Thursday, February 26, 2009

What makes an expert.

Webster’s defines an expert as:

1: obsolete: experienced
2: having, involving, or displaying special skill or knowledge derived from training or experience

I think the biggest part of our problems are caused by the first definition being judged as obsolete. To me the expert is the person who has a history of being right more often than wrong. Not about how many books you read, or how many you’ve written. It’s how many times you actually did it and did it right! Sometimes it’s not the number of times you were right or wrong, it’s how big an issue you were right or wrong about.

Well, the experts who told us that making the current crop of foreign trade deals was a good thing, were hugely, spectacularly wrong! To the tune of 600 BILLION dollars a year. We are bleeding jobs an alarming rate and we are creating new ones so slowly they are functionally invisible.

I submit that it’s because those experts really didn’t know what they were talking about.

They created some gorgeous theories, conferred each other with expert status, and now that their theories have failed to deliver in the real world, those same experts are clamoring to sell us their latest theory.

I think “the experts” were wrong enough to cost them their expert status. I think they were wrong enough to cause us to start looking for that non-expert who was screaming “Your wrong!” when those deals were proposes and ask him what to do. Since he was right the last time, I have a lot more confidence that he’ll be right again.

Saturday, February 21, 2009

Step one in fixing the economy.

Benjamin Franklin said that “The definition of insanity is doing the same thing the same way and expecting different results.”

There are three simple steps to fix the US economy:

Stop making agreements that cost us more than they earn us.

Get out of the current agreements that are costing us money as quickly and as cheaply as we can.

Start creating agreements that make us money!

Friday, February 13, 2009

Protectionist or common sense?

Is it protectionist, xenophobic, or nationalistic for me want to do business with my next door neighbor? Especially when he spends his money at the local McDonald’s and the local Mickey D’s spends their money with me!

The real question about our foreign trade policies is “How’s that working out for you?”

We spend a lot more money with other countries than they spend with us. The plan was that we would buy low tech from them and they would buy high tech from us. Well it didn’t work out that way, in 2008 we spend 249 plus billion dollars (yes, thats BILLION) more than we sold.

And it’s been like that since we signed those trade agreements. OK, you big brains sold us this plan, now we expect you to tell us when do we start:

a) Developing more tech jobs?
b) When do our trade partners start buying that stuff from us?

Until you answer those questions, you're just another loud mouth with a theory that didn't work!

Saturday, February 7, 2009

Legacy costs aren't the problem.

A friend of mine was bewailing the high pension costs at the US automakers as the one big causes of Detroit’s problems. I emailed this back to him.

You surprise me!  You of all people (as an MBA) should understand that the retirement plans for the people who are now retired were paid for by cars sold in the years they were working. The burdened rate for the worker included their future pension costs. So each time that worker touched a component or car, some part of the cost of their retirement was added to the sale price. The auto manufactures have already collect the money to pay the pensions! That’s for both current and future retirees.

I think it was in the mid or late 80s that the auto manufacturers lobbied congress to allow them to tap the huge cash reserves they had set aside for pensions, and permit them to pay the future pensions from future revenues.  Now they’ve spent the pension reserves, are crying poor, and blaming the pension costs and not themselves for wasting the reserves.

Toyota was able to negotiate lower wages because there were no other competitive wage jobs in Tennessee and there was a lot of competition for workers in Detroit. At least there was a lot of competition for workers when the contracts were signed.

The problem lies with Detroit demanding a 6.1% profit instead of 6% or whatever the real percentages are. That pressure for a tenth of one percent drove short sighted decisions that prevented innovation and quality improvements. For instance, according to the manufacturer’s web sites, the entry level Honda has a 110 cubic inch displacement (CID) engine producing over 145 HP, Chevy has a 350 CID engine producing 275 HP. Using the Honda as the gauge, the 350 should be producing over 460 HP. Even if it doesn't scale precisely, the Chevy should be producing a lot more power per cubic inch than it is. Why not? Because Detroit didn't invest in quality improvements, they spent their money trying to fight the CAFE standards and avoiding new technology because it would eat the 1/10 of one percent profit!

Picture if you will an empty cubicle with a turned off computer - no work done. Then picture the same cubicle with a worker - work done. Sorry to burst some accountant’s bubble, the important part of the plant is not the physical fixtures, it's the person doing the work. Even if we accept that the workers have negotiated excessive salaries, it still doesn't answer why the big three are in trouble when they have cars at the same price point as Toyota, Nissan, and Honda.

Detroit cars aren't selling.

Not because of price, it's the design and quality of the product. Most of the low to mid price cars from Detroit are butt ugly and not very interesting. The US automakers could just as easily built cars that look and work as well as their competition's for very close to the same price. But they would have had to invest some of their profits back into the company and then the stock price would have fallen by that magic one tenth of one percent.

Tuesday, February 3, 2009

Stop listening to the people who were wrong!

Back in February of 2008 I told people that “we are in a recession” and was told No Way!

This article in the San Francisco Chronicle puts the lie to that “No Way”; “It took seven economists 11 months to decide what should seem obvious given all the foreclosures, bank failures and layoffs - the United States is officially mired in a recession.”

I told people that the big problem with the economy is that wages had not kept up with prices, so people used credit cards and borrowed to keep up and was told No Way!

At the beginning of the American Recovery and Reinvestment Bill of 2009, the authors write: "Since 2001, as worker productivity went up, 96% of the income growth in this country went to the wealthiest 10% of society. While they were benefiting from record high worker productivity, the remaining 90% of Americans were struggling to sustain their standard of living. They sustained it by borrowing ... and borrowing ... and borrowing, and when they couldn't borrow anymore, the bottom fell out." Puts the lie to that “No Way”.

I also claimed that “free trade” would be a net loss to the American worker and was told No Way!

Well now...

The US census bureau figures reports that in 2008 the US bought $246,453,000 more in goods and services from China than we sold to them.

The same source also reports on their website that “The Nation's international deficit in goods and services decreased to $40.4 billion in November from $56.7 billion (revised) in October, as imports decreased more than exports.”

Once again, I seem to be right.

My question is - how many times do I have to be right before people start to listen? The folks who told me No Way have been proven wrong which should call their theories and their ability to forecast trends into question, but those same people are the ones being asked to help solve the crisis their forecasts and theories caused.

By the way, for those of you who think NAFTA was such a good deal;

2008 we spent over 60 million dollars more in Mexico than we sold.
2007 we spent over 70 million dollars more in Mexico than we sold.
2006 we spent over 60 million dollars more in Mexico than we sold.

Sound like I was right about that being another looser, huh?

As my wife pointed out there were some public figures that said the same things at about the same time I said them. So why are the decision makers still listening to the “experts” that told us “No Way” and not to the people who told them that those policies would be a disaster? Seems to me that you would listen to the guy who turned out to be right not the one who was wrong!