My reponse to a Business Week article

I recently submitted this answer to an article in Business Week titled: "Can the Future be Built in America" September 21, 2009 issue.

Re: “Can the Future Be Built in America?”

If the product is a patented monopoly, it can still be built in America. Otherwise it will be made in Asia or India. Not because of the cost of direct labor normally a maximum of 15% of sales, it will be moved because of the governments aversion to manufacturing jobs that pay (by Federal DOL stats) $20,000 more than service jobs. The cost of OSHA, ADA, EPA, Workman's Comp, Tort insurance, minimum wage, medical insurance, paid vacation and holidays, paid leave of absence for maternity, taxes on inventories, taxes on buildings, land, payroll taxes, etc.

Are these programs wrong? Perhaps not. The problem is that these millions of manufacturing jobs and the millions of supplier jobs have been moved outside the US because the countries taking these jobs do not have these hidden costs of manufacturing added to their materials and labor costs.

When the products come back to the US there is no tariffs charged on products to equal the US government's added burden on US manufacturing. Having been a consultant in manufacturing productivity for 17 years, I will unequivocally say that the US worker, properly motivated, will outproduce any other worker in the world. All they needed was a level playing field.

Now, because US manufacturing was not given an equal chance, we have tens of thousands of shuttered plants, millions of lost manufacturing jobs all of which do not pay any taxes. This yields broke governments., companies bailed out, people who once held good manufacturing jobs forced out of foreclosed homes, holding insurmountable credit card debt, and experiencing what will be over 10% unemployment simply because some people in government thought bringing in cheap goods was good for the poor people in the US and for the US environment.

China now with trillions of US dollars used in purchasing stockpiles of critical commodities is now engineering and designing products as well as systems once the purview of US manufacturers. By next year, they will have sufficient internal demand for their goods, they will not need US sales. Then would they need to purchase our debt? These are exceptionally smart, hard working people focused on a long time horizon. So don't bet on it.

The great economist Adam Smith got it right. A nations wealth is dependent on Agriculture, Mining, and Manufacturing. This leaves the wealth of the US hinging on Agriculture. Almost everything else has been outsourced.

My book “China's War on the American Economy” details the manipulation and emasculation we have experienced over the past ten years. If you really loved manufacturing as I did, you might enjoy the book.

George Koeninger

, 9/21/2009 issue.

Future Air Travel on Nickles and Dimes

You arrive in your airport and immediately hear, “The time is 9 AM on June 5, 2011. Your friendly Homeland Security Staff welcomes you to our secure airport. Please remember that you can not carry any bags on an airplane. Report immediately anyone trying to buy a government ID card or leaving a bag unsecured. You will be required to be scanned using a full body scanner. We want you to know that those security people that have posted some of these scans on the Internet have been severely disciplined by suspension for a week with pay. You should have packed your shoes in your baggage already. Comfey booties can be purchased from your friendly airline. For your information the display TVs will post daily those airlines going into or coming out of bankruptcy with government bailout funds..”

You approach your airline's baggage drop. There is no airline representative to be found. A small sign points you to a phone where the charge will be $50 to speak to a live person (in a foreign country of course). In front of the printer kiosk you see the sign posted for fees. Your airline will be happy to ship your bags for you for the small fee of $30 for a pocket book, $45 for a laptop bag, $65 for the first suitcase and $150 for each additional suitcase. In order to get a boarding pass you had to book your own flight through the Internet using your RFID (Radio Frequency ID chip) tag number assigned by the government. The government health care database maintains your vital statistics including finger prints and iris eye scan. A quick scan of your government provided ID with an eye scan allows you to print your own baggage claim and identification tags. You affix the tags to your baggage. You then place your bags on a cart for which you rent for $5.00. You then wheel your bags to security. Your baggage with its RFID tags has been matched with your RFID tagged drivers license and a scan of your eyes confirms you are you. Of course you would not have been allowed to purchase a ticket unless you had clearance to travel to the destination you were ticketed.

Because of government regulations for over weight people, you now pay by the pound for your ticket. You then step on scales and your weight determines the final ticket price. If your body fat index exceeds federal limits, you are then charged a surcharge for being overweight.

