30 years old

Alright, well I just rolled back into the station and on this day I am turning 30. I've got little time before I return back to the ranch, but I wanted to reflect back on the economy for the past 12 or so year. I first started worrying about it back in my senior year as my Econ teacher, Mr. McManamom, started talking about the national debt. What was it then, a couple billion? No...I think $16 trillion. All I remember is no one had any idea what to do about it and if kept piling up for the next couple of years. Oh and the trade deficit...we imported everything and only exported scraps and machines. All I could remember is that things need to change.

Once I turned 25 things flipped. I looked at a graph showing or national debt and all I remember is that it peeked in 2017 and since then its gradually decreased. Starting off I was screwed. Just graduating college and coming into a job field of a Firefighter/EMT and starting a new life. But I was only broke for one year (what a crazy year) but after that I got money under my feet. A new president was elected, and he fought for education. Kids became more educated and safe with their money. Our national debt is now a couple billion, seems like a lot, but compared to being $16 trillion in 2012 its dropped a ton!

I just wonder if our national debt will ever break even...?

Research Project

Collapse of GM

Paul Rahier 2A

General Motors (GM) was founded in September of 1908. It was the world's largest automaker, by vehicle unit sales, in 2011, and did business in some 157 countries. General Motors produces cars and trucks in 31 countries. GM employs approximately 202,000 people around the world. The GM automotive brands today are Vauxhall, Daewoo, Buick, Cadillac, Chevrolet, GMC, Holden, Opel, and Wuling. Former GM automotive brands include Oakland, Oldsmobile, Pontiac, Hummer, Saab, and Saturn. All this may seem good, but eventually GM went bankrupt. Throughout a series of years GM’s bad financial policies, uncompetitive vehicles, ignoring competition, failure to innovate, their poor managing led to bankruptcy.

