The malaise of American Labor

Major Newspapers have devoted the off-season of major news to Article series about the rise of Bankruptcies and wide Income swings currently generated in the American economy. The Articles are basically fill-Copy, and do not analytically study the references. This Post will attempt to bring a clearer picture.

The major cause of instability of American Households remains loss of the security net common prior to the 1970s. Most Economists would protest this account, but the loss of the security net devolves through Corporate escape from taxation, the switch from One-Income to Two-Income Households, and the reduction of individual Labor real Income--adjusted for inflation. The final element resides in Corporate abandonment of Blue-Collar Labor.

Economists extol the 1963 Tax Cuts, most notably the real shift from Corporate accountability. Corporations suddenly found independence from valid Tax rates upon their Income, and soon could envision the profits of abandoning policies of Employee security--previously a method to escape Corporate taxation to the benefit of the Corporation. They did not have to pay the Tax, so who cared about a protected Employee. Successive Tax Acts all contributed to Corporate escape from provision of Employee security. Health insurance, Pension benefits, security from Layoffs and Downsizing all became historical legend, as Corporations sought Profits untaxed and safe from both Government and Worker.

The switch from One-Income to Two-Income Households had drastic effect in the American economy. The Labor force suddenly increased by about 60%, with long-term impact on real American Wages. Starting Wages slowed in real growth, unspecialized Labor stopped in terms of real growth adjusted for inflation, and Benefits reduction became the easiest means to reduce real Wages--as their reduction was least noticed. One-Income Households, especially in Blue-Collar and unspecialized Labor trades, became unviable in terms of provision of sustaining Household expenditures; the term of real Working Poor was truly born, where these Households could not pay for medical services, debt-free Consumption, or save according to financial and Economic formula viability. Young laborers could not manage, except by prior education or Parental assistence--both heavy expenditures to their parental Households.

The fiinal straw was the Corporate transfer of production off-shore, destroying the American Blue-Collar Workforce. Corporate Profits pursuit meant unspecialized American Labor was disenfranchised. Corporations would accept American production, if and only if it expressed the high Profits ratio which Management demanded--they refused to accept a 5-10% Profit per Unit, insisting on a 20-30% Profit per Unit; with unspecialized American Labor destined to be wiped out. It did not matter that this Country did not have, not could ever produce, sufficient specialized Labor positions to employ the American Labor force, even if they developed the required Specialization skills.

Corporate Executives and Economists like to imply American Labor must accept this destruction, as they are the result of immutable Economic forces in the World. They are not! They are, in fact, only the artificial creation of a Special Interests heavily-financied lobbying effort to rewrite American Tax law to their own benefit. The gains of the Era of Unionized Labor, circa 1930s-1950s, can be replicated. American Tax law could state that Corporations could not activate any tax credits or tax concessions, unless they contributed at least half of Employees' salaries to Health and Pension benefits; Corporations which did not produce at least 60% of their Product on American soil being prohibited from any exercise of any tax credits or tax concessions at all. Corporations which did not fulfill their Employer obligations would go back to paying a 40% Tax rate, instead of a current real tax rate of 7%. lgl

Tariffs have received poor acceptance among Economists, ever since the Great Depression. A great deal of this disrupte can only be considered deserved, but much of the polemic far exceeds the actual damage which Tariffs impose. The Author has just read an Economic Working Paper:


Tariffs and the Great Depression Revisited¤
Mario J. Cruciniy James Kahnz
August 5, 2003

It was basically a defense of their earlier Paper which stated:


In our 1996 Journal of Monetary Economics paper, we made the following
arguments:
1. Effective tariff rates during the 1930s were higher than their apparent
nominal rates because of deflation.
2. Because of the importance of material inputs in traded goods, the impact
a given tariff rate could be magnified because of the impact on productive
effciency.
3. There was substantial retaliation from foreign countries in their tariff rates.
4. Consequently, even a neoclassical equilibrium model with flexible prices
and no other distortions suggests that tariff increases of the order of magnitude
that took place in the 1930s could have resulted in substantial
declines in output.
5. Though large enough to look like a modest recession, these model-calibrated
output declines are only on the order of one-tenth the magnitude of the
actual declines that occurred during the Great Depression.

Their current Paper asserted basically the same rationale, though utilizing modern Accounting models to get the same prognosis. Their use of the Armington assumption (1969) of imperfect substitution of Trade product and materials remains doubtful, connected to analysis of complete inelasticity of Labor accross Countries--Trade being the basic elasticity of Labor accross Countries.

The heart of the Argument they advance holds true, in that Tariffs are only marginal to Flow forces within an Economy even under the worst of economic conditions. The Economic bais against Tariffs in favor of Free Trade stands as irrational, and artifically prohibits valuable tools for economic policy. lgl

The failure of Socialism

Tyler Cowan posted commentary on his blog with link to a Book Review he had written. This Author finds both Book and Review to be more confusion than edification, not being intrinsically knowledgeable about the 'socialism calculation debate'. The real relevance found was in the questions posed by Cowan:

1) Under what conditions do free markets fail in calculating?
2) Under what conditions(if any) can planners succeed in calculating?

Free markets will always fail when the element of Risk is removed. Corporate leadership, even within the Cowan-cited GM, have had substantial losses--in both Sales and Profits. This has occurred because Corporate management is inadequately threatened by Stockholders(not fired) when sustained losses happen, and Corporate management reliance on Production and Price schedules independent of the Market, relying on Advetising to generate Sales. It is at exactly this point where Corporate management most closely resembles central planners--thinking they dictate Consumer Demand.

Central planners can never succeed in calculating, but not for the rationale stated (?) in the socialism calculation debate. Central planning fails not because of a lack of Market signals, but because of failure to develop Consumer Demand: remember Consumer Demand consists not only of desire for Product, but the ability to pay. Central planners lack perception that Consumers must develop an individual resource base for continued Consumer Demand. Cowan remarks about the lack of incentives in central planning, but implies this applies only to the production managers. It holds true for Consumers above all else. lgl

Population

This Author has just finished reading the Becker-Posner blog on Population and Economic Growth, at http://www.becker-posner-blog.com/index.html. The Author tends to agree with Posner, but not for the same rationale--though the Posner argument tends to be effective.