You then proceed without shoes, but with your bags to security where your RFID tag is scanned, your eyes are checked again and then you pay a fee of $25 to pass through the full body scanner. Should you decline, you will be taken to a room where a full strip search will be performed. The fee is $75 for this special service. You note there is a lot of giggling coming from the group of Homeland Security people clustered around the scanning monitors. Your bags proceed through another separate scanner using radioactive isotopes. A posted notice says your bags will glow in the dark for a few days, but that will go away in time.

Once passed security, you collect your baggage cart and stop for a cup of coffee. Your cell phone provides payment by charging the coffee directly to your cell phone bill. After the coffee, you feel the need to stop at the restroom. You pay for a sanitary kit from a machine depending on what you need to do, The kits have feminine products, or standard toilet paper, paper hand towel, and soap, or just soap with a hand towel. In addition, you will be charged a small occupancy fee per minute for use of the facilities. Again, all billed to your cell phone. Paper and coin money were outlawed last year. Because of massive defaults on credit cards the government has stepped in and uses their database to check to see if you ave enough debit units, formerly called dollars, to cover your purchases.

As you approach the gate, you push your baggage cart over to a slide that takes your bags down to be placed in the belly of the plane. With all the baggage handling, you are somewhat tired and desire to sit down. You understand you will be charged a small seat usage fee. You can get a seat close to the gate for just a few more cents per minute than those further away so you sit close to the gate. You can hear the announcements coming from the headsets you plug into the chair. If you did not bring your own headset (and, you couldn't because of security) you can purchase a set for $6 from your airline.

Those that do not pay for a headset will not know what is going on other than the Homeland Security and government announcements blaring constantly over the airport PA system. From a tablet affixed to the arm of your chair, you can select the food, drinks – including water – you would like on your flight, each with its fee and the tips that are included. You are advised that a restroom break in flight will cost about double what you paid for at the airport, so it is suggested you go now if necessary.

Suddenly, you hear that some seats in first class have opened up. Those first class passengers now have the same room as coach, but receive a discount and are first in line for the newest service in air travel. “Flyby airlines is pleased to have on board today Butch and Suzie, former GM employees, who will provide our special relaxing therapies on this flight. Butch was recently given the JD Flowers award for providing the best male or female relaxation services on any airline for the past six months. The fee for 20 minutes of special relaxation from Butch will be $200 and for Suzie only $150. First class passengers will have first choice of times.” There is a rush to get to the desk for first class seats. After first is filled, your tablet allows you to select other therapy times that are available. You realize how rapidly the time slots are filled for this popular service.

Boarding is much simplified as there is no wheel chairs, walkers, or babies in strollers allowed. On boarding are handed a paper bag with your prepaid meal and beverage request. As there are no bags to be placed overhead, the plane is loaded within 15 minutes after landing. You notice that seats no longer exist, and are replaced with very small vertical cubicles with a padded rail to rest your post-derrière. The airlines figured a long time back that without overhead storage, people could fly standing up. This increases the plane capacity by 50%. Capacity could be more except the therapy rooms take up some space, but are very popular and most profitable. So you strap yourself to your cubicle and get as comfortable as possible. As soon as takeoff, you hear a lot of giggling and moaning as Butch and Suzie start their therapy sessions.

The pilot comes on and identifies himself as the newest X-407 control module and wishes all a restful flight. There are no flight attendants as this has been deemed unnecessary. If the plane crashed, the more that died would reduce future medical expenses for the government. Consequently, safety is no longer a major issue. Because the airlines, like banks and hospitals, are now an arm of the government, they can not be sued anyway no matter how an injury is caused.

After the computer pilot's message, a light mist emits from the overhead air nozzles. Inhaling, you start entering your very own happy place.

Within what seems like a few minutes, you are jolted awake as the wheels hit the tarmac and feel the temperature rapidly rising in the cabin along with a noxious odor. Now, you want only to get off the plane as quickly as possible. When the door is opened, there is a raft of like minded souls pushing and shoving to exit the plane. Within a few minutes, the plane is clear of passengers and ready to reload. You get your bags at the gate you landed at and then haul them to your ground transportation or your next flight.

On the plane, Butch and Susie wipe the sweat from their bodies, count their piece work tickets, place a clean sheets on their therapy tables, and check their latex and special oil products. Almost immediately the next herd of passengers rush on to enjoy the flying experience brought to you by our ever watchful federal government and our wonderful corporate airline executives who finally came up with a new version of a very old profession called “Customer Service”.

