Friday, January 30, 2009

The economics of electricity

From the 02 February 2009 Greater Niagara Newspapers

By Bob Confer

Every year dozens of people ask me about our electrical expenses at Confer Plastics. They know we’re a heavy power user (it takes a lot of juice to melt-down plastic) and, with our proximity to the Niagara River, they assume that we save a lot of money by operating in Western New York.

Their curiosity quickly turns to shock when I give them the numbers. Our power bill in 2008 was just under a million dollars; $934,967 to be exact. Even though we operate on the shores of Nature’s dynamo and from it get a small allotment of NYPA power (300 kilowatts), our unit cost was still 12.1 cents per kilowatt hour (kwh).

That cost, like everything else in this once-great state, is much higher than what it is in other areas. The average electrical cost for industrial users in the United States is a paltry 6.16 cents, almost half of what I’m paying.

But, when I look to compare apples to apples, I prefer to analyze the electrical costs in Ohio and Ontario. Ohio is the epicenter of the plastics industry, home to some 1,600 molders and, therefore, our greatest number of competitors. Ontario’s Golden Horseshoe, so financially vibrant and so near to our site, offers almost unlimited potential for us, but we’ve been mostly unable to crack the market because Canadian manufacturers can make things for less than we can. In the case of Ohio, their cost is 5.65 cents/kwh. So, had we been operating in the Buckeye State we would have saved $496,500 last year. Ontario, just across the river, is even cheaper at 4.1 cents US per kilowatt hour. Had we been there we would have saved $616,513 in 2008.

Let’s just say on average between the two we lost $565,507 by working in the Empire State. That’s not chump change. As a matter of fact, it’s ridiculously expensive. Considering that we were a $16.22 million company in 2008, that means we devoted 3.5 percent of our revenues just to cover the cost of New York’s electrical rates over and above what everyone else pays.

That cost disadvantage is a key reason why Buffalo’s and Niagara Falls’ once-proud manufacturing corridors are now ghost towns, quiet, almost-vacant shells of their former selves. The steel, aerospace, and chemical giants are long gone and many automotive parts manufacturers on quickly on their way to joining them because it makes total sense to one, move out of New York or two, close their New York operations and focus on more profitable sites elsewhere. That’s because most of those manufacturers were/are heavy power users and electricity ranks as one of their two or three greatest costs. They can control the other big expenses (material and personnel) but they really have no control over electricity. They have to run their machines and can only accept the electricity at the rate at which it is delivered to them. It’s not a resource that can be bartered.

If my roots weren’t so strong and if I weren’t so committed to my coworkers I would join those companies in their new far-flung locations. But, here we stay and here we suffer.

We suffer not only at work, but also at home. Just as industrial electrical rates are high, so they are for residences, too. Based on national statistics for 2007, the average household in New York paid 16.6 cents/kwh. Across the US that number was only 10.22 cents. That means we’re paying 62 percent more than the rest.

No homeowner is going to, like a business, pick up and move because power is so expensive. But, that doesn’t mean they aren’t feeling the pinch. The average American household consumes 935 kwh per month. At that level, New Yorkers pay $155/month to keep their homes going. The average American pays only $96. That means that every month we’re literally throwing away $59. Over the course of the year we’re losing $708. Think of what you could do with that money!

Think of what our economy could do with that money. There are 600,000 households in WNY. If each one of them spent the money that they wasted on New York’s grid by buying goods and services, $425 million would be pumped right back into our local economy every year, really giving this area a much-needed shot in the arm.

In this case, it would be awesome if we were just average. If we as businesses and homeowners could pay the bills that the typical person pays, we’d be so much better off for it. Average, folks…is that too much to ask?

Friday, January 23, 2009

Buy American, buy local

From the 26 January 2009 Greater Niagara Newspapers

By Bob Confer

The American Experience is defined by our unprecedented combination of brain and brawn. Our predecessors, dreaming dreams of Manifest Destiny, tamed a wild land, giving up blood, sweat, and even their lives to make a better world for their children and their children’s children. From those seeds of the American Dream, great metropolises sprung up like forests of concrete and steel, fitted with impressive architecture and ever-evolving factories that gave housing and goods to our burgeoning population. Those modern marvels and what they wrought have continued to develop over the years, and, without a doubt, they have made America the most powerful economic engine that the world has ever seen.

