Born to Shop -- Online Some Americans believe they have been endowed with the inalienable right to shop. Even though our Constitution fails to mention it, these “born shoppers” may have a point, and one that the Internet is undoubtedly reinforcing. Just this past week, catalog retailer J. Crew reported that its sales online actually exceeded its sales through traditional channels. Given historical patterns and success, that is a truly remarkable event—and it’s just the tip of the iceberg.
A recent study by the US Department of Commerce found that more than half of our nation’s population is now connected to the Internet, and about 40% of users are making purchases online. That’s approximately 55.8 million people, in case you’re counting. A San Diego research firm indicated the number of individuals who bought at least one item online last year might be as high as half of all Internet users, or nearly 68 million folks. Regardless of whose study you believe, that’s a lot of dollars.
A survey by Yahoo and market research company AC Nielsen released last week pointed out that while overall consumer confidence in the economy has been rising lately, confidence in the Internet fell slightly over the last quarter. Even so, the survey noted that a growing number of people expect to purchase something online over the next few months.
Online shopping is particularly popular with Web users in the 25-44 age category. And although higher-income families account for the lion’s share, lower-income households are adopting the Internet more quickly to meet specific shopping needs or desires. Those who’ve been surfing the Net the longest buy more as they become comfortable with the technology. Studies of e-commerce behavior indicate that it typically takes about eighteen months to two years for someone to move from online reading, researching, E-mailing, or playing games to purchasing a product or a service. As more Americans log on and become familiar with the intricacies of how to travel through cyberspace with a mouse and a few clicks, the possibilities for online purchasing will be similarly enhanced. You can bet that there will also be innovations to reduce the lag between signing on and signing on the dotted line.
Shopping on the Web is also tied to the health of the economy, since discretionary funds only go so far. As the mild reversal we have been experiencing continues to evaporate, we will undoubtedly see more people searching online for items they can’t (or won’t) live without. The variety of things that can be purchased online has dramatically increased—anything from soup to nuts, or particularly for this week, from Easter Lilies to bridges. That’s right—bridges! The state of Pennsylvania has placed a number of historic bridges for sale on its Website.
Shoppers are becoming more sophisticated and selective, too. Less time is being spent as Web users log on and go directly to their favorite store site. Many sites resemble online malls; practically everything you want is available through displays or links to the store “next door.” You almost never have to leave.
New sites are continually opening that provide niche products and offer varying degrees of specialized personal service. And retailers are becoming more customer friendly by offering instant message capabilities so that a “conversation” can take place between the buyer and seller. Some even offer personal guides who will talk with you on the telephone and walk you through the maze of possibilities.
Several sellers have technology enabling potential customers to chat with others who are also shopping so that each can share comments and opinions about goods and services. This kind of human interaction tends to increase sales because it gives people a sense of community, akin to physically being in a store and seeing the interests of others.
The World Wide Web as a part of daily life is barely a decade old, and the possibilities for the future are almost limitless. In 2001, revenue from online shopping grew 40% over 2000 revenue despite a sluggish economy—truly remarkable growth by any standard.
Predictions are that we will see a similar increase this year. Besides, you never have to look for a parking place in the rain.
Back to Backwards In recent months, the stock market has actually acted “normal” in at least one respect. As the economy slowed last year, investors looked for any glimmer of good news. Even the slightest hint of prosperity down the road could be counted on to generate a rally, if only momentarily. Similarly, the wave of layoffs and shocks that hit the economy in the wake of September 11 brought corresponding drops in the major indices. In other words, good news was good news, and bad news was bad news.
This simple, commonsense relationship characterizes most aspects of our daily lives. Good things are good; bad things are bad; end of story. For much of the past decade, however, investors acted in just the opposite way. A positive economic statistic would dampen market performance; disappointing numbers would send it soaring. Good news was bad news, and bad news was good news.
The reason for this seeming perversion was really quite simple. The market was completely (overly) obsessed with interest rates, and the Federal Reserve was completely (overly) obsessed with inflation. Even though there had been no real evidence of rising prices for a decade or so, the Fed kept constant vigil.
