How to fix the Economy, by Wayne R. Dempsey

[Seahawk]

I've got to go get my son from Tae Kwon Do (black stripe) but I'll be back!

[Hugh R]

Very good write up Wayne. I think I'm pretty much in complete agreement with what you wrote. What the people want is "certainty" in life, so do the markets. Tax cuts for those who actually pay taxes is a good thing. You give a stimulus check to those who didn't pay taxes, it's welfare, and they will probably blow it on junk, drugs or alcohol. You give me, for example, 10% of my Federal taxes back, I might actually make a big ticket purchase with the money. I've got money (well not as much as a year ago), I wouldn't need to spend it on paying off credit cards.

[afterburn 549]

OK Wayne you have my nomination !!

[Porsche-O-Phile]

I agree with nearly everything you say here Wayne.

I hope this isn't taken the wrong way (but I have to ask, since you brought up supporting Pelican):

Pelican is a U.S. company. It employs (directly) U.S. staff and pays taxes to the U.S.A. HOWEVER it is primarily a distributor of imported goods - as are a lot of other U.S. businesses these days. I don't want to single out Pelican, but since you brought it up I'll use it as an example to ask my question...

It would seem to me that the lion's share of Pelican's revenues ultimately go towards purchasing inventory, which is largely going overseas. Porsche and BMW use a lot of Asian/Chinese manufacturing these days too (there's been some discussion here and elsewhere about Bosch using parts and components made in China, etc.) As such, what do you think the percentage is of revenue dollars that goes to these countries - even in support of a "domestic" business? And what would the appropriate percentage be below which it becomes beneficial to us as a nation to keep the "trickle down" and multiplier effects here, rather than sending them elsewhere?

I do realize that Pelican is a great company and does have some "Made in the USA" products listed in its catalog, but unfortunately one has to face the 900-pound gorilla in the room - the fact that largely it too is held hostage to Chinese manufacturing. At least to some significant level. That's where SOME of the dollars are going - I'd love to know what percentage (even a guesstimate). The point of this is not to single out Pelican, but to put a number to how many "cents on the dollar" go overseas on a domestic purchase - and this is for a company that TRIES to keep money here. The vast majority out there do not and they don't care (see the other threads about protectionism for example). That might start giving people some idea of the magnitude of the problem...

At some point I think we definitely DO have to get serious about what I'll call "The China Problem". And it's not just China. Other nations we can't compete against include Vietnam, Korea, Mexico, Brazil, India, Pakistan, Indonesia, etc. The Chinese are however the largest and most offending of these groups because they are so DELIBERATELY trying to undermine our manufacturing (and have been doing a mighty fine job of it too). When I look out my front door, I see a string of cargo ships (big ones) lined up streaming into the Port of LA/Long Beach. These things stretch non-stop all the way across the Pacific Ocean - day in, day out, 24/7/365. The arrive full and return empty. This is a HUGE problem. We NEED to face it. Directly. And dramatically.

I'd love to see a "Pelican Algonquin Roundtable" discussion on some of these deeper, more interesting and more challenging issues. Maybe even in person once a week locally or something. Not an excuse for political BS and mudslinging, but to tap some of the minds of the folks here. The people on this board tend to be (largely) pretty bright, pretty motivated and capable of some pretty passionate beliefs (probably one of the reasons I'm compelled to spend so much time here). These are good "get it fixed/get it done" qualities. Maybe we should have a GTG every week or so to see/hear people's thoughts about it over some coffee or something. I bet this place would yield some very good "think tank" ideas. Wayne just brought up several.

I definitely believe that some of the core problems facing us right now are:

1. A decline in work ethic
2. A belief that we can/should "privatize profit, socialize risk"
3. Over-reliance on credit and "OPM" (Other People's Money)
4. Trade imbalance
5. Letting the ROW dictate trade terms to us, rather than the other way around
6. Crushing innovation and entepreneurship with overregulation, taxation and legislation
7. A (virtually complete) elimination of the once-robust American manufacturing sector.

Any others? And more importantly, any solutions?

[KFC911]

Originally Posted by Wayne at Pelican Parts

...Okay, these are just some of my ideas. I'm probably quite wrong on many of them, but at least my ideas seem a bit more focused than the current chaos in Washington. Hmm, maybe I should run in 2012!

-Wayne

Our two party, each beholden to their own special interests, system would almost guarantee you wouldn't have a snowball's chance but I do like a bunch of your ideas .

[VaSteve]

Originally Posted by Porsche-O-Phile

I definitely believe that some of the core problems facing us right now are:

1. A decline in work ethic

I wonder how much **** would get done if we shut off the internet for a few days. Not the whole thing, but the forums, facebooks, games, etc...

Really.

[Shaun @ Tru6]

no stimulus checks. those will get squirreled away into savings or to pay down debt.

issue debit cards. you can only spend with a debit card and better, it puts the buyer in a completely different frame of mind than a rebate check, which is essentially getting money back you already gave, so it's yours, so it's not very special.

Gift cards are special and make you want to spend. want to make them work for US only goods, no problem, but will only really work on items that have been bar coded.

