Wednesday, June 29, 2011

Corporate Cash

It is, by know, well known that corporations have greatly enlarged cash & cash equivalents accounts. I first noticed the trend a couple of years ago, looking at Microsoft's balance sheet for 2009. In fact, I turned up some research that indicated cash balances were rising, not to the degree they are now, during the 2000s because of increases in operating risk. Operating risk is the uncertainty of one's operating cash flows, where the uncertainty can be generated on the revenue side, or the expenditure side.

Having done some of my own legwork on the recent buildup of liquid assets, I found that the primary cause is the sharp decrease in capital expenditure. Capital expenditure is the purchase of long-term assets used to carry on the business of the firm. For example, if a brewery adds or replaces a kiln, or a conveyor belt for the filling process, that's capital expenditure. So the question isn't, why do firms have all this money, the question is: why aren't firms investing?

Several reasons have been advanced for this. The pop-Keynesian story is that Aggregate Demand collapsed and hasn't recovered. Of course, that papers over the fact that personal consumption, both in real and nominal terms, has fully recovered and then some. The part of AD that hasn't recovered is corporate investment. So, AD collapsed because a component of AD collapsed? Lest I be thought to be begging the question, I will say that the story is that firms aren't investing because they are worried about future demand. For this story to have legs, firms must be more worried than normal about future demand, because I don't know of a company that isn't always interested in maintaining/growing revenue.

The other reason is that firms face a climate of greater uncertainty regarding the government's actions. This is called "regime uncertainty." It is caused by the government passing legislation that is difficult to interpret, will probably raise costs, and changes the regulatory game. The current federal government passed two such bills, the health care reform bill, and the financial services reform bill. Both of these are monsters (2000+ pages each), and both have significant consequences for the future that we are just barely beginning to understand. For example, Dodd-Frank is going to kill access to capital for small and mid-sized firms, thus further tilting the field in favor of the big boys that don't rely on bank financing, and in fact can go to other countries for financing.

I find the regime uncertainty story personally more compelling, because if one looks are recessions, the longest ones are associated with the most government interference. I know, the causation may be going the other way (i.e. government only interferes with really bad recessions, therefore there is an underlying factor causing recessions to be long and government interference) but I don't find that to be a convincing story.

In the next post, I will address those individuals who are suggesting that the corporations should put their money to work in order to speed recovery.

Sunday, June 26, 2011

Few words, Big Meaning

I spotted this bumper sticker on the way home from the pool today.  It was displayed on the back of a Land Rover and simply read: Government – Is Not Your Mommy.

I began to consider the meaning of those words and the implication.  I quietly shuttered at the thought.  I also wondered how other folks in America view our government today.  Do a majority of Americans hold this parental view of the state?  I surely hope not, for many reasons.

First, government is not properly equipped to be our mommy – a parent who makes it her business to fuss over every detail of our lives as we grow and mature into adults.  Mothers excel at ensuring our safety and well-being.  They nurture in ways fathers can’t, and make decisions on the fly that directly affect our liberty.  “No! You can’t have that ice cream” and  “No! You can’t stay up to midnight watching that movie.”  Mothers know intrinsically what’s best for us.  They are a cornucopia of love, kindness, and discipline.  Government? Not so much.

Additionally, good mothers know that one day their child will turn into a man or woman and begin a new life, separate from the mother.  The mother knows this and prepares the child for that day when he/she will become self-supportive and independent, relying on the training the mother has provided over the years.  Government knows only dependence.  Government (programs) is like a drug, and once an individual has tasted the forbidden fruit, a lifelong and destructive relationship has probably begun.  The addict knows that government will always be there and will never tell them no, even when “no” could save the addict’s life.  

Government ought not be our mother.  Let’s keep that special role in its proper place.

Friday, June 24, 2011

Does "Free" mean "Self Sufficient?"

I have been listening to and reading some stuff by libertarians who seem to think that in order to be truly free, one must be self sufficient. For example, many suggest growing one's own garden. I remember one especially silly reason for doing so was the great fragility of our food supply chain.

Now, put aside all the logistical reasons that one really can't be self sufficient (you'd need a lot of land per person, for one thing), and focus on the logical relationship between freedom and self sufficiency. I don't see how one follows from the other. Freedom, from the libertarian perspective, is a negative concept. It means that you are not coerced in any way; no one is invading your person or your property. It is a peaceful concept.

As freedom is a concept and philosophy of peaceful interaction, it is unrelated to isolationism. Of course, a person is free to try and be a hermit; no problem with that. You aren't free to take other peoples' stuff, though. But peaceful exchange is a fundamental part of freedom, and so to equate freedom with self sufficiency is to completely miss the point.

Wednesday, June 22, 2011

Texans are Very Bright

Mark Perry uncovers a story about something we've blogged about here: the looming ban on the incandescent light bulb.  Seems the Texas legislature has passed a law (not yet signed) that exempts manufacturers that are located in this great state from the defacto ban.