Given this situation, any morsel of information about the strength of the economy agitated the Fed and fueled speculation that rates would soon rise. Since the market viewed a quarter-point increase in interest costs with approximately the same level of enthusiasm as multiple root canals on the same day, the reaction was to sell, sell, sell. Sure enough, stock prices tumbled.
The opposite chain of events was set in motion when the news was bad. The fears of a rate increase would ease, world peace would prevail, and markets would rally. The mere fact that this ebb and flow occurred several times each week is evidence enough of its asinine nature.
Well, folks, what goes around comes around. In recent weeks, definitive signs of a fledging business expansion have surfaced, and the Federal Reserve has been sending signals (both formal and informal) that future rate cuts are unlikely. There has been no discussion of raising rates or even a “bias” toward raising rates, but things are now more in a “neutral” mode (in case you don’t recognize it, that is Fedspeak). Moreover, while the economy is improving, we are a long way from a boom. In fact, because it is almost universally agreed that the Fed “overcorrected” (more Fedspeak) last time, you would think there might be some reluctance to raise rates at the first inkling of progress.
Nonetheless, the market is already reverting to its old pattern. It is again starting to obsess over minor wiggles in the numbers, and it is again sniffing around for the odor of inflation. Once more, good is bad, and bad is good.
The lessons from all of these machinations are really very clear. If you want to try to time the market or day trade, it is incumbent on you to reverse course and start thinking backwards. If, however, you just want to invest for the long haul, stocks perform well over decades if firms are profitable. In general, most companies do well when the economy is prospering and not-so-well during downturns. When you buy a stock, you are really buying nothing more than a slice of long-term performance expectations (properly discounted for risk). In that much simpler world, good news is always good news and bad news is always bad news. For what it’s worth, there has always been and will continue to be a lot more good than bad.
Our State's Greatest Resource Nearly two hundred years ago, many people considered Texas the “new promised land” because of its great natural resources, chief of which was land—plenty of it at affordable prices. As a result, they journeyed here from all over the world seeking their fortunes and a new way of life. Gradually, the fertile land spawned great fortunes that were dependent upon the vast acreages. First it was cattle, sheep, and cotton; then oil, natural gas, and related business activities.
Through the years, the necessary infrastructure to support these and other burgeoning industries was developed and constantly enhanced. The coming together of roads, pipelines, suppliers, processors, wholesalers, and retailers, to name just a few, has greatly benefited all Texans today. Without them, our economy would definitely be hamstrung, even with all the natural resources the state possesses.
As we look to the future, what will drive our economic engine for tomorrow? That’s an easy question to answer—our greatest resource. I’m not talking about land; I’m referring to our growing workforce. But for maximum benefit, top notch training and educational resources must be provided.
Over the past decade, the population of the Lone Star State expanded at a faster rate than that of the US. Texas is the second most populous state in the Union. Unfortunately, Texans have not kept pace with this growth educationally. Among the ten states with the largest number of residents, Texas lags behind them all in the percentage of persons age 25 years and over who have completed high school—only 79.2%.
Although the state compares more favorably in the number of people 25 or older with a college degree, there is still a growing need for a better-educated and trained workforce. As the economy continues to evolve toward technology-based production methods and business solutions, employees must evolve as well.
Skill levels are rising in many occupations, from entry level to management. The dynamics of today’s global marketplace are putting pressure on many workers to refine their skills and enhance their abilities to remain viable employees. As industrial shifts occur, a shortage of skilled workers may result. To meet this challenge, work-related training must be elevated to a level of greater prominence.
Training is the gateway to employees’ advancements in wages, positions, or responsibilities. It also leads to better job performance, resulting in greater productivity for the business or industry and the economy as a whole.
The economic advantages we have enjoyed through the years are the result of both private and public ventures, as well as partnerships between these various entities. All levels of government—national, state, and local—have played important roles. But even greater efforts will be required for success tomorrow.
The 1998 Workforce Investment Act (WIA) has greatly improved the coordination of federal programs related to job training, adult education, employment services, and vocational rehabilitation. The WIA was certainly an important step toward a more rational system of federally-funded workforce training and related services. Even so, a major component of the workforce training and education system remains the responsibility of the state.