General Motors can be thankful to the $19.4 billion in loans and $30.1 billion more in debtor-in-possession financing to bail them out of bankruptcy. The U.S. will own 60 percent of the new GM, which will include Chevy, Buick, GMC and Cadillac. Canada will have 12 percent after lending GM $9.5 billion, the UAW will have 17.5 percent (as payment for $9.4 billion of its $20 billion in health care obligations) with warrants to buy 2.5 percent more, the bondholders 10 percent to as high as 25 percent through warrants, and old GM common shareholders roughly zero. Twelve to 20 more GM factories will close, 21,000 union workers will be fired, and 2,400 GM dealers will shut down (Cohan).
GM has been bankrupt since 2006 because of bad financial policies, and has been avoiding filing for years thanks to the graces of the banks and bondholders. GM has been a finance company who just happened to sell cars. GM limited its $6 billion in vehicle operating losses due to the $2.2 billion it made financing those vehicles in 2005. Rick Wagoner and Fritz Henderson both drove GM to bankruptcy, these two ironically came from their finance division. They have put GM’s liabilities in front of their assets. This condition has gotten worse every year, with a negative net worth of $5.4 billion in 2006, to a negative $91 billion net worth in 2009 (Cohan). GM was so worried about their employees, they have given the union huge benefits. Such as, they provide healthcare and pensions to all of retired workers, which cost GM millions of dollars every single year. These benefits make out to be about $2,000 per car, and that $2,000 has to be passed along to the consumer if GM wants to turn a significant profit (Detroitosaurus Wrecks).
For the longest time GM has been producing uncompetitive vehicles. Compared to companies like Toyota, GM’s cars were poorly built and designed, took too long to manufacture at costs that were too high, and as a result fewer people bought them. In a recent study, more people were willing to pay higher prices for Ford or Toyota then GM. Ford and Toyota vehicle’s were better designed and built so they had higher quality, cost less to own, and lasted longer. Toyota was able to charge 14 percent more for their vehicles then GM. GM resorted to cutting prices on their inferior vehicles, such as commuter cars, and slightly hired priced on their more profitable vehicles such as SUVs and trucks. Toyota was also able to produce cars 7 percent more efficient than GM. This all led to Toyota having a $300-500 per vehicle advantage over GM, and while GM paid $2,000 in health care per car, Toyota enjoyed little to no health care cost because they manufactured in countries where the government paid for the bill. Since Toyota earned a profit of $1,500 per vehicle while GM lost $2,300, thus led to Toyota taking over the North American market (Cohan).
From uncompetitive vehicles, GM also ignored competition. Once owning more than half of the motor vehicle market in the 1960s, has now plummeted to less than 20 percent in modern day. This gave room for Toyota, Ford, etc. to take over the market. GM’s former CEO, Roger Smith, bought Saturn in the 1980’s. Saturn back in its day competed with Toyota/Lexus, and actually beat them in total overall vehicle owner experience. But this one right thing, a light at the end of the tunnel, soon faded as Roger left the CEO role, and his successor failed to sustain the same leadership and responsibilities. So basically, if CEO post Roger Smith were to maintain and infuse GM with the Saturn experience, they would still be at the top.
GM had the failure to innovate. They were so focused on profiting from finances, that they didn’t focus or really even care about the quality of their vehicles. From their stellar cars such as the Corvette, Pontiac GTO, Camaro, and Trans AM, they then led to the Chevy Vega, the Citation, and the Chevette. Dave Thomas of Car.com stated "many cars had a design and interiors that were not stellar and performance that wasn't the best." Peter Cohan said in his book Riding the Value Cycle, that “companies can only survive if they continually push themselves forward in three management processes: value creation (offering products to a customer that satisfies their needs in ways of beating competition), value capture (able to earn a profit on products beating out competition), and value renewal (refers to how a firm that's achieved success forces itself to change so it can adapt to evolving customer needs, upstart competitors, and new technologies). GM just isn’t willing to innovate.
Finally, General Motors poor managing comes into the mix. The CEO’s of GM basically acted as a dictator. They ran the company the old way, by financing and making a product they liked and made people want their product instead of innovating and going with the flow to produce product that the consumer wanted. The current disaster in which GM finds itself makes one wonder, how could it have been so incredibly stupid? All other manufacturers look at GM and laugh at its stupidity and their poorly made cars, while GM executives are high off of what they believe to be the “way to run a business.” GM rewarded those who did things the old way and those who started to be creative and think about ways to innovate were basically cast out and lost any sort of possible promotion. Roger Smith, the ex CEO stepped down from his position because he was looked down upon for believing Toyota and other manufacturers as a threat. An example of the old way to do things is, they pulled their only electric car and a few smaller economy cars off the line to produce more gas hogs such as Hummers (went completely bankrupt and isn’t manufacturing anymore), Escalades, and other over the top trucks and SUVs, as they believed that is where the money is.
All-in-all General Motors was a poorly run company and tried to live up the the American dream, bigger, better, and more money. That all came to a loss in 2006 when they had to be pulled from the toilet and saved by bonds. Their financial policies and managing were poor, they ignored competition and weren’t competitive, and all that led to them unable to innovate and go with the flow in producing better quality car and more fuel efficient. All they wanted was money and to make their employees stay with them and be happy through lots of benefits. GM, a poorly run company.

Works Cited

“A Giant Falls.” The Economists. The Economist Newspaper, 04 June 2009. web. 28 Nov.2012.
Cohan, Peter. "After 101 Years, Why GM Failed." DailyFinance.com. N.p., 31 May 2009. Web. 02
Dec. 2012.
“Detroitosaurus Wrecks.” The Economist. The Economist Newspaper, 04 June 2009. Web. 28 Nov.
2012.
"Going Back To The GM Story." Business World 15 Aug. 2011. Infotrac Newsstand. Web. 29 Nov.
2012.
Ortolani, Alex, and Mike Ramsey. “Top Financial News.” Top Financial News. Bloomberg, 14 Nov.
2008. Web. 28 Nov. 2012.

Economic essay

This is a link to my economic project

https://docs.google.com/document/m?id=1VIiCD7TCAWxIzQWa4YD1xBlrNXlXg88es5BnB8zvRGo

Works Cited

“A Giant Falls.” The Economists. The Economist Newspaper, 04 June 2009. web. 28 Nov.2012.

Cohan, Peter. "After 101 Years, Why GM Failed." DailyFinance.com. N.p., 31 May 2009. Web. 02

“Detroitosaurus Wrecks.” The Economist. The Economist Newspaper, 04 June 2009. Web. 28 Nov.

        2012.

"Going Back To The GM Story." Business World 15 Aug. 2011. Infotrac Newsstand. Web. 29 Nov.

