Category Archives: Economics

Chuck E. Trump

 

BLOGGER’S NOTE: If length were not an issue, today’s post would have been, “Everything I Needed to Know about Women Voters in 2020, I Learned from Chuck E. Cheese.”

Wednesday’s  ABC/Washington Post poll results in Michigan and Wisconsin affirm what may be the defining difference between this year’s election and 2016, a gender gap of historical proportions.  In Michigan, Biden’s lead among women is 24 percentage points.  In Wisconsin, 30 percentage points.  And the pundits have had a heyday analyzing this defection by females, the latest being the threat to reproductive rights following the appointment of Amy Coney Barrett to the Supreme Court.

Chuck E. Cheese might be trying to hide who they are, but Orlando still  owes a lot to this mouse | BlogsBut, as is so often the case, current events are echoes of past experience if only we pay attention.  In this case, the ultimate clue that foreshadowed the propensity of women to reject Donald Trump in 2020, lies outside the political area.  Instead it is embedded in a 1998 business case involving the licensing of the Chuck E. Cheese  (CEC) brand by American Sales and Marketing (ASM) for the purpose of creating a line of retail food products to be sold in grocery stores, much like those offered by Boston Market and P. F. Chang.

Before executing the license agreement, ASM did its due diligence, contracting with a market research firm to provide concept guidance related to the children’s food market and the Chuck E. Cheese brand name.  John Fox Consulting conducted 200 mall intercept interviews in Baltimore, Jacksonville, Chicago and Los Angeles in mid-January, 1998.  The targeted interview subjects were females with at least one child age 3-12 who had purchased a frozen entrée, snack or pizza in the past month.  Based on these interviews, Fox Consulting recommended ASM develop a line of CEC frozen food products.  Specific items were selected through taste-tests in mid-March, 1998.  Based on this analysis and projected revenues and costs, ASM executed the license and introduced the initial products in early 1999 via a subsidiary of ASM called CCF Brands (CCF being shorthand for Chuck E. Cheese Foods).

At the end of two years, annual sales reached $8.8 million, significantly less than the  $33 million projected in the 1999 business plan.  The problem lay not in the product itself or the initial marketing.  The number of first time buyers exceeded expectations with favorable reviews related to quality and value.  The problem was a dramatic fall-off of repeat customers.  ASM conducted additional research to isolate the issue.

It was the findings from that analysis which also explain the migration of female voters from the Trump column.  The fatal flaw in the original research was failing to understand the attitudes toward Chuck E. Cheese between a three year old and a twelve year old are quite different.  In households where there were children with a gap in age, the introduction of CCF products produced chaos.  While the younger child was an eager consumer, the older sibling wanted something more age appropriate.  In one case, a mother reported the older child chided his younger brother repeatedly chanting, “Chuck E. Cheese is for babies.”  Before I am accused of perpetuating the dated stereotype of housewives Trump has voiced in the last days of this campaign, most of the females who initially bought the product were working mothers who saw the frozen foods as a convenience, an easily prepared meal or snack.  Instead, the sibling conflict produced the exact opposite effect adding to the mother’s roles as arbiter and disciplinarian.

All you have to do is substitute the name Donald Trump for CCF Brands and you could have seen the gender gap coming.  In 2005, I conducted an interview with ASM president Kevin Connor in which he identified three mistakes which sealed the fate of this venture.

  1. Conducting mall intercepts, especially pulling aside a woman with one child, did not replicate the conditions in a typical household with multiple offspring.  In concept it made sense.  Injecting the products into real world environments created previously unforeseen problems.
  2. The marketing campaign promoted “bringing the fun of a Chuck E. Cheese restaurant into your home.”  Instead, it resulted in anything but fun.
  3. Having a CCF Brand product in the freezer would make live easier.  In reality, parents either had to prepare two different meals or spend time de-escalating sibling conflict.

So, in 2016, all of the excitement and enthusiasm at a Trump rally felt good.  America First in concept was a relatively easy sell in arenas and on TV.  But once tested in homes and the marketplace, the sheen quickly wore off.  Trump claimed “we would get tired of all the winning,” but many of us are still waiting.  And has the Trump era made life easier for most women?  Ask any mother who cannot go back to work because her children are still at home taking remote classes.  Or the women worried about aging parents, afraid they might be the next COVID casualties.  Even before COVID, women understood they had to be peacemakers at family gatherings or social events where any moment there could be outbursts between Trump supporters and resisters. Walking on eggshells is itself exhausting.

