Category Archives: Economics

War and Piece

The crash is also estimated to knock out about half of all shale producers, according to analysts at Raymond James Inc., if prices remain at between $20 and $30 per barrel. (The price as of midday Monday was $22.73 per barrel by the standard West Texas Intermediate benchmark.) A price at that level would cost thousands of jobs and deal a serious blow to the vision of U.S. energy independence.

~Ben Lefebvre/POLITICO.COM

If not for the more pressing health crisis and its impacts on the U.S. economy, the lead story on every business news outlet would be the collapse of oil prices.  The decline in domestic production reported by Lefebvre comes with some important lessons.  Premiere among these,  American oil independence is an illusion, at the mercy of other players in the market, especially Saudi Arabia.  Economic and political stability in many middle eastern, oil-rich countries depends on a steady flow of revenues to provide public benefits to the general population.  And as long as demand remained high, the Saudis did not need to dominate the market, an opportunity for others to join the market at a price point per barrel which made investment in additional capacity profitable.

But a decrease in demand requires the Saudis to recapture a larger share of the market as evidenced by the announcement they plan to increase production to a record 12.3 billion barrels per day beginning in April, an approximate 33 percent increase over current levels.  Why?  Because they can.  They have both the capacity and the cash reserves to wage a successful price war.

If American oil producers did not see this coming, it is their own fault for failing to learn the same lesson from the 1979 energy crisis.  Triggered by the Iranian Revolution, a decline in global oil production resulted in higher prices and spot shortages around the world.  Consistent with the principle of supply and demand, a barrel of oil, selling at a premium, represented an incentive for new entrants in the markets and made a shift to alternative sources economically feasible for the first time.  It was this factor which nurtured the growth of the shale oil sector with several federally subsidized pilot projects in the Mountain States, especially Colorado and Utah.

That is, until Saudi Arabia decided U.S.-based shale oil production represented a threat to their share of the global energy market.  At which point, the Saudis slashed the price per barrel and flooded the market.  Within five years, almost all of the new drilling companies declared bankruptcy and the shale projects vanished, unable to compete with cheap Saudi oil.

At the time, I had one of the worse jobs in America, deputy director of the Texas Economic Development Community.  The Lone Star State was now the epicenter of a perfect economic storm.  Oil prices had collapsed.   Banks were reeling from the savings and loan scandal.  Housing values were under water.  And commerce with Mexico was at a standstill as the peso went south (pun intended).   [HISTORICAL FOOTNOTE:  On the bright side, these events resulted in a long-overdue diversification of the state economy.  Resources which had always gone to the oil industry were diverted to attract technology companies such as Cypress Semiconductor and Apple.]

Image result for whartonIn 1986, I attended a breakfast with representatives of the Texas oil industry.  The opening presentation was made by Robert Bass of Bass Brothers Enterprises, Inc., the largest independently owned oil company in the state.  In what might have seemed like a satirical commentary on the times, Bass suggested the Wharton School of Business at the University of Pennsylvania was to blame for the disintegration of the state’s oil industry.  He told us how classrooms were filled with the offspring of Arab oil Sheikhs, where they were introduced to concepts such a price wars and market domination.  Thirty three years later, I can only paraphrase his warning, “Any time the Saudis feel their position in the global market is threatened by newcomers or alternative sources of energy, they will cut the price of oil below ten dollars a barrel for as long as it takes to wipe out the competition.”

So, when Donald Trump, as he surely will, claims that no one saw this precipitous decline in U.S. oil production coming, just remember he was probably sitting in one of those same classrooms.  And while his Arab colleagues focused on how to stage a price WAR, young donny was more concerned with how he might get a PIECE of the action.  Or as a visitor to the Rostov home observed in Leo Tolstoy’s classic novel about the French invasion of Russia, “Everything depends on upbringing.”

For what it’s worth.


Mythed It By a Mile


Image result for cnbc stock dropThere is nothing like a national health crisis to expose Republican economic orthodoxy for the fraud it is and the realization that economic growth for the past three years was in spite of Trump administration policies, not due to them. Consider the following.

