently in Business Week entitled, "Why Toyota is Afraid of Being #1." This link, Business Week, takes you to the article. In the article, Toyota expresses the concern that becoming the number one car company in America may cause some Americans to become upset over the fact that they are not an American company. In my opinion, Toyota makes a quality car at a relatively inexpensive price. I do not see anything wrong with a foreign car company becoming the #1 car manufacturer in America. The article reports that the American born GM is upset over the possibility that Toyota is on its way to being #1. Well what are you going to do about it GM? What do you all think? Should we be concerned that more and more Americans are beginning to prefer foreign made cars to American made cars? Should be concerned that a foreign car company is on its way to being #1 in America?

I read an article recently in Business Week entitled, "Why Toyota is Afraid of Being #1." This link http://www.businessweek.com/magazine/content/07_10/b4024071.htm?chan=globalbiz_asia_more+of+today's+top+stories takes you to the article. In the article, Toyota expresses the concern that becoming the number one car company in America may cause some Americans to become upset over the fact that they are not an American company. In my opinion, Toyota makes a quality car at a relatively inexpensive price. I do not see anything wrong with a foreign car company becoming the #1 car manufacturer in America. The article reports that the American born GM is upset over the possibility that Toyota is on its way to being #1. Well what are you going to do about it GM? What do you all think? Should we be concerned that more and more Americans are beginning to prefer foreign made cars to American made cars? Should be concerned that a foreign car company is on its way to being #1 in America?

U.S. Compaies Exporting Jobs to Foreign Companies

I recently read an article in USA Today, about companies that have started in the United States and have subsuquently moved their operations to foreign countries to take advantage of the cheap labor. I can understand from a managers perspective the advantages of the having low costs labor producing the parts and doing the services for a fraction of the costs that U.S. employees cost, but at the same time I have a problem with the fact that many jobs that could be done by U.S. citizens are being given to foreign workers. I do not have a solution to what I consider a problem. It is a fact that in most cases, U.S. employees expect more money for their time and services than foreign workers do. I do not think that that can be changed. So therefore, I don’t know what to suggest. Does anyone else have a problem with U.S. companies exporting jobs to other countries? If so, what can be done to prevent U.S. companies from exporting the jobs?

Corporate On-site Health Care

Different approaches have been taken to increase the demand for healthy lifestyles in order to decrease insurance costs. The government uses tax dollars to implement programs like Gold Medal Schools and educational websites. Companies have been shifting the burden of insurance costs to employees and then subsidizing employees when they live a healthy lifestyle. Other companies have taken the bull by the horns and provided health facilities for their workers.

Whole Health Management is a company that manages on-site primary care and fitness centers for dozens of corporations. On-Site health care clinics are a growing phenomenon for medium to larger companies as shown in this CNBC video from the Whole Health Management website. According to an article in the Washington Post the convenience of the clinics increases demand and not only gives direct savings in health care costs, but helps eliminate lost work time because a cold does not turn into bronchitis or high blood pressure does not turn into a stroke and so forth. Even a company with only 1500 workers and having a workforce that was considered young was able to save $1000 per employee in the first year.

The more I look for companies to work for the more I see a divergence between companies that treat employees as assets and others that treat employees as an expense. If an employer is going to have to pay for the new engine in the end, would it not be beneficial to pay for and make sure there were regular check-ups?

Go Nissan!

In a rather short artical "Nissan to build factory in India" I was surprised to read that Nissan is doing so well. It wasn’t long ago early nineties I think when Nissan was going through some tuff times. Along came the Renault merger and within a few years Nissan’s back making high quality cars and expanding to emerging markets. Hurray for capitalism. Go Nissan! You never know maybe Ford and GM have a chance?

How Moral Is Capitalism?

