Category Archives: Economy

Economics 101 – The Mess We’re In

Politicians have modified capitalism to suit their largest contributing supporters, thereby enhancing their future elections. This is often referred to as Crony Capitalism 1.

Here are some basics which people are either ill-informed, or refuse to understand because their beliefs override facts.

  • Poor people don’t employ other poor people.
  • People that possess money, or obtain credit, leverage their ideas and talent at great risk, often employ other people.
  • This can enhance the wealth of those business leaders who combine & leverage the labor and skills of others in creative ways.
  • Creditors and investors provide capital to the business, and benefit by the financial gain of the company.
  • Those whose primary object is to decide what’s fair in compensation, for the labor and skill of employees, do so by taking more from those who create and sustain that employment.
  • Eventually, the balance is tilted under government control, such that they and their closest friends & allies, receive the greatest benefits through confiscating the profits from the investors and the company.
  • They (politicians) redistribute profits to appease the employees, and describe that as fair. Creditors & investors withdraw their support.
  • Those who have placed themselves at the greatest risk and have used their imagination to begin or enhance the business, now find their financial rewards diminished.
  • These dwindling profits, and the lack of investors, push the owners into foreclosure and bankruptcy and they join the throng of those who have already staked out their claim for government assistance.
  • In the end, everyone’s standard of living has diminished except the politicians and their cronies.
  • The poor become more poor because business has been destroyed by those who gained their office through a promise of fairness.
  • Larger business, through the support of their friends in government, buy the distressed assets at reduced prices and become more wealthy.

__________________________________________________________

  1. Crony Capitalism An economy that is nominally free-market, but allows for preferential regulation and other favorable government intervention based on personal relationships. In such a system, the false appearance of “pure” capitalism is publicly maintained to preserve the exclusive influence of well-connected individuals.
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Another Motorcycle Brand is History

It came as a somewhat unexpected (probably only to me – more informed people knew it was coming), that Polaris manufacturing, makers of Victory & Indian Motorcycles, decided to drop the Victory line and stick only with Indian Motorcycles.

victory-models-end

End of the Line for Victory Motorcycles


Victory Motorcycle Announcement
1/9/2017 12:00:00 AM
Polaris Industries Inc. (NYSE: PII) will immediately begin winding down its Victory Motorcycles brand and related operations. Polaris will assist dealers in liquidating existing inventories while continuing to supply parts for a period of 10 years, along with providing service and warranty coverage to Victory dealers and owners. Today’s announcement does not affect any other Polaris business units.


The history of Victory Motorcycles® doesn’t stretch back over the past hundred years. We are young, full of drive, with our eyes on the horizon. That passion has raged since 1998, when a small group of riders, designers, and gear heads came together in Minnesota, and decided to engineer power and performance back into American V-Twins. Our first bike roared to life on July 4th, 1998. This was more than a patriotic gesture. It was a flag in the ground that marked the rebirth of the American V-Twin, and we’ve been claiming more roads ever since. From numerous awards to leading innovations, we have given new life to American muscle with industry changing cruisers, baggers, and touring bikes.

Well that’s what they said. Now, here’s my two cents.

victory_motorcycle_promo_pix_b

Victory Motorcycles 2015

Eighteen years or so, is a long period of time if you’re talking about digital tech. When it comes to any kind of transportation, motorcycle, cars or trucks, it’s nothing. It’s a blink of an eye, and no one in a few years will likely remember much about the company unless they turned out some very innovative products. I’m not so sure I can recall anything about Victory Motorcycles that was all that remarkable. Believe me, I’m not taking anything away from them. They probably built a few models that will stand the test of time, and I’m sure if I rode one, I would’ve enjoyed it. Here’s the thing, I didn’t, because I saw nothing that really intrigued me over what is already available in the market.

I fully appreciate the problem they had, before they even started. The cost of doing business in this highly competitive and regulated industry is daunting. Before you can even begin to manufacture, there are thousands of federal and state regulations you must meet and that’s not even counting the labor and distribution regs.

The market demand for motorcycles in the U.S. is not anywhere close to the amount of automobiles sold. According to Bureau of Transportation Statistics, “Motorcycle registrations in the United States have grown each of the past 10 years, from 3,826,373 in 1997 to 6,678,958 in 2006—a 75 percent increase overall.” Sales of new bikes hasn’t achieved huge increases. There are many people, like myself that simply buy a used bike from someone wanting to trade or exiting the market.