Since the beginning of time, conservative economists have praised the value of monetary versus fiscal policy.  For those unfamiliar with the difference, monetary policy involves changing interest rates (the cost of borrowing money).  Proponents of monetary policy hail it as a stimulus in bad times and a way to tamp down inflation in good times.  In contrast, fiscal policy revolves around public revenues and expenditures, the argument being lower taxes and public investment (e.g. the Civilian Conservation Corps during the great depression) puts money into individuals’ pockets when the market economy sags.  To be fair, both monetary and fiscal policy can be misused to benefit other than the public interest.

If you tuned into CNBC around 2:00 p.m. this afternoon, you witnessed something that was beyond imagination four weeks ago.  A panel of the channel’s regular pundits, long-time critics of fiscal policy including the stimulus package which helped ease the economic pain associated with the 2008 financial industry meltdown, said it was time for public works expenditures by the Trump administration.  You know, a stimulus package.

When “Power Lunch” host  Melissa Lee asked Steve Liesman, “Would a 100 basis points reduction in the federal reserve rate help,” the answer was “unlikely.”  (NOTE:  100 basis points is the equivalent of a one percent decrease in the cost of borrowing money.) And in one fell swoop, Liesman either wittingly or unwittingly admitted Donald Trump’s actions throughout his time in the Oval Office had set the stage for what another commentator referred to “as the chickens coming home to roost.

Liesman’s argument goes as follows.  If the national economy was a strong as Trump claimed, cutting interest rates over the past 12 months was contrary to sound monetary policy.  And prodding Federal Reserve chairman Jay Powell to impose the emergency rate cut on March 4 only made things worse.  Why?  Because you want future rate cuts to stimulate borrowing and investment.  But if rates are already so low (1.00 percent as of today), another cut does not represent much of an incentive.  Want to know who it helps?  Companies with highly leveraged assets.  Can you say, “The Trump Organization.”  They can refinance debt at the lower rates to decrease debt service.

Yet, that is only half the story.  Liesman’s and others’ new found affinity for fiscal policy remedies which involve public investment and tax cuts comes at a price.  Raising questions whether the already ballooning Fiscal Year 2020 deficit could absorb more debt without causing further long term damage to the U.S. economy.  The annual deficit has increased by 68.5 percent since Barack Obama left office ($984 billion in 2019 versus $585  billion in 2016).

So all those Trump syncophants and conservative pundits who did not want to heed media warnings their leader was a “day trader” with no interest in the long-term impacts of his policies, hopefully now understand it was not “fake news.”  Squandering the fiscal benefits of 10 consecutive years of economic growth lands us where we are today, without the resources that should have been there to counteract the next economic downturn regardless of whether it was a result the normal business cycle or a global health crisis.

On July 4, 2019, I posted an article to this blog titled, “Eco-NO-mics.”  The central point was to highlight how a period of consecutive years of economic growth which began or was sustained by every Democratic president since 1952 subsequently ended under the succeeding Republican administration.  I pondered how long it would take for Trump to bring an end to the Obama recovery.  Now we know.  Approximately three years and two months.  Once again, it’s time to bring back the Democrats to clean up one more Republican disaster.  But don’t be surprised when Trumpists complain the Democrats do not care about deficits.  For a party whose symbol is a elephant, they have a VERY short memory.

For what it’s worth.


CT, Call Home

Call it a seasonal epiphany four and a half years in the making, but late is always better than never.  As you are already aware, on December 19, Christianity Today editor Mark Galli declared, “Trump Should Be Removed from Office.”  And right on cue, the modern day Judases–Franklin Graham and Jerry Falwell, Jr.–exacted another down payment on their souls in exchange for proximity to power and past donations from the Trump Foundation.  (NOTE: As some commentators have pointed out, Galli’s major concern was not the fate of American democracy and values, but the credibility of the evangelical movement.  Even if it was self-serving, I learned a long time ago, never criticize someone for doing the right thing, even if their motives are suspect.)

Image result for evangelical preachers lay hands on trumpAs welcomed as Galli’s denunciation of Donald Trump as an immoral human might be, I am afraid his salvo was misdirected.  In the age of social media influencers, Galli would have been better served by addressing his remarks, not to the flock, but to the shepherds.  How do you expect the minions to understand what they have become when members of the clergy, who weekly preach the gospel to them, remain silent or fail to draw on their own training as pastoral counselors to point out the hypocrisy of evangelical devotion to Trump.

