Category Archives: Economy

Tariffs Cometh

Earlier this year, I was in the market for a new bicycle. An acquaintance and avid cyclist recommended bikesdirect.com to me. After doing some investigating, I ended up buying a new bike on the site. Although the site is spartan, the selection, prices, and customer service were excellent. I was very happy with the experience and really enjoyed my new bike.

Today, I got this email from them:

bikesdirecttariffs

Here are the notes from the email:

1) Today Several Bicycle Industry Experts Testified in Washington On the Increased Tariff on Complete Bicycles, Bicycle Parts and Accessories

2) 94% of Bicycles Sold in USA are from China, 97% of Kids Bikes are from China (most Bikesdirect Models are Not made in China)

3) Added 25% Tariff on Almost ALL eBikes Goes Into Effect August 23 Thursday. Many eBike Brands Are Increasing Prices Thursday (Example – one popular model going from $3500 MSRP to $5,000 MSRP)

4) Most Bicycle Distributors Are Not Running End of Year Discounts Due to Upcoming Increased Cost of 2019’s.

5) Alternative Factories in Other Countries Currently Booked To Near Capacity (Likely Bicycle Shortages Last Quarter of 2018)

6) NO BICYCLE COMPANY makes enough money to absorb a 25% increase in Cost. (However, Bikesdirect will always price bicycles below anyone in the industry)

7) Bikesdirect Will Strive to Hold Current Sale Prices Until The Bleeding Becomes Too Much To Bear

Tariffs are damaging our economy and costing Americans. If you won’t oppose tariffs because they are poor economic policy, think of the kids! They are all going to get even fatter without affordable bikes.

Greece Emerges From Bailout Plan

Be careful out there, folks. The Greeks can borrow again.

Greece has successfully completed a three-year eurozone emergency loan programme worth €61.9bn (£55bn; $70.8bn) to tackle its debt crisis.

It was part of the biggest bailout in global financial history, totalling some €289bn, which will take the country decades to repay.

Deeply unpopular cuts to public spending, a condition of the bailout, are set to continue.

But for the first time in eight years, Greece can borrow at market rates.

[…]

The economy has grown slowly in recent years and is still 25% smaller than when the crisis began.

[…]

While Greece’s economy has stabilised, its accumulated debt pile stands at about 180% of GDP.

As an American in a country with a $21 trillion national debt, I should really resist the urge to cast stones. Glass houses and whatnot.

As a side note in relation to the post below about the upcoming school referendum in West Bend, the district currently spends about $70.5 million per year from the general fund and another $26.5 million per year from other funds. Total, that’s about $97 million per year. If we equate the school spending budget (economic output) to GDP, then the current debt load for the district is about 134% of annual budget. If the referendum passes, the total debt load for the district will be about 222% of annual budget. Smart? No.

Wisconsin is Working

Positive news. What I really like to see is that it appears that more people are coming off of the sidelines and entering the labor market.

Wisconsin added 9,100 private sector jobs in July and the state’s unemployment rate remained 2.9 percent, according to federal Bureau of Labor Statistics data released by the state Department of Workforce Development.

An increase of 2,800 jobs in leisure and hospitality, 2,400 in durable goods manufacturing and 2,300 in education and health services helped drive the increase.

Professional and business services was the only sector with a decrease in employment, down 1,300. Government employment was also down 400.

The state’s labor force participation rate remained unchanged at 68.9 percent. The number of people classified as unemployed increased 1,800 to 92,900. Overall employment decreased 2,000.

Increasing Number of Elderly Declare Bankruptcy

This is a concerning trend.

Older Americans are filing for bankruptcy at more than double the rate of just 25 years ago, a sign of a “coming storm of broke elderly,” a new study finds.

The rate of people 65 and over filing for bankruptcy grew nearly 204 percent from 1991 to 2016, a study published by the Social Science Research Network found, and the percentage of seniors among all U.S. bankruptcy filers increased by nearly five times over the same period.

