Phil Hauck's TEC Blog

Sunday, September 18, 2016

What's Mistaken ... In The Campaign Debates

A number of topics aren’t being adequately dealt with in the current presidential campaign, or are being maligned when they shouldn’t be.  They are:
•  Business Income Taxes
•  “Trickle Down” Economics
•  Global Free Trade
•  Minimum Wage

For starters, can you agree with this premise:  Every dollar used by every government entity (municipalities, counties, states and schools) comes from the profitability of privately-owned companies … either by taxing the profits of the companies themselves, or the earnings of their suppliers and employees?  And:  Their profitability over time comes from their innovation in developing and marketing new products and services that consumers are willing to pay for.
If so …

Business Income Taxes
Make them Zero.  Forget the discussions about moving them to 25% or 20% or 10%.
What do businesses do with their retained earnings?  They invest them … in expansion, in new product development and testing, in stuff that will create more jobs and more profits.  They are the Golden Goose.  Why take money from them?  (Of course, they should continue to pay usage taxes for government services they get.)  
Capital Gains:  Eliminate it.  Make it ordinary income ... with a carve-out for demonstrable direct investments as new money in companies.  Yes, there are winners and losers for all those special deductions; eliminate them.  Simplify.
Regulations:  Simplify and reduce regulations.  This is actually the Biggie!  Every regulation has losers, winners and the cost of administration.  The winners keep lobbying the bureaucrats and legislators to maintain the regulation from which they benefit.  In a real sense, this is increasing corruption as the rewards get bigger.  Reducing regulations reduces the corruption that increases and eventually stultifies capitalism/free enterprise.  It’s happening as we speak.
This will put a stop to the Corporate Inversion trend, and immediately repatriate much of the massive dollars held overseas.  (Keep in mind that opportunities for investment returns overseas are actually greater than in the U.S.)
But won’t those rich owners just make more money?  Yes.  When they take the dollars out of the business as personal income, we tax it … already at very progressive rates.  We’ll get even more than we do now with the same rate structure.

“Trickle Down” Economics
It’s a bad thing, right?  It’s wealthy rich businesspeople allowing some of the corporate largesse to trickle down to employees and the middle class, right?
WRONG!  Massively WRONG!  So-called “Trickle Down” Economics is the core of the capitalistic system, that which yields lower prices that stimulate more spending and an increasing economy.  It’s GOOD!  It’s simple.  Here’s how it works …
When a business sees purchases of its products strengthening, it invests in expansion … another building and more equipment.  That provides one-time construction and manufacturing jobs … and ongoing jobs to run the new plant.
This increases the Supply of the product … which immediately yields lower prices to encourage more Demand.  Lower prices create spending by people on the margin who couldn’t afford the earlier price.  This spending now is increased Demand, which provides more margin dollars for the business to pay off the investment and make more money for its employees, suppliers  and the business, which invests it in new product development and testing.  As it sees new demand for its new products, the business invests in building expansion and new equipment …
The circle continues.
So, “Trickle Down” means that prudent, successful investment yields additional margin dollars which will go to current and new employees, and their families.  That’s how it works.  That’s why “Trickle Down” Economics is very, very important.

Global Free Trade
During the campaigns, there is much revulsion in the media and by the candidates against global trade agreements, and even an expression of denial of them in the Republican platform.  Donald Trump refers to them as “deals,” which they surely are … but they have to be “win/win.”
We vilify the Clinton-era NAFTA one, and want to pull back from the current, agreed-upon Trans-Pacific Trade agreement.
This despite 73% of the U.S. citizenry feeling that free trade agreements like these are good for us.
Indeed they are, and they are KEY to U.S. economic growth … and the economic growth of every trading partner.
We have to be doing them.  (Part of the understanding relates to the economic principle of Comparative Advantage.)
And here’s why!

