Evil and Greedy

So I found myself in a discussion the other day about how companies don’t have any loyalty to their employees any longer and how they would simply toss them out if they found it necessary. I, of course, countered. What I mentioned was that as far in the mist shrouded past as thirty years ago I sat in on a college course where students were coached to prepare an “immediate plan”, a “five year plan”, a “ten year plan”, and an ultimate goal for their careers. In those five and ten year plan, there was a lot of job hopping from company to company built in. Almost as if employees had no loyalty for their employers the way they used to. This met with the “chicken and the egg” defense, which I think is at least somewhat valid, and an admission that market conditions were much more stable in the past, and of course this is undeniable, but the kettle of “greedy, non-caring bastards” broth still simmers.

Mentioned as well, as it often is, was the fact that people can no longer get out of school and go to work for a company for forty years at the same location and then retire. Of course this isn’t universally true, but widely. It occurred to me that people say they would like that, but they really wouldn’t. They don’t want to live in the same tiny house that they could barely afford the down payment to buy for forty years. The one with no off street parking and no basement. They don’t want to go to work and have to wait for the people that were already there to die or retire so that they can get a promotion, more responsibility, more authority, and more pay. We don’t want to wait any more. We want it NOW. It’s why we have credit cards and mountains of consumer debt.

Also mentioned, tangentially, in our discussion was the “global” economy and of course that’s had some effect. The American steel and auto industries were overtaken and sometimes absorbed by foreign competition, but why was that. Was it only the Snidely Whiplash of the American middle class worker “Cheap Labor”? Or did high corporate taxes, union work rules, and environmental and corporate regulation have roles to play as well? Of course you need to be a Wall Street banker or a well-connected Congressman to know the ins and outs of the whole story but allow me to think that poor old Snidely carries the burden for a LOT of unseen and unsuspected economic villains.

But the discussion got me to thinking about how unfair it is to tar CEOs with the “Evil, Greedy” moniker. Take a mass layoff as an example. Say company XYZ Inc. is to lay off some of its twenty thousand employees, and two thousand people will lose their jobs… on Christmas Eve….. in the worst snow storm in recorded history. It would be ordered by the CEO. Now why would he or she do a thing like that? Well, it was because they looked at the profit and loss sheets and understood what they said. Market share had dropped, productivity was down, raw material costs were up, energy, physical plant, regulations, taxes, the new union collective bargaining agreement or a combination of all of those things plus they didn’t get any sex last night on their birthday and they’re understandably cranky. And so they lay off two thousand people.

This is a tragic thing. I’ve had two different startups fall out, and the rug yanked out from under me a couple of times and it’s no fun. It can, quite literally, turn your life upside down. But what was the alternative? What was the other choice the CEO could have made that would have been better? The company’s numbers aren’t secret. Everybody knows when a company starts to lose market share and they need to make a correction. If they fail to make that correction then the stock price will start to drop. People will start to look for other places to invest their savings or 401k contributions. This means less capital for new machines and raises. This means lower production and a further erosion of the stock price. There’s no stopping the spiral. It’s like the inevitable collapse of a breached damn or levee. One thing will lead to another until the CEO is replaced by the “Evil Greedy” board of directors that hired them. And of course they were elected by the major stock holders. So the “Evil Greedy” chain stretches all the way back to middle class man on the street who happens to own some XYZ Inc. stock. And finally if someone doesn’t become sufficiently ruthless to fire those two thousand workers, eventually, the enterprise will be driven out of business and all twenty thousand people who work for XYZ Inc. will be laid off and the facilities will close their doors.

How much more compassionate is that than laying off the original two thousand?

But that’s just what an average guy thinks.

Off-Shoring

I’d like to take a crack at explaining the way I see something and see if anyone can offer an alternative explanation. Just kidding. I don’t believe there is one, but I’m told that I at least need to feign humility.

The issue currently on the table is the off-shoring of manufacturing jobs. Many people believe that corporate managers do this out of greed and the desire to increase profits so that they can line their own pockets. They believe these things because they have no understanding of, or desire for the understanding of economics, or business management, and because they’ve been taught to believe it by a news media hungry to push heart breaking human interest stories and politicians eager to advance their own careers by pushing the narrative of income inequality and class envy.

To illustrate the situation, I’ve created a model. In the model there are four companies. The companies operate in the United States, Mexico, China, and India. They all buy the same raw material from a global market, and they all sell the same product into a global market.

It’s easy to see from the countries involved that the US might be at a competitive disadvantage due to cost of labor, but at the beginning of the model, the playing field is dead even with the higher wages of US workers being compensated for by a much more highly skilled labor force and more modern facilities and the US is able to dominate the market and hold a higher market share. Also, because of its market share dominance, the US also attracts disproportionate share of the investment capital.