The recent Tidal Wave, with over 70,000 dead and rising, explains the Author's thesis in a nutshell. Overpopulation brings overutilization of Land, where Housing and Production facilities are placed within high-risk areas. The recent disaster is only a blatant example. The Tidal regions of the United States are overpopulated, and as is the Mississippi valley and other River areas. Water is not the sole culprit areas threat. Mountain, Forest, and Drought scrub areas are threatened by Fire. Huge population concentrations exist in Tornado channels. Florida is only a Hurricane waiting to happen. Population density in all described areas remains too large--reconstruction of destroyed Property yearly drastically discimates economic growth. The effect is only compounded among foreign nations, who do not have the Recovery resource assets.

Overpopulation without proper sanitation was found to be the major cause of the Bubonic plague, not just in Europe, but from it's origin in China through the Near East to North Africa. There have been many Proposals (without collaborating evidence) that clearing Forest and Swampland allows many harmful Agents like Ebola and HIV to enter the human chain. It is positively known that clearing the major Forest and Swamplands removes the traditional methods for reducing harmful increases of Carbon levels on the Earth surface.

Economists are quick to point out the advantages of Population growth, but stand silent on the disadvantages of Population increase. There is the vast overdraft of Resources, alongside the loss of traditional Tradecraft--ecologically balanced productivity versus huge Carbon-burning mass production efforts. The sheer Population demands huge Food supplies, inciting diseases like 'Mad Cow' because of cannibal Feed practices. Products lose durability and quality, due not only to mass production, but also to the Wealth-aggragation motive of Producers needing protection for their families in times of resource shortage.

Telling Human beings they cannot live is not an option. Praying for Disasters to reduce human population is also not an option. We must live with the humanity which is brought to this shared Earth. There remains the option of educating People to limit family size, and reduce use of exotic medical care which lengthens Life though worsens quality of Life. lgl

Financial Report Y2004

This Author has only begun to skim the Report( with Intent to eventually read it), but finds some disturbing factors. There has been increasing momentum since the start of the Bush administrations to alter established Accounting methods throughout the Government structure. Undertaken as professed streamlining and search for greater accuracy of reportage, most alterations suggest transference of burden elsewhere--hiding the transfer of fund expenditure from established programs to Administration agenda expenditure.
============================

The final results show a reduction of the accrual-based net
operating cost versus an increase in the budget deficit. This $89.5 billion closing of the gap between the two results
is almost entirely due to a $108.5 billion reduction in the rate of increase in accrual-based cost for pension, health
care, and disability liabilities for civilian and military personnel, and veterans.


The liability for veteran benefits actually decreased in 2004 by 3.1 percent. The decrease was due to a
refinement in the experience assumptions used at the VA to estimate the liability for compensation for male veteran
beneficiaries.
In fiscal year 2000, Medicare and Social Security were about even. It is interesting to note that,
by 2004, Medicare has grown to a level about twice the level of Social Security.
below, the estimated Social Security cost has been growing at a steady pace of less than 10 percent in all of the last 4
years and less than 7 percent in the last 3 years. On the other hand, projected Medicare responsibilities have been
growing at a much faster pace. Parts A and B have increased by over 15 percent in 3 of the last 4 years and by over
60 percent in 2004 with the addition of Part D.

================================
The closing of the gap between accural-net operating costs and the Deficit could have only been accomplished by reduction of Government liabilities in established Pension-style funding. The DOD is transferring much of their liability to Medicare, begruding Pension and Disability payments to their own personnel, while increasing their basic Outlays for lush military/industrial company contracts; these Instruments and their funding not even sufficiently supplying actual Troops in the field in Iraq and Afghanistan. It is a disgrace to admit a decrease in Veteren benefit liability when Troops in the field incite increased need for Widow and Orphan benefits, medical facility needs, and greater Disability benefits.

The Administration will probably insist they are simply adjusting methodology of Benefit payments for better Accounting, but They are either not providing proper Benefits, or they are artifically inciting Medicare and Medicaid increases to propel support for a shady policy initiative of this Administration to Privatize Social Security--certain only to generate revenues for Fund managers of at least fifteen billion dollars over thirty years. lgl

Crisis Group Middle East Report N°34 22 December 2004
WHAT CAN THE U.S. DO IN IRAQ?

A fair and balanced effort which uses non-statistical polling of Iraqis through Interviews. It provides true insights into the American effort in Iraq.


events since the occupation have
reinforced latent distrust while dissipating much of
the early goodwill


failure to restore
law and order and prevent widespread looting in the
war's immediate aftermath, the deployment of
inadequate numbers of troops, excessive use of force
in populated areas, over-reliance on Iraqi exiles and
heavy-handed selection of the country's leadership,
the Abu Ghraib prison scandal, wholesale dissolution
of the army and indiscriminate exclusion of senior
Baath party members, insufficient and inefficient use
of reconstruction funds, and marginalisation of the
Sunni Arab community, among others. . . .
As a result, U.S. missteps are largely
viewed as intentional, its statements as hypocritical,
and its supposed undeclared agenda (long-term
domination of Iraq) as responsible for the armed
opposition's violence.


Many compare the time it is taking with the spectacular
recovery produced by Saddam Hussein after the 1991 Gulf
war. Crisis Group interviews in Iraq, April 2003-September
2004.


