XChange - The NBR Blog

Is "Business as Usual" Over at GM?

Fri, 10 Jul 2009 12:45:57 -0500

As I watched GM CEO Fritz Henderson's press conference this morning I was struck by a couple of his comments. (Henderson met with the media in Detroit as the company emerges from bankruptcy.)

First, Henderson said "business as usual is over" at GM. I hope so. Prior to its chapter 11 reorganization, GM was a hulking giant unable, and possibly unwilling, to change its ways. After the terrorist attacks in 2001 GM couldn't sell big sport utilities without big rebates or 0% financing. Yet, the company still clung to the segment thinking consumer sentiment would change. It didn't and things got worse last year when fuel prices soared above $4.00 a gallon. The company's commitment to making smaller cars and new technology hopefully is a move in the right direction.

The U.S. Debt Diet

Thu, 09 Jul 2009 18:10:19 -0500

Here's a statistic that may shock you: The average US household owes 128% of disposable income. What may be more surprising is that's actually an improvement from the peak of 133% at the end of last year. To give you perspective, as recently as the mid-80's, the load was about half that amount. It's no wonder economists think it will be at least 6 years before consumers have a good handle on their debt.

Now, the good news. There has been significant progress on savings. The savings rate--which was actually negative for part of last year--is now up to almost 7%. That's not far from what economists say is the long-term average of about 9%.

The Health Care Rubik's Cube

Wed, 08 Jul 2009 19:01:49 -0500

Health care reform doesn't come cheap. To cover the uninsured and get the underinsured truly covered will cost between 1.3 and 1.6 trillion (with a T) dollars over the next decade.

And it doesn't come easy. Senator Chris Dodd, who is leading the Health Committee in Senator Kennedy's absence, likened reform to a Rubik's cube. All the parts need to come into line to make reform work. Avalere health policy analyst Jon Glaudemans says a good example is the requirement for insurance companies to enroll anyone regardless of pre-existing condition. That can't be done without another requirement that people buy insurance. Without that additional requirement, people might only buy insurance once they were sick, which could create a problem for the whole system.

Google v. Microsoft

Wed, 08 Jul 2009 17:44:41 -0500

This is one of those matches headline writers love and fight promoters wish they could schedule for the ring. Google v. Microsoft, Microsoft v. Google, is there room for both?

This reminds me of the battle in the 1990s between upstart Microsoft and market dominating IBM which, many wags love to claim, was won by Microsoft. The lesson pf those days, they claim, is that Google, now offering products which compete with Microsoft on almost every front, is bound to defeat the reigning software champ just because they are younger, bolder, and cooler.

Fiscally Fit: Please Enjoy Responsibly

Tue, 07 Jul 2009 11:31:33 -0500

Authored by: Stephanie May, NBR Summer 2009 Intern

Judging from the whimpers coming from my debit card, I am pretty sure my holiday weekend was a fiscal fiasco. I don't know how your Little Black Book looks, but one peek at mine and you would think I paid for all of the fireworks in Washington. Coming off of that 3 day holiday blowout... I was feeling like a financial failure. My stress level was high and my balance was low.

As I was reflecting on my money makeover, I was reminded of a piece of advice nutritionists give first time dieters. They would be quick to warn you that over-dieting is a death sentence. If you deprive yourself of everything you love, you'll be lucky if the diet lasts even a few weeks... and as for that life change? Forget about it. You need to keep indulging in the things you love most (cheesecake?) ... but in moderation (one slice, not four.)

Following on Money Illusion and Wages

Tue, 07 Jul 2009 10:26:06 -0500

Yesterday, I reported on the impact furloughs are having on wages.

So this caught my eye from Goldman Sachs today:

"We expect average hourly earnings growth to turn negative next year, reaching -½% year-on-year by the fourth quarter. . . . Our forecast includes a judgmental adjustment for workers' likely resistance to nominal wage cuts; without this adjustment, the projection would be -2%."

Ouch. Nothing influences voters (and Power Town) more than their pocketbooks. This will be a major issue in next year's election. Count on it.

Money Illusion, Stimulus Illusion, and Martha's Vineyard

Mon, 06 Jul 2009 16:58:42 -0500

My kids never tire of hearing how, when I was their age, I could buy an ice-cream cone (three scoops!) for a quarter.

It's $3.50 now! (OK, that's at the fancy ice cream place.)

The important question here is whether the price change matters? Obviously, if the ice cream is identical, then the cost of ice cream has gone up in name. But if everyone in the country is earning 14 times as much, then the real cost of ice cream to me is the same.

At the end of the day or week or year, what we really care about is not how many dollars we have, but how much those dollars can buy. And we also care a lot how much we have to work to get those dollars with which to buy things.

When we confuse the real cost of something with the cost in name, we are falling prey to what economists call "money illusion." As Irving Fisher explained many years ago: "Money illusion . . . is the failure to perceive that the dollar, or any other unit of money, expands or shrinks in value."

What really should matter to workers is how much they can buy when they get their paycheck.

Fiscally Fit: Trimming the Excess

Thu, 02 Jul 2009 14:28:58 -0500

Authored by: Stephanie May, NBR Summer 2009 Intern

Any nutritionist or diet expert will say mindless eating is the worst thing you can possibly do for your diet. And, I've discovered in the past few weeks that mindless spending is just as bad. When you're not paying attention, you can finish an entire bag of potato chips (I say this from experience)... or you can spend an entire paycheck without even realizing it! Have you ever walked out of a store and realized that you've just spent 30 bucks on stuff you don't need?