For many women, life before Trump was turbulent enough.  Many of the causes were beyond their control.  Such is not the case with Trump.  That is why women will make the difference in 2020.  And hopefully, the next time Americans are faced with a similar choice, instead of looking to Rachel Maddow or Sean Hannity for guidance, they first seek out an animatronic rodent named Chuck E. Cheese.

For what it’s worth.
Dr. ESP

 

Heed the POLITICAL Scientists

DISCLAIMER:  Nothing in the post suggests any of us can rest on our laurels.  Post card writers need to keep writing.  Intersection flag-wavers need to keep waving their flags.  Homeowners need to keep putting up Biden/Harris signs.  And community based groups of  Democrats, Republicans and independents like our “Amelia Island Good Troublemakers” need to keep reminding voters of all the reasons they are voting for Biden.  As Yogi Berra would remind us, “It ain’t over ’til it’s over.”

In 1992, when Colorado Governor Roy Romer was chairman of the National Governors Association, he invited his son Paul (not yet a Nobel Laureate in Economics) to a meeting of the Economic Development and Commerce Committee which I staffed during my time with the organization.  It was in the middle of the high tech boom when some economists predicted the accelerating pace of U.S.  innovation would result in indefinite, recession-free growth.  Paul had a different point of view, simply stated, “The NEW economy still operates under OLD economy rules.”  As we learned twice in the next decade, he was right.

I have been thinking about Paul a lot recently, as I listen to journalists and pundits talk about the NEW politics of Donald Trump and how it makes it difficult to predict the status of the race.  As a trained political scientist, I find it useful to paraphrase Dr. Romer, “The NEW politics still operate under OLD politics rules.”  If I am right, I do not anticipate my own Nobel prize as there is not one for achievement in social science.  But if I am wrong, maybe someone will nominate me for the prize in Literature based on outstanding fiction.

Exactly which rules do I believe still apply and how do they impact the 2020 outcome.  Let’s take them one-by-one.

#1.  The indicator with the highest correlation to voter preference: “Is the country heading in the right direction?”

  • According to the RealClear Politics average of polls, as of October 13, 62.7 percent of Americans believe the country is on the “wrong track” while only 31.3 think we are on the right track.
  • The impact of these numbers on voter behavior increases when the election is a referendum on a sitting president seeking re-election or the party in power.

#2:  The indicator with the second highest correlation to voter preference: “Does the candidate care about people like me?”

  • A June, 2020 Pew Research Center survey found Biden held a 13 point lead 54-41 percent) over Trump on this factor.
  • This is the same factor that derailed Mitt Romney’s campaign in 2012, following the release of a video in which he implied he could never get the support of 47 percent of the voters, those he referred to as “takers.”
  • Trump’s inability to show a kernal of empathy for the victims of COVID-19 has likely widened that margin since June.

#3:  When there is an incumbent running for re-election, late deciders break for the challenger.

  • This is just common sense.  After observing the incumbent govern for four years, you are either with him or asking yourself, “Am I comfortable enough with the challenger to take a chance?”
  • Ronald Reagan passed that test in 1980 as did Bill Clinton in 1992.
  • Joe Biden faced the same questions going into the first presidential debate.  He needed to demonstrate two things.  He was not suffering from dementia, and he was not to the left of Fidel Castro.
  • According to polling since the debate, he aced the exam.  On the day of the debate, Biden’s projected margin of victory, according to the FiveThirtyEight average of polls, was 5.9 percent.  Today it stands at 10.5 percent.

#4:   Manufactured October Surprises

  • Truly significant October surprises almost always emerge much earlier with new information in the closing days of the campaign merely reinforcing the original narrative.
  • Examples:  The futility of the Vietnam War in 1968.  Jimmy Carter’s inability to free the Iranian hostages before the 1980 election.  John McCain’s response to the increasing economic meltdown in 2008.  Jim Comey’s October letter to Congress resurrecting the year-long focus on Hillary Clinton’s emails.
  • In contrast, October “Hail Marys” generally come off as last-minute desperation, e.g. the fake letter about George W. Bush’s national guard status, and seldom move the needle.
  • Unlike anything ever seen, the Trump campaign has been running the shop all three shifts to manufacture a January, February, March, etc., surprise to bring down Joe Biden.  A charge of sexual assault.  Ukraine.  Domestic spying.  A lot of spaghetti on the floor.  Little if any on the wall.
  • In contrast, the front page story remains Trump’s handling of the pandemic.  And the most significant October surprise is likely to be no surprise at all.  The second wave spike in cases, hospitalizations and fatalities.