However, the situation is not static and over time things change. The work force in the off-shore facilities becomes more skilled. Their US educated business managers and engineers return home with new ideas and ways to innovate. The foreign governments see a benefit to their economies to keep their corporate tax rates low. At the same time the corporate tax rate in the US remains the highest of any major manufacturing country, union contracts increase wages and benefits incrementally, and the government continues to impose increasing amounts of regulation. As this happens, the US company starts to see it’s costs of production increase relative to those of its competitors and it starts to lose market share and the profit to pay dividends to stock holders decreases which results in a reduction of investment capital. This reduction in investment capital results in a reduced ability to replace and update worn out machinery and processes, again resulting in reductions of efficiency. It’s costs of production increase again, and again the foreign companies increase their market share.

It is a slippery slope that manufacturing firms operate on. The model shows a company caught in an ever tightening spin. They know that they have the superior process, and the knowledge of how to run it, but given costs and regulation they simply cannot. So at one point they will have to choose. They have already pushed the unions for all the concessions that there are to give, and their lobbyists have gotten every break from the government that there is to get. There was one last hope, and that was the large donation to the Clinton Foundation, but they watched that dribble away like sands through the hour glass the evening of November the 8th, 2016.

Now there are only two choices; move all, or a significant part of the manufacturing operation off shore, perhaps maintain design and R&D in the States, or watch the company continue to lose market share until finally there is nothing left to do but shut company down completely.

If a company is unable to compete in its market, it will fail. What was the bit of dialog after the Titanic had hit the berg and was taking on water? J. Bruce Ismay, who was the managing director of the White Star Line, is said to have commented to Thomas Andrews who was the head of the drafting department at Harland and Wolf (the firm that built the Titanic) “But this ship can't sink”! to which Andrews replied, “She's made of iron, sir! I assure you, she can... and she will. It is a mathematical certainty”.

So it can be seen from this marvelously simple model, that if a company is not allowed to compete in its own best interests that it will fail and there’s no action, no amount of government intervention that can prevent it. What the government CAN do is to help companies hold down their costs of production by keeping corporate taxes low enough to be internationally competitive and by eliminating cumbersome regulation.

But that’s just what an average guy thinks.

We're A Stew, Not A Smoothie

From the very beginning of the 2016 election cycle, the ultimate winner was labeled and continually ridiculed by progressives and conservatives alike as a clown, someone ideologically, historically, and temperamentally unfit to hold the office. It is unclear at this writing if he has any reverence for the office of the President at all.

And once again we get lessons in civics about how the political parties and our elections are supposed to work, and how they actually work. We learn again all about the Electoral College. We have to learn the lessons again, because it’s sort of boring and geeky, and we weren’t really paying attention the last time. It has to be told to us again how a candidate can receive the most Electoral votes and win the presidency in spite of not receiving more popular votes nation-wide.

Here, a distinction must be drawn between receiving more votes when all of the state election results are combined, and “winning” the popular vote. There IS no national popular vote to win or lose. There are only 51 state and district elections. Each of those state elections is assigned an Electoral value based on the number of legislative representatives (except for the pity case of the District of Columbia) and the winner of the combination of state elections that garners the majority of Electoral votes wins the presidency. It’s not that hard to understand. Many of us learned it in junior high school. Most no longer do.

This year a new twist has been added. A racist twist. Never heard before. The Electoral College, some now say, was created to increase and perpetuate the influence of the Southern, slave states. Reference is made in passing to the inhumanity of the 3/5ths rule as if this is somehow evidence of something. Of course no thought is given to the fact that the 3/5ths rule actually decreased the influence held by Southern, slave states, but this is of no matter, as it doesn’t help to advance the narrative.

And so the familiar lament rises on the howling wind…… “God damn it’s cold out here”…. No wait… that’s in North Dakota. And so the familiar lament rises again, “why doesn’t the United States have a democratic popular national election to select the chief executive like all of the other countries”? The answers that one receives to this question are varied, but most land on the fact that the writers of the Constitution didn’t trust pure democracy. This seems to hold up to scrutiny as there are several references in the literature to opposing the “tyranny of the majority”, and of the susceptibility of the general public to the con, and each time it is noted that we are MUCH more sophisticated now.

But the truth is simpler and can be summarized in that rebellious fraternal mantra “you can’t choose your family, but you get to pick your friends”. Bear with me on this.