Uncertainty about the future reportedly has led some highlevel
officials to protect their personal interests. As one Iraqi
explained, the expression "ani moo abu taweela" -- literally, "I
am not among those who last" -- increasingly is being used by
ministers and senior officials to justify graft. Crisis Group
interview, Baghdad, September 2004


Evidence of insufficient numbers of troops
abounds. Thus, the fighting in Najaf up to late August 2004
required participation of troops from as far away as Mosul,
creating security vacuums in other areas, such as Latifiya,
which armed insurgents quickly invested. A military analyst
also remarked on the connection between troop levels and
reconstruction efforts: "there are insufficient military resources
to even keep contractors safe".


a U.S. statement of intent to remain in Iraq for a
prolonged period of time has become virtually
unsaleable. In other words, even though the
administration may still have considerable military
and financial resources at its disposal, its ability to
expend them is critically limited by its dwindling
political capital. As for proponents of a rapid
withdrawal, they, too, fail to take full account of the
existing context.27 Given their extreme frailty, Iraqi
institutions would probably not survive a precipitous
disengagement, handing the insurgents a significant
victory. A swift withdrawal also could imperil broader
U.S. interests in the region and further destabilise the
region as a whole.


a U.S. statement of intent to remain in Iraq for a
prolonged period of time has become virtually
unsaleable. In other words, even though the
administration may still have considerable military
and financial resources at its disposal, its ability to
expend them is critically limited by its dwindling
political capital. As for proponents of a rapid
withdrawal, they, too, fail to take full account of the
existing context.27 Given their extreme frailty, Iraqi
institutions would probably not survive a precipitous
disengagement, handing the insurgents a significant
victory. A swift withdrawal also could imperil broader
U.S. interests in the region and further destabilise the
region as a whole.
=================
The Report implies that the American effort in Iraq has already failed, and this Author concurs. He disagrees with the Report, in that he calls for immediate withdrawal of American forces. Iraqis now view American presence as Occupation, rather than Liberation. Iraqi society retains its sectarian construction, making the creation of national parties impossible, the best scenario would be creation of a Confederation--much like that of early American history, or the Swiss cantons. The current situation is counterproductive to American interests, as it portrays American policy ineptitude alongside of popular American resentment of American Casualties.

Precipitate American withdrawal could even be to American advantage. It might even be to American benefit if such a Withdrawal brought on an Iraqi Civil War. The United States cannot gain any International support for the current Occupation. The vacuum created by American evacuation would propel Islamic intervention, if not an International effort. Any failure in the Iraqi context thereafter would excuse American difficulties, and reestablish American prestige. lgl

SS Private Accounts

Generation of Debate over Private Accounts grows exponentially, as the time approaches for the return of Congress. The entire Scenario resembles a B-Movie horror film. Certain Observations should be advanced:

1) Almost Everyone agrees Private Accounts will not guarantee the level of Benefits existent under current law, even if they meet the growth goals of an overly-optimistic Commission.

2) The majority of Economists do not expect Stocks to continue the rate of Return expected by the Commission. This Author actually estimates that Private Accounts based solely on Bonds would do better than a mixture of Stocks and Bonds.

3) The Hip over Private Accounts forestalls actual statistical analysis of relevant data. This Author's solution states that Congress should table the entire Issue until the last year of the Bush Presidency, when promise of Political favors will least affect any decision on such an important Issue.

4) Bush's refusal to consider any Tax hikes anywhere guarantee disservice to all Americans, who will have to reexamine any passed Legislation because of innate instability.

5) Private SS Accounts, if including ability to acquire Stocks, will only worsen the balloon existent in the current Stock Market, whose current P/E ratios are unsustainable.

Modification of the current SS system remains the only viable Option. The Author has already presented two Proposals on this Site to alter the SS system in a sustainable manner. Americans should understand that as long as Seniors have political effect on American politics, a viable retirement system will have to be paid for. Efforts to distract from such payment only means additional cost to all American Labor. No Economist has yet stipulated what exact increase in FICA taxation would be necessary to cover the projected Shortfall--prime idiocy under consideration of whether to keep, or reject, the current system. Political Hip must be abandoned for rationale analysis, before Americans have a valid retirement system. lgl

Steel

Todd Zaun and Wayne Arnold had a fine article in the NYTimes today about rising Shortages in the supply of Steel worldwide, due to the booming American economy. It missed the primary point which impacts Americans. Japanese and Chinese are locking up iron ore, coking coal, and steel-making capacity worldwide, through long-term Contracts or actual facility purchases.

American and Euro have not joined in the Bidding frenzy, and it will be to their hazard. Both Regions will have to duplicate the Steel production capacity being lost through Japanese and Chinese acquisition, and then go looking for spare coking coal and iron ore. It will be especially difficult for Americans to acquire, due to the Great One's spending habits which are depreciating the Dollar. lgl

Alternate Social Security Plan

The Author previously gave a Social Security plan which proposed the Social Security Fund co-opting the banking system, thereby giving Social Security a source of income other than FICA taxes. The downside of the previous Plan was getting it enacted. Congress and President would have to surrender their right to spend the funds generated by FICA on their own personal agenda. It is still the real long-term solution to funding Retirement, though, and requires only Voter threats to hang Congressmen, Senators, and Presidents from Trees to get it passed.

A milder form of Social Security reform can be organized which avoids the perils of Privatization--with its assured loss of Benefits, and retaining the current System without its long-term deficit and Benefits slide. It can also avoid linking Benefits to Prices instead of Wages--another long-term Benefits slide. The Change is a simple rule adjustment in the collection of FICA taxes.

The current system of FICA tax collection collects equal amounts from Employee and Employer. Many Economists attest that Business passes such taxes to the Consumer through higher Prices, but the transfer is not completely perfect due to the potential loss of Sales. Employers are reimbursed, though, as they are allowed to deduct FICA taxes as Expenses. Employees and Consumers, on the other hand, are spending too much and Saving too little, accounted by the increases of Consumer debt.

Increasing FICA taxes on Employees will destabilize Household incomes drastically, except for the potential of raising the limit on such taxation to the mid-Six figures. What would happen if the Employers were required to pay 1.8 times the rate of Employees? Interesting things begin to happen. Consumption declines under Consumer Price increases, while Savings ratios increase as Consumer debt is paid down. Employers pass on the tax increases to the Consumer, causing the reduced Consumption and higher Savings ratio, and are protected from overt loss by the deductibility of FICA taxes as Expenses.

