Cause and/or Effect

During the current economic stimulus debates, much has been made of the cause versus effects of monetary and fiscal policy. When assessing the results of tax increases during the 1990s, for example, some have reasoned that the economy grew despite or even because of them. The argument continues by claiming that recent tax cuts have resulted in unemployment rates surging to levels unseen in the past quarter century. These claims, oversimplify a complicated and dynamic set of variables, none of which we are capable of isolating.

You must keep in mind that tax cuts do not happen in a box. We do not have the ability to singularly isolate all variables in the real world. We cannot accurately say whether it was monetary policy that caused a particular gain or fiscal policy or even foreign policy. Perhaps one of the infinite other variables caused a gain or loss. Or consider that a certain period of time might have been made worse from action as opposed to having introduced nothing at all. For example, it has been cited that recent tax cuts have resulted in surging unemployment rates. One must consider, relative to what? Had we increased taxes at that time, what would have been the result? The answer is that we do not know precisely. We are forced to use some amount of logic and common sense. We cannot rely on historic measurement if we cannot isolate the variables.

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Wal Mart (WMT) Down 17% YTD Despite Solid Performance

Direct Foreign Investment

The objective of any organization is to maximize shareholder wealth. According to Madura (2008), “MNCs commonly consider direct foreign investment because it can improve their profitability and enhance shareholder wealth” (p. 370). There are many opportunities to profit from the marketplace and these doors often open in foreign nations. These profit opportunities can be broadly grouped into either revenue or cost-related incentives. Aside from the immediate potential for gain, organizations, like individuals, may consider themselves more effectively diversified if they are invested abroad. Diversification, in the form of both suppliers and consumers, will enhance the organizations most important objective. There are many incentives to direct foreign investment and international diversification. Organizations should work to become more international, however, they must be well aware of the potential pitfalls in the markets in which they invest.

Economic conditions in the United States have led to the devaluation of the dollar in recent years. The cheap dollar, coupled with stock prices driven lower by psychological factors, left many otherwise profitable American companies vulnerable to foreign competitors looking to buy cheap assets. In one such notable transaction, InBev, a Belgian brewer, took control of the American behemoth Anheuser-Busch, a proud American brand. According to Anheuser-Busch.com, “The transaction creates significant profitability potential both in terms of revenue enhancement and cost savings” (p. 4). Clearly, the stakeholders in this transaction see potential gains in the form of both cost and revenue effects. While Anheuser-Busch will retain much of its American image, the ownership has shifted to foreign shareholders. This particular case exemplifies the need for organizations to consider the affect of their brand name in their market. As McDonalds moves into markets throughout the world, they have retained their unique American image. Organizations may attempt to leverage their distinctive identity or they may determine to conform to a national standard where they conduct business. Many factors will determine the method each organization utilizes in order to enter foreign markets.


References

Anheuser-Busch InBev (2008, July 13). InBev and Anheuser-Busch Agree to Combine.
Retrieved on February 4, 2009 from http://www.anheuser-
busch.com/Press/PressImages/FINAL%20PRESS%20RELEASE.pdf

Madura, J. (2008). International Financial Management (9th ed.). Ohio: Cengage
Learning

A Call for Power

It has been well-established that the creation of money, in and of itself, does not stimulate economic growth. In order to stimulate the growth and quality of life of a population, output or production must increase. There are two ways to accomplish increased output. The first, which is widely accepted today, is lowering taxes. A lower tax creates more incentive to invest and work because you get to keep more of what you make. An incentive to work and invest will increase output. The actual increase in the money in consumer’s hands is irrelevant in this eventuality. More money held by all is called inflation. Inflation simply increases prices and does nothing to output. It is the motivation to increase output based on larger expectations of return that is fulfilled by lowering taxes.

The second, and more controversial method of stimulating output, is an investment in the “business.” For example, a few years ago, McDonalds reported losses for the first time in its celebrated history. In an attempt to rectify this, they decided to reinvest in existing stores. Previously, they had been throwing money at developing new stores and neglecting existing infrastructure. By cleaning up the image, products, and business model, McDonalds quickly returned to profitability.

How can the U.S. invest in their ‘existing stores?’ The answer, as has been danced around in Congress, is infrastructure improvements. The determination of what investment will obtain a satisfactory return is the catching point. Democrats want to invest in museums and Republicans don’t seem to know what to invest in. Some have the idea of the great public works projects of the depression era. Personally, I would like to see the day the un-employed, former Lehman associate joins the road department, but I do not think this is necessary today. What we need today is a very large investment in nuclear power. If the intent is to wean ourselves from foreign oil (which is going to happen whether we want it or not), we need to begin to increase our ability to produce energy. As sunny as it is in Arizona, and as windy as it is in the mid-west, we need a real solution to energy, and nuclear is the one we have. This will take a herculean effort, however it is a solution that addresses both infrastructure improvement and national security.

Henry Ford on the Value of the Dollar

Henry Ford understood the implications of the falling dollar during the “Roaring Twenties.”

“But money should always be money. A foot is always twelve inches, but when is a dollar a dollar? If ton weights changed in the coal yard, and peck measures changed in the grocery, and yard sticks were to-day 42 inches and to-morrow 33 inches (by some occult process called ‘exchange’) the people would mighty soon remedy that. When a dollar is not always a dollar, when the 100-cent dollar becomes the 65-cent dollar, and then the 50-cent dollar, and then the 47-cent dollar, as the good old American gold and silver dollars did, what is the use of yelling about ‘cheap money,’ ‘depreciated money’? A dollar that stays 100 cents is as necessary as a pound that stays 16 ounces and a yard that stays 36 inches.”

Henry Ford, My Life and Work, 1922

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