News Can the market alone fix the economy?

[Ivan Seeking]

Speaking of unions...can anyone tell me why the government needs unions for their workers? If the rights of workers aren't protected by the government...?

Unions are intended to level the field between employers and employees. Government employees don't have any more rights than any other employee.

Here in Oregon, employees have virtually no rights beyond the basic federal protections; and good luck trying to enforce those! Anyone can fire anyone for almost any reason. I was once fired from a job for giving notice. Talk about control freaks!

 

[Ivan Seeking]

I just spotted this in the news.

10 Best Uses for RFID Tags
...3// Surgical sponges
One out of every thousand or so intra-abdominal surgery patients "retains" a sponge. Oops! With SmartSponges, docs can find stowaways by passing a wand over the body.

http://www.wired.com/techbiz/it/magazine/17-03/st_best

 

[ThomasT]

Back to the economy...there are several news reports lately that the economy can not be fixed without addressing health care.

The cause(s) of the current economic problem (a severe decline in 'interbank' confidence, and therefore interbank lending) seem to have relatively little to do with the practices of any industry other than the banking-investment industry.

All of these institutions are 'overleveraged' to some extent, aren't they? Isn't this the nature of the business?

If so, then what was the source of pre-meltdown 'interbank confidence'?

Was the meltdown, mini-domino effect primarily due to declines in cash flow from real economy sources, or declines in the values of stock market portfolios? Or both, or neither? Was it primarily due to a sudden calling-in of debts from certain institutions? I can't think of any company or individual that I know that wouldn't be financially ruined if this happened. So, if this is what happened, why did it happen?

Clearly, I'm still pretty much clueless -- but I did spend the most of the night looking up and pondering healthcare and medical malpractice statistics, so at least I learned something.

However, one major problem is not being discussed...litigation. The costs of malpractice insurance and the steps doctors take (unnecessary extra tests) have added tremendously to health care costs.

I haven't found any reason to believe that testing that's ultimately found to be unnecessary, or excessively redundant testing, is affecting the incidence or results of malpractice litigations. It does add to healthcare costs, but not significantly.

Malpractice insurance has been a part of the cost of doing business for a long time. By itself, it isn't a significant fraction of the total cost of healthcare in the US, and the rate of premiums (which is somewhat regulated by government already) doesn't have much to do with the current economic crisis, afaik.

Tort reform IS helping...but to date the real and anticipated costs are all built into pricing matrices.

I haven't found any compelling evidence yet that 'tort reforms' (such as capping jury awards for noneconomic damages, or scheduling payments for injury type, etc.) make any difference in malpractice insurance premiums. From what I've read, insurance company malpractice premiums generally track costs or losses due to malpractice claim settlements or adjudications (the major components of which are medical and legal costs, and not 'pain and suffering' or punitive payouts) -- and both track inflation.

There are intermittant spikes and level intervals, the 'cycling' of the industry due to market conditions, etc., but the general upward trend seems to follow the economy as a whole and doesn't seem to be attributable to any inordinate changes in payouts.

It might be worth noting that the estimated incidence of malpractice claims is a relatively small percentage of the estimated incidence of malpractice, and a small percentage of claims result in litigation, and a small percentage of litigation results in judgements for the plaintiffs. So, focusing on tort reform, or legal system reform, or instituting special medical expert courts or panels might just eventually lead to larger insurance company expenditures. So, insurance companies might want to direct the focus toward the primary cause of medical malpractice claims -- which is medical malpractice.

 

[BarackZero]

At the end of World War II, the American responsible for helping Germany get back on its feet met with his German counterpart. I forget their names, which are inconsequential anyway.

The American says that they should allow prices to find their own level. In other words, encourage a free market. The German says that his professional economists tell him the new government must fix prices, at least until things turn around.

The American says, "Oh don't listen to them. My experts tell me the same thing."

And under a relatively free economy, progress was quickly made.

The lesson is this, and it is obvious: Capitalism works. No government, no bureaucracy has the wisdom and the speed to react to the trillions of economic variables that make up anyone single country. The most prosperous and desirable nations on Earth are those which run on free markets, i.e. capitalism. At the other end are the most miserable places on earth, from Zimbabwe to Sudan. They are collectivist cesspools.

 

[Astronuc]

It's about time -

Financial Fraud Is Focus of Attack by Prosecutors
http://www.nytimes.com/2009/03/12/business/12crime.html

Spurred by rising public anger, federal and state investigators are preparing for a surge of prosecutions of financial fraud.

Across the country, attorneys general have already begun indicting dozens of loan processors, mortgage brokers and bank officers. Last week alone, there were guilty pleas in Minnesota, Delaware, North Carolina and Connecticut and sentences in Florida and Vermont — all stemming from home loan scams.

With the Obama administration focused on stabilizing the banks and restoring confidence in the stock market, it has said little about federal civil or criminal charges. But its proposed budget contains hints that it will add to this weight of litigation, including money for more F.B.I. agents to investigate mortgage fraud and white-collar crime, and a 13 percent raise for the Securities and Exchange Commission.