Imagine if Galli had chosen a different tack in which he does not humble the masses, but shames the messengers for abdicating their role as moral influencers.  Consider the following as an alternative to the December 19 editorial.

The dilemma of reconciling one’s political support and Donald Trump’s lack of a moral compass is not a collective one for the evangelical movement, but a personal one for each and every member of your congregation.  And one that demands the clergy provide pastoral counseling as we are taught “to mirror the way Jesus cared for people and taught his disciples to do the same.”

Make it personal.  Ask your congregants, “Would any of you be okay if you came to me for spiritual renewal and I told you Christ is okay with …

  • satisfying one’s lust by committing adultery?
  • constantly comparing your accomplishments and possessions to others?
  • expressing anger at anyone who disagrees with you?
  • equating success with net worth?
  • indifference to the suffering of others?
  • bearing false witness to justify your actions?
  • overindulgence or excessive desire for material goods?
  • the ends justifying the means?”

Would you call someone who lived their life based on such advice a true Christian?  Would you look to that person for leadership or as a role model?  I would hope not.  But you have.

As Jesus says in Matthew 22:21, “Render to Caesar the things that are Caesar’s; and to God the things that are God’s.”  You can leave governance to our political leaders, but you must never let them become the arbiters of your values.  And when they try, you must reject them.

But the evangelical community is not alone.  Every day we watch professionals in every walk of life excuse Trump for behavior they know is wrong.  The latest example emerged in this morning’s edition of our local paper which includes a regular op-ed column titled, “Coach’s Corner.”  The author Howard Pines is a local resident who presents his credentials as follows.

…has more than 30 years experience as CEO, chairman and founder of BeamPines, a premier firm in the executive coaching business.

Today’s edition with the title, “Presidential Tantrums,” compares Trump to other commanders-in-chief who were known to let off a little steam on occasion.  These include (drum roll) George Washington, Theodore Roosevelt, Harry Truman and Dwight Eisenhower.  Can you say “moral equivalency?”  I knew you could.   But the icing on the cake comes in the final paragraphs which include the following two sentences.

I believe that Trump’s mannerisms are not unique, and if history remains true, his actions to date do not threaten our democracy.

My sense is the real question with President Trump is will he retain a first rate team, and does he have the objectivity and clarity of judgment to not let his emotions color his decisions.

Let’s take these one at a time.  I do not know what history books Mr. Pines reads but they must not include the evolution of any nation in which fascism emerged as a viable ideological alternative.  My history books document how none were more democratic when the dictator who led the movement left office voluntarily or involuntarily.

As for sentence #2, remember Mr. Pines is an executive management coach.  Imagine him telling any corporate client, “Don’t worry if you’ve gone through several chiefs of staff, communications directors, department heads.  Give it more time.  Let’s see if it works out.  Just keep doing what you’re doing.”  Or after observing the CEO’s behavior for three years, making the following report to the board of directors, “I know the boss is a little thin-skinned and sometimes it hurts the bottom line, but he’s only been CEO for three years.  Maybe he’ll grow into the office.  And I know you’re concerned he hasn’t shown you the books in three years.  I’m sure he’s not hiding anything.”

“Galli” gee, I “Pines” for the day when we hold the president of the United States to the same standard we hold the person who sits next to us in a house of worship, the CEO of a major corporation or just the people we call friends.

For what it’s worth.


Who’s Imitating Whom


In previous posts, I have made the case that sometimes life or politics imitates art, sports and too frequently movies.  And on a couple of rare occasions, I have suggested politics imitates business.  However, my current assignment teaching entrepreneurship in Milan has reminded me the relationship between leader and follower can be a two-way street.

In 2011, I researched and wrote a teaching case, I used to demonstrate how entrepreneurial behavior could be applied to virtually any discipline.  The case involved a decision by Bob Ortega, the owner of a regional Mexican food manufacturer, to expand his business nationally, competing against the two major players in the market.  The choice depended on several factors: product differentiation, raising the necessary capital to build the necessary national marketing and distribution infrastructure and whether he had the a support system willing to back his ambition.

The case opens with the following quote attributed to E. J. Dionne without identifying him as an opinion writer for the Washington Post.

