My letter to the NYTimes got published!

Folks-
For the last couple of years I've been reading the New York Times online, mostly because of economist Paul Krugman (I believe I've mentioned him a couple of times here.)

Today I finally bought a copy of the Sunday New York Times. That thing cost me almost $7 at my local grocery store!

The reason I bought it though, is because I've been writing letters to the editor for the last several months, and they finally published one of them today.

The letter was in response to an article about American Apparel being forced to fire 1,800 people who could not provide adequate documentation proving that they are eligible to work here.

I will go into my reasoning for my opinion soon, but I stand behind it.

-Edly

Going against the CW

I should mention to you that I probably write three blog/diary entries for every one I post. One common reason for not posting something I’ve written is that the situation I was writing about has changed. The other common reason is because I’ve lost interest in the subject. I would guess that eventually my hard drive is going to become clogged with unfinished blog entries. I do expect to finish this entry, because it’s important to me personally. [Note: I was pretty much finished writing this entry a month ago, but because I lost my internet connection during my self-imposed editing period, I have not been able to post it until now.]

If you read my bio you’ll notice I’m a manager at a large movie theater in Silicon Valley. I’m not going to mention which one, or what chain we belong to, partly because I need the job, partly out of respect for my employer. We don’t always agree on things, sometimes by a lot. I’m hoping this is not one of those times, because this entry is all about something I did at work.

One of my personal traits that often causes me trouble is that I’m pretty good at focusing on what needs to be done now to the detriment of things that need to be done later. Short description: I procrastinate a lot. I’m especially bad about paperwork. This doesn’t necessarily make either my boss or my employees happy. It’s probably a good thing I don’t do hiring at my location, because we’d probably only have three employees and a hamster running the place if it was up to me to get the paperwork done.

My boss had to give me a deadline to get my employee reviews finished because I was procrastinating like heck about getting them done. However, I did get to thinking about it a lot.

I tend to follow the New York Times. I find that the economic coverage is quite good, especially Paul Krugman’s work. I’m sure it’s no surprise to you that we’re in an economic “downturn,” which is the tepid way of saying that the economy is going down in flames at the moment. For once (make note) I’m not going to assign blame to any politician or political party, okay. This might be the only time, so pay attention. This has affected the theater where I work in surprising ways. I wouldn’t have been more than marginally aware of them if I hadn’t been paying attention.

Several of the major theater chains have gotten together in a consortium to borrow money in order to buy digital 3D projectors for their theaters. Often banks will be more willing to lend money to consortiums, thinking there’s less of a likelihood of them defaulting on the debt if you have several of the majors involved. This hasn’t completely been the case this time. Although the banks have loaned some money to the theaters for digital 3D roll-outs, the theaters have had to cut back on the rate of installs because the banks just aren’t willing to loan as much as the theaters need for the ambitious plans they had. Dreamworks Animation head Jeffrey Katzenberg is definitely aware of this if industry emails are to be believed, and is trying to get the banks more motivated into loaning the money.

If you’ve read some of my past entries, such as the one about my financial situation (which hasn’t changed much at this time,) you’ve probably read my speculations that bankers are so freaked out about the economy that they’re just psychologically shutting down. To me it seems that they’ve traded out years of a “lend any amount of money to anyone, regardless of ability to pay!” attitude to replace it with a “don’t lend anything to anyone, regardless of who, why, or ability to pay!” attitude. They don’t seem to realize that neither attitude is going to help them. You can’t make money as a lending institution if you lend it out to people who don’t repay it, or if you refuse to lend it out to people who can. Basically, bankers, and a whole lot of other businesspeople have decided to hunker down, save as much as they possibly can, and hope for the best. They can hardly be expected to do differently, since the common wisdom (or CW) says that’s what you’re supposed to do. Professor Krugman calls this “Irving Fisher’s theory of debt deflation.” In his blog at the New York Times, he says: “As everyone tries to work off excessive debt, the combination of a contracting economy and falling prices puts everyone deeper in the hole.”

