Jun 252020
 
 June 25, 2020  Posted by at 6:36 pm Finance Tagged with: , ,


Paul Gauguin Tahitian scene 1892

 

 

 

This is another piece I received today from Bruce Wilds, a US Midwest business owner I earlier featured an article from two months ago. There are plenty issues I have issues with here, but I’m not going to stand in the way of the US midwest being heard as it hurts the way it does. I mean, I’m in Athens Greece. The US Midwesterners are definitely not. I am most willing to cede the stage.

Update: I see Bruce has gotten this piece on ZeroHedge too. Which happened only because I published his piece 2 months ago. So be it. I’m still supportive. The US midwest will resemble a warzone. And, you know, it lends an extra dimension to “the importance of where and what”, which in Bruce’s original headline read “The Importance Of Where And What Consumers Buy”. Headlins, they ain’t kids’ play.

 

 

Bruce Wilds: How people spend their money has more impact on the economy than most people realize. What consumers buy matters a great deal. When looking at the policies flowing out of Washington it is clear many politicians seem to have no idea that all consumer spending and purchases are not created equal. Certain purchases result in money bouncing around a community sparking future economic growth which enriches everyone. Other purchases simply give the money wings allowing it to exit not only the community but often the country.

Many economists point to the consumer as being the lynch-pin to our economy.  Given that retail sales make up roughly 40% of personal consumption expenditures which in turn comprise roughly 70% of our GDP, their impact on the economy is important. These numbers, however, only tell a small part of the story. Sadly, because of economic laziness or ignorance, this is where the link between how and where money is spent gets lost in the noise. Ironically while President Trump decries our trade deficit he seems unable to put one and one together and understand it is shortsighted consumers driving the deficit.

A detailed breakdown of how people receiving a stimulus check would provide a great deal of information about the finances of individual Americans. It would also be very interesting to randomly delve deep into the finances of a few hundred Americans and learn the truth about where we stand. By deep, I mean looking at where they get their income, debt, total obligations, savings, retirement plans, net worth, the whole caboodle. This kind of deep economic discovery has never been done to my knowledge but instead, we tend to garner our information from superficial polls. 

An article by Lance Roberts that appeared on Real Investment Advice took a shot at explaining the bounce we just saw in retail sales at a time many consumers are tapped out. Robert wrote you should “never count the consumer out,” as they always find a way to go further into debt because psychologically, consumers are “trained” to “shop till they drop.” He claims that as long as individuals have a paycheck; they will spend it. Give them a tax refund; they will spend it. Issue them a credit card; they will max it out. Give them a government stimulus check; they will spend it as well. Don’t believe me, then why is consumer debt at record levels?

The fact is, consumers should take a long look at how their purchases will impact the economy over time. Robert makes the point that most consumers will spend if they have or can borrow the money. Taking this to the next level, few people realize what is registered as growth does not necessarily transfer into economic strength. This point is something that has been covered time and time again on this blog in articles such as, Healthcare Spending Wrongly Feeds Our GDP, and Economic Growth Does Not Equal Economic Strength.

The following examples highlight this matter. Just for fun imagine the money allowing for these purchases is flowing from the recent 2.3 trillion dollar CARES Act.

  • Consumer one decides to put a new roof put on his home. This includes tear off and re-shingling. This labor-intense job pays a lot of local workers from those delivering and hauling away the old roof to those selling the shingles, those installing them, and even some folks at the local landfill. As a bonus, the shingles are made here in America. Putting even more ceiling on the cake is that it improves not only his property but raises values in his neighborhood enriching those living nearby.
  • Consumer two uses their money as a down payment on a new Hyundai. The Hyundai Motor Company is a South Korean multinational automotive manufacturer headquartered in Seoul. Hyundai builds the vast majority of its vehicles at its plant in Ulsan, South Korea. It also operates plants all over the world with one in Mexico and a plant in Alabama. When I tried to research how likely the car was to be made here I hit a wall. One thing for certain is that it is packed full of South Korean parts and with each sale a bunch of dollars heads overseas.
  • In the final example consumer three slaps, small businesses, brick and mortar retailers, and the 30 million-plus Americans recently unemployed in the face. His online purchase from Amazon of products made in China and shipped from a facility located in another state. Just like in the case of consumer two a bunch of the money heads overseas but real disaster for the community is absolutely none of the money stays there. This sets the area up for a new wave of store closings, prolonged unemployment, and declining real estate prices.
And It’s Gone!

