Category Archives: Economy

NRA Moves Heavy Into Insurance

This has huge implications for West Bend’s own Delta Defense, which has been selling insurance to concealed carry holders for years and just built a new headquarters.

Enter the National Rifle Association. Stories like Balistreri’s have motivated some gun owners to purchase insurance policies that could cushion their financial burden in the event that they shoot someone. Such policies have been available for years, but last month the NRA announced a new insurance product, Carry Guard, which they marketed to their millions of members online and at their annual meeting in Atlanta. The idea of firearms liability insurance has been previously championed by gun safety advocates on the left, who envisioned insurance as an instrument of public safety that could encourage safer guns and safer behavior. As implemented by the NRA, though, firearms liability insurance has a different function—to insulate gun owners from the expense and other possible consequences of a shooting.

“We live in a litigious society,” explains Josh Powell, chief of staff and executive director of general operations for the NRA. “The bad guys come to your house and you gotta use your gun and then you end up paying a hundred thousand dollars to protect yourself.”

Powell explains that Carry Guard was created to accommodate the needs of a changing culture in the U.S., where more people carry concealed weapons. “There’s just been this incredible carry revolution that’s taken place over the past eight years, and you know, the NRA started it. We started this in Florida 35 or 36 years ago, passing the first concealed carry bill. And so this is really a response to that movement and our members saying ‘Hey, we need you guys to be the gold standard for training, liability insurance— everything concealed carry.’”

With similar language, the marketing campaign for Carry Guard emphasizes the “two pronged program” that offers “America’s most comprehensive coverage and training for those who carry a gun.” The campaign features a studio portrait of NRA spokesperson Dana Loesch, staring down the camera with glinting eyes, holding up her Carry Guard insurance card like an officer flashing a badge. “I will never carry a gun without carrying this,” the adjacent text proclaims. In an article for the NRA publication America’s First Freedom, Loesch recounts her memories raising young children in crime-ridden St. Louis. She says her neighbors were grateful that she always carried a gun while supervising the children outside, and often inquired about how they could also legally carry and join her in “standing watch” over the neighborhood. “If only NRA Carry Guard existed back then,” Loesch laments. “There was no one-stop training option I could recommend.” Moreover, “Without proper coverage, my neighbors risked very real financial and legal consequences if they were ever forced to the pull the trigger in self-defense, even if they did everything right.”

Women Dropping out of Work in India

Fascinating.

But they may not be the only reasons. Marriage, for example, does affect the rate of participation of women in the workforce. But in villages, the workforce participation rate of married women has been found to be higher than that of unmarried women – whereas in the cities, the situation is reversed.

Significantly, rising aspirations and relative prosperity may be actually responsible for putting a large cohort of women out of work in India.

Remember, the largest drop has been in the villages.

After calculating the labour force participation rates and educational participation rates (young women in schools) the researchers believe that one plausible explanation for the drop in the participation rate among rural girls and women aged 15-24 is the recent expansion of secondary education and rapidly changing social norms leading to “more working age young females opting to continue their education rather than join the labour force early”.

The study says there has been a “larger response to income changes among the poor, rather than the wealthy, by sending children to school”.

Also, casual workers – mainly women – drop out of the workforce when wages increased for regular earners – mainly men – leading to the stabilisation of family incomes.

Dakota Oil Pipeline Opens

And the jobs start coming.

BISMARCK, N.D. (AP) – North Dakota is experiencing an uptick in oil activity after the state’s unprecedented oil boom cooled a few years ago.

The completion of the Dakota Access pipeline is among factors that has the oil industry newly optimistic.

Industry officials say the pipeline could open markets abroad where premium prices are typically fetched.

The price for North Dakota sweet crude has risen about $10 a barrel from a year ago. About 50 drill rigs were working in the state last week. That’s up more than 80 percent from the same time last year.

The increase in drilling activity has created a big workforce shortage. Officials say there are 500 more jobs listed in the heart of the state’s oil patch than one year ago.

Obamacare Still Collapsing

Ahem… Senate? This is still a problem.