Observations

I am not sure whether or not the present "Worst recession" since 1928 - 1932 is about over, was about as serious as the recession of 1982, or is a political ploy to create unrest allowing the big spenders to go forward with their socialist agenda. Here are a few observations from my perch in Houston.

My sister came down from Montana for a visit last week. She lives in Libby where no major manufacturers or miners now exist - closed by EPA. Yet, she is unable to hire anyone to help her doing house cleaning, much less hire anyone to work in the barn to keep the horses fed and groomed.

I took her to Fredericksburg TX slightly west of Austin. It is a tourist area. The roads going and coming were packed. The motel - a Best Western - was full Wednesday through Friday. The restaurants were packed with waiting lists as they are now in Houston.

While the girls were shopping I had the opportunity to visit with one of the upscale store owners in Fredericksburg. March of this year broke all records for the past ten years. I also had the same experience with a Coach store in Humble Texas. (I see where Coach and Nordstroms stock is at new highs today 4/21)

Most of the manufacturers I work with are doing OK. Yep, they could be doing a lot more volume, but are OK. One is working 60 hours per week! I have noted that it was de rigor in the stock market to post huge layoffs when a bad quarter was reported. Then, the stock would go up. Now I see quite the opposite as stock prices fall on reported layoffs. Usually I, as well as others it seems, find the workers that produce potential profits through adding value are laid off while the nonvalue adding "Heads" remain employed to continue to destroy the business while reaping their huge paychecks. In fact, it is my opinion that when huge layoffs occur it is because of lack of vision on the part of management. Those with this lack of vision and inability to steer the business around the economic potholes should go first.

Off the soap box and onward with observations.

I am now paying $1.99 for diesel fuel which is between Regular gas and Mid range gas. I did not see any of the oil field pumps working on my trip over and back from Fredericksburg. Normally there are 20-30 working along with drilling rigs.

The huge equipment auction company located at Beltway 8 and Hy 59 with over 50 acres of heavy earth moving equipment storage was completely full as thousands of pieces of heavy equipment and trucks packed the property in January, and now has only about 50 pieces are sitting in the middle of their yard. I have also noted that there are a large number of drive-out license tags on cars I see on the highways with some of the local car lots slimming inventories down.

Yes, there are other equipment repo yards that remain full, and these inventories will be worked down before new equipment will be required by the markets. This is one reason why CAT lost money

My daughter sold their house in Austin in 60 days. I thought the place was over priced in the 180's. My former neighbor across the street sold his house (45 days on the market) last month at a premium - he got his asking price. [ I assure you that trying to sell a house across the street from mine is a task unto itself!] The house just up the street from where I live sold at a huge premium to the market last weekend with less than a month on the market, and my daughter and son in law just purchased a house that was on the market for over a year. The house across the street now has a new roof, driveway, and new windows. The house down the street is putting in a huge pool complex, and three on the street have new roofs being added, probably due to the hurricane. I now see a lot of California cars in Houston and also in Dallas.

I had some day surgery yesterday in the Med center in Houston. If you have prostate problems, give me a call. Technology advances are just awesome! However, there are as many as 10 - what I call sky hook cranes - working in the Med Center with 10 - 30 story complexes going up. On the drive in to the Med Center, I saw a couple of 'street people' playing chess on an overturned barrel. So much for job searching.

The old "saw" is that furniture goes into recession about 6 months early and exits 4-6 months after the rest of the country is out of recession. Keep on keeping on - "This too shall pass!" Drop me a note and tell me what you are seeing. I'll pass it along.

Take off the blinders.

I grew up in Tennessee. Mules wore what was called blinders to focus their vision directly to the path in front of them. This prevented outside distractions.

When business is great, blinders makes sense in order to increase profitability. However, when business drops, you need to remove the blinders. I had recommended to a company I am privileged to work with that they outsource part of a large contract job they had received to another company I had also worked with. The manager made a call to the company I knew had available equipment, and personnel to do the job. He was told by someone in the office, "We don't do any contract work."

I could not believe this response!

