Walla Walla Tri-Cities Update
Yakima
Quarterly
NEWSLETTER
Beyond Brexit
The United Kingdom’s
(“UK”) vote to leave the
European Union (“EU”)
on June 23 represents
a major change in the
global economic order.
This article explores the
change that took place
and why it may turn out to
be a very important historical event that shapes
the future of international
trade and cooperation.
World Wars I and II
served as a wake-up call
to the world that something needed to be done to stop international conflict. The
cost of conflict was simply too high. It was in part the terrible
destruction of the World Wars and forceful diplomacy from
the US that resulted in the beginnings of what was to become
the European Union after World War II. The origins of the
European Union were driven by the intersection of a determined effort to prevent war and an effort to rebuild shattered
economies. Given the origins of the EU, it is safe to say that
the EU has been a tremendous success for the past 70+ years.
War, for the most part, has been avoided and the European
economy has rebuild itself into an economic force rivaled only
by the US in terms of size.
Many, many regional free trade agreements (FTAs) followed in the footsteps of the EU, including the Association of
South East Asian Nations (ASEAN) FTA, Andean Community
FTA, and the North American FTA (NAFTA). The list goes on
and on. There are hundreds of FTAs. Some are between two
countries (bilateral), some are between three or more countries
(multilateral), and some are FTA to FTA or FTA to individual
country. Unlike the EU, however, these agreements have their
origins in a desire to increase economic competitiveness and
economic gain.
The economic theory behind international trade goes back
several centuries to Adam Smith in the late 1700s and David
Ricardo in the early 1800s. The conventional wisdom since that
time has been that there are gains from trade. Broadly speaking, most data does seem to support that countries that trade
are more economically successful than countries that don’t
trade. This is one reason that international trade agreements
have been proliferating.
Understanding where gains from trade come from can
be complex. It is useful to think of a very simple example.
Imagine an isolationist economy, in this case an economy that
is represented by a single person. This individual makes her
own shoes, bakes her own bread and forges her own metal
goods. She would likely be a tired, grumpy person with ugly,
uncomfortable shoes, dry, tasteless bread and poor quality
metal goods. Imagine instead a more efficient economy with
a cobbler, a baker and a blacksmith. If they focus on what they
do best and then trade with each other, then you can expect
that they will all produce more shoes, bread and metal goods.
The shoes will be very comfortable and will come in a range of
styles and colors. The bread will be delicious and will come in
French, sourdough, and gluten-free form. And the blacksmith
will produce the straightest, strongest nails and fasteners for
making better and better goods. All these goods will be made
at a lower cost. There will be more time and money for innovation. They will hire more people. The economy will grow and
all participants will be better off.
This is an overly simplistic example, but it shows the thinking behind how trade can boost efficiency and productivity
and yield a better outcome for all participants. I’m describing
a world where the pie grows for everyone. It’s a world where
growth of one country’s slice of the global economic pie doesn’t
need to come at the expense of another country’s slice. It’s also
a world where the benefits of trade can be offered as a carrot to
those countries that maintain reasonable working conditions
and follow international environmental rules.
This is the model of economics that has been the order
of the day since World War II. Trade deals have often been
controversial and drawn protests from organized labor, but,
in the end, many have passed and become law and many more
have been proposed, including the Trans Pacific Partnership
(TPP). Recent economic history has seemed to be an inexorable march toward more and deeper economic integration
and freer and freer trade.
This is why Brexit appears to be a very important moment
continued on page four
page one | beyond brexit by john cunnison
page two | a man, a can and a plan by brian bruggeman
page three | the first step to leaving a legacy by peter allen
summer 2016
a man, a can and a plan
It was the spring of 2010;
I was just getting accustomed to life in Walla
Walla after moving from
my hometown of San
Diego, CA. I had lived
in San Diego for my entire life and I had grown
accustomed to certain
things. Perfect weather
for close to 350 days a
year, the Pacific Ocean,
easy access to professional sports, etc. were
all things that I was giving up for the pleasures
of living a in small town.
However, there was one thing that I definitely did not expect
to give up: recycling.
As kids, my sister and I would save our soda cans, even
soliciting our relatives for their empties. Once a year, usually before a family trip somewhere, we would spend hours
in our garage stomping those cans to fit as many as we could
in garbage bags. My dad would drive us to the recycling center where the bags were weighed and we would be paid out
in cash. It was usually a good haul for a 10 year old. I would
guess that I averaged around $100 each trip.
