Tag: economy

–Why the airlines are sick

An alternative to popular faith

3/15/10(AP) “Continental Airlines (will begin) a food-for-sale program . . . expects a $35 million annual benefit, from cost savings and added revenue. Delta Air Lines, American Airlines, US Airways and United Airlines. . . already charge for food on flights . . . Air travelers have seen a steady erosion of amenities included in the price of their ticket . . . from checked bags to pillows and blankets on board. Airlines call it unbundling the product, allowing them to offer lower base fares . . . But with so many add-on fees these days, a traveler could end up paying more when everything is added . . . . Some travelers have been packing lighter or carrying more on board flights to avoid checked bag fees. Likewise, some bring their own food on flights to avoid paying for meals.”

Has Continental addressed its problems or exacerbated them? Here are what may be airlines’ three main problems:

1. Internet pricing, which makes comparison shopping easy, driving down prices to below break-even.

2. Lack of a competitive advantage. Each airline is perceived to be a travel commodity, no better or worse for getting you from point A to point B than any other airline.

3. Overall flying hassle. Airport parking is a costly hassle. Long wait in the check-in line, long wait in the security line (“and take off your shoes”), limited carry-on, long walk to your gate, long wait at your gate (so get there 2 hours early), claustrophobic planes with 6-to-an-aisle, claustrophobic smelly bathrooms, wait hours on the tarmac, no food, retrieve your baggage (it’s lost), drag your baggage out of the airport, find a taxi.

Does anyone ever say, “I really enjoy airplane travel” (vs. “I enjoy taking a cruise” or even I enjoy driving)? So what do the airlines do? They collude to make flying even less enjoyable.

Although cruise ships are not airplanes, perhaps some lessons can be learned from them. There are cheap cruises and expensive cruises, but most emphasize on-board fun and luxury, not just the locations you visit. Some will pay to get you from home to the dock. Some will meet you at the airport, take your luggage and handle security in the most pleasant way (“Welcome, Mrs. Jones, have a Mai Tai.”) Most don’t charge extra for food (often of gourmet quality) or entertainment. Some will take care of your touring and ground transportation.

Cruise ships focus on the travel experience. By contrast, airlines send a mixed message. They focus on price, then nickel and dime you to death. They are the only industry I know that deliberately makes their customers’ buying experience miserable.

Consider another industry suffering with Internet pricing: Automobiles. If they were airlines, they would charge you to walk through a long parking lot and sit in a gloomy showroom, elbow-to-elbow with a hundred other people, charge you for those 50,000 mile warranties and sell you an unwashed car with no gas. The salesperson would charge to show you how to operate the electronics. Yes, they offer options, but don’t take it to the extremes the airlines have (“Would you like windshield wipers or just a rag?”)

My local car dealer has free parking, a gorgeous, comfortable showroom; free breakfast and lunch to all customers, whenever they come in, free Internet, free TV, and free car washes any time – and he still has competitive pricing.

Airline executives lack creative thinking. Ever hear of an airline that picked you up at your door or paid for your parking? Helped you with your luggage? Shepherded you through security? Gave you a tram ride to your gate? Fed you or gave you a recliner to sit on while you waited? Helped you with advice, maps, reservations and transportation in your destination city?

They pay their executives big bucks, to have a follow-the-herd mentality. And in this, they are just like economists and politicians.

Rodger Malcolm Mitchell

–Economic myths, false beliefs and fairy tales

An alternative to popular faith

The U.S. and the world, lurch from boom to bust in seemingly uncontrollable waves. Popular faith holds that recessions and depressions are an unavoidable part of the natural economic cycle. I suspect these “natural” cycles occur because actions (or lack of actions) are based on false beliefs.

Economics has engendered an amazing number of myths, most based on what some feel is logic. But it’s the same degree of logic that says the earth must be flat, else we would fall off. Here is a list of myths, false beliefs and fairy tales. If you disagree with any item on this list, please let me know, and I’ll explain why it’s there.

• Money and debt are two different things.
• A growing economy does not need a growing supply of money.
• Federal surpluses help the economy grow.
• The federal debt is too large.
• The federal debt is the total of federal deficits.
• The current level of deficits is unsustainable.
• Federal taxes help pay for federal spending.
• Federal borrowing helps pay for federal spending.
• The federal government spends taxpayers’ money.
• Our children and grandchildren will pay for today’s federal deficits.
• A balanced federal budget is more prudent than a federal deficit.
• The federal debt/GDP ratio measures the government’s ability to service its debts.
• Each of us owes a share of the federal debt.
• Federal earmarks, pork barrel spending and waste hurt the economy.
• The single biggest cause of inflation is excessive federal deficit spending.
• Inflation is too much money chasing too few goods.
• Consumer saving helps the economy grow.
• In fractional reserve banking, banks keep a fraction of deposits and lend the rest.
• The best way to cure inflation is to increase taxes or cut federal spending.
• State, county and city governments are financially similar to the federal government.
• FICA taxes pay for Medicare and Social Security.
• The government cannot afford to fund Medicare or Social Security.
• The U.S., like the EU nations, can go bankrupt.
• Without increases in taxes or decreased spending, Medicare and Social Security will go bankrupt.
• Without tax increases, the federal government cannot afford to increase support for education, infrastructure improvements, bailouts for states, counties and cities, the military, research and local police.
• Gold is safer and more prudent than “paper” (fiat) money.
• The federal government needs to borrow to pay for deficit spending.
• Federal borrowing reduces the availability of lending funds.
• The two main reasons for the recent economic collapse were low interest rates and lack of federal credit supervision.
• Low interest rates stimulate the economy; high rates slow it.
• Taxing the rich does not hurt the poor.
• Cutting payments to doctors and/or taxing “Cadillac” health insurance plans, is one good way to help pay for improved health care.
• The federal debt ceiling has a beneficial function.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