The Economists start to howl at this point, saying such means a downturn of the economy; but does it? Business soon learns it wants to maximize Sales under the new system. It also finds it is cheaper tax-wise to hire two Employees making $40,000 per year, than it is to hire one Employee earning $80k per year, as they are paying 1.8 times a 6.25 FICA tax rate. The need for Sales impels desire to get Cash within the hands of Consumers, the best way remains a higher Employed Labor force in the United States. Domestic production suddenly finds greater allure, while concentration on intense Productivity loses fascination.

Conclusion: This is the Author's own loose projections, and highly imperfect(think suspicious). Consumer Price Index will increase by 8% under such increased taxation for Employers, while Consumer debt will decrease by 28% after 3 years. Consumption will resume at current levels, after addition to the American Labor force of 7 million Workers. Wage demand will decrease or reverse, as Workers come to expect slower Wage growth--and become accustomed to a more moderate lifestyle. Government welfare transfers will decline as more Workers are employed. Imports will decrease to a point where the Trade deficit starts to disappear. The standard of living actually begins to increase with a wider spread increase. The most important final point: the Social Security Fund will not run into deficit, while Retirement Age and Benefits can be maintained. lgl

Economic Truths

The current administration has been, and will remain, a Corporate Executive on leave style of administration. It stands as standard fare among Corporate leadership that increased Public debt depreciates the Dollar, and that a devalued Dollar will lead to greater Exports. It has the added value in that Corporate and Business concerns escape taxation, and can avoid financial-Cost communal responsibilites. They end by being allowed lucrative Government supply contracts, where Contract provisions are not well monitored, and excess Cost increases are ignored. Corporate leadership claim patriotic zeal in the evasion of Corporate responsibilites. This outlined stance by Corporate leadership contain real seeds of destruction.

Corporate leadership feel justified in turning to foreign production for materials, Parts, and Product; this all based on the maximization of Profits--claiming the virtue of the free market system. The first statement must be that it is not a free market scenario. The current matrix of tax accounting and regulation actually discriminates against domestic production, which has to bear the social costs evaded by foreign production or importation. Corporations are allowed to deduct their foreign production costs from domestic taxes like domestic production, paying no equal social cost taxation as does domestic production. It is not a level playing field for domestic production.

Such state could even be accepted, if benefit actually accurred to the American economy. The facts, though, speak otherwise. Domestic production has been lost solely due to lower Wages and social costs of foreign production. Corporate rheutoric proclaims lower cost to the American Consumers, but is it? Increased Unemployment has suppressed Wages, except within the sector of hig-tech industries, said factor to be explored later. American Consumers can be deluded by the lower Consumer prices, but they pay higher Income taxes, Property taxes, and Sales taxes with a suppressed Wage framework; the formula for increased Consumer debt, higher framework Costs--Energy, Communication, and Food, with less resilence in their economic foundation. Americans gaze into a future of loss of Standard of Living, if the Dollar devalues without increase in Exports.

Will Exports increase? The answer is No! Business and Corporation concentrate on the high-tech production, because of the high Profit ratios--rationale for the increasing Wages within this sector. Basic domestic provision of Product--for which most American labor are trained to furnish--is lost to foreign production; this transfer simply due to previously acquired higher standard of living. The Unemployment incurred destroys those gains, magnifying the social costs involved. Domestic production costs escalate with higher taxation--and need to scale back current labor force.

Will devaluation of the Dollar help? No! The economic boom enjoyed by less-developed Countries derives from sale of Product to a non-producing United States. The current matrix of American Exports are high-tech Products to a relatively saturated foreign market stream, which will not markedly increase American Exports acquisition because of lack of current need and high cost even with Dollar devaluation. These same Countries lack the economic reserves of the United States, and would close their markets to less-tech Product lines due to the need to employ their own labor force. Total actual quantities of American Exports will not increase by any real percentage(maybe 7% per year), not sufficient to keep pace with the increase in American Imports.

Conclusion: American economic performance will increase only with return to domestic provision of basic American Consumer Products. Imports should be taxed in such manner that it affects Corporate and Business profits, not overburdened American Consumers. This transition demands a stable Dollar to acquire materials for domestic production from foreign sources. The United States Government must stop spending in deficit of revenues. This end can only be accomplished by cancelation of lush Government supply contracts, reintroduction of effective Business and Corporate tax rates through elimination of Tax credits, Investment credits, evasive tax accounting, and plain tax evading movement of untaxed Funds overseas. lgl

The Current State of the Military

Current activity in Iraq seems destined to disrupt U.S. military readiness within a year, if remedial action is not taken with the return of the Congress. One-third of the 950,000 force has or will be going to Iraq a second tour of duty within the new year. National Guard and Reservists are slightly more likely for such a second tour. U.S. Policy, if left unaltered, will greet all of this Personnel with a third tour the year after.

The United States continues to spend military appropiations never seen in the World Wars, Vietnam, or ever before. All the Funds, though, go to expensive Weapons development whose Weapons are not for domestic pacification, Counterterrorism, or countering guerilla movements. Military supply of basic Troop field equipment to Iraq is abysmal. The Military are sending Troops off to their second tour in Iraq not fully equiped for the hazards involved, or for proper hazard reaction.

Rumsfeld states the problem remains inability of American industry to provide the equipment in a speedy and timely fashion. Bullcrap! The GAO states the Defense Dept. will not coordinate proper Supply acquirement and deployment with proper management controls. Real truth states military funds are going to high-tech companies for unusable Weapon systems, simply because these Companies supported the Bush political aspirations from the start. The Defense Dept. simply does not provide sufficient funding for the basic necessities needed by the troops in Iraq.