The path that got us to that level, one that took our nation from nothing to everything, was paved by ingenuity and work ethic that was without peer. The infrastructure, technology, science and products that provided the riches of the past and present were once but thoughts, fully developed and ultimately realized by some of the keenest minds ever, made real by some of the hardest-working hands and backs ever. America was made - and it is made - by Americans.

It is important that we never forget that. But, now, it must take on an even-greater meaning.

Our economy is in tatters with consumer confidence at record lows and the stock markets a daily roller coaster of misery. Millions of workers have lost their jobs in recent months. Many more live in fear that they, too, might become jobless this year or next.

How do we stave off this recessionary monster and the economic and mental depression that comes with it? How do we reignite the fire within our markets? How do we keep people employed and give them the confidence to buy?

Those questions have been asked time and time again for almost a half year now. Businessmen, civic leaders, and regular folk alike, all deeply affect by this tragedy, want answers, answers that will pan out in the end and put America on the fast-track to recovery. They’ve all thrown around ideas, imposing some while debating many, concepts from bailouts to rebates to nationalization to stimulus packages.

They’re all wrong. The economy doesn’t start with Uncle Sam. It begins at home. It’s we as consumers in a free marketplace who save, invest, and spend our money on products and services.

Realize, though, that it begins at home in more ways than one. The very best stimulus that our economy could ever have is from our consumers focusing on buying American and buying local. That is what made our country great and that’s what will bring us out of our supposed demise. It was Americans building and selling things to Americans that created our prosperity and the quality of life we have appreciated. History proves that.

We’ve lost sight of that importance. In days gone by we did not rely on foreign production as we do now. Historically, we never had trade deficits that were not in our favor. We did not toss away American workers and decent products for inferior, foreign-made goods to save a few dollars here and there. We did not buy our products in cold, multinational department stores. No, in the past, we as a people made what we bought, and we bought those goods in stores owned and run by our neighbors. We looked out for one another by basing our buying decisions on pride of workmanship, quality, and Country.

We need to get back to those roots. We must frequent the mom and pop stores, the locally-owned franchises and roadside stands, putting the global corporate conglomerates at a distant second. We must analyze the labels of everything we buy from them, from food to clothes to durables to cars, ensuring that they were made on America soil by American hands and American minds.

As buyers become tighter with their dollars and buy less of many yet more of quality they’ll find that American products will make the best investment of their spending dollar, not only in terms of a better-made product, but also to the bigger picture of investing in our national well-being. It is such a simple and effective stimulant: if we buy goods that are made in America we employ American workers, managers, designers and farmers all who extract American resources and turn them into the goods we need and want. So, please buy what they make, keep money in America and ensure that they - our friends, families, and fellow citizens – are all gainfully employed. The payback of buying patriotically is an economic, emotional, and national victory.

Thursday, January 15, 2009

The economy is our responsibility

From the 19 January 2009 Greater Niagara Newspapers

By Bob Confer

With the economy going from bad to worse and so many questions and fears looming over our heads, most Americans have been waiting with bated breath for the Obama Administration and Congress to make things – good things - happen in our economy.

It is wrong, if not un-American, for our citizens to place such quasi-religious faith in our elected officials. Those of the political class are not the saviors of our great nation. They were never intended to be. And they never will be.

They are not to have some God-like status in our eyes. No, they are intended to be at par with us. Ours is a government by the people and for the people. And, that is exactly what our economy must be, too. It is we the people who are supposed to be the determinants of what our United States and their economy are to be and what it will finally become. We were bestowed with the personal liberty to strive for - and achieve - the comforts of life as we saw fit. From that, each and every one of us has the ultimate responsibility for the preservation and betterment of ourselves and our families.

It is that duty, that desire, to better our lives and those of our heirs that truly drives the economy, for if you piece together each of those varied and completely unique American Dreams, we as a collective society have needs and wants that are nearly limitless. But, it should never be the collective as one to address those desires. It is the collective as many who, all working in their own singular ways, that makes the marketplace what it is, consistently improving the standard of living for not only our own families, but for all families here and abroad.

