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Politics : Sioux Nation -- Ignore unavailable to you. Want to Upgrade?


To: Wharf Rat who wrote (203573)1/30/2011 2:42:12 AM
From: Wharf Rat  Respond to of 361392
 
Thought this was good enuf to steal..

To: Elroy who wrote (155343) 1/30/2011 1:50:08 AM
From: wonk Read Replies (1) of 155369

"Cost cutting happens all the time when a business's addressable market, for whatever reason, shrinks. It's not a growth tool, it's a survival tool for a business which (for whatever reason) has an expense level above current requirements."

My father taught me when I was very young, … You can’t cut your way to profitability... and its held true throughout my career. He explained that to me with the example (at the time) of what a new President was doing at RCA (which many on the board will have never heard of or don’t remember). And sure enough, an iconic American company disappeared a number of years later.

There are only 2 types of cost cutting.

1. Cost cutting which gets your operating margins in line with industry competitors;
2. Cost cutting which gets your margins below industry competitors.

Only item 1 is good cost cutting, but also, by definition, it means the company was poorly run in the first place.

Cost cutting as a survival tool only delays an inevitable death.

Items 2 is negative cost cutting. This also comes in two flavors. The first flavor (a) is seemingly what you describe. The correct term is not addressable market though. If the addressable market is shrinking, that’s a dying industry. Better said would have been if the company’s market share has shrunk. Cost cutting in this instance (to get overheads below industry competitors to keep EBITDA and Operating margins in line, is a desperate and ultimately self destructive measure. Invariably management will say they are cutting fat, but rather (see item 1) more often they are cutting flesh. See the Merchant of Venice for the effect of the difference. The (b) flavor is the dress up for sale cuts. Yeah the Company looks good short term, and the CEO is treated as a genius, but typically he/she has cut flesh. It is only a matter of time before the vultures pick at the bones.

Anytime one engages in Type 2 cost cutting, one has a revenue problem, not an expense problem. But almost invariably it’s seen in the markets as a good thing, when in actuality its one of those Sea of Red Flags at a May Day Parade indicators.

A key here is to understand the distinction between Direct Cost and Overheads. Direct costs are required to supply the good or service. Overheads are necessary, but discretionary to Management.

If I am building a car, the steel used is a direct cost. If I am paying $120 for the steel and my competitors on average pay $100, the Type 1 cut is indicated (unless there are other structural issues). However, if I cut my steel cost down to 90 (Type 2) then most often I’ve cheapened the quality and it will kill me in the end.

Similar, but more slowing acting, regarding cuts to overheads. If they’re out of line with Industry norms, one can cut to the good. But more often they are out of line because of insufficient revenue. Trying to cut more to get the bottom line margins right and you’re cutting flesh. In other words you can cut marketing (brand maintenance ) sales promotions R&D, and pretty up the current P&L, but always always those tricks really hurt and most often severely wound if not kill the company long term.

I would disagree that either of your examples – Lucent or the Post Office are examples of good cost cutting. Lucent had a revenue problem which was exposed for all to see in the telecom meltdown. Their major high margin product (big iron telephone switches) was dying, they were losing share in cellular to the Nokia’s, they were being attacked by the DWDM upstarts (Ciena, Juniper) and getting pounded in the Enterprise and IP market by Cisco and the like as that market took increasing dollars of total telecom capital spending. Again – a revenue problem – ultimately leading to the “no other option” merger with Alcatel.

The Post office also has a revenue problem. So much of their fixed costs goes to handling bulk mail, but political and business pressure keeps bulk mail rates artificially low. On the cost side, the USPO is prevented from taking action to lower costs. Politics imposes the universal service obligation. Politics imposes the 6 day a week delivery schedule which increases fixed costs. Politics imposes the requirement to pre-fund retirement benefits – unheard of in the commercial world. The politics in part is driven by a Trojan Horse designed to keep the Postal Service in the red to eventually force the ideological outcome of privatization. Yes they could do some good cost cutting, but more revenue would help a lot more. The fact that a first class letter cost 44 cents(?) and bulk mails (catalogs etc) costs a lot less tells you something about the revenue model.

