21 November 2008

Gravity Continues to Assert Itself

The news, this week, has once again been bleak. Bank stocks collapsed again, led by Citi. Not very long ago, confidence in the Citi name led the bank to buy naming rights to the new Mets ballpark--Shea Stadium's replacement is Citi Field. Now, the name is mud, and most of the other big bank stocks are being dragged through it.

But to me, the more interesting, and potentially more dire news comes from the heretofore neglected realm of agriculture.

Conventional Wisdom at the moment seems to be that agriculture is going to do fine in this crisis. The price of oil (and hence, diesel for their various machinery) is down, while the price of crops is way, way up, right?

Wrong. The price of crops has crashed along with the rest of the commodities market. Right now, a bushel of winter wheat would go for about $5, but cost about $6 to grow.

This is a part of what economists talk about when they tell us that deflation is as bad, or worse, as inflation. It seems counterintuitive to think that lower prices could ever be a bad thing, and if all you ever are is a consumer, I suppose that's true.

But few of us are truly consumers, only. Many of us have jobs that produce, as well. Whether we're a "direct" producer, like a farmer putting seeds into the ground, reaping a harvest and selling it, or a more "indirect" producer, like me sitting in my office helping my company make better products, our livelihoods are ultimately tied to our ability to sell our product for more than it cost us to make it.

If the prices at which we can sell go down, something has to be done to cut the costs, as well. If you're a farmer, you don't have many options: you have to buy fuel for your machinery, you have to pay your taxes and possibly rent (many farmers lease rather than own the land they farm) or mortgage, and you almost certainly have to hire help. You could hire less help, or hire illegal help and pay them pennies, but you can't do away with the help entirely.

If you're a more industrial organization, you could try cutting costs by cutting wages and benefits, but most people react badly, even in an economic downturn when they're happy just to have work, to actually having their wages and benefits reduced rather than raised. In a unionized environment, it's often impossible, which is one reason (but not the only reason, by far) that Detroit is in the midst of catching fire and sinking into the swamp.

So instead, you cut hours, or cut jobs.

This, of course, feeds a deflationary spiral, especially when credit is also hard to come by. If people aren't buying, producers aren't selling. Ultimately, they cut the prices of what they've already made to just try to get it out of their inventory (especially if it's at all perishable, like food), but if they have to cut prices below what it cost them, they have to cut costs...

12 November 2008

Economy and Politics: Bailing out Detroit?

With the election over and the bank bailout no longer really news, the persistent mutter in the media now is about the desperation of GM, Ford, and Cerberus (the private owners of Chrysler). It's a little hard to believe, I think, that the Big Three, who for so long were synonymous with American industry, could be this close to death, and yet, the facts are actually pretty much there for anyone to see:

  • Big Three profitability, particularly for GM and Ford, has been tied for over a decade to trucks and SUVs. It's not that they weren't selling cars, mind you. They even sold a few good cars, believe it or not. It's that they weren't selling cars at a profit.
  • Much like the mortgage debacle, the Big Three inflated their sales numbers, if not their actual profits, through cheap credit and easy leases. 
  • Big Three labor costs are very high.This is part of the reason they can't make an ordinary car at a profit.
  • When the price of gas spiked, automobile buyers quit trucks and SUVs cold turkey. US manufacturers were caught flat-footed by this, but worse, even if they hadn't, it's not really clear what they could have done about it, when they can't make a car at a profit!
  • With lots full of trucks they couldn't give away, let alone sell, dealers found themselves needing to borrow to obtain vehicles that would sell, only to find they couldn't get credit.
  • Making this worse, lots of trucks and SUVs were leased, not sold, in the last three years. In past years, these were easy to sell, "pre-owned", at a profit when they came back, a great deal if it works, because they got both the lease money and an eventual profitable sale. Now, instead, they've got lots full of used trucks they can't sell alongside all the new trucks they can't sell.
  • Once dealers started to get credit again, customers couldn't, so even customers who wanted to buy, couldn't.
So now, Detroit is saying, "Help us!" And some people are saying, "Yes, for heaven's sake, help them! Help them now!" and others are saying, "Why should we pay to save their short-sighted asses?"

Unfortunately, the answer to that question is simple. It's the only simple answer, really, in this whole mess. We need to at least consider a government bailout, because there are roughly three million jobs associated with the Big Three. If any one of them, especially the largest, GM, were to fail, that would be monumental hit to the broader economy. 

Michigan would take the biggest hit, of course, but there are automobile and truck plants scattered throughout the country in all sorts of odd places. Senate Minority Leader Mitch McConnell (R-KY), for example, has a vested interest in seeing some sort of bail-out happen, because there's a plant in Kentucky. Here in Saint Paul, there's a Ford plant that's probably going to close in the next few years no matter what happens, but if Ford were to suddenly hit the wall, the controlled, mitigated shutdown that Ford planned would become a sudden closure that would put hundreds on the dole queue all at once.