Professon Krugman describes this more fully in his editorial in the New York Times on Monday, Februrary 16^th, 2009:

And as the great American economist Irving Fisher pointed out in the 1930s, the things people and companies do when they realize they have too much debt tend to be self-defeating when everyone tries to do them at the same time. Attempts to sell assets and pay off debt deepen the plunge in asset prices, further reducing net worth. Attempts to save more translate into a collapse of consumer demand, deepening the economic slump.

The CW also says that movie theaters tend to thrive in bad economic times. People want to go out for entertainment, and if concerts and other promotions get to be too expensive, well, movies are still a good bargain. There has been some speculation that this time is different, that people will instead stay home and watch TV on their new big-screen HDTVs. I decided to analyze our box office for the month of January for both 2008 and 2009 a little while ago on a lark. In fact, I didn’t even have a reason in my mind for doing so other than I found out how easy it was to do it a few weeks ago while playing around with the company software in the office. My discovery was that, at least for our location, the CW was right. Year on year we saw a significant increase in attendance and box office gross. I feel that I can’t say exactly how much the increase was, but the percentage difference was in the low double digits. This is remarkable to me considering how much weaker I feel the movies were this January over last (that’s just my opinion.) I’m at least partly attributing the increase to having two different 3D titles that month at our theater. The industry as a whole is also reporting a record month this last January, so I know it’s not just us. Also, the increase isn’t just in gross or net income, it’s in overall attendance as well, so we know more people are coming to see movies.

So, in my opinion, and with the limited data I have at hand, the bankers are making a bad decision in deciding not to loan more money to the theater chains to install these projectors.

Reading the New York Times online has gotten me thinking a bit differently about how my actions affect things and people around me, especially the economy. As I started working on my employee reviews I found that I had to make a choice about how much of a raise I was going to give them. My opinion has been, and this is just my opinion, that if someone is doing a bad enough job that they don’t deserve a raise at all, I should fire them. That means that everyone I give a review to gets some kind of a raise. Confronted with the information above I had to then make a decision on how much of a raise to give my people.

The theater is doing pretty well right now, but that could change if the economic situation gets worse and people decide to stay home and watch TV. So, it might make sense to lower the minimum raise amount I give my employees so we can save payroll in case of a downturn in receipts later this year or next.

But what effect would giving my employees a smaller raise have?

My employees tend to be younger. Most are college age (with some of them going to college, and many not), with a few high-school age employees (some going to school, some not), and a few of them shooting for retirement. What is likely to become of the extra money my employees make?

The ones that are retirement bound are likely to save the extra money, or use it to pay off debts. That’s not such a bad thing. If they save the money in bank accounts, that means the banks have more money to work with which is likely to calm them a bit. They are just a little bit more likely to start lending money out.

Well, the ones that are high-school or college age are likely to spend that money for the most part. That money doesn’t disappear. It is mostly going to go into the local economy. That could mean that some local businesses that may be on the brink of bankruptcy, especially restaurants near the theater, may avoid that fate. Their employees could keep their jobs and continue to see movies at my theater.

That’s a big plus for my company.

So, what did I decide to do? I decided to increase the raise I gave to my employees by a lot. The employee that did the worst (which isn’t saying much since I have a good staff right now) is going to get a larger raise than I gave to my best employee last year. My best employee is getting a raise nearly twice what they got last year. And now my employees are going to have more money to plunge into the local economy. In addition I hired more employees in my department to deal with upcoming movies.

And this year the company changed from yearly reviews to biannual reviews, so in six more months I’m going to be doing this all over again. So, even if I go back to my usual raise amounts they’ll have gotten a nice one already this year. But hopefully I won’t have to, especially for the sake of the new employees I’m hiring who will be getting their first reviews at that time.

