Really Bad Reporting that Paints a Not-So-Scary Picture

A story on Yahoo! Finance today (you can read it HERE) struck me as being a particularly shoddy and misleading piece of work.  The author attempts (in a marginally tongue-in-cheek fashion) to associate the amounts of foreign-owned US Government debt that the holders could trade in to "buy" portions of United States as thier settlement.

Okay, so first, not really funny, or a joking matter right off the bat.  Our Debt Addiction is serious business, and the consequences could be severe.

Next, the model the author uses is just plain silly: He asserts that the value of the pieces of the US that would be ficticiously "sold," mostly different states, is equal to exactly 1 times the GDP for the respective state.  That's like saying that you would buy a house for the price of what the residents earn in wages every year! 

So a family earns $90,000 and lives in house with a market value of $250,000 would sell the house for $90,000?  That's just dumb.  How much the people who live in the home earn (their GDP) has no bearing on the intrinsic value of the property.  For instance, if that property happened to be sitting on top of a bunch of oil, or gold, or other land-based valuables that $250,000 house and land could be worth millions, even though the "GDP" of the household is only $90,000.

Finally, a kudo to the author: He actually lists out the specific amounts of US debt purchased by the top 10 foreign government holders.  It turns out that China, whom I would have assumed we would be into for trillions of dollars, actually only holds less than $900 billion of our debt.  That's a HUGE number, to be sure, and it's also less than I had feared.

The number 10 on the list holds a total of $106 billion in US debt.  Again, a huge number but, dare I say, manageable??  I think these could could be paid off!  Our Federal budget is over $3 trillion, so we could pay that back by cutting back less than 3%.  We could do that, right?

So in the end, trying to scare us with ridiculous comparisons that have no basis in any kind of economic reality just to gin up some readers seems to have backfired a bit. You (the story's author) actually removed some of the fear. Even though I know that's not what you intended - THANKS!

Now, the truth is that we are, right now, trying to borrow nearly half of the total federal budget just for this year.  The truth is that until we get to a balanced budget, as painful as that may be in the short term, we have no hope of whittling down one dime of our debt.

And the plain, old truth is that - while the numbers may be astronomincal - we got ourselves into this hole, and we can get ourselves out.  We just need to get started.

See What I Mean??

In Sunday's post I talked about the critical need to remove the self-imposed blocks to our economic independence.  I just really didn't expect the universe to throw me a prime example so fast!

This Story (AP via Yahoo!) talks about the threat by German companies to ban sales of a certain anesthetic to the US because it is also used in death penalty executions.  Now, I don't care what your politics/views are regading the death penalty.  At its heart this issue is simply and only about the ability of other governments to dictate or impose their will upon us, regardless of their reasons, simply because they control the means of production of something.

Today it's a drug used to execute criminals, and you may be perfectly fine with that.  What if tomorrow it's cars - because another country thinks we have too many cars here?  What if it's industrial power generators (which we don't make here anymore) - because they they think we have plenty of electricity?  What if it is floor coverings - because we have plenty of housing here you see?  What if it is a flu vaccine?  A defibrilator?  A cancer drug?

All of these things are no longer "Made in the USA."  In some cases (industrial generators) we don't even have the equipment to make the equipment!  What would happen if China simply decided it would be in their own best interests if we didn't have any more of these? 

In the end, we've ceded a certain amount of control (and therefore freedom) to peoples and governments we did not elect, and whom we can only hope have our best interests at heart.  Did we give that away just to get cheap crap @ Wal-Mart?

So You Want to Compete, Huh?

The story of the day from DC appears to be "Obama's economic agenda: Boost US competitiveness" (from AP, via Yahoo!).  So the President appears to believe that the way to spur our economy is by making US businesses more competitive.  I agree!  I wonder if he's serious?

As I totally would expect, there was pretty much zero detail in the story on exactly how the Administration plans to accomplish this.  The allusion was that all would be revealed during the State of the Union address - history shows that promises like this have nearly zero probability of actually materiallizing in any meaningful way (remember Bush's promise to secure the border?).

To me this looks to be the opening act in the Administration's coming run towards the center (gotta get re-elected, right?).  I think we may be in for the most amazing show of polical marketing ever seen!  Expect it to get piled high and deep, and the BS-o-meter to go right off the charts.

This "Competition" nonsense is going to rank right up there.

The truth is that the things required to allow us to actualy compete are the very things that this Administration can't (won't) do.  Competition isn't some abstract concept.  It simply means that US products and services must offer a better value than global alternatives in terms of some meaningful combination (as defined by the buyer) of price, quality and function.  That's pretty much it.



Of the three attributes to facilitate effective competition, quality and function can be explored pretty quickly.  In the commoditized world in which we live there simply aren't enough qualitative differentiators available, or barriers to copying function to make advantages in these areas achievable in the short-term (i.e. before November 2012). 
 
