Tag Archives: detroit

When Your Job is Like an Episode of The Office

dundermifflinOftentimes there are moments at work when I think that I’m living an episode of The Office. Although I’ve never run an employee over with a car, embarked on an interoffice romance, or staged a suicide to rally my co-workers, I’d argue that some of these moments are Dunder-Mifflin worthy: (And sadly, they are all true.)

  • Forced to dress up a life-size, cardboard cutout of my former boss for Easter. I’m not sure what’s worse: A) Spent $13 at Staples to pick up markers and poster board… B) Spent $120,000+ on my college education, only to regress to fourth-grade arts and crafts… C) That my boss has a life-size cardboard cutout of himself.
  • Asked by a man dressed as a vampire if I wanted candy. In the office… in the middle of June. Apparently the people who run our employee blood drive have a strange sense of humor.
  • romance-novelGot hit in the face by a Frisbee. A director in my old group enjoyed knocking out light bulbs with Frisbees. One time, my face got in the way.
  • Attended an employee retreat where an HR rep told us, “The company owns you.” This was in response to a question about switching functions. Apparently it is not encouraged.
  • Found some interesting material left in the shared printer. It seems like one of my co-workers wrote romance novels while at work… with herself as the main character.

Given that art appears to imitate reality, perhaps there’s something to Michael Scott quitting his job on The Office in favor of a startup. Some worthy startup ideas in a recession?

  • unionratManufacture giant inflatable rats: With businesses cutting back on unionized (ie. more costly) labor, expect to see more inflatable rats appearing across the country. In fact, they might need a whole family of giant hideous rats to cover all of Detroit.
  • Invest in dive bars: We might be cutting back on clothes, entertainment, vacations, and even food, but people have to get their alcohol somewhere…
  • Sell your soul… literally: There used to be a kid in high school who would go around and buy people’s souls for $5. One time he even offered up $20. Although I never sold him my soul (I was holding out for $40), I’m sure plenty of people could use $20 in this economy. So if this kid isn’t living on the streets yet, I’d track him down…
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Auto Industry Bailout: For or Against?

The case AGAINST:

Simple economics: If the Big Three automakers fail, it’s because someone else is doing it faster, better, and cheaper. And that won’t change with a measly $15 bn loan that can barely cover the companies’ monthly billion-dollar losses… As they say, you can’t teach an old dog new tricks. Any bailout will just be delaying the death.

carsTime to restructure: Just as it doesn’t make sense to grow oranges in Minnesota, it may not make sense to mass-produce cars in the US. GM, Ford, and Chrysler all have profitable overseas operations, but they’re getting squeezed here at home with higher costs, tighter regulations, and powerful unions. We’ll have to take the hit sometime, so why waste taxpayer money? It’s time to acknowledge that the economics just cannot support an auto industry in Detroit.

Bailing out a lack of innovation: Finally, Tom Friedman likens an auto industry bailout to funding typewriter companies on the eve of the birth of computers.

The case FOR:

lions_fanLost jobs: If there is no bailout and the Big Three automakers must reduce production, a conservative estimate is that we will lose 453,000 jobs next year; others have said it could be as bad as 2.5 million. What will all these people do next? Watch the Lions go 0-16?

Repaying taxpayers: Letting the car companies fail would lead to less tax revenue from lower incomes and lost jobs–which may end up costing us more than an upfront loan funded by taxpayers. Plus, there’s always the chance that the car companies could take the loan and actually turn things around… meaning we’d get our money back eventually, even if it’s in yen.

Like our economy isn’t crappy enough already… let’s just make it worse. The death of the auto industry would have a ripple effect on the entire economy, just as we saw with letting Lehman fail (bailout of AIG, collapse of WaMu, hello-goodbye of $700 bn). If the Big Three go down, taxpayers may eventually have to jump in and bail out everyone on down in the supply chain, plus insurers, pension guarantors, etc. How long could it take to get out of this? Well, how long have the Lions been in the “re-building” phase? Years and years.

What do you think?