I recently read an article from the February 12th issue of Forbes magazine entitled, "How Moral Is Capitalism?". In this article, the author, Rich Karlgaard was attacked by a blogger calling himself "Adam Smith". "Adam Smith" was accusing him and all businessmen of being money grubbers- too wrapped up in the pursuit of money that they are not interested in some of the natural gifts of life. Thus, they have missed out on the purpose of life. Rich brings up some interesting questions about capitalism with a bi-partisan political system. Consider some of the following:

The first is that capitalism makes the fruits of individual labor available to the masses, and thus makes life better for all invovled. Is this the true purpose of capitalism? Is this the reason why we choose to participate in this economic system?

Second, is capitialism is as moral as it could be? Do some do without while others thrive? Is it moral for the government to regulate the incomes of private citizens and redistribute their "surplus"?

Lastly, Rich quotes the real Adam Smith's definition of self-interest (the reason why capitialism works) from his book "The Wealth of Nations",

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to theor own interest."

Rich points out that Smith felt that self-interest is the psychological need to win favor within one's society. He goes on to conclude that self-interest and moral sentiments are the same thing. Therefore, at least, capitalism by definition is moral. Do you agree or disagree with these arguments? Can we count on the need of other's to succeed to be the moral fiber in capitalism? Can we count on the government to level the playing field by means of distribution of income surplus? Can we trust politicians to carry out on their promises to do so once voted into office? If not, how can we ensure that our system is moral? What free-market economic principles teach us the value of morals in capitalism? Does capitalism even need morals?

I personally feel that the author is correct in many of his assumptions, and that we cannot count on the system to be moral, we must count on the people invovled in the system. What do you guys think about some of these questions?

For more topics by Rich Karlgaard.

Strong ethics are good for business

An article I recently read starts out by discussing the effects that the Sarbanes-Oxley Act had on ethics in the business world. The author states that the act really has not helped with businesses practicing unethical behaviors. The article goes on to say that even though the act did add some discipline to the business world, it will never be able to fix the problem entirely. A company will have the same ethical behaviors as its top managers do. If the top executives tend to be unethical, the rest of the company will follow. Many people in the business world tend to think that sooner or later a company will have to make an unethical decision to be able to compete, but the article tends differ. It says that if a company will have strong ethical and moral principles it will be more successful than if it were not to have them. People that do business with you will want to be sure that they can trust you. In order to keep a long term relationship with customers and suppliers you should always make ethical decisions. Every action has a consequence, for good or bad. If you are not ethical and don’t see any negative consequences right away, don’t worry, it will catch up to you someday. In other words, always do the ethical thing.

Government’s Role in Increasing Hybrid Car Demand

Rebates, income tax credits, and increasing model availability are a few approaches used to increase the demand for hybrid cars. Toyota has asked for an extension and a boost on the 60,000 sales limit cap for each automaker for the income tax credit when buying a hybrid car. According to an article in USA Today, as the income tax credit for buying a hybrid has decreased, so has the demand for the Toyota Prius and other Toyota hybrid cars. With lowered demand a decrease in economies of scale for Toyota hybrids has become prevalent. Toyota is the only automaker giving this strong plea for an extension and a raised cap for the tax credit. Toyota was also the only car maker who reached the sales limit which was set by congress.

The government has subsidized the hybrid car industry to increase the demand of a product that they saw as beneficial to the environment in more ways then one. Is this going to be the only reason that the subsidy will continue or is there going to be another strong armed reason?

Working Past 65

In a recent article "Economic growth means working longer" by Heather Scoffield it points out that in the next few decades people will have to work longer in order to maintain economic growth. Alan Greenspan the former US Federal Reserve chairman spoke of this topic to a group of businessmen in Toronto. This article mentions that we are at the cutting edge of technology and because of this; it is hard to have big growth because of technology. The next place to look for economic growth is to have more workers working. This is not a possibility because the baby boomers are in the workforce right now and the population growth is dwindling. The only answer to maintain economic growth is to work longer. Is Greenspan being a little pessimistic or is this something that the younger generations should start to look forward to? Are those of us entering the workforce going to be working until we are 70 or 80 years old? People are starting to live longer, why not work longer? This to me seems a little pessimistic. I believe that we as a human race will always find ways to be more productive. Technology, although we are right on the cutting edge, will still continue to improve and to help maintain this economic growth. That will be supplemented by more efficiency in the work environment due to learning curves and the struggle for people to get more for less. I think people may choose to work longer and this will be part of the economic growth, but I do not think it will be a consequence.