Think of your city, or county, or section of the state.
Everyone has a particular income level.   When Product A is made in your area, and sold to you in a local store (so the economic relationships are entirely within your area), your income is reduced by the price of the product, and the revenues of the retailer and manufacturer and their employees and suppliers increase by that amount.  (To the degree there is some profit, say 5% after tax, that accrues to the owner of the store and the factory.  That 5% typically is held in the company for reinvestment in new ideas or expansion.)
Yes, the buyer gets something of value … and the workers and raw material makers get most of the money … but there is virtually no increase in the economic worth of the area.  No increase in the net worth of the people of the area.  Overall prosperity typically has not increased.  Making and selling to yourselves doesn’t increase economic net worth.
So, what does?
What does is revenue from buyers OUTSIDE your  area, your city, region, state … or COUNTRY.  THEIR savings are depleted by the cost of the product, not ours.  We get the revenue from these additional sales … INCLUDING our workers and raw material makers getting their portion.  SO, net gain in our savings, and net worth, occurs when we sell to people OUTSIDE OUR AREA!
This is WHY INTERNATIONAL TRADE AGREEMENTS ARE CRITICAL!

So, what about all of these companies that close manufacturing facilities in our country and open ones in other countries because it’s “cheaper”?  They are doing it because it IS cheaper.  It keeps their costs lower than competitors, allowing US to continue to pay less … and them to sell more … thus increasing the return (revenue stream) to their owners.
Yes, but our workers lost their jobs!!  What about that?
It’s the economic law of COMPARATIVE ADVANTAGE.  The foreign location has an ADVANTAGE over us … and should obtain business for it.  It’s what we try to do as well.  It’s not bad.  It’s actually good.  But, not for our workers who lost their jobs.
So what to do?  It’s a role for government!  These workers need to be re-trained for jobs that DO EXIST and are increasing in demand, and potentially moved to locations where those jobs exist.  That’s the role that community technical colleges are playing … but moving expenses aren’t being dealt with.
We need to be doing both in this increasing dynamic and chaotic international economy.

Minimum Wage
Creation of the Minimum Wage is a distortion of free market capitalism, as are all regulations.  Obviously, we need many regulations, to protect us from shoddy work and fraud.  The key is to keep them reasonable while yielding a dynamic economy and an ability of each family to use its ingenuity to advance its welfare.
The Minimum Wage is something else again.  It’s an assumption by legislators that people deserve a certain level of income (regardless of the market value of their labor), and the employer should pay it.  This flies in the face of competitive marketplaces, where each business tries to find its special niche that can yield it a profit that allows the business to continue.  Often, the price of the talent needed for certain job functions is quite low … driven by supply being very high relative to demand.
Certainly, our American society is devoted to providing a relative level of services that takes care of the needs of each citizen.  We see it in unemployment income, food stamps, housing allowances, Medicaid, winter energy price freezes, and more.  Above that, we give generously to non-profits who provide many other needed services.
But the Minimum Wage is a technique fraught with negatives, that have been hashed and re-hashed.  If nothing else, it forces employers to increase cash compensation, which leaves fewer dollars for other benefits or reinvestment.
The point is:  If the American people, or the people in each state, or each county, want to provide a minimum amount of services and income to families and individuals, then they should decide how much, and how … and provide it through the general tax system.  NOT through an arbitrary, one-size-fits-all Federal Minimum Wage to be paid by a business in a competitive environment.
There is a mechanism already in place that helps with some of this, but not all:  The Earned Income Tax Credit.  It forgives taxes for low income workers, and could even provide them a “refundable tax credit” (i.e., an extra cash payment).
We should not be so anxious to impose higher and higher Minimum Wages arbitrarily on businesses.

To stimulate thinking!
Thanks for listening!

To think about regarding the election:
•  What direction do you wish the size of government to go?  To where it is responsible for taking care of all citizens … or where it is responsible for providing certain services enumerated in the Constitution or unable to be provided economically by the free market system?
•  How are we doing in managing the national debt?
•  Caveat:  The above is, obviously, simplified and isn’t a pros-and-cons white paper, so much is left out.  But I hope the essential points resonate.

Sunday, March 27, 2016

On Congressional Corruption and Regulations ...