Each company needs to make an assessment of their strengths, their equipment, and their people to see what other business could be obtained to fill the voids in the current business lull. And, under no circumstance should potential business be turned down until all the key people in the company decide that there is no way it could be done. A person turning down business today needs to be replaced unless there is no way it could be done in the plant.

If you are the company that turned down good business you could have done, George says, "Shame on you!"

I have been thinking about this "Stimulus" package. I did not see anything that is going to promote manufacturing, or mining, or agriculture. These are the ONLY three things that create real wealth. If you desire, see the economics part of my book "China's War on the American Economy."

If we fund a new bridge, the crew is hired, the bridge built, and the job goes away. During this time the person building the bridge weekly buys his or her smokes, a six pack, and spends the rest - after taxes - on their family. In a few months they are unemployed again. There is also a lot of money to be spent on political friends, I'm sure. What will they do with their cash to create more real jobs? More houses in the Hamptons, Aspin? When those are built, then what?

It really goes back to the old saw, "Give a man a fish and he will be hungry again soon (and vote for more of the same), or teach him to fish and he will be self sustaining. (Not beholden to anyone?) Would not good manufacturing jobs be a real long term stimulus? Particularly if they are in America?

How about a tax reduction on business to 10%. And, a tax reduction to zero in blighted areas for a specific time for real value adding manufacturing? Nahhhhhh that's too simplistic.

Interesting to see companies in Houston departing to headquarter in other countries where the tax burden is less. I was told that Exxon pays more in tax to the US Government than they earned in their US business. About six months ago Emirates Air flew a couple of times into Houston. Now, daily. People are leaving California at the rate of 100,000 per year to flee taxes. People will move to get away from taxes. One reason I'm in Texas.

So lets cover our deficit of 5 trillion by raising taxes more. Soon, those remaining will be working for one huge government and paying their full wages as a tax to pay for the government they work for. If you are the last one out, I doubt if you will have to turn off the lights. They have been turned off for a long time already!

Your thoughts?

Mexico

Six or seven years ago, I was fortunate to have worked with a manufacturing company in Mexico. The plant I was working with was located in the central part of Mexico with a workforce of about 400. They were at work by 7AM and, as I left the plant at 7PM many were still working. Saturday was no exception. The wages were meager to say the least at that time. The city was clean, organized, and relatively safe. I vividly recall about 2 PM one day, having to go to the office and ask the AC be turned on as my skin had turned bright red and was not sweating. Yet, the people remained hard at work in the plant. I was told that "You get used to it."

The economy was governed by the very wealthy, there was little or no middle class, and a huge working class, living under Catholic education, and producing more working class. Due to pay and living conditions in the US and Canada, it was a given - from any study of economics - that there would be a push by the people to balance the incomes of the Americas. After all, the value added by an employee in Mexico was just about as much as that value being added in the US and Canada. yet the wages north of the border were ten to fifteen times higher.

With China coming to the fore with wages ten times lower then Mexico, the Mexico jobs went to China as did most manufacturing jobs in the US and Canada. This sucked the main producer of wealth into China from North America.

This left those very hard working Mexicans with families and no way to adequately feed and clothe their children. There were two options, first to flee across the border to America and Canada, which has been estimated I believe to be about 5+ million people, and take jobs that no one else wanted to do. Roofing, gardening, slaughterhouse work, construction, pouring and working concrete, all come to mind.

Still, there remained a large workforce that did not want to leave their homes and come north to work crossing a dangerous border to do so. With the push in South America to limit the drug trafficking from South America direct to the US, the road was opened up to go through Mexico. The loss of jobs in Mexico left an intelligent, willing, hardworking, and certainly able group of people to go into the underground armies of smuggling drugs north. After all drug smuggling to an affluent market in the US paid very well.

Now, not only are the major Mexico cities located on the major drug routs controlled by these underground armies, they are now moving and targeting resistance in the US and Canada. I read today where the police chief in Juarez, south of El Paso resigned because of the in ability to protect his officers.

Having worked in manufacturing for all of my career, I know the devastation caused in families by our present drugs of choice, cigarettes and alcohol. I have seen many a good career ended. So, consequently, I do not take the solution I propose lightly.

