There are some interesting things to think about and perspectives to ponder.

• If I were a policymaker in a competing state I would probably want to take a close look at my home state and how it compares to to Texas.  I would be interested in finding ways to attract more employers and job hunters.

 

• Which came first? The chicken or the egg?  Did these employers setup shop here because of a good stock of skilled talent or whas the initial move a cost-benefit one where taxes and state provided incentives were offered?

 

• Forbes did not publish (or at least I did not see it) their data tables but I would be interested to see how each city in their list ranked in terms of transportation options.

Tweet This Post

• Should potential employers have access to your financial history?
• What relevance does one’s credit score have on employment candidacy?
• What protections have been put in place to prevent abuse?
• Who (what federal agency) is representing the interests of the candidate?
• Are employers opening themselves up to potential legal problems by making hiring decisions based on personal and confidential financial information?
• What kinds of externalities can we expect from this activity?

Lets start with the most basic question – why should potential employers have access to this information?  The most compelling argument I have seen is that potential employers can use a credit report to gauge a candidate’s decision-making abilities.  It goes like so: the likelihood that a candidate who has a history of delinquencies, collections, foreclosure or perhaps a bankruptcy will make similarly poor decisions in their professional life is higher than a candidate with a clean credit history with few or no blips. In other words, the argument says, “hey, this person has taken good care of his/her financial reputation and demonstrated responsibility over the long term”.

While I may appreciate and even agree with that claim, I cannot reconcile that argument against a more important claim – that personal financial and medical information is too sensitive to be used for anything other than what they were originally intended for – doctors need your medical record to provide health care and banks need it to decide whether they should lend you money for that car or business idea. Why did I throw in medical information? Because I consider both to be the last bastions of personal privacy afforded us by the government from prying employers, insurance companies, marketing agencies and the like.  Although HIPAA has made progress with Protected Health Information it seems that our credit history is slowly becoming a one-stop shop for anyone willing to write Experian, TransUnion or Equifax a check.

Another area of concern is what happens to this information once it is obtained by potential employers?  Who in the organization has access to this information?  In today’s world of Twitter and Facebook how long will it be before we hear about someone tweeting about a candidate’s bankruptcy?  What happens after a candidate has been hired?  Will the employer have an obligation (read unintended consequence) to disclose any of this information to other parties?

Perhaps my strongest concern for using credit reports as a way to screen job candidates is the long-term and compounding (yet to be determined) socioeconomic effect.  Hans Rossling’s enlightening presentation at the 2006 TED Conference comes to mind.  Watch it below.

What we should be cognizant of is that this is a slippery slope we have started.  I know that my car insurance provider accesses and (whether they acknowledge it or not) utilizes my credit score to determine my premiums.  Although I have yet to be asked by a potential employer for my credit report it may only be a matter of time.  What will be next?  Will credit scores be required for admission to colleges and universities? Hey, the admissions departments could argue that it would help them keep their graduation rates high.

I can imagine a situation where pervasive use of credit reports for employee screening could perpetuate a gradual segregation of those who have had the success or luck in maintaining their credit in good standing from those who have not.  I can imagine watching Hans Rossling’s presentation 10 years from now as he shows the ‘completely new world’ we live in, where those with good credit have access to every definition of economic opportunity one could conceive while those with poor credit are left to struggle for whatever remains as they descend into a self reinforcing spiral.

Tweet This Post

Big business, big risks
For decades we have talked about the impact globalization has had on society, political affairs and economics around the globe.  The range of opinions about this phenomenon are as varied and numbered as the impacts.  Often Globalization gets tied to outsourcing and, depending on whether you are a savvy business person or an ambitious politician, it signifies the creation of competitive advantage or the loss of many jobs. 

It has also found itself as the centerpiece of a merger or acquisition strategy for a large business that needs to ‘compete on a global scale’.  Globalization also receives credit, rightfully so, for the creation of a new more advanced global economy where integration and a shared sense of fate are its underpinning.  But there is something else that Globalization has done which may bring with it a new set of risks.