. . . .

 

[WhoWee]

Not all losses are due to fraud by the financial institutions...of course, a small percentage are and should be prosecuted.

Some mortgages went bad because people lied on their applications...and they still qualify for the rescue plan. However, people just barementsly able to meet their payments and NOT in default...don't qualify. The latest "TREND" is to allow your mortgage to go into default...accumulate cash get a restructure...rel fair?

Some people made stupid investment decisions...these generate a lot of complaints and burden the system.

The Feds have been under-manned for a long time. The criminals know the threshold ($amount) before they will be investigated in various regions. Financial fraud is a forensic discipline...usually 3 to 5 (or more) years after the fact. People and records are lost and investigations lead nowhere.

 

[Al68]

Al68, I'll reply to your statements below about taxes, as they affect the economy. Wrt other more philosophical considerations, I'll start another thread (in the philosophy forum?) later on today.

Ok, I'll check it out. But I think a lot of people underestimate the influence of their personal philosophy on their positions on economic issues. Some even claim their positions aren't based on philosophy at all, then their personal philosophy is obvious when they explain their positions.

Individual salaries and wages, and the profits of collective enterprises are separate tax categories.

OK, but my only point was that some individuals get income from each, so having a different tax rate for each category means a different tax rate for different individuals.

No deductions. We want the income tax rate to be the same for every entity that's taxed. Individuals' incomes as well as collective profits. Not just for equality of liberty, but because it would be necessary in order to generate sufficient revenue.

The minimum flat rate would have to be about 22% -- probably more.

I don't think a federal sales tax would be necessary. But a simple way to do it would be to tax items costing over a certain amount. This would also effectively exempt the poor and lower middle classes without having to mail out 100 million checks every month.

Wrt income tax -- no reimbursements, no deductions, and no exemptions. No tax credits of any kind. No taxes on gifts or inheritances. Separate taxes on certain goods and services would be necessary though. Raise taxes on tobacco and alcohol. Legalize marijuana and prostitution and tax them. Etc.

Wrt income tax, the poor would pay the same percentage as the rich, but there are programs to help them with necessities that they can't afford. For example, medicare and medicaid programs can be extended.

I think a flat income tax would help to 'fix' the economy. Simplification is usually a good thing. Wrt the tax code, I think it's a necessary thing.

Be careful, most in the media, and all Democrats consider that "right wing wacko extremism to benefit the rich".

 

[WhoWee]

The media isn't always consistent...this is a must read...and from only 2 1/2 years ago...how things change.

http://www.cbsnews.com/stories/2006/10/31/opinion/main2139473.shtml

 

[Astronuc]

Interesting commentaries:

Is the Dow doing its job?
With Citi at $1 and others below $5, Dow's claim to lead is challenged

Only 15 Dow stocks have traded below that level over the past 39 years, according to Dow Jones Indexes. More shockingly, Citigroup Inc. (C), once the largest bank in the world, has now become the first blue-chip stock ever to slip below $1, according to Dow Jones data going back to 1970.

Ironically, McDonald's Corp.'s stock, currently trading at more than $50, is one of the four most influential stocks on the price-weighed Dow.

While investment professionals typically prefer to use the broad S&P 500 index as a benchmark, the Dow has long been viewed as the symbol of corporate and investment success in the public's mind.

That is until the ongoing banking crisis and economic recession, by some measures the biggest since the 1930s, cut in half the Dow's value from its all-time highs in Oct. 2007. In not even three months since the start of 2009, the Dow has lost nearly 25%, sending the benchmark and many of its components to 12-year lows.
. . . .

Times have changed. But then if McDonald's and Walmart are that influential, then perhaps the US economy is in real trouble.


At the very least, Dow stocks below $10 call into question the use of the term "blue chips" to describe them. The term refers to the highest-value chips used to play in casinos.
Besides Citigroup, Alcoa Inc. (AA, $5.98), Bank of America (BAC, $5.85), GE ($9.57), GM ($2.18), are trading below $10/share based on the closing prices today. America Express (AXP, $13.15) was trading less the $10/share last week, and Intel (INTC, $14.54) and Pfizer (PFE, $14.02) are just a few dollars above.

AIG plummeted last September, and was de-listed and replaced by Kraft.


General Electric's credit rating lowered by S&P
Shares of blue chip jump on relief that downgrade didn't go deeper

"We believe that GECC is under increasing earnings pressure, due to the recent sharp deterioration in general economic conditions around the globe," said S&P credit analyst Robert Schulz, referring to GE Capital. "This will result, in our opinion, in rising credit losses across key segments of GECC's finance portfolio."

As for the parent, "GE's industrial-based cash generation capabilities remain fundamentally strong -- even in the face of enormous global economic headwinds -- and that it will generate growing cash balances from current levels over the next two years," Schultz said.
Bond prices improved for GE after the news. Prices on GE Capital's 6% bonds maturing in 2012 improved, rising $1.62 to $94.37, pushing the yield down to 8% at last check, according to FINRA data.