Here’s a sampling from Revzilla of motorcycle sales.

motorcycle-sales-ending-in-2014-stats

The problems they faced by entering a market with an increasingly older rider demographic, with a product facing established, successful competitors, Harley Davidson, Honda, Yamaha, Triumph, Suzuki, etc. were huge. They needed something where a segment wasn’t being served. To say, we’re the alternative to Harley-Davidson because we are an American manufacturer that also builds large cruiser & tourer motorcycles, just wasn’t enough.

As a matter of practicality, when you look at two of the biggest motorcycle manufacturers, Honda & Harley, you have to ask yourself, what makes them so successful? I might not be an expert in this area, but I can sure take a good guess. Harley-Davidson in 1980, like the 1950’s and 60’s British bikes was taking a dive. In the late 1970’s and throughout most of the 1980’s, BSA, Triumph & Norton were gone. By the 1980s the Harley-Davidson Motor Company had come within red-ink inches of the edge of the cliff which many other manufacturers had plummeted over. In 1981, they managed to combine a group of investors and through an LBO bought the legendary motorcycle company. Recovery came rather quickly with these committed people at the helm, and through their persuading President Reagan to impose tariffs on larger displacement imports.

Harley-Davidson knew they had a brand that could engender loyalty. In a way they leveraged the 1% biker image as a marketing ploy to those who had large enough disposable income that wanted to be weekend “hell-raisers”. The doctors, dentists, pilots, and many other successful business men wanted to show they were still “rebels without a cause.” They sold on “sex appeal”. Even the historical Triumph Motorcycle brand was resurrected by a successful British real estate mogul.

Meanwhile Honda, the always market savvy and almost always reliable manufacturer of small bikes, continued their onslaught from the 1970’s with ever larger and more sophisticated bikes, but never forgot the younger more economy minded motorcyclist. They understood the ageing demographic too, by developing and continually upgrading the Honda Goldwing. The closest thing to a Bentley or Cadillac on two wheels, but with handling and power of some sport bikes. Honda also found the off-road segment was a market worthy of pursuing. The biggest market for Honda is Asia, with small displacement & Moped size bikes.

Polaris came into the market with the Victory and later, doubled down with the purchase of the Indian brand of motorcycles. Indian was the historical rival of Harley-Davidson and some say, the most beautiful of the earlier 30’s art-deco inspired styling. It didn’t really pay much attention to what was currently trending as it slowly grew from the bigger rivals.

Harley-Davidson has social and consumer branding down to a science. They sell a lot of other merchandise and they get free advertising. Almost everywhere you look you will see a clothing item or sticker with the name of the company. I don’t know if they aren’t a more recognizable brand than Coca-Cola.

Honda sells machines to every conceivable market segment with a reputation of reliability. I’ve been a Honda motorcycle owner and fan of the product since the late 1990’s. I’ve never had a breakdown. If you do the normal maintenance, (which isn’t much), you can expect that when you turn on the key, you’re in for a pleasant experience of getting to your destination.

So who or what is Victory, other than a name? I saw a couple of their models that I liked, but I know the older riders tend to like the Harley. It’s also gotten very reliable and they’ve come out with some new models to address the younger and less willing to spend mega-dollars on two wheels, consumer. The big luxury tourers offered by Victory seemed to use a merger of the Jetsons meet the Croats idea of design.

victory-motorcycle-2017-lineup

Victory went after the same market segment as Harley-Davidson. That’s primarily, the over 50 male crowd. They didn’t offer models that would appeal to a younger segment, like sport bikes or financially frugal riders. For the most part, they ignored marketing to women. How then could they see a path to success? Build a better mouse trap? As I said, Honda is incredibly reliable and Harley isn’t too far behind. Increase displacement? Harley-Davidson has been doing that. In recent years, Harley-Davidson has steadily increased displacement since 1999 – 88 cu in (1,450 cc), 96 cu in (1,584 cc), 103 cu in (1,690 cc), 110 cu. in. (1,801 cc). Honda Motorcycles did produce a larger V-Twin (1800cc) from 2001 thru 2008 in Marysville Ohio. They have backed off the larger displacement bikes, concentrating on a different market segment.