Aetna’s withdrawal is the latest in a series of insurers leaving Obamacare. The exodus began last year, when several carriers announced they were exiting or downsizing in 2017 after suffering large losses. Humana (HUM) already announced it is completely abandoning the individual market in 2018. UnitedHealthcare (UNH) pulled out of Virginia, and Wellmark Blue Cross Blue Shield said it would stop selling individual policies in Iowa in 2018.

Several insurers remaining in Obamacare are requesting big rate hikes for next year. CareFirst BlueCross BlueShield is looking for an average rate increase of 52% for its individual market plans in Maryland. It also requested hikes of 35% in Virginia and 29% in Washington D.C.

In Virginia, Cigna wants to raise rates by an average of 45%, while HealthKeepers, an affiliate of Anthem Blue Cross and Blue Shield, is looking for an 38% increase.

Honda Dealership Coming to West Bend

Good news!

May 4, 2017 – West Bend, WI – There’s a Honda car dealership coming to West Bend.

Morrie’s Automotive Group of Minneapolis was officially awarded “the point” in April.

“We’re excited to open a Honda store in West Bend,” said Karl Schmidt, CEO with Morrie’s since 2009.

Wisconsin Vs. Illinois

We need a new state motto… how about, “The Working State?”

“Wisconsin is the best-kept secret in the Midwest,” Bauer said. “With our strong economy, we have something to sell.”

The overall labor force participation rate in Wisconsin is considered one of the best in the nation, with more employment now than at any other time in the state’s history.

Meanwhile, the Chicago metro had to deal with the second straight year of significant population loss: 19,570 people left in 2016, and 11,000 left in 2015.  Those types of numbers are expected to continue in the near term, especially if nothing is done about the unemployment rate, the budget, high property taxes and crime.

And the bad news gets worse: Researchers say most people exiting Illinois are younger working-age adults who would have been potential long-term taxpayers.

“Illinois’ fiscal situation makes the state a walking time bomb that could explode at any time,” Bauer added.

Federal Ruling May Slam AmFam

This is an interesting case.

American Family Insurance Co. could face a legal liability as high as $1 billion if a federal judge adopts the ruling of a federal jury, which found this week that thousands of the insurer’s independent agents should be classified as employees who are entitled to a full package of retirement benefits.

Following a two-week trial, a jury in a U.S. District Court in Ohio on Tuesday returned a unanimous decision finding that Madison-based American Family improperly classified its agents as independent contractors, even though the agents are bound exclusively to sell policies from the company, often known as AmFam.

If a federal judge accepts the jury’s finding in a follow-up decision that is expected in June or July, AmFam could be forced to fund its retirement package in compliance with terms of the Employee Retirement Income Security Act (ERISA), which are federal regulations that protect retirement benefits.

“The jury apparently agreed that AmFam cannot have it both ways,” said Erin Dickinson, one of the attorneys representing the agents in the class-action suit. “A company cannot just call its agents ‘independent contractors’ to avoid following the federal law protecting retirement benefits and then insist on controlling how those agents do their work.”

I tend to agree with that attorney. How can one claim that they are “independent” contractors if they are prohibited from representing any other insurance provider? On the other hand, AmFam’s agents signed their contracts and entered the relationship with eyes wide open. Why should they get benefits that they weren’t expecting and that AmFam never promised?

I suppose the fairest solution is for the court to rule in favor of the agents, but only require AmFam to pay for their agents’ benefits moving forward.

Fewer People Receiving Unemployment

Excellent!

WASHINGTON (MarketWatch) — The number of out-of-work people collecting unemployment checks fell to a 17-year low in April, underscoring the strongest U.S. labor market in years.

So-called continuing jobless claims fell by 49,000 to 1.98 million, marking just the second time they’ve fallen below 2 million during the current eight-year-old economic expansion. Continuing claims also dipped below the 2 million mark in March.

Verizon Shedding Mobile Customers

There’s a price war going on in the wireless market and consumers are the winners.

