Hanging Tough - in the Current Economy

This essay is so in-line with my thinking - I just have to pass it on to readers. - Vesta

Hanging Tough
by James Surowiecki
Published in the April 20, 2009 The New Yorker

In the late nineteen-twenties, two companies—Kellogg and Post—dominated the market for packaged cereal. It was still a relatively new market: ready-to-eat cereal had been around for decades, but Americans didn’t see it as a real alternative to oatmeal or cream of wheat until the twenties. So, when the Depression hit, no one knew what would happen to consumer demand. Post did the predictable thing: it reined in expenses and cut back on advertising. But Kellogg doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies. (Snap, Crackle, and Pop first appeared in the thirties.) By 1933, even as the economy cratered, Kellogg’s profits had risen almost thirty per cent and it had become what it remains today: the industry’s dominant player.

You’d think that everyone would want to emulate Kellogg’s success, but, when hard times hit, most companies end up behaving more like Post. They hunker down, cut spending, and wait for good times to return. They make fewer acquisitions, even though prices are cheaper. They cut advertising budgets. And often they invest less in research and development. They do all this to preserve what they have. But there’s a trade-off: numerous studies have shown that companies that keep spending on acquisition, advertising, and R. & D. during recessions do significantly better than those which make big cuts. In 1927, the economist Roland Vaile found that firms that kept ad spending stable or increased it during the recession of 1921-22 saw their sales hold up significantly better than those which didn’t. A study of advertising during the 1981-82 recession found that sales at firms that increased advertising or held steady grew precipitously in the next three years, compared with only slight increases at firms that had slashed their budgets. And a McKinsey study of the 1990-91 recession found that companies that remained market leaders or became serious challengers during the downturn had increased their acquisition, R. & D., and ad budgets, while companies at the bottom of the pile had reduced them.

One way to read these studies is simply that recessions make the strong stronger and the weak weaker, since the strong can afford to keep investing while the weak have to devote all their energies to staying afloat. But although deep pockets help in a downturn, recessions nonetheless create more opportunity for challengers, not less. When everyone is advertising, for instance, it’s hard to separate yourself from the pack; when ads are scarcer, the returns on investment seem to rise. That may be why during the 1990-91 recession, according to a Bain & Company study, twice as many companies leaped from the bottom of their industries to the top as did so in the years before and after.

Chrysler’s fortunes in the Great Depression are a classic instance of this. Chrysler had been the third player in the U.S. auto industry, behind G.M. and Ford. But early in the downturn it gave a big push to a new brand—Plymouth—targeted at the low end of the market, and by 1933 it had surpassed Ford to become North America’s second-biggest automaker. On a smaller scale, Hyundai has made huge gains in market share this year, thanks to a hefty advertising budget and a guarantee to take back cars from owners who have lost their jobs. Those gains may turn out to be temporary, but in fact the benefits from recession investment are often surprisingly long-lived, with companies maintaining their gains in market share and sales well into economic recovery.

Why, then, are companies so quick to cut back when trouble hits? The answer has something to do with a famous distinction that the economist Frank Knight made between risk and uncertainty. Risk describes a situation where you have a sense of the range and likelihood of possible outcomes. Uncertainty describes a situation where it’s not even clear what might happen, let alone how likely the possible outcomes are. Uncertainty is always a part of business, but in a recession it dominates everything else: no one’s sure how long the downturn will last, how shoppers will react, whether we’ll go back to the way things were before or see permanent changes in consumer behavior. So it’s natural to focus on what you can control: minimizing losses and improving short-term results. And cutting spending is a good way of doing this; a major study, by the Strategic Planning Institute, of corporate behavior during the past thirty years found that reducing ad spending during recessions did improve companies’ return on capital. It also meant, though, that they grew less quickly in the years following recessions than more free-spending competitors did. But for many companies recessions are a time when short-term considerations trump long-term potential.

This is not irrational. It’s true that the uncertainty of recessions creates an opportunity for serious profits, and the historical record is full of companies that made successful gambles in hard times: Kraft introduced Miracle Whip in 1933 and saw it become America’s best-selling dressing in six months; Texas Instruments brought out the transistor radio in the 1954 recession; Apple launched the iPod in 2001. Then again, the record is also full of forgotten companies that gambled and failed. The academics Peter Dickson and Joseph Giglierano have argued that companies have to worry about two kinds of failure: “sinking the boat” (wrecking the company by making a bad bet) or “missing the boat” (letting a great opportunity pass). Today, most companies are far more worried about sinking the boat than about missing it. That’s why the opportunity to do what Kellogg did exists. That’s also why it’s so nerve-racking to try it. ♦

© James Surowiecki

For other essys by James Surowiecki - follow this link
http://www.newyorker.com/talk/financial/2009/04/20/090420ta_talk_surowiecki

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Destroying the Horse We Rode In On: Mustangs in Danger

Deanne Stillman with Bugz, survivor of the 1998 Christmas massacre
of 34 wild horses outside Reno.

