Month: March 2013

Dying Monopolies – The Post Office

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In the River North neighborhood of Chicago there are many affluent customers packed into a small physical area. The vast majority of these individuals shop online and receive physical packages as a result.

And yet the post office building that sits right smack dab in the midst of all these package-receiving citizens is not a hub of activity; many times it seems empty and forlorn.  Why is that?  It is due to the fact that the US mail system, which provides service across the United States, is not viewed as either a reliable or competitive delivery mechanism for e-commerce goods delivery, and the flood of packages that arrives is generally delivered by either UPS or Fed Ex.

The post office dutifully delivers all the stuff I don’t want – junk mail, catalogs, bill reminders, an occasional holiday card for those that are sent via snail mail, and notices from governmental entities that haven’t joined the internet era (to their credit some of them have moved much of their operations to the internet).

While the post office is crippled by liabilities, benefits, civil service protections for workers, and a mandate to serve every US address for first class mail, they would be in a much better situation if somehow they had been able to capture a significant share of the package delivery market that flourished right beneath their noses.  This article from Slate describes the situation as it exists today.

The loss of the package delivery opportunity is only the most obvious squandered one; think of what the post office COULD have done tied vai the internet (guaranteed, reliable domain names linked to addresses for bill paying or as a pre-cursor to social media) or with sales of goods since they have access throughout the entire USA.  However, given that they were set up as a monopoly to do one thing well (deliver first class mail), they didn’t have much pressure to innovate.

In the end the post office is mostly a machine to employ government workers, spread throughout the US and in every congressional district.  Per wikipedia (which has a solid write-up here) the US post office employs 574,000 workers, with government perks, pensions and benefits that most of you will never receive, in order to deliver that first class mail that you mostly throw into the recycling bin.  The proposals that they are floating show how tied their hands are; they want to cut Saturday mail delivery which will make them even less competitive vs. UPS and Fed Ex – they aren’t really talking about ways of outsourcing services and cutting expensive staff en mass which would be needed to move even close to breaking even.

The post office is probably just betting that their employees (through lobbying) and government protectors (the politicians) will be enough to stop significant cuts while their service (first class mail deliveries) becomes ever less essential.  Since we bailed out the banks and print enormous amounts of money to fund the US deficits, who will ever even notice tens of billions of dollars in losses on first class mail service to boot.

The sad part is, they are probably right.

Cross posted at LITGM.

Fiat Money and Real World Impacts

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In the US we have slowly debased our currency, the US dollar, and debt levels have risen at all levels of government. Since the US has extensive economic interests and huge reserves of oil, minerals, and agricultural capabilities, it will be a long time before the proverbial “wolf” shows up at our door.

In other countries, like Egypt, however, the wolf comes to the door right away. Egypt has an immense population concentrated along the Nile River and relatively few sources of income. Tourism has been badly damaged by the revolution against Mubarek and the rise of the Muslim Brotherhood hardly is something to put on a brochure at the pyramids, given that they have been known to slaughter their heathen guests in the past.

In order to feed their population, Egypt needs fuel, particularly diesel fuel. While Egypt does have some petroleum riches, they don’t have much refining capacity, so they must import diesel. In order to import diesel, you need “hard” currency, and the Egyptian dollar has been falling in value.

Finally, the Egyptian government distorts the local price of diesel so that it is subsidized, causing all sorts of negative impacts, including a huge black market, queueing, and all the other behaviors inevitably caused by hare-brained policies.
This situation was described in a recent NY Times article titled “Short of Money, Egypt Sees Crisis in Food and Fuel” which you can find here.

In a place like Egypt on the edge of starvation and social chaos, the safety net is thin, indeed, as they summarize in the last quote of the article:

At the empty Mobil gas station in town, attendants said profiteers, hoarders and desperate farmers were already threatening them with knives, clubs and shotguns. At harvest time, “People are going to kill each other,” said Hamdy Hassan, 37, a truck driver hanging out at the shuttered station.

Our understanding of economics in a theoretical basis and our casual acceptance of paper money has blinded most of us from understanding the practical, real-world economics that stands before us. People need goods or services, and they have to trade for it by providing alternatives that are acceptable to the seller.

If your currency is worthless, you need something else to trade, or your country will be bereft of necessary supplies. In this instance, Egypt needs refined petroleum products (diesel) or their entire economy will grind to a halt (and mass civil strife will immediately follow). As their currently depreciates relative to others in the region, their ability to purchase fuel is accordingly reduced.

This can be seen in medicines and fuel in Greece as well and likely soon to be Cyprus; it is assumed that these countries will be able to maintain first world status for their populace but it is difficult to see how that will happen while they have almost nothing to trade in return. One article about Cyprus ended with a quote from a local that if they don’t act as a banking haven “they will all just be selling ice cream and setting up deck chairs” to support any tourists that happen to visit.

With the implosion in Cyprus and likely deterioration of weakened countries like Egypt, Venezuela  Argentina with minor home currencies, we appear to be entering a new era where things we’ve taken for granted about smooth business transactions and friction-less international banking and trade are going to be put to a severe test.

Cross Posted at LITGM

Christo Anesti! – Eastertime in Greece

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(This piece was part of a much longer essay about life in Greece when I was stationed at Hellenikon AB in the early 1980s. I posted it originally on The Daily Brief, and also rewrote much later to include in a collection of pieces about travel, people and history for Kindle.)

Christmas in Greece barely rates, in intensity it falls somewhere between Arbor Day or Valentines’ Day in the United States: A holiday for sure, but nothing much to make an enormous fuss over, and not for more than a day or two. But Greek Orthodox Easter, in Greece now that is a major, major holiday. The devout enter into increasingly rigorous fasts during Lent, businesses and government offices for a couple of weeks, everyone goes to their home village, an elaborate feast is prepared for Easter Sunday, the bakeries prepare a special circular pastry adorned with red-dyed eggs, everyone gets new clothes, spring is coming after a soggy, miserable winter never pictured in the tourist brochures. Oh, it’s a major holiday blowout, all right. From Thursday of Holy Week on, AFRTS-Radio conforms to local custom, of only airing increasingly somber music. By Good Friday and Saturday, we are down to gloomy classical pieces, while outside the base, the streets are nearly deserted, traffic down to a trickle and all the shops and storefronts with their iron shutters and grilles drawn down.

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Trying To Sweep Up After the Last Boom…

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Recently I saw this sign in River North, indicating the start of another large high rise project, with an optimistic start date of 2016. Apparently there is plenty of money sloshing around to fund the construction of large buildings, because cranes are up in the sky all over the downtown area. I don’t know if lessons have been learned from the last and most recent bust in 2008, where developers who put in only a bit of equity defaulted and handed the projects back to the creditors, who also took big losses. The most obvious lessons would be 1) require developers to put significant equity into the project 2) don’t fund too many projects competing for the same tenants. These projects don’t seem to be condominiums for the most part; I am only speculating but perhaps the failure of so many condominium projects rattled the banks (those that are still standing, at least).

I would consider it a victory if they finished a few of the half-built structures that have stood idle for five or more years without any progress. This hotel in River North is now restarting; I have been looking at this ugly mess for years so it is great to see some sort of actual effort to complete the hotel.

The real issue is whether or not the structures being built right now, at what is likely the apex of the boom, will be seen through to completion. I certainly hope so, because it is depressing to see half-built structures marring the skyline for years. The famous “Chicago Spire” didn’t get far (only a hole in the ground) which is a good thing because it would have been sad to see the “Stub” along the lake shore for years to come.

Cross posted at LITGM