Sunday, March 31, 2019

It’s Like a Driver Shortage…Only Different

A recent report from the U.S. Bureau of Labor Statistics concludes that there really isn’t a shortage of truck drivers, at least as long as we give the labor market time to adjust.

From the report:
"As a whole, the market for truck drivers appears to work as well as any other blue-collar labor market, and while it tends to be 'tight,' it imposes no constraints on entry into (or exit from) the occupation," the report said. "There is thus no reason to think that, given sufficient time, driver supply should fail to respond to price signals in the standard way."

"Economists would not regard high turnover rates and the associated problems of recruiting and retaining drivers in this part of trucking as a long-term shortage. Nor would they call these conditions a 'broken market,' except to the extent that one might use that term for a secondary labor market segment, since the high turnover that marks such a segment is an indicator that the jobs in it are unattractive to many potential employees."

The American Trucking Association (ATA) has taken exception to this report noting that other than during the 2008-09 recession, the industry is facing an on-going, severe and increasing shortage of drivers, especially in the over-the-road, long-haul segment.

I tend to think that both positions are correct depending on your assumptions and perspectives. The BLS economists are correct when they say “given sufficient time” the driver supply should respond to price signals in the standard way. Likewise, the industry is correct when they say the real world has been experiencing a shortage of truck drivers for years and it is getting worse. The real questions are how much time is sufficient for the driver supply to respond to price signals and what do those signals need to be in order to have the desired effect?

The problem is that NO ONE KNOWS THE ANSWERS because, like most things in life, it’s complicated. We like to tell ourselves that the best answers are simple ones. That problems can be broken down into a few root causes and addressed in a systematic fashion. And, often this is the correct approach. Sometimes we do make things more complicated than necessary. Most of us would agree, if there is a simple answer that works, that’s usually the best one, or at least the best one to start with. The trucking industry has been taking this approach for years. Increase pay. Provide better equipment. Get drivers home more often. Be nicer to drivers, have a cook-out and tell them how important they are. Essentially, do a better job of recruiting and retaining drivers than your competition. But don’t expect to solve the problem because the job is what it is and there’s only so much money in moving a load of freight from point A to point B.

There is money and then there is a thing called utility. And this is where it gets complicated. When the economist says that the driver supply “should respond to price signals” they are absolutely correct. And so will the demand for services. Both buyer and seller have their price signals. And it doesn’t have much to do with what those signals used to be or what someone thinks they should be. It has to do with value (utility) relative to other alternatives. Am I willing to drive a truck, under a given set of circumstances, for a certain amount of money? Or would I prefer to exchange my labor, under a different set of circumstances for the same money, or more, or even less. And as a buyer of that labor, whether I’m making something, distributing it or just selling it; what are my alternatives given that the ultimate consumer is only willing to pay so much for the final product?

Thousands of decisions and transactions go into everything we purchase and everything we get paid to do in order to have the economic wherewithal to make those purchases. And everyone, on both sides of every decision and transaction is asking the same question…WHAT’S IT WORTH TO ME. Everyone is living on their own utility curve.

It would appear that labor has decided that driving a truck for the market price, even a rapidly increasing market price, is not a rational choice. And, in a world where quality labor is in demand and has plenty of options, I think it’s unlikely that we will reach a “price signal” within the next decade which will trigger an increase in the supply of truck drivers. The more likely pathway to supply and demand equilibrium will be reducing the demand for truck drivers. Some combination of technological innovation (autonomous vehicles), regulatory changes (longer/heavier vehicles) and redesigned supply chains could ultimately reduce the number of “driver miles” required by our economy. In the meantime, truck drivers are in a seller’s market.

Considering that we’ve been playing around with the wheel for almost 10,000 years, what’s another decade or two? “Given sufficient time” this “tight” driver market will be corrected. Not to worry. You see, it’s like a driver shortage…only different.

Sunday, March 24, 2019

The "IT" Factor

I must confess that I watch shows like American Idol, The Voice and America’s Got Talent. I record them and then fast forward through commercials and the inane banter that goes on between the judges. It’s always interesting how certain contestants, who are at best marginally talented, emerge as contenders simply because they have “IT”. One talent show even alludes to “IT” as the “X” factor. Same thing. And if those who have “IT” also have talent, they are likely to win, even if they are not actually the most talented.

