The Silver Lining - The Dollar

We are constantly being told that the dollar is losing value, that it doesn't buy as much as it did in the past. This is simply not true, at least in the domestic economy. Value is a relative thing and means different things to different people, but in fact it is the amount a person is willing to pay for a commodity or service. As I said in the introductory blurb, Adam Smith is alive and well down here at the grass roots level where most of us live. It's the laissez faire relationship between supply and demand. And it is the key to our control of the economy if we will only realize it. Consider what happened to gasoline prices over the past few months: they went from nearly $4.00 a gallon to as low as $1.50. The reason? People stopped buying as much gasoline and looked to other modes of transportation to get around; public transportation, car pooling, and bicycling.

That's the point! Price something out of reach of most people and they will stop buying whatever it is. The person(s) selling the commodity will lose business (revenues) and they can either go out of business or lower their prices. As with the oil companies (that are too big to just go out of business) increased production lowers prices.

The key to understanding this critical point is the realization that a laissez faire economy tends toward full employment. In Adam Smith's time there were no "safety nets" such as unemployment insurance, welfare, or government sponsored re-training programs. A person who was put out of work immediately started looking for something else to do - and was willing to earn less! The person who earns less spends less and when enough people are earning low wages the economy suffers because people have less discretionary income to spend. Entrepreneurs make things to sell; if nobody's buying what they make or the services they provide, then they are willing to earn less, and the whole cycle reverses. The British social economist Herbert Spencer coined the phrase "survival of the fittest" when addressing the economic realities of his time (the quote has been erroneously attributed to Charles Darwin).

Survival! That's what it has always been and we in America are in much better shape that anyone in history in terms of economic realities. The only challenge is to realize that there are alternatives to "business as usual" and one of these is the second hand market.

Want a new suit? Well, you can go to an expensive retail store and spend a lot if money. Suppose you choose this option; you get measured, the alterations are made, and you pay for it. What have you got? A new suit; right? Yes, a new second hand suit because the moment you pay for it it's second hand. The minute you buy a new car and drive it one mile, it's a used car. That's how the system works; commodities are always new until somebody buys them. So why not cut out the middleman and just go to a re-seller, Goodwill Industries, or the Salvation Army - there are some really good bargains to be had there, just be patient and look. Some things I have bought at these places were still in their original packages - with the price tags still attached! You find what you're looking for, maybe have it altered, and nobody will ever know the difference.

See, the only economy that matters is YOUR economy; how you manage your money. Get more for less and you're a winner. Make your dollars stretch. This brings me to the matter of shampoo. Read the directions: Lather, rinse, repeat. Don't repeat and the shampoo will last twice as long - or it will last somewhat longer depending on what else you us it for. What else? you say. Try this: next time you have grimy tile or a bathtub ring to deal with, put a little shampoo on a piece of fiber scouring pad and go to it. See how nice? Easy too.
Message: Shampoo is soap. I have washed dishes with shampoo, washed my hair with dish washing liquid, and cleaned tile surfaces with either one. It's all soap, so just get a large jar of shampoo and save on buying all those special cleaners that don't work any better. Soap is soap.

We have been Madison Avenued to death for over fifty years with the idea that the right deodorant or the right toothpaste will ensure that you will be appealing to the opposite sex; driving the right car will show others your station in life, or that wearing the latest fashions will identify you as "in" or "with it", whatever"in" means or what you might be "with". Producers manufacture merchandise to be bought; if no one buys it they either make something else that people will buy or go out of business. Advertising is what induces the easily led into buying things they don't really need, or even want, so as not to feel left out or less-than. It was in the 1950's that the Big Three auto makers started building over sized, gas guzzling, road hogs - and people bought them.
The power of advertising may still be seen in the purchase today of monstrously large vehicles, topped off by the ugly, cramped, overpriced, gas burners patterned after a certain military vehicle: this at a time when fuel economy should be the prime focus of auto makers, not some $58,000 piece of junk that delivers a whole 8 miles per gallon.