–Three Equivalent Standards: Gold, Euro and Dollar

An alternative to popular faith

A gold Standard, indeed any Standard, consists of two parts: An asset (gold) and a system. Of the two, the system plays the leading role.

In any Standard, the system requires that for every unit of currency a country issues, that country must own a fixed amount of the chosen asset. The fundamental purpose and effect of a gold Standard, or of any Standard, is to restrict the ability of a nation to issue money.

Gold has been a popular asset with attractive attributes. It’s consistent, malleable, permanent, pretty and scarce. But, other assets can be part of a Standard, for instance: silver, platinum, copper, wheat, the euro. The euro?

Yes, nothing says the asset in a Standard must be a physical substance. The only necessary attribute is some degree of scarcity. Today, much of Europe is on a “euro Standard.” This means that to spend money, each nation first must obtain euros. The fact that the money and the euros are identical is irrelevant. Rather, the necessity of owning euros restricts each nation’s issuance of money. This restriction is the key to any Standard.

The United States abandoned the gold Standard in 1971 because it restricted the issuance of dollars. The U.S. found itself unable to obtain enough gold to fund its growing economy. It easily could have been unable to service its debts, i.e. gone bankrupt. With the elimination of the gold Standard, the U.S. government demonstrated it is able to service any size debt, while creating unlimited money to fund economic growth.

Today Greece finds itself in the same restricted position. Being on the euro Standard, Greece is now unable to create sufficient currency to fund its growth, and having been forced to borrow, now faces the (unlikely) prospect of bankruptcy. The EU has ordered Greece to reduce its debt supply (aka money supply) by raising taxes and reducing expenditures – a prescription for recession and depression.

Any political entity that cannot create money eventually will be unable to service its debts, and faces economic stagnation and ultimately, bankruptcy. American states, counties and cities are on the “dollar Standard.” Unlike the federal government, they cannot spend money without obtaining dollars. Over time, all must obtain money by raising taxes and/or cutting expenditures, both of which have a depressing effect on their economies.

To save the state, county and city economies, the U.S. federal government increasingly must support local spending. Roads, bridges and dams are local initiatives, once the financial responsibility of local governments, that will need to be funded by the federal government. Education, local transportation, infrastructure, health care and anti-poverty programs also will require federal support to prevent local economic disaster or bankruptcy.

The federal government, because it can create unlimited money without taxation, ultimately will fund the vast majority of local programs, the key political question being: Who will have the power to direct these programs, local agencies or the federal government? The anti-“big government” people do not take this reality into consideration.

Just as the American states, counties and cities can, must and will be supported by the U.S. government, the members of the EU can, must and will be supported by the only entity with the unlimited power to create money: the EU itself.

Eventually, it will become apparent that forcing EU nations to raise taxes and reduce spending only will serve to make economic growth impossible. At that point, the EU will assume the money-creation role for the euro. Thus, the euro will force a de facto “United States of Europe,” well before formal treaties are ratified.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

–How not to improve America

An alternative to popular faith

Much of the proposed cost to improve health care will be paid for by cuts in Medicare payments to doctors and hospitals. Clearly, that should improve health care.

Next, we can improve education by having our federal and local governments cut teachers’ salaries and support of schools.

Then, we can improve public safety by cutting police salaries.

And, we can strengthen our army by cutting military pay and investment in weapons research and production.

We can improve America’s brain power by deporting all those aliens, and not letting anyone new in.

And, we can increase medical drug research by restricting profits of those rich, greedy, pharmaceutical companies.

And, we can improve our infrastructure by spending less to repair roads and bridges, along with the electrical and communications grids.

And we can achieve energy independence if the government limits those rich, greedy, oil companies’ profits, while spending less on solar, wind, geothermal and atomic power.

Finally, we can increase economic and jobs growth by raising taxes, particularly on businesses and on the rich (people making more than $200,000 per year).

Taking all of the above steps will complete the anti-deficit, anti-government, xenophobic, Tea Party, class warfare, populist initiatives that seem so much in the news.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com