Economic Proof of Failed Democrat Promises

Everyone likes a free lunch, right?  After all, free is better.....everyone knows this.  Hillary Clinton and Bernie Sanders believe that university education should be free to all who are willing, and have gone as far as made this a promise if they are elected.  It is well documented that those who have graduated from college are compensated higher than those who have not, so this is a good thing, right?  Not so fast......let's bring in sound principles of economics......this one we will call the Law of Supply.

The law of supply is very simple......as the quantity supplied increases, the relative value that a consumer is willing to pay for that item decreases.  The graph to the right demonstrates a very simple example of what is called a "shift" in the supply curve.  As the supply of a given quantity increases, the price a consumer is willing to pay decreases until the price achieves equilibrium point.

The main reason people do not attend college is that they cannot afford the tuition.  Sanders and Clinton propose that if this is made free, there will be economic prosperity for all, and the workers will be better off.  While the claim is noble, it is also foolish to anyone who knows the slightest thing about how an economy works.  The supply of college graduates will increase in their plan, and effectively the wages that these new college graduates can expect will decrease, as the supply of graduates have increased.  The "Free College for All" plan can be counted on for the following to take place:

• Underemployment (a term never mentioned by the Democrats, I might add), with college graduates working at places like Starbucks as there will be fewer jobs available
• Decreased income tax revenue due to decreased wages
• Increases in unemployment of college graduates
• Decreased consumer spending due to decreased wages, resulting in decreased tax revenue (again)

All in all, this plan is foolish, and could devastate the economy.  College is expensive; I know this first-hand.  As I have said many times, the solution is for the University systems to become more competitive, and no longer rely on government subsidization.  This would force universities to become more competitive, and they would either increase the value of their product or reduce their rates to satisfy a market demand.

Now some folks would argue about increasing the minimum wage.....in my next entry, I will point out why this is just as foolish as this free college nonsense.

The Issues in Port Hueneme

According to the Ventura County Star, Juanita Guzman has resigned from her position as city treasurer for the City of Port Hueneme.  Guzman now joins the ever-growing list of individuals who have resigned in the past year.....City Manager Cynthia Haas, Finance Director Robert Bravo.  All of the resignations come following an investigation by the U.S. Department of Housing and Urban Development, and the subsequent findings of improprieties.

While the resignations are a good start, my question would be what is the degree of culpability that the individuals mentioned above have in the financial mess faced by the City......was there some degree of cronyism?  Was there something inappropriate going on?  I am certain as time marches on, the truths in the matter will manifest themselves......if a criminal investigation takes place, it is amazing the powers that a Grand Jury has in fact-finding.

More importantly, how did we get here in the first place?  While I have not researched the pedigree of the individuals involved, it begs the question of their respective background in budget and finance......have they ever had the same degree of accountability that is held to those of us who work in the private sector, or are they career bureaucrats who have the same sense of entitlement to spend our tax dollars as the politicians in Washington?

As we see a rising tide of change in the forthcoming Presidential election, the wave must also continue to the state and local levels.....the status quo have gotten us into this mess, and it is time for the people to take the reigns of government back into their own hands..... Considering how much tax revenue is taken in by the City, hard choices need to be made by bold individuals who are willing to make sacrifices.

I seriously think I should run for public office here......

The day I met Bella Rose

OK, I know this is supposed to be a business blog, but I've been telling Christa for some time that I needed to write about the day I met my granddaughter Bella Rose......so here goes!

It was a hot August day.....really hot.  Being the smart guy that I am, I chose to drive my old Toyota pickup named Uncle Chuy to the office (why I did this on this day, I am still not certain....considering I knew it was going to be hot and Uncle Chuy had no air conditioning).  I knew it was going to be a hot day when I crested the grade into the San Fernando Valley and felt the wave of heat hit.....I was glad I chose to wear a tie at this point, as I was going to be driving home in an old pickup with no air conditioning.......

Meanwhile, Christa and I had been on edge for a few weeks prior, awaiting the arrival of our granddaughter.  Heather, our daughter, had made some poor choices, and was incarcerated while pregnant with Bella. The decision was obvious that Bella would be coming home to live with us in our small condo (1 bedroom 1 bathroom) until her mother was released and got her life back on track.  We knew it would be cramped, but also a small sacrifice.

So, back to my day at the office.....I was working on a development program with one of my mentors, Deacon Gary, and I had advised him that I may be called to go at a moment's notice to get my granddaughter from the hospital.  While in the middle of a nice debate over something technical on a program, Christa called and told me it was time.......

