IRS says rich getting richer: report

[The Gaijin]

I can't be bothered to lock it up. Find George Will's column from yesterday. I t aint easy being mega rich these days..

[on-ramp]

rammstein, wow, so many posts for such a "troll thread" ,
good going man.

[Moneyguy1]

Kurt:

The concept of a steady state need makes sense. If the market only needs, say, a set number of items per time period, the need to expand is non existent. If, however, the market suddenly expands for that item, then expansion makes sense. Economy of scale, for example, led to very few sales of hand held calculators in the 70s where today they are given away as promotions. Relevance is also important. If I can manufacture buggy whips very economically and there is no one to buy them, why make them in the first place?

Price is everything to the consumer. Consider the housing industry. If the individual is approved for a fixed amount in a monthly payment, then the interest rate will dictate what amount the individual can afford to borrow. Lower interest rate: higher capital value to the loan, the more house the individual can buy. Obviously, the same with car sales. Why do some retailers offer interest free 60 month loans? Part of something is better than all of nothing.

Without consumers, no business can survive.

Trickle down doesn't work simply because there is no way to know whether these "savings" are actually being passed along. If the goal of the corporation is to maximize return to investors, what better way than to increase dividends? Why reduce cost to the ultimate user instead?

Just some thoughts on the basics of a national/corporate economy.

[frogger]

Bob, shareholders will not be satisfied by static levels of profitability. Management would tend to grow sales and profits by either investing to improve productivity or cutting costs where possible. If the net result allows a reduction in product price, while still increasing net profits, then sales should grow. This benefits consumers that would need to buy the "toaster" anyway as they now paid less for it and have more money for other things. Well, unless the toaster price stayed the same but it's features were improved to offer the consumer more value.

[stevepaa]

Originally Posted by Seahawk

Steve,

Do you have the stats to back that up? I will be non-political in my assessment of your position once you find the data.

Tax cuts have always increased revenue to the Treasury (based mostly on the multiplier effect) going back to Kennedy's tax cuts in the early '60's where high marginal tax rates exist.

Government spending causes deficits.

http://www.treas.gov/education/fact-sheets/taxes/ustax.shtml

http://finance.yahoo.com/expert/article/economist/4065

he says differently.
The economy grows, government revenues shrink. That's basically what happened with the large Reagan and George W. Bush tax cuts, both of which were followed by large budget deficits. Yes, spending has a lot to do with that, but the bottom line is unequivocal: In both cases, government revenue was lower than it would have been without the tax cuts.

[Moneyguy1]

Revisit the steel industry domestically. Was once a real good investment re: dividends and nothing put into outmoded plants. The ROW, devistated by WWII had the advantage of building from scratch and became very competitive overnight.

As far as static level of profitability, look to the utilities. Despite virtual monopolies, their payouts to investors are generally very stable. And predictable. At least in the past.

American industry begs the question that has been asked before and never really answered. How come some companies like Hyundai and Toyota can build huge plants here and make money while American industries, such as electronics (seen an American TV set recently?) has gone away? We cannot blame the entire problem on unions since unions are only one party to sign the contract.
Corporations, as I have stated before, have no moral values except those of their leadership. Private enterprise has no such option. The small businessman must respond to customers with quality and good service. The large corporation can dictate quality and, to a great degree, price and are so removed from the average Joe that the corporation simply can take a "take it or leave it" attitude.

What would happen to our economy if there were more products made here in America rather than in Japan or India? Would the average wage at the lower end of the scale inrease? Could we be truly competitive? What will the long-term effect of becoming dependent on others for key goods be? How long will it take (if ever) for the ROW to come to an economic level where no nation holds an advantage of cheap labor?

Interesting questions. I imagine the answers would be as interesting!!!

[kstar]

Originally Posted by Moneyguy1

Kurt:

The concept of a steady state need makes sense. If the market only needs, say, a set number of items per time period, the need to expand is non existent. If, however, the market suddenly expands for that item, then expansion makes sense. Economy of scale, for example, led to very few sales of hand held calculators in the 70s where today they are given away as promotions. Relevance is also important. If I can manufacture buggy whips very economically and there is no one to buy them, why make them in the first place?

Price is everything to the consumer. Consider the housing industry. If the individual is approved for a fixed amount in a monthly payment, then the interest rate will dictate what amount the individual can afford to borrow. Lower interest rate: higher capital value to the loan, the more house the individual can buy. Obviously, the same with car sales. Why do some retailers offer interest free 60 month loans? Part of something is better than all of nothing.