Getting back to politics, the United States has a Revenue problem, not an expense problem. Since WWII expenditures have been around 19-21% of GDP. In worst deficit years, Revenue (Taxes) have been around 18% of GDP.

Expenditures are now around 23% but that is due to 3 absurd wars (Iraq, Afghanistan and Terror) and an unprecedented Financial meltdown. Taxes are projected at 15% of GDP for the next two years. Taxes as a % of GDP are the lowest they've been on my lifetime I'm pretty sure. And the magnitude of the deficit is what ill-advised tax cuts for the well-off and 10% unemployment gets you.
Message 27130047



To: Wharf Rat who wrote (203573)1/30/2011 4:51:09 AM
From: stockman_scott2 Recommendations  Read Replies (1) | Respond to of 361392
 
Dire Predictions, Conspicuous Omissions and Our Perilous Energy Future

by Sandy LeonVest

Published on Friday, January 28, 2011 by CommonDreams.org

Only days before President Obama delivered this year's State of the Union speech, a startlingly grim little piece appeared in IPS. The article, which highlighted a newly released assessment of global climate change by the International Energy Agency (IEA), was as definitive as it was dramatic.

"The year 2010 was the hottest ever measured since the beginning of the recordings, 130 years ago," Dr. Anders Levermann, professor of climate system dynamics at the Physics Institute of the Potsdam University told IPS. Yet, despite repeated warnings regarding the "perilous nature" of unmitigated fossil fuel consumption, the IEA's latest science-based research found that, "unprecedented climate change has Earth hurtling down a path of catastrophic proportions."

These findings, wrote IPS' Julio Godoy, "have prompted leading environmental experts to warn that humankind is racing towards destruction ... Disaster appears imminent."

Only a month earlier, the Energy Information Administration (EIA), in its annual projections for 2011, announced that it still expects fossil fuels to supply over three quarters of US energy consumption in 2035. The share of fossil fuels is expected to decline by only 5 percentage points -- from 83 percent in 2009 to 78 percent in 2035. The EIA adds that global greenhouse gases reached at least 32 billion tons last year -- only one step below the most pessimistic scenario imagined by the IPCC in 2000: 33 billion tons of CO2.

These results, wrote the EIA, "were conditioned by the present global economic crisis." In other words, under normal economic circumstances, the numbers would have been even higher - ie: total consumption of energy in 2010 would have been worse than the most pessimistic scenario the IPCC formulated ten years ago had the global economy been in better shape.

But, at least here in the US, neither the EIA's fossil fuel projections nor the IEA's stark assessment on the state of the climate ever found their way into the national spotlight. The "stories," in fact, didn't even manage to make the evening news in most parts of the country.

In light of the media blackout, perhaps it shouldn't be all that surprising that these dire projections -- coming from two of the oldest and most reputable energy agencies in the world -- were deemed unworthy of so much as a sentence in Obama's SOTU speech.

What is surprising - shocking, in fact - is that these conspicuous omissions seem to suggest that so-called "climate deniers" -- who in a less Orwellian world would surely be labeled "science deniers" -- have managed to convince the president that legitimate science has no place in the national conversation.

In a less Orwellian world, such a dramatic scientific assessment of accelerated global climate change would surely be taken seriously. Such dire projections would at the very least trigger the convening of an "Emergency World Climate Summit" - one that, unlike Copenhagen or Cancun, might actually create, and begin to implement a vision, perhaps even a "road map" to a truly sustainable future.

Instead, Obama's hollow call for the US to produce 80 percent of its electricity from "clean energy" by 2035 is laughable - or would be, if the consequences of his ridiculous rhetoric weren't so deadly serious. It is laughable because in order to achieve 80 percent clean energy generation, the US would need to replace some 500 gigawatts of conventional coal-fired generation with cleaner alternatives. To do that, the nation would need to almost entirely rebuild its electrical infrastructure.

