So Long Twinkie!

This week we learned of the soon to be demise of Hostess food brands. A union strike protesting cuts from a company in bankruptcy forced that company to call it quits. About 6700 employees represented by the union will lose their jobs and another 12,300 not represented will also be on the wrong side of the door. In this economic climate...do we really believe labor is a rare commodity?


Hostess isn't the only one making large cuts in workforce to survive the perceived regulatory onslaught by the current administration. There are dozens of others currently announcing cuts and soon will be dozens more. (A more comprehensive list can be found here) Now, can this be attributed directly to Obama? No, but...He has surrounded himself with a group that is ideologically opposed to a capitalist societal structure that demonize the rich. Unless of course those rich are supporters of their cause.

Running a business breaks down easily. Money coming in must be greater or equal to that going out. Preferably greater than. No one will invest in a company that does not make them a reasonable return. There is only one entity that decidedly operates this way...the government. The only reason they get away with it is because they need not ask for investment..they merely take it.

Let's take a brief look at the day to day dealings of a business and break it down so the morons can understand it. Say we make computers, No..scratch that, let's make it even simpler than that. Say we make paperclips. If we look at a quick business model, it'll illustrate the costs associated with running a business.


First you need a plant. Say that plant costs $100 million. Your going to need capital investment and those people are going to want a dividend. let's say 6%. So $100 Million X 6% = $6 Million in interest, that's if someone is willing to give you $100 Million @ 6%! So, that loan (capital investment) for 40yrs would have a payment of $550,210.36 a year or $45,850.86 a month. Add energy costs, which by the way have been fluctuating wildly, and we'll see another $50-100 Thousand a year. For the sake of being frugal, let's make it $50,000 a year or $4166 a month. Here comes the raw material we need to make those paperclips! Steel coils, that have to be pulled (resized) down to paperclip size. Raw steel right now is going for about $400 ton. Finished steel coiled rod goes about twice that or $800 a ton. There are about 1000 paperclips in 1 pound so, by my rudimentary math, that's 2,000,000 paperclips per ton, to put this in perspective..this is about 1/2 a pallet of paperclips. Most companies are going to expect a large first order, so let's get 10 tons of steel coil for $8000.

Before we've even made one paperclip, we've already incurred a monthly bill of $58,016.86!

Ok...now to get those paperclips made, we're going to need labor. Every added cost is a commodity, so we'll try to get this as cheap as we can too. Machine tenders, machine mechanics, office staff, general labor...most successful businesses try to keep labor to about 25% of overall monthly costs. Using this model we can expect a number of $14,504.22 for labor. Still ain't made a paperclip yet...all those people still have to be trained. We're currently looking at $72521.08 per month...and we've yet to make a dime back.

Ok...now we bring in the government. At least they are nice enough to expect their taxes quarterly...but...regulatory costs kick in immediately. Workers comp insurance, Unemployment insurance, Social Security employer percentages..not to mention costs to have people come in and make sure that the handrails are the right height, all guards are in place on machines, government MANDATORY energy saving measures are in place and all employees have been hired per government standards. These cost are currently unmanageable because of this current administration's failure to lead. By law, Obama and his ilk were to put out a list of intended regulatory agenda, which it did not. So, investment in American business will be put on hold until the unknown is known.

Now..fast forward 20 years. People have retired...now the company also incurs legacy costs. Fast forward 50 years and now the retired outnumber the employed. The company paid good benefits when it was the other way around, but now carry unproductive costs. Labor costs go from 25% to 50%. Current union officials decry cuts..stating the rich investors have the cash to carry a company even if that company fails to produce a dividend. The investors see it differently, no dividend, no investment...no investment, machines become antiquated and break down, no capital to fix and the company withers and dies.

This is easy. Why is this so hard to understand? I'm sure that all the wonderful liberals out there have a pink and rosey outlook on how capitalism works..but it's really cut and dried.

Money coming in must be greater or equal to that going out. Preferably greater than. No one will invest in a company that does not make them a reasonable return.

That's my two cents, spend 'em or put 'em in the dish for the next person.