Sunday, October 5, 2014

Americans Want Everything

We were discussing "excessive executive compensation" and if government should interfere in some way.  This got me thinking about all the ways in which us Americans are goofy.  We want so much, and so much of it is not aligned:
  • We want good paying jobs with good benefits
  • We want good deals when shopping
  • We want the freedom to buy what we like.
  • We want investments that earn good returns
Of course this makes no sense, does it?  I mean:
  • if our retirement investments are not returning adequate growth and dividends, we change to a different investment where the returns are better.
  • if not ourselves, we delegate maximizing our gain to the pension managers, the mutual fund house, the financial planner. our company, etc.
  • to fulfill our demand and stay in business, companies need to make more profits than their competitors. (ie raise stock price and afford dividend payouts)
  • to maximize profits, companies need to aggressively control costs while attracting and retaining the best employees they can afford.
  • the vast majority of American customers are not going to pay more for a product or service just because the company chooses to pay their employees more than necessary.
  • the vast majority of American customers want to maximize the value of the transaction for themselves. (ie low cost, high quality, high features, etc)
  • the company is then highly incented to hire employees where their quality and effectiveness is high and cost is low.
Therefore:
  • the investors who are often employees and customers demand high profitability
  • the employees who are often customers and investors demand high wages and benefits
  • the customers who are often investors and employees demand high value and low cost
Let's use GE as an example, I would dare to say that everyone with stock or blended mutual funds in their 401K, IRA, Pension, etc own some of GE.  And we all are customers of GE, whether we know it or not.

With this in mind, are we okay if they start paying their employees more than the market requires?  Remembering that as their costs increase and profits decrease, the growth of our retirement fund slows.

Are we willing to buy their product just because they pay their employees more, even if it came at the expense of less R&D and their product does not keep up with the features, quality, effectiveness, value, etc of a competitor who paid their employees less?

And yes GE is paying their CEO a small fortune, however that is because the Board of Directors thinks that CEO is worth the expense...  I mean most of them are also GE stock holders who want to maximize the return on their investment by attracting and retaining the best employees they can afford.

That said, I do agree that there is too much mutual back scratching and collusion between Board members and Management now days.  Though I am not sure how to control this if the financial houses who own most of the stock in our names don't work to fix it.

So are you willing to buy low value product or accept lower returns on your investments if a companies decides to pay higher wages and benefits than their competitors?

19 comments:

Laurie said...

I will take choice a.

a.) We want good paying jobs with good benefits.

maybe inequality doesn't matter to you because you have enough money for your family's basic wants and needs ( I am including college tuition, vacations, decent cars, retirement savings, etc)

My retirement account current has about $15,000. I don't car much whether I my annual return is 2% or 10%. Either way I am anticipating working until well into my 60's (at least) followed by a low income retirement.

Laurie said...

if there was one in the SE metro I would shop Costco, instead I go to Target rather than Walmart.

11 Reasons To Love Costco That Have Nothing To Do With Shopping

it seems that Costco has found a way to manage higher than ave pay, low prices and profitability.

John said...

Yet you sent a large chunk of your money to overseas employees and governments when you purchased your car. Not to Union employees in Michigan / USA, where the taxes would have funded programs you say you support.

I am not trying to pick on you, I am trying to make a point that American's just can't have it both ways.

If we want American employees to earn more, we need to be willing to pay more for products and services that employ those higher cost employees.

Remember when the Liberals had a fit because the Stillwater restaurant owner made that extra minimum wage cost visible via a surcharge on the receipt. Their out rage of course made no sense, the extra cost had to come from somewhere... Did they really think the business was going to eat the whole cost?

John said...

Costco St Louis Park can't be that far away. I am happy to have one near work and home.

It may not work to well for empty nesters though unless you have a big freezer.

Laurie said...

at least when I send my car buying dollars to Japan they are distributed more fairly. Japanese families need money too :)

But more importantly with my mpg consistently over 50 I contribute less to global warming, which is my number one concern. My descendants can continue the fight over inequality 100 years from now, but for climate change it will be too late and the fight will have been lost. The only fund raisers who can talk me into giving $ these days are environmental groups.

I think awareness/concern over climate change is growing. In case you missed it New York climate march attracts nearly 400,000 people

John said...

As I said, we want everything.

jerrye92002 said...

"If we want American employees to earn more, we need to be willing to pay more for products and services that employ those higher cost employees."