Fast-forward to the fall of 2010 and you can understand my
consternation that not only was there no place to recycle cans
for profit in Walla Walla, I actually had to drive somewhere
to recycle them! I did a little research and found that there
was a recycling center in Milton-Freewater where you could
redeem cans and bottles. I made a mental note that the next
time I had a reason to go to Milton-Freewater I was going
to take my garbage bag of crunched cans to the Safeway and
collect my bounty.
A few weeks later, after a late afternoon meeting with the
branch manager of Baker Boyer’s Milton-Freewater branch, I
drove across the street to the Safeway and realized I had a big
problem. I had not looked into the exact method that the recycling center used to count the cans. The machine required
that each individual can’s barcode be scanned, one by one.
Well, I do not know if you have tried to “uncrunch” aluminum cans before, but it is not particularly easy. About 5 minutes into it a recycling center regular asked, “Hey man, who’s
the fool that crushed all of your cans?!” He smirked when he
heard my answer.
I cannot remember the exact number of cans at which that
the machine stopped me and limited my redemption, but at
this point, I was frustrated. I offered them to the man sitting
next to the machine and he begrudgingly accepted the task
page two
of “uncrunching” the remaining two hundred or so cans. As
I turned to leave he said, “I’ll tell you one thing, I’ve been sitting out here for 15 years and I have never seen anyone in a
suit trying to recycle this many cans!”
Funny story, but what is the point? I attended a conference
recently where the speaker asked a question and requested
that audience members shout back the first thing that popped
into their mind. The question was, “How do rich people become rich?” Some of the responses from the audience were
“hard-work”, “luck”, “focus” and “instinct”. He then asked,
“What causes poor people to become poor?” Those responses
ranged from “laziness” and “lack of focus” to “bad luck” and
“lack of opportunity”. The point the speaker was trying to
make was not to determine which statement was correct. He
was demonstrating that we all carry around stories that we tell
ourselves about money and those stories have a profound influence on how we behave. The speaker made the case that by
the time we are ten years old, these scripts are already firmly
rooted in who we are. Clearly, my experience with my father
and sister of recycling cans created a story in my head.
We all carry thoughts and feelings about money in our
heads. They manifest themselves in all sorts of different ways.
Many who have experienced financial insecurity as a result of
job loss or periods like the Great Depression maintain their
frugality long after they have achieved a level of financial
security that would allow them to responsibly spend more.
Many have inherited money that was a great blessing and
have every intention of passing that blessing to the next generation. Still others have seen money create family problems
and have a distrustful, uneasy relationship with wealth. The
stories themselves are neither good nor bad, they just are.
In my role as Financial Planning Manager, I help clients
construct financial plans that fit their unique circumstances.
Underlying every plan I design is a client’s money story. It is
impossible to design a financial plan that a client will stick
with if I do not understand their personal money story. Personal money stories affect behavior and tendencies. A financial plan that acknowledges those behaviors and tendencies is
useful and very valuable.
As Peter mentions in another of the articles in this Update,
the only way to get a better understanding of your story is to
start having a conversation around the taboo subject of money. If you aren’t already talking about money with those impacted by your financial plan, I encourage you to start. Like
recycling cans in a suit, there is some vulnerability required
for it to be valuable and it might be somewhat embarrassing,
but it will surely yield a better return.
brian bruggeman
Assistant Vice President | Financial Planning Manager
[email protected]
the first step to leaving a legacy
When I was a kid, I remember asking my father
how much money he
had. The answer, predictably was: “It’s none
of your business.” I too
have utilized this reasoning with my own children. For instance, when
my sons stare at a plastic
light sabre and ask me to
buy it for them, I say “Did
you bring any money?”
They inevitably say, “No,
but you have money!” To
which I respond, “True.
I have money. You have
nothing but 53 cents in tooth fairy cash. My money is none
of your business. No light sabre for you.” Grumbling and
muttering then ensues. I imagine that this is a fairly common
conversation that parents have with their children throughout
our communities. After all, it is fairly common knowledge
that there are four things that you aren’t allowed to talk about.
What are they you ask? See if you can guess. I’ll wait…Ready?
The four things that no one is allowed to talk about are Politics,
Religion, Sex and…Money. Did you get them all? IS that right?
More importantly, should it be right? While I won’t get into
Politics, Religion or Sex, I would make the argument that our
failure to talk about money, and the expectations around it, is
the single largest obstacle to people sustaining a family legacy.