Going backwards a bit, I had never been involved in raising babies, and had only held one baby in my entire life (my niece Autumn Rose).  I had never fed a baby, changed a diaper on a baby, burped a baby, placed a baby in a car seat, rocked a baby to sleep, or pretty much anything that would be required of me as a parent of a baby.......I kind of felt like a football player who was sitting on the bench, and finally got the call from the coach to get into the game.  Ready or not, get in there and make it happen.  The difference was the stakes were now the highest, as Bella Rose depended on Christa and myself for everything......

Christa picked me up at my office in her Kia....she had the baby seat in her car, and it had a really nice air conditioner (it was 10am, and already around 95 degrees....I was really glad I wore a tie and long sleeves now, I tell you!).  We made the trek down to County USC in Downtown Los Angeles.....Now for those of you who are not familiar with it, the hospital is in an area called Boyle Heights.  Let me just say it is one of the most "interesting" parts of town....I am glad the car had door locks!

We arrived at this massive and beautiful medical center, and the parking was awful as it it is in most metropolitan medical centers......but we got really lucky and found a spot right near the footbridge from the structure to the medical center.  Car parked, we started walking in.......I noticed people were looking at me kind of funny, and at that moment I realized I was wearing a cardinal shirt, and a gold tie......I completely looked the part of a Trojan!  So, back to the massive medical center......a place that big is hard to get around in, namely because it is easy to get lost.....I'm not sure how far Christa and I walked, but it seemed like forever until we finally found the nursery.

We walked in and were greeted by Nurse Cheryl, a charming older black woman who was nearing retirement.  She took us over and introduced us to Bella Rose, who was sleeping at the moment.  We let Bella sleep, and Nurse Cheryl took us down to get the paperwork and all that jazz, so we could take Bella home.  We asked what Nurse Cheryl was planning to do when she retired, and she told us, "Maybe hit a jazz club or two, walk the streets, have some wine."  We feel in love with her instantly!
So we get back to the nursery, and Nurse Cheryl was telling Christa about the formula Bella was eating and all that jazz.....I snuck into the other room where my granddaughter was sleeping still.  I peeked under the cover-thingie just to see her, touch her hand, and so forth.  Christa and Nurse Cheryl came in, and told me it was time to feed Bella.  They scooped her up, gave her a bottle, and she ate.....to say Christa was a proud grandma would be an understatement.

Now, keep in mind, I had only held one baby in my life.....somehow I mustered the courage to ask to hold my granddaughter.  I remember my voice cracked and my throat was dry, and even remembering the well of emotions at that moment now makes me a little emotional.....powerful stuff, man......Christa handed Bella to me, and it was my turn to feed her.  I remember she was very warm, and very tiny......about the size of a football.  She and Nurse Cheryl were gathering up a few things, and then it would be time for us to go....in the meantime, I had some alone time with my granddaughter.

Generally speaking, I am never at a loss for words (as I suspect you already understood with my blogging skills), but I was not quite sure what to say to Bella.  After all, this was her 3rd day on Earth, and I am sure she has met several people, but being her grandfather, I had to make sure she knew I was going to be with her for the rest of her life.  So, I said to Bella, "Hello little one.  My name is James, and I am your grandfather.  I am married to your grandmother Christa, and you are going to come home and live with us.  I work in aerospace and am a college student at CSU Channel Islands.  I love you Bella Rose."

We loaded up Bella Rose in her car seat (she was so tiny at the time we had to kind of pad her in place with blankets and stuff), and then headed back to Ventura County.....I never drove so carefully in my life.

The Failure of Labor Unions

In 1935, the United States Congress passed the National Labor Relations Act, which secured effectively the right of employees to unionize and subsequently enter into collective bargaining agreements with employers.  The intent of the law was to provide fair labor conditions, and increased wages.  While the spirit of intent of the law was favorable, the inevitable side effect of this was that workers were protected based on payment of dues to their union, rather than the merits of their respective performance.  A worker who metaphorically "mails it in" and puts forth the bare minimum effort is given basically the same compensation as a worker who is a top performer.  Performance is no longer an incentive for most of these workers.  As a result, companies are not able to achieve at top-tier performance, as they are not getting the most out of their respective labor forces.


In addition to labor inefficiencies, the process of collective bargaining brought about substantial pension obligations that companies will have to fund in the future.  Making matters more complicated (and expensive) is an increased life expectancy of Americans overall, and advances in medical technology which also promote longevity (and, consequently, increased expense). 