Exacerbating this situation is a belligerent United Auto Workers leadership. Their feeling is that this crisis is entirely management's fault, and therefore their membership shouldn't have to concede a single penny or in any way suffer the consequences. They are, however, wrong. UAW intransigence is one of the reasons Detroit can't make money on a small, inexpensive, efficient car and instead had to predicate their profits entirely on gas-guzzling monstrosities. 

As brave as they're feeling right now, with GM on the ropes, they're going to feel pretty stupid if, three months from now, there is no GM, and all of their GM-based members are out on the street. They're also going to be pretty angry at President-elect Obama, who right now really does have the worst job in the world: almost-President. He can't actually do a damned thing right now, but he's under a lot of pressure to save the world. There's 70 days 'til he's actually President, and GM might well fail before that.

One argument I don't buy, by the way, is that Detroit could have avoided this by going green much earlier, like Toyota did. This is too simplistic an argument. The Prius--my personal favorite automobile, hands down, and the one I drive--is not a cheap car by any stretch of the imagination, but it also doesn't make Toyota much money. It was expensive to develop, is expensive to build, and because of issues getting enough good batteries, for a long time was in extremely short supply. I think they're currently making a profit off of them, but for a long time, they weren't.

The Prius is not why Toyota is standing, albeit a bit wobbly, while GM is battered, bruised, and crawling on broken limbs to the phone to dial 911 with its broken nose. It doesn't hurt, but it's not the reason. The reason is that Toyota's overall business model and practices ensures that they can actually make money off their cars as well as their trucks. Some of this is that they made efforts to make their entire product line, even non-hybrids, at least a little more efficient; and also have a reputation for making solid, reliable cars. People are willing to pay a little more for that, if they can, so Toyota can sell their cars for a little more than GM et al. can. Some of it is that they're not burdened with the same labor costs. 

From the outside, it appears that Toyota's management actually thought in terms of long-term sustainability, while GM, Ford and Chrysler all focused on immediate profitability. They might well have had contingency plans for the day when oil started to rise and demand for the guzzlers slackened, but they were all expecting it to be gradual. They didn't foresee or plan for a sudden spike putting the fear of G-d into the market, and they certainly didn't foresee or plan for the possibility that such a spike would coincide with a general, world-wide collapse of the financial system.

Like the bank bailout--which, by the way, will now officially not happen the way it was originally advertised; there will be no government buy-out of toxic assets, after all--I'm not really happy with the idea of throwing good money after bad companies. But I shudder to imagine what will happen if a million or more workers are tossed out into the cold at once.

06 November 2008

Politics: Class Act

I'm still formulating my thoughts about the election itself, and what I think it means, and how I feel about it. But I don't want to get out of the habit of posting to this blog when I think it's relevant just because that's still in the queue.

First of all: if there's anything about the American electoral process that you, my faithful readers (all 50 or so of you :-D ) would like explained, please comment here, and I'll be happy to go into it.

Now, to what I really wanted to talk about.

Among the many articles about the upcoming presidential transition, there was a brief note about what Obama will not be doing.

He won't be intruding himself on the upcoming Global Economic Summit. He's not even currently planning to be in Washington that week, although he hasn't ruled it out, in order to meet outside the summit with various leaders on an informal basis.

Now, I imagine many of you are thinking, "What?! He needs to be there. Someone sane has to represent America at that meeting! That's what we elected him for!"

But Barack Obama, smart, smart man that he is, recognizes that one of the things that makes the United States great, one of the things that helped prove to the whole world that a federal, democratic republic could actually work, is that we have respectful, orderly, cooperative transitions of power. And that during that transition, we still only have one president, and it isn't the new guy.

Until 15 December, Senator Barack Hussein Obama II is the President-Designate. Between 15 December and 20 January, he's the President-Elect.

Which means that until 20 January, Obama is, for the purposes of that summit and host of other ongoing executive-branch issues, just another guy. The President, for good or ill, is still George Walker Bush, and the summit, and whatever comes of the summit, is still entirely his business.

Obama recognizes--because while he does an adequate show of modesty, he does know that he's a rockstar superhero--that he could easily undermine Bush simply by being present. He's already more popular (in part because he hasn't had a chance to do anything yet, but also because he's articulate and thoughtful) than the Lame Duck in Chief. He's probably smarter. And since whatever is decided will ultimately fall on Obama's shoulders, it could be argued that he should have some say in it.

