Wednesday, September 14, 2011

Fifteenth Anniversary of Opening of First McDonald's in St. Petersburg, Russia

An article from Russia in today’s St. Petersburg Times reminds us that Russia’s second largest city, St. Petersburg, formerly known as Leningrad during the Soviet Era, got its first McDonald’s restaurant fifteen years ago this month.

While common in the United States and much of the rest of the world, the opening of a McDonald’s was a big thing in Russia.

In the eyes of their former Soviet masters, McDonald’s was a sign American decadence and excessive consumerism.

However, following the fall of communism in Russia, the newly freed people flocked to places like McDonald’s to spend their rubles.

The first McDonald’s in Russia opened 20 years ago in Russia and served 35,000 customers THE DAY THEY FIRST OPENED THEIR DOORS! Talk about pent up demand, this type of opening is a capitalist’s dream.

2002 Photo of McDonald's Restaurant in St. Petersburg, Russia
Photo Copyright 2002 by Charles Nugent

When I visited Russia in 2002, six years after the first McDonald’s opened in St. Petersburg, not only did I treat my then fiancee to dinner at one of the local McDonald’s but saw numerous entrepreneurs on the streets selling red tee shirts with McDonald’s famous golden arches superimposed over a bust of Vladimir Lenin and under the words McLenin’s.

McLenin's tee shirt
Flicker Photo by Sjors Provoost
Creative Commons Use Rights

Vladimir Lenin once boasted that the supposed greed of capitalists was such that he would be able to sell capitalists the rope to hang them with.

Instead, following the inevitable fall of communism budding capitalists in Russia mad money selling tee shirts mocking Lenin and applauding the new freedom to eat at the local franchise of the American McDonald's chain.

Monday, September 05, 2011

Labor Day 2011

Today is Labor Day in the United States. While for the many who remain unemployed in this, the longest recession since the Great Depression of the 1930s, it is another year without work, there is hope that next year's election will provide new leadership that will return the nation around by replacing the present Administration's statist policies with economic policies that promote economic growth and job creation.

Despite the hardships being suffered by unemployed workers, this is the day that not only has come to mark the end of the traditional summer vacation season, but is also a day to honor the American worker. This is what those who in the late nineteenth century lobbied for in both the United States and Canada.

Economic growth has resulted in work weeks being reduced to below what these early crusaders envisioned and wages for average workers rising beyond anything the nineteenth century advocates could have imagined.

While this increase in leisure time and disposable income has tended to eclipse the original focus of the day away from the nation's workers and their contribution to our economy and, instead, allow workers and their families to use the increased leisure time and disposable income to relax and enjoy themselves on this day.

So, to everyone who works for a living I say RELAX AND ENJOY THIS DAY. You have earned it!!

Here are links to my other Labor Day articles:

Labor Day and the North American Labor Movement

What is Labor Day?

Labor Day in America

Labor Day Food Ideas

Labor Day 2010 Bad News for American Workers

Friday, July 01, 2011

Advice From Former President Calvin Coolidge onTaxes, Spending and the National Debt

Our nation is currently embroiled in a major debate over the increasing the national debt limit.

Congress at the moment remains deadlocked with Republicans insisting that we reduce the need for debt with major cuts in spending while Democrats insist that we continue spending and finance it with increases in taxes.

At its heart, the debate is really about big government vs small government.

In the video below, we see then President Calvin Coolidge, in 1924 speaking from the White House lawn, on the need for the government to be small and frugal and limit its extractions of money from the labors of its citizens to what is needed for the necessary functions of a small government.

The above video is in the public domain with a Creative Commons License. It is being provided here courtesy of Internet Archive

Wednesday, June 15, 2011

The Choice is Welfare or Wealth

Economist Allan H. Meltzer has an excellent article in today's (June 16, 2011) Wall Street Journal opinion pages entitled A Welfare State or a Start-Up Nation? (article also available on the Web) in which he clearly lays out the economic and policy choice the United States is faced with.

We can either continue on with the tax, borrow and spend polices favored by the Obama Administration and its supporters or return to policies that encourage economic growth.

