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Archive for the ‘Economics’ Category

I was recently catching up on some reading and was caught by a section in my BusinessWeek called, “What Works in the USA”.  It was compiling stories of best practice from around the nation of where governments have done innovative and thoughtful things to actually improve their communities and save money, time, or provide a needed (emphasis on needed) service.

The one that stood out to me was about Philadelphia’s Savings in Fleet Management.  This short piece documents how the fleet management department eliminated non-emergency vehicles, and instead starting renting from Zipcar.

Under an entrenched system common in many local governments, cars had been assigned to individual employees, who came to view them as their personal wheels. The vehicles often sat idle during the day, even when other workers on city business needed a ride, then went home at night and on weekends.

Faced with a citywide budget crisis in 2004, the Office of Fleet Management (OFM) set up a system under which employees reserve a rental car electronically for official business, specifying the time, date, destination, and official purpose. Cost savings have averaged $1.8 million per year, according to K Wilson of OFM’s budget office, through reduced spending on auto maintenance, fuel, and parking charges. Those costs are now the responsibility of Cambridge (Mass.)-based Zipcar, which took over the contract from a nonprofit in 2008.

I think this is an incredible move by that department.  Governmental agencies are almost always interested in how they can grow their budgets, not reduce them.  And yet, if we are ever to see our governments grow more efficient, this drive for efficiency is almost certainly what we will need to see across the board.  Saving $1.8 million a year is a fantastic start.  Granted that won’t go very far, especially in large metros like Philly.  But it hopefully will breed copycats.

The difficulty I can see similar efforts facing is from unions.  Clearly Philadelphia would have to eliminate many jobs, such as mechanics, fuel pumpers, and other position that catered to caring for that fleet of cars – most likely many of which are unionized.  But it was unnecessary and a waste of resources.

Another thing that came to mind when reading about the program is how they are electronically monitoring mileage and usage of cars still in the fleet.  I’ve read of lawsuits from employees who’s company or government vehicles tracked them at their homes when they were supposed to be working.  So even when you are breaking company policy you still try to get away with it.

We’ll see if there is a trend here – but it is certainly hopeful.  Good on ya, Philly!

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Just a brief post to see if we can stir up any comments.

I’ve been struck by how much of the Republican primary has centered around Mitt Romney’s tax bill (as Mike pointed out).  It is interesting to note “conservatives” turning on one another regarding someone’s taxes being too low, which goes against the de facto party line to lower taxes in general.

But it’s the specifics surrounding the 15% rate that I want to talk about.  The President mentioned it in his State of the Union, and fan Warren Buffett has trumpeted his tax rate compared to that of his secretary for the last half year.  While the morality of this gets debated, what seems to not get mentioned as much is the economics.  15% is the number used because that is the tax rate on capital gains – or investment income for those of us who have no capital gains and may not be familiar with the term.  This is not a tax on wages earned or for work done.  This is money that was invested so someone else could start a business or to buy shares in an existing business that you think has potential for growth.  So our laws have created a separate rate to encourage people to engage in this behavior – and it has done just that.

But what could happen if the rate was 30% as the President suggests?  Well, what if Mitt Romney stops investing?  Let’s imagine he was getting dividend payments equal to one million dollars, so his tax paid at 15% was $150,000.  The government would love $300,000 so they raise the rate to 30%, only Mitt decides to stop investing in equity and buys steady ole treasury bonds.  So now, the government loses out on the $150,000 they would have gotten – gets in budget trouble because they projected $300,000 and now don’t have it, and on top of that they owe Mitt millions of dollars plus interest as part of the national debt.  Plus that entrepreneur that was starting up a little search engine called Google doesn’t have the seed money he needed to buy servers and programmers and such, and so decides to return to mother Russia and we all are left trying to browse the internet on Yahoo.  I can’t find a new job because Yahoo’s results return bogus results, so we are out on the streets and homeless with our 2-year old daughter.  Shivering and hungry.

Man… can’t we just let the people have 15%.

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Almost a year ago I wrote a post about Toyota and the troubles they were having with recalls and sudden acceleration problems.  The post and ensuing comments almost entirely dealt with the issue as a proxy for capitalism in general.  The Wall Street Journal reports today that the NHTSA has released its findings from a 10-month study (completed jointly with NASA) and what was its key conclusion?