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It’s Beginning to Feel a Lot Like… a Recession

So it’s official: we’re in a recession. On Monday, the mere confirmation that we’re in a recession caused the Dow to drop 680 points. Did we need more proof? The auto industry has been on the verge of collapse for the past few months. Banks are still on life support, trying to raise capital. And yesterday, Harvard announced that its endowment lost 22% of its value in the past four months, or, oh just $8 billion.

And how are our harbingers of corporate America doing?

  • Google (GOOG), which was approaching $700 at the beginning of this year, is now trading at $280
  • General Electric (GE) is currently trading at $18, a ten-year low, and down from $37 since March
  • Goldman Sachs (GS) closed at $199 in May, a mere six months ago; since then, its stock has fallen 65%, now trading at $68

It is not a good time to be checking your 401(k).

It seems like the complete desecration of the stock market has come painfully fast. So, out of curiosity, I looked up some of the other recessions in this century to see if we saw similar declines in the market. According to the gospel of Wikipedia, these are the official recessions since 1929 that have lasted over two years:

  • 2001-03: Bursting of dot-com bubble, September 11, Enron and Worldcom scandals
  • 1980-81: Result of 1979 energy crisis and tight monetary policy to control inflation
  • 1973-75: High oil prices and Vietnam War leading to stagflation

From Google Finance, I looked at a four year period before and after the recession – I’ve also included the largest % declines in the Dow during this time.

recession2000

recession1980s

recession1970s

recessioncurrent1

Some things that jump out:

  • With our current recession, it’s only been a year, and the Dow has already lost 36%, or over 4,800 points. The last time it was this bad, during the 1970s, this pain was spread over two whole years.
  • Bottoming out seems to occur about 1.5 to 2 years after the high point… which means we might still have some time to fall.
  • The good thing is, in all cases, we see the Dow bouncing back a few years after we hit rock bottom… so, if we’re patient, our 401(k)s may recover their losses in a couple years.

Guess I’m waiting until 2011 to buy that flat-screen TV…

Updated (3/11/09): Four months have gone by, and Google and Goldman seem to have recovered nicely… while GE is now trading around $9. Hmm. But not to worry, the General certainly has company: the Dow is now 51% removed from December 2007, versus a mere 36% in December 2008. Again, just by looking at these graphs of the previous recessions, it seems like we’ve got at least two years to go from the peak… By my calculation, it’s looking like December 2009 may be the inflection point where the market will finally bottom out and perhaps start turning up again. With the way things are going now, I’d hope so.

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Filed under Economy, News

Random Thoughts on… Moral Hazard

An argument for studying economics is that one will leave school with an extensive knowledge of concepts and theories that are applicable in the real world.  An argument against studying economics, however, is that these theories are typically limited to a world where we assume all participants make rational decisions.  Given that Kath and Kim is still on the air, universal rationality is doubtful.

One economic concept, however, has stuck with me after college.  Moral hazard occurs when “an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would,” thus “leaving another party to bear some responsibility for the consequences of those actions.”  For example, there is a moral hazard associated with life insurance.  After purchasing insurance, individuals may decide to take greater risks with their life.  twilightThey may be keener to go skydiving, try bungee jumping, or enter a crowd of teenage girls in line for Twilight.  After all, these individuals are now insured, so we can rationally understand (from the individual’s point of view) why they would be more likely to participate in dangerous activities.  However, from the point of view of the insurer, braving crowds of crazed middle schoolers pining after vampires is not recommended. 

We face moral hazards every day.  On an individual level, athletes anecdotally have had a drop-off in production following the signing of a guaranteed, long-term contract.  We act differently in a hotel room than when we’re in our own homes.  In my intro economics course, Larry Summers summed it up in a guest lecture: “You don’t wash a rented car.”   