The United States is unique among nations (truly unique) in that before its current government was formed, the country didn’t exist. The governments of virtually every other “developed” nation that has “democratic” elections existed before their current incarnation and variation on democracy as a monarchy, dictatorship, or oligarchy of some sort. Most of the Western democracies are smaller than the State of Texas. In those nations, the governmental bureaucracies already existed. To form them, it was only a matter of choosing how the bureaucracies would be staffed, and how representatives to legislative bodies would be selected. In the case of the United States, the task wasn’t to determine how the existing government would be operated, but how bring together the several sovereign former colonial governments that were to become the states in such a manner that would equitable and would not result in the domination of the small by the large.
(The tyranny of the majority). Large states versus small states. Could the small states trust that they would not be dominated by larger more populous states if they were to enter into this confederation? In the end, the compromise variously referred to as the “Great Compromise of 1787”, the “Connecticut Compromise”, or the “Sherman Compromise” provided for proportional representation to the House of Representatives for the general population, and equal representation in the upper house… the Senate, to provide for representation of the states to the federal government. This compromise carried over to the selection of the Chief Executive. An “Electoral College” was created where one elector is allowed for each member of a state’s legislative contingent. This simple method mirrors the way that the legislature is constituted.

We do not have national popular elections because we are not a homogeneous people. We are the small state and large. We are coastal and plain. We are desert and lake. We are bayou and prairie. We are Rocky Mountain and vast forests. We are farm and factory, urban and rural. We are light and dark, Asian, African and Euro. We are, and hopefully will remain the United States of America.

But that's just what an average guy thinks.

A Little Election Fun

Having a bit of mental fun with the Clinton loss. It’s a situation rife with irony and contradiction. The Electoral College has now voted and the results are a step closer to being official. It has to be admitted that Trump’s victory was not the “landslide” that he has claimed. A point not lost on Bill Clinton, or Barack 0bama who truly did have landslide victories. But given the expectations, given the fact that the Clinton campaign outspent the Trump campaign by a factor of two, given the perceived existence of the Big Blue Electoral Wall across the rust belt, given the 240 Electoral vote starting advantage that Clinton supposedly had, and given the fact that Clinton campaign staff were opening celebratory Champagne early in the afternoon of the election it is understandable why someone might call it a “landslide” victory. The seemingly solid foundation that Clinton was resting on did liquefy and quickly moved downhill. That’s a pretty good description of what actually happens in a geographical landslide so I don’t think it’s too much of a stretch.

And now the cleanup and post mortem. But it’s hardly necessary. Everyone knows already why Hillary Clinton lost. She lost because she wasn’t Barack 0bama and it’s just about as simple as that. Nearly 57% of Americans polled will tell you that the country is on the “wrong track” and all Hillary had to offer was more of the same only with more taxes, more regulation, more free stuff, more national debt, more corruption, and more economic stagnation.

An irony here is that during the mess that has been this election cycle, Barack 0bama has been able to keep his job approval ratings so high while support for his policies has been so low. It’s as if people are unable to actually make the connection between the smooth, black guy hurling awesome snark at his detractors and their opposition to the policies that vex them. The ever increasing insurance costs in the place of that two hundred and forty dollar per month savings they were promised. The Constant stories out of the executive agencies; the tragedy of the VA; the snarling disrespect and contempt from the IRS commissioner; the menacingly smooth demeanor of the EPA director as she promises and justifies increased regulation while dodging any responsibility for Gold King; the bald faced lies coming from the Director of National Intelligence; the relentless pursuit of a nuclear deal with Iran regardless of the cost or result, and the obvious corruption of the former Secretary of State. All of these things may help to explain why during his eight years as president Barack 0balma has presided over the loss by his party of eleven Senate seats, 63 seats in the House of Representatives, 12 state Governorships, and over 800 state legislative seats leaving republicans in a dominant governing position not seen since the nineteen twenties. Apparently America LUVs it some Barack 0bama, but not enough to vote in support of any of his policies.

Maybe America loves Barack 0bama for the glam parties he throws at the white house, for the avant guarde way he decked out the White House in an all-inclusive rainbow, for the edgy way he supported all comers against the “stupid” police, the endearing way he mocks the traditions of his office, the easy way the 77% of women, or the 97% of scientists lies flow from his lips. Maybe it’s the easy way he lays down a red line, or issues an ultimatum, or the clever way he spent $11.2 Billion in taxpayer money to “save” GM without actually helping the company in the long term, or the seemingly coincidental way the unemployment numbers seem to go down at about the same rate as the Labor Participation Rate. Or perhaps it’s the sum of all of those things.

Whatever it was, at least three things will be true come January 20th; 1) Hillary Clinton will never be President Of The United States; 2) Barack 0bama will never again be President Of The United States, 3) Bill Clinton has tapped his last piece of strange in the White House and one has to expect that’s what’s eating him.

But that’s just what an average guy thinks.