A Rand Corporation study for the Military suggested the National Guard should take over much of the Counterterrorism activity domestically. They suggest more National Guard and Reservists be pulled away for 'full-time' duty in performance of these duties. This Personnel are Week-end Warriors, who chose this form of duty, rather than the regular military, to avoid horrid interruptions in their family and work life. The current Administration treats them like they were regular, main-force troop complements.

The American people do not need a new 'Star Wars' weapon system for their protection, they need five more activated regular motorized Infantry divisions. These divisions, along with the other active Divisions, need to be fully-equipped. We need to do this, before We have to start asking for a fourth, or fifth tour in Iraq out of Our Regular and Week-end Warriors. lgl

Retirement and the American Worker

Data used comes from:


6thAnnual Transamerica
Small Business Retirement Survey
Summary of Findings
December 14, 2004
Final sample sizes and related precision levels (90% confidence)are:
!601 Employers, ± 3.4%
!1201 Workers, ± 2.4%

Employer-funded Retirement plans are losing ground--especially fast among small Employers (Only 23% of small companies offer this type of plan in 2004, compared to 32% in 2003.) 78% of Employees report their Companies offering a Employee-funded plan--73% offering 401(k) plans. Employee involvment in such plans range in the mid-70s percentile, with two-thirds of the remaining Employees planning future enrollment. Workers average contribution to their Retirement plan averages 8%, with about 37% contributing over 10%. Most Employees (at least 50% of all Workers, over 80% of Baby Boomers) state that Company Match into the Retirement plans is important.


The majority of workers expect the U.S. economy to stay the same(28%) or get better (45%) in the next year.!However, male workers are significantly more likely to feel it will get better (53%) than female workers are (35%).–Even more workers feel that their personal financial situation will stay the same (35%) or get better (57%) in the next year.!As with the economy, females are less likely than males to feel their personal finances will improve in the next year (51% vs. 61%).!

Employers overwhelmingly feel they are meeting their Obligations toward their Employees' Retirement plans, while Employees are less confident. Employees feel excellent benefits are a greater inducement than high salary alone, while Employers are less likely to possess this attitude. Health insurance still remains the benefit most desired by Employees, and understood by Employers. Employers overvalue giving Employees investment options, while Employees want more financial disclosure about their Retirement plans.

The majority of Employees do not rely on their Retirement plans alone, but invest in other venues for their retirement. Most Employees do not use rational (systemic) planning to compute their Retirement needs. Almost all Employees also expect to retire with more accumulated assets than their current retirement savings would seem to indicate--possibly indicating their outside financial planning is relatively large, disputing standard Economic expectation on American Savings ratios.

it could be that Americans' failure to save is caused by mechanics, not morals. At least that is one conclusion of a recent paper by four economists: David Laibson and James J. Choi of Harvard and Brigitte C. Madrian and Andrew Metrick of the University of Pennsylvania. (NYTimes, Daniel Gross)

The above cited article says participation rates in 401(k)s increase significantly, if participation is made the default choice. Labor is not against saving, nor are they spending animals; they simply feel Investment decisions should be made for them, by Professionals. One Economist cited in the article, PROFESSOR LAIBSON, suggested income tax rebates should be automatically channeled into Individual Retirement Accounts.

This Author adopts another stance: suggesting standard economic modeling does not reflect modern Household savings methods. Standard models consider Housing purchases as consumption, while most Households today purchase Housing above natural Rental costs--as a long-term investment. High numbers of Households invest in Mutual and Index Funds, which Economists discount as Savings--accounting as Venture risks, while Households think of these Funds as differianted Bank savings accounts paying higher Interest rates. The proliferation of franchise Business forms are Household attempts to locate higher-paying forms of Savings. Economists, and their Models, are simply behind the times. lgl

The attack on Oil

Bin Laden, or a potential double, called for an attack on the transmission of Oil to the West. Western Analysts suggest bin Landen is full of it, and only attacks upon the financial infrastructure could truly damage the American economy. This remains a very stupid attitude. Saboteurs blew up Iraq's northern export pipeline for the second week in a row on Saturday, halting oil flows to Turkey's Ceyhan port, oil officials said.
A bomb that exploded overnight blew off a section of the twin pipeline near the oil center of Baiji, they said.(AP) The Pipeline was designed to transmit 500,000 bpd to Turkey. Another domestic oil pipeline was hit near Baiji on Saturday, the latest in attacks that have crippled operations of refineries and helped to create severe shortages of fuels, especially in Baghdad.(AP) New York price for sweet crude was $46.80 Friday, when stockpiles and delivered Consignments suggest Oil price around $34 per barrel truly reflective of Supply conditions (Author's own estimate).

The Muslim World after 9/11

ANGEL M. RABASA CHERYL BENARD PETER CHALK
C. CHRISTINE FAIR THEODORE KARASIK
ROLLIE LAL IAN LESSER DAVID THALER

Arabs constitute only about 20 percent of the world’s Muslims, yet interpretations of Islam,
political and otherwise, are often filtered through an Arab lens. A great deal of the
discourse on Muslim issues and grievances is actually discourse on Arab issues and
grievances.

the decentralization of religious authority in Sunni Islam, which
makes it vulnerable to manipulation by extremists with scant religious credentials

Tribal conservatism—a cultural and not a religious feature—and religious
extremism can be mutually reinforcing. In the absence of countervailing forces—for
instance, a strong central authority—they produce a mix that, in the words of a Kuwaiti
interlocutor, "leads to bin Laden."

support networks have been key nodes in the funding and operations of extremist and terrorist groups.

Radical madrassas (Islamic boarding schools) from Pakistan to Southeast Asia have
been one of the main sources of personnel for radical movements and terrorist
groups. Despite the importance of madrassa reform, few concrete plans have emerged
to design and implement specific changes in these schools, and little consideration
has been given to how they fit within the broader reform of public education systems,
which can help produce more desirable economic, political, and social outcomes.