The marketing strategies of the '50s and '60s was predicated with "keeping up with the Joneses"; who were the Joneses keeping up with? Actually much of the marketing ploys were stupid to any thinking person. In the early '70s OPEC shut down oil exports (not really; that's what we were told) and there was a gasoline shortage. The focus was on fuel economy, there commended speed being 55 miles per hour optimum. But Detroit still brought out cars that would reach speeds of over 150 miles per hour! Anyone with any idea of mechanics understands that a super-performing machine is most efficient when operated within 80% of its maximum output. With highway speed limits of 60 mph the efficiency in terms of power delivery is only some thirty to 40%; what kind of sense does that make?

The only economy that matters is YOUR economy: if you have more coming in than going out you are solvent, even if only marginally; if you have more going out then you are bankrupt: no two ways about it. Bankruptcies, foreclosures, and business failures, are headline news these days. The Joneses you were trying to keep up with lost their home, their jobs, and are in debt up to their ears. They bought the "American Dream" touted by Madison Avenue and the piper has come to be paid. And there are a lot of Joneses; if you're not one of them then consider yourself blessed. If you are then you have a long road ahead of you; hard but not impossible.
Not all businesses are hurting: that's the good news. OVERSTOCK.com just announced its first profits in five years of selling name brand goods to consumers at substantial discounts. They announced also that they are expecting to bring in a whole lot of new merchandise - purchased from stores that are going out of business! They are but one example of the new business class: Liquidators.

The gloomy GDP (Gross Domestic Product) for the current quarter is dismal, and the next quarter is expected to be even worse: down 3.8% to 5.5%; why? Because retailers are sitting on inventories they can't sell, not because people don't have any money: they just aren't spending it as lavishly as before. And when people aren't buying prices come down until they are. Naturally the GDP is going to fall; with inventories up the last thing any business wants is more merchandise to sell. They can't sell what they have!

Ever since business was turned over to the accountants we have experienced a level of myopic stupidity in the market place. Short run profit targets took over from long run planning. One example was when I smoked store bought cigarettes. I had a favorite brand, unfiltered, and smoked nothing else. I won't mention the brand but one of its advertising campaigns years ago advised that "fine tobacco is its own best filter". Well, maybe not, because this same brand started coming out with filters - and they tasted awful. I didn't pay very close attention but believe that there were more than one variation; lights, ultralights, maybe even menthol - I don't know. What I do know is that on several occasions I went to my favorite drug store to buy the version of the brand that I preferred only to be told that they were out. But there were stacks of the filtered versions.
"Do you know why you have so many of these filtered versions of the brand?" I asked a clerk who had just told me they were out of my cigarettes. She responded with a blank stare.
"Because you're not selling them!" Spell obvious with a capital "O".
"And the reason you are out of the ones I like is because you are selling them."
Duh!

Another time I bought a wristwatch at a department store. It was a name brand and fairly expensive. Awhile later I cracked the crystal and went back to the store to see about getting it replaced.
"We'll have to send the watch to New York," the girl behind the jewelry counter told me. I'm in Dallas, Texas: it makes no sense to ship the timepiece to New York just to have a crystal replaced. I then asked how much it would be to have a crystal shipped to me and have it installed locally.
"Thirty-two dollars," the clerk said. She also said that they could send it out to a local jeweler to have it mounted. So what was all this business about New York? Then I asked how much it would be if I bought two crystals, one for a spare.
"That would be another thirty-two dollars," the clerk said. I asked her how it could be that a spare unmounted crystal is priced the same as one that is mounted. Blank stare. I returned the watch for a full refund.

More stupidity? Try this. I went into a popular superstore (think bull's eye)to buy a pair of bedroom slippers and was told that they only stock them during the holidays.

No wonder the economy sucks! But there's an irony here. There are two factors that have negatively affected the macro-economy that have a positive effect on the micro-economy - where you and I operate.

Next time.