The NASA/NHTSA study highlighted a delicate issue for auto makers and regulators: The vast majority of sudden acceleration incidents studied were determined to be the result of driver mistakes. The NHTSA said it will continue to study measures aimed at reducing the risks of unintended acceleration caused by drivers mistaking one pedal for another. (emphasis added)

I would be curious to know what that number or percentage is, because the article is clear to point out that sticking pedals and sliding floor mats were still responsible for some – but “vast majority” is pretty heavy language that would indicate that maybe Toyota was not the evil scourge of capitalist greed that people feared, and that maybe there was a bit of a witch-hunt put on for the media.  How about this from the Transportation Secretary in the same article:

At a Congressional hearing last year, Transportation Secretary Ray LaHood had suggested that consumers should stop driving their Toyotas. On Tuesday, he said: “We feel that Toyotas are safe to drive.”

That’s a convenient swing.  Meanwhile Toyota has been dealt huge losses from the lost consumer confidence, that turns out to have been misguided by runaway stories and a deluge of what must be frivolous lawsuits.  To be fair, the article states that there are groups that reject the findings in the report… so there is the possibility that this story could come back again full circle.  I don’t pretend to have a solution (or even to want a solution) to this day and ages immediate news spread – perhaps that is just a cost of doing business.  But I would be amazed if somehow the news spreads as quickly or furiously about the results of the findings?  And that is the point of this post – who will apologize?  The people who sued when they knew (or at least later learned) that they were at fault?  Will the newspapers print bold headlines declaring Toyota safe?  Will the congressional members who called for Toyota executives to be grilled on national television say sorry on that same stage?  Don’t hold your breath.

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Just wanted to point your attention to an interesting article I read last month in The Wall Street Journal, titled Not Really ‘Made in China’.  It takes a look at just what goes into the trade deficit amount that is listed for products shipped from China.  Basically, if China is the country of origin then they get the “credit” for the import of the product…and as we all know we are all in a huff about how much our trade imbalance is with China.  But what is revealing about this story is how China is often the assembler of parts made in other countries and so actually isn’t the beneficiary of that whole dollar amount credited to the trade.

The article uses Apple’s iPhone 3G as an example.  The parts/labor value for the $178.96 phone come from Japan (34%), Germany (17%), South Korea (13%), U.S. (6%), and Other Countries (27%).  China only represents 3.6% of that value.  But because they are the final assembler they have the trade statistic.  Very interesting.  I encourage you to read and see what you think… may influence our thoughts a bit about how we view trade numbers.

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…fun when they are actually doing something cute – but usually just crying, and shitting all over.

Okay, just kidding… unions are never cute.

My long absence from writing was re-awoken this morning upon seeing the picture below in the Wall Street Journal.  The French, if you didn’t know, are embroiled in major strikes because of government proposed changes to the retirement age from 60 to 62 (sacrebleu!).  Gas stations have run dry as refinery workers protest, workers blocked the road to the airport causing travelers to walk on foot (see the sideshow in the above link for more photos of fires, trash, and general mayhem).  And why is the government proposing the age increase?  Because the pension is unfunded and people are living longer and taxes are already stifling the countries economy.  But this would only make sense to the sane – and un-entitled.

I know how to use colors in my sign!

The thing that annoys me most about unions (and this is primarily the ones overseas, because thank goodness ours don’t pull this crap) is how their intent of making everyone suffer until their needs are met is the primary concern.  And this is where the baby comparison comes in.  How does shutting down gas stations that your fellow Frenchmen use help your cause?  Or making people walk to the airport?  Imagine being at a restaurant and someone not getting the salad they ordered and so they take everyone hostage.  It’s infuriating.  And it’s the same thing we witnessed in Greece.  A country is drowning in the ocean, and the people want it to rub suntan lotion on their back while they sleep on their stomachs (bad analogy – or brilliant?).  I’ve never understood how this mentality gathers any support.  Hundreds of subway workers are unhappy so they strand thousands and reduce the productivity of a city to near nothing.  Unions are the only group who’s mob behavior is celebrated – except for the mob that is, with whom Americans are fascinated.

The unions in Europe are worse than America, because they have been bred on a welfare state mentality for far too long.  And that is why I am fiercely anti-union (see here, here, here, here, and here if you don’t believe me).  I don’t want to see our amazing country ever reduced to a spectacle such as this.  Thankfully our unions simply picket and use the same bumper sticker from the 1920’s, rather than set fire to things.  But that day may come – if you don’t discipline the baby, you get a rotten kid.

So what is there for us to do?  Is it possible to protest the protesters?  Well, we have but the government will come around on their side.  We choose to buy from Toyota or other car makers who’s non-union cars are more pleasing and affordable for us – and the government bails out GM.  We put our kids in private school and ask for our tax money back and are laughed at.  We ask for a Walmart in our town, and the city council creates rules about square footage.  At least for the time being we can shop at Trader Joe’s which pays better than union grocers – but, hey that still won’t stop unions from picketing them.