The environment for business created by unions has made companies which are union-heavy at a decided disadvantage in competing with non-union shops.  Detroit is a glaring example of this, with the automotive manufacturing business virtually dried up, and the highest rate of poverty and unemployment in America.  GM, Chrysler, and Ford all have to account for the costs of union obligations in the price of their respective automobiles.  We, as consumers, pay for this with the purchase of each car we buy made by union shops.  Hostess, the maker of Twinkies, was the most recent large business to fail as a result of union pressures and strikes.  Concurrently, with each purchase of a simple snack cake, the cost of the union labor was included.....all of which is a cost that adds no intrinsic value to the product at the end of the day.  The United States Postal Service is yet another glaring example of union inefficiency....it is my opinion that it is simply a matter of time before the Post Office is insolvent, goes bankrupt, and must be taken over by private enterprise (oh, did I mention my capstone project in grad school was an intensive study on the US Postal Service?).


The worst part of all of this?  When large companies fail and their pension is declared insolvent, the Pension Benefit Guarantee Corporation is forced to pick up the tab, all at taxpayer expense.  Even worse, the workers who were counting on a sound pension when they retire are now being paid pennies on the dollar for their retirement, placing additional economic strain on local welfare programs (and yes, we the taxpayers get to pick this tab up, too).


Bottom line is that business is smart, and when you are hit in the pocketbook, you learn quickly.  The automotive industry, for example, has been moving vehicle manufacturing operations from the north to the south.  Hyundai, Toyota, and Kia have all successfully been building cars that were traditionally imported in Tennessee, Georgia, and Alabama....all in non-union shops.  They are providing good paying jobs to a local economy that welcomed the business, and producing cars that do not have the "tax" created by unions.  The real tale of the tape was in 2008 during the Global Financial Crisis.  Chrysler and GM were forced to accept a government bailout, while Ford chose to implement cost-cutting measures that ensured solvency.  During this same time, the foreign-owned manufacturers were profitable and gained market share.


Most recently, the United Auto Workers attempted to form a union-shop in Tennessee at a Volkswagen factory.  For those not familiar, for a shop to unionize, employees must approve a measure of this nature by vote.  Volkswagen had taken a stance of neutrality on unionization, and publicly indicated they did not care if the shop unionized or not.  When the vote took place, the UAW move was defeated, and the factory will remain non-union.  Naturally, the UAW is pushing an appeal, has threatened litigation, and just about anything else you can think of.  More importantly, there is extreme significance with this vote - workers in the south do not feel they require the influence of unions to earn a living wage.  This is symbolic of unions in the United States overall.....they do more harm than good.  There is a reason why their respective membership is shrinking.  Eventually, unions will go they way of the goonie bird......

The Beer Sales Economic Indicator

While in grad school at the Martin V. Smith School of Business and Economics, I had the pleasure of an elective course in economics with Dr. Sung W. Sohn as my professor.  Dr. Sohn's experience included being the Senior Economic Advisor in the White House, CFO of Wells Fargo, and is presently on the board of directors of Forever 21 (his page is here).  Indeed, it was a tremendous opportunity to learn from an economist such as him.....


Dr. Sohn taught us an interesting economic indicator that pretty well measures manufacturing growth....and this rather peculiar measure is that of beer sales.  At first glance, this seemed odd....why would beer sales be an indicator of anything?  The reason is quite simple - demographics of the typical beer drinker.  Historically, beer drinkers tend to be the working class types, that for the most part, represent the middle class of the United States economy.  Dr. Sohn provided a chart showing progressive increases of beer sales, which concurrently, seemed to follow favorable reporting of growth in the manufacturing sector. 


Now, at face value, this indicator seems to make sense.....or does it?  My main issue with this indicator is that it is nearly impossible to differentiate the beer consumption that takes place in restaurants (restaurant dining is a sign of economic prosperity, and a decrease in dining out is an indicator of weaker economic times) versus beer consumption in a residence (which tends to take place in lieu of dining out).  So, perhaps looking at restaurant dining may be a more accurate indicator of current economic situations in the United States?


What makes things even more complicated is the relatively recent consolidation of several of the major brewers in the world.  Anheuser-Busch merged with InBev a few years back, and now their earnings and growth are somewhat clouded with growth and situations in other markets (specifically Asia).  Corporate profits could show a relatively stellar year for overall growth, but it becomes increasingly more difficult to measure the domestic beer sales as an economic indicator.


Another monkey wrench that has been thrown into the mix is the phenomenal growth of craft beers.  These beers have enjoyed a growth rate of 12-15% annually in the past few years, and could be a relative offset of the traditional beer sales numbers.  What makes these beers so different is the nature of them - smaller batch brew, and tend to be substantially more expensive (Firestone Walker is my personal favorite).  Concurrently, the growth of the craft beer segment tends to indicate some degree of economic prosperity, as they tend to be consumed by those who are more affluent. 