In the first six weeks of 2017, Verizon Wireless lost 398,000 on-contract wireless customers. Considering that analysts expected Verizon to add nearly 250,000 customers in the first quarter, that’s dire.It’s only thanks to Verizon’s launch of unlimited plans that the bloodshed isn’t worse. In the weeks after Verizon launched an unlimited plan, it stopped losing customers and actually gained 109,000 subscribers, bringing the net loss of customers in the first quarter to 289,000.

The obvious thing to blame for Verizon’s plummeting numbers is the recent wave of competition being driven by T-Mobile. The cheap unlimited T-Mobile One plan that it rolled out last year has seen T-Mobile poach customers from the other three big mobile carriers. Growth of postpaid customers (those who get billed every month, the bread-and-butter of the mobile industry) has stagnated at every carrier apart from T-Mobile in recent months.

The most telling number in Verizon’s earnings report is the level of “churn,” which measures turnover in customers. A higher level of churn indicates more customers hopping between different carriers, which is normally indicative of a highly competitive environment. Verizon’s churn increased from 1.03 to 1.15 percent of all customers in the first quarter, a strong sign that the race-to-the-bottom between the carriers is starting to see results.

Thanks to Wisconsin’s Unfair Sales Law, consumers can’t benefit from such price wars for most consumables.

Dairy farmers feel slap of the Invisible Hand

My column for the West Bend Daily News is online. In this age of populism and protectionism, it is bound to be unpopular. Here it is:

Dozens of Wisconsin dairy farmers with thousands of cows received a letter a few weeks ago that spoiled their year. Grassland, the company that had been buying their milk, told the farmers that they could no longer buy the farmers’ milk because of a new Canadian policy that has dried up the demand for American milk. The calls for government action throw kindling on the friction between Americans who believe in free trade and those who support protectionist policies.

The price of milk for Canadian dairy processors is set by the Canadian Dairy Commission. The way they set prices was based on a complicated process, but the end result is that the price that Canadian dairy farmers received for milk was substantially higher than in the rest of the world. By comparison, a Canadian dairy farmer received almost 50 percent more for his or her milk than an American farmer.

This artificial pricing sounds great for Canadian dairy farmers, but economies are dynamic and protectionist policies rarely have the desired effect. Canada’s participation in NAFTA and trade agreements with the European Union and other entities give other countries fairly free access to Canadian markets to sell their goods — including milk. While the high price of milk for Canadian dairy farmers sounds good on paper, the actual result is that Canadian dairy processors were buying most of their milk from American dairy farmers because it was cheaper. In other words, Wisconsin dairy farmers were directly benefiting from what was supposed to be a protectionist policy by Canada to prop up prices for their own dairy farmers.

The new pricing policy from the Canadian Dairy Commission would allow Canadian dairy producers to buy milk at whatever the global price is. The new policy is arguably promoting freer trade by dropping an artificial price of milk and allowing it to fluctuate with global supply and demand. Canadian dairy farmers will no longer get the higher prices for their milk, but they will be able to sell more of it. Canadian dairy processors and consumers will benefit from saving the cost of transporting milk from distant places. Wisconsin dairy farmers are being hurt by the policy because the artificial demand for their product that was created by the old Canadian policies has now dried up. While the new policy is arguably freer than the old policy, there is no question that it favors Canadian dairy farmers over foreign ones.

With so many Wisconsin families hurting, one question is what, if anything, should our government do in response? In an increasingly rare bout of bipartisanship, both of Wisconsin’s U.S. senators are calling upon the Trump administration to do something about the new Canadian

policy. Sen. Tammy Baldwin has called the policy an “unfair trade scheme” and Sen. Ron Johnson said Wisconsin dairy farmers should not be “victims of a trade dispute they didn’t start.”

What should the American government do? Should the Trump administration demand that Canada reinstate artificially high milk process for their own dairy producers? Should America enact retaliatory protectionist policies on other goods?