Without consumers, no business can survive.

Trickle down doesn't work simply because there is no way to know whether these "savings" are actually being passed along. If the goal of the corporation is to maximize return to investors, what better way than to increase dividends? Why reduce cost to the ultimate user instead?

Just some thoughts on the basics of a national/corporate economy.

This sounds like your opinions of "the basics of a national corporate economy", respectfully.

I was recently shopping for a toaster, seriously. I honestly thought there would be a fairly large selection of available toasters, but was surprised to see a extremely large and competitive market! The variety of toasting techniques, features, finishes and styles was remarkable. Do a search on eBay and you will see.

There may be "steady state needs" in an economy, but there is no shortage of motivated people innovating to take a bigger share of the "steady state" markets in a dynamic, capitalistic economy! (edit: monopolies aside!)

And markets are created from thin air, like your calculator example. A company (TI is a great example) took a chance, risked some capital and succeeded. That process created thousands of jobs and produced billions in revenue and profits which ultimately found it's way to the risk takers (the company and its shareholders), the employees, the IRS and eventually to the citizens in general via government services. In that whole process, money finds its way into tertiary channels as well - all of the above folks spend that profit on stuff.

Pencils, pens, sponges, toilet paper, vacuum cleaners, irons, etc. Only in a dynamic capitalistic economy will you see such competition in these markets where absolute demand may be near "steady".

In the process of risk taking and innovation, companies "buy" the minds to innovate and ultimately create jobs in the process. New companies start up as well to take a stab at the iron or vacuum market.

Home and car prices as well as financing options are driven by the market; the producers, buyers and the lenders. Cost of money is market driven as well, although the Government plays a role via the Fed - at some point though, even the Fed cannot ignore market conditions.

My point is that the whole system is dynamic and very profitable to the folks on all levels who take the risk. The company founders, employees, marketplaces for the products and shareholders - those folks enjoy the rewards typically commensurate with the risk taken. Further, the capital that flows from a successful risk taking venture is not limited to a closed loop; it does overflow into the economy and this position is not arguable, IMHO.

Finally a company can't just decide to increase or reduce dividends to its shareholders or increase or reduce prices in a vacuum! These are decisions that are based significantly upon market conditions. As you point out, the "Company" has an obligation to maximize shareholders' returns, but can't do so at the detriment of the Company. And, there is nothing to keep the guy on the street from taking his own risk (except money!) and becoming a shareholder and a participant and potentially enjoying the rewards of his risk taking.

I obviously think this system is a very good one and don't see corporations or the shareholders of the corporations as evil. The consumer is ultimately voting with dollars, right?

FWIW.

Best,

Kurt

[Moneyguy1]

I, too, do not see corporations as "evil". But, I do see them, as I stated, motivated by their management which can have totally different goals than what might be "good" domestically. I would guess that most, if not all of those "toasters' were made elsewhere. So, it begs the question, what ever happened to those American workers who used to make toasters? Are they all working at a Mickey D's now? That is the point I was trying to make. These people have nothing with which to take risks. I would not think that a primarily "service" economy is sustainable in the long run. I could be wrong on this point, but having spent a lot of time in the rust belt and watching industry after industry "go away", the local tax base disappear, and people move away (like they did during the dust bowl, only for different reasons!!) In Rochester, Kodak is a shadow of itself. Three auto plants in the area closed and shuttered. Buffalo, Syracuse, Cleveland, Gary, Pittsburg and other eastern cities are the same condition, and thqt condition is spreading. Once agaain, I may be a bit negative, but the change has taken decades and is akin to the frog placed in cold water and slowly heated until it is thoroughly cooked. The change has been so subtle that many do not see it or have been around long enough to recognize what has been happened over time.

I respect your views and your respect for the reviews of the others here.

Cheers!!

[kstar]

BTW, check out this model:



Krupps, two slicer, has a bagel mode, stainless steel and has a removable crumb tray for easy cleaning. I like it's style too, which is important.

Best,

Kurt

[frogger]

Are any of them made outside of China?