Here’s the thing, though. Even if I do this, and it has a small stimulative effect on my local economy, it’s not going to be enough to really get the economy out of the doldrums. One theater can’t stimulate the economy by itself. In order for this to have much of an effect more people will have to do the same thing. I’m sure there are a lot of middle managers out there who, like me, only have spending authority over their employee payroll and maybe some petty cash. Those of us that are looking at a good year, which should include almost all movie theater managers, should strongly think about increasing the amount that we pay our employees. If we don’t, we risk Irving Fisher’s theory coming back to bite us.

Sources:

Paul Krugman’s Editorial, Monday, Feb. 16^th, 2009: “Decade at Bernie’s”, link: http://www.nytimes.com/2009/02/16/opinion/16krugman.html?_r=1

Paul Krugman’s Blog, Sunday, Feb. 15^th, 2009: “Debt in Wartime”, link: http://krugman.blogs.nytimes.com/2009/02/15/debt-in-wartime/

Republicans cut off our nose to spite unions and clean air

In case you didn’t notice, the loan package that GM and Chrysler requested from the Government collapsed in negotiations last night. The reason: Republicans in the Senate objected to Union workers not immediately taking pay cuts more than they wanted to (ahead of contract negotiations) and because there were requirements to clean up tailpipe emissions. Even the current President was in favor of this loan package.

And no, I won’t call it a “bailout package.” This was a loan package. What the financial sector got was a bailout package—money without strings attached or a need to repay any of it. I am against a bailout of the auto companies. I am not against a loan to them. There is a big difference.

As a devotee of Paul Krugman (economics editorial columnist at The New York Times,) when he mentioned an article at The New Republic titled “Panic in Detroit,” I went over there and read it. Here is (to me) the most important section of that article:

One reason for the casual support for letting GM fail is the assumption that bankruptcy would be no big deal: As USA Today editorialized recently, "Bankruptcy need not mean that the company disappears." But, while it's worked out that way for the airlines, among others, it's unlikely a GM business failure would play out in the same fashion. In order to seek so-called Chapter 11 status, a distressed company must find some way to operate while the bankruptcy court keeps creditors at bay. But GM can't build cars without parts, and it can't get parts without credit. Chapter 11 companies typically get that sort of credit from something called Debtor-in-Possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate.

That's why many analysts and scholars believe GM would likely end up in Chapter 7 bankruptcy, which would entail total liquidation. The company would close its doors, immediately throwing more than 100,000 people out of work. And, according to experts, the damage would spread quickly. Automobile parts suppliers in the United States rely disproportionately on GM's business to stay afloat. If GM shut down, many if not all of the suppliers would soon follow. Without parts, Chrysler, Ford, and eventually foreign-owned factories in the United States would have to cease operations. From Toledo to Tuscaloosa, the nation's assembly lines could go silent, sending a chill through their local economies as the idled workers stopped spending money.

Now do you understand why it is such a bad idea to let GM and Chrysler go bankrupt? Local economies would also feel the pinch of this kind of bankruptcy as auto dealerships immediately went out of business. Other, related industries would also feel the pinch, as local auto parts stores become unable to replenish their stores of parts, restaurants and entertainment venues start seeing fewer customers, stores and shopping malls make fewer sales, and all of them start going bankrupt. Some estimates for unemployment go as high as 5 million people just for the big three going out of business.

Why? Because Republicans want to crush the Unions, and you bloody well don’t have the right to breathe clean air, dammit! Nothing personal, it’s just business if you can’t work or breathe.

The Republicans keep saying that it’s to get the pay of the Union Auto Workers at domestic manufacturers here in the U.S. down to the same level that they are being paid at foreign owned plants in the U.S., but they aren’t mentioning the massive subsidies that they gave those foreign companies to locate those plants here.

Now that I’ve made all of that clear, do you feel any better about Republicans? I sure don’t. All they’re doing is making sure I never vote for a Republican again. It’s clear that you can’t trust them to make the right decision—even if the right choice is very clear.