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If you missed the discussion going on at Mike’s post on vouchers and making a profitable school, then I encourage you to check it out.  Part of that discussion made this article at the WSJ stand out even more to me.  Danone, or Dannon as it’s known in the states, is very active in selling yogurt and water to the poor in Africa.  But this is not philanthropy…it is business:

Mr. Riboud began to see he was missing out on the huge untapped market of products for the poor. In 2004 in Indonesia, Danone’s local managers presented Mr. Riboud with a pyramid diagram showing that out of the country’s population of 240 million, just the 20 million at the tip of the pyramid could afford Danone’s food.

So he decided to develop a cheap, on-the-go drinkable yogurt for poor consumers and children. “Why shouldn’t I be doing business with them, too?” Mr. Riboud recalls thinking.

The first such yogurt debuted in Indonesia at the end of 2004, selling at 10 cents for a 70-gram plastic bottle. The yogurt was an instant hit with lower-income consumers and children in particular, selling 10 million bottles in its first three months on the market. It is still one of Danone’s most popular products in Indonesia, where the average per-capita income is about $11 a day.

Two-and-a-half years later, Danone teamed up with Muhammad Yunus, the Bangladeshi who later won the Nobel Peace Prize for his microcredit program that lends money to poor entrepreneurs. Mr. Riboud and Mr. Yunus, having met over lunch, set up a joint venture called Grameen Danone Foods Ltd.

The idea was to sell an affordable seven-cent yogurt product called Shokti Doi—which means “strong yogurt.” Fortified with vitamins and minerals, it was to be sold through local women who would peddle it door to door on commission.

For the 54-year old Danone boss, who eschews ties and gets around by scooter, the Shokti Doi initiative was something of a personal mission. His father Antoine, who preceded him as chief executive, had instilled in him an interest in ventures that had a chance to both make money and give a lift to the poor—the “double project”, as he called it.

Within a year, though, Grameen Danone hit a wall: Milk prices soared, factory openings were delayed, and the saleswomen couldn’t earn a living selling yogurt alone. Today, a significant portion of sales of Shokti Doi come from urban stores, not rural villages as planned.

Danone stresses that none of its low-income consumer efforts are charity. “Danone is not an NGO,” Mr. Riboud says. “Learning to make a nutritious product that can be sold for eight cents without a loss helps us when we put in place a volume strategy, even in mature markets.” [emphasis added]

I think this last line is key.  Not only are they seeking a profit, but foresee that the efficiencies they learn in trying to reach such a poor market will ultimately help them in the more affluent markets.  Certainly Danone may not be indicative of all business… but it does represent the ability for private enterprise to make a profit, and reach the needy.

Danone says its emerging-market bottled-water business is already more lucrative than its water operations in developed markets, which includes the pricey Evian brand. The company strives for “satisfactory and durable profits, but not to maximize profits,” says Danone deputy general manager Emmanuel Faber.

Maybe some forward thinking companies like Danone would be the ones to spring up if education reform allowed competition through vouchers?  The article, as quoted above, mentions Muhammad Yunus – who I wrote about in this post a year ago.  It’s people like these that can re-frame the vision society has of the free market and capitalism.

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Anyone living in California is well aware of our budgetary crisis. But what if I told you there was more than just the budget? What if I told you that even though the CA budget was in the red, there were dark pools of money not being touched that far exceeded our budgetary shortfalls? While that may sound like a conspiracy theory, it turns out to be both true and quite commonplace.

If you look at the budget, then California, as of April, has a shortfall of about $26.3 billion. That’s the amount allocated for spending that we did not take in as revenue in the general fund and must now make up the difference either by increased taxes or spending cuts. There’s nothing unfamiliar about that so I won’t bother going into detail. But that’s the budget. When it comes to government finances there are two sets of books. There is the budget and then there’s the Comprehensive Annual Financial Review (CAFR). The CAFR is basically a comprehensive list of all liquid asset funds, bonds, stocks, etc, that the government owns. Every state, county, city, and local government must produce a CAFR every fiscal year. And much of the assets reported in the CAFR never go towards the budget, strange as it may seem.

So what’s the difference between the budget and the CAFR? The budget only lists the money the government receives from taxes, fines, and fees. Within each budget, a certain amount of money is set aside for “rainy day funds”. This money gets invested and does not get spent as part of the next year’s budget. There are also large profit centers in each state where revenues do not go towards the budget. For instance, the revenues from many toll roads are excluded from state budgets. Thirdly, when voters approve the sale of bonds to raise money for a specific project, once the project is paid for, the excess funds are not handed over to the state toward next year’s budget. They just sit idly in an earmarked fund, drawing a modest interest. This is why, in California, we have the dichotomy of experiencing both a budget deficit of $26.3 billion while at the same time having a $71 billion surplus.

(more…)

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