 

 

Many of our economic problems stem from the many consumers out there making poor decisions. This includes things such as paying too much for a car they cannot afford or maintain.These automobiles generally do not last long and often get put on a hook. The least responsible consumers tend not to fulfill obligations due but to take on new debt and squander every penny they can lay their hands on. Online shopping and companies such as Amazon are like heroin to an addict when it comes to promoting spending that destroys real economic strength.

Those people that have chosen to skip paying the essentials such as home mortgages and rent will most likely come to regret it as they are hit with penalties and their actions come back to haunt them. The elephant in the room when it comes to growing the economy is how “the broken window theory” is spun and interpreted. The gist of this theory is that if a hooligan breaks the window of a bakery, the subsequent repair expenditures by the baker will have no net benefits for the economy. Interestingly, it is not uncommon to see destruction touted as a good thing because it promotes spending. The idea destruction is good based on this reasoning discounts several facts.

One has to do with where the money is coming from but whether it is from an insurance company or the baker it still means the money is diverted from being used on another purchase. Repairing a broken window is maintenance spending which doesn’t improve growth because it doesn’t improve productivity; it would have occurred anyway. The only thing a broken window does is it makes the maintenance spending occur earlier, lowering the use life of the window. While maintenance spending may keep the economy going it doesn’t provide a boost. Instead, it is better to invest the money in something which creates wealth by increasing productivity.

Many people and even economists have real misconceptions as to how the economy works. Where money flows and who it enriches is a key component of economics, the failure to consider this is a blind spot many people have. After years of being told everything revolves around spending, this diminishes the important role savings plays in the scheme of a balanced economy. Fans of Keynesian economics that encourage government spending to stabilize the economy during a downturn tend to discount the importance that where and how money is spent matters a great deal.

 

 

 

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Home Forums The Importance Of Where And What

This topic contains 16 replies, has 7 voices, and was last updated by  boscohorowitz 2 weeks, 2 days ago.

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  • #60456

    Paul Gauguin Tahitian scene 1892       This is another piece I received today from Bruce Wilds, a US Midwest business owner I earlier f
    [See the full post at: The Importance Of Where And What]

    #60459

    Mail I sent just now to the author, Bruce Wilds:

    Bruce, by sending your piece to Zerohedge as well,

    who only knew about the one 2 months ago because I published it

    and BTW Tyler and I have had a great relationship for many years,

    You make it impossible for me to publish more pieces of yours

    Original content is a major issue.

    Ilargi

    The Automatic Earth

    #60461

    Dr. D
    Participant

    The issue is complex and not to fret on not spending line on every small issue, or of blaming the victim, but

    1) if the banks don’t have absolutely certain access to completely free money they would have be prudent and prioritize and limit credit. Therefore credit would be cut off early and safely. This is a fundamental way in which the present system is intentionally broken, and nations have been grasped and drowned by it many times.

    2) as part of 1, Financialization, they have spent 40-60 years specifically arranging tax, tariff, trade, and worker laws to drive U.S. production overseas on the basis of saving the a) worker, b) environment c) safety d) regulation. Therefore no choice is possible to buy American or local, because it is de facto illegal and to do so would bankrupt you shortly. Many Americans or American businesses have tried since 1980 and failed. So you cannot be a “responsible American” either with savings (0% interest paid) or with purchases (0% products are all U.S.).

    Nor can any one person reverse large wheels set in motion, much less the average working Joe, though they are held underwater and accused of drowning. The best we can do is read the times and position accordingly. However, that is working against one’s self: even should you make the 25-fold rise in Dow stocks and donate to anti-financial causes, you are still enriching the financiers then paying to attack them — zero sum at best. Meanwhile the other side can make the 25x and lose no donations but rather donate to enhance the unfair, anti-worker, anti-American effect.

    And so they have.

    #60462

    boscohorowitz
    Participant

    Back in the 80s when merger mania began and outsourcing, downsizing, etc. became household words, I watched americans buy foreign products and move iondustries overseas and thought: We vote with our dollars.

