The post Episode #6: The Crashing of the U.S. economy appeared first on The California Underground.

The Trouble with DOGE

Department of Government Efficiency…sounds good, right?

Who doesn’t want to either pay less on taxes or at least get more for the taxes you do pay?

But..is DOGE really doing what it claims to be doing?

This is how they operate….

1. A team of 20-something year olds go into a government agency and look for inefficiencies.
2. This team appears to be made up of programming people.
3. After a couple of days, this team declares that by eliminating X% of the workforce, they can save billions of dollars.
4. Since they only want to eliminate waste or unproductive people, they carve out the newest employees and send them on their way.
5. Final step…publicize a great success

Let’s stop and think about this for a minute.  Let’s just slow it down.

Recall the last time you got a new job or a new position at an existing workplace.  How long did it take you to fully understand what your job was?

If your job is to pick lettuce, you may have caught on pretty quickly.  Here is how deep I dig to get the roots.   Remember to lift with my legs and not my back.  If I stack 3 before loading them into a bag I can go faster.  Every job has things to learn.

If your job is to manage a team of salespeople for a product you have never heard of before, it may take longer.  In fact, it could take weeks, months or even years before you are able to say, “I know my job inside and our.”

That is just for one job.

Now imagine a bunch of DOGE kids bursting into a giant, decades old social service organization with tens of thousands of employees.  How many centuries would it take for them to fully understand the value of each and every job?  The idea that in a couple of days, they have it all figured out is simply nonsensical.

What I think they are doing is grabbing a payroll spreadsheet and sorting the names by date of hire.  Next to each name is an annual salary.  They start and the bottom and add up the salaries as they go up the spreadsheet.  They stop when they have highlighted enough salaries to justify a savings.  For example, if we fire the most junior10,000 employees, we will reduce payroll by $850 million per year.  That’s almost 10 billion over10 years. 

Let’s do that and claim $10 billion in savings and then move on to the next building.

I have spent the last 35 years of my career working with companies to help them become more efficient.  These are large companies that make pharmaceuticals, or semiconductors or cars.  They might be in mining or transportation or manufacturing.  They might have as few as 100 employees or as many as 100,000.

In all of that time, I have not once found that the best way to lower costs was to reduce payroll.

Not one single time.

The reason for this is that companies, profit and non-profit, do not have a high tolerance for paying people to stand around.

People at a company to do one thing…add value.  If they weren’t adding value, they wouldn’t be there.

Yes, you can have lazy people and hard workers but on the whole…people add value in their job position or they would be let go.

If you understand this, then you understand why reducing payroll is almost never the best way to become more efficient.

Let’s take an example…

Suppose I went to a company that makes Electric Vehicles.  I could go into that plant and say, “Let’s fire 25% of your workforce and save $10 million a year.”  Sounds great, right!

However, now we don’t have the maintenance people we need to keep the machines running.  There are not enough people to paint the cars or install batteries.  There is not enough programs to keep all of the automation in sync.  The air conditioner breaks down and people start to get sick and equipment overhears.  Trucks are lined up to deliver parts but no one is there to check them in or unload them. 

The company saved $10 million a year by cutting productivity down to nothing.

And, did I really save $10 million a year?  Those people I fired will get some severance.  They will files lawsuits.  This will become a public affair nightmare.  These fired employees will start to collect unemployment and stop paying taxes.  They will stop paying rent, and buying TV’s and new clothes. 

In short, my random firings cut valuable services needed for production without saving all that much money and even adding to the social welfare burden caused by the newly unemployed. 

This is what DOGE is doing.

Yes…the idea is grand.  The execution is going to disrupt our economy for generations.

The post Episode #5: The Trouble with DOGE appeared first on The California Underground.

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About Tariffs

A tariff is a tax placed on goods imported from one country into another. 

The purpose is to raise the cost of the imported goods.

Countries do this to protect domestic businesses from foreign competition.  By making foreign products more expensive, the domestic product can match or even beat the price of the imported product.

In economic theory, all other things being equal, the product with the lowest price is the one that consumers will buy.

Here is how it works…

Let’s say India has invented a new medical device.  Each of these devices takes hundreds of labor hours to be put together.  India can build one of these devices for $1,000.  The United States wants to get in the market of building this device.  The problem is that the cost of labor in the United States is far higher than that in India so when we build the product, it costs us $1,500.  In other words, our product costs 50% more than the identical product built in India.

In the U.S., the decision is made to impose a 50% tariff on the Indian product.  This means that when the product is imported from India, the company that imported it, probably a local retailer, will have to pay an additional 50% just for the privilege of importing it. 

The importing company will then pass this new cost along to the end user (consumer).  So now, you can find both the product from the United States and the product from India sitting side-by-side on a shelf; both selling for $1,500. 

Trump calls this 50% tariff a windfall.  He implies that India is paying the U.S. government a tax when it fact, they are not.  The importer pays the higher amount but in the end, even he is not paying the tax.  The “tax” is paid when the consumer, who used to by the product for $1,000 now pays, $1,500.  No one other than the consumer paid this tax.

Trump says we will get so much money from Tariffs that he will be able to eliminate income tax.  Theoretically this is true.  If tariffs raise the cost of consumer goods so much that the income from tariffs, which is paid by the consumer, can cover all income needed from income tax, then you could eliminate income tax. 

Another way of saying this is that if you pay $20,000 more a year for goods because of tariffs, you should see your income tax bill go down by $20,000.  Do you really care?  $20,000 is $20,000 no matter how the government collects it.

So, why does Trump not tell you the whole story?

I have two theories.  The first is that he thinks you are too dumb to understand how tariffs work. 

The second theory is that he is too dumb to understand how tariffs work.

I’ll leave you with this thought…

Late Professor William T. Kelley taught Marketing at Wharton School of Business and Finance, University of Pennsylvania, for 31 years, ending with his retirement in 1982.  Dr. Kelley, who also had vast experience as a business consultant, was the author of a then-widely used textbook called Marketing Intelligence — The Management of Marketing Information (originally published by P. Staples, London, 1968).  Dr. Kelley taught marketing management to both undergraduate and graduate students at Wharton. 

Professor Kelley said  “Donald Trump was the dumbest goddam student I ever had.”

Just sayin…

The post Episode #3: Tariffs appeared first on The California Underground.

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