Economic Update

From my recent note file on some economic matters:

Cars and Gas - Cars are supposed to be useful and good looking. People lust for them. Gasoline is inherently dangerous and stinky and annoying to buy. Motorists complain loudly about the price of gas, even as they continue to pump it. General Motors had a $3.2 billion loss last quarter, while Exxon-Mobil had an $11 billion profit. Some of GM’s loss was related to costs of getting rid of workers, but that is not the answer. GM needs to figure how to make its cars more useful and better looking, and how to make them run on something other than gasoline.

Credit Cards - Many people are using credit and debit cards now for convenience reasons (as many as 60% of customers now in some grocery stores), but that is costing merchants over 2% in non-negotiable bank fees, which they either have to build back into prices or absorb. Some merchants have sued Visa and MasterCard under anti-trust laws for not negotiating fees and allegedly agreeing among themselves to price fix them. It also seems like the time banks are allowing to receive monthly bill payment have been shrinking - my most recent one allowed 13 days - perhaps to trigger technical default and interest rate acceleration.

Employee Flex Time - It is estimated that about 70% of US companies have some form of flexible working hours. Best Buy has taken it a step further. In 2002, after high employee turnover problems, Best Buy started the ROWE program (Results Oriented Work Environment), under which appropriate employees are only required to get their job done by a certain time, without a requirement of spending a particular number of hours working. Reportedly the result of such a program is 10-20% higher productivity.

Housing Prices - Nationally sales are down both for new and existing housing, while supplies are up. The bubble is deflating. People who speculated or bought too much house in hopes of quick gains are now going to pay for their mistake.

Minimum Wage - Facing a November election disaster, the Republicans are trying to buy votes of people who care about lower wage workers, while also batting for their rich patrons. They are negotiating with some Democrats to agree to a stepped increase in the Federal minimum wage (the first since 1997), if it is tied in with more cuts in the Federal tax on the richest estates (already addressed several times during this Bush administration).

Off Shore Tax Havens - A Senate report on tax cheats using phoney off shore maneuvering to avoid taxes says that such cheating amounts to 7 cents for every dollar paid by honest taxpayers. Two of the biggest offenders reportedly are Texas businessmen brothers Charles and Sam Wyly, who were the #9 campaign contributors to George W. Bush in 2000. The Senate will not be calling them to testify in further hearings on this subject, since the brothers have indicated they will invoke their fifth amendment privilege. George probably has them on his potential pardon list.

Trade Deficit - The US trade deficit in May was $63.8 billion, of which $17.7 billion was in China’s favor. Overall, China had a trade surplus of $14.5 for June. Someone bought my grandson an inexpensive remote control car made in China. It did not even last one day before the controller buttons jammed, the battery case cracked and the body broke off the chassis.

Wal-Mart - A Federal District Court Judge has ruled that an attempt by Maryland to require large employers to provide its workers with more satisfactory health insurance runs afoul of Federal law. The Judge said employers are entitled to provide just one plan for all fifty States. The ruling may be appealed. The idea of a Federal law on employer health insurance is good, if the law does what Maryland tried to do, make large employers provide decent coverage. Wal-Mart is selling all its stores in Germany, admitting it is unable to compete with established specialty discounters. They previously pulled out of South Korea.

Welfare Cuts - The Bush administration continues to target poor people, changing rules to pressure the States to get more people working or in training programs, or else lose Federal funding. States end up hiring unqualified recipients for State jobs, thereby fueling Republican mythology about governmental incompetency. Entrepreneurs selling training programs benefit further by the new rules. The total Federal government expenditure for one year of welfare is about equal to the cost of one week of the Iraq occupation, about three billion dollars.