Researchers looking at data from the Consumer Bankruptcy Project found that high health care costs, combined with reduced incomes and the widespread decline of pensions, are all contributing to the growing trend of “financially broken retirees.”

Deborah Thorne, one of the study’s authors from the University of Idaho, said “it’s not an individual’s fault” when they have to file for bankruptcy, citing issues with retirement systems and Medicare.

Wait… what? “”it’s not an individual’s fault” when they have to file for bankruptcy”??? Whose fault is it, then? Part of the problem is that people aren’t taking responsibility for their own financial affairs. They behave as if magic pixies flew into their bank accounts and spent all of their money. Except in rare circumstances, almost every bankruptcy is an individual’s fault. Let’s think about this for a minute.

For years, we have seen Americans saving way too little.

Northwestern Mutual’s 2018 Planning & Progress Study, which surveyed 2,003 adults, found that 21 percent of Americans have nothing saved at all for their golden years, and a third of Americans have less than $5,000. To put that into perspective, it means that 31 percent of U.S. adults could last only a few months on their savings if they had to retire tomorrow.

[…]

Young people who haven’t had as much time to save aren’t skewing the statistics, either. The report found that 33 percent of boomers have $25,000 or less in retirement savings.

Whose fault is that? It’s the individual’s fault, of course. Many, many people can save more, but choose not too. They choose to buy stuff now instead of putting that money into an investment or savings account. We live in a consumption culture and people consume at a rate far higher than their means. The lack of savings, often coupled with massive personal debt, leave far too many people without the means to deal with even a relatively minor life emergency like a medical bill, car accident, flooded basement, or whatever. They are unable to afford these unlikely, but not unexpected, events.
And why do most people go bankrupt? The top 5 reasons are:
1) Medical expenses
2) Job loss
3) Poor/Excessive use of credit
4) Divorce/separation
5) Unexpected expenses
#3 is obviously an individual’s fault. Most of the other causes can be weathered for a while if people are frugal and save money when times are good. People are going to lose jobs… it happens. Divorces happen. Medical expenses happen. Storms happen. Plan for it. Save. Don’t run up debt. If it doesn’t happen to you, then you still won’t regret having saved the money.

There are rare circumstances where an individual could be said to not be at fault for their financial condition. A major economic depression or natural disaster, for example. A lengthy, expensive medical issue, for example. But if an unexpected $5,000 bill pushes you into bankruptcy, it’s your fault. You planned poorly.

Our culture increasingly seeks to absolve individuals of any responsibility for the choices they make (see: abortion). But while the final incident that pushes someone into bankruptcy may not be their fault, the fact they were so vulnerable to bankruptcy is usually the result of a thousand bad decisions made up to that point.

Managed Economy = Barren Shelves

Every time.

LOS ANGELES (AP) — The nation’s largest legal marijuana market is struggling.

Illicit sales continue to thrive. A shaky supply chain has customers looking at barren shelves in some shops. There are testing problems. And a proposal to allow home marijuana deliveries in cities that have banned pot sales could lead to a courtroom fight.

A Los Angeles hearing Tuesday provided a window into the state’s emerging cannabis economy, in which early enthusiasm for broad legal sales has been followed by anxiety and frustration across a swath of the industry.

The state’s top marijuana regulator, Lori Ajax, said after the hearing that the state remains in a challenging transition period as it attempts to transform what was once a largely illegal market into a multibillion-dollar, regulated economy.

Putting aside whether or not you think pot should be legal, this is a case study of the free market. Instead of just making pot legal and letting the private sector bring it to market, California chose to heavily regulate the market from growing to distribution to consumption. The result was inevitable… barren shelves and a blossoming black market. Government bureaucrats trying to manage a market will never be as successful or efficient as millions of people making independent decisions in a free market.

New Zealand Bans Foreigners From Buying Most Real Estate

Interesting.

The country’s parliament on Wednesday passed a law banning foreigners from buying into most parts of its residential property market as the government seeks to cool red-hot house prices.

The Overseas Investment Amendment Bill will prevent overseas investors from purchasing existing properties in New Zealand, but they will still be able to buy into new apartment complexes and certain other parts of the housing market.