However, Madoff and mini-Madoffs a black eye for regulators
Disgraced financier's scheme could keep Baby Boomers away from equities

 

[ThomasT]

Ok, I'll check it out. But I think a lot of people underestimate the influence of their personal philosophy on their positions on economic issues. Some even claim their positions aren't based on philosophy at all, then their personal philosophy is obvious when they explain their positions.

I haven't started a new thread. I think we basically agree. The point I was making about private companies and corporations (where they are made up of more than one person), collectives, is that they function sort of like mini-governments, and (large companies especially) have the power to diminish the freedoms of those inside and outside the company. Examples are waste production, removal and storage; union busting; monopolizing markets; coercing government in order to acquire real estate vis eminent domain; shady practices which diminish market and lending confidence, and eventually affect just about everybody negatively, etc., etc.

Be careful, most in the media, and all Democrats consider that "right wing wacko extremism to benefit the rich".

Taxing all individuals and business entities at the same rate, and doing away with all deductions, exemptions and tax credits would actually generate more revenue than the current system, while minimizing the possibilities for loophole exploitation and abuse. I don't think this would inordinately or necessarily benefit the rich. A lot of people and companies would pay more than they do now.

But, generally, simplifying and streamlining things benefits the economy as a whole, I think.

Of course it'll probably never happen.

 

[Al68]

Be careful, most in the media, and all Democrats consider that "right wing wacko extremism to benefit the rich".

Taxing all individuals and business entities at the same rate, and doing away with all deductions, exemptions and tax credits would actually generate more revenue than the current system, while minimizing the possibilities for loophole exploitation and abuse. I don't think this would inordinately or necessarily benefit the rich.

Well, the flat tax plans that have been proposed by Republicans have a flat rate with huge standard deductions that effectively exempt poor and lower-middle class from income taxes. Dems called those "right wing wacko extremism to benefit the rich". It's just hate speech, no substance.

I would favor a flat tax, but with huge standard deductions. The last thing we need is to increase the tax burden on poor and lower-middle class families. And since they are effectively exempt from income taxes now, a completely flat tax would be a huge tax increase on them.

Even with huge standard deductions, the flat rate would not need to be that high. 17-20% would replace existing revenue when we take into account the economic benefits of a flat simple rate and eliminating itemized deductions and loopholes.

 

[SixNein]

Well, the flat tax plans that have been proposed by Republicans have a flat rate with huge standard deductions that effectively exempt poor and lower-middle class from income taxes. Dems called those "right wing wacko extremism to benefit the rich". It's just hate speech, no substance.

I would favor a flat tax, but with huge standard deductions. The last thing we need is to increase the tax burden on poor and lower-middle class families. And since they are effectively exempt from income taxes now, a completely flat tax would be a huge tax increase on them.

Even with huge standard deductions, the flat rate would not need to be that high. 17-20% would replace existing revenue when we take into account the economic benefits of a flat simple rate and eliminating itemized deductions and loopholes.

The flat tax would make the problem worse because it would kill the poor, and what is left of the middle class would become poor. There is no deductions for anyone being proposed, all Americans are going to pay the same in taxes. It's offsetting the tax burden in this country onto the poor class.

 

[Al68]

Well, the flat tax plans that have been proposed by Republicans have a flat rate with huge standard deductions that effectively exempt poor and lower-middle class from income taxes. Dems called those "right wing wacko extremism to benefit the rich". It's just hate speech, no substance.

I would favor a flat tax, but with huge standard deductions. The last thing we need is to increase the tax burden on poor and lower-middle class families. And since they are effectively exempt from income taxes now, a completely flat tax would be a huge tax increase on them.

Even with huge standard deductions, the flat rate would not need to be that high. 17-20% would replace existing revenue when we take into account the economic benefits of a flat simple rate and eliminating itemized deductions and loopholes.

The flat tax would make the problem worse because it would kill the poor, and what is left of the middle class would become poor. There is no deductions for anyone being proposed, all Americans are going to pay the same in taxes. It's offsetting the tax burden in this country onto the poor class.

Why would you even reply to a post you obviously didn't read?

 

[SixNein]

Why would you even reply to a post you obviously didn't read?

Well, the flat tax plans that have been proposed by Republicans have a flat rate with huge standard deductions that effectively exempt poor and lower-middle class from income taxes. Dems called those "right wing wacko extremism to benefit the rich". It's just hate speech, no substance.

Maybe I just misread you, I was up like all that night =(

Flat tax is bad because there isn't deductions. It would tip the inequality imbalance even further then what it is now.

 

[Jimmy Snyder]

But then if McDonald's and Walmart are that influential, then perhaps the US economy is in real trouble.

Although McDonald's and Walmart are influential in the US economy, the quote you provided only mentioned McDonald's influence on the Dow.

