http://economix.blogs.nytimes.com/2013/08/30/the-audacity-of-the-fight-for-higher-wages/?emc=eta1
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"Strive not to be a success, but rather to be of value." (Albert Einstein)
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Jared Bernstein, former chief economist to Vice President Joseph Biden, saw an interesting intersection of two stories this week: first that the banks had an outstanding quarter with profits up 23% (primarily because they had to write off less loan losses), and, second that there were striking fast-food workers calling for an increase in their pay to $15 an hour (the average for these workers is roughly $9 per hour, up from $8.66 in 2009).
Putting this together with an upward revision in second quarter GDP that came out Thursday, corporate profits were at (or near) record highs as a share of national income while compensation "...fell again and is now at the lowest share it has been since the year (he) was born: 1955" caused Bernstein to conclude that something's broken in an economy that serves low wages to significant numbers of adults whose families depend on their earnings.
All this as the Conference Board (a business research group that is closely watched by CEOs) said on Thursday that its index of leading indicators increased .6% last month to a reading of 96. Some of the ten leading indicators that went up were: new orders for consumer goods and materials, new building permits issued, an index of stock prices and an index of consumer expectations.
Are corporate profits up partly at the expense of our lowest paid workers?
Saturday, August 31, 2013
Thursday, August 15, 2013
Justice Department Seeks to Block AMR/US Air Merger
http://www.nytimes.com/2013/08/15/business/justice-dept-alters-view-of-mergers-by-airlines.html?pagewanted=all
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"Management is efficiency in climbing the ladder of success. Leadership determines whether the ladder is leaning against the right wall." (Stephen Covey)
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I have to join Bob Crandall (retired CEO of American Airlines) who questions what the people who run our government are thinking. On Tuesday, the Justice department sued to prevent the merger of American Airlines and US Air. According to Justice, the merger will mean less competition and higher prices for consumers.
So, what was this same Justice Department thinking when they evaluated the mergers of Delta and Northwest in 2008 and United and Continental in 2010? According to Crandall, these combinations (between companies that were much more competitive with one another than are American Airlines and US Air) have demonstrated that consolidating companies to build a nationwide service capability, realize economies of scale and reduce excessive competition is a sound strategy.
By allowing those two mergers, the US government has essentially created a "duopoly" with two super majors, the rest of the airlines and Southwest. Allowing this merger (AMR/US Air) would have created three super majors and Southwest (with smaller specialty airlines like Alaska Air which is well run and serves a purpose). Neither American or US Air serves enough US or international cities to compete effectively with United and Delta.
And, let's go to bat for American. I am not a fan of their management but it should be pointed out that, when most of the other airlines went bankrupt after 9/11, American tried to make it without doing that. American tried to keep their maintenance centers here in the US when other airlines went to other countries where it was "cheaper" (I won't comment on what I think the quality of the maintenance done in other countries is.).
And let's talk about "prices" for a moment: the airline industry was "de-regulated" in 1978 because Senator Ted Kennedy introduced a bill that he and his staff felt would lead to his re-election because "de-regulation" would lead to lower air fares. It did. So routes could go to anybody that leased a jet from GE (there are jets no longer in use that leasing companies are and were anxious to reactivate). To make a long story short, prices on many routes fell below what it cost the legacy airlines (like American) to operate. Segway to today: now we charge for "pillows," luggage, changing your flight plans, etc. American couldn't get its costs down or its prices up enough to survive or make a healthy profit.
According to Eduardo Porter, from 1979 to 2009 the airlines lost $59 billion on their domestic operations and $8 billion on their international flights (per Severin Borenstein at the Haas School of Business, UC Berkeley). Since the 1990s, US Air, United, Northwest, Delta, and Continental have all filed for bankruptcy, a couple of them twice.
As Bob Crandall says, if the Justice Department wants to increase competition, drop their suit and clear the way for the creation of a third super major. Justice has it backwards: what they're looking at is an industry trying to survive and a brilliant CEO at US Air (Doug Parker) who, among other accomplishments, got all the unions at American to agree that the best way out of bankruptcy is to merge with US Air. Getting all of the unions at any airline to agree on what time it is constitutes an accomplishment, let alone what Parker did.
I can't imagine the impact on jobs at American if this Justice Department suit drags on. And how about the best managers at both companies running for the exits. The best managers will get other jobs.
For Justice, there's a way to save face: get both airlines to drop a few routes and then withdraw.
***************
"Management is efficiency in climbing the ladder of success. Leadership determines whether the ladder is leaning against the right wall." (Stephen Covey)
***************
I have to join Bob Crandall (retired CEO of American Airlines) who questions what the people who run our government are thinking. On Tuesday, the Justice department sued to prevent the merger of American Airlines and US Air. According to Justice, the merger will mean less competition and higher prices for consumers.
So, what was this same Justice Department thinking when they evaluated the mergers of Delta and Northwest in 2008 and United and Continental in 2010? According to Crandall, these combinations (between companies that were much more competitive with one another than are American Airlines and US Air) have demonstrated that consolidating companies to build a nationwide service capability, realize economies of scale and reduce excessive competition is a sound strategy.
By allowing those two mergers, the US government has essentially created a "duopoly" with two super majors, the rest of the airlines and Southwest. Allowing this merger (AMR/US Air) would have created three super majors and Southwest (with smaller specialty airlines like Alaska Air which is well run and serves a purpose). Neither American or US Air serves enough US or international cities to compete effectively with United and Delta.