    #60464

    boscohorowitz
    Participant

    “Financialization, they have spent 40-60 years specifically arranging tax, tariff, trade, and worker laws to drive U.S. production overseas on the basis of saving the a) worker, b) environment c) safety d) regulation. Therefore no choice is possible to buy American or local, because it is de facto illegal and to do so would bankrupt you shortly. Many Americans or American businesses have tried since 1980 and failed.”

    This is true as far as it goes. Too often, a crisis produced by a previous generation’s greed is addressed, is “solved”, by avoiding the problem. So we shipped nasty industries overseas to pollute their country, not ours. Safety regulations are expensive because too much of modern industry is ridiculously toxic or dangerous unless carefully controlled. etc. etc. Rather than pay the true cost of the many goods we consume, we passed those costs onto others… not without incurring an ultimately unaffordable cost to ourselves. How do we pay ourselves to consume resources that others produce? Hmmm….

    All of this to make sure consumption didn’t decline, because the only way the creeps allegedly in charge have power is in taking a bite of most consumption, whether on the production end or sales end. If USA had found the political will to solve its crises at home without resort to foreign escape, globalization, colonialism, what have you, it would have driven us into a democratic socialism based on acknowledgement of our limited resources.

    We would have had to work together to solve our problems, not try and get as rich as we can (the American dream). We can’t do that when we’re bound together in massive populations of many millions. We especially don’t do that when we have so much available fossil fuel/hydroelectric energy that we can afford to fuck each other over and over because hey, there’s plenty more and tomorrow’s another day, may the best man win, and remember, Things Are Always Getting Better (despite recurrent setbacks and a gas gauge moving toward effective zero: there’s gas in the tank, but it takes so much energy to run the fuel pump the engine can’t turn over).

    There was nothing wrong with trying to protect the environment, the worker, and forming a basic regulatory structure by which these things could be mediated and executed. But doing so EFFECTIVELY would have required us to tighten our belts, at least for awhile, and while we the people sometimes will voluntarily submit to that, we usually won’t, and elites just about never will.

    A basic unwillingness to be self-reliant is a self-explanatory basis for unqualified failure in life. A basic unwillingness to be self-reliant has been the basic definition of any expanding empire, as we have been until contraction recently set in. Thieves are not self-reliant any more than ticks are self-reliant. THere has to be something to steal for a thief to thieve. There has to be an available host body for a tick to feed. While ALL acquisition is a form of theft, especially any acquisition involving killing a living thing to eat it, but also any resource extraction, since nearly always there’s some other animal that called that resource home or local larder until one dug that well or tunneled that mine or plowed that field or cut down that timber, there is a) acquisition with intent to build and increase life prospects and comfort while minimizing positive entropy(increasing disorder), and b) there is acquisition like that of the locust: eat all you can, breed all you can, and don’t do anything to increase negative entropy(reducing disorder).

    We have amazing skills that could let us enjoy life far more efficiently, less wastefully, if we could be patient and respectful of each other and our shared environment on a finite planet. Since we’re not a closed system but instead are supplied with fresh new energy every second by our friend the sun, we could create a roughly steady-state civilization. But we prefer being locusts, I guess.

    For some time, we’ve been spending our resources faster than we can replace them. We’re going physically broke. It doesn’t matter who has the jobs now (jobs are stupid anyway, wage slave hamster cages). No matter where you look in the world, even ye olde Russia, it’s locusts locusts locusts all the way down.

    We’re victims of our own extravagant success.

    My Friend the Sun

    loc

    locust-swarms-are-driven-by-salt-and-cannibalism

    History, btw, tells us that until about 100 years ago, salt was as important a resource as wood and slaves, although water has always ruled the resource list.

    #60465

    boscohorowitz
    Participant

    But for awhile there, if you had enough money and the right skin and could ignore the constant screaming in the distance, life in late-stage Atlantis was wayyy cooolllllllllll……………..