In my opinion, the major tell-tale indicator comes back to profits......in a recent article by Stephen Simpson of the Motley Fool, 70% of SABMiller profits come from emerging markets, in places such as Latin America.  3Q2013 growth was lower than expectations, and declines were posted in North American markets.  The indicator of decline in North America tells me pretty much what I expected to learn.....the growth of the beer industry overall is being masked by substantial growth in foreign markets, and the macro environment of North America is still in a state of decline.  While payroll numbers for December showed a .3% gain, this can largely be attributed to seasonal work during Christmas that is experienced every year. 


2014 will be a very interesting year, with the talk of the Fed tapering QEIII, and the expected impact to the stock market resulting.  In the first three weeks, we have seen some substantial losses on Wall St, with investors taking the profits they made last year.  With president Obama's continued banter about income inequality and redistribution, rather than focusing on stimulation of the business sector, the current administration cannot be counted on to create the favorable environment needed for sustained economic growth.  I won't even get started on the mess that Obamacare has created and I expect to continue to create. 


In conclusion, I don't expect a strong year of performance for domestic beer sales.  There is definite proof that there is a correlation between economic performance and beer sales, but the economic indicators are reversed this time - I don't see the growth happening in the United States, and therefore, don't see the beer sales increasing.

Challenges and Opportunities in Mexico

Last September, Mrs. Jackson and I went to our favorite vacation spot in the world, Cabo San Lucas.  At the time, I was teaching International Business at Santa Barbara Business College, and decided it was time to do some research on foreign-owned businesses in Mexico, and specifically, to find out what kind of challenges one would face setting up shop there......

For those of you who have never been to Cabo, it is a wonderful place.  The local time is setting your watch to your favorite time of day, and then throwing the batteries away.  The locals are friendly, the beer tastes better, and you develop an appreciation for something as simple as a nice cool breeze when it gets hot.  My only complaint about Cabo has been the challenge to find a decent cup of coffee that is made before 6am, and does not come from Starbucks.....enter the Giggling Bean. 

The Giggling Bean was opened by Tonja Robertson in August of 2013, and is Cabo's only drive-thru coffee shop.  Ms. Robertson was from San Diego, and much like many of the Americans there, came to Cabo and just never left.  While down there, she was approached by Gary Wagner, owner of the world famous Giggling Marlin, who asked if she would be interested in opening a coffee hut.  Her business consists of regular coffee, lattes, mochas, as well as smoothies and other relatively healthy fare.  In addition, the Bean is the maker of the world famous waffle sandwich....ice cream in a waffle cone (regrettably, I did not sample this, as I am a diabetic).

In my conversation with Ms. Robertson, I asked her about the challenges that running a business entailed in Mexico.  Her biggest challenge was finding staff that is bi-lingual....in Mexico, there is absolutely no shortage of able folks whom are willing to work, but finding one who is bilingual is a definite challenge.  Costs of waged are substantially less than those in the United States - around $80 MXD per day, which is roughly $6.60 USD.  As a result, most labor in Mexico relies heavily on gratuities to supplement their meager income - this places emphasis on the "high touch" level of service I have always experienced while a guest in Mexico.

Being that Mexico is a developing nation, I suspected there is a challenge with procurement of restaurant-grade cooking equipment (let alone specialty coffee making equipment), and Ms. Robertson confirmed this is the case.  In the instance of the Giggling Bean, she was able to bring some of the hardware from the United States, where she previously owned a similar business.  In the event of equipment failure, this could prove to be a challenge - in the United States, restaurant-grade utilities are readily available, but in Mexico (especially in a remote location such as Cabo), this can be a challenge.  The main difference Ms. Robertson expressed was the substantial cost difference for durable equipment - it is considerably higher in Mexico than that in the United States. 

Cabo has grown substantially since my first visit (in 2007), but now boasts a Wal-Mart, Home Depot, as well as Costco.  Ms. Robertson indicated the supply chain of consumable materials and ingredients mostly come from Costco, but the availability of certain items is inconsistent.  As a business owner, Ms. Robertson advised that one has to make do with whatever items that are available at a given moment in time (rather than standard brand loyalty - the brands tend to be different from time to time). 

One of the elements of surprise for me was the cost of permits - Ms. Robertson indicated the cost of business permits was $2k USD, and residence permits were approximately $3k USD.  While the residence permit would not be applicable in the United States, the business permits I found to be remarkably reasonable.  However, the downside is the length of time required to obtain permits - from what Ms. Robertson indicated, the bureaucracy in Mexico makes the California DMV look like a well-oiled machine.  Different folks will likely provide different answers, conflicting information, and provide a general headache to the process of setting up shop.