The founding fathers of the US believed in individual freedom and individual responsibility. There are some remaining in the US that still believe that our founding fathers were right, though the light is flickering and about to go out. In the early 20th century, we, the citizens of the US, started turning our responsibilities over to our government. This included taking care of our neighbors and educating our children among other things. For giving up these responsibilities, we gave up some of our freedom. We chose federal taxation to remove some of our compensation for our work effort to pay our government to do these things for us. Once this started, it never stops. Did you ever hear of any government that has reduced its scope, income, and reach into the lives of its people. (China?).

Now, because our government believes it has the soul responsibility for protecting its people, because they are basically irresponsible, for their own protection, we spend billions of dollars, fill up our jails, and are destroying Mexico by our total focus on protecting our people from the use of drugs. We tried this with alcohol back in the 1930's, and we have tried it with cigarettes - to little or no avail.

Let's get serious and face it. No government can legislate morality. Borne in an immoral world, either we learn what our family stands for morally as young children, or we go the way of our immoral world. Given our present view of instilling legislated morality in Wall Street where Stanford and Madoff are shining examples, to our federal government where numerous appointees have failed to pay their taxes, to our state government where senate seats are attempted to be sold to the highest bidder; we have hard examples of legislated morality. Consequently, we have no example that our war on drugs will bear any more fruit than our education system, government regulation, churches, or society in general has on achieving and enforcing morality.

Yet, like you, I have no desire to pay anymore to the government to medically assist those that have injured themselves by knowingly to have taken or consumed alcohol, cigarettes, or drugs. This means that if you wanted to take the personal risk to ride a motorcycle (without a helmet, the docs call them organ donors), you must have covered yourself personally for insurance to take care of you medically should have an accident. The same is in effect in order to drive a car in the US. This is a simple act of personal responsibility. It is not a society responsibility. Likewise, the same for alcohol, cigarettes, and - if you desire -drugs. If you knowingly do something that impacts you personally, you should pay for the act yourself.

This means that if you have to get medical attention for ingesting some chemical you know was dangerous and, because of your individual freedom, did it anyway, you should be individually responsible enough to have medical coverage or damage coverage to have protected yourself with insurance.

So what does this have to do with Mexico and the US situation? Simple, admit we have lost the drug war, that we can not stop our citizens from using their individual freedom, (listed under our Bill of Rights) to use what ever they really want, as long as it doesn't impact the individual freedom of another citizen.

Therefore, let our drug stores sell taxed drugs and call the drug wars over; recognizing our government is defeated in stopping people from doing what they want to do, as long as they don't hurt others physically or financially.

What does this do for the US? It ends billions of needless dollars of government spending and allows that money to be used to build infrastructure on both sides of the borders and put good people to doing real work in manufacturing and construction as well as medical rehabilitation. It allows tax collection on the sales of drugs that might be used for drug education or medical insurance for those unable to afford it. It will substantially reduce the cost of our courts, prisons, and allow our police to concentrate on terrorism, corruption, personal injury, and fraud.

In Mexico, it will allow the present drug distributors and their present armies to become legitimate, and use their distribution knowledge legitimately by selling into a regulated market. It will allow the good hardworking people of Mexico to get back to a normal and hopefully better life than constant fear they presently live under.

If this is not done, if we continue to pay huge amounts of out tax money in the unworkable attempt to legislate morality, we will loose in the end, we will continue to spiral downward in our standard of living, and the wave of violence will continue to sweep north and west until we all live in the same fear as do our neighbors to the south.

What do you think?

Trust

We have seen the results of the carnage created or being created by Stanford Investment and Bernard Madoff's firm in bilking investors out of billions of dollars. This has caused most investors to loose faith and trust in our financial institutions. By observing the posturing and mistruths of our government leadership ("there is no pork in the stimulus bill"), it is difficult to maintain faith in what government leadership says vs what government does.

It has been my experience that once faith has been lost in anything, nothing will be able to replace it. This translates to faith in a friend, faith in a leader, faith in a business, faith in our legal system, or faith in our government. Once we have lost faith, faith will never fully return. There will always bee a nagging doubt, and caution, in dealing with the entity that has caused a loss of faith.

Now, take a dollar bill out of your pocket. That dollar is backed by the full faith and trust in the US Government that issued the "Federal Reserve Note". As opposed to the former Silver Certificate issued many years ago that could be traded for actual silver, this note can be traded for anything you and I, both operating with the same or similar levels of faith, think this Federal Reserve Note is worth.

