Reaching for Olympic Gold
During the mid-19th century, “der’s gold in dem der hills” was an expression of many prospectors who braved the elements to seek their fortune. “Go for the gold,” is today’s mantra, especially as related to the 2004 Olympics, where athletes have been competing for nearly two weeks to be named the fastest, strongest, or the best in their particular discipline. “Dem der hills,” around Athens Marathon, and other notable sites of ancient history are once again the center of the world.
The modern Olympics were organized as a way for athletes from around the world to compete in an atmosphere of peace, with no restraints caused by social standing, color, or financial stature. Although this general purpose remains, the 1984 Los Angeles Olympics added another element to the games when a record $225 million profit was recorded by the city. Almost overnight, the games were perceived as an economic engine with the potential for a financial bonanza. As a result, bids for the games became more extravagant and outlandish.
Over $8.5 billion have been outlaid by the Greeks to put on the 2004 games. An unprecedented $1.5 billion of that amount has been used to beef up security. Some say the final tally may top $12 billion for the host city. (Estimated costs for Beijing to produce the 2008 Olympics total $33.8 billion, a number which is likely to be exceeded.)
Corporate sponsorships and television rights have helped with the financial strain on the Greek economy, but the nation’s taxpayers are bearing much of the burden as the Athens 2004 committee has sought to limit commercialism.
NBC paid an estimated $800 million for broadcast privileges in the US and expects to reap a record $1 billion in ad sales during its round-the-clock coverage. (NBC made about $50 million on the $705 million it paid for the 2000 Sydney games and netted some $75 million on its $545 million investment for the Winter Games in Salt Lake City in 2002.)
Weak tourist bookings and slow ticket sales will probably affect the outcome. These circumstances were unexpected, of course, and have somewhat dampened the economic expectations for Athens. Even so, the picture is similar to other host cities in the past where the anticipated financial rewards did not materialize as quickly as predicted. In some cases, several years were required to recoup the initial investments.
Still, the desire to be the focus of worldwide attention for over two weeks is quite appealing, and thus, the number of cities bidding for future games and hoping to have the opportunity to promote local attractions, culture, and talents continues to grow.
Enormous funds have also been expended for the design and manufacture of items ranging from memorabilia of the games to the clothing worn by the athletes and the equipment they use to even the Olympic torch and the medals themselves.
The nearly 11,000 participants in this year’s games know that an event can be won or lost in the blink of an eye. Only a relatively few have earned the right to mount the medal stands and be acknowledged as Olympic Champions.
For some, just breathing the Athens air and being able to represent their country in the world’s premier athletic venue is reward enough for all the years of preparation. For others, their participation will serve as the springboard for future competitions and additional chances for medals.
Most contestants recognize that anything is possible, and that victory can be life enriching and even life altering because the Olympics have the unique power to transform an individual’s future. Those who perform well in the games are frequently rewarded with product endorsements, prestigious jobs, public accolades, and increases in opportunities to perform and promote their sports on the world stage. The greater the recognition, the greater the chances for financial gain.
With these kinds of opportunities for fame and fortune at stake, it’s no wonder that thousands of extremely talented and hard working athletes from around the world, who range in age from their early teens to over 40, continue to strive to be the best and reach for the gold. After all, it’s a lot more than just a medal around the neck.
posted @ 10:24 AM CST [link]
Friday, August 20, 2004
The Trade Deficit and How It Grew
The US trade deficit for June, as reported by the Commerce Department last week, jumped to a record $55.8 billion. The19.1% rise was significantly higher than most people had anticipated. It was the seventh increase in eight months, not exactly something to write home about. The country’s trade deficit with China was a record $14.2 billion, about 17% more than in May. Imbalance with the expanded 25-nation European Union was $10.6 billion, while the trade deficit with Japan climbed to $6.3 billion.
June’s deficit was in marked contrast in size to the “normal” export-over-import gap, which has customarily ranged between $30 and $40 billion per month over the past several years. Both exports and imports played a role in creating the June deficit. American purchases of international goods and services climbed some 3.3%, while exports of US products (which had risen 2.7% in May) declined approximately 4.3%. The drop was the sharpest decrease since the month of 9/11.
Imports, which increased $4.7 billion over May to reach $148.6 billion, were concentrated in industrial supplies and capital goods, signaling strong corporate spending. That, of course, is not a bad thing at all.