New Zealand Prime Minister Jacinda Ardern campaigned on a promise to clamp down on foreign buyers, blaming them for soaring prices that have left many New Zealanders unable to enter the property market.

[…]

Most foreign buyers in New Zealand don’t state where they’re from, official data shows, but the majority of those who do are from China.

New Zealand has also proved to be a popular retreat for the rich and famous. Billionaire investor Peter Thiel and disgraced former NBC host Matt Lauer both own properties in the country.

The Chinese, in particular, are buying property all over the world – especially in America.

Why?

Thanks to their booming economy, there are a lot of Chinese people who have a lot of money. But they still live in a totalitarian regime where their assets can be seized or they can be cast out at any time. There is no real protection for private property in China. So what do you do if you are a wealthy Chinese businessman and you don’t want your assets to evaporate by the whim of a dictator? You buy property in other countries that protect private property. That way, if something happens in China, at least you still have a pot of gold buried somewhere for your family.

Musk Runs

Heh

Elon Musk’s latest big idea is daring even by his standards: He wants to turn Tesla into a private company.

He stunned investors on Tuesday with a tweet saying he had already lined up the funding, and he told employees that it would relieve the electric car company of the “enormous pressure” of Wall Street’s expectations.

Someone doesn’t like anyone looking over his shoulder and holding him accountable to his commitments.

Tariff War Escalates

Make it stop!

China has announced plans to put tariffs of up to 25% on US products worth $60 billion, the latest salvo in an escalating trade war.

The Chinese government said Friday that it would impose duties of 25%, 20%, 10% and 5% on the products if the Trump administration follows through on threats to tax $200 billion of Chinese goods.

Do you know who wins tariff wars? Government. Tariffs are just another outflow of cash from consumers to government. Meanwhile, consumers and our economy suffers.

Guidelines for corporate welfare

Here is my full column that ran in the Washington County Daily News yesterday.

As each day passes, the deal that Gov. Scott Walker struck with Foxconn to incent them to build a massive facility in Wisconsin continues to look better. Foxconn has already expanded its original commitment to Wisconsin to include additional facilities in Milwaukee, Eau Claire and Green Bay. Now that the Foxconn deal has set a benchmark, some lawmakers, including Walker, are seeking to give Kimberly- Clark a similar package to keep a plant, and more than 600 jobs, in Wisconsin. The Legislature should reject such a deal, but they should set some broad criteria for when they would consider doling out taxpayer incentives.

Conservatives philosophically reject corporate welfare of any kind for many reasons. Using the coercive power of government to tax citizens for the purpose of handing it to other citizens is vexing. Furthermore, government intervention anywhere in a market distorts that market and makes it less efficient. Politicians spending other people’s money have the least vested interest in any business decision and are prone to making poor decisions. And there is always the risk of graft and corruption when politicians are making arbitrary decisions about which businesses will receive a handout.

There are many factors that go into a business decision about where to locate new businesses. Most of those factors have little to do with government. Access to natural resources, a labor force, proximity to customers and suppliers, etc., weigh heavily on those decisions. Also considered are the broad government policy aspects of a given location like tax rates, quality infrastructure, regulatory requirements, etc.

Wisconsin already has a legendary workforce and abundant natural resources.

In an ideal world, the state’s tax and regulatory burden would be so reasonable that businesses that could locate here would be fools for not doing so. Unfortunately, despite great improvement under Republican leadership, the weight of government in Wisconsin still makes it a more expensive place to live and do business than most other states. Absent a drastic reduction in the size and expense of government, Wisconsin state government must seek ways to level the playing field with other states and incent businesses to move here.

The taxpayers are not a bottomless well of money and state lawmakers need to be good stewards of the taxpayers’ money under their care. If Wisconsin’s politicians are going to use the taxpayers’ money to incent businesses to grow in the state, they need to adhere to some general principles to guide them. Business decisions are naturally complex. Every decision must be weighed with the facts presented, but there must be some general philosophy underlying the decisions.