When I asked Ms. Robertson the items she would suggest to anyone considering opening up a business in Mexico, her advice consisted of the following:

• Find a "go-to" person who is a local Mexican citizen, and can get things done - from my experience, there are tons of folks who "know some guy" who can likely take care of whatever it is you need to get accomplished
• Find staff that is both fluent in English and Spanish - this is especially important in her business model, as a high degree of the clients are English-speakers, and it is imperative to speak the local language
• Use the resources at the Mexican consulate in the U.S. that are available - Mexico wants your business as it generates tax revenue and jobs, and try to make the process as painless as possible

Overall, the main points that I teach in international business are in play here.  The landscape in a foreign country is drastically different than that in the United States, there are different challenges one does not have to worry about when setting up shop in the United States - the culture, the language barrier, the bureaucracy, and being a foreigner.  However, the potential for making some good money is definitely there if one has a strong desire to work hard.  Finally, with extremely low wage costs, there are certain competitive advantages that are created with a business abroad that may not be available to the same venture in the United States.  Ms. Robertson has found, in my opinion, a niche market, and does the things with her business that are taught to MBAs. 

Influence of the NFL in DC

"Hail to the Redskins, Hail Victory, Braves on the Warpath, Fight for old D.C.!"  Every time I hear that song, I get goosebumps and excited.....

Some of you may remember the glory days of this guy named Theisman who almost won the Heisman (but was beat out by some guy named Plunkett), this strange running back named "Diesel" John Riggins who wore camoflauge pants to a Super Bowl press conference, some quiet wideout named Art Monk, and these scary defensive ends named Dexter Manley and Charles Mann......let alone the famous Hogettes (guys who are my size, and wore dresses to the games to salute the famous Redskin Hogs, which was their offensive line).  Some of you may remember when the Redskins had this QB named Doug Williams, who was a bust in Tampa Bay and then put on one of the highest scoring quarters in Super Bowl history.....some of you may remember Earnest Byner who could run all over the defense, and then Gerald Riggs would come in for 1st and goal, and smash the ball into the end zone for a guaranteed 6 points every time. 

I am sure you have guessed by now I am a lifelong Redskins fan, and a remember some of the glory days...they were truly a magical team lead by the quiet Joe Gibbs....he did not talk smack, he just went out and racked up Super Bowl victories in convincing fashion.  Some of you may remember Jack Kent Cooke, the Canadian man who once owned the Lakers and Kings, and made his fortune selling encyclopedias as a kid. 

Fast forward several years, Jack Kent Cooke has passed on, and the team is now owned by outspoken Daniel Snyder (who I actually admire very much as a businessman), and Mike Shanahan is now their head coach.  I cannot tell you the names of most of the players, as the team has really done nothing much in the past several years.  Snyder is losing his patience (and I appreciate him for this too), as he demands a winner - that is why he got into the game.  Now, the part that surprised me......

While browsing ESPN this AM (as I tend to do on Saturdays), I read that President Obama had some "concerns" with the Redskins.  For the first time in recorded history (or so I thought), I was in agreement with Barack!  The Skins have been dismal, and it is time to return to their winning ways!  Damn right, I have concerns with the Redskins too!  Whatcha gonna do about it Barack?

Well, once again, I found myself at odds with the President (this seems to only happen on days which end with the letter Y).  Apparently, the President is concerned that the name Redskins may be offensive to Native Americans.....an argument which is as old as dirt itself.  Jack Kent Cooke went on the record before his passing making it abundantly clear he would NEVER change the name of his team, and Daniel Snyder has also kept the same party line (yet another reason I really am a fan of Mr. Snyder!). 

I have two concerns with the President's thoughts on this matter.....First off, I am Irish (a swashbuckling, hot-headed Mick is what I refer to myself as), and what about my being offended by Notre Dame's Fighting Irish (which I am not)?  If we are going to make a standard of not offending anyone, should this standard be universal?  Second, last time I checked, there was this government shutdown going on in Washington.....doesn't the President have anything else to be concerned about?  I mean, if he was concerned with the performance of the Redskins (which I am definitely offended by), I would be there with him and demanding that things change.  But if it is the name?  Give me a break!

I guess the moral of the story is that guys who run around on a field for 60 minutes fighting for inches has deep roots and influences in our Country.  My question as a marketer would be how do we get sponsor names on the jerseys like they do in soccer?