By law, those fashioned by both Man and Nature, it is not supposed to be the government’s intrusive and controlling hand that decides what those material and emotional possessions are and who is worthy of them. It is, instead, the obligation of all men and women to themselves and to society at large to find and earn their own Heaven on Earth, to not to have it unworthily given to them based on someone else’s perverse version of what that Heaven may be. This natural right to life’s gifts, one realized only by self-responsibility, was highlighted in the Declaration of Independence by our forefathers who forged the greatest nation in history by declaring that ”…men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

Thus, if we truly want to end the economic malaise that befell us, the onus is on you, me and all those around us. It is the responsibility of the individual, not the government. It is the individual who assumes the entrepreneurial gamble of running a small business. It is the individual who builds things with his hands and improves them with his mind. It is the individual who makes choices in the marketplace, deciding what products and services fail and which of them succeed. It is the individual who makes decisions on her savings and her retirement. It is the individual who manages his home and his property and the risk associated with it. It is the individual who earns money and spends money, she making all the choices necessary to make for her the life she wants.

When you add up all of that, it is obvious it is you and me who make the economy what it is. Millions of us working together and even working against one another in a free and constructive capitalist environment are what makes the world go ‘round.

So, don’t be fooled by the rhetoric of our governing bodies when they press forward with bailouts, stimulus packages and intervention. Government doesn’t have the power or the right to do that. You must understand - and very well at that – that it will only be, and can only be, each of us who brings us out of the recession. We cannot wait for the government to “do something.” We must buy, sell, invest and hold credit under our own intent. Accept this charge and press forward, because the economy and our destiny are ours to control.

Friday, January 9, 2009

New York invests in a loser

From the 12 January 2009 Greater Niagara Newspapers

By Bob Confer

Prior to leaving office in the summer of 2008, the former Senator Joe Bruno, long the head of the state senate, wanted to leave a legacy of sorts, something that would plant an indelible mark on New York. Not wanting it to be the FBI investigation that forced his retirement, he capped off his career by negotiating a mammoth economic development project.

Bruno was the key broker of a deal that will bring microchip manufacture AMD – specifically its subsidiary known as The Foundry - to Malta, a town of 13,000 strong located in Saratoga County. AMD’s new plant will be a $4.6 billion investment, one that will employ nearly 1,500 people when it’s up and running. Given that these forecasts hold true, this sounds like great news for Upstate.

It’s not. As the old adage says, it’s too good to be true.

You see, Bruno, Governor Paterson and their cronies at Empire State Development gave away the bank to bring AMD to our fair state. Besting the offer proposed by Dresden, Germany by some $100 million, the state won AMD’s love by giving the company a $1.3 billion incentive package, which works out to a benefit of $887,000 per job. It’s a combination of tax breaks, rebates and grants, the latter of which accounts for $650 million alone.

That’s $650 million of cold, hard cash – our cash! - literally being given away. And, it’s cash that we don’t have. With Wall Street in the dumps, New York is facing a budget gap of $15 billion, a deficit that has forced the Governor’s hand in introducing some of the most ludicrous taxes that have come down the pipeline in years. The contrast is appalling: As we regular folk struggle to run our small businesses, maintain our jobs, or keep our homes in the mother of all recessions, the state finds it necessary to drain even more of our already-pillaged income while giving money to a multinational corporation which, unlike our residents, has absolutely no allegiance to the Empire State.

Regardless of budget surplus or budget deficit, there is no company on Earth deserving of a deal as sweet as AMD’s. Under what tenets of capitalism and free markets does a government contribution of any size, let alone $650 million, make any logical sense? It doesn’t.

It’s even more illogical when you analyze AMD’s past, present, and future. AMD is a train-wreck that makes the $650 million look like the one of the worst investments of the past twelve months. With the stock market the way it is, that’s saying something.

AMD has become a poor performer and, unlike its competition (the biggest of which is Intel) who have seen revenues and profits drop because of the recession, AMD’s woes started long before the recession and they continue to this day. In third quarter of 2007 AMD accounted for 23% of the global PC and server chip market. One year later, it accounted for 17% while Intel’s market share grew to 82%. This coincided with a loss of $67 million in the third quarter of 2008 which is peanuts compared to the $396 million they lost in the third quarter of 2007! Things have become so bad that Moody’s Investor Services has announced AMD’s outlook as “negative”. Moody’s is confident the company will be cash-flow negative in 2009.

No investor in his right mind would ever go out on a limb to invest in such a bleak company. Yet, New York’s bureaucrats continue to do so. Amazingly, they weren’t disheartened by the monetary losses. And, they weren’t turned off by the telling job losses. Jobs were supposed to be the ultimate payback to our investment. There’s no way that AMD can be trusted to produce 1,500 jobs in Malta when globally they cut 2,100 jobs - 13% of their employment - in 2008. Most of these firing occurred in the early ‘08, before the market blow-up and while Bruno was still ironing out the deal.