Meltzer makes the point that, while the redistributionist policies favored by the Obama Administration and the left are backed by good intentions to help the poor and less fortunate in society, these policies have never worked.  It has been the free market growth policies which have lifted millions of people out of poverty in recent decades and in times before that in the places, like the United States where free markets were allowed to flourish.

The United States, Great Britain and Japan all grew and their people prospered when their governments followed free market policies.

Following World Wars I and II Great Britain opted for statist, sosocialist style policies and by the 1970s had an that was approaching that of a poor, underdeveloped Third World nation.  However, the economy of Great Britain quickly turned around when Lady Margaret Thatcher became Prime Minister and immediately began instituting free market policies.

In the United States, President Franklin Roosevelt managed to turn the 1929 economic downturn into a quarter century long depression, with near zero economic growth and 25% of the workforce unemployed, by replacing the free market with his socialist style central planning.

In the immediate post World War II era Sir John Cowperthwaite spent his career as the British Royal Governor of Britain's former island colony of Hong Kong fighting off attempts by his superiors in London to impose their failed socialist policies on the colony.  Cowperthwaite succeeded in protecting Hong Kong's free market economy from Britain's left leaning government with the result that, in the years between the end of the war and the election of Margaret Thatcher, the Gross Domestic Product (GDP) of tiny Hong Kong was greater than that of the mother country Great Britain.

Then there is the rapid transformation of formerly dirt poor nations in Asia, Latin America and even parts of Africa which in the course of a couple of decades in the last part of the 20th Century whose economies were transformed from poverty to plenty thanks to government reforms that allowed the free market to operate within their borders.

Finally, there are the nations of the former Soviet Union which threw off the shackles of communism in the 1990s and today are prospering.

As a nation, America faces a choice of following the current Administration and its dream of a socialist utopia which has always resulted in an economic nightmare or a free market policy which has always resulted in a better life for everyone.

Socialist policies promise economic equality and sharing of the wealth.  But what people end up sharing is not prosperity and wealth but hardship and poverty.

The free market, on the other hand, doesn't promise economic equality and, in practice doesn't end up distributing the wealth equally.   What it does do is create wealth in quantities which make everyone better off economically.

Monday, June 13, 2011

Supply & Demand

A question on a recent exam in my online Introduction to Micro Economics course asked:

If the price of a product increases, we would expect

A. the level of demand to decrease.

B. quantity supplied to increase.

C. the level of supply to increase.

D. an increase in quantity demanded.

The correct answer here was B. quantity supplied to increase. However, one of my students chose option A. the level of demand to decrease and then sent me an email asking why here answer was incorrect.

Here is what I replied:

An increase in price, other things being equal, will cause suppliers to increase the amount they are producing and selling. The idea here is that existing producers can make more profit by producing and selling more while other, less efficient, producers who could not make the product profitably at the current price will be able to make a profit at the new, higher price.

You confused "level of demand" or "demand" with "quantity demanded". "Demand" refers to the entire demand curve and this only changes when the entire curve shifts.

"Quantity demanded" refers to a movement along an existing demand curve.

The same is true of supply. "Supply" or "level of supply" which refers to the entire curve while "Quantity supplied" refers to movements along the curve.

In this question all we know for sure is that the price has changed and there is no indication that the curves have shifted so the answers referring to "Level" of demand or supply don't apply. Of course, since the price has risen the answer "an increase in quantity demanded" is wrong which leaves "quantity supplied to increase" as the only possible answer.

What has happened here could be a government imposed price floor in which a law is passed making it illegal to sell below a certain price and that price has been set above equilibrium. Or it could be a cartel (a group of suppliers coming together to agree not to sell below a certain price - this is illegal in the U.S.) like OPEC and the new agreed upon price is above equilibrium.

Finally, it could be a shift in the supply and/or demand curve which results in a new, higher equilibrium price. Any one of these will result in an increase in the quantity supplied as explained in the first paragraph. However, there is nothing in the question that indicates this, so all we have to go on in selecting an answer is the fact that the price has risen.