        2012.

Ortolani, Alex, and Mike Ramsey. “Top Financial News.” Top Financial News.Bloomberg, 14 Nov.

        2008. Web. 28 Nov. 2012.

Fiscal Cliff

       The fiscal cliff is the $500 billion in tax increases and the spending cuts scheduled to take effect after Jan. 1. The chairman of the Federal Reserve, Ben Bernanke, came up with the term "fiscal cliff" to warn of the dangerous yet avoidable drop-off ahead in the nation’s fiscal path. No matter who you are, we all should be worried about the fiscal cliff. We should be worried about this cliff because if we, the U.S., were to go over the cliff, taxes would increase for the taxpayer and businesses.
     
       This would all lead to much government spending to be cut. One of such spending cuts would be medicare. They would cut medicare spending by 27 percent, about $11 billion. In December 2010, Obama reached a deal with Republicans that extended the tax cuts at all income levels through the end of 2012, that would expire Jan.1, 2013. 

       The AMT (alternative minimum tax) will put taxes on upper level income citizens, in addition to the tax increases that all citizens will be exposed to. Another negative effect that the Fiscal Cliff would bring to the U.S. is the sequester. The sequester is a number of spending cuts that will take place in 2013 if Obama and the house cannot agree on an alternate solution. The Fiscal Cliff would give the government less money to work with while increasing taxes on American citizens. The Fiscal Cliff should be avoided if possible. It will lose the money because of spending cuts and increase the tax on many citizens.

My Manifesto

The government should have little control of the economy. I feel the government should be a figure in the background and only jump into the picture if the economy completely tanks and they are there to help financially build it back up. But they can't be completely out of the picture, because I feel that the people can't handle the economy by themselves. Yes, taxes should be collected, but not how they are collected today. People on the wealthy side of things can afford to pay a little more in taxes. Yes we all know they worked hard for there money, but they don't all need there $150,000 Mercedes and there multi million dollar homes, such luxuries should be taxed higher. They should be collected paycheck to paycheck.

The government is allowing too much health care. There are people out there who live on the streets, don't do anything with there lives, have no job, and yet they get all the healthcare they want. For those people who pay for healthcare and there are those like the ones I just described and don't have to pay for healthcare, yet they still get it. The government really needs to step in on the education. There are many places where very few kids graduate, and our country is falling lower and lower down the list of education, I for one feel its embarrassing. There needs to be more job creation. Period.

I feel since our military is so much more advanced then any other military, the money funded to them should be used to pay off debt, or use it to give back to those who have served. People who risk their lives everyday to save others such as the military, police force, and fire fighters should be payed a bit more for there acts of valor. People in the emergency business as doctors already get payed enough, but paramedics such as the ones who drive ambulances get payed very little for saving peoples lives.

Minimum Wage

     I believe that there should be a federal minimum wage. If they were to have this minimum wage it should be raised to at least about $10 per hour. I we were to compare the minimum wage we have now to the minimum wage we had back in the 60's the purchasing power would be lower. The price of minimum wage has increased and so has the price of goods and services, but the goods and services prices have grown a lot more then the minimum wage, thus making the purchasing power lower. Minimum wage is good because there are some jobs that you could easily pay an employee $2 an hour, and not giving them the amount of money they need to survive. With federal minimum wage states would have to meet or be above it so working citizens can survive.

Price Floor

     I believe that the US Government should be allowed to have a price floor. A product such as a Ferrari cost a lot to make, thus the price of the car is high. People complain about the prices, and not much people have one because of the price, but if a price floor was directed towards a company the prices would have to be higher and the complaints wouldn't effect the company. A company such as Ferrari would be turning a profit year in and year out even with a price floor.

Price Ceilings

     I believe that the US government should not have price ceilings. Even though a price ceiling can help out a person in need, such as a poor person needing help with purchasing the necessary goods and services. In this system a business would not be able to produce a profit, because of the high demand and price ceiling imposed on the business. Also, this can create a shortage of a product.

Inelastic/Elastic Supply

Inelastic and Elastic Diagrams

Demand Wrap Up

Demand Schedule/Curve

Headlines

Complimentary Demand:  Coca Cola tries fitting in with the car manufacturing world, car sales skyrocket!
Substitute Demand:  Oil companies stop drilling, Electric car sales erupt!
Elastic Demand:  Candy prices are massive, people drop there crave for candy.
Inelastic Demand:  Milk prices double, people still find room in there gut to purchase.