The free trade of goods and services in a market economy has proven to be the most efficient and economical way to align supply with demand. The United States has been a perfect example of this. Our large, diverse national land mass means that our nation has a diverse and robust internal economy that allows for specialization. Instead of Wisconsin having to try to provide our own milk, beef, oranges, wheat, iron, copper, etc., the lack of trade barriers with other states allows Wisconsin to focus on developing the natural abundances within our state and buy the natural abundances of other states. As Adam Smith said, “never attempt to make at home what it will cost him more to make than to buy.”

The same is true in a global economy. Free trade is the most efficient, economical and fair way to allocate scarce resources to the greatest benefit of the most people.

But getting to that greatest benefit means that some folks will feel the sting when they are slapped by the invisible hand. Problems arise when we react to that inevitable sting by trying to protect that which the market no longer needs.

Wisconsin’s dairy farmers have benefited for years by an ill-conceived Canadian milk pricing policy and are feeling the sting of that policy being changed.

Our reaction should not be to enact further barriers to trade and further distort the market. Instead, our reaction should be to help our dairy farmers find a new market for their milk, or help them reallocate their resources to produce something for which there is market demand.

Dairyland Stung By Canadian Trade Policy

Ouch.

Several dozen dairy farmers received letters this week from Grassland Dairy Products Inc. in Greenwood, a major producer of dairy products and ingredients, informing them the company would no longer accept milk from them after May 1.

Behind this action is a new pricing structure implemented by Canada, which dramatically increased the cost of U.S. dairy imports and encouraged dairy companies there to purchase similar items from Canadian dairy producers.

Every day for years, Grassland has sent more than 1 million pounds of ultra-filtered milk, a product with elevated protein content that’s typically used in cheese production, to Canada, but it was informed by its Canadian customers last month they were immediately discontinuing buying the product from Grassland. According to the company, it left them little choice but to reduce its milk intake.

Iran Sanctions Oshkosh Corporation

I think Oshkosh Corp. will be fine. It’s almost a badge of honor to be sanctioned by Iran.

TEHRAN, Iran – Iran on Sunday sanctioned what it described as 15 American companies, alleging they support terrorism, repression and Israel’s occupation of land Palestinians want for a future state, likely in retaliation for sanctions earlier announced by the U.S.

The wide-ranging list from an American real estate company to a major arms manufacturer and Wisconsin’s Oshkosh Corp. appeared more symbolic than anything else as the firms weren’t immediately known to be doing business anywhere in the Islamic Republic.

Oshkosh Corp. is one of the world’s largest manufacturers of military vehicles, with thousands of its trucks used by the U.S. military in Afghanistan and Iraq. The company also has produced military trucks for U.S. allies including Saudi Arabia, the United Emirates, Jordan, Oman, Greece, Turkey, Egypt and the United Kingdom.

Automation Disrupting Chinese Manufacturing

This is a good reminder that automation is a global economic trend.

Rapidly growing appetite for industrial robots in China is set to hasten the decline in manufacturing jobs, according to the findings of an FTCR survey.

As part of a top-down push, local governments are subsidising companies to produce and purchase robots, while most companies reported productivity gains and forecast a reduced need for frontline workers.

This is not a zero-sum game: companies also cited a growing need for more skilled workers. This is creating demand for vocational skills and the robot revolution will be able to absorb only a minority of such workers.

The increasingly rapid adoption of industrial robots on Chinese production lines is set to hasten the fall in manufacturing employment. Among companies that intend to purchase robots in the coming 12 months, 72.7 per cent said this would mean job losses, according to an FT Confidential Research survey conducted across manufacturing centres in Guangdong in the south and Zhejiang on the east coast.

Massive Oil Deposit Found in Alaska

America’s output can dwarf the Middle East if we allow ourselves to do it.

Some 1.2 billion barrels of oil have been discovered in Alaska, marking the biggest onshore discovery in the U.S. in three decades.

The massive find of conventional oil on state land could bring relief to budget pains in Alaska brought on by slumping production in the state and the crash in oil prices.

The new discovery was made in just the past few days in Alaska’s North Slope, which was previously viewed as an aging oil basin.