First, the result of any incentive package should be a net economic gain for the state. For example, the projected economic impact of Foxconn measures in the tens of billions of dollars for an incentive plan costing a fraction of that. For Kimberly-Clark, the proposed plan is to maintain a business that already exists.

Second, any incentive package must include specific, measurable benchmarks for the business receiving the incentives and hold them accountable to those benchmarks. This requires interested, diligent work on the part of the overseeing state agency and the Legislature for years after the politicians who granted the incentives are out of office. If businesses know they can promise the moon without any accountability, it undermines the effectiveness and integrity of any deal.

Third, the incentives must be structured in a sensible way for the taxpayers. For example, an incentive package that forgoes future tax revenue that would not be realized anyway without the business meeting its commitments is far preferable to an immediate expenditure of existing money.

Fourth, Wisconsin’s politicians should not try to use taxpayer-financed incentives to fight larger economic trends. Our economy is constantly changing with entire industries being created and collapsing. Using incentives to attract growing industries to Wisconsin is preferable to using them to prop up dying industries.

Finally, tax incentives should only be used as a last resort and not to put icing on a decision that is already made for other reasons. If a business is already going to locate or expand in Wisconsin because of other reasons, then Wisconsin’s politicians should not waste taxpayer money on incentives just because the business asked for them.

Perhaps there will come a day when Wisconsin’s tax and regulatory burdens are so sensible that businesses will flock here like they do to some other states. Until then, the judicious use of taxpayer money for incentives will be a reality we cannot avoid if we are going to compete in the global economy.

 

Guidelines for corporate welfare

My column for the Washington County Daily News is online. As businesses lineup for incentives from the taxpayers of Wisconsin, I attempt to draw some boundaries for when lawmakers should consider it. Here’s a taste:

In an ideal world, the state’s tax and regulatory burden would be so reasonable that businesses that could locate here would be fools for not doing so. Unfortunately, despite great improvement under Republican leadership, the weight of government in Wisconsin still makes it a more expensive place to live and do business than most other states. Absent a drastic reduction in the size and expense of government, Wisconsin state government must seek ways to level the playing field with other states and incent businesses to move here.

The taxpayers are not a bottomless well of money and state lawmakers need to be good stewards of the taxpayers’ money under their care. If Wisconsin’s politicians are going to use the taxpayers’ money to incent businesses to grow in the state, they need to adhere to some general principles to guide them. Business decisions are naturally complex. Every decision must be weighed with the facts presented, but there must be some general philosophy underlying the decisions.

Q2 GDP Growth Hits 4.1%

Boom.

Gross domestic product grew at a solid 4.1 percent pace in the second quarter, its best pace since 2014, boosting hopes that the economy is ready to break out of its decade-long slumber.

The number matched expectations from economists surveyed by Reuters and was boosted by a surge in consumer spending and business investment.

That’s the fastest rate of the growth since the third quarter of 2014 and the third-best growth rate since the Great Recession. In addition to the strong second quarter, the Commerce Department revised its first-quarter reading up from 2 percent 2.2 percent.

Trump to Provide Farm Aid

Hmmm

WASHINGTON — The Trump administration announced on Tuesday that it would provide up to $12 billion in emergency relief for farmers hurt by the president’s trade war, moving to blunt the financial damage to American agriculture and the political fallout for Republicans as the consequences of President Trump’s protectionist policies roll through the economy.

Unveiled two days before the president is scheduled to visit Iowa, a politically important state that is the nation’s top soybean producer, the farm aid appeared calculated to show that Mr. Trump cares about farmers and is working to protect them from the worst consequences of his trade war.

But the relief money, announced by the Department of Agriculture, was also an indication that Mr. Trump — ignoring the concerns of farmers, their representatives in Congress and even some of his own aides — plans to extend his tit-for-tat tariff wars.

So Trump creates an economic hardship through his tariff policy and then uses taxpayer money to selectively bail out some of those businesses that are negatively impacted by that policy. No thanks. Just end the policy.