        They’re more closely tied that we think!
        Our form of national government seems not to have the charges of corruption that other so-called democracies have (Italy, Argentina, etc.), but it’s still corrupt on two important levels:
        Congress:  As Donald Trump says, “When I make a contribution to a legislator, I expect him to do what I need him to do.”  That’s a fact.  If you give substantial money, wouldn’t you, too?  If you needed money, wouldn’t you provide favors to your biggest benefactors?  That’s what we have … in spades.  Lobbyists focus laser-like on the Congresspeople who can do them the most good (usually Committee members), with massive dollars.  BOTH sides of the aisle.  Look at the lists of “greatest givers." (After 26 people were killed at Sandy Hook school in Connecticut, and than 80% of the American people supported some changes in gun control, why was there no legislation that got out of committee?)
        Regulators:  Every time any Government agency issues regulations, there are typically winners and losers.  The winners are those lobbying industries and organizations which recommended the regulations … and made the contributions that resulted in the pressures that got attention to the regulations.
        Witness:  Last year, the Obama administration recommended that the Internet become regulated by the FCC, and the FCC agreed.  The FCC staff has now been inundated with lobbyist attentions proposing more than a thousand new regulations, all promoted as serving the public good … which usually means protecting the incumbents.  The result:  Already there has been a decline in innovative offerings by broadband and cable content providers.
        Another example:  Dodd-Frank in 2010 vastly expanded regulations controlling banks, intended to keep large banks from becoming too big to fail.  Result:  Whereas in the past there were 75-100 new community banks formed each year, since then there has been only one.
        Our U.S. Representative, Reid Ribble, is retiring after six years in Congress.  When he was elected, he said that if he could have ONE impact, it would be to convince his fellow legislators that every time they pass laws requiring regulations, and every time a federal agency issues a regulation, that the cost of doing business increases ... and that cost is passed on to the consumer, without exception.  At the very least, for every organization in an affected industry, someone has to analyze the regulation to see if it applies, and if it does, to create an approach to confirming to its requirements.
        And:  Last October 1, medical organizations had to begin using more than 130,000 new codes for charging and billing, supposedly facilitating the move from fee-for-service to value-based pricing, and to expand the capability for analysis.  Codes for InPatient hospital procedures (which are declining) expanded to 87,000 from 4,000.
        And:  After several decades when the number of new businesses kept expanding, in 2015, for the first year ever, the number of net new businesses was negative … closings outpaced new ones.  Would 500,000 pages of regulations added since 2008 be a factor?  (Keep in mind that traditionally, small businesses accounted for two-thirds of net job additions each year.)  

        Of interest:  In 2015, regulators came up with 3,378 new regulations.

On Health Insurance Prices, CEO Responsibilities, Miscellaneous


The Dramatic Health Insurance Price Increases on Small Businesses
         It used to be that increasing deductibles so people had more skin-in-the-game and would become wiser users of sick care was workable.  As organizations, we could impact the pricing of insurance with our insurer through this.  We could actually impact the slowing of rate increases or even a decrease.  No longer. Yes, we still are invented to have high deductibles in order to lower premiums … but Obamacare requires the spreading of pricing across everyone, so-called Community Pricing.  Thus, it’s effectively impossible to influence price for our organization due to our own actual usage trends.  Result:  We’re less invented to try harder, to improve our lifestyle choices.  Yet, that’s what we must do.

Most Important Things A CEO Does ...
        My TEC III member, Therese Pandl, CEO of four hospitals, was asked as part of a Beckers Hospital Review article, what she thinks is the most important thing a CEO does.  Her response:  “In my opinion, the most important things a CEO does are lead the culture and values of the organization to assure that the mission, vision and strategies are achieved; determine which businesses and markets the organization will be in for the foreseeable future; and develop leadership capacity for that future."

Miscellaneous
•  Dubai, as part of a government reorganization by Sheik Mohammed Bin Rashid Al-Maktoum (You remember him?) has created a new post, Minister of State for Happiness.
•  Demagogue, from Greek:  Political leader in a democracy who appeals to the emotions, fears, prejudices and ignorance of the lower socioeconomic classes …  Oppose deliberation … Accuse moderate and thoughtful opponents of weakness.
•  Interesting idea from Someplace:  What if there were day care centers as part of assisted living/nursing homes?  Injecting toddlers into their lives!
• From Facebook:  “Lord, give me Coffee to change the things I can change … and Wine to accept the things I can’t!”

Tuesday, September 22, 2015

Alert: Dealing with Divisiveness ...