“IT” is difficult to define, but we know “IT” when we see “IT”. Paul Newman had “IT”. Robert Redford not so much. Johnny Cash had “IT”. Roy Orbison and Buddy Holly had “IT”. Perry Como, Andy Williams…great singers, popular and successful…but they didn’t have” IT”. Buck Owens…No. Willie Nelson…Yes. Marilyn Monroe had “IT”. Lady Gaga has “IT” Tom Brokaw has, or once had “IT”. Brian Williams never did and we knew it. Walter Cronkite had “IT”. Dan Rather, not really. Joe Namath had “IT”. Bart Starr didn’t have “IT” and didn’t need it. Brett Favre had IT. Troy Aikman did not, but that’s ok. I’m not convinced that Tom Brady, as great as he is, has “IT”. Patrick Mahomes definitely has “IT”. Michael Jordan had IT. LeBron James just as good a ballplayer, maybe better, does not have “ IT”.

When it comes to Presidential races “IT” matters. Even when neither candidate has much of “IT”, the one who has less of “IT” generally loses. Hillary are you listening? God gave Bill Clinton all of “IT”, Hillary almost none. And Trump had just enough of “IT” to pull a few more electoral votes over the finish line.

“IT” matters even more when the country is divided and restless, especially when the divide isn’t clear in the middle. Those on the far left and far right are going to vote their respective parties. That’s probably 30 percent on both ends or 60% of the total which could represent 75-80% of those who actually turn out to vote. It’s those in the middle who make the difference and that’s where “IT” matters. “IT” brings out those who would not take the time to vote otherwise. “IT “ can move those who are truly “independent” to vote one way or the other. There aren’t that many true independents who can be swayed. But at the margin every vote counts and “IT” can make the difference.

Ronald Reagan had “IT”. As already noted, Bill Clinton has “IT”. Barack Obama has “IT” and got an extra boost from his wife Michelle, who also has “IT”. JFK had “IT”. FDR had “IT”. Teddy Roosevelt might have been the first President with the ”IT” factor and the media coverage for “IT” to make a difference. Lincoln only had “IT “ in retrospect. At the time, no one much thought he had “ IT” Andrew Jackson probably had “ IT”, but in those days the impact of “IT” was limited.

You want to know who’s going to be the next President of the United States. Watch for “ IT”. If the Democrats put up a candidate who doesn’t have “IT”, Trump has a chance to win. It they put someone like Beto O’Rourke out there, Trump loses. Policy positions and experience don’t mean much when “ IT” becomes the deciding factor. And in today’s world, “IT” wins the close races more often than not.

Gonna use my arms
Gonna use my legs
Gonna use my style
Gonna use my sidestep
Gonna use my fingers
Gonna use my, my, my imagination

'Cause I'm gonna make you see
There's nobody else here
No one like me
I'm special, so special
I gotta have some of your attention give it to me.

-Lyrics from the song Brass In Pocket by the Pretenders

Saturday, March 16, 2019

Money Changes Everything…Almost

Money changes everything
I said money, money changes everything
You think you know what you're doin'
We don't pull the strings
It's all in the past now
Money changes everything.
-Lyrics from the song ‘Money Changes Everything’ by Cyndi Lauper

By now you’ve heard about the college admissions scandal. Rich people paying college administrators, testing services and coaches in order to get their little darlings into the elite school of their choice. The list of bribe paying parents includes notable entertainers and business leaders.

This is bad and it is big, but it’s not new. People with money get special treatment. That’s just how it works. And people with money get used to it. Eventually it becomes an entitlement. I am rich, I deserve it. Whether it’s flying around in a private jet, staying in a suite on the top floor where price line peasants dare not to tread or just getting a grand table with a view in the hottest new restaurant while everyone else has to wait for over a year to get a bad table in a small space by the kitchen door. Or making a big donation to a university to insure that a child or grandchild gains admission. Not a bribe, just a generous gesture of support for higher education.

And when your child wants to go to a certain school, there has to be a way to make that happen. It only takes money. Money along with some people who are willing to bend and, if need be, break the rules in order to accomplish outcomes for which the wealthy are willing to pay handsomely. Thus, we have the Great College Admissions Scandal of 2019.

Wealth means power and power can be used for the greater good or just the greater good of me and mine. So whether it’s their child, their political party, their business or just their alma mater's football team; people tend to use their wealth and power to gain advantage. What the Great College Admissions Scandal reveals is just how desperate and audacious some people have become in order to get what they want. It also demonstrates what happens in a society when the classical virtues of prudence, justice, temperance and courage are no longer taught.

The scale of this abuse of wealth and power is striking. A business was created that catered to this growing demand for ways to game the college admissions process. The silver lining around the Great College Admissions Scandal of 2019 is that it may just force universities to consider their real purpose and to establish admission standards that are not for sale. Lux et Veritas.

A bribe is seen as a charm by the one who gives it;
they think success will come at every turn. - Proverbs 17:8