Petroleum also had a dramatic impact on the deficit. The price per barrel of oil rose to $33.76, a 1.9% hike over May and the highest monthly average price since March 1982. The US purchase of 1.7 million barrels a day at this amount accounted for $1.8 billion of the added trade imbalance. With prices continuing to rise in the interim, this part of the deficit is not likely to moderate. We purchase more than 80% of oil from foreign sources, thus pretty much leaving this part of the shortfall out of our control in the near term.
On the export side, almost all categories had noticeable drops, with the greatest weaknesses seen in capital goods, consumer goods, agricultural products, industrial supplies, and automobiles. Exports of civilian aircraft fell by a third. Higher oil prices are taking their toll on our major trading partners, who have not yet seen the same level of overall economic momentum enjoyed by the US.
For the first quarter of 2004, the US trade deficit was $144.9 billion, about 5% of the gross domestic product. The trade imbalance for the first six months of 2004 was $287.7 billion, well ahead of last year’s report for the same timeframe of $248.8 billion. You can rarely put much stock in a single economic number, but these numbers are big enough and have lasted long enough to be a source of concern.
I should point out, however, that the monthly trade gap will probably narrow later this year with expansion abroad stimulating exports and some moderation in uncertainty bringing modest reduction in oil prices. Nonetheless, 2004 will be a record year by a wide margin.
Over a more extended time horizon, there are some fundamental things we can do to reduce the magnitude of the deficit (though the very structure of the global economy probably prevents us from eliminating it entirely). First, we can become more energy independent. There are initially two ways to do this. One, typically favored by Republicans, is to increase domestic petroleum production; the other, often advocated by Democrats, is to develop significant sources of alternative energy. The answer is quite simple. Assuming we can do so in an environmentally sensitive manner (and we can), we need to do both.
The other major thing we can do is to continue and intensify our efforts to open up markets to US goods. At present, it is relatively easy to import into this country (as it should be), but many parts of the world are restricted with regard to our exports. Our competitive advantage lies in high-tech, high value-added goods and services, and it is imperative that we be able to sell them on a global scale. (Although they don’t all realize it, it’s good for our trading partners as well.)
In summary, the ebb and flow of world markets is now working against us in terms of trade deficits. This is a fact of life at the moment and certainly something an economy of our size can deal with. On the other hand, there are underlying structural conditions which we can positively and definitely impact. The monthly number garners the headlines, but the long-term pattern is where the action is.
posted @ 10:22 AM CST [link]
Friday, August 13, 2004
Productivity in Perspective
Last week, preliminary productivity growth estimates for the second quarter of this year were released. The numbers were better than many private economists had projected, with 2.9% growth in productivity in the nonfarm business sector. Although well off the pace of earlier in the year, it’s still a notable gain. In manufacturing, productivity was up some 7.5%, impressive growth for such a mature economy. Here’s a little perspective.
Productivity gains are estimated by the US Department of Labor’s Bureau of Labor Statistics. Essentially, they look at output (gross product) per hour of all persons and see how that varies from previous periods of time. For countries with big problems, productivity can fluctuate wildly. An economy dominated by agriculture, for example, may see productivity swings driven by drought cycles or other weather conditions. In nations with very little in the way of infrastructure, the addition of basic services (such as additional telephone or electric generation capacity) can lead to notable jumps. In the US, however, it’s more difficult to continue to post productivity gains when the business climate is already so favorable.
America has the most productive workforce anywhere. Actually, the official number one country on a rank order list of gross domestic product per capita maintained by the CIA in that agency’s World Factbook is Luxembourg. However, with less than half a million people living there (compared to some 293,000,000 here), it is hardly an economic powerhouse. The US is second, with about $37,800 in output produced per person (man, woman, and child). Rounding out the top ten are Norway, Bermuda, Cayman Islands, San Marino, Switzerland, Denmark, Iceland, and Austria. The US population dwarfs all of these, and several are very small countries. The point is this: in the case of a small population, it’s possible to have high output per capita figures if there is anything in the way of natural resources, favorable tax codes, or even a handful of flourishing industries. The fact that the US productivity per capita is so high, even with our nearly 300 million people, is all the more impressive.
One reason for productivity gains in the US is the more rapid assimilation of new technologies. Thanks in part to fortuitous timing, much of the US capital stock entered a replacement phase around the time microelectronics were exploding onto the scene. New products and methods are rapidly put into use in firms across the US, enhancing efficiency and the effectiveness of labor. Clearly, such technological advances are a key reason we can produce so much output per worker. However, these breakthroughs are available to any business around the world, so they don’t explain the differential between America and other nations.