 

[WhoWee]

I'd like to share a personal story that...in the context of the stimulus debate government/private sector jobs...provides a different perspective.

I have boy/girl twins, age 16. She doesn't want to drive...he can't wait to get a drivers license.

His argument is that he needs a part time job so that he doesn't need to ask for money...several times a day. (Our motivation)

The employers that are close enough to home...walking/bicycle/electric scooter distance are "unacceptable" for a variety of reasons. (His Dilemma...we just don't understand)

Further, he doesn't want to in convenience us to drive him to and from work...in our vehicles and using our gas and insurance. (He apparently worries quite often about our inconvenience)

He paid for his own driving lessons (he made the 24% down payment and we paid the balance). He's arranged financing for his insurance (Grandpa is adding him to his policy $100/month and the boy will "pay him back when he gets a job").

He convinced Mom to let him drive her all over town to pick-up applications from prospective employers. Then he talked Grandpa into letting him drive him all over town to submit applications. Then, he talked me into letting him drive me all over town to interviews. We're out about $30 in gas and McDonald's put him on their schedule for 8 hours per week at $7.00 per hour. As a follow up, we've made another 3 trips to and fro with regards to a work permit.

Now he can't start work until he has a drivers license...can't depend on us to drive him to and fro? (Thinking of us again)

Accordingly, he took his test last week...did really well until he became over-confident and bumped a traffic cone in the maneuverability test. No license equals no work for a week. Now he's scheduled to retake the test today.

Assuming he'll pass this time (he does do a good job of handling the vehicle...just a typical over-anxious boy) he plans on starting work next week and gave us an option this morning to consider.

He either needs a commitment from us that a vehicle will be available when he prescribes. The alternative option is for me to make a scheduled $500 repair to a car that I choose not to drive in winter months, then "sell" to him (for a price about 20% of wholesale) over 2 years, at 0% interest. (What a deal & I can drive my "winter car" because I like it so much - a Saturn wagon)

The bottom line, I can't afford for him to get a job. If McDonald's paid him $20 per hour, it would be a losing proposition to me.

I see similarities between my teenage son's arguments and our current government direction. Obama, Pelosi, and Reid are all pushing their political agendas...at tremendous cost to us - the taxpayers...with very little hope of a true financial return on our investment. Even if the programs "work", we'll never retire the debt (with interest) in our lifetimes.

I don't want to say no to my son and crush his dreams. I want him to earn his own money and feel good about himself. I also want him to be balanced...studies/family/sports...then a job at McDonald's. I also need to teach him financial responsibility and hold him accountable. As the kids age, the problems become more complex, it's going to be an interesting spring/summer.

 

[Astronuc]

Although McDonald's and Walmart are influential in the US economy, the quote you provided only mentioned McDonald's influence on the Dow.

I was reading between the lines.

Both McDonald's and WalMart sell low priced, low quality stuff. The majority of their employees make low wages. If that is the bulk of jobs being created, and there's a post somewhere about that, then the economy is in trouble, because too many people become too reliant on subsidies, and certainly cannot afford luxuries like health care and retirement.

The article I cited mentioned an influence of 4 stocks on the Dow 30. Those could be the top 4 of which MCD is the 4th from top.

Symbol    Name                    Trade      Volume
IBM     INTL BUSINESS MACH       89.55      3,774,283
XOM     EXXON MOBIL CP           66.53     12,223,983
CVX     CHEVRON CORP             62.18      5,162,801
MCD     MCDONALDS CP             52.24      5,105,186
JNJ     JOHNSON AND JOHNS DC     49.53      6,514,179
WMT     WAL MART STORES          48.96      9,503,529
MMM     3M COMPANY               47.45      1,997,913
PG      PROCTER GAMBLE CO        46.27      5,369,644
UTX     UNITED TECH              40.82      3,132,096
KO      COCA COLA CO THE         40.66      5,720,945
BA      BOEING CO                33.27      2,862,366
HPQ     HEWLETT PACKARD CO       29.48     11,564,523
VZ      VERIZON COMMUN           27.94      7,197,454
CAT     CATERPILLAR INC          26.25      5,283,033
MRK     MERCK CO INC             26.01     23,272,940
T       AT&T INC.                24.07     11,996,112
JPM     JP MORGAN CHASE CO       23.55     64,309,670
KFT     KRAFT FOODS INC          22.43      2,828,293
HD      HOME DEPOT INC           20.40      9,091,531
DD      DU PONT E I DE NEM       19.00      3,889,883
DIS     WALT DISNEY-DISNEY C     17.20      6,813,074
MSFT    Microsoft Corporation    16.26     37,940,084
INTC    Intel Corporation        14.38     29,462,578
PFE     PFIZER INC               14.26     36,816,510
AXP     AMER EXPRESS INC         12.09     14,525,164
GE      GEN ELECTRIC CO           9.38    116,466,039
BAC     BK OF AMERICA CP          5.84    322,929,300
AA      ALCOA INC                 5.74     11,959,364
GM      GEN MOTORS                2.53     24,006,092
C       CITIGROUP INC             1.78    401,757,791

WalMart is 6th in price, and has a higher volume than MCD.