[Superman]

I hope I don't worry you by saying this Wayne, but I completely agree with your approach and would most certainly vote for you if you ran.

Teaching values to parents would be difficult.

Balancing the budget might need to wait until one or more economics graphs are moving upward.

Still, I agree completely.

[Superman]

Originally Posted by Wayne at Pelican Parts

Probably about 60-70% of the products we sell are foreign and made in either Europe or Asia. I realize that some of the thoughts I outlined above would have a negative effect on our business if implemented. I like to think my original post is the "high road", and a blueprint of what the country needs, not necessarily what Pelican needs.

You are doing what you need to do in order to compete. Quite frankly, if tariffs were imposed and a host of other market-changing measures introduced, Pelican Parts would pay attention, make heads-up strategic decisions to address and take advantage of the new environment and continue to come out on top. A shake-up would probably excited you Wayne, and play right into your hands.

[HardDrive]

I'm votin' Dempsey in 2012.

[jyl]

I agree w/ most of your prescriptions, as a matter of long-term direction.

However, most of them would not have any impact on the economy for many years.

Examples:

- Import tariffs: Would throw global trade into turmoil as other countries retaliate with their own tariffs and quotas, disrupting US export industries. Would disrupt many US companies' supply chains as well, since a lot of products are not only not made in the US, but the infrastructure to make them simply does not exist here. Think about the TV supply chain, for example. There is not a single large-scale LCD panel fab in the USA. Doesn't matter if the tariff on each imported TV is $10,000 - we cannot make them in the USA, period.

- More H1B visas: Heck, I think high-skill people should simply be able to move here, without being tied to an employer sponsor via H1B. But right now, there aren't jobs for them, so freer visas won't make a big difference.

- Decrease the budget deficit: We are going to 10% unemployment rate even with the government sector/spending at this level. If we rapidly cut back on government-based employment, we will go to well above 10% UE.

- Pay teachers for performance: Absolutely should be done. And absolutely no impact on near-term path of the economy. And, by the way, if government spending is rapidly cut, we won't be paying teachers, for performance or otherwise.

- Funding basic research: Again, yes this absolutely should be done. And, other than about 10K lucky PhDs, won't do a thing for the economy in the near term.

- Etc.

Cutting taxes for small businesses is something that could have faster results. I think we should do that.

As for nationalizing some mega banks, that is a really slippery slope. The dilemma is this: almost the entire US banking sector needs to increase its capital, because loans and assets are going bad all over and depleting capital for nearly every bank. Suppose the govt nationalizes BAC. Most likely equity holders will get wiped out. Result is, private investors will then not put equity capital into other banks, for fear of being wiped out just like BAC investors. Does the government want to supply the needed capital increase for the entire US banking industry? That is why the govt is trying so hard to support the banking system without broadly wiping out equity holders. They are trying to walk the fine line between getting something for the taxpayer's dollar, and effectively cutting off the entire banking industry from private investment. It is very tricky - its not like there is an obvious solution and the govt is too stupid to see it.

By the way, the interesting thing about the banking industry is that for the most part, their business model is not broken. BAC can make perfectly good money lending deposits out for sound projects, and consumers want to deposit their money at BAC. And there is a ton of private money that could potentially recapitalize BAC. There is now more money earning near-zero % on the sidelines (e.g. money market funds) than the market capitalization of the entire stock market. The thing keeping BAC and needed capital apart is about 4 past years of now-toxic loans/assets. If the govt can manage to move that toxic stuff aside for a while, the banking system can be repaired.

More generally, Wayne, I believe the govt sees the economy deteriorating so hard and so fast that they want to do things that can potentially slow or stop the slide now, meaning in the coming year. They feel they don't have the luxury of merely starting a bunch of basic research projects and waiting 10 years for some useful technologies to emerge. If the economy slides unchecked - not just the US economy, the global economy is doing it - in a year it could be in something that looks rather more like a depression. The job losses from that will be many orders of magnitude worse than the jobs that might be created by less taxes on small businesses.

Look at it another way - big business is slashing jobs at a pretty awesome pace, and will continue doing so while they see the economy accelerating downward. For every 10,000 person layoff that a S&P 500 company does, how many Pelican Parts would it take to offset?

[Porsche-O-Phile]

Originally Posted by Wayne at Pelican Parts

None taken. I see Pelican as a "service company" as we don't directly manufacture anything. Even the books I write are indeed printed by my publisher in Hong Kong. Probably about 60-70% of the products we sell are foreign and made in either Europe or Asia. I realize that some of the thoughts I outlined above would have a negative effect on our business if implemented. I like to think my original post is the "high road", and a blueprint of what the country needs, not necessarily what Pelican needs.

We spend seven figures on payroll and other local services. That gets funneled back into the Los Angeles economy pretty directly. I'm not sure if this helps to answer your question?