A good entrepreneur triumphs by adapting to the times and taking advantage of opportunities as they come. A great entrepreneur anticipates openings others don’t see and creates possibilities that were not there before.

Once students finish discussing the case, I share my dirty, little secret.  There is no Bob Ortega.  The case is about Barack Obama’s decision to challenge Hillary Clinton for the 2008 Democratic nomination for president.  Dionne’s actual quote referred to politicians, not entrepreneurs.  Instead of market share expressed in dollars, the currency in the case is votes.

Related imageThis nexus between entrepreneurial and political decision making resurfaced last week while teaching a Harvard Business School case titled, “Starbucks Customer Service.”  The decision facing CEO Howard Shultz (yes, the same Howard Shultz of short-lived presidential ambition) is whether to invest up to $40 million in additional labor to address increasing consumer dissatisfaction.  The decline in customer gratification was the result of the company’s own success.  As a broader client base emerged, Starbucks faced competing needs between their original “sit and sip” patrons and the growing “grab and go” crowd.

The supporting documents which accompany this teaching case are data-heavy from which we can ascertain several facts.

  • Highly satisfied customers are more likely to drop in three more times per month than other customers.
  • Highly satisfied customers spend more per visit than other customers.
  • The increased revenue from highly satisfied customers over time more than justifies the additional investment in labor.

But that raised the most important question.  How many customers would you have to move from the “so-so” category to “highly satisfied” category to break even (i.e. cover the additional labor cost)?  The answer was 67 per store or just less than three percent of the  average annual per store clientele.  As Obama once said about calling out neo-Nazis as bad people, “How hard can that be?”

Which, as all things eventually do, brings us to the 2020 election.  Think of Wisconsin, Michigan and Pennsylvania as Starbucks.  Democratic voters became increasingly disappointed with the level of customer service and decided to buy their coffee somewhere else.  Unfortunately, the new brewer-in-chief had no knowledge of what it takes to run a roastery.  So, as we approach 2020, the Democratic Party faces the exact same situation as Starbucks in 2002.  They have two very different customer categories.  Instead of “sit and sip” versus “grab and go,” they have left of center moderates and progressives wanting to lead a political revolution.

Shultz’ targeted investment in labor solved his business’ problem.   The extra person behind the counter meant baristas could still spend time schmoozing with the lingerers without holding up those who wanted their java NOW.  After laying out the numbers, here’s the bottom-line question I ask students.  “Is influencing 67 people doable?”  And the answer is, “Of course it’s doable.”

Folks, we’re not talking about three percent in these three battleground states.  In Michigan, we’re talking about 0.3 percent.  Pennsylvania, 1.2 percent.  And Wisconsin, 1.0 percent.  “How hard can that be?”  If the Democratic Party, in the age of Trump, regardless of the nominee cannot find a way to move such a small percentage of voters from the Republican to Democratic column, they have a bigger problem than voter suppression, foreign interference and social media.

Take a lesson from Starbucks.  Find solutions that address the legitimate customer service needs of both factions within the party.  When it comes to health care, talk about a public option which mirrors Medicare while allowing those who want to stay with their employer based coverage or private insurer to do so.  On gun control, you have a consensus on two issues, universal background checks and red flag laws.  The NRA will bitch and moan, but their own members overwhelming support these initiatives.  And you don’t have to promise free everything.  You just need to make a limited number of strategic investments.  For example, do you think climate change advocates would oppose investments to retrain coal workers to build solar panels and wind generators?

Maybe, instead of debating each other, the remaining Democratic candidates could sit down over a cup of coffee and figure this out.


The sacrifice our men and women make every day to keep us safe in an uncertain and dangerous world is normally something I would not joke about.  But this Veterans Day, I cannot pass up the chance to point out a synchronistic moment that could only occur in Trump World.  It began with release of an excerpt for Junior’s book Triggered, in which he shares his thoughts while watching his father lay a wreath at the Tomb of the Unknown Soldier.

In that moment, I also thought of all the attacks we’d already suffered as a family, and about all the sacrifices we’d have to make to help my father succeed — voluntarily giving up a huge chunk of our business and all international deals to avoid the appearance that we were ‘profiting off the office.

Junior much be taking Yiddish lessons from Jared because he certainly seems to know the meaning of the word CHUTZPAH.