#5:   Voter Enthusiasm

  • The Trump campaign has claimed this to be their candidate’s strong suit.  Energizing his base to vote will overcome his deficit in the polls.
  • As pointed out in the October 8 post “It’s October! Surprise!“,  the numbers tell a different story.  The most recent polls continue to show a wider margin of victory for Biden among “likely voters” than “registered voters.”
  • This could actually have a bigger impact on Senate races, particular in states such as Montana, Arizona and Alaska.
  • Florida voting ends at 7:00pm on election day.  If early returns trend toward Biden, voters in western red states who anticipate the inevitable outcome might be even less willing to venture out to vote (especially if the northernmost states are in the midst of a coronavirus spike).
  • Lower turnout on election day increases the impact of early and mail-in ballot on the final outcome.  And early reporting suggests a huge Democratic advantage in pre-election day balloting.

A good campaign should be able to overcome one or two of these disadvantages heading into the final days before the election.  But not all five.  Maybe the spaghetti is not on the wall, but the writing may be.

For what it’s worth.
Dr. ESP

 

Seven Days in September

 

You will never experience less reality than when you are watching a reality show. You’re watching people who aren’t actors, put into situations created by people who aren’t writers and they’re second guessing how they think you would like to see them behave if this were a real situation, which it’s not. And you are passively observing this; watching an amateur production of nothing. It’s like a photo of a drawing of a hologram.

~Comedian Dana Gould

In other words, “reality show” belongs in the pantheon of oxymorons right up there with jumbo shrimp, original copy and deafening silence.  Yet, pundits trying their best to explain the past four years, describe the Donald Trump presidency as a reality show, as though it was an extension of The Apprentice.  If you believe that depiction, last night’s debate was the live finale.  And according to the post-debate polls, Trump was voted off the island.

Frankenheimer's “Seven Days in May” resonates now more than everThe title of today’s post is an obvious reference to the 1964 John Frankenheimer film Seven Days in May, in which the military led by General James M. Scott (Burt Lancaster), fearing a sneak attack from the Soviet Union, plots to overthrow unpopular president Jordan Lyman (Frederic March) who supports a bilateral disarmament treaty.  Sound familiar?  Except in this tale of political intrigue, the roles are reversed.  President Lyman is the voice of reason and General Scott is unhinged.  During the week in question, the audience becomes aware of the motives of and power plays by the two adversaries.

A similar real-life drama has played out over the past seven days beginning with the 480 former national security officials who signed a letter endorsing presidential challenger Joe Biden.  They painted the threat of a second Trump term in office as follows.  “We love our country.  Unfortunately, we also fear for it.”  Only to be followed by last Friday’s release of Trump’s tax information by the New York Times, one more critical dot to add to the collection which, when connected, explain Trump’s performance in the first debate.

A quick review of the facts based on the Times investigation of Trump’s finances and other sources.

  • In 2003, Trump was in financial trouble following six bankruptcies mostly tied to his Atlantic City casinos.
  • Between 2004 and 2016, Trump netted $427 million from The Apprentice and associated endorsements.
  • That income was used to offset loses from the 15 hotels and golf resorts he purchased since 2004, all of which are highly leveraged.
  • Principal on the debt associated with these properties, totaling $421 million, will come due within the next four years.
  • Since taking office, taxpayers have reimbursed the Trump organization over $970,000 for approximately 1,600 room rentals at Trump properties. (Source: Vanity Fair/May 2020)

So, if you are Donald Trump, here are your choices.

  • Spend four more years in the White House ripping off the American taxpayers even though the financial returns are a pittance compared to the cash needed to satisfy his lenders (whoever they may be).
  • Convert his political base into a consumer base willing to watch Trump TV following an anticipated takeover of One America News Network (speaking of oxymorons), hoping to repeat the financial windfall from The Apprentice.

Last night you got your answer.  In the CNN post-debate poll, 60 percent of viewers thought Joe Biden won while only 28 percent favored Trump.  Not great if you’re running for president, but a 28 percent market share of any business is nothing to sneeze at.  Especially, if your followers believe they will benefit from their undying loyalty to Trump (another oxymoron if they have attended a Trump super-spreader event).

The only remaining question, “What business model would Trump use to implement this strategy?”  That too is no mystery.  In January, 2020, Reuters reported on a Trump rally at a Palm Beach, Florida megachurch.