     To too great an extent, our community, our state and our nation is ridden with divisiveness … people with opinions who don’t listen to those of others, missing the chance to practice the “civil” part of civilization enables us to keep moving forward.
     At the Brown County 2020 gathering in 2012, Divisiveness was targeted as one of the top five areas we must work on as a county.
     Right now, an initiative called Connecting Our Community is well on its way in development to subtly deal with divisiveness.
     It’s all about Telling Our Story … people are interviewing other people, and putting those stories on public media so we can learn about each other … what we’ve gone through of significance, and what our dreams are for Green Bay and Brown County.  (It’s a technique that’s worked very successfully in other communities, like Cincinnati.)
     It’s being coordinated through its own steering committee, with support from the Bay Area Community Council, a 24-person group of which I’m a member.  
     At some point, YOU should have your story told.
     To see examples, go to Connecting Our Community’s Facebook page:                        https://www.facebook.com/ConnectingOurCommunity.  Sign up to get future posts of stories.
     For more, go to their website at www.cocbrowncounty.org.
     Instigators of the effort, which has a 24-person steering committee, are David Littig, a BACC member retired from the UWGB political science faculty, and very active community volunteer Randy Johnson.
     They will be having a “summit” to formally kick off the initiative on Saturday morning, November 14 at the Stadium View.

     Won’t it be cool when all of the municipality boards and the County Supervisors know each other’s “stories” in depth, and see each other as people rather than wrong-headed opinions.

On Irrationality

This summer, we had a chance again to spend several days at an incredible place in New York State called the Chautauqua Institution.  The theme of the week was Irrationality, with several speakers dedicated to it.  We initially poo-pooed it, but instead found the discussions very intriguing. 
Here’s some of what we were exposed to … trying to understand the rationality within our irrationality:

Preface:  The day before we got there, Dan Ariely, a Duke professor and coordinator of the theme, kicked off the week with these observations:
•  The battle generally comes down to a question of preference between instant and delayed gratification.
•  Temptations are what run our economy, and we’ve accepted behaviors that kill individuals faster, from texting-while-driving to smoking to obesity.  100 years ago, only 10% of deaths are due to poor decisions.  Today, it exceeds 40%.  “Who actually cares about your long-term well-being?”
•  One key:  Reward Substitution as a motivator.  To aid your positive decision-making to behave appropriately toward a long-term result, create very desirable short-term opportunities.
•  Regret motivator:  Contrast between where we are and where we think we could have been.  What’s more aggravating … missing your plane by two minutes, or two hours?  “If only …"
•  The Ulysses Contract:  “I will be tempted, so I will act to prevent it.”  Pay up front for a personal trainer … It’ll get you to the sessions.  Otherwise, you won’t.
•  The idea that providing more information/education will help isn’t true, he said.  We know the information, but we don’t act on it … lack of self-control (immediate vs. delayed gratification).
•  Temptation is everywhere.  You have to create your own rules for deciding and acting!!
•  Somebody asked me a question about what do I think about schoolteachers having weapons.  My answer was I don’t think I would have lived through middle school if my teachers had guns."

Dan Ariely, professor at Duke
Money and Irrationality
•  Money is the Common Good, and as such it often becomes the measure of our irrationality.  Often, he said, we use it as we analyze Opportunity Costs … what else it could be spent on.  What exactly are we giving up?  Usually, we analyze this in terms of alternative like products/services … and/or time.  
•  Relativity … Example:  You can buy this great $15 pen in this store right now … or walk five blocks for the exact one at $7 dollars.  Which would you do?  Probably walk the five blocks.  But:  You’re buying something right now for $1008 … or you can walk five blocks and get it for $1000.  Which would you do?
•  Pain of Paying … Example:  Pay for that $400 golf driver with cash, or with a check?  Which feels easier?  More interesting:  The steak costs $25 at the restaurant, but you don’t want it all.  Okay, what about paying by the bite?  Pay up front $10 for 12 bites … or be charged $.50/bite.  How will those scenarios affect how much you eat?  When you pay every time, the expense is miserable … so you do very little of it.
— Another example, Energy:  You pay your monthly gas bill without blinking … but when you buy gas for your car at the pump, you’re very attentive.
— Also, you’ll pay more when you SEE effort being made … even though the end result is less effective and less efficient than the software-driven one where you see no effort, or the result appears instantaneously.  That may be why you see the little circle circling on your computer while it looks up pricing for you.  You’ll feel more at ease paying more.
•  Okay, this one applies in lots of ways:  A worker is required to make 1000 of something, but if he/she exceeds 1200, he/she will receive $25 in cash.  Or, in an identical experiment, pizza delivered to your home.  Or, in a third, a phone call from the “big boss” complimenting him/her on the success.  Which yielded the most people attaining 1200?