Wednesday, June 08, 2011

Deleveraging Defined

Deleveraging or de-leveraging is a financial term that has become increasingly common since the start of the current recession.

In finance we use the term leverage or financial leverage to describe the process of borrowing and using debt to help finance the purchase or acquisition of assets. It is no secret that borrowing is a way for a business or a person to acquire more money for a purchase and the more money one has the more they can buy.

Deleveraging refers to paying down and reducing debt. In business this usually involves the selling of assets and using the proceeds to repay debt. In many cases the assets being sold are ones that the business took on debt by borrowing money to purchase the assets they are now selling.

Deleveraging is a term that is also applied to individuals. Since the start of the current recession the term has frequently been used to describe reduction of debt by individuals.

While many individuals have done this by selling assets - homes, cars, etc. - the more common way is to accelerate the repayment of outstanding debts by devoting more of their disposable income to debt reduction rather than to other things. This has frustrated some economists and policy makers, especially those of the Keynesian persuasion, who have been counting on households to maintain their spending levels on consumer goods rather than on paying down debts.

Debt can be a useful tool for business, households and even governments when used wisely. However, after splurging on debt for the past couple of decades or so, the current spate of deleveraging is a healthy trend.

Monday, June 06, 2011

Why Congress Shouldn't Raise the Deficit Ceiling

Listening to the Democrats in Washington and their allies in the liberal media one would think that the United States is similar to Greece and on the brink of financial collapse.

However, looking at the financial markets, especially the bond market, one sees business as usual with no concern.

The markets are only concerned with default if the default, which is failing to pay or being unable to pay a debt on time, affects the government's ability to pay the interest due bond holders when due. What the markets are concerned with is not whether the U.S. Government will be pay all its bills on time, but whether or not the U.S. Government will be able to make the full interest payment that is due holders of U.S. Government bonds later this summer.

In the case of the U.S. Government, even skipping the interest payment would not put the U.S. on par with Greece. Instead, it would be more like and individual being late with a mortgage payment. The bank would become concerned, slap a late charge on the account and lower the individual's credit score. However, so long as the borrower has the potential to continue to make payments, the bank is not going to foreclose just because a payment is a few days late.

The United States remains a very wealthy nation and has the capacity to honor all of the government's debts.

The U.S. Government is basically having a cash flow problem in which its revenues (tax receipts and other sources of revenue) are not quite sufficient to meet its expenses as they come due. This revenue shortage is due partly to the recession which has resulted in an economic slowdown and mostly due to the out of control spending by the mostly Democratic Congress and Obama Administration.

This irresponsible spending binge has now caught up with them and their solution is to ask Congress to be allowed to borrow more and to also raise taxes so that the Administration's spending binge can continue. This is like an individual maxing out his credit cards in Vegas and, rather than coming home, calls his credit card issuers and asks to have his credit limit raised on the cards and then calling his employer requesting a raise supposedly to pay down the debt.

However, if he gets the credit card limits increased and pay raise he will simply continue his Las Vegas vacation and run his debts up to the new credit card limits.

If the employer and credit card issuers refuse to grant the vacationer's requests, he will be forced to cut his vacation short, return home and start making some serious changes in his spending habits.

The same is true of the Administration and Democratic controlled Senate. This is why the Republican controlled House of Representatives should hold the line and demand major spending cuts, and no tax increases, before agreeing to raise the debt limit which will allow the Government to continue to pay all of its bills - bond interest and other bills - on time as they come due.

Since the U.S. Constitution stipulates that all revenue bills (i.e., bills dealing with taxes, spending and borrowing authority) must originate in the House of Representatives, responsibility for halting the insane spending and borrowing by the government lies with the House of Representatives. With their control of the House of Representatives, the Republicans are in a position to force the rest of the government to get its fiscal house in order so that U.S. does not end up facing bankruptcy like Greece.

Friday, June 03, 2011

Fear of Future Oil Shortages are Causing Gas Prices to Rise

In addition to the stagnant economy and continued high unemployment, the American economy is also being hit by rising gas prices.