General Motors Surrenders Europe

It’s about time.

PARIS (AP) — General Motors is selling its unprofitable European car business to the French maker of Peugeot, marking the American company’s retreat from a major market and raising concerns of job cuts in the region.

With the 2.2 billion euro ($2.33 billion) deal announced Monday, GM is giving up brands — Opel in Germany and Vauxhall in Britain — that have given it a foothold in the world’s third-largest auto market since the 1920s. They have not, however, made a combined profit in 18 years despite multiple turnaround efforts.

Markets Soar After Trump Speech

Make my 401(k) great again.

The Dow soared 303 points to close above 21,000 for the first time ever on Wednesday. The milestone comes barely a month after the Dow hit 20,000 for the first time.

Wisconsin Economy Facing Workforce Drag

This is a problem.

The conversation around workforce has been shifting from just building up the state’s current labor pool to now also attracting new talent to the state. Tricia Braun, chief operating officer of the Wisconsin Economic Development Corp., said there’s been growing demand in the economic development community to address talent attraction at a state level.

Department of Workforce Development secretary Ray Allen put it a little differently.

“Workforce is the new economic development,” he said.

Buckley Brinkman, executive director and CEO of the Wisconsin Center for Manufacturing and Productivity, said the optimistic forecast is for the state workforce to be flat over the next 15 years, while the pessimistic version shows it could be down by 40 percent. Either way, there are examples of companies turning away work because they don’t have the workforce they need, Brinkman said.

“That might be fine for an individual company, but when you start adding those companies together, you have an economy that’s not growing,” he said.

Wisconsin has consistently lost more people than it has gained for years. Part of that is retirees moving to warmer weather, but part of it is that Wisconsin is not attractive. As one of the few immigrants into Wisconsin, I have a different perspective than people who grew up here. Wisconsin has a great culture and great people, but you don’t really know that until you live here for a while. If you are looking in from the outside, it looks like a state with crappy weather, oppressive taxes, and a rust-belt economy. Unless there is a really compelling job or a family reason to move here, most people don’t. The fact that more and more jobs allow virtual offices helps Wisconsin companies fill some knowledge worker jobs, but it also means that Wisconsinites have less of a reason to stay in the state.

Wisconsin can’t do anything about the weather, so it needs to work on what it can to make it more attractive for a smart, mobile, young worker to move to Wisconsin.

Workers Fired for Skipping Work

They have every right to protest to make a point, but they do not have a right to do so free of consequences.

LEXINGTON COUNTY, South Carolina — Twenty-one people were fired from a South Carolina company after taking part in the Day Without Immigrants protest.

The movement closed restaurants and shops across the country to show the contributions immigrants have on the American workforce.

Juvenito Quintana and 20 others all missed work on February 16. The next day, they got a letter from Encore Boat Builders LLC in Lexington.

The letter said they were being terminated for no-show/ no-call-in. Their last day listed was February 16, the day of the protest.

Quintana says some employees got calls from management the day before telling them not to miss or else they’d lose their job. That’s why he said a lot didn’t call in, for fear.

Most of the employees had been working there for years and have small children. Quintana is a permanent resident and feels like the termination was unfair.

It looks like the employer acted in good faith and even warned the employees. On a side note, we should have a Day Without Pasty White Guys and watch every IT department in the nation grind to a halt.

Senator Fitzgerald Questions Self-Insurance

It’s a valid point, but…

On self-insurance, Fitzgerald said lawmakers have always been curious about whether the change would save money. Walker’s proposal would have the state work with several third-party administrators to pay employees’ health claims directly, rather than paying monthly premiums to health insurance companies.

Walker’s office says the move would save $60 million in the next biennium, but Fitzgerald said that was “far less than what most people anticipated.”

The proposal, Fitzgerald noted, would cause some health insurers to lose a major chunk of their current enrollees, raising a possibility that those companies “could falter.”

“Now that you’re not seeing those types of numbers, people are worried about the job loss it could create across the state,” Fitzgerald said.