Furthermore, I don’t like the notion of the President pulling $12 billion out of the taxpayers’ couch without any legislative process or appropriation. $12 billion is still a LOT of our money for a single man to throw around.

Senator Kapenga Opposes KC Incentives

I agree with Kapenga on this one.

Madison – Senator Chris Kapenga (R-Delafield) released the following statement regarding possible legislation that would mirror Foxconn level incentives for Kimberly-Clark:

“When the legislature approved the Foxconn deal, it provided a once-in-a-lifetime opportunity for our state to attract a cutting-edge industry. I felt it was in the best interest of the taxpayers, as the significant growth potential has the ability to fundamentally transform our state’s economy for decades to come.”

“The potential job losses are a result of United Steelworkers union bureaucrats failing to come to a better agreement with Kimberly Clark. It is not the role of government to put taxpayer dollars at risk in the middle of disputes between businesses and unions.”

“The Foxconn deal is not a template to provide extra benefits to any company who asks. This is a precedent that we should not set. Wisconsin has robust existing programs to promote economic development and job retention that Kimberly-Clark can attempt to utilize, just as any other company can. For these reasons, I would not support the proposed legislation.”

Congressional Republicans Look to Expand Retirement Options

If they can’t get these ideas passed as part of a larger package to make the tax cuts permanent, they should carve them out into a standalone bill and pass it.

Brady’s proposal is expected to include a revamped version of the Retirement Enhancement and Savings Act of 2018 that was proposed in March. The bill could make it easier for small businesses to offer 401(k) retirement accounts to workers and provide some with annuity-like vehicles, which provide guaranteed income during retirement.

“In many ways, this provision helps recreate traditional pension plans that used to promise workers that no matter how long they lived, they’d get a monthly check thanks to their former employer,” Dirk Kempthorne, CEO of the American Council of Life Insurers wrote in an op-ed.

The changes would be the most significant to retirement savings since 2006. That could be especially important as nearly half of working-age families have nothing saved in retirement accounts. Analysis from the Federal Reserve found that the median working-age family had only $5,000 saved in 2013.

Foxconn Will Only Benefit Southeast Wisconsin

Oh, wait

Foxconn Technology Group is buying a historic downtown Eau Claire building and space in the Haymarket Landing building as part of an expansion that will create 150 jobs.

The company announced it is expanding its Wisconn Valley Innovation Network to west-central Wisconsin as part of its initiative to spur innovation, attract talent and connect with supply chain partners, according to a statement. Foxconn plans to close on these properties later this year and open new operations in early 2019.

The new centers, to be named Foxconn Place Chippewa Valley, will create at least 150 high-tech jobs in Eau Claire. Employees will work with companies that will become part of Foxconn’s extensive supply chain and contribute to the development of the AI 8K+5G ecosystem that Foxconn is building in Wisconsin.

“We are excited to expand our Wisconn Valley footprint to the Chippewa Valley and west-central Wisconsin. Our goal in establishing Foxconn Place here is to help inspire innovative ideas, attract talent and catalyze cutting-edge solutions in this part of the state,” said Alan Yeung, Foxconn’s Director of U.S. Strategic Initiatives and President of FEWI Development Corporation. “Foxconn Place Chippewa Valley will play a key role in building a vibrant AI 8K+5G ecosystem in the U.S., with Wisconsin at the center of this vision.”

I will remind the gentle reader that every single Democrat running for governor has spoken against the Foxconn deal. I actually think that if one of them would break with the pack and champion Foxconn, they would stand a better chance of winning the general election, but it would kill them in the primary.

Last Sears in Chicago to Close

Speaking of disruption

The Six Corners store, on the edge of Chicago’s Portage Park neighborhood, will shut its doors for the last time Sunday, two months shy of its 80th anniversary. The closure is part of Sears effort to turn around its business after years of losses and declining sales, but when the store rings up its final sale, the city will lose one more link to a hometown company that used to be the world’s largest retailer.