A complementary element of the strategy of supporting secular or moderate Muslim
organizations is to deny resources to extremists. This effort needs to be undertaken at
both ends of the funding cycle.

Militarily, the United States faces a need to reduce the more obvious aspects of its
presence while working to increase different types of presence, e.g., intelligence, psychological
operations, civil affairs. In some places in the Muslim world, this will
mean continuing to reduce a heavy (and politically sensitive) forward presence and
instead seeking to support operations from consolidated regional locations.

Ungoverned areas throughout the Muslim world, from isolated portions of Indonesia
and the Philippines to large tracks of Afghanistan, Pakistan, and Yemen, can
become havens for extremist and terrorist groups. Political and economic stabilization
in such areas will reduce opportunities for extremism and terrorism to take root.

Some U.S. intelligence and diplomatic capabilities in parts of the
Muslim world have atrophied in the past two years as a result of redeployment to
other areas of this region.

The Report is excellent in identification of all the Problem areas, and totally deficient in adequate Solution proposals. Moderate Muslim elements cannot associate with American presence without being condemned not just by Extremists, but by the general Muslim public. It proposes further American presence in the Arab world though lower key, when such presence only provides targets and condemnation propaganda for Extremists. Tampering with religious madrassas would led to call for greater violence, through charges of corrupting Muslim youth. The United States needs to demand 'Equal time' on satellite Islamic media, rather than try to suppress Extremist access to such media; We need to discount their propaganda with our own effective propaganda, based on revelation of Our own cultural family life. We need to engage Tribal leadership in dialogue, not supplant it with a alien strong central authority.

We need to counter the impact of Terrorist ideology in Islamic society, not try to change Islamic cultural and social patterns. We will fail, and face increasing violence due to overt American interference in Islamic society, until We learn the proper approach to the Islamic peoples. lgl

Recessive Conditions?

Labor income grows below the rate of Inflation over the last year--2.4% compared to an Inflation rate of 2.7%(EPI). The slow expanion of Wages seems due to the slack Labor market, while the American economy spent about 5.6% more than it produced in the third Quarter, some $1.8 billion per day(EPI). Import of Goods and Services was 54% higher than Exports in the third Quarter. A basic Products Chain, Family Dollar, reports Profit skidded 14% in third Quarter despite increasing Sales, because of a Consumer shift from discretionary items to more basic need Products (AP). Circuit City's same-store Sales fell 4.3% over the previous year period(AP). GM is reporting disappointing December Sales--traditional large Sale month. The Bureau of Labor Statistics reports real disposable Family income declined 0.4% in November, identical with the decline in October, making two months in a row where it declined while 'core' consumer prices rose 0.2% each month.

The decline in the Dollar--47% against the euro since Febuary 2002--has not even slowed the growth of the current accounts deficit:

"Firms that get the greatest value from outsourcing aren't those whose operations shops can't deliver in America; it's the ones that already run a lean op shop here and know how to calibrate incentives to customer needs and reap gains from going to India. They achieve shorter times to market and can add on to existing product lines."

The Quote, from 'Offshore Outsourcing: What's Working, What's Not', clearly expresses Outsourcing comes not from American Labor inefficiency, but sheer Corporate and Business desire for marginal Profits. These marginal Profit gains probably do not exceed an approximate $200 billion per year, but generation of such Profits maintain all the troubles of the American economy listed above.

It seems time to alter a traditionally American policy of 'Free Trade' at any cost, and start to impose a Imports tax to curb such Outsourcing for marginal Profits. lgl

The IRS

The Internal Revenue Service can arguably be stated to be the greatest revenue generator in the World, holding this position for decades. The sheer magnitude of Cash flow would make anyone think the IRS possesses State-of-the-Art financial management systems. This has never been the case. Here are some excerpts from GAO reports:


Projects continued to incur cost increases and schedule delays for
several reasons, including inadequate definition of systems
requirements, increases in project scope, and cost and schedule
estimating deficiencies. Cost overruns and schedule delays impaired
IRS’s ability to make appropriate decisions about investing in new
projects, delayed delivery of benefits to taxpayers, and postponed the
resolution of material weaknesses affecting other program areas.

The Y2005 IRS budget to Congress reflects a portfolio reduction of 37% from Y2003(means a lower IRS budget to implement programs).


Over a trillion dollars in income
was distributed in tax year 2002 by
flow-through entities, such as
partnerships, subchapter S
corporations, and trusts, to their
partners, shareholders, or
beneficiaries, respectively. The
Internal Revenue Service (IRS)
estimates that from 6 to 15 percent
of such income is unreported on
individual tax returns. This income
is reported to both IRS and to the
recipients on a Schedule K-1 (K-1).
IRS uses K-1 data in its documentmatching
program to identify
noncompliance and for other
purposes


IRS has the capability to identify employers who
file wage statements with inaccurate SSNs but does not have a dedicated
compliance program for penalizing them.
the criteria for meeting the reasonable cause waiver
is such that few if any employers are likely to be penalized for filing
inaccurate SSNs. IRS has no record of ever penalizing an employer,
including the employers who were contacted during IRS’s review of
"egregious" employers.


In a nationwide selection of
413,723 businesses applying to sponsor immigrant workers from 1997
through 2004, GAO found 19,972 (5 percent) businesses and organizations
that were unknown to IRS. Information like this can be used to select
taxpayers for audit or other enforcement efforts.
GAO found that 67,949 (16 percent) businesses
applying to sponsor immigrant workers from 1997 through 2004 did not file
one or more tax returns. Failure to file a return could be relevant to a CIS
adjudicator’s decision about whether a business meets the financial
feasibility (ability to pay wages) and legitimacy (proof of existence) tests for
sponsoring an immigrant.
GAO is making a recommendation
to the Secretary of Homeland
Security and the Commissioner of
Internal Revenue to assess the
benefits and costs of data sharing
to enhance tax compliance and
improve immigration eligibility
decisions
========================
Such activity makes the United States Government a laughingstock, adjudged by All as incapable of systematic action and direction. Walmart possesses the Information processing to determine exactly what their Customers desire and wish to buy, based upon past purchase trends. GM can trace route Operational funds throughout the World, from resource acquisition to Operating Consumer credit funds for purchase of multiplex Product lines. The IRS cannot identify huge operational outleys of major Employers in the American economy. They cannot accurately define day-to-day financial transfers out of the Country. Many would acclaim this to be the best state, where taxing agents are befuddled. The trouble resides in the fact ordinary Taxpayers must make up Shortfalls in unreported Income and Profits, either by higher taxation or increased debt. lgl

Energy--Achilles Heel?