Sales statistics for 2105 (U.S. only)
——————————–
Harley-Davidson  – 1
Honda Motorcycle Group – 2
Victory was 10th in the list. Still, they reported this rosy forecast in 2016

harley-davidson_motorcycle_sales_stats

Where does Polaris Industries fit into the motorcycle industry going forward? They claim they will focus more on their Indian brand. This is supposedly a stronger brand for them. The high-end Victory Motorcycles were in the mid $20K and Indian is right about there as well.

Motorcycle Annual Sales Numbers for 2015

Manufacturer North America sales Worldwide sales
Honda Motors 286,000 10.73 million
Harley-Davidson 189,082* 264,627
Yamaha 89,000 5.22 million
Kawasaki 51,000 524,000**
Suzuki 35,000 est. 1.11 million (est.)
BMW n/a 136,963
Ducati 12,132 54,800

Personally, I think they’re done and will entirely leave the two-wheel market in a few years. I don’t think you have to be a marketing guru to realize the almost insurmountable position they’re in. Another air/oil cooled V-twin motorcycle, no matter how old the original brand is, or how beautiful the bike looks isn’t likely to spur an increasing demand or expanded market share. Triumph Motorcycles offers that rich tradition at generally a lower cost of entry.

indian_motorcycles_lineup_2017

Photo courtesy – American Iron

Younger people are more likely to purchase a car which meets their sport and-or fuel economy requirements in transportation. Polaris has many other recreation oriented products which provide them revenue. I think this announcement has damaged their credibility.

Its A New Year – Time to Change

Everyone talks about New Years resolutions in terms of personal goals. Nothing wrong with that, but there are some national challenges that require changes to be made. Just like weight gain, year after year, problems ignored become greater problems to resolve in the future. Here’s one that needs some serious attention. Stat!

Social Security & Disability

signing-social-security-law-president-roosevelt

President Roosevelt signs Social Security act into law 1935 – Getty Images

Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 65 million Americans will increase 0.3 percent in 2017.

The 0.3 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 60 million Social Security beneficiaries in January 2017. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2016. ~ Social Security Administration

COLA (Cost Of Living Adjustment) has been as high as 14.3% in 1980, and as low as 0% in 2016.

The 2016 Social Security Trustees report shows a continuing trend toward insolvency of both of its trust funds. The Trustees estimate that Social Security’s combined retirement and disability trust funds will become exhausted in 2037. This means that Social Security’s day of financial reckoning is now less than 20 years away. Social Security faces severe, urgent financial challenges that policymakers must soon address if the program is to remain viable for the most vulnerable in our society.

In fact, the Social Security crisis is not only real; it is already upon us. The trustees now estimate that the 75-year financial shortfall for the combined trust funds is $11.4 trillion in present-value terms. If we indefinitely extend past the 75-year period, the so-called “infinite horizon,” the shortfall is a whopping $32.1 trillion. For comparison, our nation’s gross domestic product is slightly over $18 trillion – and our gross national debt (not including unfunded liabilities) is almost $20 trillion.

There are two separate trust funds: one for the retirement program (the Old Age and Survivors Insurance, or “OASI”), and one for the disability program (the Disability Insurance, or “DI”). For the retirement program, the Trustees estimate that the trust fund can continue to pay full benefits until 2035, at which point the program will only be able to pay about three-fourths of scheduled benefits. For the disability program, the Trustees estimate the program will hit insolvency less than a decade from now, in 2023.

What Are the Problems in Funding Social Security?

The problem for this fund wasn’t inevitable as some would like to have us believe. The problem stems primarily from the way it has been administered and used as a fund to help offset deficit spending by augmenting the general fund with FICA collections in excess of what was needed for prior years.

Beer summit brings together arrestor & arrestee

We can have meaningless gestures of goodwill or work on real problems.

Social Security isn’t administered like an individual private investment. Rather than save individual payments for future payout, the fund is a real-time pay as you go, and hope that somehow or someway, future policy makers will address the fundamental flaws. The most obvious is the found in actuarial tables. If you use the present group of workers to pay for the retired workers, there should be more wage earners than retirees to keep the cash flowing. Life insurance companies determine their ability to make a profit from collecting premiums and paying out benefits using these tables. In summary, the factors for how many will live to retirement, and how many will contribute is largely based on live births, and how healthy the general population remains.

We’ve seen the U.S. population grow substantially after WWII, but dwindle with a greater acceptance of contraceptives, abortions, and postponement of pregnancies. Overall this means fewer people are in the group of wage earners for a large group of people who are entering retirement.