Growth in Cedar City

I was browsing the Cedar City website looking for statistics on its recent growth. As of 2006, there are an estimated 27,000 residents in Cedar itself. There is an average growth rate of 3.3% over the past five years. I was in a class the other day when the economic developer for Cedar came in and told us they are expecting Cedar to be at 40,000 people in 5-10 years. One of my problems is: There are at this time a reported 81 restaurants in Cedar City with numerous more planned. That is one restaurant for every 333 people in Cedar including kids. There are tons of new businesses that are being built as well. My question: Is there too much building going on in Cedar? Will the growth support the rapid building that is going on? I have seen a couple businesses start up and close down within a few months time because they are not getting enough business. If this is taking place, why are there more companies coming in? I am afraid that people are coming in and setting themselves up for failure. What other evidence is there that people actually want to come to Cedar? What if all these estimates are not accurate? I think that the Economic planners for Cedar should pull back the reigns on allowing businesses to come here. We should wait for a little more actual growth before we dig ourselves in too deep.

Fed's Call for CEO Pay Cuts

I recently read an article in USA Today, that contained several excerpts from a speech that was given by the New York Federal Reserve President, William McDonough. In his speech, he accused executives as having bloated salaries and that they were grossly overpaid. In addition, he said that their large salaries are difficult to justify. I totally agree with him! Many CEO’s are receiving salaries that far beyond what they deserve. For example, Richard Fairbank is the CEO of Capital One Financial, he is reported to have 5-year compensation package worth $448.58 million. His salary is absurd! While I think the idea of, “getting what you pay for,” may be true in some circumstances, I do not believe it is true with many of the over paid CEO’s. Perhaps a better way of paying a CEO would be to base his/her salary on performance, with bonuses and incentives for increasing revenue, decreasing costs, etc… I am curious about what you think about this topic.

They Clapped

I recently read an article found on The Library of Economics and Liberty website. The article was entitled, "They Clapped" and addressed the issue of price gouging. The author addressed a situation in North Carolina that happened to his family in 1996. The situation took place after a hurricane ripped through the area and claimed a lot of property and goods from the local populous. North Carolina had laws that prohibited people from selling a good to the victims of the hurricane for any more than 5% above the usual price. Well some people from a neighboring community heard that the residents in Raleigh needed ice, so they loaded up their truck with ice and headed to Raleigh to make money. Many residents lined up to buy ice and some were upset that the people were selling ice for $8 a bag, which was obvious price gouging. Someone reported the deliverers to the police and the individuals were arrested. The author was upset with the situation not because of the price, but because people cheered as the deliverers were incarcerated. The laws prohibiting such gouging prices kept a lot of people from receiving ice that they needed. I agree with the author in that the people who needed the ice would have paid any price, but I do not agree with astronomical price gouging. I do not think that the government needs to regulate the market so tightly that nobody wants to provide the goods or services. People would rather deal without than pay the higher price. I also agree that the prices would be driven back down again if government would have allowed more entrance into the market. Businesses would want to make money and not lose it to some other guy who went down with the same idea, so one seller would drop prices, the others would follow and the war would go on like everywhere else. The regulation of the government has cut the competition out and set up a virtual monopoly after a disaster, and therefore, nobody wants to help in the cause. Perhaps government needs to regulate certain sectors like power and other necessities, but not luxuries like ice. However, where do we draw the line?