[kstar]

Originally Posted by Moneyguy1

I, too, do not see corporations as "evil". But, I do see them, as I stated, motivated by their management which can have totally different goals than what might be "good" domestically. I would guess that most, if not all of those "toasters' were made elsewhere. So, it begs the question, what ever happened to those American workers who used to make toasters? Are they all working at a Mickey D's now? That is the point I was trying to make. These people have nothing with which to take risks. I would not think that a primarily "service" economy is sustainable in the long run. I could be wrong on this point, but having spent a lot of time in the rust belt and watching industry after industry "go away", the local tax base disappear, and people move away (like they did during the dust bowl, only for different reasons!!) In Rochester, Kodak is a shadow of itself. Three auto plants in the area closed and shuttered. Buffalo, Syracuse, Cleveland, Gary, Pittsburg and other eastern cities are the same condition, and thqt condition is spreading. Once agaain, I may be a bit negative, but the change has taken decades and is akin to the frog placed in cold water and slowly heated until it is thoroughly cooked. The change has been so subtle that many do not see it or have been around long enough to recognize what has been happened over time.

I respect your views and your respect for the reviews of the others here.

Cheers!!

Bob:

I respect your views as well and it is always nice to have a reasonable, rationale discussion.

Here is one data point that is very interesting that addresses some of your post - I have added bold for emphasis:

An iPod Has Global Value. Ask the (Many) Countries That Make It.

By HAL R. VARIAN
Published: June 28, 2007
Who makes the Apple iPod? Here’s a hint: It is not Apple. The company outsources the entire manufacture of the device to a number of Asian enterprises, among them Asustek, Inventec Appliances and Foxconn.

But this list of companies isn’t a satisfactory answer either: They only do final assembly. What about the 451 parts that go into the iPod? Where are they made and by whom?

Three researchers at the University of California, Irvine — Greg Linden, Kenneth L. Kraemer and Jason Dedrick — applied some investigative cost accounting to this question, using a report from Portelligent Inc. that examined all the parts that went into the iPod.

Their study, sponsored by the Sloan Foundation, offers a fascinating illustration of the complexity of the global economy, and how difficult it is to understand that complexity by using only conventional trade statistics.

The retail value of the 30-gigabyte video iPod that the authors examined was $299. The most expensive component in it was the hard drive, which was manufactured by Toshiba and costs about $73. The next most costly components were the display module (about $20), the video/multimedia processor chip ($8) and the controller chip ($5). They estimated that the final assembly, done in China, cost only about $4 a unit.

One approach to tracing supply chain geography might be to attribute the cost of each component to the country of origin of its maker. So $73 of the cost of the iPod would be attributed to Japan since Toshiba is a Japanese company, and the $13 cost of the two chips would be attributed to the United States, since the suppliers, Broadcom and PortalPlayer, are American companies, and so on.

But this method hides some of the most important details. Toshiba may be a Japanese company, but it makes most of its hard drives in the Philippines and China. So perhaps we should also allocate part of the cost of that hard drive to one of those countries. The same problem arises regarding the Broadcom chips, with most of them manufactured in Taiwan. So how can one distribute the costs of the iPod components across the countries where they are manufactured in a meaningful way?

To answer this question, let us look at the production process as a sequence of steps, each possibly performed by a different company operating in a different country. At each step, inputs like computer chips and a bare circuit board are converted into outputs like an assembled circuit board. The difference between the cost of the inputs and the value of the outputs is the “value added” at that step, which can then be attributed to the country where that value was added.

The profit margin on generic parts like nuts and bolts is very low, since these items are produced in intensely competitive industries and can be manufactured anywhere. Hence, they add little to the final value of the iPod. More specialized parts, like the hard drives and controller chips, have much higher value added.

According to the authors’ estimates, the $73 Toshiba hard drive in the iPod contains about $54 in parts and labor. So the value that Toshiba added to the hard drive was $19 plus its own direct labor costs. This $19 is attributed to Japan since Toshiba is a Japanese company.

Continuing in this way, the researchers examined the major components of the iPod and tried to calculate the value added at different stages of the production process and then assigned that value added to the country where the value was created. This isn’t an easy task, but even based on their initial examination, it is quite clear that the largest share of the value added in the iPod goes to enterprises in the United States, particularly for units sold here.

The researchers estimated that $163 of the iPod’s $299 retail value in the United States was captured by American companies and workers, breaking it down to $75 for distribution and retail costs, $80 to Apple, and $8 to various domestic component makers. Japan contributed about $26 to the value added (mostly via the Toshiba disk drive), while Korea contributed less than $1.

The unaccounted-for parts and labor costs involved in making the iPod came to about $110. The authors hope to assign those labor costs to the appropriate countries, but as the hard drive example illustrates, that’s not so easy to do.

This value added calculation illustrates the futility of summarizing such a complex manufacturing process by using conventional trade statistics. Even though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to our bilateral trade deficit with the Chinese.