But Obama knows, first of all, that the classy thing to do is to let Bush finish his term as unmolested as possible given the needs of transition. And, from a more calculating, political standpoint, that to undermine Bush in any way would be to invite, 4 or 8 years down the road, his own successor to do the same to him.

So, once again, he's taking the high road. While I sincerely hope that we don't wind up regretting his lack of input into the summit, I think that's the right thing to do.

02 November 2008

Politics: What I want to happen

This is not an endorsement article, per se. There wouldn't be much point, since in terms of the man I want to win the top job, everyone who knows me has known my answer since the MN caucuses back in February.

But there's more to what I want to see on 4 November than just that the least evil should win.

For one thing, I don't just want Barack Obama to win the presidency, becoming the first black President, and only the second non-WASP President (the first being Kennedy, who was Catholic) in US history. He'll be more than that, by the way. Think about every European and European-descended country that has a white majority. Have any of them had a national leader who hailed from one of their minority populations? Many have had women, but all have been white. Can you imagine France electing a black premier? Or Germany?

No, I don't think so. For good or ill, the very fact that we're even seriously talking about the possibility (and a strong possibility at that) that Barack Obama will be President 44 is an example of and testament to American Exceptionalism.

But I digress.

I don't just want Obama to win. I want him to win big. I want him to pull something close to 350 electoral votes. I want him to crack 50% of the popular vote. I want there to be absolutely no question, as there was for Bush's first term, about whether he "really" won. I want it to be clear and unequivocal that better--even if it's only slightly better--than half of those who bothered to turn out favoured Obama.

I also want some of the third-party candidates to manange to crack a percent or two, each. Yes, I realize that especially in the case of Nader, that's a couple of percentage more that Obama might have been above 50%. But more to the point, if Obama cracks 50%, and Nader and other other whackjobs take, say, 4% total, than that demonstrates that noticably fewer than 50% of the electorate liked McCain. In other words, he can't say that he almost won. Again, I want Obama's win to be clear and unchallengable. I've said repeatedly over the last 8 years that Gore lost, in the end, because he failed to inspire a sufficient margin so that the hanging chads wouldn't matter.

I want to see Al Franken take the Senate seat currently held by Norm Coleman. I know a lot of DFL partisans who really, really loathe Coleman, and I can see why: he turned coats, he's staunchly pro-life, he's fiscally conservative, and for the first two or three years of his term he was a Bush zombie.

I don't loathe him, but I don't really like him much, either. Mainly because of his years as a Bush zombie, but also because of a persistent sense that he's a chameleon. Al Franken doesn't inspire huge confidence in me, I'll admit, but at least he's been consistent. So I'll settle for a very narrow win by Franken...or, for that matter, a narrow enough win by Coleman that it makes him think a bit.

(Curious fact: if Franken wins, he will be the fourth successive Jew, not counting Dean Barkley's two months filling in for the late Wellstone, to sit in the "Class 2" seat from the Land of Lutherans: Rudy Boschwitz, Paul Wellstone, and Norm Coleman.)

I want to see Michelle Batshit Bachmann (R-MN 6) lose. I would prefer it to be a humilatingly huge loss, but there's no real prospect for that. I will settle simply for her to be turfed out. I don't know Tinklenberg from a hole in the wall, honestly, and I don't get a vote in the 6th District Race, anyway, so I don't care so much that Tinklenberg wins, as that Bachmann loses.

I want to see Keith Ellison (DFL-MN 5), the first Muslim ever returned to Congress, and my district's representative to that body, win again. Fortunately this seems like a no-brainer. I haven't even seen evidence of a campaign, suggesting that none of his opponents are really credible. Of course, this district is so firmly in the DFL's grip that a Republican would have to pretty much be handing out suitcases of cash to win that seat.

I want to see a 59 seat Democratic majority in the Senate. Not 60. 59. I want them to have to work a bit to stay fillibuster-proof. I don't want them utterly unfettered. I have friends reading this I know feel differently, who desperately want to see that magical 60, but I'm just not partisan enough to think that giving any party that kind of power is a good idea. Of course, as others have pointed out, even 60 isn't a guarantee of fillibuster-proof-ness. Senators tend to think a bit more for themselves.

I will also point out, as fair warning to the more partisan readers in the crowd, that if, two years from now, the Democrats have demonstrated either that they're incompetent or that their ideas are making things signifiantly worse, I reserve the right to root for a Republican majority mid-term. I don't want the Republicans out right now because they're Republicans. I want them out because they've screwed everything up. But Democrats have screwed things up in the past, too, and they will again in the future. You can take that to the bank...if you can find a bank still open to take it to.