Only as strong as the weakest link
Globalization has, at least in the public discussion, subordinated the importance of the local economy and small business to macroeconomic initiatives and large enterprises.  I have no intention of meaning this as a blanket statement but only to describe the extent to which we have operationalized globalization into our social, political and economic models.  The risk of glazing over the details and focusing on the forest is that we are unable to see if the trees are rotting from within.

Take our current situation, where one large institution after another has failed, gone under or is in the process of going under.  We can also ponder over the real estate crisis and whether California, Florida and Nevada where signs of a distressed forest.  The inherent risk of this flawed perspective is that risk itself is magnified.  Whereas mergers and consolidations were viewed as positives for the customer and business the unintended consequence and therefore risk to society was that a failure would sting that much more. 

All economics is local
I think ‘Tip’ O’Neill was onto something when he said that “all politics is local”.  That statement could easily be tweaked to say the same for economics and evolution – I will get back to the evolution part later.  There are some products and services that just have no business being brought in from anywhere other than the local community. 

Take for example food from the grocery store.  With the exception of those foods that require specific geographic characteristics most fresh foods could be produced within close proximity to its customer base.  There are several advantages to the customer, business and economy from maintaining a close relationship between the food we eat and our community.  This form of food patriotism is among other ways to achieve better sustainability. 

Another trend that is becoming prevalent in today’s economic climate and ties back to the local economy is community banking.  Local banks are benefiting directly from the lack of confidence in large banking institutions.  In fact many are seeing double digit increases in new deposit accounts as a result.  Local banks, which tend to have more established and personal relationships with their customers, have the advantage of knowing their customer and what their needs are.  The risk of lending can be further reduced because the banker has a more intimate knowledge of the business, its risks and, most importantly, the principal asking for the money. 

Survival of the fittest
This is an aside but I mentioned evolution earlier and wanted to take this opportunity to throw organized labor under the bus.  The fundamental idea behind organized labor has always irked me, as it seems to fly in the face of evolution.  There are some things in life that we simply cannot control and must either adapt to or die from it.  Organized labor, for the most part, has fought progress only to stave off the inevitable.  Not only does this intransigence make it difficult for a business to operate competitively but it poses a significant risk to a community when this mentality pervades its labor force.

Some communities in Michigan are looking how to offset the effect of job lossess as a result of failing auto companies.  In deed some of these small cities face serious problems as their largest employer is on the brink of failure.  Their precarious situation presents an opportunity for adaptation to the reality of the marketplace for labor.  While some communities are working to bring other major employers to the area they will face a major obstacle.  Until the business community sees a fundamental capitulation in the trend for labor to organize these communities will face an uphill battle – let me rephrase that, they will have to scale a near vertical mountain on a rainy day with only a tattered old 1/4 inch nylon rope.  Good luck, I am sure that you all can organize into a tall human chain with the prospect of getting at least one of you to the top, but then you will spend an eternity arguing why YOU should not be the one on the bottom.

Tweet This Post

It has always been my opinion that GM is the embodiment of poor management, lack of vision and a stubborn proclivity to rely on excuses in the face of adversity.  The public apprehension towards bailing out the Big 3 seems to be a manifestation of the same sentiment.

What I find unfortunate is that Ford, while equally responsible for its current situation, has been more responsive to the realities of the marketplace and yet seems to be getting dragged down with GM’s bad reputation.  Ford has brought in a new CEO, it has been in the process of painful but necessary steps to restructure and it has quickly begun to adapt.  If any of these firms should be bailed out it should be Ford.  GM should be forced to restructure under Chapter 11.

What many do not seem to understand is that allowing GM to fail could be a blessing in disguise.  With the anticipated growth of the alternative energy industry (wind, solar, etc…) we will need workers to man these jobs.  Where will they come from???  Look at the unemployment rate as it stands in the midst of a considerable economic  downturn – 6.5%.