Have you ever heard the term “From shirtsleeves to shirtsleeves in three generations?” John Davis, faculty chair of the
Families in Business Program at Harvard Business School,
has stated frequently that, “research shows that family money
rarely survives the [wealth] transfer very long, with 70 percent
evaporated by the end of the second generation. By the end
of the third? Ninety percent.” A Wall Street Journal Article
published in 2013 cites a study by the Boston College Center
for Retirement Research that approximates that two thirds of
baby boomers will inherit family money over their lifetime to
the collective tune of an estimated $7.6 trillion dollars. Trillion.
With a T. 70% of $7.6 trillion is $5.3 trillion dollars spent, 90%
is $6.8 trillion dollars. That is a lot of legacy lost.
The same article also cited researchers at the Williams
Group, a family wealth consulting firm. Their study asked
2,000 affluent families about the causes of erosion of family
wealth. Was it taxes? Bad investments? Fraud? Nope. 60
percent of the time it was said that a breakdown in communication amongst family members was the largest cause. 25
percent cited the reason that families failed to prepare heirs
for the wealth that was coming to them. In all, 85 percent of
the families surveyed placed the primary blame of their failure to secure and pass on their family legacy on the failure of
themselves to talk about their wealth in some capacity.
No one is saying that these discussions are easy. Family
legacies are comprised of many things, among them family
wealth, expectations of older generations of younger ones, family histories, education about the family business and finances,
charitable expectations and family dynamics. However, not
having these conversations where family objectives and shared
understanding is developed almost certainly means the demise
of the family legacy. This is far too great a loss just because it
was taboo to talk about it.
These discussions are vital to building and maintaining your
family legacies, and if you are not comfortable starting them,
ask your advisors to help you. Baker Boyer is a 6th generation
family company that not only has helped our clients have these
conversations, but have them regularly ourselves. I strongly
implore you to make the number of things you aren’t allowed
to talk about one fewer. It will be worth it for generations to
come. Take the step. Now about those politics…
peter allen JD, CTFA
Executive Vice President | Asset Management
[email protected]
page three
continued from page one
in history. It represents a significant reversal in what has been
mainstream economic wisdom. Many economists warned
British voters prior to the referendum that a vote to leave the
EU made no economic sense, and yet, that is exactly what the
British people did. Why?
The reason is that ordinary, working class Britons did not feel
that they were gaining from trade. They may have understood
that the country as a whole enjoyed gains from trade, but they
felt that the gains from trade were going to immigrants, other
Britons and other countries, not to them.
The other reason that it could prove to be a very significant
historical event is that Britons have sent a message through
the ballot box that is clearly resonating beyond Britain in other
countries and economies around the world, including the US.
A very important question that Brexit raised and that will be
answered over time is this: will Brexit serve as a cautionary
tale to other countries and serve to teach them not to “go it
alone” or will it embolden electorates around the world to
reject politicians who support free trade?
Time will tell, but we are already hearing a more isolationist
tone in the trade rhetoric coming from both major political
parties in the US. Many people are aware that manufacturing jobs have been declining for some time, and that trend
certainly plays a role in the anti-trade rhetoric of the current
presidential campaign, especially when speeches are given
in battleground manufacturing states like Ohio, Michigan,
Wisconsin and Pennsylvania. According to the The Economist
magazine, the manufacturing job loss trend began in earnest
in 2000, about the same time as a surge in Chinese imports,
but detailed studies suggest that only about 1 million of the
5.5 million U.S. manufacturing jobs lost between 1999 and
2011 were due to Chinese competition. So, what has caused
the other 4.5 million lost manufacturing jobs? A big factor is
technology, which is a topic for another article.
The reality is that many people in Britain, the US and around
the world do not feel like freer trade is in their interest. What
tends to be missing from political discussions of trade is a clear
articulation of the gains that have been achieved as a result of
trade, including more jobs in non-manufacturing sectors and
lower prices on all matter of goods. If gains really do accrue to
trading economies, and there is significant evidence that they
do, politicians jeopardize one of the greatest tools to reverse
the current slowdown in economic growth when they pursue
isolationist policy because it’s the sound bite of the day.
The reality of international trade is nuanced and not fit for
a politician’s sound bite or tweet. The costs and benefits of
trade are complex, but it is vitally important for the health of
the global economy that we don’t point to international trade
as the root cause of all job insecurity. International trade will
likely create more jobs than it destroys, but, as Brexit has taught
us, none of that matters if people don’t believe trade is in their
interest. If we want to avoid the next Brexit, we would be welladvised to ensure the gains from trade are felt more broadly
and those who bear the costs of trade are well-supported.
john cunnison
Vice President | Senior Portfolio Manager
[email protected]
Walla Walla Tri-Cities Yakima
walla walla
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