With that being said, offering amazing tax credits for R&D activities and incentivizing (not subsidizing) immediate innovation could produce pretty fast results in bringing back some previously offshored activities (and helping the unemployement rate).
 
Being that this would require effectively reducing corporate taxes, I think this option can be safely discounted:the Administration running towards the center is one thing - a socialist becoming a conservative is probably asking a bit much.
 
Sadly, the fact that the reduction in unemployment costs, additional personal income taxes generated and additional, tertiary tax receipts from higher overall domestic economic activity would probably replace the "lost" corporate taxes a couple of times over will, of course, fall on deaf ears to those folks who are more concerned with positions and power than results.
 
The reality is that the government does not perform commercial innovation, invention or efficiency.  It can only cutoff or disinentivize these activities by the people.
 
So, that leaves price.  If we want to compete (i.e. sell more!) then the fastest path to accomplishing this is to sell our products and services at a better price.  Luckily the government can do plenty about this.  Question: What are the things that systemically make "Made in the USA" more expensive than global alternatives, and over which the government has direct influence?  There are several incredibly important ones:

• Labor Cost - I think that generally most folks would agree that employee earnings should go up, not down.  There is, however, a lot of opportunity to be had around the efficiency of labor dollars.  Paying people not to work, incentivizing unproductive wage allocations and holding companies hostage to broken collective bargaining process (hello Detroit) are all examples of government assisting in the artificial inflation of inefficient labor.  If it sounds like I am criticizing labor unions in a sideways fashion, then let me be direct: Labor unions are broken, just as government is broken.  Listen to the market, assist in its efficiency, and get out of the way.
• Tax Costs - there's simply no way around the facts.  Businesses don't pay taxes - they pass them along to the buyer.  Period.  The End.  Anyone that tells you different is lying, and every cost that is passed along (and increases price) directly, negatively affects competitive position.
• Regulation/Legislation - See "Tax Costs" above.  Regulation (just like funding the Government) is essential.  Inefficient regulation is expensive (uncompetitive).  Beaurocracy as a subsititue for regulation is potentially deadly (Healthcare anyone?).  Guiding theme: We allowed our government to regulate and legislate our manufacturing sector out of existence, and to incentivize the movement of millions of jobs offshore- we can order them to allow it all to come back , and all it takes is a little taste for competition.
• Level the Playing Field - Just as our goverment has disastrously hobbled our businesses' abilities to compete, other countries actively give their own products an edge (in their local markets, as well as here in the US).  Fair is fair.  Anyone not playing fair should be locked out of our markets.  I'm not saying we should go out and start trade wars; only that we should demand fair treatment and accept no less.  The reality is that they need us (and access to our markets) just as much as we need them - and probably more.

Independence is our birthright.  Economic independence is essential in protecting our personal freedoms.  We have access to everything we need, and we have allowed the government to choose for us not to use what we have.  Any item or input (energy, people, rare earth elements) for which we are dependent on another country should be allowed to be produced here.  Do that and we won't just compete - we'll lead the pack.

So there it is Mr. President.  If you seriously want to facilitate the ability of our businesses to compete globally, all you have to do is get out of the way.  And completely alienate the radical core of your support base.  That won't happen.  That's why the latest "story" is just the latest, worthless PR move.  Don't believe it.  Get ready for more.

Proof Positive - Another Answer We Already Knew

As we all know, things tend to expand until they reach a limiter.  Populations and human waistlines both know this to be true - they expand until something keeps them from expanding further (food is a great example of a limiter for both of these).

Budgets are no different.

In the case of our government budget the unfortunate truth is that the limits to growth that could and should be in place are all controlled by people who have a vested interest (power) in the budget being as large as humanly imaginable (and they seem to be able to imagine bigger every year...).  Even more problematic is the fact that they control the means of financing these larger budgets (printing money, raising debt ceilings, and potential to tax us all to Siberia).

The good news is that there is one, definitive limiter to budget growth that the Beltway Bozos don't control - US!

If we proceed in the knowledge that We the People are in control.  That we are responsible for hiring and firing our employees sitting in the seats in DC, then all is not lost.  November was a great start.  It showed an electorate that was awake, aware and alert (i.e. the Career Politician's worst nightmare!).  The big question now is: Can we all stay awake?

This is simply and only a question of management.  We sent these people to Washington to work for us.  Whenever you hire someone the worst, most damaging, absolutely guaranteed way for them and you to fail is to fail to supervise.

So as a test, through election day 2012 I resolve to try and be a good manager of the people I have hired and sent off to Washington.  I want to know if they are working well for me, and I will provide feedback to them (good and bad) to let them know how they are doing and where they need to improve.  I will use the information that I learn about them to make a better hiring decision the next time.  And if it works - meaning that I have held my employees accountable, and that the next time I know specifically who I am voting for and why - I will do it again.  And again.

What kind of country would we have if we all did that?

Let's find out!