Let’s look past the trees for a moment and see the forest.  The next decade will see baby boomers leaving the job market en masse – creating an industry that caters to them in the process.  Energy will be an ever increasingly important industry that will require imagination, talent and huge amounts of capital.  There is opportunity on the horizon, but we need to recognize it and prepare ourselves for it.  Americans have always shown their ability to take a bad situation and thrive on it.  Let’s keep that tradition alive.

Tweet This Post

Now this one may be a stretch, but if you find yourself unable to make those mortgage payments because you bought a house that you cannot afford or lied on your stated income form or thought an ARM loan was the best thing since sliced bread then all you have to do is foreclose and then blame it on those evils banks.

I won’t comment on President Bush’s lack of ownership on his administration’s actions.  I don’t want to send the terrorists “mixed signals” or “embolden” them anymore.

What I will comment on is the serious lack of responsibility we as a nation are taking with so many aspects of our lives.  What happened to saying, damn I shouldn’t have done that instead of I got hurt because YOU let me?  When did it become someone else’s responsibility for your actions?  The logic behind blaming someone else for your actions is so backwards that I just can’t fathom that it should be pointed out and much less explained!

It would sound pretty absurd (and stupid) if I told my son (hypothetical son) to run across the street without looking and if he gets hit by a car then we will sue the driver.  It would also be foolhardy for me to visit an internet chat forum to get anonymous stock tips, make investment decisions based on those tips, lose my shirt, and then complain to the government that I should get my money back.

Now that I think about it, I’m rolling around in my sleep wondering who is going to sue me for breaking into my home, stealing one of my dinner forks and then shoving it into an electric socket!  I wonder if I can get some kind of ‘Stupidity’ insurance.

Tweet This Post

Every time I decide to blog something about this issue I can’t get over how anyone could take issue with unrestricted trade policies. It takes acute short sightedness and a very narrow interest to do so.

What do protectionists want? Well, they want to protect a small group’s interests at the expense of everyone else. For example, GM and Ford workers argue that they are entitled to a job, regardless of whether or not they can work as competitively and cheaply as workers at Toyota or Nissan. Not only do they feel that Ford and GM owe them a job, but they should be paid handsomely for it as well. In the case of GM, if the company has trouble finding people to buy these cars at inflated prices, these prima donna workers are entitled to participate in the Jobs Bank Program, whereby they get to receive full pay and benefits regardless of whether they have work or not. Who do you think is paying the bill?

In a nutshell, protectionists feel that everyone should pay more for a Tahoe or Explorer simply because some workers want to shield themselves from the competitive pressures of the labor market. Protectionists like to use fancy terms like ‘exporting American jobs’ or make one-sided statements like we will hear a ‘giant sucking sound’ as American jobs are moved out of the country, but the truth is that we benefit in many ways.

What gets me is that they are ironically protecting themselves from any form of self improvement. Our economy, and anyone else’s for that matter, depends on increasing productivity gains to raise the standard of living while at the same time staving off inflationary pressures. These productivity gains essentially allow firms to make a product or provide a service at the lowest cost per worker hour.

What protectionists often fail to mention is that many overseas competitors actually create jobs in the U.S. that were supposedly exported. Using the auto industry again as an example, Toyota and Nissan have invested billions in the South to build new plants. What Toyota and Nissan and others like Mercedes Benz are NOT doing is creating these jobs in places up north like Detroit. Gary N. Chaison of Clark University in Worcester, Mass. is quoted in the Times article saying that ‘These international companies want a fresh start — not in a town like Detroit, with a long history in the auto industry, but in an empty field where people appreciate them.”

Toyota must be doing something right because it is now the number 2 automaker and is not far behind GM. Toyota is making a profit and GM is hemorrhaging cash. Toyota makes cars that people want at attractive prices and GM is doling out discounts as incentives to attract buyers. What the two automakers do have in common is that both are unapologetic for their performance. However, if I were Rick Wagoner I would reconsider this.