People are paying as much as $100 or more every time they fill their tank.

According to the Administration, Congressional Democrats and their supporters in the mainstream media the problem is a combination of a shortage of oil and and the OPEC cartel conspiring to raise oil prices.

The fact is that the so called oil shortage or energy crisis is a myth. The problem is the misguided policies of the Federal Government and not a lack of oil or conspiring by Middle Eastern oil producing nations.

The oil shale lands in the Rocky Mountain area of the United States and the oil sands area in western Canada EACH have potential oil reserves greater than the proven reserves in the Middle East.

These shale oil deposits are in ADDITION to other oil producing areas in Texas, California, Pennsylvania, Alaska and other parts of the U.S. which are currently producing oil.

Then there are the proven reserves, most of which are currently off limits to drilling, off our Pacific, Gulf and Atlantic coasts as well as the, also off limits, Alaskan National Wildlife Refuge (ANWR).

Oil and gasoline prices are being driven up not so much by rising current demand and limited Middle Eastern supplies of oil but by fears of future shortages when the Middle Eastern supplies run out.

It is true that oil produced from the shale fields and offshore fields will be more expensive than current Middle Eastern oil and. It is also true that it will take a number of years to get production in these areas in the United States up to speed (actually Canada is already producing from its oil sands fields, but environmentalists in the U.S. are blocking a proposed pipeline that would bring it to the U.S.).

However, simply removing U.S. Government restrictions preventing the drilling of the shale oil and in off shore areas would be a signal to users that future supplies will be available. This act alone will cause prices in oil futures markets to fall and when they fall current prices will also fall.

Proof of this can be found in 2008 rapid rise in oil prices which promptly fell when then President George Bush removed restrictions on offshore drilling causing current prices to drop almost immediately. Click on the link below for my article on this.

Politics and Falling Oil Prices


Wednesday, June 01, 2011

A Plan to Keep Medicare From Going Broke

It is no secret that Medicare is going broke.  Costs are rising faster than revenue from Medicare taxes paid by existing workers.  Each time a member of the Boomer generation retires and becomes covered by Medicare, the system's costs increase due to increase in the number of people covered while its revenues decrease as fewer people are working and paying Medicare taxes.

Left unchecked, the system will soon go broke.  To prevent this Wisconsin Congressman Paul Ryan and his fellow House Republicans in their budget proposal, known as A Road Map for America's Future, have included a section with a very good proposal to solve the Medicare problem and keep it from financial collapse.  

Congressman Ryan explains the plan for Medicare in the video above.

Monday, May 09, 2011

Big Victory for Stephen Harper and Conservative Party in May 2nd Canadian Elections

While the United States was celebrating our Navy SEALs successful attacking of the Al Qaeda compound and the killing of its leader, Osama Bin Laden, in Abbottabad, Pakistan last Sunday (May 1, 2011) another historic event took place to our North the next day.

On Monday, May 2, 2011 Canadians went to the polls to elect a new Parliament which resulted in Prime Minister Stephen Harper and his Conservative Party winning a majority of the 308 seats in Parliament.

Stephen Harper first became Prime Minister following the 2006 elections in which he led the Conservative Party to victory by winning 124 of the 308 seats in Parliament.  While not a majority, the inability of the opposition Liberals (103 seats), Bloc Québécois (51 seats) and New Democratic Party (29 seats)  to come together in a coalition resulted in the Governor General of Canada calling upon Stephen Harper to form a minority government.

Harper’s first government lasted until 2008 when he was forced to call for new elections.  While the Conservatives succeeded in increasing the number of seats they held by winning 143 out of the 308 total seats they were still a minority in Parliament.  However, both the Liberals (77 seats) and Bloc Québécois (47) lost seats while the more radical New Democratic Party or NDP (36 seats) gained seats.

Much like the United States, Conservatives were gaining among the people while the left was losing but becoming more radical.

Even in traditional liberal bastions, like the City of Toronto, capital of the liberal province of Ontario, voters are becoming more conservative as evidenced by last October’s local election in which Rob Ford, the conservative candidate (small c for conservative here as local elections in Canada are technically non-partisan but Ford was known for his conservative philosophy and his campaign platform was conservative) was elected Mayor while running on a fiscally conservative platform.

