Folks,
the following article touches on imports and a possible effect on the economy,
but puts it in the context of political discussions. Now that the politicians
will, sadly, be getting back to work we can expect them to start "doing
something". Here is one issue on the horizon:
Myths die hard, and in the case of the "Phillips Curve," it has taken 20
years of obvious contrary evidence to convince many economists that
there is no fixed inverse relationship between unemployment and price
inflation. (Jeffrey Herbener of Grove City College has argued the
relationship never existed, not even at the purely empirical level.) The
article below quotes some Mises Institute scholars, and generally
provides an interesting treatment of the subject:
Who's Afraid Of A Red-Hot Economy?
Investor's Business Daily
February 9, 1999
by Charles Oliver
For more than 20 years, the Federal Reserve has seen its No. 1 job as
balancing growth and inflation, a duty enshrined in the 1978 Full Employment
and Balanced Budget Act.
The theory behind this mission is that too much growth brings inflation, but
slashing inflation too much would jack up unemployment. So the Fed's job was
to bring the Goldilocks economy: not too hot, not too cold, just right.
But in his latest testimony before the Senate, Fed Chairman Alan Greenspan
shot down that idea, noting that very low rates of inflation have coexisted
with very low rates of unemployment for some time now.
That made many economists and business leaders breathe a sigh of relief,
since it means the Fed is less likely to tighten monetary policy because of
tight labor markets.
Greenspan may have just admitted what economists have known for some time.
''Alan was a late believer in the idea that inflation isn't sparked by too
much growth, but the last few years have convinced him you can have growth
and low unemployment and still maintain low inflation,'' said Wayne Angell,
chief economist at Bear, Stearns & Co. and a former Fed governor.
It may have taken a mountain of evidence to convince Greenspan, but the link
between inflation and unemployment has been the subject of fierce debate by
economists for almost 40 years.
It started in 1958, when economist A.W. Phillips published an article
claiming to see a link between unemployment and inflation in Great Britain.
When unemployment fell, inflation tended to rise and vice versa.
Soon, other economists started to find that same relationship in the
economies of other nations. The link came to be called the Phillips curve.
For many, all those studies seemed to confirm that there was a link between
growth and inflation. Soon, economists started to say that the job of a
central bank was to maintain the lowest level of unemployment that doesn't
spark inflation: the so-called non-accelerating inflation rate of
unemployment, or NAIRU.
But some economists weren't convinced. At the University of Chicago, Milton
Friedman argued the Phillips curve was just an illusion.
''He argued that price inflation fooled businesses into thinking the demand
for their product was going up. So they hired more people. That's why there
seemed to be a link,'' said Richard Vedder, an economist at Ohio University.
Friedman's theory explained a key fact about the inflation-unemployment
relation: Inflation tends to precede drops in unemployment, not follow.
''But Friedman said the Phillips curve couldn't be sustained. At some point,
business leaders would wise up, figure out that the reason the prices they
can charge are getting higher is because of inflation, not an increase in
real demand. When that happened the link between inflation and unemployment
would break,'' Vedder said.
Friedman was largely dismissed in the economics profession until the 1970s.
That's when stagflation, the presence of both high inflation and high
unemployment, confirmed his ideas. Friedman won the Nobel prize in economics
in 1976 for his work.
''There's no question now that inflation is a monetary phenomenon. It
happens when the central bank lets the money supply grow too fast, and there
are too many dollars chasing too few goods,'' Angell said.
''Economic growth doesn't cause inflation. If anything it helps reduce it.
When there's more goods out there competing for those dollars, it offsets
growth in the money supply,'' he added.
But some who agree with Angell's point are worried about the current low
unemployment.
''Even Friedman agreed there is what he called a natural rate of
unemployment. Even in a healthy economy there are some people who will be
unemployed for some reason,'' said Roger Garrison, an economist at Auburn
University.
''The only way to push unemployment below its natural level is to pump money
into the credit markets, heating up the economy in a way that can't be
sustained without bringing price inflation,'' Garrison said.
Economists since the late 1980s have typically pegged the natural rate of
unemployment at between 5% and 6%.
The U.S. unemployment rate has been below 5% for 18 months. And since the
money supply has been growing for more than two years at above the 3% to 4%
recommended by Friedman, some economists think the Fed has pushed
unemployment below its natural rate. They keep waiting for price inflation
to pick up.
But there's little sign of inflation.
So what gives?
''Since the global economic crisis began, the U.S. has been getting a lot of
cheap imports, especially commodities. That has helped keep prices down,''
said Ram Bhagavatula, chief economist at NatWest Global Financial Markets.
''But once the rest of the world starts recovering, and import prices pick
up, then U.S. inflation could start to grow, and the Fed will have to
tighten.''
A less-troubling theory is that economists are just wrong about where the
natural rate of unemployment is.
''It could be lower now than economists have believed. If so, unemployment
could fall to 4% or 3% or even 2% without any inflation,'' said Andrew
Hodge, chief U.S. macroeconomist at the Wefa Group, a consulting firm in
Eddystone, Pa.
Welfare reform, rising real wages or other changes may have made joblessness
less attractive and pushed down the natural rate of unemployment. But no one
knows for sure.
''All economists can say right now is that the link between unemployment and
inflation seems to have broken down. But whether this is a temporary
situation or permanent we can't yet say,'' said Stephen Slifer, chief U.S.
economist at Lehman Bros.