I'm sorry, but that is just not correct. I've been through this a number of times, where a company notices that we can pay the Mexicans 10 cents/an hour rather than paying an American $20/hour, but the math doesn't work because the American, with capital equipment to multiply productivity, actual outproduces the 10 cent Mexican. That is, using American capital makes us the low cost, high wage producer. The problem is that government seems to punish capital, and we know what happens-- corporations flee, overseas competitors gain market share, and wages drop here. We have a solution, which is to get government the heck out of business affairs, but getting them to do what makes sense seems to be difficult.

jerrye92002 said...

"...global warming, which is my number one concern." -- Laurie

Laurie, let me put your mind at ease. Catastrophic Anthropogenic Global Warming (CAGW, the original name of this "crisis"), is a myth. You can believe in it if you want, but it has essentially no basis in science; it's all politics. Of course, you are saving a lot of money getting 50 mpg, and that's a good thing. Hooray for you. And if you want to feel good about saving the planet, go ahead, but I won't be joining you. And if you have to buy foreign car to do that, that's OK.

John said...

Jerry,
Though I agree that American governmental regulations and tax policy are issues, the truth is that companies overseas can take advantage of "capital equipment" AND low wage labor. And if you can put it on a container ship, transport is almost free.

It is not like they are producing products in barns. I am back in Shanghai Sunday to ensure they have the best vehicle test equipment money can buy. And Japan has really cool robots and other automation that let's them be low cost high quality providers.

Laurie,
Food for thought. Don't know how reliable the source is...
Corp Watch Toyota

Just remember that they have the same pressures that Ford and GM face... And Hyundai/Kia is applying a lot of price / product pressure to Toyota and Honda.
NYT Market Shares

Laurie said...

so I glanced through the Toyota link and was reminded that working people get screwed all around the world, as corporations continue to rake in the $.


Toyota on Cusp of Record Profits After Years of Crisis

Laurie said...

as this inequality topic is a bit depressing, I clicked by a social justice/ sustainability magazine that is usually pretty upbeat and found this opinion piece:

Why a Tiny Decrease in Unemployment Means a Big Pay Raise for the Poor

given our current congress a 1% decrease in the national unemployment rate seems unlikely to me, but maybe the dfl can retain control and take small steps to move us further along that road here.

Laurie said...

clicking around a bit more at YES magazine I also found this:

If Unions Are Breaking Automakers, Why Are BMW and Mercedes So Rich?

John said...

I do agree with a few statements.

"The best place to start is a full employment policy designed to return us to the low levels of unemployment we saw at the end of the 1990s."

Of course I disagree with how they want to get there.
- higher government spending
- reduce trade deficit by weakening the dollar
- manipulate unemployment rate

I of course would prefer for people to choose to "Buy American"
and for the government to enforce our current immigration laws to remove 12+ million illegal workers from the country.

That would do wonders for decreasing unemployment. That is if Americans are willing to do those jobs...

John said...

Maybe they have more rational union members / leadership

jerrye92002 said...

"And Japan has really cool robots and other automation that let's them be low cost high quality providers."

Yes, and why do you think that is? It is because Japanese companies look at capital investment payoffs over long timeframes, and without any tax concerns for doing so. American companies suffer strikes if they try to automate, while higher wages and benefits, unmatched by productivity, drive up their costs. Government tax, regulatory and union-friendly policies make the difference.

John said...

It is funny how...
Conservatives want to blame everything on too much government.

and

Liberals want to blame everything on too little government.

Both seem to want to give the 316 Million citizens a pass.

jerrye92002 said...

Well, citizens almost certainly would govern themselves better if big government would let them. I don't know why people would want more government, other than it takes from them the responsibility for making their own choices.

John said...

I lean your direction, however history is full of selfish greedy people and organizations who had no problem taking the positive results for themselves and leaving the negative consequences to someone else.

Be it the mortgage brokers, banks and investors who willingly profited by making questionable loans and shifting the risks to someone else.

Be it the various factories and power plants who polluted the surrounding environment in order to maximize their profits.

Be it us car owners who used to spew all kinds of nasty things out our exhaust pipes and into the air.

Be it companies who would skimp on safety protocols, equipment, etc to save a few bucks.

Be it the insurance industry who would take premiums from people for decades, and then find a way to drop them if they got sick.

We Americans did not give up our individual power and money to the government / society for no reason. Wolves were praying on the innocent, so people started huddling to protect themselves...

For better at worse...

jerrye92002 said...

"We Americans did not give up our individual power and money to the government / society for no reason."

No, we didn't. We got that lovely bag of magic beans.

In each of these areas you cite, government intervention has been a mixed bag at best. Good intentions do not make good policy, and despite constant claims to the contrary, 100 million Americans are collectively smarter than 100 US Senators. All we need is to be enlightened, so that we exercise "enlightened self interest" rather than being commanded by people who are far less enlightened about reality than we who must live with it are.