Photo by Betty Lee Kelly.

Deanne Stillman, the author of "Mustang: The Saga of the Wild Horse in the American West," an LA Times "best book 08," winner of the California Book Award silver medal for 2008, and widely praised from the Atlantic Monthly to the Economist, is in Sebastopol for a signing at Copperfield’s Books on Thursday, May 14, at 7 p.m.

She will also be at Readers’ Books in Sonoma on Tuesday, May 12, at 7:30 p.m.

A COWBOY NATION TURNS ITS BACK ON WILD HORSES

By Deanne Stillman

It’s not news that America is a cowboy nation but it may surprise many that we are destroying the horse we rode in on. I refer specifically to the mustang, the animal that blazed our trails, fought our wars and serves as our greatest icon.

Since 1971 wild horses have been protected under the Wild Free-Roaming Horse and Burro Protection Act, a hard-won law spearheaded by Velma Johnston, aka Wild Horse Annie, a classic Nevada character whose life was changed when she saw blood spilling out of a truck, followed it down a desert highway, and then witnessed injured and dying mustangs being offloaded at a slaughterhouse. From that morning in 1950, she led a battle to stop the cruel round-ups, resulting in the passage of four laws, with the final one signed by Richard Nixon.

Under the federal law, horses were to be “considered in areas where presently found, as an integral part of the system of public lands.” Their management fell to agencies inside the Department of the Interior, primarily the Forest Service and Bureau of Land Management, which carry out periodic round-ups to cull the herds since most of their natural predators are gone from their ranges. Once taken, the horses are funneled into the adopt-a-horse program, which sometimes works for horses and people alike, and sometimes doesn't, resulting in fatal mishaps and other cruel disasters.

At the beginning of the 20th Century, there were about two million mustangs in the wilderness; today, according to the BLM, there are about 20,000 on public lands in the western states, with more than half in Nevada. Because the animals have been removed – or “zeroed out” – from at least 100 of their 300 official herd areas, contrary to the law’s provisions, they are on the brink of no return.

Ranching outfits often graze their cattle and sheep on lands where horses make their living, and many stockmen have long regarded wild horses as “pests” that steal food from their herds. They have tried to dismantle the wild horse and burro law through five administrations, while at the same time lone actors head into the wilderness to whack wild horses as well as burros (protected under the same law), yet are rarely found or prosecuted.

Under the Bush regime, large-scale corporate ranching operations had almost reached their goal of a mustang-free America, thanks to a rollback in the law in which culled horses that haven’t been adopted on the third try through the government’s controversial adopt-a-horse program – criminalized “three-strikers” – can be sold to the lowest bidder, along with mustangs over ten (not old for a horse). This meant a ticket to the slaughterhouse - and the rule still prevails. The rollback was aggravated by a media that often parrots the view that the mustang is an invasive species. In fact it is native to this continent, linked by mitochondrial DNA to horses of the Pleistocene.

Beyond that, horses are North America’s gift to the world. They evolved in the West, then crossed the Bering land bridge and died out on their native turf in the Ice Age, but not before they had established themselves in many other lands. They returned with conquistadors in the 16th century, and it was as if they had never left. For the next 300 years, their descendants were pressed into noble and bloody service. By the end of the 19th century, the West was no longer wild, and it was time for them to go.

A hydra-headed horseflesh industry arose and flourished until Wild Horse Annie came along. Self-valorizing mustangers ripped into the herds, trapping the horses in remote areas and then selling them for chicken feed, dinner in France, or wars. So many horses were taken from 1920 to 1935 that the era is known in some circles as “the great removal.”

But the round-ups didn’t stop then, and there are now more wild horses in the pipelines than on the range. Last year, the BLM announced that it was planning to "euthanize" 30,000 stranded mustangs because there's not enough money in the budget to keep them. Madeline Pickens came forward and offered to save them, yet so far, the BLM has not permitted her plan to move forward.

Many of these horses should not have been taken from the land in the first place, and in my travels across the country, I have learned that if there's one thing Americans are happy to spend their tax dollars on, it's the preservation of wild horses. They understand that our greatest road trip car is not called the Mustang for nothing and what it says about us if we can't take care of the real thing. To that end, a new bill was recently introduced to make sure that the wild horse has a permanent home on the range. It's HR 1018 and it's coming up for debate on the House floor soon. “We need the tonic of wildness,” Richard Nixon said, quoting Thoreau when he signed the law. “Wild horses merit protection as a matter of ecological right – as anyone knows who has stood awed at the indomitable spirit and sheer energy of a mustang running free.”