Down to One Blockbuster

As a former employee of Blockbuster, this makes me sad. Blockbuster is the perfect example of the technological disruption of an industry and a company that was too slow to adapt. There was a small window of opportunity where Blockbuster could have leveraged its brand to dominate the fledgling streaming media business, but they were too fat, happy, and slow to do it. Of course, hindsight is 20/20. This disruption continues unabated. I’ve seen projections that as much as half of the Fortune 500 won’t be on the list in 10 years. I believe it.

This week, there are three stores remaining, but by next week there will only be one store open for business — in Bend, Oregon.
Alaska’s last two Blockbuster stores — one in Anchorage and another in Fairbanks — announced they would officially close on Sunday.
Sandi Harding, the Bend store’s general manager, told CNN she was surprised her store was the last one open.
“It’s pretty exciting that we are the last holdout,” she said.

A bit of nostalgia

Bend’s Blockbuster looks just like stores from years ago — yellow on the inside and employees sporting blue shirts. They even have floppy disks and old computer systems, Harding told CNN.
After Sunday, this video store in Bend, Oregon, will be the last remaining Blockbuster in the US.

“It’s very nostalgic,” she said. “We have a bunch of 19-year-olds working here — it’s fun explaining to them what a floppy disk is.”

Foxconn Expands in Green Bay

Great.

GREEN BAY – Foxconn, the Taiwanese tech company building a sprawling manufacturing plant in southeastern Wisconsin, will become the new owner of The Watermark building in downtown Green Bay.

Foxconn Technology Group CEO Terry Gou was joined by Gov. Scott Walker on CityDeck Friday to announce the company’s pending purchase of the building, the former Younkers department store at 301 N. Washington St.

Foxconn plans to open an innovation center in the building by the end of the year. It will be part of a network supporting its Racine County manufacturing plant. More than 200 people are expected to work at the Green Bay location.

Gou said the Green Bay center will focus on developing applications for the AI 8K+5G display technology it is developing, as well as applications for the education, medical, health care, entertainment, sports and security industries.

Foxconn Awards $14 Million in Contracts for First Building

Great!

Foxconn Technology Group and M+W|Gilbane awarded $14 million in contracts to eight prime subcontractors for the construction of the first building at Foxconn’s planned LCD manufacturing campus in Mount Pleasant.

Four of the contracts for a 120,000-square-foot multipurpose building went to companies based in metro Milwaukee. Those firms included precast work by Waukesha-based Spancrete Inc., concrete by Butler-based Superior Masonry Builders Inc., electrical work by New Berlin-based Pieper Electric Inc. and mechanical, plumbing and fire protection work by Pewaukee-based Total Mechanical Inc.

“We are pleased that a team of companies with strong track records in Wisconsin has been assembled to support the development and construction of our first building in the Wisconn Valley Science and Technology Park,” said Alan Yeung, Foxconn director of U.S. strategic initiatives and president of FEWI Development Corp.

All eight firms have a Wisconsin presence. Schofield-Tased Merrill Steel is providing structural steel and miscellaneous metals work and the Milwaukee offices of Pennsylvania-based Bright View Landscape Development Inc. and Connecticut-based Otis Elevator Co. will handle landscape and elevator work respectively.

SCOTUS Rules Against Forced Union Dues

Excellent. Forced unionization has been a century-long stain on the freedom of association.

WASHINGTON—The Supreme Court has barred public-employee contracts requiring workers to pay union dues, dealing a severe blow to perhaps the strongest remaining redoubt of the American labor movement.

The 5-4 vote, along conservative-liberal lines, overruled a 1977 precedent that had fueled the growth of public-sector unionization even as representation has withered in private industry. More than one-third of public employees are unionized, compared with just 6.5% of those in the private sector, according to a January report from the Bureau of Labor Statistics.

The impact is likely to stretch far beyond the workplace, sapping resources from unions like the American Federation of State, County and Municipal Employees and the National Education Association that have provided funds, resources and activists largely in support of Democratic candidates.

[…]

Under that theory, it would violate the First Amendment for government to condition a job on subsidizing political speech a worker may oppose—and therefore public-employment contracts including union-security clauses would be unconstitutional. The court majority has now accepted that argument.