In that same line of thinking, government bailouts may cause big companies to take more risks, with anticipation of being saved if they fail.  This can lead to even more trouble, as evidenced by the mortgage crisis (mortgage lenders that securitized their junky loans, backed by Fannie and Freddie, became more lax in lending).  Part of the Fed’s rationale for letting Lehman Brothers go under was because it feared creating a moral hazard if it had stepped in again, especially after its role in the Bear Stearns deal. 

impalaBut still, it’s hard to quantify the size of a moral hazard.  And there are times when the negative risks of the moral hazard outweigh the potential benefits of, say, a government bailout.  In the case of the auto industry, I’m not sure what would be best.  All I know is that I’ve been driving a rented car for the past ten months, and I’ve gotten it washed.  Twice.

 

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I’m Voting for the Candidate Who Agrees that the Yankees Suck

They say that when you grow up in Boston, it’s in your blood. It seeps into your mind, your heart, and your soul. There is no denying it, and there is no cure. In life, you may change jobs, political affiliations, or even genders, but you will always, always be a Boston Red Sox fan.

The Red Sox are an institution in Boston. This is a city that bleeds red in October. It is a city that jams thirty-thousand-plus people into a green concrete box on game days. It is a city that goes crazy when the Red Sox win, and self-immolates when the Red Sox lose. If you were walking the streets of Boston today, and asked a stranger about the three happiest moments of his life, the first two would be some variation of the typical answer: when my children were born, owning my first home, the day of my wedding, the day of my divorce, etc. However, the third happiest moment would likely be repeated by most everyone you meet: the Red Sox winning the 2004 World Series. Seriously: everyone. Or at least 90%.

But even though us Boston fans are undoubtedly consumed by our sports teams, this fanaticism isn’t limited to Massholes. In fact, there are some places that may even be worse. After all, grown men wear dresses and pig snouts to support the Redskins in Washington. Detroit fans help out their basketball team by sucker punching opposing players. And infamous Cubs fan Steve Bartman received death threats before he was forced into hiding… all because he interfered with a foul ball.

Some might think that our country’s infatuation with sports is strange: you have millions of people on the edge of their seats, fixating over an event they can’t control, with participants they don’t really know, in a game they’ve probably never played. Even though we may give ourselves credit for our team’s victory (“during the whole game, I didn’t move my right arm, because the last time I did, Favre threw an interception”)… really, telekinesis has yet to hit NFL playbooks.

So why are we so obsessed? Why do we set aside our Sundays, neglect our work, and force our arms to go numb? Why do we let two-point conversions and last-second threes and outcomes (over which we have no control) impact our mood? Why do we allow the fate of a foul ball decide how homicidal we want to be today?

Much of it has to do with the sense of community that comes with being a sports fan. Our teams serve as a common thread between fans, an easy conversation starter, and a way for us to showcase our townie pride and bash on our rivals. Our allegiances also grow stronger if there is a common enemy: for Bostonians, we collectively cringe when Peyton Manning’s 17th commercial comes on, and we all agree that the Yankees do indeed, suck. The rivalry is what makes is interesting, and it’s what draws us to our teams even more.

Finally, I’d like to go off on a somewhat-related tangent: As November nears, all of us will be forced to choose allegiances in another competition between opposing rivals. In this contest, however, the implications are far worse than a weekly depression because the Dolphins lost again. Instead, we have to wait four years to turn this one around. And while we eagerly anticipate the next Sox game at Fenway, our engagement with the upcoming election is minimal, at best. Not too many people plan on packing the bars to watch the debates. Not too many anticipate dressing up as a gun-toting book Nazi to support their favorite Russia expert. Very few people are on the edge of their seats.

So, a suggestion: As sports are so popular, let’s try it with politics. For this election, let’s get some form-fitting red and blue jerseys, and see how well our candidates do under pressure. How are Obama’s skills on the basketball court? Can Palin can shoot a moose with a bow and arrow? The ultimate decider could be an American Gladiators course, the true test of patriotism and strength. I want to see Biden battling it out with Siren. I want to see Palin jousting with Mayhem. I want to see McCain get lit up by Justice. If this doesn’t get people interested in the election… well, at least they’ll have football on Sundays to get them through the next four years.

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