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Meet the author of “Mustang” at Copperfield’s Books

Critically acclaimed author Deanne Stillman comes to Copperfield’s Books, 138 N. Main St. in Sebastopol on Thursday, May 14, at 7 p.m to sign her latest book, "Mustang: The Saga of the Wild Horse in the American West" (Houghton Mifflin).

"Mustang" is a narrative nonfiction history of the wild horse on this continent, from prehistory through the present, with chapters about Cortes and the 16 horses that launched the conquest; the Battle of the Little Bighorn and the horse that survived it, and the ongoing war to wipe out the wild horse by way of massacres and round-ups. The LA Times named "Mustang" a "best book 2008," and it’s a winner of the California Book Award silver medal for 2008. It has gotten great reviews in the Atlantic Monthly, Orion, Economist, Seattle Times, NPR's On Point, and many other places. Michael Blake ("Dances with Wolves") calls it "stunning" and the late Tony Hillerman called it "remarkable."

Stillman began work on "Mustang" in 1998 after learning that 34 wild horses had been gunned down outside Reno at Christmas time. At the time, she was finishing up her book "Twentynine Palms: A True Story of Murder, Marines, and the Mojave," an LA Times "best book 01" which Hunter Thompson called "A strange and brilliant story by an important American writer." There was an arrest in the horse massacre; three of the accused were Marines and one was stationed at Twentynine Palms. Having grown up around horses, Deanne was drawn to the story. She spent 10 years on the wild horse trail, following it across time as it evolved in North America, went extinct and returned with conquistadors, partnered with Native Americans, fought our wars, blazed our trails, and continues to serve as our greatest icon of freedom.

"Mustang" has been a driver in the grassroots campaign to preserve wild horses and burros and is one of the things that led to the introduction of HR 1018, the new bill that seeks to expand wild horse and burro protection for the first time since 1971. Stillman has been traveling the country since her book was published, and has learned that when it comes to the mustang, most Americans agree: we must preserve our heritage.

Stillman will also be appearing at Readers’ Books in Sonoma on Tuesday, May 12, at 7:30 p.m.

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Meth Abuse Cost to Society - Billions of Dollars

Societal Cost of Meth Use Is Gauged in New Study

"It's destroying families; it's destroying our schools; it's destroying our budgets for corrections, social services, health care. We're losing a generation of productive people. My God, at the rate we're going, we're going to have more people in jail than out of jail in 20 years.“ - Montana Gov. Brian Schweitzer

By ERIK ECKHOLM
Published: February 4, 2009 in the New York Times

In the first effort to calculate the national price of methamphetamine abuse, a new study said the addictive stimulant imposed costs of $23.4 billion in 2005. While the authors, from the RAND Corporation in Santa Monica, Calif., caution that many impacts were difficult to quantify, their study suggests that methamphetamine takes an economic toll nearly as great as heroin and possibly more.

Methamphetamine was named the primary cause of some 900 deaths in 2005, and the report estimates that premature mortality alone cost $4 billion. Its abuse has spread from Hawaii and rural areas of the West and South since the 1990s, slowly expanding to the Midwest and the East. In the process, it has wreaked havoc on addicts’ physical and mental health and on their families.

Federal surveys suggest that the share of Americans using the drug in a given year has stabilized, at about 1 percent of the population over age 12, which is far higher than the rate for heroin but half the rate for cocaine. About 400,000 Americans are believed to be addicted to methamphetamine, but a rising number are smoking it rather than taking it orally or snorting it. Smoking brings a faster, jolting high, quicker addiction and more ill effects.

The study is part of a project at RAND to evaluate the costs of drug addiction, financed by the National Institute on Drug Abuse and directed by Rosalie L. Pacula, co-director of the Drug Policy Research Center at RAND.

Extra financing for the report was provided by the Meth Project Foundation, a private group that seeks to prevent young people from using methamphetamine.

Dr. Wilson Compton, a division director at the National Institute on Drug Abuse, said the study’s major innovation was its effort to quantify the effects of addiction on the quality of life — how factors like poor health, anxiety and paranoia shrink the addict’s horizons and pleasure over time. Such estimates have been made for heart diseases and other major ones but not for illegal drugs, Dr. Compton said.

These intangibles proved to be the largest costs, with an estimated price of $12.6 billion. Other major costs included $4.2 billion in crime and criminal justice, $904 million for endangered children put into foster care as a result of parents’ use, $687 million in lost productivity, $545 million for drug treatment, $351 million for health care and $61 million for injuries and deaths at exploding meth labs and for cleaning up the toxic wastes they produce.

Because of the difficulty in pinpointing the role of methamphetamine in crime, medical care and other factors, the RAND researchers gave a range of estimates, saying the overall toll may be as low as $16.2 billion or as high as $48.3 billion.

Several potentially major costs were not factored in because they could not be measured. These include, for example, the burdens imposed on the families and friends of addicts, and the burdens of children who are not taken into the foster system.

The study is available on the Web at methproject.org.

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