Sunday, May 12, 2019

Woke or Broke?

In recent years “Woke” has become THE word with progressives. It originated as a way of expressing how people should “wake up” to the social injustice in our society, especially when it comes to issues of race. It’s now being used to describe the appropriate level of awareness one should have about all social justice issues and just about everything else on the progressive agenda including climate change.

But I have some bad news for the Woke and the Un-Woke….”We Broke”. At this moment in history, when millions of people are “Woke” and demanding that we “make things right” and get about it immediately, we are broke. Just consider:

_Our national debt is over $22 Trillion…that’s more than our annual GDP and it doesn’t include all of the unfunded liabilities which are now approaching or may exceed $200 Trillion !!!

_We are still adding to our debt at the rate of over $1 Trillion per year.

_Federal government spending represents over 20% of our GDP, state and local spending adds an additional 5 to 7 %.

_Household debt is at a record level, $13.3 trillion.

_Our national savings rate is only around 3% of income.

So we have a math problem when the “Woke” demand that we spend:

_$8-10 Trillion per year over the next ten years for a Green New Deal
_$3-4 Trillion per year for universal healthcare
_$5-10 Trillion for slavery reparations
_$1.5 Trillion to pay off student loans
_$75 Billion per year for free college

And, oh by the way, this is before we even talk about something most all of us can agree on which is fixing our infrastructure. Depending on how “Green” we go and what sort of commitments we were to make toward mass transit systems, upgrading our infrastructure could be the most expensive endeavor of all; perhaps $5-10 trillion per year over the next 20 years. And that doesn't include what we need to spend just to patch and maintain what we already have.

So how do you pay for it? Where do you come up with this much money in a $21 Trillion dollar economy that is already drowning in debt? Raise taxes? How much and on whom? You could double the taxes on those making over $1M per year and not even come close.

We all better wake up and come to terms with the fact that it will take us at least 50 years to dig out of this hole. And, I'm not even suggesting that we get totally out of debt. A national debt at 50-60% of GDP is manageable. And some level of household debt is to be expected. But remember, we have over $200 Trillion in unfunded liabilities that is not even on the books.

So what do we do? First of all, everyone who can work, needs to get to work. We need production. Secondly, we have to increase taxes and reduce spending wherever possible. (We all know there are government agencies and programs that could vanish tomorrow and no one would notice, other than those people who've been getting paid to ride that gravy train.) And yes, we will have to spend money on infrastructure, healthcare and education. We are at a tipping point in this nation. Too much wealth at the top and too many struggling to make ends meet. We have a lot of angry people on the Left and the Right. History tells us that when you get enough people fed up with the status quo, change will occur. The real question is what will that change looks like and who has the guts and grit to lead us out of this mess?

Thursday, May 2, 2019

Disintermediation or Predatory Pricing?

Disintermediation: removal of intermediaries in economics from a supply chain, or cutting out the middlemen in connection with a transaction or a series of transactions.

Amazon recently announced the start up of their digital freight brokerage. They move a lot of freight. They have massive technological capability. So why not get into the truckload brokerage business. Show C.H. Robinson and the rest of them how it’s done. And how serious is Amazon about this venture? They are running blue light specials offering rates 25-30% below average contract rates and even less than the lowest spot market rates.

Transportation Intermediaries meet the Amazon Flywheel and prepare for some “dis-ing” which is just one part of Amazon’s “disintermediation strategy”.

A former Amazon executive summarized the e-commerce giant’s disintermediation strategy:

“The advantages that then come from disintermediation and the monetization of those capabilities are secondary to the immediate need of self-preservation, but then serve to feed very critical needs of Amazon’s ability to continue to succeed. This innovation and growth then manifests as continuously evolving towards the ability to sell everything and anything that is or can be sold. That’s the true Amazon flywheel: disintermediate to survive; monetize to fund innovation; innovate to grow; disintermediate to survive…”

Say what?

I’m just a simple country boy, but I think the Amazon flywheel is spinning some major bullshit. At some point, “disintermediation” crosses a line and becomes predatory pricing which is illegal, although the Federal Trade Commission can’t seem to figure out when or how to enforce the law against it.

I get the concept when it comes to e-commerce retail. Eliminate brick and motar, take out a couple of links in the supply chain, buy in bulk and sell direct to the consumer. Reduce cost, make it convenient and boom. It’s still not very profitable, but I get it. And I use the heck out of it. There are probably other industries that could use a little disintermediation, such as insurance. Maybe even headhunting….gulp.

But I don’t understand how actually becoming an intermediary and a “marginal-less”, (a.k.a. non-profit) one at that, creates long-term value if the strategy is to ultimately “monetize” (a.k.a. increase prices) once you’ve captured a large enough share of the market. Amazon’s entry into truckload freight brokerage does not appear to have much to do with “disintermediation” and a whole lot to do with predatory pricing by a giant company that can afford to lose billions of dollars in order to effectively gain control of the nation’s truckload network to the extent that they can influence pricing and capacity availability to their advantage. How is that not predatory?

Pricing below your own costs is also not a violation of the law unless it is part of a strategy to eliminate competitors, and when that strategy has a dangerous probability of creating a monopoly for the discounting firm so that it can raise prices far into the future and recoup its losses. –