Death-Penalty Prosecution Costs

Whether for or against the death-penalty, taking into account the cost of prosecuting a death-penalty case is one factor that should not be overlooked. There was an article in the Wall Street Journal that discusses the cost struggle that counties have in prosecuting the death-penalty. In 1997 Utah was one of the first to create a risk pool which allowed counties to pay annually into and receive funding from in the event of a death-penalty case. Uintah County did not see the need to pay for this insurance until a police chief was shot to death in Roosevelt in July 2001. It was easy to make the decision to go for the death-penalty, then paying for the trial came into play. In August of 2001, Uintah County paid their share into the risk pool as insurance for their next death-penalty case.

To get funding to prosecute death-penalty cases, counties have higher taxes then counties that do not have death-penalty cases. There is also a worry on the other end that counties which do not have death-penalty cases are downgrading cases to avoid the high costs.

It is interesting to see that counties must have different values set for when it becomes beneficial to prosecute death-penalty cases. There are many factors that can increase and decrease these costs, including the support for or against the death-penalty.

What Drives CEOs?

There seems to be a general understanding that the only thing that drives CEOs is money. Therefore people heavily scrutinize the enormous salaries and huge benefit packages that CEOs get, even when companies seem to perform poorly under their management. There is a great article on BusinessWeek online that talks about the psychology of CEOs.

http://www.businessweek.com/magazine/content/07_04/b4018001.htm?chan=search

Most will argue that it is money and power that drives CEOs, but I think most overlook the most important motivator: the rush that comes from winning. I’m mean let’s face it if you are worth over a hundred million money can no longer be a real motivator, at least not for most people. Why does Michael Schumacher, formula one driver, keep putting his life on the line? Why do top athletes keep putting in so much effort? Everyone knows it’s not the money but their need for victory. Why would this be any different for CEOs.

Beating the crap out of the competition, being a rival business, another racing team, or the world number one track runner, that’s what drives these people. They are the best of the best and the only thing that matters to them is becoming the best they can be. Of coarse the pay also plays a role but it’s not the only thing that drives them.

In today’s hyper competitive business world a lot of corpses are left behind on the battlefield. Executive turnover is spiraling out of control and corporate scandals are becoming a daily phenomenon. That is the risk CEOs have to take and that is why I think there is nothing wrong with paying them enormous salaries. Of coarse it is crucial to link pay to performance, but corporations will have to keep increasing pay if they want to get the top performing CEOs. The next question is: How do we define performance?

Minimum Wage: It's Official

It is official. As of February 1, 2007, the national minimum wage is going to be hiked up to $7.25 over the next 2 years and 3 months. The first raise is supposed to take place May 1, 2007 to $5.85. The second, May 1, 2008 to $6.55 and third, May 1, 2009 to $7.25 <http://www.shrm.org/government/insiders_published/>. I realize that this has been part of discussion already, but it is a topic I don't think gets old. The only reason I agree with raising wages is for the average college student. As living expenses increase and wages do not, it is more difficult for students to get through school on crappy wages, which forces them to take out more student loans and dig themselves deeper into debt. This is one way I feel that the government can help support college students and their ability to make just a little more money. I know that grants are given to students, but a little more money in the pocket is always nice. I realize that businesses will probably raise their prices to cover the increases and the government won't be able to really do anything to stop that. But, if prices are being raised around us anyway, why not get a little more money out of it? So the question I pose to you is: Who really benefits from the increase in minimum wage? In my opinion, it is only those who are actually getting paid the lowest possible wage and no one else.