Michael Norton, Harvard Business School
Money and Happiness
•  “Okay, how many of you think Money can buy Happiness?  Now, how many of you think it can’t?”  “Huh!  Those of you who don’t probably do a  lot of Yoga, or are wealthy.”  (Lots of laughter!)
•  Money DOES buy happiness … especially at the lower income scales as additional money pays for items that are needed and relieve anxiety.  The upper threshold is about $75,000 … and it doesn’t improve thereafter at ANY annual income or net worth level.
•  Lottery:  Will that buy happiness?  What it does, studies show, is create marital conflicts, stimulate thinking of upgrading your spouse, and deterioration of support system relationships.
SO, here are several things you can spend money on that WILL buy you more happiness …
1.  Experiences (vs. stuff):  Take a vacation, go on a cruise, etc.!  When you’re done, it is so unique to you that it is incomparable … you’re wonderful experience can’t be topped by anyone else’s.  Of interest:  With your next $2,000, should you buy a fantastic TV or go on a cruise?  Once you decide, your dominant emotion with the TV will be irritation (when will it get here!), but with the cruise, it’s anticipation!  The happiest day of your cruise experience is the day before you leave … because thereafter you’re consumed not just with the wonderful parts of the cruise, but the logistics of it as well.  And, the day after you get the TV, happiness drops because a newer, upgraded version just came out … and your neighbor bought it!
2.  Take A Break:  If married, spend a few days away from your spouse.  Not only will you be able to do things you want to do alone (that he/she doesn’t want to do anyway), but the anticipation of getting back together will heighten.  Hey, isn’t that the same effect as TV commercials?  They heighten your desire to get back to the program.
3.  Improve your use of TIME:  Usually, we do the reverse … as incomes rise, we get bigger houses, farther away from work, increasing the dreaded commuting time.  Commuting ranks right there with going to the dentist … so think about going to the dentist every day.  Key:  Increase your Human Connections!!!  You might want the “no worries” goldfish or cat, but the dog will have you meet other dog owners.
4.  Pay Now … Use Later:  It just makes you feel good when you finally use it.  Take the All-Inclusive Resorts.  Isn’t it great to do everything there FOR FREE!!
5.  Finally, the obvious one:  Spend Money On Others … whether to show appreciation for a birthday or anniversary, or because the other person truly needs something and can’t provide it himself/herself (Charity!).  Alert:  www.donorschoose.com.
Insights from Questions:
•  Remembering a Lost Loved One:  Create a Ritual that remembers the person … like, continuing to do something you did with that person, which brings back the memory and honors him/her.
•  Accomplishment brings Happiness/Satisfaction:  Work.  Golf.  Ceramics/Art/Music/Crafts.
•  Losing something hurts much more than the equivalent amount of gaining something!
•  Measure:  “Happiness-Bang-For-The-Buck!"


David Parazzo, Prof. of Psychology, Cornell
The Emotion of Disgust ... and Irrationality
•  Emotions often take us to considering what we should have done, rather than what we did do … the “loss.”
•  Emotions interfere with the objective of rationality … which is consistency and self-interest.
•  One emotion, Fear, very often over-rides rationality … reacting to statistics that show virtually no risk, while continuing to do something that has higher risk.  (Think much of science … whether PCBs, genetically altered foods, bovine growth hormone.)
So, Disgust:
•  Most of what we find “disgusting” from a visual standpoint derives from bodily fluids … pus from an open wound, blood, sweat, mucus, snot.  They create a negative attitude regarding whatever they are related to.
•  Also:  We have a “disgust” reaction to what is different that we are used to … such as other people (racial color).  We assume the worst characteristics, and react accordingly.  And “cooties” or “bacteria” … a sip from another’s soda.
•  There is also a strong relationship of “disgust” to moral views … people who disgust “easily/frequently” often have strong moral views about certain social issues (think abortion, gay marriage, even barefoot hippies).
•  How these get analyzed:  Using a “Feeling Scale,” where Cold is “0” and Warm is “100.”  Inducing disgust, through the above techniques, will move people more towards the Cold end of the scale.

