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Economics & Research Blog

Dr. Joe Answers Economic Webinar Questions ? Part 2 of 2

Because there were so many questions,

By Dr. Joe Webb
Published: December 15, 2009

Because there were so many questions, we published answers in two postings. Last week's questions can be accessed here.

On Wednesday, December 9, we had our economic webinar with Dr. Joe Webb, Director of the WhatTheyThink Economics & Research Center. The podcast and slides can be downloaded, for free.

Q. Does the money supply need to decrease, or do we just need to slow down the growth?

A. Growth? Doubling is not growth. It's something else. How they unravel this is beyond me. They're really afraid of doing it all at once. I thought they were finished, but that chart keeps heading upward. Last year, no matter what investment strategy was used, there was no escape. The theory of diversification took a beating when every category of diversificiation went down. Gold is not the haven it's made out to be: it can have bubbles, too. It has yet to return to the January 1980 inflation-adjusted price of $2500.

Q. How will the current healthcare legislation, if it passes, effect employment in our industry?

A. That's a tough question because nothing has passed, and it takes a while to unravel the slight of hand being used for the various costs. The last version I saw had an exemption for companies with payrolls under $500,000. That would be a printing company of about $1.5 million. In the long run, I believe that the health care legislation will cause a flood of unintended entrepreneurs, creating many freelance employees and opportunities for networking with those workers. A concern would be that this might cause the IRS, which will be an indirect enforcement arm of the program, would have an incentive to narrow the definition of independent workers. It will take a while to play out, but I believe that the primary weight of the legislation will be on mid-size and large printers. It may be another impetus for consolidation to build more productivity among a lesser number of workers.

Q. How can the capital gains reduction help the printing industry? If I sell all my presses and they happened to have apprciated (haha) then I get favorable capital gains treatment. Although then I have nothing to print with. Can you elaborate on how this helps the printing industry? or does it not help at all.

A. It helps when a company, whole or in portions, is bought or sold. Essentially, it becomes an incentive to invest and be patient for that investment to grow. One thing that would help a lot is for the capital gains to be indexed for inflation so that the money would be even more patient.

As far as equipment goes, full depreciation in its first year would be one of the best things that happened to the printing industry. Right now, computer equipment has a tax advantage because it is depreciated faster. Whether flowing electrons make it work, or kinetic energy makes it work, the tax law should be agnostic.

Q. What can you tell us about Obama's new plan for stimulus small business?

A. There are assumptions that businesses can turn on and off like a switch. It's a real problem because what we need is more risk in the economy, not the risk that is from financial instruments, but the risk that comes from the creation of capital. There has been nothing proposed that would do that.

Q. As a follow up campaign - what types of industries and examples can you state of using printing and online marketing for the improvement of the customers customer (not web to print)? Example direct mail campagin, online campaign, email blasts etc - pulling it all together? What industries lend themselves to this type of campaigns?

A. It's hard to think of an industry that could not use the mix of that you describe. Industries always have unique characteristics, regulations, and traditions that define the way they prefer to create and distribute information, of course, so the balance of methods would be affected by that.

Q. Has our industry experienced any impact from the stimulus to date? Do we expect more/less in 2010?

A. Yes, printing shipments are down by more than 10% so far. The stimulus has prolonged the problems because of the misallocation and malinvestment of capital, and paralyzing business investment decisions because of a lack of visibility for long-term tax rates, inflation, regulatory costs, and other factors. Prior serious downturns, such as 1920, and 1819, were solved by letting markets clear.

That said, the decline in print should moderate, per the forecasts in the webinar.

Q. I think you said that the exchange rate mattered not so much for trade but for the money supply. I understand the connection with trade, but could you elaborate on the money supply part? That would seem to matter only with regard to international capital markets, not domestic economics. No?

A. The demand and the supply of money is what sets its price when it is not pegged to something like a gold standard. If I increase the amount of dollars without increasing the amount of goods and services, and the amount of another currency stays constant, then the value of the dollars will go down. Because we sell goods and services and buy goods and services from other countries, there is not a single job that is not affected by global markets in one way or another. It could be a patent on a tool that they use, a copyright of a book that they are reading, or a medication they take. It's not totally related to this, but now's a good time to recommend Leonard Read's classic I, Pencil.

Q. How does Dr. Joe see China's position towards US debt levels?

A. If I was China, I'd be worried. They have all these dollars, and nothing worth using them on. Because a currency has to be repatriated to have value, they've been storing them up in Treasuries. Their actions to buy bid up the prices and reduce interest rates. They can pull out any time they want, but they may take a loss. While some people think this puts the US at the mercy of China, it's actually the other way around. China will eventually use the money to buy hard assets in the US, such as real estate and companies.

Q. When do you expect 2009 numbers for direct mail?

A. We have data from the Postal Service for their last fiscal year, and it was down about 12-13%. We'll publish the data sometime early next year.

Q. Any data on what happened to profit margins?

A. Print demand is down, so market prices have not kept up with inflation. Paper prices are higher than inflation. Worker benefit costs are higher. Add it all up, it comes out to lower take-home wages for workers and lower profits for printers.

Q. In a mixed environment (digital/offset) I'm often asked when hiring a sales person in today's business does it make more sense to hire someone without print experience to better manage digital growth. Thank you

A. Hire someone who knows why people print and how it integrates in a total communications plan. If they're really knowledgeable about printing technology, that may be a bonus. But if they can't think ahead of the client, and be ready to think that client's next thought, printing experience won't help in this environment.

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink's Economics and Research Center.



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