    Remember the Autobahn

    #60474

    zerosum
    Participant

    Make it in America
    It will bring back the oil shortage
    It will bring back the pollutions
    It will destroy our societies
    It will feed the pork, graft,

    #60476

    boscohorowitz
    Participant
    #60477

    Bosco: I see your lemniscate and raise you “The Hardest Mandelbrot Zoom Ever In 2014,10^198 : New record – 350 000 000 iterations”. It’s an oldie but a bestie.
    Y’all have seen it, I’m sure, but it’s a lovely revisit.
    New computer and still can’t do links, but goggle the quote and take a nine minute acid trip. It’s my absolute favorite Mandelbrot zoom because the aim is so good.
    If you have never seen it you’re in for a treat.
    Just wasting time on this very sweet summer night.

    #60478

    zerosum
    Participant

    https://en.wikipedia.org/wiki/Orders_of_magnitude_(length)
    The following are examples of orders of magnitude for different lengths.
    (see article to compare size of virus to …)

    #60479

    Huskynut
    Participant

    First up, props to Ilargi for publishing this.
    One of my constant concerns/themes, has been the extent to which politicians have refused to consider the predictable consequences of their Covid mandates in terms of impact to business and communities. I’ve linked previously to the ministerial advice in NZ, which notable didn’t address any of this.

    In NZ, there is quite low population density and relatively high costs in freight and especially rent. Consequently, NZ small businesses typically have gross margins of 30 – 50% when selling goods. Goods are expensive here, but people’s supplier relationships means the businesses are often (marginally) viable. Obviously, Aliexpress et al are eating into some of that over time, but the freight component is still significant, and not the NZ government is collecting GST on offshore purchases, a balance has returned.
    As a previous small business owner, I’ve experienced that;
    a) customers are loyal as long as the effort of finding another supplier is larger than the marginal cost of buying locally (which Covid-related shutdowns will have impacted significantly)
    b) profits are tight enough such that maintaining a war-chest of cash to cover 3 months+ of non-operation is just impossible
    What conventional economic theory of supply and demand misses is that ongoing sustainability of any business is not based on the “free market” sale price of a specific item. Sustainable business is much more comparable to an electron orbit model, where a complete orbit at any level is highly stable, whereas, an incomplete shell is inherently unstable. Hence most businesses can sustainably operate at one level, or a significantly bigger or smaller level, but not in the ambiguous regions in between.
    Many small businesses who have previously established a stable “shell” are now disrupted – wither because they have incurred significant debt which they must carry, or because their operating model and customer base has been decimated.
    A large percentage of those businesses will never survive the next few months. Crucially – there are the businesses owned and run by people willing to take personal risk (in a way most corporate droids are completely unable to). For those who do survive – why would they remain operating a risky business, when the opportunity to sell out to a corporate entity will almost certainly arise?
    Our politicians and government advisers share none of this risk (their plush salaries will continue). We are witnessing the execution of a huge number of businesses by government fiat. And the longer we go on, the more dubious the evidence for what has happened.
    Personally, I believe the West (and particularly the US) has reached it’s “soviet moment”. The future is untenable.
    What I most fervently hope for is that the nuclear capacity of the US is somehow contained and protected. In retrospect, it seems a miracle that the disintegration of the USSR did not lead to terrorist possession of single nuclear weapon.Looking at BLM, Covid response, CHOP, Trump, Biden etc, it seems almost impossible to believe a similar thing could occur in the US.

    #60488

    Dr. D
    Participant

    DNC Head Howard Dean had a simple solution: We tariff nations on the basis of how similar their environmental and worker laws are compared to ours. In that way, we all go up, and we have a true level playing field. To his credit it took a few months, not minutes to kick him out of the party after saying this. Doesn’t make it not true, though.
    However, it seems you’re against resource use, and therefore extraction, you are against life itself. There is no life without neg-entropy, drawing energy and inputs to yourself and pushing waste and entropy away. Since ticks, but also bugs, trees, giraffes, whales and plankton do this, they are similarly immoral and should be removed. I don’t think that fits. Rather we are animals who have the rights and requirements of all living things, and live as a part of an eternal whole.

    “You are a child of the universe
    no less than the trees and the stars;
    you have a right to be here.
    And whether or not it is clear to you,
    no doubt the universe is unfolding as it should.
    Therefore be at peace.”