Tweet This Post

1. China:

a. The Currency Issue

b. Internal inflationary pressures

c. The Chinese export infrastructure and its role in economic growth.

2. The U.S.:

a. Wagflation

b. Deficit Spending

c. Widening account deficit

d. Slowing housing market

3. India:

a. _______

4. Germany:

a. _______

5. Japan:

a. _______

As you can see, I have many blanks to fill in. I want to build a somewhat comprehensive analysis based upon separate country analyses. This would be an interesting little project to undergo. At the least, I get to learn more about my global neighbors. Check in later. If you’d like to pitch in and help me research one of these countries let me know.

Tweet This Post

How do you quantify a human’s ability to create? To Innovate? Within the framework of employment, how does the neoclassical view account for this value?

If I were a manager with a neoclassical economic view, I would probably analyze the marginal costs and benefits of laying one employee off. I would do the same with a varying number just the same.

The Library of Economics & Liberty mentions that, “a theory that explains the layoff decision by the changing tastes of managers for employees with particular characteristics will not be a neoclassical theory”.

Tweet This Post

This is yet another example of human stupidity asking for protection against itself. There was a time when something called common sense prevailed. A time when most people would have laughed at this guy and said, ˜that’s what you get for turning up the volume so high”.  But these days, a lack of intelligence or a complete absence of common sense can earn you special privileges – like doing something very stupid and getting someone else to foot the bill for the consequences.

Increasingly, I am noticing a worrisome trend in our culture and society. We are continuously protecting people from making less than intelligent decisions and passing the cost of those bad decisions on those who should not be bearing it.

A few years ago, I remember a teenager made a killing after he talked up a stock in an internet chat room. The federal government stepped in later, after those poor little investors complained, and prosecuted the teenager. When I heard that story, I was appalled! I was appalled that the government was actually stepping in to make the teenager return the money!

I more than agree that it was wrong what the teenager did, but that does not give a group of investors a free pass into stupidland for a day to buy stocks that they probably did no due diligence on and consequently lost their shirts. That teenager should have been allowed to keep the money and those investors should have bucked up to a stupid decision and walked away from the experience saying, I’ll never do that again!”  Instead stupidity prevailed.

Here is the problem I have with this trend, if we continue to protect people from making very poor decisions then they will only make increasingly more poor decisions. When you remove the cost of making a bad decision, you take away the “ouch” effect. I see it everyday now, people making bad decisions because they do not actually feel the consequences.

Tweet This Post

I was impressed with Bush’s presentation – well done; but I am not moved. He continues to polarize and aggitate. He continues to call anyone who disagrees with him a defeatist, isolationist (incorrectly), or a protectionist.

America is a great nation, but I think it should be more humble; and that includes refraining from saying things like ‘we are the envy of nations’.

He mentioned lots of new initiatives as well as the effects of previous ones. Again, I am not moved. Why he would mention the succes of the No Child Left Behind Act when he has continued to stifle it by not funding it adequately, I can only guess. He says that our economy is doing well… well, I am not a doomsdayer, but I think the jury is still out on that one.  Hold off for a little longer Mr. President.

You see, while you mention GDP I think about higher interest rates and how that will affect spending (the engine of choice in our current economy) as well as how higher short term interest rates will affect the housing market in the long run. I am also deeply concerned about stagnant wage growth and the increasing gap between the rich and poor.

Instead of giving the nation a real state of the union address, he gave us a sugar coated pep talk. When I buy shares of stock in public companies, I listen to the quarterly conference calls made by the top level executives. I, as well as most other prudent investors, tend to respect and give credibility to those executives that highlight their mistakes and problem areas and how they will be addressed. Those executives that simply walk up to the podium and say, “everythings going great guys” deserve that much more scrutiny.

After all, didn’t Kenneth Lay and Jeffrey Skilling say that everything was ok?

Tweet This Post