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(C) Copyright 1999 Investors Business Daily, Inc.
Thursday, February 18, 1999
An Article Touching On Imports
Posted in media by John Wiley Spiers | 0 comments
Tuesday, February 16, 1999
Re: Pop Quiz
If the retailer was large enough you might have a problem. In the vast majority
of cases however, the manufacturer is concerned with moving his product out of
the factory and letting someone else deal with small lot distribution, accounts
receivable, payment, returns, etc.
The manufacturer produces the product and wants to move it in as timely a
manner, and volume, as possible. They are not equipped to deal with the demands
of retailers. Do not forget the minimum orders.
Vernon.Seymour
Posted in Business strategy by John Wiley Spiers | 0 comments
Monday, February 15, 1999
Pop Quiz
Anyone want to try to answer this? I have an answer, but let's see if you
remember from the class what the answer is....and remember to hit your "reply
to all" button so that everyone gets your reply..
****
John, A quick question on your response to the following question:
* The readings speak of suppliers who want to build markets in the US and
thus have a strong interest in working with you if you have that
innovative, problem-solving product. So, how do you PROVE to a supplier
that there is a demand in the US market for your product idea? Are mere
coversations with retailers enough? Is there a way to document the demand?
Your answer was:
***These suppliers are fielding inquiries from all over the world, yet they
have X amount of production capacity. You have to win some interest. No,
"mere conversations" are not enough... a series of conversations that lead to
various retailers telling you "it is a good idea, it does not exist..." This
series of conversations, documented in notes, is the basis for you requested
samples, only samples, made to further test the market. If the samples are
approved and confirmed by buyers, then, as we will see, you will seek to gain
enough orders to cover the supplier's minimum order requirements. And since
most suppliers overseas know most retailers in USA in their area, if anyone
wants to check up on you, they will call or email each other****
My point:
If the suppliers know most of the retailers, and they know what you want
designed because you have told them and they know with which retailer/buyer
you are talking to, why wouldn't they just cut you out and deliver
directly to the retailer? This could happen in the process of checking you
out, when the supplier is talking to the retailer/buyer.
Posted in Business strategy by John Wiley Spiers | 0 comments
Sunday, February 14, 1999
A Student Asks...
<<* A 2-part question: The readings state that successful entrepreneurs
succeed not out of a desire to make a buck, but out of a "desire to develop
and market the product". I agree passion for the product helps, so did you
really have a passion to market farm animal magnets, or did you just spot a
money-making opportunity? And also, chicken magnets, etc seem very mundane
and lacking innovation (no offence), so how/why did you target this item to
produce and market? Where is the "why don't they just..." in this idea?
***The animal head magnets were at a time when I was working for someone
else..he loved developing neat and fun things such as animal magnets...they
are not my cup of tea...but mundane innovations pay..he has a waterfront house
in Tiburon, a sailing sloop, SOMA real estate...all this from a penniless
immigrant.***
*The book also states "You must be efficient to survive, and it is far
better to start with what you truly want to do and build only from there."
I agree totally, however, in my case this advice conflicts with other
advice you've given. You see, I'm intrigued by native crafts (sculptures,
wood carvings, art forms, etc. from other cultures). This involves
searching the world for "something cool" and bringing it home, which you've
advised against. Do you recommend I not pursue native crafts? It is just so
rich and intriguing to me. Plus, people who have not traveled to Indonesia
don't know the value of a mask from Irian Jaya and you can mark it up 1000%
(as I have seen done).
***My first work was as a buyer for native handicrafts. people who thrive
here are people who outfit houses and then CHANGE the native handicrafts to
suit the USA markets. WE redesigned baskets constantly. As far as marking up
Irian Java masks 1000% ..surely you've seen it done, but how often do you see
it sell? Enough to make it worthwhile?"
* The readings speak of suppliers who want to build markets in the US and
thus have a strong interest in working with you if you have that
innovative, problem-solving product. So, how do you PROVE to a supplier
that there is a demand in the US market for your product idea? Are mere
coversations with retailers enough? Is there a way to document the demand?
***These suppliers are fielding inquiries from all over the world, yet they
have X amount of production capacity. You have to win some interest. No,
"mere conversations" are not enough... a series of conversations that lead to
various retailers telling you "it is a good idea, it does not exist..." This
series of conversations, documented in notes, is the basis for you requested
samples, only samples, made to further test the market. If the samples are
approved and confirmed by buyers, then, as we will see, you will seek to gain
enough orders to cover the supplier's minimum order requirements. And since
most suppliers overseas know most retailers in USA in their area, if anyone
wants to check up on you, they will call or email each other****
When showing a retail buyer our idea, you outlined a lot of questions we
should be ready to ask. Aren't we asking an awful lot of someone who isn't
on our payroll? I find it hard to believe they would be so willing to be
our R&D department. Also, some of the questions were about what "the trends
were in motif, function, color, style, etc". Why should we care about
trends if our goal is innovation?
****I've never run into a problem of a retailer not willing to discuss what is
going on in the biz...but, the convo does not have to take place all at
once...a series of discussions... and we have to care about trends because
aesthetics matter, wrong size, shape weight color whatever can kill a product.
If your product is used in a kitchen, it helps to have it matching current
colors.***
Sorry if I'm picking and pecking at points, but I'm really interested in
learning this stuff. I want to succeed at this!!
***Me too!****
Posted in New Business Opportunities / Trade Leads by John Wiley Spiers | 0 comments