The event by Trump at the 7,000-capacity King Jesus International Ministry church has drawn fresh attention to his administration’s ties to “prosperity gospel” preachers who tell followers that generous donations to their churches will be rewarded on Earth with wealth, health and power.

Except in Trump case, it will be know as “prosperity media.”  It does not take a leap of faith (pun intended) to imagine Trump echoing King Jesus pastor Guillermo Maldanado’s call to his flock, “You can’t have the Father’s favor until you honor Him.”  Just substitute “Trump” for “Father.”

And make no mistake about it.  Trump’s admiration for leaders of the “prosperity gospel” movement like Maldanado and Joel Osteen has nothing to do with their claimed spiritual mission.  He sees them for what they are.  According  to an interview in the September, 2020 issue of The Atlantic, Trump fixer Michael Cohen attributed his boss’ esteem for televangelists to the quality of the scams they perpetrate.  “They are all hustlers.”

Of course, this late-life career pivot might be derailed if convicted of tax fraud, bank fraud, tax evasion, obstruction of justice, witness tampering, etc., etc.  Then again, maybe Ivanka, Junior or Eric are doing the math.  How many “Free Donald” t-shirts and gimme caps does it take to raise $421 million?

POSTSCRIPT

Melania, one piece of advice.  On election night, if Donald asks you to join him in the bunker, DON’T GO!  Call 911 or Brad Parscale’s wife Candice Blount.  And, thank goodness Florida is not a community property state.  I would hate for you and Barron to be responsible for half of Donald’s personally guaranteed loans.

For what it’s worth.
Dr. ESP

Skin In the Game Redux

 

Warren BuffettThe phrase “skin in the game” was coined by none other than Warren Buffet based on his belief business owners and executives should have a significant personal stake in the outcome of the ventures they run.  It is a lesson taught in every entrepreneurship class.  And, if you are a regular Shark Tank viewer, you know panelists such as Mark Cuban, Lori Greiner and Kevin O’Leary consistently ask the aspiring entrepreneurs, “How much of your own money have you invested so far?”

“Skin in the game” is also a sound principle outside the business arena.  Take for example a medical insurance co-payment.  It ensures a sometimes small, but significant level of involvement over decisions related to one’s health care.  Without that out-of-pocket contribution, one can imagine the burden on the health care system from hypochondriacs who would view a visit to the doctor’s office as a daily means of recreation.

Some parents use it as a way to impress upon their offspring the value of money.  A child wants a bike or a new video game?  The parent offers to help, but not pay for the item in its entirety.  Their theory being, children will take better care of their possessions if they have contributed to their acquisition.

Which brings me to the topic du jour.  There is no better case of “skin in the game” than taxes.  Besides being the revenues that support essential or even questionable public goods and services, these levies on income, property and sales are the price of demanding quality and accountability.  It is the flipside of taxation without representation.  Taxes are the “skin in the game,” that significant, personal stake in how we are governed.  Without them, the standard would be representation without taxation. Just imagine if public services came free of charge.  Of course, you could still complain if you thought the quality of promised benefits was less than par.  But, federal, state and local officials would be within in their rights to question your standing.  “You get what you don’t pay for.”

In a society founded on the mantra “of the people, by the people, for the people,” the value of taxes as “skin in the game” must apply to those who govern as much, if not more so, than the governed.  After all, elected and appointed officials are the “business executives” of the public sector.  Which is why yesterday’s revelations about Donald Trump’s tax history go far beyond questions of fraud, tax evasion or conflicts of interest.  As importantly, he is CEO of an enterprise in which he allegedly has little, if any, investment.

Think about it.  Why does he care if funds intended for military facilities to support the families of armed forces are diverted to pay for a border wall?   It’s not his money.  Or defense funding for medical supplies is instead used to buy spare parts for tanks and planes?  It’s not his money.  Donald Trump has no skin in his latest game.  Much like he had no skin in the game when it came to Atlantic City casinos or the Trump Foundation.  Which only proves the point, without personal investment, there is no need to be rational or prudent.  Every time a Trump business went under, he walked away unscathed.  And in some cases, such as his casinos, he actually came out ahead owning a percentage of the properties which were more profitable and better run by the new owners.  That’s what you can do if you have no skin in the game.

As is likely to be the case when Trump either walks or is dragged out of the White House on January 20th.  Having made no significant financial investment in his own administration the past four years, he will likely reflect on the experience as follows.

