Not So Dismal

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Archive for November 2008

The Power Vacuum

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In response to today’s Politico Arena question:

Is there a potentially disastrous economic policy power vacuum, as Paul Krugman suggests this morning? What can be done about it?

What’s disastrous is the lack of transparency in the Treasury Department as led my Hank Paulson. What confidence remained in his office evaporated when he announced recently that he had known “all along” that simply buying distressed assets wouldn’t help the current situation. This means that either he deceived the Congress and the American people when asking for the massive emergency bailout bill or that he was trying to cover for an error of judgment after the fact. Neither spurs confidence in Treasury’s operation.

The reality is that there is a perception issue that is gripping us all at the moment. I firmly believe that we’re nearing the bottom and, as I predicted in early October on Arena, the Dow will settle somewhere between 7000 and 7500. Meanwhile, fear has swept away any sense of logic in the pricing of securities and the perverse effects of tax laws and various mutual fund regulations can only serve to further distort the market picture. This isn’t to say that there aren’t true issues with the economy. Rather, people turn to leaders in times of challenge. The Bush administration has gone on permanent holiday and Obama is reluctant to fill the gap. One is left to hope that the market can simply take care of itself.

Written by caseyayers

21 November, 2008 at 9:44 am

Steve Jobs, Auto Industry Savior?

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Marketwatch has an interesting column that follows up on a point made by a different interesting column written a few days ago by Tom Friedman. At the tail end of his article, he said:

Lastly, somebody ought to call Steve Jobs, who doesn’t need to be bribed to do innovation, and ask him if he’d like to do national service and run a car company for a year. I’d bet it wouldn’t take him much longer than that to come up with the G.M. iCar.

The question is, could The Steve save the US auto industry? The unionized workforce is a major bump in the road, so to speak. Part of what makes Apple so successful is its cutthroat culture. Called a “Stevetatorship” by more than one, the UAW would balk at any attempt to as tightly extract every ounce of effort from each employee.

Further, it seems like many of the Big Three’s designers and engineers are simply stuck in the past and not always willing to make the next big leap. Another important key to Apple’s success is its almost gleeful abandon at the prospect of leaving old ideas and technologies on the side of the road. Consider the switches from the old OS 9 architecture to OS X, from Carbon to Cocoa or, the most high-profile of these sea changes, their complete shift from PowerPC to Intel in less than two years. The last one in particular is incredible. Here was a situation where both the software and the hardware saw major changes across a variety of products in a very short period of time, and it was accomplished with the least pain of any comparable transition by other manufacturers by far. Compare this huge shift in architectures to simply trying to upgrade to Vista from Windows XP and tell me which operation was handled with greater care.

Concept Chevy VoltThis flexibility comes with a price, of course. As mentioned above, Apple is definitely a fast-paced company and has not shied from a tough decision since Jobs retook control. It is this mental agility and confidence in quality that has been Apple’s formula for great success since the launch of the first iMac. This level of innovation does exist within the bowels of the large American auto manufacturers; their presence is made most clear at industry trade shows when sleek and sophisticated concept vehicles are put on display. But, for one reason or another, this potential seems always dragged back to Earth. Just consider the differences between the original Chevy Volt concept vehicle compared to its production counterpart, even now at least a year or more away. What was once a beacon of great imagination has become just another Malibu after the first 45 miles of electric-only power.Volt Production

It’s not just the vehicles that need fixing, though. The whole fuel architecture must be changed in order to make any real progress from an environmental standpoint. The chief problem with electric vehicles is their relatively short range and long recharging times. The solution is to have battery-swap programs in place at refueling stations across the country. Simply putting a new battery into the vehicle should be no more painful than refilling a gas tank is now, and if the architecture is laid out efficiently then it does not need to entail a massive new line of expenses for the end user.

Finally, improving the driving experience is key. Americans continue to shy away from compact vehicles even in the face of high (but continually decreasing, at the moment) fuel prices because they like the luxuries afforded by larger vehicles. US auto makers must make the features onboard the most innovative and highly-sought after in the market. This, as Apple well knows, is a difficult and continuous proposition, because the competition will simply lift the best ideas and put them on next year’s model.

The magic isn’t in Steve Jobs, the person. The magic is in “Steve Jobs”, the mentality. “Fixing” the domestic auto makers doesn’t mean converting all of their factories wholesale into subcompact production lines, because this is not what the market demands. Prices must fall, yes, but more importantly, quality must rise. Because as Apple knows, this may not be the recipe to market domination, but because people will pay a premium for a clearly superior product- an American product, whatever that means today*- it is the recipe for recovering and roaring profits.

*-It’s important to remember that many vehicles from Japanese automakers are made today in American factories, mostly located in the South, where open shops ensure that the ludicrous arrangements devised by unions will not exist.

Written by caseyayers

14 November, 2008 at 2:51 pm

Re-Writing the Rules

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From today’s Politico Arena question: “The economy: How big a stimulus? How wide a rescue?”

It depends on what indicators take priority. If the goal is to make stock market values rise quickly, then an immediate reduction of the capital gains tax to 0% would do wonders to bring buyers back into the market. However, because these would be speculators looking to take advantage of a limited-time tax break, this could simply be another shot in the arm that leads to an even deeper hangover recession a few years down the line.

If instead we agree that we’re in the midst of a broad reallocation of resources across the board (which is a recession’s part to play in free markets), then we can choose two routes. Either we allow the recession to take its course, lasting longer than we would probably like but resulting in a more efficient economy in the long run, or we make decisions at the governmental level about what priorities America most values. For example, how important is General Motors to this country? If we as a people decide that it is worth saving due to national pride or some other metric, then that is well within our reach.

Map of the US Interstate System

The key is that whatever decisions are made, they should be made with a larger sense of strategy. It’s maybe a bit distasteful but okay in the long run to run up a deficit in the present if it leads to strong returns in the future. Some people call this overspending; others call it speculative investment. It seems clear that government interventionism is here to stay for now. So be it: put the unemployed to work on green energy projects and on building this country’s infrastructure for the 21st century. Imagine what this country would be like had similar expenditures not been made the 1940s and 1950s. We can use this as an opportunity to set the ground rules for future economic growth.

Written by caseyayers

7 November, 2008 at 2:42 pm