A key benefit of a premier state program for training is the competitive advantage it gives us with companies considering locations within Texas. Many economic development corporations work with higher education providers to facilitate workforce training for such companies. However, the availability of local resources varies widely. Coordination of such efforts at a statewide level would greatly enhance the possibilities.
The competition for quality corporate locations is continually escalating. Areas with strong incentive programs are emerging as the winners. Economic development professionals agree that the ability to offer quality training can be the deciding factor for firms considering various locations. Many of the states Texas competes with for desirable locations provide special training programs to meet the expected needs of these companies. Texas must adopt similar methods.
Several groups are now examining the most effective ways to develop and implement optimal mechanisms. I am confident that these studies will result in useful tools and techniques for positive enrichment of our greatest resource—our growing workforce.
A Mistake Let me get right to the point (for once). President Bush’s decision to impose punitive tariffs on foreign finished steel products was wrong! Period!
I believe the President to be an advocate of free trade, as was his father and virtually every living President; Secretary of Commerce, State, or Treasury; and Federal Reserve Chairman. In fact, during the 2000 campaign, his stance on “free” trade was in sharp contrast to Mr. Gore’s call for “fair” trade.
What happened is nothing more complicated than the fact that economics and politics got jumbled together in an unfortunate manner. Sadly, this happens all too frequently.
Steel industry executives and workers asked for the protection on the grounds that (1) foreign steel was being dumped in the US at low prices and (2) the industry and jobs could not be sustained without the tariffs. Combine these factors with a little weakness in the economy and a lot of demagoguing about whose fault it is, and you have the makings for a bad decision.
The notion of restricting imports to shield domestic industry from competition is certainly not new. In fact, it was quite popular in the 15th-17th Centuries. The doctrine was known as Mercantilism, and its disciples included the likes of Oliver Cromwell, Elizabeth I, and Ferdinand and Isabella. The notion is quite simple: the way to grow an economy is to export everything and import nothing.
This theory has a glaring flaw—in a global economy, there would be no buyers, only sellers. Academically, it was discredited by many scholars in the late 18th and early 19th Centuries, most notably Adam Smith, Robert Torrens and David Ricardo. Yet Mercantilism refuses to go quietly into the night. It is embraced in early developmental stages by virtually every country and can always be counted on to make an appearance wherever trade pacts are negotiated, international organizations meet, or an industry finds itself unable to compete in the world marketplace.
The bottom line is very simple. Artificially raising the price of finished steel in America will directly increase the cost of every product that uses steel as an input. The list of such products is long and includes many high-tech, high-growth sectors. We then become less competitive in these markets, lose domestic and export sales, and experience unnecessary inflation. In the long run, the pace at which steel is replaced by more cost-effective materials is accelerated, which will bring the industry back with hat-in-hand for more concessions a few years down the road (this is not the first time it has happened). These effects work their way through the entire economy, lowering production, job creation and maintenance, and economic well-being.
Even the problems mentioned above don’t account for the fact there will be retaliation from other countries on other items, thus further weakening our economy and reducing the efficiency of the entire world. There are established mechanisms to address legitimate trade issues in the international arena; imposing tariffs is simply not the answer.
Clearly, it is unfortunate that some domestic workers are displaced by lower-cost production techniques. The solution, however, is not to artificially insulate them from the forces of competition. If we had applied that logic throughout our history, we would still be graced with thousands of hand loom operators, musket-ball molders, and buggy-whip makers. There are two viable and productive alternatives. One is for the steel industry to invest in modernization; the other is for the workers to be retrained in emerging skills. As another historical note, this problem dates back to the post-World War II era when domestic steel producers chose to hide behind a veil of protectionism rather than to adapt the basic oxygen furnace when it was initially introduced.
In the end, Mr. Bush’s tariffs pleased no one. The industry and workers feel that the 30% tariff is not enough; they want to make sure they never have to face the rigors of the world market and could be guaranteed profits for inefficiency at the expense of consumers and the rest of the economy. To others (including all of our major trading partners, most economists, and producers in any sectors that directly or indirectly purchase steel), any additional tariffs are unjustified, and, in fact, we should be moving in the other direction. Free trade ultimately benefits all nations. This is a simple, incontrovertible idea that has been around for about two centuries. When will we ever learn?