The Lowest Cost Means the Highest Net Income

The average hourly pay rate in the state of Washington is $22.32. The average hourly pay rate in South Carolina is $17.33. So Boeing Company has decided to build their new 787 Dreamliner in a North Charleston facility in that Southern state. Of course there is also an incentive package by South Carolina that sealed the deal.

The lesson learned is that free enterprise always looks for ways to lower its cost of doing business. The state of Washington does not own Boeing. There is no pact that requires their allegiance to that state’s population. Lockheed moved from Los Angeles to Atlanta. Technicolor has moved its CD and DVD manufacturing facilities that was located in Virginia and California to Mexico. Many companies have outsourced their manufacturing to other countries.

Let me put this another way. Stock holders are not interested in providing welfare. They are interested in net profit. This too is part of America Incorporated. Any questions?

America Incorporated

The United States is borrowing a page from Red China. China has adopted a model that includes both free enterprise and government control. Red China actually is copying the American model that was partially implemented by the United States until President Ronald Reagan said “government is the problem.” Ronald Reagan was wrong.

Reagan’s impact lasted until the election of Barack Obama. The dismantling of many laws put in place after the Great Depression has caused the Great Recession.

The economic model that works best is one of both government and private enterprise working in unison to provide for continued moderate growth without creating a super wealthy class and reducing poverty.

Republicans and conservatives will fight the intent of this course because they believe it will destroy the nation. They are wrong. The United States is a consumer driven economy that is based upon the purchase of product. It cannot thrive without employment of most people at salaries that enable that continuing purchasing power. The public correctly objects to CEOs earning 200% to 300% more than the average wage earner.

The government’s investment in companies like Fisker Automotive is the kind of step that the Chinese government makes to improve society by employing thousands of people.

Why Not Los Angeles?

Thanks to my father my family moved from Philadelphia to Los Angeles after WWII. There are many reasons for not bringing your family to Los Angeles. Most of them are poor arguments.

Metropolitan Los Angeles spreads across five counties. Traveling north to south it spreads across a distance of about 75 miles and from the beach to inland cities and towns and spreads east about 50 miles. Many people travel a distance of 30 to 35 miles just to go to work. For most people a car is necessary for the commute to work.

Homes are relatively expensive. Even with the downturn in housing prices for a home of 1700 to 2000 square feet will cost at least $350,000. Those least expensive homes are in lower income neighborhoods.

What makes the city desirable are the following features:

1. Total annual rainfall averages 16 inches. Snow is a rarity. Temperature today reached 87ºF/30ºC at my home (October 26, 2009). Winter temperatures drop below freezing at night for about a week every January. How far below freezing? One to three degrees.

2. The entertainment facilities are second to none. Live theater is in neighborhood venues, the Hollywood Bowl, L.A. Live, Staples Center, Disney Hall, comedy clubs, etc.

3. Medical facilities include UCLA, City of Hope, Cedars Sinai Hospital, etc.

4. Universities are too numerous to list but include UCLA, USC, California State University has four campuses.

5. Beaches include Santa Monica, Malibu, and Laguna.

6. Amusement parks include Universal City, Disneyland, Knott’s Berry Farm, and Magic Mountain.

7. The largest port in America and the entertainment industry brings lots of job opportunities.

8. There is also the zoo, museums, gardens, and wonderful shopping malls.

What’s wrong with this picture? The people are too liberal, many races and ethnic groups are intermixed throughout the city. West Hollywood is an internationally known gay and lesbian community. You may have to wait an hour and a half to be seated at Miceli’s and parking at the Beverly Center is always a challenge.

Getting Happy with the Future

America has finally obtained what so many of us has wished and hoped for, the success of countries all over the world. It’s not just European nations that have become prosperous. Even China and India have become nations with growing middle class societies that can afford homes, cars, and wide screen television. China has been documented on television in the United States about its growing middle and upper classes. Fareed Zakaria reports in Newsweek that China “will spend $200 billion on railways in the next two years, much of it for high-speed rail”. The Los Angeles Times reported on October 21, 2009 that China’s growth is at 8.9% thanks to their stimulus and lending programs. BusinessWeek reported on the growing middle class in Turkey.

The bad news is that their prosperity impacts our prosperity. Why? If those other nations prosper they will compete with the United States for the sales of many of the products we export to the rest of the world. Most other nations have lower labor costs than the United States and that affects our competitiveness.

For the United States to continue its economic dominance will require at least two occurrences.

First there will have to be a new advance in part of our economy that will be a show stopper. It will need the next new thing. It will be something that everyone realizes is a “must have.” The federal government is trying to motivate this idea with talk of the new “green” environment and the possible development of new energy sources.

Second, the cost to produce this something new will be accomplished in the United States at a competitive rate with the rest of the world. That evolution is already happening with the lower trade value of the American dollar. Americans may not like this outcome because the cost of oil, cars, televisions, and cameras will be higher. The cost of traveling to another country will be higher.

Just as buggy whips and newspapers are part of the past, new ideas are part of the future. Our inventiveness will make Americans happy with the future.

The 21st Century World Economy Has Arrived

The United States was not interested in the rest of the world until WWII. Our nation kept up its protectionist and no alliance philosophy until that war thrust us (were we dragged?) into a position of leadership. Exceptions to that basic idea did occasionally occur. There was the famous bombardment of pirates off the north coast of Africa in the early 1800s. That was an independent action that led to know alliances. WWI is the outstanding example of working together with other countries to defeat a common enemy. At the end of that war the United States did not join the League of Nations. Instead the country reverted to its no alliances philosophy.

The idea of no alliances apparently dates back to Thomas Jefferson. He extended Washington’s ideas in his March 4, 1801 inaugural address: “peace, commerce, and honest friendship with all nations, entangling alliances with none.”

A Cato Institute article on free trade confirms the philosophy of high tariffs. The article provides a U.S. Department of Commerce graph that shows 30% import duties on durable goods until WWII. Pat Buchanan, the conservative talk show host and former presidential candidate, still contends that the United States would be better off economically if trade barriers were in place. He repeated that position on the McLaughlin Group on Friday August 21, 2009. When was the last time he went shopping? Walmart, Target, Sears, Best Buy, etc. are all part of the global market place.

It’s understandable why Buchanan and others believe that protectionism is the salvation for the United States. We can’t compete with other nations for many goods and services. Our cost of living is just too high.

Listed on President Barack Obama’s top five books to read this summer is Thomas Friedman’s The World is Flat. It’s a book that tells us something we already know but in horrifying detail. This book tells us about the interdependence of every nation in the world. The quote “President Obama will probably learn of the operation from CNN” evidences how well we have connected everyone. Even Mayanmar’s (Burma’s) secretive government has been unable to keep events in that country a secret from the world. Neither 10th century Muslims nor Asian dictators can stop the interconnected world. Visit Toronto, Canada and it’s like visiting the United Nations. You will realize the world cannot be turned back.

The answer to our dilemma is innovation and invention. This nation gave birth to assembly line manufacturing (Henry Ford’s factories), the telephone, the computer world, and the internet. It was Thomas Edison who invented the light bulb and the first recording devices. The largest and most successful aircraft manufacturing companies were built in the United States. It’s that creativity that will revitalize this nation.

What will it be? I don’t know. It could be new car batteries or new ways to generate electricity or something else.

The new world has arrived. Get excited!