Our Country endures a huge Trade deficit, a horrible percentage of which is Oil and Gas importation. The Bush and Oil industry desire to drill in the Alaskan Reserve seems dubious, as the Reserve represents proven Oil reserves which can only appreciate in value over Time, making Alaska the true Strategic Oil Reserve. Drilling technology will only improve over time, and the Government should be funding new Energy technologies of all types--a far greater need than the Proscription Drug law in a period where the Private sector can still finance their Drug needs (just barely). Our real long-term need remains Energy sourcing.

There are Short-term improvements which can be made:

1) A Federal law stating American new Make cars must meet the highest Fuel Consumption standards anywhere in the World, which are currently being met by their own domestic car industry. Failure to meet these standards shall be a fine of $1000 per mile per vehicle produced under the mileage rate of the highest Fuel Consumption standard.

2) A Railway law which refunds the rail system, especially the rail car complement. The Law should dipulate that sunken and covered Track should run in the center between all Interstate lanes (two lanes--for alternate direction simulataneously). Railway cars should be designed to accomodate one or two Semi Tractor-trailers, along with Sleeper and Lunch cars. Quick-time loading and unloading facilities are to be built at every major city along the Interstate routes, and twenty car maximum train length alongside of insistence of a train heading in each direction every four hours(or upon full booking--meals and sleeping compartment free with the freight charge). Total Funding--$3 trillion over a decade.

3) Geological survey of all closed Oil fields with intent to determine if they could be reopened utilizing new technologies at Cost competitive with World Oil Prices.

4) Fund search for a new Gas substitute formed by industrial process from modern waste carbon. Landfills could be recycled, and weeds and excess foliage could be used ( the Author once suggested algae tanks in the Oceans).

5) Use of City block central Hot Water heaters run on cheap fuel, and built on projected usage, with connection with other Block heaters to cancel downtime.
==========================
Each of the above measures have a potential of canceling one-tenth of the foreign Oil and Gas imported at the minimum, and can cut the potential Energy bill much further. Long-term energy policy must develop a Gas substitute culled from the surface--whether sewage, waste products, or grown Carbons. The Author is enamored of a liquid plastic computer-dispenced through carbuation, which could get 300 miles per pint. lgl

The weakening Dollar

We face a crisis in currency stability. Foreign central banks are purchasing Treasuries to maintain their own GDP levels by maintaining Sales to the United States. Truth states that the U.S. Trade deficit cannot be resolved by increase of American Exports. American industry must make the switch to provision of primary Goods for the domestic market. This will reemploy American labor, and is the only means to truly stabilize the Dollar. American Public and Consumer debt will decrease under this alteration.

Government policy must be directed to this end, before the American Peso becomes reality. The Author proposes an immediate Import tax of 10% on all Imports, Parts and whole Products, collected by State Sales tax assessment agencies--for 2% of total revenues collected. The tax on Parts for Assembly will be collected by the IRS, where the whole Product was sold to American Consumer.

Such Tax will not violate Our Trade agreements, as it is assessed across the Board, and can be attributed as an Infrastructure Access tax. All of Our major trading partners will perceive the necessity of this restraint, and few will criticize; Dollar viability remains a higher viability factor than short-term loss of Imports. American Imports will not decline rapidly, as American Consumers are too addicted to Imports, and American industry will take time to change over to domestic production. This taxation will reduce States' indebtedness as well as reduce the Federal deficit remarkedly. The Author would desire this taxation be implemented 01/01/2005, but should be on the books by 03/01/2005. Simple statement of Intent would stabilize the Dollar in the interum. lgl

Universal Health Care--Cheaper?

The Author has long been considering the Health Care Costs problem in the United States. He has come up with a radical program, which could really cut Health Care costs with Everyone benefiting.

Universal Health Care Plan

1) Everyone to be insured by Social Security number, unless they specifically opt from the program. (Those with ability to pay must pay premiums commisserit to cost).
2) Doctors will be sold SS numbers in a Bidding system, with Actuaries defining actual costs by Age. (Doctors will retain their Patients in subsequent years, if acceptable to both Patient and Doctor; if they accept the premium level demanded by Government Actuaries.)
3) Doctors will pay all Costs for their Patients--all medical procedures, Drugs, Hospitalizations, Emergency Care, Home Care, medical equipment, medical Specialists, etc.)
4) Doctors will pay a yearly premium per Patient into a Malpractice and Extreme Cost Fund maintained by the AMA, from which they can borrow for exteme levels of Care Cost--they must make repayment from their receipts. (The Federal Government could provide some funds to this self-insurance by Doctors, upon clear need.)
5) The AMA Fund will hire Lawyers (yearly Salary) to defend Doctors in malpractice suits, and to negotiate wholesale Drug prices for Doctors. Actuaries will be hired to negoiate with the Government, and provide bidding information for Doctors. They will also compile a suggested list of Fees for medical Specialists. They will be paid a yearly salary from the Fund.
6) Doctors will be allowed complete freedom to determine the course of treatment and diagnosis for every Patient, knowing that overuse of Drugs, diagnostics, or treatment facilities will result in diminished Income for themselves.
7) Government Actuaries will determine Patient premiums based upon the expected Cost of health care plus a percentage amount allowing Doctors a projected Income between $100-300k, with the acquisition of 1000 Patients.
8) Government will Sunset Medicare and Medicaid, replacing the Previous with the new Universal Health Care Plan. It will determine the base Income level past which Patients must pay their own premiums for inclusion in the Program--this as true for the Elderly currently on Medicare as for young Workers.
9) There will not further Government funding of Health services or medical facilities--except on Case-by-Case expressed need.
10) Uninsured Patients will be charged for all Emergency Care.