One has to look at what's driving the economy. Exxon and Chevron are energy companies, but much of their revenue is derived from oil that is imported, which means cash going out of the US economy. IBM actually derives a lot of revenue outside the US, which is good if the earnings come back into the US.

Increasing exports would be great, but the rest of the world is not buying, and certainly not buying US export as much as the US is importing. The US buys on borrowed money - and in the long term, that is unsustainable. The US government is stimulating the economy of borrowed money. Each deficit is small, but in the long run the cumulative debt is unhealthy.

And the short fall in health care and retirement liabilities are still not being addressed.

 

[turbo]

The drive toward low-paying jobs with no benefits is troubling. Wal-mart and the fast food places are drawing in workers that cannot afford to buy homes, pay taxes, or even feed their kids without public assistance. In the last town I lived in, my property taxes went up 30% in one year - and more than half of the property taxes go to the educational system. When people moved to that town to take low-paying jobs, they loaded our school system with lots of extra kids without providing any significant support to the property taxes that educate them. People renting trailers and cheap apartments are a drain on the town's resources.

In addition to Wal-Mart and a large supermarket, where the only full-time employees are managers, that town now has two rent-to-own stores (always a bad sign) two Dollar-store type places, and a host of fast-food places. How a town of fewer than 7000 people can support two Dunkin' Donuts, a Burger King, Subway, Pizza Hut, Wendy's, Tim Horton's, KFC, Taco Bell, and a mix of locally-owned non-franchise pizza and sandwich places is beyond me. All these fast-food places are in addition to three Chinese restaurants and about a dozen restaurants serving American-style foods. Aside from the Chinese restaurants, that may employ family, all these places represent a huge pool of part-time, low-wage jobs with no benefits. None of these part-timers are covered by unemployment insurance, so when they lose their jobs, they and their families are suddenly the responsibility of the town and the state. There are VERY high costs associated with these jobs. Costs that are not reflected in price tags on items or in cheap menu items.

 

[misgfool]

The drive toward low-paying jobs with no benefits is troubling. Wal-mart and the fast food places are drawing in workers that cannot afford to buy homes, pay taxes, or even feed their kids without public assistance. In the last town I lived in, my property taxes went up 30% in one year - and more than half of the property taxes go to the educational system. When people moved to that town to take low-paying jobs, they loaded our school system with lots of extra kids without providing any significant support to the property taxes that educate them. People renting trailers and cheap apartments are a drain on the town's resources.

In addition to Wal-Mart and a large supermarket, where the only full-time employees are managers, that town now has two rent-to-own stores (always a bad sign) two Dollar-store type places, and a host of fast-food places. How a town of fewer than 7000 people can support two Dunkin' Donuts, a Burger King, Subway, Pizza Hut, Wendy's, Tim Horton's, KFC, Taco Bell, and a mix of locally-owned non-franchise pizza and sandwich places is beyond me. All these fast-food places are in addition to three Chinese restaurants and about a dozen restaurants serving American-style foods. Aside from the Chinese restaurants, that may employ family, all these places represent a huge pool of part-time, low-wage jobs with no benefits. None of these part-timers are covered by unemployment insurance, so when they lose their jobs, they and their families are suddenly the responsibility of the town and the state. There are VERY high costs associated with these jobs. Costs that are not reflected in price tags on items or in cheap menu items.

It is a lot better to put their kids into school, so they may reach higher in their lives. They will probably leave to find a new job, if they lose their current jobs. Haven't you watched the night of the living homeless? Seriously, what would you do to solve this? According to capitalism working for any amount > 0 is rational behavior even if they couldn't afford to buy food with the income.

Here we already have almost fully automated stores at some places, where there is absolutely minimal staff. This removes substantial amount of jobs and creates huge unemployment issues, but I guess in the long run, it is the only wise path.

 

[WhoWee]

The drive toward low-paying jobs with no benefits is troubling. Wal-mart and the fast food places are drawing in workers that cannot afford to buy homes, pay taxes, or even feed their kids without public assistance. In the last town I lived in, my property taxes went up 30% in one year - and more than half of the property taxes go to the educational system. When people moved to that town to take low-paying jobs, they loaded our school system with lots of extra kids without providing any significant support to the property taxes that educate them. People renting trailers and cheap apartments are a drain on the town's resources.

