The Next Four Years

Obama has been given another opportunity to fulfil the promises he made back in 2008, it will be interesting to see how the next four years play out as The House of Representatives still has a Republican majority whereas the Senate has a Democrat majority. The economic situation is currently the biggest issue on the presidential agenda; Obama will have to reshuffle his policies and attempt to create a dynamic and stable economy for growth.

I believe that Mitt Romney had only started showing his true potential of being a good candidate for presidency towards the end of the campaign. Even though I supported him from the beginning of his candidacy, it was apparent that he would fail to gain any of Obamas voters. If given the chance I think that Romney would have been a strong president in the sense that he would put growth and prosperity of the economy at the top of his agenda. He would not have suffered from the expectation to provide more welfare for the people as is Obama’s situation.

As January begins we will begin to get a picture of how Obama intends to handle the economy, and whether or not these next four years will be prosperous ones or a fight for survival. Until then, I wish the best of luck to President Barack Obama as in the end of the day he must serve the interest of the people of the United States.

Obama Vs. Romney (Economic Policy)

 

 

In January either Romney or Obama will begin to form their economic policy for the next four years. Both candidates have different views on how to run the economy, with different aims as a result of their policy.

Since being initially elected Obama has stressed the importance of creating greater financial equality amongst the citizens of the United States. Alongside this there is the development of welfare within the country. Obama has attempted to implement social welfare and the redistribution of wealth by introducing what the Democrats consider fair taxes (middle-class tax cuts, upper class increase). Beyond that, he favoured the increase of federal minimum wage as to establish a method of efficiently redistributing wealth. It is true that Obama was handed the economy during a time of crisis, but the question always was whether it was Obama’s policy that ensured recovery or a natural occurrence. Moreover, during a time of recovery he attempted to implement a national health service.

Romney has always stressed strong links between the financial sectors in the United States, and his economic policy. To some extent Romney can be seen as a business man rather than a political leader. Following a capitalistic approach there is the avoidance of nationalising companies or subsidising them, in favour of keeping business private. There is also the use of contractionary policies in an attempt to reduce deficit. As a method of sustaining economic growth, Romney proposes to expand the military and invest in private security firms such as Halliburton. A major controversial aspect of his economic policy is the interest of reducing the top bracket of income tax. There is also the forethought that Romney wants a U.S. with less reliance on foreign imports for its consumption. This is important in regard to the manner in which Romney would handle trade deficit, and what kind of trade relationships can be expected now.

Both politicians have valid policies backed by theory. Neither of them have the ultimate solution to develop an economy that will grow, while cutting unemployment, as well as improving the quality of people’s lives. Now all we can do is what and see who will be elected, and who will recant possible false promises on what can be done to improve the economy.

Minimum Wage (Harkness)

 

Discuss arguments for and against a national minimum wage

For:

  • Sets the living standards for the country, and also establishes what should be expected from the state. It gives a representation of the type of income one needs to live within the country
  • Ensures that employees are not being exploited by private companies
  • Generally improve the income of workers
  • Does not rely on the demand  and supply of labour

Against:

  • National minimum wage may cost jobs, as employers may not be able to afford hiring as many employees as needed
  • Does not solve the issue of those unemployed whom are still a burden on welfare states
  • Difficult to decide what a national minimum wage should be in proportion to, as 50% of average income is not always a reliable indicator
  • If the minimum wage is too low it may undermine the employees ability to sustain a living

Should National Minimum wage be raised or lowered?

Raised:

  • If the minimum wage was to increase this would lessen the burden on the state to give welfare.
  • The poor tend to spend a higher portion of their income, with the increase of minimum wage there can be increased savings, and greater monetary flexibility.
  • Since the state provides welfare for those unemployed and those with low-level salaries, it in a manner subsidises the businesses. If minimum wage were to be raised the employers owe more to the worker rather than the government.
  • People rather take benefits than an unsecure job at minimum wage, so if the minimum wage were increased there would be a greater incentive to get a job.
  • If it is lower than people will begin to struggle as almost all of their income is used up in basic necessities and families will have to have two working parents which may lead to the need for more welfare.

There is speculation that tighter control of wages simply means the economy is no longer as free and that labour within certain countries is less competitive, however it can be noted that countries such as China who have an export based market are increasing the minimum wage of employees considerably.

Discuss the possibility of an International Minimum Wage?

There are several problems with the concept of an international minimum wage. Firstly, the minimum wage would be subject to value of currencies and foreign exchange market. The second issue would be the fact that the cost of living is different in every country. Finally, not all countries offer welfare and the minimum wage set may not be enough to sustain a family or basic lifestyle.

If an international were to be set it would be as problematic as setting a single currency for multiple countries, there are both pros and cons. In the case of minimum wage it would become problematic if a certain currency was worth more than another currency which is the case globally when comparing all the varieties of currency.