And last night, was a very clear night.

Sources:

“Panic in Detroit”, by Jonathan Cohn, published by The New Republic, 11-14-2008. http://www.tnr.com/politics/story.html?id=a4893b49-36df-4784-9859-2dfa3a3211bf

“$14B auto bailout dies in Senate”, by Julie Hirschfeld Davis and Ken Thomas, published by Associated Press, 12-12-2008. http://news.yahoo.com/s/ap/20081212/ap_on_go_co/congress_autos

Or: http://hosted.ap.org/dynamic/stories/C/CONGRESS_AUTOS?SITE=MOJOP&SECTION=HOME&TEMPLATE=DEFAULT

Deflation redux

Folks-
Paul Krugman pointed out today in his blog one reason why deflation is bad for the economy-corporate cost to borrow money goes up. Read it at his site at The New York Times.
-Edly

Economics and the Auto Industry Bailout

Folks-
In case you weren't aware (and since I haven't mentioned this on my blog, why would you be?) I am becoming a devotee of Nobel Prize winning economist Paul Krugman. He writes a column over at The New York Times several times a week, and has written several books. He is a self-labeled liberal, as am I, which is somewhat rare amongst high-profile economists, ([Edited 11-21-08: as I am not.]

In addition to his column at the New York Times, he also has a blog over there that I check out several times a week. He usually posts short entries there daily, including links to other sites with good information. That is where the first of two topics I'm going to mention come from.

Johnathan Cohen over at The New Republic has published an article titled Panic in Detroit arguing that we should bail out the big three automakers. His arguments are persuasive: The big three aren't the dinosaurs they used to be--the Chevy Volt, slated to come out in 2010 is a good example. Nothing like it is scheduled to come out of Japan, or any other country on any timescale. He also argues that the big three are coming up with cars of better quality than they have in decades, and according to Consumer Reports, better than the Japanese. In addition he argues that allowing GM to go under means not that they would reorganize, that is unlikely considering their position, but rather that they would be liquidated, meaning a loss of jobs not less than 500 thousand, but probably closer to 1.5-2.5 million, increasing the jobless rate by about a third immediately, and forcing the other two automakers to go to sources outside the U.S. for parts. That's only counting the economic hit for GM and it's parts suppliers, not the surrounding businesses, such as restaurants, hospitals, etc.

I've gone on too long about the article. Check it out for yourself and see if it changes your mind about letting GM go down.

The second topic here is also from the New York Times. It seems that for the first time in recorded history, the U.S. is looking at deflation instead of inflation happening. Jack Healy writes a report titled "Consumer Price Decline Prompts Fear of Deflation." This article is shy of some background information, which I'll try to provide here.

Economists of all stripes consider deflation, the increased value of money, to be more damaging than inflation, the devaluation of a currency. In our case it means that the value of a dollar is increasing, rather than decreasing, as it usually does. Why would this be a problem? If you have a whole lot of dollars stuck in a mattress, it isn't much of one. However, if you are working for a living, or have your money saved in any kind of interest paying instrument, such as a savings account or bonds, it means you will be getting no interest paid on your money, and you are likely to take a pay cut. It also means that there is less investment in the economy. In fact, deflation usually means that the economy is shrinking significantly. In most situations the Federal Reserve could stop deflation by decreasing interest rates and loaning more money, but at this moment the interest rates are already as low as possible. Doubt me? About a month ago yields on U.S. government bonds actually went negative for a short while (interest rates of less than 0%.) An example of negative interest would be buying a bond for $100 that was only worth $97 (these numbers are illustrative only.) That might seem an odd thing to invest in, something you know is going to lose money over the long term, but investors were so worried about the money they were losing anyway that they were willing to lose a small amount over the long term instead of losing their entire fortune immediately.

Now you're ready to read the article. Go ahead and check it out.

-Edly