Ultimately, there is no simple answer to who makes the iPod or where it is made. The iPod, like many other products, is made in several countries by dozens of companies, with each stage of production contributing a different amount to the final value.

The real value of the iPod doesn’t lie in its parts or even in putting those parts together. The bulk of the iPod’s value is in the conception and design of the iPod. That is why Apple gets $80 for each of these video iPods it sells, which is by far the largest piece of value added in the entire supply chain.

Those clever folks at Apple figured out how to combine 451 mostly generic parts into a valuable product. They may not make the iPod, but they created it. In the end, that’s what really matters.

Hal R. Varian is a professor of business, economics and information management at the University of California, Berkeley.

source: http://www.nytimes.com/2007/06/28/business/worldbusiness/28scene.html?_r=1&oref=slogin

FWIW.

Best,

Kurt

[Moneyguy1]

I posted before about my late wife's love affair with Cuisinart. A can opener (made in China) literally fell apart within a year. I sent it to corporate headquarters telling them to either fix it or use it or a doorstop. It was and always be a piece of good looking crap.

[kstar]

Originally Posted by frogger

Are any of them made outside of China?

See the iPod article above.

The iPod is the new "widget" didn't you know.

Best,

Kurt

[rammstein]

Originally Posted by Moneyguy1

I posted before about my late wife's love affair with Cuisinart. A can opener (made in China) literally fell apart within a year. I sent it to corporate headquarters telling them to either fix it or use it or a doorstop. It was and always be a piece of good looking crap.

Did they ever respond?

[frogger]

Kurt, my wife has one, I wouldn't waste a cent on them. We're too entertained as it is.

We tried buying an iron not made in China and eventually found ONE. That was challenging. We tried doing the same when we wanted to buy a toaster-oven. Impossible. All are made in China.

Regarding wealth distribution, I'd like the gov't to spend less and spend what we give them more wisely. As always, on this topic, I'm going to be disappointed.

[Moneyguy1]

Just sent it to Cuisinart a week ago yesterday. Will keep you posted. We had a similar problem with a Kitchenaid mixer (plastic gears??). a fewyears back. The gear was under $5 and Kitchenaid spent more than tha in time and postage to tell us that the failure of tha part was "designed in to protect the motor" and other such nonsense. They would not replace it since it was 3 months past warranty. Wife went out and bought a Viking mixer (all steel gears and twice the wattage motor). Kitchenaid?Not made domestically. The Hobart company should hide in shame that their former flagship has sunk to such a low level of quality.

[kstar]

Regarding the "rich getting richer", if so, the less rich need to get to work!

I can't imagine how taking more money from the most successful folks in the US is going to help the less rich.

Best,

Kurt

[Seahawk]

Originally Posted by stevepaa

http://finance.yahoo.com/expert/article/economist/4065

he says differently.
The economy grows, government revenues shrink. That's basically what happened with the large Reagan and George W. Bush tax cuts, both of which were followed by large budget deficits. Yes, spending has a lot to do with that, but the bottom line is unequivocal: In both cases, government revenue was lower than it would have been without the tax cuts.

Read.

http://www.house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm

[Superman]

I do not see corporations as "evil" either. I see them as amoral. I've been pretty impressed with Bob's posts lately, but have to disagree that managers can apply their personal values to corporate decision-making. They are, essentially, prohibited. If there are two profit opportunities and the corporation cannot pursue both, and if one of those opportunities is likely to be more profitable than the other, they are not free to reject that for the other, less profitable opportunity based on morals. A corporation does not have morals, and its managers are not free to decline profit opportunities that are legal, no matter how slimy they might be.

An economist on my staff, while pouring a cup of coffee, answered my question with a statement that I will probably never forget. "You want to increase the economy? Put more money in the hands of the coNsumers." Notice that he didn't say "producers." If consumers' incomes are not growing, then the growth of every business must come at the expense of another business, and the economy as a whole is not improved.

[kstar]

I agree the consumer holds the power and they vote via money. Accepting that premise, who is to blame/credit when a corporation makes a more profitable choice? More profitable means explicitly the choice that moves more product, yes?

As consumers become more educated and as some demand certain products that make less of impact on the environment, what happens? Companies start filling that need. Moral by demand!

The character of companies is defined and shaped by the consumer, so perhaps in that regard I can agree with you that corporations are "amoral", meaning they are like blank slates to be illustrated by the market they serve. Lately, it literally pays to be "green".

Best,

Kurt