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Economics & Research Blog

Dr. Joe Random Written Ramblings


By Dr. Joe Webb
Published: September 23, 2009

I've been asked what letter the recession and recovery will be shaped like. U-shaped would be the quick down and quick upward movement. That's not possible any more. A W-shaped recovery would be a double-dip. We have yet to make the center of the W, but this can still happen. Then there's the L-shaped recovery, where we head down and move sideways for quite a while. This certainly feels that way. One just hopes it's an upper case “L” and not a lower case “l” which has no sideways movement at all.

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A man and Excel can be dangerous when statistics are involved. I was playing around with data about the value of the dollar and GDP-growth. The relationship is very, very strong, stunningly so. The weaker the dollar, the weaker the economy. During the Clinton administration, the dollar was strong and was on an upward path until 2000. One should not always assume that the value of a currency is based solely on the supply of that currency. At that time, capital gains rates were cut, and that stimulated the economy, and tax revenues came in way over budget creating a surplus. This created more interest in holding dollars because of the wealth that was being created at the time. Sometime, someone will get that crazy idea to do it again, but it would never be embraced in today's political environment. Part of the way out of our mess is elimination of the capital gains tax, and cuts in government spending. It will never happen, and it happening together is even less likely than never.

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The weak dollar will backfire and instead of making U.S. goods cheaper to buy overseas, it also means that Treasuries are a really bad deal. The best deal of all will be to buy U.S. companies. Look for foreign direct investment to rise as those government debt obligations reach maturity.

What's been really funny with the tariff on tires from China is not that China's may limit imports of U.S. chicken products. It's that much of that tire production capability of China is the result of investment by U.S. companies in those facilities. China is the fastest growing market for cars, and profits from those operations were coming back to the U.S.

It's a good time to re-read Andy Kessler's “We Think, They Sweat” which appeared in the Wall Street Journal back in 2004.

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The Fed made a strong statement that it's not doing anything. Let's hear it for inertia! Selling all the obligations they bought up is the way that they will extract themselves from the corner they painted themselves into, but I can only imagine the howls from investors who sought safety when their bonds start dropping in value at the time.

* * *

Gold standard supporters have a great case to be made in their favor, but I have never seen an explanation of why gold is way below its inflation-adjusted high in January 1980 of around $2500. It's over $1000 now, and the gold-obsessed are talking about it being at new highs, even though it's the gold-obsessed folks who should know better and be adjusting its price for inflation.

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The movie “The Wrestler” with Mickey Rourke is disturbing and riveting. An over-the-hill wrestler keeps falling back into doing the only thing he knows how to do, perpetuating his self-destructive habits. It's the only life he knows, and his misery is his only happiness. There's a business message there about adapting to new marketplaces. This comic about printers and marketing services hits that exact nerve.

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Saw a quote this morning in a press release about the number of printers declining and explaining it thus: “...number is falling dramatically as more and more printers fail due to the recession, an increase in bulk mail rates by the U. S. Postal Service, and the government’s on-going unwritten policy of manufacturing print in-house rather than reliance on the private sector.”

I still find it hard to believe that the recession is blamed even though industry total establishments has been declining by roughly 1,000 per year for fifteen years because of communications and computer technology advances, through booms and economic growth years.

There was no mention in the release about what changes in media have done, and how there has been constant government support and encouragement for electronic media as we built out the “information superhighway.” That investment reduced the demand for print more than anything else.

This recent postal increase certainly did a tremendous share of damage to the printing industry this time. When I did some analysis during Print 09 (I avoided all those PR parties somehow for the comfort of a keyboard, it seemed), I never saw a change in printing employment in such lockstep with postal shipments both in terms of weight and number of pieces. It was just incredible: the r-squared was 99%! It never happened in the other years because people still had to use the mail, and they would just alter what they did to change their total costs. Because postal increases were spread out, and only reflected inflation over that long period of time, the effects of postal increases could not be statistically shown to be detrimental. There were even times where volume went up after increases.

This time was so different because the USPS followed the regulations about its annual CPI adjustment and raised rates +3.8% which was the average inflation rate for 2008, and not the end of year inflation rate which was +0.1%. They could get away with it before, but not this time. Non-print advertising choices were stimulated by social media's emergence. Print's also been undergoing an assault on environmental grounds, which the recession made easy to justify as “we're cutting back budgets, and print's not a responsible thing to use, anyway, so we get two good things at once by doing this.” The bureaucrat gets a big pat on the back for thinking synergystically.

But these are all part of long term trends, and have not happened overnight. I worry when upturns or downturns are always attributed to the last thing that happened. The last thing is always a cumulative effect of many things. Historically, there have been recessions where print grew and changed dramatically because of new technologies and adaptive processes. There were printers who would whine about the recession at that time, but they were often the ones using hot type when other had switched to cold type, or making camera separations when others were using color scanners.

* * *

Yes, there was a time when the price of a color scanner had a comma in it. Don't ask me to inflation-adjust it, because $300,000 is expensive enough without it.

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This “net neutrality” thing is a real boondoggle. If you use more, you should pay more. If I use more, I should be able to have providers catering to my whims, developing products that then spillover to other users. It's like telling everyone you can have any car you want as long as it's black. It's paradoxical that here we have a revolution in information distribution choice with consumers in charge, with a regulation that will stymie development of new services, and end up keeping connectivity prices higher than they would otherwise competitively be in the long run. Just look at your car and see how many of those features used to be exclusively in very high-end vehicles, including the things we take for granted like power steering, power-assisted brakes, air conditioning, and many others.

Wall Street Journal editorial sums up the latest happenings. The father of capitalism, Adam Smith, warned over 325 years ago about conspiring businesses and Friedman warned constantly about their relationships with governments. Regulatory actions never take into account the formation of new businesses and new technologies, and how that natural pattern of innovation may be adversely affected.

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The recent hubbub about the trade association mergers has gotten a lot of attention. Perhaps there is a different question that is more important: What kind of organization, whether an association, educational institution, or entrepreneurial, can provide its constituents with the right information to be successful in a market that has this both as a competitor and as a business catalyst?

* * *

I've heard the phrase “you don't want to be on the wrong side of history” a bit too much lately. It's the equivalent of “not invented here” and does not acknowledge that innovation is always on the wrong side of history. Print was a driving force against those who felt they were on the right side of history and would remind you, sometimes by force, that they were. Perhaps the subversive and disruptive history of print is something that we should recapture. We're printers. We're rebels. Hmmmm... it almost sounds as good as “Trust me. I'm in sales.

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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