-Wayne

Yes, mostly it does. Obviously nobody's suggesting that a business like Pelican should be snuffed out because it happens to purvey foreign-made goods. That'd be like fighting cancer by shooting the patient. We need the businesses. We need MORE businesses like Pelican to keep liquidity and keep the money flowing in our domestic system. The problem is (as you point out) that some of it goes through pipes or veins with holes in them. Some of the money "blood supply" gets bled off and goes to other places that DON'T help us. Long-term I 100% agree. The "gold standard" is to have us design/make/manufacture/build all of our stuff HERE, then have our own domestic businesses (like Pelican) distribute it. It would keep the supply here and be analogous to "clotting" the wounds that are bleeding us dry right now.

I'd love to know how many cents on the dollar Wal-Mart takes in goes directly to China. Bet the number would be pretty shocking.

Short-term, we all do the best we can (and Wayne, you're doing a fine job). We make the most of what we're given to work with - at best an imperfect and flawed situation. But we also have to aspire to improve it and make it better "big picture". That's what will save and ultimately benefit us all.

Thanks for the insights.

[Axeman]

There is no fix for the economy. This is the outcome of a generation of borrowing and spending. These stimulus and bailouts will not work, they have never worked throughout history and they won't work this time around either. You can't fix this problem by forcing people to borrow even more money to buy "stuff" when this is what got us in this mess in the first place. The problem will fix itself if the government gets out of the way and stops bailing out incompetent companies that should be failing in the first place when more competent people can buy their assets and grow. I predict a depression that will last 8-10 years and this country will never be the same after that. Americans will have to learn to live within their means and save their money instead of non stop borrowing.

http://www.youtube.com/watch?v=9h2x7R8pxUs&feature=related

[daepp]

Allow non=R/E professionals to write off losses on investment R/E regardless of W-2 income. Many on the side lines would jump all over these foreclosed properties since some of the risk would be mitigated by a tax break!

[Bill Verburg]

I'd start by firing the entire management team w/o severance at any institution that asked for(some had it forced on them) TARP money. Followed by a close investigation of possible criminal malfeasance by those same individuals. At the very least they failed in their fiduciary responsibility to their stock holders.

[Superman]

I'm as mad as you are about that, Bill.

[MT930]

We are on the same page. There should be incentive for business people to run the country. You are right on target.

[Shaun @ Tru6]

Originally Posted by Bill Verburg

I'd start by firing the entire management team w/o severance at any institution that asked for(some had it forced on them) TARP money. Followed by a close investigation of possible criminal malfeasance by those same individuals. At the very least they failed in their fiduciary responsibility to their stock holders.

did you hear how much in bonuses they were paid last fall with our money? $18 billion of our money enough?

http://www.nytimes.com/2009/01/29/business/29bonus.html?_r=1&hp

[the]

Originally Posted by jyl

I agree w/ most of your prescriptions, as a matter of long-term direction.

However, most of them would not have any impact on the economy for many years.

Examples:

- Import tariffs: Would throw global trade into turmoil as other countries retaliate with their own tariffs and quotas, disrupting US export industries. Would disrupt many US companies' supply chains as well, since a lot of products are not only not made in the US, but the infrastructure to make them simply does not exist here. Think about the TV supply chain, for example. There is not a single lage-scale LCD panel fab in the USA. Doesn't matter if the tariff on each imported TV is $10,000 - we cannot make them in the USA, period.

-

That, of course, is exactly what happened in the Great Depression with the trade tariffs, retaliation from other countries, etc. leading to an almost complete shutdown of international trade.

There's a lot in Wayne's post and this thread, no time to comment, but one thing that is striking to any fan of history, economics and the Great Depression in particular is how similar our current situation is.

There are so many incredible similarities, the circumstances leading up to it (overleveraging, loose credit, failed banks, etc.), the President (Hoover/Bush and FDR/Obama), the Congress (Dems taking over control from the Repubs) and, most importantly, the strategy which was attempted to get us out of the Depression.

That strategy from the 30s is being tried again today. Unfortunately, it didn't work in the 30s, and isn't going to work now. The Depression continued from 1929 all the way until WWII (1940ish). That's a heck of a long time, and who knows how much longer it would have gone but for WWII.

We are in a very tenuous situation right now, far worse than most people realize, IMO. Certainly the world wide economic crisis of our lifetime so far, and may turn out to be the biggest crisis in our lifetime, even if we all live to be 100.

[curtisaa]

I thought this was relevant:

I checked again.This includes a potential work force of 210 million people. So if we take 210 million people and divide it by 145 million in full employment we see that only 70% of all working age people in the United States are working. Among those a full 20% made up people working at or below the poverty line of $8,900.00 per year that is 29,000,000 people who when we add their families and children made up about 55,500,000 people.

Among the group those who made more than $100,000.00 per year were .09% of the total work force or 103,500 working people. Those who do not work but relied on capital gains for incomes between $100,000.00 to $300,000.00 were not included. Politicians were also not included in this list.

..and who knows about the underground $$ economy. People here illegally that work only for cash, that goes unreported -OR- retired professionals that can't earn over $12,000.00 to keep benefits.

My only thought would be a retirement funds act: This would allow employers to contribute or distribute non taxable income directly to employees mortgage. This would "rock" Wall Street and over time help workers to establish equity in a familiys' largest wealth tool...their homes.