That Higher Plateau

When nobody listens in a time where temperatures keep rising and tempers flare shows that mankind is no where near capable of healing the wounds inflicted by mortal men. Today, the world is ruled by the unquenchable thirst for power, control, and wealth by those who are blinded by their own greed. When on one listens to reasoning or logic, when no one responds with compassion in times of crisis, and when no one who could make a difference in so many lives through acts of kindness, benevolence and humanity, is the reality of our times.

The constant evolving of technologies that could be used for the betterment of man still is to often delayed, cost prohibitive, hoarded, and otherwise used for the destructive side of man. The greed of some knows no bounds. Through-out history mankind has been both the beneficiaries of innovative technologies and have been casualties of the way man has misused those technologies. Great inventions that have changed the shape of the world and other inventions that have been used not for the greater good of mankind but to inflame the world for selfish gain.

Someone once said that everyone at some point in their life has something so profound to say, write or create that would astound the world. Their ability to convey thoughts and expressions that would elevate all of mankind to a higher plateau are so often not seen, read or heard. Fallen on the deaf ears and blind eyes of those who stand to loose their tight grip on the status-quo is much the reality of today. Too often people are caught in the whirlwind of everyday existence while the power players purposely keep those who shown an authority to improve the status-quo from ever reaching the public. And, the public’s fixation that only people with wealth or in positions of power are the only ones capable of such profound works continues to prevent humanity from reaching that higher plateau.

Sadly, today the world is being denied the instruments in which our lives and livelihoods would be enriched. Purposely denied by a power elite that cares not for the public’s welfare. For years it has been their overwhelming desire to reap more power, control and wealth that has scuttled any attempt by those persons who through their own volition created that something and if given the chance would benefit all of mankind.

Today, so few are listening or seeing the ways in which humanity can rise to that higher plateau. This, when we have a media and too many in government unwilling and incapable of seeing just what certain people are trying to do. And, if only we had access or been able to listen to those individuals who have created the means to enrich our lives our world would be a much better place had we been able to do so.

As it stands today with the world filled with chaos too much of our attention is focused not on those individuals who have that something so important and relevant but on the trivialities of meaningless legislation, aka the boarder wall or some other government policy that supercedes any endeavor that would allow more of the public to be informed that there really is a better way for us all to reach that higher plateau.

The Business Model and Today’s Economy – A Warning to Universities and Investors

As spring is upon us, this is the time deans and higher education vice presidents across the land embark on their yearly budget exercise. Given the rosy economic scenario painted by improving wages, job reports and corporate profits, it would not be out-of-place to start dreaming of expanding their own little circles and propose larger budgets and increased hiring for their respective units – what Warren Buffett has dubbed the institutional imperative. My warning: beware!

As an academician, I have often heard high-ranking officials espouse how public universities should be run using a business model. My own university president is a strong proponent of the idea. The problem is that universities are saddled with challenges most companies don’t have to deal with. For example, let us suppose that demand for your company’s product goes down. To keep your company viable and responsible to stockholders you will cut down on production. Fewer sales means less personnel will be needed leading to workforce reductions. Despite lower revenue, the bottom line is kept steady by lowering expenses for materials and personnel.

Let’s look at what happens at a university. Let’s suppose demand for your product, classes, goes down – i.e., fewer students are enrolled. The cost of materials to run a class is minimal as compared to personnel and physical plant costs. You can’t shut down buildings so your only recourse is personnel reductions. Here is a problem corporations don’t have. They never have a case where the few remaining clients demand that the company put out as much product as before the reduction in demand. But if you have a class of 40 reduced to 30 or even 20 students the university cannot cancel it. These students registered for the class well in advance, before the semester even began. Their schedules and even graduation are predicated on it. If the class does not make, students will be in an uproar and in this day and age they have no trouble letting the world know – online. As the news become viral, the university will gain a bad reputation. It will affect future enrollment. Any whisper of lower enrollment sends chills down high administrator’s backs.

Here is another difference between corporations and higher education providers. Corporation hires are more fungible. If you let go someone all you need is several weeks’ notice. Not so for academia. You may let go of staff personnel that way but instructors are on an academic year contract. University administrators may decide not to renew a contract for a non-tenured instructor after the academic year but they cannot terminate during. That means hiring and budget decisions have to be made well in advance.

Back in 2007 I was in the middle of this dilemma. I was the founder and Chair of the Idaho State University Budget Committee. Our mandate, as I saw it, was to keep abreast of economic developments so we could best advise administrators of “hiccups” leading to reductions in state allocations to higher education. Once those came about, we would provide advice on budget allocations to programs and hiring. Academic hires have to be done months ahead of time so timely input meant looking ahead at least six months. It was within that time frame I warned our higher administration of the coming economic slowdown and real estate problems at the epicenter of the Financial Crisis. That message went unheeded at the time so, for the next couple of years, our committee was saddled with helping the administration muddle through ever diminishing budgets.

The unemployment rate at the time of my warning in 2007 was 4.4%, wages increased by 0.3% for the month and 4.4% for the year, and S&P 500 profits were up 16% for the year. GDP growth was pegged at 3%. Sound familiar? There was plenty of reason to be optimistic and yet, the future did not play out that way. The same will happen this year, although the main factors behind the economic stall will be different.

There is a financial storm developing. This time around, the low-pressure front will be due to demographic forces resulting in a decrease in spending from the 46-50 age group, a group dubbed the peak spenders. There will be a prolonged and marked decrease in consumer spending that will lead to a protracted economic downturn starting this year and lasting as long as 2023.