Another explanation for higher US productivity centers on the fact that, compared to other countries, a higher proportion of Americans are working. The Organisation for Economic Co-operation and Development (OECD) tracked the proportion of people of working age who were employed last year; a higher percentage of Americans are working than in any European country or Japan. This reflects a relatively low unemployment rate, later retirement, and greater participation by women. Another factor is demographics. As the baby boomers age, the US has the most experienced and educated labor force in the history of the world.
In addition, those who do work in the US put in more hours. While the average number of hours worked per person in a typical year has gone up some 20% in the US since 1970, in other countries it is dropping. In France, hours worked has fallen by well over 20%, a trend reflected in other European countries as well. Only Australia, Iceland, Canada, New Zealand, and the US have seen growth in the number of hours worked. This is something of a two-edged sword in that it reflects an abundance of opportunities, but can lead to time crunches for families.
In Europe, six weeks of vacation is typical and workweeks are being shortened. Stifling tax rates decrease the incentive to work for many Europeans, and large welfare systems cushion the blow of being unemployed. Cultural differences and expectations regarding leisure time and vacations explain a portion of the differential, but a lack of opportunity accounts for a large share. With business activity stagnating and populations aging, it will be virtually impossible for European nations to keep pace with the US in terms of economic growth.
Productivity growth is a good thing. It signals a healthy business environment and a wealth of opportunity. It also allows increasing wages and standards of living without any inflationary pressure. While recent trends may not be sustainable forever, they are establishing a critical base from which to maintain economic prosperity.
posted @ 10:22 AM CST [link]
Friday, August 6, 2004
Sales Tax Holidaze
As we go to press, the annual retail sales tax holiday is right around the corner. It’s an important date to have on your calendar, whether because you’d hate to miss it or you’d hate to get caught in it. The lines and crowds are always long; for many retailers it’s becoming as big as the day after Thanksgiving and other Christmas shopping days in terms of volume. People from surrounding states also join in on the savings, traveling from Louisiana, Oklahoma, New Mexico, and elsewhere. Mexican citizens also cross the border to shop for tax-exempt items.
Since instituted by the Texas Legislature in 1999, the weekend has served as a way to make sending children back to school more affordable for Texas families. A long list of items may be bought without paying sales taxes, leading to savings of about $8 on every $100 in purchases.
On August 6-8, everything from kids’ clothes and shoes to adult uniforms and work clothes are exempt from taxes. Boots, belts, socks, sweaters, swimsuits, ties, pajamas, baby clothes, caps, diapers, and many other products are exempt.
Texans are expected to save some $46.1 million in state sales taxes this year. That means spending more than $575 million on the non-taxed products. Although much of this volume represents sales that would have happened anyway, another portion is a true increase. As customers are lured into stores by the promise of discounts, they often end up purchasing other items. In addition, there is some evidence that people react differently to the idea of “tax free” than they do to routine discounts. In fact, I doubt if any of us would rush out to take advantage of a store that advertised¯THREE DAYS ONLY!!! 8.25% OFF SELECTED ITEMS!! There is just something magical about the idea of not paying taxes. Of course, merchants get into the spirit and offer discounts as well, but there is no doubt it is the tax break that brings ’em in. The bottom line is that retailers are gearing up for a big weekend.
Since the holiday’s inception, some $193.5 million have been saved ($152.7 in state taxes and another $40.8 in local taxes). The savings are concentrated in young families, with older Texans generally not partaking of the tax exemptions to the same degree. One positive property of any sales tax rebate or exemption is that it favors lower-income residents, who typically pay a larger portion of their income in the form of such taxes than do those with larger financial resources.
Even so, there is some debate as to whether a tax break that is so specific in nature is as desirable as a more broad-based lessening of the burdens paid by all citizens. My opinion is that it’s a good thing to make it financially easier for people to prepare children for a new school year. Additional dollars left in family budgets is a positive for the economy. As an economic purist, I would have to say that such targeted programs are not the most efficient way to allocate resources in an economy, but I think most of us would agree that this particular departure from optimal taxation theory is not such a bad thing. Besides, while it may be mediocre economics, it’s great politics.
The sales tax holiday weekend is only going to get bigger. Other school needs, such as supplies and backpacks, may be added in the future. Another potential change is increasing the number of days involved from three to five. This could lead to an additional $25 million in savings according to the State Comptroller’s office. It would also help relieve some of the strain on retailers, although I haven’t heard many of them complaining. So, go ahead!! Enjoy it!!! It’s a rare day when taxes take a holiday.
posted @ 10:21 AM CST [link]