Health Care Reform

On January 18, 2007 the Healthy Americans Act was introduced.
(see http://www.shrm.org/government/insider_published/CMS_020269.asp#P41_9110) This act would provide universal, private health insurance for all Americans. The bill would eliminate the current employer-based system and put individuals in charge of their own medical/health care. Another benefit in this act is that all would be accepted regardless of their medical wellness and regardless of prior existing conditions. There would be subsidies for low income families and tax deductions. However, it is also mandating that ALL Americans obtain coverage (and we all know how we feel about being told what to do by big brother.) The economic feasibility of only offering two medical programs to cover the entire United States and the logistics are not spelled out in this Act. While I am not sure that I agree with all facets of this particular Act, I do know that change is needed. Recent article in business journals and newspapers indicate the growing trend for employees to enter the work force not for an additional paycheck but for insurance coverage and other employees not being able to advance in their fields because they can't switch insurance companies (based on what the new employer would offer) because of pre-existing conditions is ludicrous. While this particular bill may not be the 'best' answer, I am relieved that it will at least generate more discussion in congress on the matter.

Organ Donor Legislation

According to a January 28, 2007 article in the New York Times, titled "Grim Harvest" (see http://query.nytimes.com/gst/fullpage.html?res=9C0DE1D71130F93BA15752C0A9619C8B63) 94,000 people are essentially waiting for someone else to die so that they might live. Organ Donor Economics was the title of an article in Business Week last month that covered the growing debate over the compensation for organ donation. For many years, families that donated cadavers to medical schools received compensation from the schools. Legislation has been introduced to compensate the families of organ donors. The National Kidney foundation is one group that is in severe opposition to selling 'surplus' body parts. Medical Schools in the United States have a surplus of bodies and yet economically it makes more sense for the families to donate 'used' body parts to a medical school where they receive some compensation rather than donate the organs to a name on a waiting list and receive no compensation. Economically we know that the low price (in this case compensation) is causing a major shortage of supply. An economic sociologist, Kieran Healy, adds to the debate over organ procurement indicating one method to succeed would be to have healthy adults make a binding contract to be organ donors when, "with life insurance paid for by transplant centers, the government or a private foundation going to their heirs." I believe that compensation for organ donors would not cause the average Joe to go out and sell his body parts, rather it would encourage surviving family members to give the 'gift of life' and help organ recipients live longer with an increased chance of a fuller life. Approving the legislation would be the 'invisible hand' that guides free market and would allow the quantity supplied to shift until it meets the quantity demanded.

Business in China

TR here is an article that was apart of an assigment for another class that is related to your post. It talks about how difficult it can be to relocate a foreign business in China. I found it interesting, so I made it into another post.
The article gives many examples of why starting a business in China can be good and bad. It seems to me that it would take alot of work. It is true that many companies want to go there to cut down cost, but is it worth it? If a company is to relocate to China or any other country for that matter, they must develop and follow a plan. The article talked about gaining the trust of government officials, get to know the culture, and be productive. The Chinese Government is right with being choosey on enters. Those who don't do this won't last. The only focus of a company shouldn't be to enter a country becuase it cost and you can pay the workers less, but more to make an impact on the culture. Help a struggling economy maybe? Companies need to show the respect neccessary, and not exploit workers by making cheaper, less quality products for a higher profit. I don't know, what does everyone think?

Freakonomics

One of the most interesting books I read recently was Freakonomics. The introduction describes how common predictions for the 1990s foretold crime rates spiraling out of control. When these predictions failed to materialize, and, in fact, crime rates dropped drastically nation-wide, politicians cited their own public policies as the reason. The authors contend that it was, in fact, the legalization of abortion twenty years earlier that was the cause of this drop in crime. Leaving ethical debates about abortion out, it certainly makes sense that legalized abortion contributed to the drop in crime (see the student study guide at the previously mentioned website for details). However, the authors themselves assert that correlation is not causation. In economics, the “all other things being equal” clause never happens, so, in effect, many variables impact everything. What other variables may have impacted this drop in the crime rate? What about a healthy economy, increased access to higher education, or outsourcing many 'blue-collar' jobs overseas? The reality is that all these things likely contributed to the drop in crime.