Self-insurance is a relatively simple concept. When an organization – in this case a government – wants to provide health insurance to their employees, there are a variety of ways to do that. The fundamental issue is the assumption of risk. That’s what insurance is all about. The risk is that the employees being covered will suffer catastrophic health care issues, thus forcing the provider to pay a lot more than the sum of the premiums.

In order to hedge against the risk, most organizations contract with a health insurance company. In that scenario, in exchange for contracted and stable premiums, the health insurance assumes the risk. The organization gets a predictable outflow of cash while the health insurance company gets profit. The profit is the monetization of the risk that the health insurance company assumed.

All self-insurance means is that instead of contracting with a health insurance company, the organization assumes the risk themselves. The organization takes ownership of accepting the premiums and paying out any claims. A few organizations manage all of that themselves, but most still contract with a health care provider for the administrative functions. In the case of self-insurance then, the organization assumes the risk and, as a consequence, saves the profit that they would have otherwise paid to a health insurance company.

Self-insurance is an option for any organization, but it usually only makes sense for large organizations that can spread out the risk. For example, a 10-person shop could self insure, but the costs can vary wildly if one person is pregnant or has a major disease. In contrast, in a 10,000 person shop, the statistical averages come into force and costs become relatively predictable and stable.

Well, there is no larger organization in Wisconsin than state government. The State of Wisconsin can spread the risk among tens of thousands of employees. While it is not a slam dunk decision for the state to self-insure, it is close. The benefits of self-insurance have been proven time and time again, which is why many of Wisconsin’s largest employers like Briggs & Stratton, GM, Kimberly-Clark, Schneider Corp., WE Energies, Rockwell Automation, Kwik Trip, John Deere, Kohler, Washington County, Milwaukee County, Dane County, City of Milwaukee, City of Madison, Madison School District, Kenosha School District, and many more already do it.

The money saved compared to using a health insurance company varies from year to year depending on the expenses, but over the years it will benefit the state to self-insure. After all, if the profit that health insurance companies earn is a function of the risk they assume and they remain extraordinarily profitable most years, it is safe to conclude that the state would benefit from assuming that risk instead of paying the health insurance company to assume it.

Fitzgerald’s point is certainly valid. The state is a massive customer for its health insurance provider(s). If the state self-insured, then those companies would lose a huge customer and the profit that went with it. The consequences of that will almost certainly be some loss of revenue and downsizing. But it is not the role of the taxpayers to prop up private companies. What the taxpayers deserve is the best possible deal that will provide the services required. If legislators do any less, it is a dereliction of their duty to their constituents.

So the JFC should take a good look at self-insurance. But the decision criterion should not be the impact on the companies currently making their profits off of the taxpayers. The decision criterion should be finding the most economical way for the state to provide quality health insurance to its employees.

Droid Room Service

This seems like a great application for automation.

The M Social Singapore hotel is introducing a droid that can deliver room service to guests. It navigates using 3D cameras and can negotiate lifts and manoeuvre around people wandering down the corridors. The M Social is far from the first establishment to employ such robots. The machine, called Relay (pictured), which is made by Savioke, a Californian firm, already does shifts at some Aloft and Residence Inn hotels.

Tom Breedon, the general manager of the Residence Inn at Los Angeles airport, says using the robot for deliveries increases revenue per available room, a key industry measure, by at least 0.5%. This is partly because a robot is cheaper than a human (the Relays are leased for $2,000 a month; they cannot be bought). But it is also because guests are so taken by the novelty of being served by a robot that they order more room service.

Note the price point.

At $2k/month, that’s the equivalent of about $11.5/hour (assuming 2080 work year). And the robot comes without the headaches of recruiting, calling in sick, bad behavior, law suits, benefits, etc. Also, the robot can work almost 24 hours a day, so it is really providing the equivalent of 4.2 FTEs.

On the flip side of that equation, the company that makes the droid is based in San Jose, California, and is likely paying engineers, software developers, technicians, etc. well into six-figure salaries to create these devices.

Creative destruction is not a bad thing. It is essential to economic and human progress.