Since the 1990’s. we’ve also seen a decline in real wages for many while observing an increase in the income and holdings for a smaller percentage of the population. In addition, those who are now actively in the job market has declined over the past several years. All of this leaves a declining revenue tax base for Social Security. Currently (2017) these are the rules for funds collected.

  • Social Security (Old-Age, Survivors, and Disability Insurance)
    Employers and Employees, each          6.20%
    Medicare (Hospital Insurance)
    Employers and Employees, each a,b    1.45%
    Maximum Taxable Earnings (dollars)
    Social Security $ 127,200
  • Medicare (Hospital Insurance) No limit
    Self-employed persons pay a total of 15.3 percent — 12.4 percent for OASDI and 2.9 percent for Medicare.
    This rate does not reflect the additional 0.9 percent in Medicare taxes certain high-income taxpayers are required to pay.
    ~ See IRS information on this topic.

What Should Be Done

pew-research-asocial-securityThe only bipartisan agreement that has been announced up to this point is, ‘something should be done’. After that, there’s not been anything done to alter the course we’re on.

During one debate, former Republican presidential candidate Rick Perry described Social Security as a “Ponzi scheme.” Interestingly, Perry has been picked to become head of the Department of Energy. A department which he couldn’t name in a debate, but said it needed to be eliminated. Perry does typify one of the many people who misunderstand that Social Security is neither illegal, a scheme, or a wily trick by Democrats to gain a greater voter demographic.

Here are some of the ideas which have been discussed.

  • Change the taxation of earnings
  • Change the benefit formula
  • Increase Benefits for low earners
  • Raise the full retirement age
  • Reduce cost of living adjustments

See this chart to examine the effects of each bullet item.

The last bullet item has been addressed over the past decade; COLA has severely declined. Increasing benefits for low wage earners may be a desirable goal, but it will have the opposite effect on aiding the fund. Changing the benefit formula is another way of saying, pay less benefits. Changing the taxation level may make some sense for those earning in excess of $127,000. A false narrative circulates that says people don’t pay anything if they earn above a specified threshold. This is incorrect.

Who Pays for Social Security?

Examples: Jon Smith makes $50,000 in 2015, and Jane Doe makes $120,000 for the year. Jon pays $3,100 for Social Security (6.2 percent of $50,000) and $725 for Medicare (1.45 percent of $50,000) for a total of $3,825 for the year. His employer pays an identical amount. Jane pays $7,049 for Social Security (6.2 percent of the 2013 maximum wage base of $113,700) and $1,740 for Medicare (1.45 percent of $120,000 salary), for a total of $8,789 for 2013. Her employer pays the same.

For more information, see: National Academy of Social Insurance

Where Do We Go From Here?

Donald Trump smiling in front of flag

President-elect Trump  policies on Social Security?

Some things are obvious. The math says we’re in trouble and like an oncoming train, it’s avoidable. Doing nothing just ‘kicks the can down the street’, making it become a larger and more difficult problem to solve in the relatively near future. We’ve had multiple administrations (Republican & Democrat) that have done nothing to alleviate the problem.

Those who hold office, don’t see it as any more of a problem than how to keep people voting for them. I seriously doubt Donald Trump recognizes the plight it puts people in, because he’s a billionaire and wealthy people have a tendency to think there’s no reason anyone should rely on Social Security.

Some people claim it’s just another government dependency program. The truth is, government has been collecting specific taxes from workers for decades and has become dependent on this fund to solve general fund shortfalls.

This problem won’t go away on its own and up to this point has only been made worse through a misguided belief, because we’re a large and prosperous nation, someone will auto-magically pay for it.  All politics aside, we will pay a much larger price tomorrow for something we can solve on a smaller scale today.


Congress: Leadership Members’ Salary (2016) – $174,000

Leaders of the House and Senate are paid a higher salary than rank-and-file members.

Senate Leadership

Majority Party Leader – $193,400
Minority Party Leader – $193,400

House Leadership

Speaker of the House – $223,500
Majority Leader – $193,400
Minority Leader – $193,400

Pay Increases

Members of Congress are eligible to receive the same annual cost-of-living increase given to other federal employees, if any. The raise takes effect automatically on January 1 of each year unless Congress, through passage of a joint resolution, votes to decline it, as Congress has done since 2009. The increase for Federal employees in 2017 is 1.3%