I want to see some clear and workable ideas for stopping the bleeding in our economy. I don't want a New New Deal. The New Deal didn't fix anything; all it did was freeze things in place so they didn't get worse. I want to see a clear plan for how we're going to not just stop getting worse, but make things better. I want the Democrats to show that they can be both liberal and in favour of real prosperity and not just the prosperity of, "at least it's not getting any worse, so enjoy what you have."

Lastly: I want America to lead the world again. Really lead it, not just say we're the leader and strong-arm people into following us. I want us to innovate. I want us to shine. I want to be proud to be an American, not because it's required to pass some cultural test of patriotism or loyalty, but because the nation has earned my pride.

01 November 2008

Politics: Are we there, yet?

Today, I had occasion to say to a friend that it was a really good thing I don't have a nail-biting habit.

Otherwise, I'd be up to the elbow right now.

"But Mikey," I hear you say, "the polls all say that Obama's got it locked. Gallup's got Obama up 10  on McCain. If you go with Real Clear Politics's average, he's +6. Five Thirty Eight's got about a 7% spread in Obama's favour. He's going to win everything Gore or Kerry won and then a few that they didn't, and given how close those elections were, that puts him over the top! Stop worrying!"

I'd love to. Really. The problem can be summarized in three words:

"Dewey Defeats Truman".

There are some significant parallels, although the parties are reversed. Republican Dewey was ahead in the polls, and those same polls showed significant coat-tails that would drag a strong Republican majority into both houses of Congress. Truman was the incumbent, running for his own term after stepping into FDRs, and was deeply unpopular with certain segments of the population.

The big issue that year was that polling was in its infancy, and phone polls only work if people have telephones. In the late '40s, this was predominantly people with money, and they favoured the Republican Dewey, naturally. Pollsters had also failed to take into account the relative lack of momentum in popular opinion; that it can and will turn on a dime. So they stopped polling weeks before the election, sure that they had the answer already.

On Election Day, it became clear almost immediately that the polls had been dead wrong. Conservative media at the time insisted as the day wore on that "late returns" would show a surge for Dewey, and honestly seemed to believe it--hence, the Tribune's headline--but it was never a realistic hope. Truman not only won, he won by a handy electoral margin, and brought in a Democratic majority to both houses. Ultimately, the populace punished the Republicans for the "Do Nothing" 80th Congress, which, with a weak Republican majority, failed to get much past FDR's successor.

Polling has come along, long way since then, but it still has some dreadful flaws. The difference is that most people in the media now know those flaws. They still use polls, because it's a nice pithy way to summarize a story, but they know, and often admit to, the flaws. For example, nowadays, phone polling tends to still be focused on land-line phones, because of a reluctance to spam cellphones (thank heaven!). But now, the equation is opposite of what it was in the mid-40s. The people who still have landline phones tend to be poorer.

Then, there's the fact that, in this jaded age, many of us simply hang up on telephone solicitations of any kind, especially robocalls. Part of how the campaigns themselves gauge support is based on how many people they successfully talked to, but McCain's campaign has used a lot of robocallers, which are even more likely to get hung up on. Therefore, McCain's own numbers may well be wrong. He may have tremendous support from people who simply don't want to talk to his robots.

The race question also, sadly, screws up everything when it comes to believing the polls. It shouldn't, of course, but it does. This is the much bally-hooed (and somewhat debunked) "Bradley Effect", where people say to pollsters, "Sure, I'll vote for the {insert minority here}!" but they're lying because they don't want the stranger on the other end of the phone to think they're a bigotted pig. But on Election Day, when push comes to shove, they'll mark for the white guy.

Of course, as I just said, there's some material out there debunking the effect, so it may not really have ever happened, let alone be happening now. But human nature being what it is, it's not hard to imagine, really. And therefore, it's easy to worry about.

And so, yes, friends, I'm nervous about how this is going to turn out. In 2000 I was complacent, in part because Clinton had so trashed his own image and legacy that I was ready for even a stupid monkey. I didn't vote for the stupid monkey, mind you, but I was OK with him, because hey, how much harm could he do in four years, right?


Then in 2004 I was also complacent, in part because I was still personally angry about 9/11 and not thinking as clearly as I would like, and therefore still somewhat pro-war; but also because Kerry was such a damned zombie that it was impossible to take him seriously. Again, I didn't vote for the stupid monkey, but I still firmly believed that everything would be OK in the end.

Except...it wasn't. The wars have dragged on. In the case of at least one of the two wars, it's clear to all but the most die-hard, delusional neo-cons that it was the wrong war for the wrong reasons. Our standing in the world is shit. We lost their respect when we went into those wars, and we lost their fear when they started to realize our military was pretty tapped out. And now, our economy, the world's economy, is down the toilet.

No election is simply going to fix all this instantaneously by magic.  But the wrong result will make it worse. So it matters. And until it's over and decided, I'm going to be nervous about how it will turn out.