In addition to Wal-Mart and a large supermarket, where the only full-time employees are managers, that town now has two rent-to-own stores (always a bad sign) two Dollar-store type places, and a host of fast-food places. How a town of fewer than 7000 people can support two Dunkin' Donuts, a Burger King, Subway, Pizza Hut, Wendy's, Tim Horton's, KFC, Taco Bell, and a mix of locally-owned non-franchise pizza and sandwich places is beyond me. All these fast-food places are in addition to three Chinese restaurants and about a dozen restaurants serving American-style foods. Aside from the Chinese restaurants, that may employ family, all these places represent a huge pool of part-time, low-wage jobs with no benefits. None of these part-timers are covered by unemployment insurance, so when they lose their jobs, they and their families are suddenly the responsibility of the town and the state. There are VERY high costs associated with these jobs. Costs that are not reflected in price tags on items or in cheap menu items.

Let's assume the total capitalization of your local Taco Bell is $1.5 million...plus land...$500K = $2.0 million.
http://franchises.about.com/od/fastfoo1/fr/taco-bell.htm

Because ALL of the chains pay so much for land, the land values usually appreciate. This can be good for the community...until foreclosures sweep through main street.

Let's also assume the Taco Bell creates 5 full time salaried positions...cumulative $140,000 with taxes and benefits, plus 35 part time positions at 20 hours at $8.00 (including taxes) = approx $300,000 per year in part time salaries...total payroll $440,000/40 = $11,000 per worker.

From an investment stand point $2,000,000/40 workers = $50,000 investment per job.

From a business stand point, the unit needs to generate about $1,500,000 to meet the designed operating budgets/projections. The operator (with a $2.0 risk) can expect to earn a pre-tax gross profit of 10% to 20% or $150,000 to $300,000 depending upon financing structures and other overhead considerations (single or multi-unit).

Similar (total capital) investments are made for each of the other restaurant chains, less for local operations and substantially more for the retailers. You can do your own analysis of average investment per job...my guess is the Taco Bell numbers will be the average.

From a jobs description standpoint the manager to employee ratio of Taco Bell will approximate to the other concepts and average wages will be +/- $1.00 average from concept to concept.

These businesses/models are located in every community. Specifically, ($2.0 million Taco Bells) have become the predominant small businesses of Main Street. The chains themselves (and WalMart) might be global conglomerates, but the individual franchisees are typically local investors with significant personal risk.

 

[turbo]

I understand the business model WhoWee, and I appreciate the value of the investments. The point I was making was that families cannot survive on these part-time jobs, and unless the wage-earners in the family can manage to get several of these jobs, they will rely on food stamps, housing assistance, heating assistance (heating is a BIG deal in this climate) and a host of other public programs like free school lunches for their kids, just to scrape by. These part-timers can be fired or laid-off for any reason and they do not qualify for unemployment benefits, so collectively they are a significant liability that gets laid at the feet of the town and the state. The business models of the fast-food franchises and Wal-Mart rely on laying off these costs on the municipalities and their taxpayers.

My wife and I saw the deterioration in that town's economy and tax-base years ago, and we got out. We're now living in a small town, in which there are two convenience-stores and a market, all with lunch-counters, and all have hands-on owners that put blood, sweat, and tears into their operations. The owner of the market doubled the size of his store 2 years ago so he could stock more items, AND he will gladly buy and stock local produce, berries, and fruit in addition to the stuff that is available through Associated Grocers. These stores employ mostly part-time help, but they are not a huge draw for the unemployed, and we have no trailer parks in town, so we haven't gotten an influx of the working poor. Instead, employees in these businesses are generally long-term residents (mostly women) who want to earn extra money, often when the kids are in school, so they can get back home and not have to pay for child-care.

 

[WhoWee]

I'm not disagreeing with you about the quality of jobs ie low pay/no benefits. My point is that when someone risks $2.0 to open a Taco Bell. while it's a big risk to the local franchisee. But, it doesn't create many "good" jobs...the 40 total jobs equates to about 10 decent full time jobs...spread over 40 people.

If you look at my earlier post...my son wants to work 8 hours per week at McDonalds to earn $56 gross per week...it will cost us about $100 per week to facilitate his request (car/gas/insurance).

Because chains need a lot of bodies, but can only offer a few full time and mostly part time positions, the door is always revolving...employee retention is one of the biggest problems. Employees will often risk job security to move across the street for a $.05 per hour increase. Often, local businesses will "share" crews of workers via pre-set and coordinated scheduling.

The government seems to believe that raising minimum wages or promoting union expansion will improve the situation...but it doesn't...every time employers are forced to raise hourly wages, they cut total payroll hours and/or raise prices. The people who receive the "raises" are most impacted by the price increases.

Accordingly, the trend in small business for the past decade has been to reduce the need for employees. Many franchises are marketed based on "low labor requirements".

I can't say I blame them either...it is difficult and expensive to hire, train and retain stable employees. The government has turned every small business owner into an accountant and compliance manager...just consider the information required to hire someone...Application/interview, I-9, W-2, workers comp, payroll inclusion, permits (some), rules and regulations, orientation and benefits (if applicable). Then OSHA, health department, fire procedures, security procedures and basic training follow. It can easily take a week to hire and train a new employee to bag french fries.