    It is our denial of life and our animal nature that causes such trouble, not our embrace of it. That is why we are unthinking, and therefore victims of our success. If we weren’t denying, seeing nature as the “other”, we would think not “let’s save the earth” because the earth will be fine, but “let’s save ourselves” and our standard of life, the freedom and air and pleasure that makes life worth living. We can only do that by gardening earth as is the way of our species, and gardening it to increase all species as is also our way. Denying death, killing, eating, trading, sacrificing, cooperating, is how we’ve come to have nothing, not even the right to leave our lairs, see our children, and breathe free air anymore. It’s not only anti-human, it is anti-life, and no other species is death-desiring enough to do so.

    As Husky says, you have an “end of Rome” or “Soviet” moment, where, if you do not align with natural law and protect property – negentropy – rights, “capital,” that is, “people” will bury their coins in a pot in the back yard, take no risks, and do no work for 70 or 1,000 years until things change and they give up their unnatural, anti-life ways.

    I doubt they will, because they must learn their lesson. But the Black Market and corruption, and the violence and dangers therein, will be brisk. If you think the environment is bad under Capitalism, wait until you see it under Communism. viz, China.

    #60489

    Carlos Jimenez
    Participant

    I think Dr. D said it best. But I’d like to ad that Bruce doesn’t read TAE because recently there was a good article on the mechanism of how Wall Street moved the whole manufacturing base of America to China. We can’t solve a macroeconomic issue by microeconomic behavior modification.
    This is delusional, my usual choice is not between American made or S.E. Asia made. It’s more like between China and Germany, still the second exporting powerhouse in the world behind China. All major brand of tools for instance are made in China no matter how American they sound. The biggest pork producer in the USA, Smithfield, is now Chinese owned for crying out loud. The best plier ever made is not Channellock but Knipex made in Germany and that’s the only one that I buy, at a premium. For most of the rest of my purchases I don’t have a choice whether I buy it locally or at Amazon, and that includes the pair of Crocs I got yesterday, made in Vietnam. Yes, I try to buy locally anyway because a fraction of that spreads around locally but in the big picture, the rustbelt is not coming back ever even if all the citizenry now turned “consumers” were to buy from the local Dollar store which BTW, last time I took a trip around the bowels of the Florida peninsula, Dollar Tree, Family Dollar and any other iteration of that vomite inducing franchise that only sells China made crap, pop soda and Cheez Doodles, dots the small town landscape end to end. No mom and pop stores, no local flavor, no independently owned stores, zip, zilch, nada.

    #60490

    “Data from the Federal Reserve Bank of St. Louis shows that total savings deposits at US banks jumped sharply as the coronavirus outbreak surged in March and April.” Business Insider 14 May

    I saw this a while back (somewhere else). andt it surprised me. The idea was that Americans were saving their checks. I recall Lagarde tsk-ing people for saving instead of spending, and current interests rates are punishing to savers, but apparently Americans will save, given a chance (and nowhere to go to spend it.)

    #60494

    zerosum
    Participant

    Before leaving this thread, and moving to the next, I want to add one more thought to the wise comments.
    I think that there has never existed so many people that has had such a good life.
    I am one of those who can say, “We have lived in the best of times.”
    “We stand on the shoulders of a multitude of previous life.”
    It took the use of every piece of coal, every drop of oil, that was once alive, for us to enjoy such a good life.

    #60520

    boscohorowitz
    Participant

    As for Bruce the article writer: NEVER trust a midwestern businessman. Get a contract and tell him about your fetish for Louisville Sluggers.

    #60521

    boscohorowitz
    Participant

    “In retrospect, it seems a miracle that the disintegration of the USSR did not lead to terrorist possession of single nuclear weapon.”

    I hadn’t heard that EUromerica/Eurasia had retired their nukes. 😉

    “However, it seems you’re against resource use, and therefore extraction, you are against life itself. There is no life without neg-entropy, drawing energy and inputs to yourself and pushing waste and entropy away.”

    THat’s is among the more bullshit statements I’ve read from you, Doc, and I;ve read quite a few stunners already.

    I just understand that just as a man has to accept his limitations, so does a civilization. I’ll bet even your love doll is made of straw.

    Sorry. No respect. You’ve burnt yours.

    Reading through the rest, yup. Straw men straw men straw men. None of them follow from what I’ve stated but twist off a corner and call it the whole, like the lbind men describing tghe elephant. Those straw men breed ticks, you know.

    It gets wearisome.

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