To most observers this giveaway was pretty much set in stone when on December 16 the Public Authorities Control Board voted for the last of the minor technicalities, identifying The Foundry as a part of AMD. But, concerned taxpayers shouldn’t throw in the towel just yet. There’s still time to cancel the package because shovels won’t hit the dirt until midyear. We need to put constant pressure on Governor Paterson and our legislators, demanding they accept the mantle of leadership – which we gave them – and take a stand against this rotten deal. If they don’t, and throw away our millions, then they all are no better than corrupt investor Bernard Madoff…and just as criminal.

Friday, January 2, 2009

News media ignored economic collapse

From the 05 January 2009 Greater Niagara Newspapers

By Bob Confer

Since November of 2007 I’ve been telling not only my coworkers, but my readers and listeners as well, that our country was in a recession. It’s too bad that I was one of the few ringing the bell when it first needed to be rung. It’s even more unfortunate, especially for our nation’s collective financial security, that the mainstream news media - cable news and national and metropolitan newspapers – failed to educate the masses on what was happening in our economy. Not until the whole world fell apart in September did the news outlets place a greater emphasis on economics.

By then it was much too late.

In the days since, the stock and financial markets collapsed and most businesses found themselves ill-prepared for what befell them. Almost overnight, they fell into crisis mode, unable to handle the sudden lack of credit and/or customers. A good many businesses, all of them recently vibrant, have been forced to layoff millions or shutter their doors. Plant closures and downsizings have been inordinately high, even in the once-indestructible automotive and chemical industries. The collapse of retail establishments has been greater: Some 160,000 retailers have closed shop in recent months and nearly a quarter million more have been pegged to do the same in 2009.

As the businesses failed (and fail), so have their one-time workers. Millions of individuals are now jobless. Positions that they thought were careers became but blips on the radar of their lives. Cast into a job market with millions more workers in supply than demand, they have only a slim chance of finding a decent income anytime in the next two, three years. Had they known, they could have done much over 2008 to batten down the hatches and ready themselves for the inevitable if not unthinkable.

Similarly, the retired were not informed that the mother of all recessions was upon us. Had they some inkling that we were in a world of hurt they could have pulled out some of their investments in the Spring or Summer before they lost huge amounts of their value in the Fall of 2008. But, they didn’t see it coming.

This suddenly crept up on most Americans because the populace was led astray for most of 2008. The national print press and trusted broadcast sources like CNN, Fox News and their brethren focused their efforts on fluffy news. They put all their best reporters and a vast percentage of their airtime on the celebrity worship that we call the presidential campaign. For every day of every month for what seemed like the longest, most drawn out campaign in American history (which it was, running from January of 2007 to November of 2008), you could not escape the bombast that was spewed by the candidates or the pundits who analyzed their every word, as relentlessly repeated as they were. You could not turn on primetime news without hearing Obama-this or McCain-that. More often than not, prior to the Fall bankruptcies and bailouts, economic news was hidden, pushed way back in the pages or left to many television minutes after being inundated with the useless political analysis of the nightly news.

That’s why you need to be very careful where you get your information. Don’t rely only on CNN or just Fox. Watch other news stations. Read newspapers, either in print or online. Open your mind to the vast information network on the web. But, tread lightly. Even academia cannot be fully trusted. The economists who now provide sound bites to news agencies are many of the very same who have derided my column over the past year-plus. The most spiteful hate mail I’ve received is not when I’ve written about controversial issues. Instead, it arrives after I’ve written about economic factors. When I first wrote of the impending economic collapse professors and educated economists from across the US blasted me for my supposed ignorance. They sounded almost McCain-like, saying that the fundamentals of the economy were sound. Ultimately, their theory-bred outlook failed to what I was seeing in the real world.

So, basically, you need a wide-variety of trustworthy sources in order to properly ascertain what’s going in the economy. You can count on your hometown newspaper as one of those sources. Business and economics have been recurring themes in my columns. In 2009 they will become the dominant themes, perhaps more than three-quarters of my columns. Hot button issues like energy, the environment, education and international affairs will take a backseat this year as we weather these unprecedented and downright frightening times.