The cost of living changes drastically from country to country, and even from state to state in the U.S. If a person were to move from San Francisco (CA) to Manhattan (NY) 28% increase in cost of groceries and a 57% increase in cost of utilities.[1] This is why in the United States there is a federal minimum wage, but states can increase the minimum wage e.g. Illinois, Connecticut, & Nevada. This current example clearly represents why it would be difficult to introduce an international minimum wage without effective policies to support it, which is difficult to do internationally.

Countries such as the United Kingdom offer a variety of welfare services, whether it is tax exemption or healthcare. The majority of countries outside of Europe don’t have such comprehensive welfare systems, therefore if an international minimum wage is set those in Europe on minimum wage are in a far better position than others. The concept of an international minimum wage is to increase equality, and stop exploitation in LEDs.  However it would be difficult to enforce, and on what factor would the wage be decided on.

While in class we brought up the issue of competition. If there was an international minimum wage then every country would be equally competitive for the price of labour. It is important to note that country’s do not want to move over to a high minimum wage as it may deter producers, as they rather produce for a cheaper price improving their profit margin on products. But if there was to be an international wage it would ensure that people were not being exploited in any specific region. It would be difficult to speculate what affects an international minimum wage would have on the global economy, as it could cause the creation of a black market for labour.

Discuss whether regional variations to the National Minimum Wage are a good idea

Politically it is difficult to explain variation of minimum wage within a country, as the argument would be that there is a greater cost of living within a certain area, therefore establishing that there is serious inequality within the country. Economically, variation to minimum wage with respect to region is logical. As noted in the example of the United States, were each state is allowed to set its own minimum wage as long as it is greater than the federal minimum wage. In England the cost of living is greater in remote areas due to the reliance on personal transportation (driving) and the lower supply of basic goods. Therefore, it would only make sense if the minimum wage for that area was increased.

The Decline of The All American Guitar

Fender Musical Instruments Corporation has been subject to a massive decline in sales and profitability over the past four years. The company established itself as a leader in the guitar market in 1954 with the release of the iconic Stratocaster. However, the guitar is a discretionary item and it does not have the same popularity as it did when rock music was at its height in the 1960s, 70s, & 80s.

The company has struggled its way through the recent recession, with Weston Presidio the private investment firm that owns half the stake of the company has been looking for an exit due to the lack of profitability. The firm wanted the company to go public in March but investors rejected the idea with the concern of worse growth and a dramatic devaluation of the company.

The lack of growth and decline in profitability can be explained by the drop in demand for electric guitars in general. Sales of all music instruments have dropped approximately 13% from the peak in 2005, showing the decline of consumers spending their disposable income on instruments. Even though there has been a considerable drop in demand, Fender has been limited in its ability to change prices due to the cost of labour in North America as well the necessity of keeping the brand image. There is also the issue of how guitars are produced; all the guitars that Fender produces in North America are reliant on workers. There is no single stage in the manufacturing process that is all machinery; this means that changing supply is difficult without the dismissal staff. This has led to a surplus of fender guitars in both the United States and the United Kingdom. There is a limited change in supply and price but a dramatic change in the demand.

In the graph above the situation which has occurred is depicted, with the large decrease in demand with a small change in price and no change in supply. Below is a possible scenario of surplus as Fender may not be able to change price to suit the demand for the product and struggle to adapt supply therefore the possibility of not reaching equilibrium.

Guitar retailers have also heavily suffered from this; stores such as Sam Ash, Guitar Centre, & Dawsons (U.K.) have all reported a decline in sales of fender guitars and have begun taking a loss from current stock. Guitar Centre which accounts for approximately 1/6 of Fender sales has severely declined in profitability with Moody’s issuing junk status (Caa2) on its debt. Retailers have had to generalise their stores now offering a variety of other instruments such as synthesizers where there is a greater demand.

A major factor that has affected Fenders growth and profitability is the prospering of Asian instrument manufacturers such as Yamaha. Yamaha has begun to take a dominant share in the market, with cheap high quality guitars. The company does not suffer from high costs of labour or a brand image to maintain. So Fender has suffered due to the cross demand for cheaper and high quality alternatives such as Yamaha. The price of a Standard American Stratocaster ranges £1,200-£1,400 whereas the Yamaha quality equivalent cost ranges £600-£800. During a period where less income is disposable there is a considerable contrast in prices.

The guitar manufacturer faces a greater problem as its consumers have a nostalgic demand for vintage Fenders, this leads to the resale of already purchased guitars and the presence of stores committed to only selling vintage guitars. Fender has attempted to exploit the demand for their vintage guitars by producing re-issues, but to no success. Fender has begun moving its production to Asia but have so far been unable to compete with companies such as Yamaha.

http://www.nytimes.com/2012/09/30/business/fender-aims-to-stay-plugged-in-amid-changing-music-trends.html?smid=pl-share