As I was walking back to the office from Starbucks yesterday, I was hit like a bus by a very serious truth: I am a chronically careless spender. I looked down at my Venti Caramel Frappuccino -- which had cost me $4.50 (and more calories than I'd like to know about) -- and I wondered... what would happen if I used my Starbucks money elsewhere?

Now to be fair... my caffeine addiction has been generously funded by my amazing friends and family who have given me Starbucks gift cards over the years. But if I continue the 4-day-a-week Starbucks tradition for a month... 6 months... a year after those cards run out, how much money am I actually spending? So I crunched some numbers.

Does the U-Turn in the Markets Portend a Coming Economic Turnaround?

Thu, 02 Jul 2009 12:30:03 -0500

If you had to identify the biggest business development of the year's first half, what would you choose? GM declaring bankruptcy? Bernie Madoff being sentenced to 150 years? The Obama financial regulation proposal? Ken Lewis's demotion (to mere CEO, rather than Chairman and CEO) at Bank of America?

It's a tough decision...but I would vote for none of the above. Rather, I would go with the U-Turn in the Stock Market that began in early March.

Why? Until March 9, stock prices were still in free-fall, continuing the crash of 2008. That reflected a continuing stream of bad news on the economy and serious concerns that the financial system might collapse. But then the Stock Market began to turn round and headed in the other direction--rallying some 40 percent over the next four months. (Even that move only brought prices back to where they started the year, but who's complaining?)

Health Insurance Co-ops: Solution, or Red Herring?

Wed, 01 Jul 2009 18:40:49 -0500

When I first heard about the idea of health insurance co-ops as an alternative to a public plan, I thought, "This is good -- lawmakers are being creative about solving the coverage issue so that a bill can actually get through Congress." But as is often the case with such ideas, the details are a little murky.

Co-ops could be a great way to expand insurance choices, particularly in markets that lack options. But when it comes to catalyzing competition in insurance markets (a goal of those on the left) and reducing stifling bureaucracy (a goal of those on the right), I'm not sure co-ops will really do either.

Home Sweet Home, Not for Many

Tue, 30 Jun 2009 18:42:05 -0500

Despite glimmers of hope, the real estate market is still very much in distress. The combination of falling home prices and rising unemployment is creating stress for many homeowners who reached to buy a home when prices were high. Those who have heard the messages of "hope" and reached out to their lenders are in many cases left frustrated and disappointed. Restructuring a loan or negotiating a short sale is a complex, time consuming process. Banks and loan servicers are overwhelmed with the numbers of distressed borrowers. Reaching someone on the phone can be a struggle and keeping good records is important since many borrowers won't talk to the same person twice.

Fireworks for Female Business Leaders

Tue, 30 Jun 2009 12:50:50 -0500

This week, Americans across the country will be watching fireworks as they celebrate Independence Day -- an important day in U.S. history. So it's fitting the nation will mark another milestone this week.

On July first, Ursula Burns takes over as the new chief executive officer of Xerox. A recent Business Week cover noted the news with a bold headline: "Xerox: An Historic Succession."

It's historic for many reasons. Ursula Burns, 50 years old, will be the first African-American woman to lead a major U.S. corporation. It's also historic because she is taking over from another female CEO: Anne Mulcahy. This is the first time that one woman CEO has groomed another and handed her the top job. That hasn't happened before -- at least not at a fortune 500 company. And Mulcahy will continue as chairman of Xerox, so there will be two women in two very powerful jobs at the same company -- that's a first.

Now I have a confession to make.

Madoff: Was Justice Served?

Tue, 30 Jun 2009 11:23:50 -0500

If there's one thing I like, it's a media circus. It brings out the competitive spirit in me. I thrive on trying to get the exclusive interview, the best seat in the courthouse, and the best video.

I arrived at the courthouse where Bernard Madoff would be sentenced a little after 7 a.m. yesterday. I was pleased to see our cameraman James Roldan and intern Jeff Masino. Both had arrived there at the crack of dawn to stake out a prime shooting spot. Our field producer Althea Thompson and intern KyuYeon Ha were already in line, waiting to get into the courthouse. We waited in various lines for 2.5 hours before being permitted to enter the courtroom.

A big challenge of covering federal court proceedings is that no recording devices are allowed in the courtroom. That means I can tell you the words that were said, but not the body language or tone that convey real meaning.

Fiscally Fit: The Weekend Workout

Mon, 29 Jun 2009 15:33:16 -0500

Authored by: Stephanie May, NBR Summer 2009 Intern

If you've ever dieted, I'm sure you've noticed the weekend is the hardest time to stay on track. I found -- after a fantastic Washington weekend -- the same is true of a money diet. Come Monday, my wallet felt significantly lighter, and I frankly have no idea where the money went.

Before I go into the details of my tumble off the wagon, I have to say that leading up to the weekend I was doing quite well! I was keeping track of my spending, only using cash, and trying to be more aware of where my money was going. I was feeling good... like a new woman. But then the weekend hit...

On Friday, some friends came into town, and we went to listen to jazz music in Washington's Sculpture Gardens. It was fantastic! However, the $17 pitcher of Sangria might have been a touch over the top.

Rethinking China's Rise

Mon, 29 Jun 2009 12:04:42 -0500

One healthy result of the bursting housing/credit market bubble is a hard-earned sense of humility.

Americans are a little wiser for our recent troubles.

A not so healthy result of the Great Recession is a lack of confidence in our long-run future. A sub-theme of this is that the future belongs to Asia, with the US an also-ran in the current century.

Not quite. China's rise is neither inexorable, nor does it mean the U.S. will be eclipsed completely in the Asian Century.

For useful balance, I recommend this article by Minxin Pei.

Minxin has been a sharp critic of China, but he is also a realist. Anyone interested in the balance of economic and political power in the world for the next few decades should read this article.