•  Disgust is what is called an “Avoidance Motivator.”

On Uncertainty

My TEC III member, Fred Johnson, who heads InitiativeOne, a leadership development consultancy now headquartered in Green Bay, monthly provides a workshop for 15-20 attendees for 45 minutes.  A recent one was on Uncertainty … and how an effective Leader deals with it.

Being effective isn’t natural.  
What is natural is to be overwhelmed by the unplanned situation, uncertain over what path to deal with it, thus creating panic and indecision.

So, how to react in an effective manner?  He points to four efforts:
1.  Ramp up communication.  Too often, leaders hold back, waiting until they have perfect information and can properly inform the workforce as to the path that must be taken.  In the meantime, the workforce knows something bad is going on, and undergoes various levels of anxiety because of the lack of information.  If they had it, they could be more in control of their own reactions.  Much better:  ESPECIALLY in bad situations, keep people informed of what you do know, and what additional information you’re looking for.
2.  Rely on your Values and Vision.  “It’s all you have, and all you need.”  Much of the activity in a bad situation, and much of the alternative paths … don’t take you towards your original Purpose, which is your vision.  Look for the path that best reduces the negatives, and moves you forward towards that Purpose.
3.  Keep asking questions, seeking wise counsel.  Great leaders know they need help and constantly seek it.  From the insights and counsel of others, they will be able to discern the correct path.  You never know from whom the “critical insight” or “wise-est” counsel will come.
4.  Maintain Calm.  Acknowledge the challenge, and approach it with deliberateness.  Everyone is watching you and how you go about your decision-making.  You may be in turmoil inside, but maintain calm on the outside, while constantly doing Points 1-3, above.

Other insights from attendees:
•   “I’ve noticed that when I worry, I shut down my creativity.”
•  “My father was a pilot, and frequently cautioned, ‘don’t worry about the altitude above you, or the runway behind you.’  We use that a lot when looking at problems.”
•  “Look at how your plans changed from what they were on 9/10 … to what they needed to be on 9/12.”

•  “Do your employees know what your Vision for the organization is?  Where you’re taking everyone?"

Sunday, January 25, 2015

Teaching Capitalism to Catholics

       Excellent column recently in the WSJ, trying to reconcile the practice of “free" markets with Catholic “social justice” principles … the accusation being that the two are incompatible.  Actually, quite the opposite.
The Catholic position posits that the following are  critical components of a “just” economic system:
    •  Protection of private property and human freedom;
    •  Concern for the common good (meaning, all people);
    •  Respect for human dignity;
    •  “Preferential option” for the poor.
Capitalism, properly formulated, does exactly this.  These are the Morals that must underly the practice of capitalism (which in a standalone form is amoral).  Indeed, even mediocre practices of capitalism have resulted in lifting more people from poverty than any other system ever tried.
The problem is that virtually every government corrupts capitalism.  Politicians listen to business advocates and pass rules and taxes that favor somebody over somebody else.  It’s plenty bad in the U.S. (witness the need to pass major tax reform that removes huge numbers of tax advantages for certain businesses), but much worse in other countries, especially Italy.  Lobbyists aren’t all bad, but their job is to advocate for regulations and tax changes that benefit their sponsors … to the detriment of someone else (whether other businesses or the general populace).
Yes, there need to be regulations and codes … but only the ones that provide the moral foundation desired by “the people” generally, and not specific interests.
The corruption of capitalism by politicians serving special interests (companies and business associations providing campaign dollars clearly want influence) is what is giving capitalism a bad name.  
So, decide what regulations and taxes we want to change … and the more tax breaks/deductions/credits we eliminate, the “purer” a capitalistic free market system we’ll have.  The trouble is that someone is benefiting from every one of those tax breaks/deductions/credits … and will be arguing and funding against the changes.
PS:  As far as the “preferential option” for the poor, we have that … in the form of Earned Income Tax Credits, housing allowances, what used to be called food stamps, training grants, unemployment comp and the like.  All are good, to the degree they benefit those while they are unable to fend for themselves.