Image result for baby trump balloon knifedBut then we had an angry Trumpster attack the inflated Baby Trump balloon with a knife at the Alabama-LSU football game Saturday.  When I saw this picture of the deflated caricature, I could not help but think, “Junior, now that’s what I call sacrifice.”  Baby Trump gave his life for the resistance.  And is more deserving of a purple heart than Junior’s father who accepted one from a veteran at a campaign rally without even stubbing a bone spur.

For what it’s worth.


Another Bankruptcy


There is a indisputable tenet which guides successful commercial ventures, preached in every business school worth its weight. Make a customer, not just a sale.  One can argue this maxim is based solely on common sense. But activities that are dependent on a bottom line must be justified by empirical evidence.  In this case, the customer versus sale prerogative is backed up by two data points.

First, profit margins are not a simple matter of subtracting the wholesale cost from the retail price of a given item.  Each sale also carries the financial burdens of customer acquisition.  These cover everything the seller must do to convince a potential buyer to want the product and more importantly to purchase it from a particular establishment.  These costs include marketing to inform the customer of the product’s existence and its availability on-line or at a physical location.  For many new products, it also includes outlays to educate the customer about the product’s value or its ease of use.

For every new potential customer you incur those expenses again and again. But these costs are dramatically reduced when dealing with a repeat buyer or a new customer referred by an existing one.  In Malcolm Gladwell’s book “The Tipping Point,” he encourages businesses to nurture a category of customer he refers to as “evangelists,” those people who love to talk about their commercial experiences.  Think of them as pro bono marketing reps.  At no cost, they are talking you up among family, friends and associates with the  advantage of already being viewed as a trustworthy source of information.

Image result for loyalty programsThe second data point is the proliferation of loyalty programs.  They are the best example that relationships travel on two-way streets.  Why would a hotel chain or airline give you a free room or flight which it could otherwise offer paying customers to increase its bottom line?  Because the numbers show you are more likely to patronize that company even when a competitor offers a lower price or is more convenient.

More importantly, the relationship is not based solely on “what have you done for me lately.”  Everyone screws up.  However, a loyal customer is more likely to overlook that occasional bump in the road when stacked up against months and years of preferential treatment or appreciation.

Though many do not want to admit it, politics is a business. What differentiates the two is not organizational structure or procedures, it is nomenclature.  The CEO is the CIC, commander-in-chief.  Corporate divisions are cabinet departments.  The currency is votes, not dollars.  Bankruptcies are failed legislation, lost elections, resignations and impeachments.

Over the past four days, Donald Trump, the self-proclaimed “duke of debt” reminded us he is also the “baron of bankruptcies.” And the enterprise known as the Trump administration is about to learn what every successful for-profit entity already knows.  Benjamin Franklin’s adage, “A penny saved is a penny earned,” may apply to the customer, but not the vendor.  To the contrary, a penny spent on nurturing and sustaining a customer relationship is a future stream of many pennies.

The term quid pro quo has been tossed around a lot since news of the intelligence community whistleblower’s complaint surfaced in the Washington Post.  Yet, the fact is every transaction is a quid pro quo.  You exchange money for a good or service. You go to a play or movie and you are entertained.  Donald Trump is the quintessential transactional chief executive.  Everything he does is a quid pro quo.  He deprives military families of better schools for their children so he can tell his most rabid supporters he kept a promise thus alienating a voter bloc which was with him in 2016.  He gets Rudy Giulliani to manufacture alibis and false accusations to protect him in exchange for an opportunity to be relevant again.  Yet, Giulliani’s manic behavior makes Trumpist congresspersons’ task to defend the indefensible that much harder.

There is another problem with these efforts at immediate gratification.  Immediate also means they are seldom based on a solid foundation, especially one of loyalty.  That is why when Trump needs them most, Bill Barr is hiding out in Italy.  Kurt Volcker resigns and tells the House Intelligence Committee he is ready to cooperate.  A whistleblower remembers when the commander-in-chief stood in front of the CIA’s Wall of Honor and used the occasion to honor himself or chose the word of Vladimir Putin over the men and women who protect America from the next 9/11.

Do not be surprised when a line of “creditors” forms outside the House Intelligence Committee room next week when the Trump organization once again finds itself in bankruptcy court.

For what it’s worth.