 

[Astronuc]

I'd like to share a personal story that...in the context of the stimulus debate government/private sector jobs...provides a different perspective.

I have boy/girl twins, age 16. She doesn't want to drive...he can't wait to get a drivers license.

His argument is that he needs a part time job so that he doesn't need to ask for money...several times a day. (Our motivation)

The employers that are close enough to home...walking/bicycle/electric scooter distance are "unacceptable" for a variety of reasons. (His Dilemma...we just don't understand)

Heh, heh, my kids are much the same.

My mom told me that if I wanted to go to university then I had to work. So the first job I had a 16 was at a local gardening center. I could walk a couple of miles to get to work, or my mom or dad would take me or pick me up on the way to shopping. The second job I had was at a nearby grocery store, to which I also walked or drove. I was also expected to be a chauffer to my sister and youngest brother, because both parents worked. I saved up enough during high school that I paid most of my first year tuition, books, fees, and room and board. I was then able to find a job on campus as a plumber, which paid tuition and fees, and also a job working in the food service, in exchange for room and board, and that lasted until I transferred. I bought a well-used car from my dad, and then another one later when I transferred to a different university.

During my time as an undergraduate at the second university, I was able to find some good paying construction jobs (high iron), and I worked summers and holidays (even Christmas and New Year's days). I graduate with savings and no debt.

In graduate school, I received teaching and research assistantships, but I also took a full time job (40 hrs/wk) as an operator in a municipal water production facility. That lasted through my MS program, but I had to give up during my PhD program, in order to be able to sleep. Two years of sleep deprivation during my MS program took its toll. But my wife and I was able to pay off her student loans from her undergrad program, we left grad school without debt, and with some small down payment for a house, and a brand new Honda Civic Wagon (since she was pregnant with our first).

I enjoy hard work.

 

[turbo]

I looked at your earlier post, too, WhoWee. It is not cost-effective to take a part-time job at low wages if you have to have a car, insurance, maintenance, etc just to get to work and keep the job, as you have found out. And this is for a responsible kid that wants to work to earn extra money. The problem is that his wages won't be "extra" once you zero out the expenses that allow him to take the job. Think how bad it must be for a young couple trying to juggle 3-4 of these low-value jobs... Obviously, unless they have parents to support them, they have to rent a real cheap dump of a place and drive a junker, probably with no liability insurance. (Illegal here in Maine, but VERY prevalent among the working poor.) Throw in a kid or two, and you've got a working family that must have welfare to survive.

The business models of these franchises cannot possibly work if they have to pay unemployment insurance and other benefits. Those costs are foisted off on local tax-payers, and people are generally blissfully unaware of this.

There are a few hardware stores, a couple of automotive-supply stores and an office-supply store in that town that managed to survive when Wal-Mart moved in, and they have full-time employees with some benefits. The critical difference is that they have skilled long-term employees that are knowledgeable and helpful. They know their stock and their inventory, and can get you whatever you need if you are willing to wait a day or two for an order. They also deliver, so you don't have to take time off from your business to get the stuff you need. When I take a vehicle to my mechanic for an oil-change, he immediately calls an auto-supply place and orders the oil, filter, and whatever else he might need, then gets the vehicle on the lift to check the suspension, fluid levels in the differential(s) etc. Before he is through with that, a nice lady shows up in a pickup truck delivering his order. Try that with Wal-Mart.

 

[WhoWee]

I completely understand. WalMart, Home Depot, McDonald's (corporate), etc. are all public companies. As long as they show either growth or a profit, they have access to capital and can spread their risk over the entire country/world. Corporately, they are part of that "Evil Wall Street" world.

The nationals that have local franchise owners fall into the Main Street category. The local hardware store, lunch counter, day care, plumber, etc. are by definition Main Street.

Here's my dilemma...when our government takes an anti-business stance...who are they targeting?

It could be argued a few weeks ago that Main Street will benefit directly from the $13 per week stimulus "tax cut"...but that bubble was burst when we found out we'll need it to pay increases in electric bills due to cap and trade initiatives.

Our government is spending over a $Trillion to stimulate the economy...but unless you lose your job and receive some benefits or enter the construction field it isn't going to help you at all in the short term.

As for the average Main Street businesses...they don't have ANY friends in Washington.

 

[turbo]

As for the average Main Street businesses...they don't have ANY friends in Washington.

They can't afford to BUY any friends on on K street, and so cannot get such "friends" to bribe the people in authority - Congress, regulators, etc. Much of what's wrong with our economy can be traced to the corruption that gives businesses more influence than individuals. When I write to my Senators and Congressman (which is more often than the average person), I never get anything more than a very vague "thank you for your interest" form letter from them. I can't afford to pay them $20,000 to speak to me and my wife during breakfast - that's the difference.

 

[WhoWee]

Small business used to have a voice in state and local politics. Now, the federal government controls funds and mandates projects in such a way that state governments have become little more than extensions of Washington...again Main Street businesses lose.