Outsourcing: Ripoff Nation

The article I read is titled “Outsourcing: Ripoff Nation." Outsourcing has been a major contributor to companies trying to bring costs down. One of the most famous countries to outsource to would be China. Many companies have found that by moving their manufacturing facilities to China they can cut costs dramatically, but those companies are finding out that there are also some consequences involved in relocating to China. Since China is so good at making products so cheap, they will make imitations of the products they see move into the country. They are usually able to make them cheaper, so they are able to sell them cheaper. The article says that competitors in China are able make and market their imitated product in as little as two years. This problem is discouraging many companies from outsourcing to China. I think that this is finally giving Americans an advantage when it comes to outsourcing. More companies will likely keep their manufacturing jobs here and provide more jobs for U.S. citizens. This will only benefit our economy. Prices might go up a little because of the more expensive costs, but a company will be able to keep their competitive advantage longer by staying here.

Intellectual Property, should it have a value?

Apple and the Beatles have come to some resolution about the intellectual property of the apple and iTunes. So the apple value has been decided while many other intellectual property values are still unresolved.

In the archives of the magazine Rock & Ice , the September 2004 issue Ron Olecsky presents the question, what is the value of intellectual property for rock climbing routes? Olevsky claims that climbing routes are intellectual property of the people that created them and that guidebook authors need to share the rewards with those who put up the routes.

Rock Climbing, a common sport in Southern Utah brings many enthusiasts from around the world. Some are individuals that take part in first ascents, and others come to follow the path of others. For both, guide books and internet web sites are a necessity for many reasons, not the least being safety. Each climber that makes a first ascent has knowledge that no other person has. The author of a guide book takes this information and makes a profit. Should they not share the profit with the individuals they recieved information from? Rock climbing is mostly done on public lands, which leads to the another question if the author of a guidebook has to pay the climber that made the first ascent of a climb, should they also have to pay the government for writing a book that includes a climb on public land?

How far can intellectual property reach, should we be able to put an apple value on everything we do or think?

Can Capitalism Fall? - Tangent

I have not read Das Capital, but I considered the question posed by Mason, "Can Capitalism Fall?”. After reading the comments to his post it appears that all are in favor that Karl Marx is off his rocker. However, consider this; in a solely capitalistic society every member of society would be looking out for number one. Men and women would place their wants before any other. This would result in fewer marriages and less family structures in which to teach values. Also, within families both parents may work in pursuit of personal goals and once again neglect the teaching of values to children. A decay of the moral fabric of society may ultimately cause the downfall of capitalism. This is how I propose that capitalism will fall. Few will gain power and monetary control over many through their exceptional ability or good-fortune. These few will lack the civil decency and moral compass (along with everyone else) to do recognize the greater good and will put their selfish desires first. They will do what our government increasing is doing by talking from some and giving to others or to themselves.

The capitalistic system without a moral compass will turn into a socialistic system. A revolution will occur and the system that was previously capitalistic will fall. The fall will occur primarily because of a breakdown in the core unit of society, the family. In order for Capitalism to succeed, families must be socialistic and teach that although individuals are not responsible for society, they have a duty a duty to uphold it.

I was going to leave my thoughts as comments, but felt that it created a subject of its own. Please comment and help me see the fallacy and/or the accuracy of my reasoning.

With investors increasingly unhappy over CEO pay and increased news coverage and public outcry what will the solution be? Too many Board of Directors still have the 'good ole' boy system. However, stockholders are now making their voices heard with the upset over CEO Robert Nardelli at Home Depot, who received more than $120 million after a drop in stock performance, as quoted in Business Week (http://www.businessweek.com/mediacenter/podcasts/cover_stories/covercast_01_04_07.htm?chan=search )Bob Nardelli's departure from Home Depot came down to a squabble over pay for performance and yet they pay him to leave. AT&T gave a $26 million severance package to a CEO that only lasted 9 months. When stocks go up, then CEO's have earned their pay and their pay may go up with limited interference from employees, investors and the public at large. However, when stocks go down, why are CEO’s leaving companies with multimillion dollar severance packages?