Of course, this act by the Texas legislature doesn't quite square with the supremacy clause in the US Constitution, and how it shakes out will be very entertaining.

Back in May, the Texas legislature was considering a bill that would ban TSA agents from molesting would-be passengers without probable cause.  However, the government threatened to halt flights into and out of Texas if Gov Perry signed it.  So, it was dropped.  Chickens!

May God bless Texas.

Those Rotten Squirrels, Hoarding all Their Nuts!

I can't abide these squirrels in my yard. All they do all summer is hoard nuts and seeds.Don't they understand those nuts and seeds could be useful to others, instead of just being hoarded? Selfish jerks! But, at the same time, they did the hoarding, so I suppose those nuts and seeds belong to the squirrels to do with as they please. As long as they aren't stealing the nuts and seeds from other squirrels, or the chipmunks, or other animals, it's fine. It seems they mostly find the nuts on the ground and carry them off to their hiding places. I guess they are saving it for the winter, when finding nuts and seeds is especially difficult. We do get a lot of snow here, and one never knows, does one, if the next winter will be especially bad, or rather mild. So good for the squirrels for planning ahead.

Tuesday, June 21, 2011

My response to San Antonio: Recycling

Here's my response to the letter from the Director, San Antonio Solid Waste Management.

Mr. McCary,

Thank you for the prompt reply regarding my concerns over the City’s recycling program.  From your letter, it sounds as if the City has done quite well with the recycling program.  And while you did note the program’s revenue stream of nearly $3 million dollars, you forgot to mention the program’s cost.  Without this all-important figure, fairly judging the program is impossible.

Can you please provide me the last three years of financial data for San Antonio’s recycling program? Copies of the balance sheet and income statement would suffice.

Costs of Recycling

In your letter, you proudly point out that the city has generated $3 million in revenue from recycling operations.  And, as I point out above, this is only half the story.  If, for example, the costs of the program were $4 million dollars, the return on investment is negative and the loses are surely borne by ratepayers.  Expanding a money-losing enterprise at the expense of taxpayers for the sake of achieving lofty recycling goals seems hardly worthwhile and a poor use of scarce funds, particularly if the planned expansion will only increase those losses.

Another cost passed on to ratepayers, and one often overlooked by city officials, is the cost of segregating trash from recyclables.  Under traditional garbage collection, all material is placed into one container, and the time required of the homeowner is minimal.  Recycling upends the division of labor, forcing the homeowner to cull through his trash in search of recyclables.  Often, those recyclables require some form of preparation (rinsing the dirty bottle, for example) before placement into a separate container.  City officials have essentially externalized the cost of labor.  And as more recycling is introduced (you mention organics as the next phase) the more labor will be required of the homeowner.

Another obvious cost is the capital investment in rolling stock, wages and benefits for drivers and machine operators, additional administrative costs, and the additional pollution emitted by all this machinery.  For instead of one truck collecting my trash once per week, there are now two trucks.

Lastly, I’m somewhat concerned by your goal of “a zero waste society”, and I presume that to mean abandoning landfills.  When did dumping our trash into landfills become undesirable?  Modern landfills, equipped with sanitary liners and soil-monitoring devices are one of the most environmentally sensitive and economically efficient manner of disposing of our trash.  Landfills are highly regulated, emit combustible gasses that can be captured for electric generation, and can be converted into golf courses and other recreational uses after they are closed.  Recycling, while touted as a cost efficient and green alternative to traditional waste disposal, often isn’t.

I look forward to your reply.


Brad D.

Monday, June 20, 2011

New Food Label

I ran across this food label at Whole Foods in San Antonio. 

 (sorry, couldn't rotate the image for some reason)

1)      Does this rating cover the animal’s entire life?  The last week?  Adulthood?
2)      Who verifies this information?  Is this a self-rating, honor-system based rating classification?  I see huge incentives to lie.
3)      Did anyone bother to ask the cow about the rating? (sorry, couldn’t resist!)
4)      Would an animal lover be eating steak anyway?
5)      In what ways are these labels supposed to influence my behavior?  Should I not buy ratings less than (or greater than, in this case) of 1?  What if I’m in a hurry, and the best I can do on short notice is a rating of 3.  Am I a bad person?
6)      Would the store carry anything other than a rating of 1?  While I didn’t look too hard, I did not find a product carrying a rating greater than 1. 

If this new rating system is voluntary, I have little objections.  Whole Foods caters to yuppies (besides me), the environmentally sensitive crowd, and (obviously) animal lovers.  I support any voluntary food labeling by the private sector.  However, my fear is that some busybody government official will latch onto the idea and force it onto the grocery industry via regulation.  This action would drive meat prices higher, reduce the supply of beef, and hurt consumers.