And, if recent history is any indicator, that's just not going to happen -- not in this fossil fuel-dominated lifetime. Keep in mind that, at least so far, this nation's anemic investment in "real" renewables has been largely limited to the $100 billion provided in the 2009 American Recovery and Reinvestment Act. Today even that investment is threatened by the Republican House majority and a president who seems to lack the political courage or vision to take them on.

Back to the (fossil-fueled) future - Obama redefines "clean energy"

While the president has never pretended to oppose nuclear power, it wasn't until his post-midterm speech on November 3, 2010, that Obama began in earnest to lay the groundwork for his peculiar definition of "clean energy." Even then, precious few clean energy activists seemed to grasp that Obama's vision for a clean energy future had morphed (along with "change we can believe in") into an unrecognizable, fossil-fueled version of its former self. It seemed unfathomable then, as it does now, that natural gas, "clean coal" and nuclear power -- none of which are even remotely clean, green or renewable -- had become the centerpieces of President Obama's "green revolution."

Even the IEA would take issue with Obama's redefinition of the term "renewable." The agency defines renewable energy as "[that which is] derived from natural processes (ie: sunlight and wind) that are replenished at a higher rate than they are consumed." As for the term, "clean energy" it is (or at least was) by any definition, "energy produced without fossil fuels." That the president now defines fossil fuels and nuclear power as "clean and renewable" should disqualify him from any further discourse on the entire subject of energy.

Then there's the little matter of "following the money."

It is nothing less than a national tragedy that, when it comes to energy, the "real money" is being invested not in "clean, green, renewable" sources, but in drilling, mining, processing and transporting "unconventional" oil and gas reserves. The same week that Obama made his SOTU speech, the Financial Times reported that the world's five largest publicly listed oil companies, ExxonMobil, Chevron, ConocoPhillips, Royal Dutch Shell, BP and Total of France, planned to spend a record $128 billion - much of it on new equipment and "exploratory missions." Those missions are already well underway, with the help of the industry's latest hyper-invasive, water-guzzling, ground-polluting, pulverizing process known as hydraulic fracturing or "hydrofracking."

"We cannot see the wall, but it is there. And we are driving at the highest possible speed toward it."

The degeneration of Obama's vision for a "new energy economy" into business-as-usual politics is perhaps best explained by the oldest of political realities. This president, as Americans now understand, is nothing if not a "political realist" -- and 2012 is just around the corner. The president knows full well that in order to win reelection, he will need to set aside any romantic notions about a "new energy economy" and focus instead on fixing the old one. And he will need to do it fast.

In Obama's world -- that is, the world of corporate politics - clean energy sources like solar and wind are viewed as nice concepts, but not particularly realistic. In such a world, the "tried and true" industries -- no matter how destructive or obsolete -- will always win out over what are still widely viewed as "experimental" energy sources. And on this corporate-dominated playing field, experienced players have no qualms about playing rough to keep from losing points (or profits) to newcomers. The president understands this. He knows he will need the support of the "old guard" if he is to save the (old) economy -- and his political future.

Yet, as this nation launches into a new era of "clean fossil fuels" and "safe nuclear power" and its "leadership" fails yet again to adequately invest in "real" renewables or implement meaningful regulations on polluting industries or even to put a price on pollution, the Earth's temperature continues to rise -- as does the likelihood of extreme weather catastrophes. And, as scientists and world energy agencies have repeatedly warned, such events will have enormous social and economic consequences, including, as one IEA researcher told IPS, "giant waves of migration and mass mortality."

"We cannot see the wall, but it is there," he said. "And we are driving at the highest possible speed toward it."

It is the saddest of ironies that, as those charged with protecting our "national security" bend over to appease entrenched corporate interests in the interest of "fixing the economy," they bring us closer to that wall. In so doing, the president and our leaders in Washington risk destroying everything they hold dear -- including the economy they are so desperate to fix.

*Sandy LeonVest is the editor and publisher of SolarTimes, an independent quarterly energy newspaper with a progressive slant. SolarTimes is available online at www.solartimes.org, and distributed in hardcopy throughout the Bay Area and beyond. Sandy LeonVest's work has been published locally, as well as internationally, and includes 15 years in the news department at KPFA Radio in Berkeley, CA.