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Henry Thornton - Economics: A discussion of economic, social and political issues Lexington - Letter from America, January 2009 Date 06/01/2009
Member rating 4.3/5
'Things is gonna git worse afore they git better'.
By Henry's "Lexington" Email / Print

It has been a fascinating few weeks here over the Christmas/New Year period.  In the traditional land of plenty where the Christmas rush sees delivery drivers run off their feet and shop assistants trampled in the rush to block out the last vestige of daylight under the Christmas Tree, I know of several instances where people couldn't buy the Wii toy or the World of Warcraft upgrade DVD they were looking for, as the stores - deathly frightened of having too much inventory to offload after a dead season - were only buying fractional amounts of the usual. 

Checkouts were busy, judging from the conversations I had with the kids bagging the goods and taking the money, but sales were down.  Also - there seems to have been a big shift in where people were spending their hard earned, and on what.  The missus loves a store called Hobby Lobby, where you can buy anything from wrapping paper to glue to glitter to plaster of paris.  Seems like this place did a bumper trade and during my three visits there over the last few weeks (another story that I won't bore Henry's readers with - suffice it to say that I was apparently a sufficiently good boy that I get to play golf with my buddies in Myrtle Beach now), the staff told me that they could not remember a bigger Christmas period.  Apparently people were giving the gift of handcrafts!  The other tell-tale sign is that the queues at Wal-Mart were running five yards deep the entire week in the runup to Christmas, whereas returning a jewellery item for Mrs. Lexington was met with an empty store and had to be taken as store credit ("new policy sir - sorry"). 

People are definitely feeling the pinch.

They are optimistic people, these Americans though.  The prevailing sense was one of "make the best of a bad thing" and "back to the true meaning of Christmas" and so on - it's hard to tell who has been laid off and who hasn't.

The crickets are chirping away on the car lots too, and there was no activity whatsoever, despite dealer incentives of up to $10,000 (not a typo) and 0% financing (not a typo either) to get the punters moving around.  As soon as the rescue package was announced, a few people started moving, but for the foreseeable future, if anyone knows anyone Stateside who makes their living selling American cars, I would counsel packaging up unwanted clothes and blankets and shipping them over... they may just arrive in time.

There is a lot of disillusionment with the auto bailout.  Most punters don't want it, and especially don't want it without significan union concessions.  The biggest mistake a lot of people make is to assume the US economy is a free-market.  In fact, it is riddled with anti-capitalist, protectionist artefacts all over the place which, until fixed, will condemn the US taxpayer to owning bigger and bigger shares of increasingly dysfunctional industry sectors. 

One example:  CAFÉ (Corporate Average Fuel Economy) laws in the US require (yes, require) the manufacturers to sell a fleet of cars that has an AVERAGE fuel economy below a certain government mandated threshold.  This means the little cars that nobody wants keep getting manufactured so they can offset the fuel economy of the bigger ones.  Even in a high oil price environment, nobody is going to buy some of these cars, but the auto manufacturers are essentially forced to keep making them.  This against a backdrop of a legacy agreement with the unions which requires any union worker laid off to collect 90% of their salary for 2 years after the lay-off.  There is no incentive to lay off workers in this environment, so you have workers that nobody needs making cars that nobody will buy, and shipping them to dealers that nobody will buy from (a law requires a minimum number of auto dealers from each of the big three to be located in each state - regardless of sales).

There is a growing movement in the US Auto consumer circles to "buy non-American" as the Japanese auto makers run non-union shops, make better cars and sell them at a better price.

Things is gonna git worse afore they git better.

Happy New Year to you, Dear Henry, and all your readers.

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