Milk prices have reached an exceptionally big price, people are frustrated, but find room and suck it up. We see things like this happen all the time, but never so bad that prices have reached $10.00, this crazy amount has left customers with rosy red faces. These customers hate it but need the milk so they still buy it. I've caught up with a local farmer, Billy Joe Utter, he says the machinery and maintenance for the farmers and cows to produce the needed amount of milk is too expensive. In fact his exact words were, "Yup, ye' ol betsy (machine) is runnin' low on juice, plus ol' Gurty (prize winning milk producing cow) is getting old and runnin dry on her milk." Government officials say the price of the machines are increasing due to the small supply or iron, but is this all true or a publicity stunt? Many market analyst expect the price to soon stop its excruciating price increase and steady out, but until then people will be emptying their wallets on the well needed milk.

Demand Reflection

In the world today Elastic and Inelastic demand effect me in many ways. First I'll talk about elastic demand. An example of elastic demand is candy. People don't exactly need candy, this is a want and not a necessity. So if the price of such candy increases the demand drops drastically and the total revenue drops.

Second is Inelastic. Inelastic demand in more of a necessity compared to want. Such items include gas, milk, bread, etc. If you make a inelastic demand curve the line would be more vertical then horizontal (elastic). So as the price increases the demand may drop just a tad, but the total revenue will increase.

Learning more about demand makes me wonder how bad the economy is or if people are exaggerating there worries about the economy.

Blog 3

     I feel that the market system in the US is a good system. The fact that the market tends to the wants of many Americans keeps it strong. Also another strength is that the government doesn't control the market, allowing them to market the basic wants of the US. The biggest disadvantage though is that it doesn't provide all the basic needs for everyone in the society.

     Many years back my dad started a janitorial company. In his mind he was thinking about the wants and needs of many companies in the Portland metro area. He started out selling cleaning supplies to many companies and soon he started hiring so his company can expand to more janitorial stuff like going and cleaning and not just selling the supplies. The janitorial market is a surprisingly large market in which he flourishes in. I wonder if the US will ever change their economic system to see if other systems work better for the US. 

Blog 2

At the end of last summer I had the choice of getting a new car or keep the car I already had. For most people they would pick a new car, but the new car I wanted would get 12 mpg's and the car I already had got 24 mpg's. At the time I was looking for a cool car, a 4x4 and something fun. This gave me the choice of a Jeep, Bronco, a FJ40, or an older 80's 4runner.

Of course, wanting something other then my old cheep Camry, I chose to get the Jeep. The opportunity cost in this is that I can spend lots of my "hard earned" money on gas to be able to drive this gas guzzling pig, or drive the old beat up lemon that gets a whole lot better gas mileage and save up for something else. Also the Camry would never break down because it was well made, but on the other hand the Jeep I found had what mechanics call "the Camry engine for Jeeps," this means it was built well and would never break down. I did have to pay to fix it up a bit to meet DEQ standards (needed a catalytic inverter), and have to pay a lot for gas, but other then that in happy with my purchase.

This all leads me to wonder on all the money I could of saved and other purchases I could of made if I kept my old lemon.

Scarcity
     

Pictured above is a collage of candy. Candy is very scarce in my household due to the fact that my mom and dad feel that it isn't a necessity. I have little money in my candy fund so its a very scarce delicious treat in my house.

http://www.google.com/imgres?um=1&hl=en&biw=1680&bih=959&tbm=isch&tbnid=XvP-b9ow08WoaM:&imgrefurl=http://cvhsdesign.edublogs.org/assignments-2/advanced-graphic-design/candy-and-its-packaging/&docid=RIZtlZ1NchzHQM&imgurl=http://cvhsdesign.edublogs.org/files/2011/01/collage-1-candy-wrappers-1jp8egq.jpg&w=468&h=375&ei=n3FPUNfjJq3BiwK7rIDQDg&zoom=1&iact=rc&dur=257&sig=108569841245528353640&page=1&tbnh=146&tbnw=183&start=0&ndsp=39&ved=1t:429,r:18,s:0,i:210&tx=69&ty=97