And, let's go to bat for American. I am not a fan of their management but it should be pointed out that, when most of the other airlines went bankrupt after 9/11, American tried to make it without doing that. American tried to keep their maintenance centers here in the US when other airlines went to other countries where it was "cheaper" (I won't comment on what I think the quality of the maintenance done in other countries is.).
And let's talk about "prices" for a moment: the airline industry was "de-regulated" in 1978 because Senator Ted Kennedy introduced a bill that he and his staff felt would lead to his re-election because "de-regulation" would lead to lower air fares. It did. So routes could go to anybody that leased a jet from GE (there are jets no longer in use that leasing companies are and were anxious to reactivate). To make a long story short, prices on many routes fell below what it cost the legacy airlines (like American) to operate. Segway to today: now we charge for "pillows," luggage, changing your flight plans, etc. American couldn't get its costs down or its prices up enough to survive or make a healthy profit.
According to Eduardo Porter, from 1979 to 2009 the airlines lost $59 billion on their domestic operations and $8 billion on their international flights (per Severin Borenstein at the Haas School of Business, UC Berkeley). Since the 1990s, US Air, United, Northwest, Delta, and Continental have all filed for bankruptcy, a couple of them twice.
As Bob Crandall says, if the Justice Department wants to increase competition, drop their suit and clear the way for the creation of a third super major. Justice has it backwards: what they're looking at is an industry trying to survive and a brilliant CEO at US Air (Doug Parker) who, among other accomplishments, got all the unions at American to agree that the best way out of bankruptcy is to merge with US Air. Getting all of the unions at any airline to agree on what time it is constitutes an accomplishment, let alone what Parker did.
I can't imagine the impact on jobs at American if this Justice Department suit drags on. And how about the best managers at both companies running for the exits. The best managers will get other jobs.
For Justice, there's a way to save face: get both airlines to drop a few routes and then withdraw.
Thursday, August 8, 2013
Sequestration's Private Sector Impact
http://www.nytimes.com/interactive/2013/06/26/business/Signs-of-the-Sequester.html?emc=eta1
http://economix.blogs.nytimes.com/2013/08/08/more-on-sequestrations-effects-on-the-private-sector/
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"Assumptions are the termites of relationships." (Henry Winkler)
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Catherine Rampell observes in today's nytimes.com that there are private industries whose employment is most dependent on defense funds, and which are therefore most likely to suffer from sequestration. She provides an excellent chart on "Military Dependent Employment by State." The definition of that term refers to the Top 5 Private Industries Whose Employment Is Sensitive To Changes In Defense Spending:
* Facilities Support Services: 51% Share of employment within each
* Ship & Boat Building: 43% industry that is dependent on
* Aerospace Product and Parts Manufacturing: 34% military spending
* Scientific Research & Development Services: 31%
* Navigational, Measuring, Electromedical & Control Instruments Manufacturing: 21%
So, as many have pointed out, while private industry employment is struggling to stay in the black each month (125,000 new jobs each month barely covers new entrants into the workforce), government cutbacks don't just reduce government employment but also reduce "dependent" private employment. It looks like Washington State is ranked first in terms of share of employment reliant on military-dependent industries, followed by New Mexico.
So, here's what I'm seeing: the U.S. did not do enough spending into its own economy as the Great Recession hit (here I am joined by Warren Buffet and Paul Krugman) to come out of it with decent GDP growth. This was followed by "sequestration" that causes weak government spending into an economy where job growth isn't strong enough - there's a "subtraction" where there should be an "addition" each month in direct government and indirect government (private sector jobs dependent on government spending) spending.
There's still time to spend on things like infrastructure (much needed in the U.S.). Get growth back to 4% per year and then gradually reduce government spending where that's needed. At that point, tax receipts are coming in and government employment can be gradually reduced where appropriate (am I repeating?).
Where are the economists?
http://economix.blogs.nytimes.com/2013/08/08/more-on-sequestrations-effects-on-the-private-sector/
***************
"Assumptions are the termites of relationships." (Henry Winkler)
***************
Catherine Rampell observes in today's nytimes.com that there are private industries whose employment is most dependent on defense funds, and which are therefore most likely to suffer from sequestration. She provides an excellent chart on "Military Dependent Employment by State." The definition of that term refers to the Top 5 Private Industries Whose Employment Is Sensitive To Changes In Defense Spending:
* Facilities Support Services: 51% Share of employment within each
* Ship & Boat Building: 43% industry that is dependent on
* Aerospace Product and Parts Manufacturing: 34% military spending
* Scientific Research & Development Services: 31%
* Navigational, Measuring, Electromedical & Control Instruments Manufacturing: 21%
So, as many have pointed out, while private industry employment is struggling to stay in the black each month (125,000 new jobs each month barely covers new entrants into the workforce), government cutbacks don't just reduce government employment but also reduce "dependent" private employment. It looks like Washington State is ranked first in terms of share of employment reliant on military-dependent industries, followed by New Mexico.
So, here's what I'm seeing: the U.S. did not do enough spending into its own economy as the Great Recession hit (here I am joined by Warren Buffet and Paul Krugman) to come out of it with decent GDP growth. This was followed by "sequestration" that causes weak government spending into an economy where job growth isn't strong enough - there's a "subtraction" where there should be an "addition" each month in direct government and indirect government (private sector jobs dependent on government spending) spending.
There's still time to spend on things like infrastructure (much needed in the U.S.). Get growth back to 4% per year and then gradually reduce government spending where that's needed. At that point, tax receipts are coming in and government employment can be gradually reduced where appropriate (am I repeating?).
Where are the economists?
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