State general accounts will dwindle as sales tax revenues drop and a rise in unemployment leads to lower personal tax revenues. These are the two main pillars filling state coffers. The two others are real estate and corporate taxes. While real estate tax revenue will remain steady, corporate tax revenue will mirror plummeting corporate profits. The bottom line is that state support for public universities will take a cut and once again these institutions will have the difficult task of managing their budgets by reducing personnel. This is, therefore, no time to be dreaming about expanding departments, but instead, a time of planning for retrenchment.

Administrators should shun the temptation to pass down the buck and use university reserves to meet the immediate challenge. Next year will be no better. In fact, this downhill process will continue to get worse, and as I mentioned above, will last until 2023. University officials will be forced to face the music at some point in time so they might as well brainstorm and come up with a 5- or 6-year plan to deal with the malaise.

The warning goes double for those invested in the stock market. The same forces at work within state finances will also hobble our economy and wreak havoc on corporate profits and prices. Stock portfolios will take a substantial hit. My advice is to heed the current stock market warning. We just went through a correction, but these are only birth pangs of the financial storm ahead. The wise will use any uptick as an opportunity to whittle down stock holdings. There will be many who will mock me now, but when the brunt of the tempest comes you will want to be totally out of the stock market.

Trump Wins Trade War As Global Markets Plummet

It is early July, well before this article goes online, yet the landscape is pretty clear from where I stand. The U.S. and China both raised tariffs on $34 billion worth of goods Friday, July 6. This did not deter the S&P 500 from continuing its charge up to the January 26 all-time high. To boot, unemployment is historically low and the Fed is set to raise rates twice before the year ends – all this amidst a stealth discretionary spending recession.

So, how about that trade war? Let’s recap. Most folks would agree that the free trade of goods would be best for all concerned. Goods would be less expensive and those that could not compete on price would do so on quality, leading to a beneficial improvement of goods. All is well and good until protectionism and nationalism rear their ugly heads. Some nations have goods that find it difficult to compete on the basis of price and/or quality. Globally, world leaders of such nations are unapologetic in pursuing their nation’s interests at the expense of others. In trying to avoid the image of the ugly American, we have often placed ourselves at a disadvantage. Nowhere is this more evident than in trade were our trading partners often have a clear advantage.

U.S. Census Data shows that we have a trade deficit with every trading region except for South and Central America and Australia/Oceania. At only $33.14 and $14.38 billion, respectively, the last four years and a combined trade of $310.44 billion this pales in comparison with the deficit for the rest of the world, -$844.66 billion, whose combined trade is $3.578 trillion. Below are 2014-2017 averages for most of the world in billions:
Canada: -$20.01
European Union: -$149.61
Asia: -$547.49
Africa: -$2.60

China is a case in point. Aware of the huge financial benefit that comes with their 1.38 billion consumers, they extract huge concessions from their trading partners, including the U.S. When they have not barred certain U.S. business sectors, they restrict or regulate business, place tariffs on goods, or coerce intellectual property release. Note this goes one way; there is no intellectual property sharing.

These noncompetitive business practices are not fair, but until now, U.S. companies have accepted them without much push back as the cost of doing business there. That is until Trump. What Chinese leaders need to realize is that they are not in a good bargaining position and the longer they hold out the more harm will come to their economy.

Here is why. Leaders of the government-run economy are well aware of their history and realize the huge Chinese population is not going to put up with poor conditions forever. To keep discontent at bay, they have a policy of inflated economic growth. According to Trading Economics, they have averaged 11.7% GDP growth for the past 10 years but chinks in their armor are showing. From the 2010-2011 heyday, where GDP grew 19% and 24%, growth has dropped steadily and sometimes precipitously. It was 5.56% and 1.14% in 2015 and 2016, respectively. Little wonder that worried central government figures have made a big push since then for increasing their global exports, including those to the U.S., resulting in a resumption of GDP growth to 9.35% in 2017. The prospect of increased tariffs, which would make their goods less competitive, runs afoul of those plans. China’s economy is struggling and their stock market is testament to that. The smaller Shenzhen composite moved into bear market territory in February and the Shanghai composite closed in bear territory on Tuesday, June 27. The indexes went as low as -26.5% and -25.0 on July 5 but have recently recovered to -22.5 and -21.2%, respectively, as global markets have climbed in tandem with U.S. markets. That is still in bear market territory, which will curtail much need foreign investment. Meanwhile, U.S. GDP is growing steadily, the economy seems to be healthy, and the stock market is nearing new heights. Trump can ratchet up the tariff game longer knowing he has more economic wiggle room. Moreover, he can inflict more pain to the Chinese economy than they can to ours.

To see why, let’s look at the trade numbers. The trade deficit with China has averaged -$358.68 billion the last four years in a rising trend. While U.S. exports have vacillated between $110-129 billion since 2012, Chinese imports have steadily increased from $315 to 375 billion. Last year the deficit was -$375.58 billion, of which $129.89 billion were U.S. exports to China and $505.47 billion were U.S. Chinese imports. Not only is trade unbalanced, so are tariffs. Prior to this year, U.S. tariffs on Chinese agricultural and non-agricultural goods were 2.5% and 2.9%, respectively, while Chinese tariffs on U.S. goods were 9.7% and 5% for the same. True, these had been going down from a 14.1% average prior to 2001 when China joined the World Trade Organization but that was part of the price and tariffs are much higher for some industries.