The US Government has just issued another trillion plus of these notes because the leaders in our government wanted to put as many of our population into slavery to the US Government as possible so there would be full and complete dependence on the government, the party in power, and the president. Nothing different than a slave working for the 'massa', and a slave working and voting to keep the political group in power so they can continue to rely on the government 'massa' to take care of them for life. Certainly these slaves should not have to do anything themselves to improve their lot such as work or gain more education. They just have to breed and show up to collect their dole from their 'massa'.

This will work as long as the world investment community believes and has faith in the Federal Reserve Note being a sound investment and worth something.

But what happens when, one day, you or I wake up and say "I no longer believe that the Federal Reserve Note is even worth the paper it is printed on?

Would this mean that the US government then have to have the entire population working for the US government. Would this mean that this government doles out food, medical care, housing, and status to the slaves depending on their affiliation to the leadership of the political party in power? In this scenario, faith is bypassed. Without the individual having to make economic decisions, and suffering when the decisions are bad, the government then can decide what cars will be designed and driven, where your kids will be educated, what your kids will be taught, whether or not you will be eligible for health care provided by the government. The government will decide where you will work and for what wage. As in the past, your wage credit will be good only at the government store. The Internet will be policed, as will be radio and TV so no disruption thoughts will be unleashed on the slaves that might cause a potential revolt.

Oh wait!

That sounds like China, Russia, and Cuba about 15 - 20 years ago. Now, by giving our manufacturing base to China, they own a key source of our wealth. Russia has tilted toward an entrepreneurial society, but is having trouble throwing off the last vestiges of communism. Poor Cuba has yet to figure it out. Limited government with limited taxes, a strong unwatered down currency, sound education in the basics, individual freedom in financial decisions, coupled with the risk and reward of those decisions, is what drives a country to prosperity.

So - do you maintain your faith in our government? Do you maintain faith in our government leadership? Do you maintain faith in our financial institutions? Do you have faith in our currency? I would suggest that if you can not be positive in your faith in our government and its leadership, you can not have faith in our currency. If you do not have faith in our currency to be something of value, then why should the lenders in other countries, that are keeping our economy afloat such as it is, continue to lend their hard currency to us and purchase our T Bills?

What are your thoughts?

China Buys US Businesses, Fires US Managers

I got mail from an old friend I had consulted with a number of years ago. He departed that company and went to work in another company. That company dropped their US manufacturing and moved it to China. He was sent to China to teach the people how to manufacturer their products. He did very well in this task.

His mail stated he was out of work as the Chinese company had purchased the US company recently and fired him.

This is exactly what I had predicted in my book "China's War on the American Economy".

Some days it hurts to be right. I wish him well and told him I would send him a copy of my next book "How to find your dream job in a nightmare economy."

Export Jobs and Wealth

Over the past several years, we have exported well over 5, 000,000 manufacturing jobs excluding the millions of support jobs such as distributors and sales people calling on manufacturing companies. By the Department of Labor numbers, the difference between a manufacturing job and a service job is $20,000 per year. This means we have exported well over $ 100,000,000,000 annually in wages, decimated small towns supported by the tax revenue from manufacturing companies and their employees, and virtually eliminated the middle class in this country. You can read the research in my book "China's war on the American Economy" available at Amazon.com.

The US government thinks this was caused by the rush to lower wages. What a stupid thought and is indicative of the uninformed elite educated government officials. Actually the companies were leaving the restrictive regulations that were hidden taxes on manufacturers not paid by their foreign competitors. Rather than police this hidden tax by charging importers a comparative tax reflecting the hidden taxes paid by American Manufacturers, the flood gates were simply opened to allow cheap goods into the US without regard to the conditions allowed in the countries sending in the cheap goods. Child labor laws, environmental laws, workman's compensation laws, product safety laws, overtime laws, OSHA laws, ADA laws, etc. - all non existent in importing countries sending in the vast amounts of cheap goods.

Now as a country that is expected to buy our way out of the mess we find ourselves, buy what? We don't need much else. Buy with what? Our wages enabling our spending were exported. Buy for what reason? To save our economy?

I think most are simply going to save their money, only spend it on well made products manufactured in the USA, and buy for their homes, and families immediate needs. What do you think?