I guess I showed them I’m still the “king of debt.”  Look at everything I was able to do, and I did it without using any of my own money.  And now all those “losers” and “suckers” are left holding the mortgage.  Ivanka, Junior, Eric, what’s next?

One can only hope, without the protection of Bill Barr and contrived DOJ policy memoranda, the IRS, District Attorney of the Southern District of New York, New York Attorney General and New York City Attorney Cy Vance will prosecute private citizen Donald and the Trump Organization for a series of legal violations.  However, when it comes to America’s tarnished reputation, I am reminded of Paul Newman’s last line as Michael Gallagher in Absence of Malice, “Who do I see about that?”

For what it’s worth.
Dr. ESP

 

The Law of Stupid Consequences

 

Unintended consequences: outcomes of a purposeful action that are not intended or foreseen.

~American Sociologist Robert K. Merton

To understand the law of unintended consequences, look no further than the Violent Crime Control and Law Enforcement Act of 1994 (obviously named by someone who did not appreciate the value of a catchy acronym like CARES) or “stop and frisk.”  Both had legitimate goals, bringing down the crime rate, especially in inner cities where Black Americans were more likely to be the victims of violent crimes.  However, these purported beneficiaries, in too many instances, instead became casualties of misguided or overzealous law enforcement, leading to the current push for criminal justice reform and the Black Lives Matter movement.

Then, what is the difference between unintended consequences and stupid consequences?  When it comes to stupid consequences, regardless of a law’s initial objective, proponents should have known there would be negative outcomes prior to passage or implementation.  How?  History!  The same adverse aftereffects were observed and documented in a similar situation once before.

Which brings me to the most recent example, Donald Trump’s rescinding of an Obama-era rule to combat housing discrimination.  Yesterday, during a speech in Midland, Texas, he laid it out in black and white (pun intended).

You know the suburbs, people fight all of their lives to get into the suburbs and have a beautiful home.  There will be no more low-income housing forced into the suburbs. … It’s been going on for years. I’ve seen conflict for years. It’s been hell for suburbia.

First, for any action to be subject to the law of stupid consequences, it need not be worthy to start with.  Definitely the case in this “bullhorn” to Trump’s base.  Of course, as with don't confuse the issue with facts - Willy Wonka | Meme Generatormost Trump claims, the facts undercut his argument.  First, the July 2015 rule said nothing about forced low-income housing.  It clarified data requirements to determine whether there was persistent housing segregation within a jurisdiction.   Any deficiencies in data collection needed to be addressed if the city or county sought additional federal housing assistance.  Second, and more damning, the median housing value since announcement of the rule has risen from $215,715 in July 2015 to $271,768 in July 2019.  (Can you say 25.9 percent?  I knew you could.) Does anyone want to guess where the price of housing has risen the most?  Ooo! Ooo! Call on me: I know, I know.  Suburban America.

Believe it or not, that isn’t what makes Trump’s war on low-income housing stupid.  The unintended victims of this policy are (drum roll) suburban households. How I do I know this?  In 1996, I was part of the team at the National Governors Association that worked with the Clinton Administration and Wisconsin Governor Tommy Thompson to identify potential barriers to implementation of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, more commonly known as welfare reform (because the vice-president for acronyms had that day off also).

At the time, my title was policy studies director for economic development and commerce.  Participation by someone with those substantive responsibilities made sense.  Without more jobs it would be difficult to justify terminating public assistance to current welfare recipients if there were no jobs for them to fill.  Some things are obvious.  What was less conspicuous were some of the added employee expenses if the available jobs were located some distance from their homes.  You know, like in the suburbs.  In particular, transportation and child care.

These facts of economic life have not changed in the 24 intervening years.  If there is not affordable suburban housing, inner-city residents working at suburban based businesses are still strapped with transportation costs and the additional child care expenses associated with the time it takes to commute from home to work and back.  Those costs are often subsidized by the employers and (you guessed it) passed on to the consumer.

Ask white suburban residents if they think it makes sense for them to pay higher prices to subsidize inner-city residents’ child care and transportation costs.  My guess is most would say, “Of course not; that would be stupid.  Why would I ever do that?”

Because Donald J. Trump doesn’t want minimum wage employees to live anywhere near their places of work.  Maybe there’s an acronym for that.  How about IDIOT (Intellectual Dereliction In Our Times)?

For what it’s worth.
Dr. ESP