Our two political parties each champion a set of recommended economic policies. For the GOP, tax cuts are always helpful. For the Democrats, not so much—but government spending can solve a lot of problems. As an economist, the rigidity of political views – not just among the politicians but their distinct tribes of voters – dismays me. Why? Because different contexts demand different solutions. In early 2009, Captain Sullenberger went against traditional thinking when he safely landed an Airbus A320 on the Hudson Bay after it hit a flock of birds, cutting off all engine power. He didn’t follow standard procedures because he and co-pilot, Jeffrey Skiles, recognized the uniqueness of the situation. An economy is a far more complex system than a plane and its interaction with air. With any complex system, physics proves that starting conditions matter for what you do…
Profits at what price?
Profits at what price? Pfizer had two choices when it discovered that each vial of its vaccine held six rather than five doses. One was to push the FDA to declare a vial contains six doses. With this decision, Pfizer would make more money. Because it gets paid for each dose, each vial could now be priced twenty-percent above the agreed-to purchase price. The premium would all drop to Pfizer’s bottom line. The alternative was to remember the original price met or beat Pfizer’s expected return rate, which would be huge given the quantity of vaccinations involved. Producing a vaccine for an unpredicted global pandemic is a once-in-a-lifetime opportunity for a pharma company. The extra dose could be a contribution, helping nations vaccinate more people than they had planned. Pfizer’s leadership team decided on the FDA route, choosing higher profits over societal benefits….
What is the opposite of leadership?
After the final episode of The West Wing aired, my brother in Texas called me asking, “Are you crying?” “Yes.” “Me, too,” he added. We had both enjoyed the TV show about an imaginary President of the United States of America fighting for righteous causes. It says a lot about our nation that the next TV series about a President — Scandal — showcased an administration characterized by deceit and trickery. My heroes have always been the men and women who shaped our nation from its birth. They are the courageous individuals, who, despite the odds, helped turn the nation’s arc in the right direction. John Lewis, Lincoln, Dr. King, and the Suffragettes are just a few. Heroes are leaders in my book – recognizing what needs to be done and stepping into the fray to get it done. Some lead from behind,…
Build ??? Back Better
With a COVID vaccine in sight, economic recovery in 2021 is a reasonable expectation. But is there a way to build a better economy, not merely a larger one? It is a promise of the incoming Biden administration. Some elements economists would include in creating a better economy are listed below. Raise the standard of living for non-college-educated workers. It’s fallen by a lot. The result is worsening health statistics and growing family food insecurity, issues that existed even before the pandemic. Raising the minimum wage, rural development strategies and investments, and more affordable healthcare and housing are critical strategies for accomplishing this objective. Democrats propose changes to the tax system as the best way to achieve this aim. CEOs like Mark Benioff of Salesforce, on the other hand, argue that business and job creation is a better strategy, and there is truth…
We need more not less diversity training
President Trump has ordered Federal Agencies and their contractors (i.e., a significant percentage of American businesses) to halt diversity training that builds from Critical Race Theory. Words you are likely familiar with – such as unconscious bias – emerge from this theory, which argues that racism is ingrained in American society’s fabric and system, not merely in individual people. This system better explains societal outcomes than does individual behavior. Business is rightfully pushing back against Trump’s order, as efforts to encourage diversity and welcoming cultures have led to more successful talent attraction and retention and more innovative cultures. Trump’s action aims to appeal to his political base, and while it may be right politically, it is wrong on other levels. To understand, I encourage you to read Caste: The Origins of Our Discontents. In the book, Pulitzer Prize-winning author Isabel Wilkerson comments: “Caste…
You cannot manage your way out of a paradox
I’ve been thinking lately about how to balance two opposing goals. One is keeping our economy open so that we avoid a deep recession. The second is containing the COVID-19 Pandemic. Companies have these kinds of seemingly opposing conflicts. A decade ago, British Petroleum was balancing the need to increase oil production (through drilling at sea) with the need to protect water and workers. More recently, Boeing was balancing the need to get the 737Max to market at an attractive overall cost against the safety needs of travelers. In the early 2000s, the Boards of Directors of US banks wanted higher stock prices through growth in assets without depleting capital. We all know these balancing acts went awry because leaders pushed one goal at the expense of another, leading to major crises. Further, the solutions to these imbalances were all costly. Pushing up…
How to avoid reckless cost-cutting
The pandemic is forcing many companies to cut expenses. Many business crises require tightening the belt. But if you must cut costs, do so in the context of specific aims and criteria beyond helping the bottom line. Otherwise, you’ve reduced your future competitiveness. Case in point. Kraft. Kraft split itself into two businesses in 2012, one an international snack and confection foods company (Mondelēz International, Inc.) and the other (retaining the Kraft brand) the North American grocery item business, consisting of cheese, Oscar Mayer deli meats, etc. In 2015, Heinz acquired Kraft. Kraft Heinz’s share value has dropped by more than half since the merger. One would think that the synergies between the two grocery-channel based businesses would lead to rising value. What happened? The answer is simple. Kraft Heinz cut costs, then cut costs, then cut costs yet again in an attempt…
We need leadership, not more hubris.
We have many words for leadership, a trait desperately needed to surface solutions to today’s multiple crises: the pandemic, climate change, economic recession, inequality, and social unrest. We also need leadership to rally people around whatever solutions eventually arise. The opposite of leadership, to me, is hubris, and we are observing way too much of it during today’s crises. Hubris is an arrogance, a bold audacity, an overblown impression of one’s own importance. Hubris is also the opposite of respectfulness, which is at the heart of effective leadership. Respectfulness-in-action is challenging another’s behaviors but not making assumptions about the underlying motives. So is seeing the value in every human, from janitor to Board Chair, from the asylum seeker to the esteemed citizen, and acting in support of each person’s worth. Successful leaders tell the truth, as the respect of others demands we are…
Am I a good citizen?
I have always felt that my life rests on strong shoulders. Two of my grandparents, as well as two great grandparents, emigrated from Europe for a better life. When I met distant cousins in Lithuania and Ireland in 2001, it helped me understand that while my days are no more filled with love, they are far easier than theirs. Born in 1951, I was the start of a wave of women in non-traditional roles. Teachers who believed in my intelligence and ambition offered still other shoulders. So did a dad who wanted his daughters to have a degree to fall back on should we get divorced or widowed. Perhaps the strongest shoulders, however, are those of the people who forged our nation into the imperfect but evolving union it is today. What do I owe these people and my fellow citizens? What is…
Why we should all be depressed, not just Michelle Obama
Michelle Obama is experiencing mild depression. If she can feel depressed, I feel better about my own malaise, especially about the state of the US economy. Without additional fiscal stimulus, we will experience an economic depression, a situation where the economy lacks its own ability to recover. There are other things to feel terrible about – unnecessary deaths, inequality, school-age children falling behind, and another generation likely to incur long-term effects from sustained, high unemployment. All these painful experiences are worsened as the economy tanks further. It’s helpful to remember Macroeconomics 101. The level of our nation’s Gross Domestic Product (essentially our national income) depends on the addition of four terms. Consumption of disposable goods like food, entertainment, and clothing. It is the dominant majority of our GDP, coming in at about 69% in Q2 of 2020 GDP. Government spending on things like…