Again Stephen Harper was called upon to lead a minority government which he did until March of 2011 when he was forced to call for new elections.

Running on his record of holding taxes down and refusing to follow his counterpart to the south, U.S. President Barack Obama, with huge stimulus spending to fight the world wide economic downturn.  While the United States has suffered high unemployment and the longest period of recession since the Roosevelt led Great Depression of the 1930s, Canada has done very well economically during this period.

Not only has Canada done well with its economy growing, unemployment kept in check and the Canadian dollar, which for decades has been valued well below the U.S. dollar, has steadily risen to where it is now on par and, frequently worth slightly more than the U.S. dollar.

In last week’s election, Stephen Harper and his Conservatives won 167 of the 308 seats giving them a solid 54.2% majority in Parliament.  

Having won on a platform calling for:

  • Creating jobs through training, trade and low taxes.
  • Supporting families through our Family Tax Cut and more support for seniors and caregivers.
  • Eliminating the deficit by 2014-2015 by controlling spending and cutting waste.
  • Making our streets safe through new laws to protect children and the elderly.
  • Standing on guard for Canada by investing in the development of Canada’s North, cracking down on human smuggling and strengthening the Canadian Armed Forces.
and with his newly elected majority in Parliament, Canada can look forward to more growth and a even more prosperous economic future under Prime Minister Stephen Harper.

The one cautionary note here is that, while the majority of the voters are moving to the right, the remaining voters and their leaders on the left are not shifting rightward to the new center as voters in the United Kingdom and the United States did during the Margaret Thatcher and Ronald Reagan years, but, instead are moving toward the far left New Democratic Party (NDP).

While the NDP ended up in a strong second place with 102 seats in the new Parliament, the Liberals came in with only 34 seats and the Bloc Québécois with a mere 4 seats.  

This leaves Canada with a right of center Conservative government  facing a far left loyal opposition in Parliament.

For Additional Reading on Canada:

Toronto's New Mayor Rob Ford Calls for Privatization of Toronto Community Housing Corporation
A Very Civil War in the Arctic - an article about a dispute between Canada and Denmark over an island in the Arctic that may be sitting on a sea of oil.

Friday, May 06, 2011

Mothers Day 2011

This Sunday (May 8, 2011), the second Sunday in May, is Mother’s Day in the United States.

In addition to honoring their mothers on this Mother’s Day with a at least a visit or phone call, most of us will also be spending some money on them with a card and gifts. Popular Mothers Day gifts include flowers, candy, taking them out to dinner, etc.  

In fact, according to Ellen Davis of the National Retail Federation, as quoted on the Voice of America News website, the average person is expected to spend about $140 on Mothers Day presents this year.  

This translates to some $16 Billion dollars in total retail sales for Mother’s Day 2011.  

While candy, especially chocolate candy, is a popular gift for Mother’s Day it is not the most popular gift.  Things like cards, flowers, being taken to a restaurant, etc. all seem to overshadow candy sales.

According to industry statistics, the big holidays for candy, especially chocolate candy, sales are Halloween, followed by Easter, Christmas and Valentine’s Day in that order although Easter sales are just slightly  less than those of Halloween.  

Mother’s Day is good for sales of chocolate but the boost in sales of this product is not enough to put sales of chocolate candy in league with the other holidays.  However, sales of chocolate candy are a part of the $16 Billion sales figure retailers are expecting to reap this Mother’s Day.

So, HAPPY MOTHERS DAY to all the Mothers, Step-Mothers, Grandmothers, wives, grown daughters, aunts and others who will be honored with gifts this Sunday.

Links for Further Reading:

For a History of Mothers Day in the U.S. see this article about Anna Marie Jarvis the Woman Behind Mothers Day

For more data on holiday sales of chocolate see this article on Origins of Chocolate Easter Eggs

Voice of America News article on 2011 Mothers Day sales expectations 

Nielson article on holiday chocolate sales data