 

[turbo]

Small business used to have a voice in state and local politics. Now, the federal government controls funds and mandates projects in such a way that state governments have become little more than extensions of Washington...again Main Street businesses lose.

Sad but true. When Wal-Mart wants to move into a Maine town (don't know how it works elsewhere) they hold out the promise of jobs, and demand tax give-backs from the town. Too often, the towns give them the tax-breaks and screw the local business-owners. Washington certainly does not have an exclusive lock on greed and corruption - it takes a lot less "grease" to buy some small-town hacks than it takes to buy a Congressman.

 

[SixNein]

I'd like to share a personal story that...in the context of the stimulus debate government/private sector jobs...provides a different perspective.

I have boy/girl twins, age 16. She doesn't want to drive...he can't wait to get a drivers license.

His argument is that he needs a part time job so that he doesn't need to ask for money...several times a day. (Our motivation)

The employers that are close enough to home...walking/bicycle/electric scooter distance are "unacceptable" for a variety of reasons. (His Dilemma...we just don't understand)

Further, he doesn't want to in convenience us to drive him to and from work...in our vehicles and using our gas and insurance. (He apparently worries quite often about our inconvenience)

He paid for his own driving lessons (he made the 24% down payment and we paid the balance). He's arranged financing for his insurance (Grandpa is adding him to his policy $100/month and the boy will "pay him back when he gets a job").

He convinced Mom to let him drive her all over town to pick-up applications from prospective employers. Then he talked Grandpa into letting him drive him all over town to submit applications. Then, he talked me into letting him drive me all over town to interviews. We're out about $30 in gas and McDonald's put him on their schedule for 8 hours per week at $7.00 per hour. As a follow up, we've made another 3 trips to and fro with regards to a work permit.

Now he can't start work until he has a drivers license...can't depend on us to drive him to and fro? (Thinking of us again)

Accordingly, he took his test last week...did really well until he became over-confident and bumped a traffic cone in the maneuverability test. No license equals no work for a week. Now he's scheduled to retake the test today.

Assuming he'll pass this time (he does do a good job of handling the vehicle...just a typical over-anxious boy) he plans on starting work next week and gave us an option this morning to consider.

He either needs a commitment from us that a vehicle will be available when he prescribes. The alternative option is for me to make a scheduled $500 repair to a car that I choose not to drive in winter months, then "sell" to him (for a price about 20% of wholesale) over 2 years, at 0% interest. (What a deal & I can drive my "winter car" because I like it so much - a Saturn wagon)

The bottom line, I can't afford for him to get a job. If McDonald's paid him $20 per hour, it would be a losing proposition to me.

I see similarities between my teenage son's arguments and our current government direction. Obama, Pelosi, and Reid are all pushing their political agendas...at tremendous cost to us - the taxpayers...with very little hope of a true financial return on our investment. Even if the programs "work", we'll never retire the debt (with interest) in our lifetimes.

I don't want to say no to my son and crush his dreams. I want him to earn his own money and feel good about himself. I also want him to be balanced...studies/family/sports...then a job at McDonald's. I also need to teach him financial responsibility and hold him accountable. As the kids age, the problems become more complex, it's going to be an interesting spring/summer.

In a basic nutshell, over-production is the reason that we are in our current situation. I don't mean over-production as if we have produced too many goods. Instead, I'm referring to the idea that people cannot afford to buy what is produced. Production has outpaced purchasing power in our economy, and should have been first noticed in 1999-2000 when personal savings took a nose dive. After people ran out of money, they started floating on credit. The gap between rich and poor has been growing for years now, and it has finally began to break our system.

The democrats plan is far better then what is being presented by republicans. While I don't think it targets the problem directly, it should provide some help indirectly. At the end of the day, neither party has represented all of America. In all 3 debates, the poor class was not mentioned once. We are turning into a hierarchical society where all are not equal, and that should scare you. By the end of this century, robotics will lock that in place.

 

[WhoWee]

In a basic nutshell, over-production is the reason that we are in our current situation. I don't mean over-production as if we have produced too many goods. Instead, I'm referring to the idea that people cannot afford to buy what is produced. Production has outpaced purchasing power in our economy, and should have been first noticed in 1999-2000 when personal savings took a nose dive. After people ran out of money, they started floating on credit. The gap between rich and poor has been growing for years now, and it has finally began to break our system.

The democrats plan is far better then what is being presented by republicans. While I don't think it targets the problem directly, it should provide some help indirectly. At the end of the day, neither party has represented all of America. In all 3 debates, the poor class was not mentioned once. We are turning into a hierarchical society where all are not equal, and that should scare you. By the end of this century, robotics will lock that in place.

Neither plan addresses job creation in the small business sector...Dems want expansion of govt and reps want corp tax cuts. We need programs that assist small to medium sized domestic firms, such as expanded; SBA, State Business Development, Enterprise Zones, Main Street Revitalization, perhaps even allow more under-the-table casual labor without taxation...reward extra effort/side jobs.