We urge you to hold off on reaching out for that Starbucks latte this Thursday and Friday. In our neighborhoods on the north side of Chicago, we have many other choices, including local roasters/retailers Intelligentsia and Bow Truss. Please patronize them instead.
Earlier in the week, Starbucks founder Howard Schultz decided to get selfishly political when he encouraged his employees in a letter to write "Come Together" on customer's cups on Thursday and Friday this week. This note is to serve in reference to the looming fiscal cliff in Washington that Schultz, of course, would like to see confronted before the taxes automatically increase and spending cuts go into effect in January if nothing is done.
It's not surprising that Starbuck's Chairman and CEO wants to see a compromise in Washington. After all, far too many of his customers over-spend each day for a latte from Starbucks with money they don't have. If their taxes go up, perhaps they'll downgrade to, gasp, a drip coffee in-store – or maybe even have to press the button on their brew machine at home.
Schultz's political statement to employees really should not be looked at with any dose of irony. It's completely appropriate. We believe that Starbucks is the poster child company for representing the vast amount that individuals spend on a personal basis for unnecessary items compared to what they can actually afford. If folks have to pay more in taxes (to pay down the debt that the government has already spent on their behalf), they'll spend less for a fancy coffee they can't really afford in the first place.
Put another way, we can and should blame Starbucks as one of the retailers responsible for the average household credit card debt of $15,956 (according to a study by creditcards.com based on households that hold at least one credit card). Moreover, like individuals that overspend money they can't afford on extra shot no whip lattes, our government has continued its incessant spending habits on far too many military and social programs (for which it can't fund without going into debt) and has failed to consider entitlement reform in the context of current revenue and spending discussions at the levels which need to be put on the table to put our country back on track.
The situation is dire (although in the next few years it's possible to not fully address it and keep punting the debt ball down the field – to a point). But as we wrote in a recent editorial, the more we explore the debt situation, the more we're afraid of not jumping off the cliff. We further observe in this op/ed that:
We'd sooner sacrifice our own growth as a business and face a downturn next year and in 2014 than wait for what's coming if our gut forecast is correct. Japan has stopped buying our debt, and China is slowing. Who else will want it? Burma? At a certain point, especially once Europe and Asia rebound, we can chase sources of low-cost production, but we can no longer chase buyers of our debt.
For this reason, we should welcome a near-term Cliff-inducing recession, given the dangers – even to those impacted by the type of immediate spending cuts that the Fiscal Cliff will bring in January – of doing nothing over a decade's time.
As we recently wrote in the forthcoming January edition of Surplus Record, those who don't want to go over the Cliff – or at least make some type of severe spending reductions while supporting tax increases – should ask themselves the following questions:
- Are we prepared for 20% inflation and the impact it will have on borrowing, inventories, etc.?
- Can we afford continued upward commodity price pressure in a period of slacking global demand?
- What would 25% general unemployment look like and 50% youth unemployment in the US (these are the precise figures facing Spain as of December 2012)?
- Are we prepared to accept a period of sustained civil unrest (e.g., rising crime levels, mob violence, etc.)?
As a CEO and big business executive, Harold Schultz wants the government to keep spending because he wants you to keep spending. But neither household nor government deficit spending is sustainable at the levels of the past. We encourage you as employees and shareholders in our business to make a statement that you care about the debt and continued careless government overspending by boycotting Starbucks Thursday and Friday.
Yes, we want a compromise in Washington. We want to see higher individual taxes and significant reductions in spending (along with lower corporate taxes) to create sustainable economic growth in the long run. But a tawdry political statement by the ultimate purveyor of an expensive luxury good -- a $1K per year Starbucks habit is fairly easy to achieve with regular visits -- does no one any good. Except perhaps Starbucks shareholders over a short-term time horizon and executives that are compensated largely on near-term stock performance.
So please stay away from Starbucks the rest of this week. Send a message just as their baristas have been told to do. But do so knowing that what this nation needs is not a short-term caffeine fix (AKA further deficit spending) but rather a fundamental rethink of how to maintain sustained energy and growth by creating a balanced budget and paying down our debt.
- Jason Busch and Lisa Reisman