Trade Deficits Tell Us Something

The US trade deficit in goods jumped a solid $80 billion per year in 2018 to $878 billion, a net increase of 10% over 2017. This rather abstract figure is naturally spun to reflect either a rebuke of Trump and his policies or as a sign that the economy is particularly strong, depending on your perspective. From the point of view of China, it’s a sign that they might well be “winning” a trade war.

Is that what any of it means? The long answer is no, of course, but it begs the question as to what any of it actually does mean. It’s important to put the trade deficit into context and reach a deeper understanding of the flow of money around the world. The resulting analysis does show that there is a problem in the world, a fundamental imbalance, but does not tell us how much we should be worried about it.

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One Giant Factory

This is a post from 2009, updated heavily.  

Canton, Ohio, is a brick and proper kind of town that most people know for the Pro Football Hall of Fame.  I was there to visit a customer who was kind enough to give one of the new products I was developing a real-world trial.  That went well enough, but Canton itself was a bit of a mystery.  Why is it there?  What did people do that gave them the scratch to create a decent town that was aging poorly?  One night I had to ask my favorite authority on these kinds of questions, which is a random person in a bar – color is always more important to me than accuracy.  But in Canton, Ohio, there is only one answer to the question as to why they exist:

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National Brand

Around the surprisingly excellent Superbowl we have the usual display of ads. It’s one of the features of the big event – and for some the main event. But what do these over-produced ads usually bring the advertisers who are spending $20M and more for a minute?

Most of them are here to “build the brand,” or improve the image of the company more than actually sell a product. Anyone who has been in marketing for any length of time will roll their eyes at the idea. It’s usually an excuse for the worst excesses of advertising, the small telenovelas which are really money pretty much down the drain. Targeted advertising, driven by “Big Data,” is what really sells products, after all.

Still, branding is an important exercise all around. People are willing to pay more for a product they feel good about – whether that is corporate responsibility, perception of quality, or a connection to a greater good. And brands are more than corporations sometimes – the value of a brand can also come in a tag that says “Made in USA” or any other nation.

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Post-Capitalist, Pre-Whatever?

I’m going to repeat this one from a year ago with no changes because I think some things are going the way Mason predicted – manufactured goods are more commoditized than ever.

Are you ready for a Post Capitalist world? Paul Mason, an economist and columnist for the Guardian, has outlined what that might mean in his book Postcapitalism: A Guide to Our Future. The premise of this provocative subject is simply that information technology has a tendency to commoditize everything in our lives and ultimately push the value to zero, rendering concepts of money and markets as we understand them today utterly useless.

No one actually lives in a post-anything world, so the question becomes less about capitalism and more about what might come afterward. Financial writers, far from dismissal of the potential downfall of their trade, are actually quite excited by the concept of a new world where the old rules do not apply. The traditional left, steeped in a quasi-Marxist dialectic, are far more unsure.

That’s what makes this concept exciting.

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Resiliency vs Interdependence

Long ago, most Americans lived as Laura Ingalls Wilder chronicled in the “Little House” series.  Pa Ingalls and family were out in the wilderness, living with the rhythm of the land and putting away what they could to survive long winters and perhaps beyond.  The family’s net worth was what they had around them.

That life has been replaced with interdependence based on a dollar value assigned to absolutely everything.  We all get by with any extra scratch, should there be some, not stored up to get through the winter but properly invested in convertible assets.  This means everyone is subject to  the “free market”, which determines the value of all assets including experience, talent, and work.

That interdependence has changed our world to one with much less hard work or struggles against nature, and yet to many it has become as hostile as any winter on the Great Plains.
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Forbidden Fruit?

How can a company have too much money?  If you believe hedge fund manager David Einhorn, Apple certainly does.  Many in the tech industry “view their self-importance by the size of bank accounts,” according to this Apple investor, and he’s aggressively promoting a unique way of distributing the $137B Apple cash reserve to shareholders ahead of the company’s annual meeting on 27 February.

While Apple’s attitude is on trial – in the courts, the stock market, and the media – it’s hardly an unusual position for a technology driven manufacturing company.  What is unusual is how Einhorn is approaching that pile of cash and how it is distributed.  This may be more evidence that the days of corporate raiders as we know them are over and a potential new golden era for tech companies is ahead.

Right now we still have a fight to finish before anyone can claim victory.

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