The Author expects Health Care Costs to reduce radically to some point, and then increase only as the rate of overall Inflation. The rationale for this belief lies in the AMA Fund negoiating effective Wholesale prices for their membership from Drug manufacturers, medical equipment manufacturers, and medical Specialists. Government Actuaries will insist one Cost-realistic Patient premiums being paid to the Doctors. Actual medical care will reduce to that necessary for maximization of health in the Patients--at least Cost with the Doctors footing the bill for any excess. lgl

The Federal Debt

The spending levels of the Federal Government defy effective description, while Democrat as well as Republican, talk only of additional Spending. Present rates of of expenditure insist on sale of almost $60 billion worth of Treasuries per month. Bush, through his policies, has already scheduled this amount to be increased, and intends for more to be added. No one in the Beltway even suggests a Cutback in any program, and all propose more.

(The following Quotes all come from 'October 13, 2004 EPI Briefing Paper #153')

The historically low level of current revenues must be considered in light of the sharp rise in payroll taxes since 1959. The creation of Medicare and increases in Social Security benefits were the primary reasons that payroll taxes swelled from 2.4% of GDP in FY1959 to 6.3% in FY2004 (see Figure 2). In 2004, individual income taxes are expected to decline to 7.0% of GDP, lower than any year since FY1951. As a source of revenue, corporate income taxes have eroded from about 4% of GDP through 1970 to less than 2% in recent years.

Federal spending (excluding interest) has expanded from 16.1% of GDP in 2000 to 18.4% in FY2004 (CBO 2004c).

In January 2001, the Congressional Budget Office (CBO 2001) projected 10-year cumulative surpluses of $5.6 trillion between FY2002 and FY2011. Putting aside tax cuts and spending increases since 2000, budget analysts have revised their assumptions and believe that the 10-year surplus estimate should have been $2.2 trillion.2 The CBO estimates that under current policies, with tax cuts extended as promised by the Bush Administration and the congressional majority, the 10-year outlook is now for a cumulative deficit of $4.5 trillion. Thus, policy changes in the past three-and-a-half years have caused the 10-year budget balance to decline by $7 trillion, an average of $670 billion a year.

With expiring tax cuts extended and the AMT fixed on a modest scale, revenues would reach just 17.6% of GDP in 2014

The CBO's baseline for total spending remains within a few tenths of a percent of 20% of GDP throughout the next decade, 2.5 percentage points above the level of revenues with prevailing policy in 2014 (CBO 2004c)

The Bush Administration's budget proposal of February 2004 specifies non-security discretionary spending levels only through FY2009, the next five years. It calls for NSD spending to increase by only 1% nominally over five years, despite expected inflation of 11% and population growth of 5% over that period

If NSD spending does not grow with population, in real per capita terms it would fall to $1,499a drop of 21% relative to present-day levels.

Simply allowing NSD spending to keep pace with inflation would require additional financing equivalent to 3.2% of GDP in 2014. Cutting NSD spending enough to achieve a balanced budget without changes in current policy on taxes and other spending would require NSD spending of only 1.2% of GDP in 2014.

The CBO projects that entitlements will remain under 12% of GDP for the next decade. After that, the combination of the retirement of the baby boom and the escalation of health care costs will cause entitlement spending to rise substantially relative to GDP. Over the next 75 years, the projected expansion is between 10% and 15% of GDP (CBO 2003).

With 2% productivity gains and gains in potential output of 81% over three decades, the working-age population could "sacrifice" relatively modest contributions to the elderly to meet the projected costs for retirement benefits and still enjoy rising after-tax incomes.

Historical experience shows the implausibility of balancing the budget with revenues at only 17.6% of GDP. Total spending is now running at 19.8% of GDP and has exceeded 17.6% every year since 1965 (OMB 2004). Over the past two decades, the ratio of federal spending to GDP has averaged 20.7%.

Historical experience shows the implausibility of balancing the budget with revenues at only 17.6% of GDP. Total spending is now running at 19.8% of GDP and has exceeded 17.6% every year since 1965 (OMB 2004). Over the past two decades, the ratio of federal spending to GDP has averaged 20.7%.
=======================
Can the American Economy sustain Federal spending in excess of Federal revenues of 2.5% of GDP ad infinitum? The Answer is No! Sheer accumulation of such Funds to borrow would require a bureaucracy of Thousands Worldwide (a foreign bureaucracy) simply to get their hands on the Cash, which current Policy-makers expect them to lend to Us. They might ask eventually, "Why should We lend the largest Economy in the World some 2.5% of their GDP yearly? Why don't We spend it on Our own economic development?"

We could answer that We need the money, but they might ask why We need the money. Our sole answer to this secondary question would be: "We don't want to tax Ourselves as much as you do Yourselves, because We do not want to pay for Our own existence; it is much nicer for Us if We can live above Our means, by suggesting you live below your means. It does not matter that convincing evidence exists denying the theory that Deficit spending propels economic growth, We would rather spend than pay Taxes. lgl

Is Bush all there?

Bush announced there is an unfunded $11 trillion liability in the Social Security program, but that he will not allow FICA taxes to be raised. He proposes instead to push Private accounts, which will take another $1-2 trillion from tax receipts. His Tax Cuts previously have made it more profitable for American Business to Import rather than Produce here, vastly decreasing FICA tax receipts while ruining the U.S. Trade balance. AP reports:

Non-petroleum import prices increased 0.7 percent last month after falling 0.1 percent in October, marking the largest increase since January's 0.8 percent gain. Over the last 12 months this series has risen 3.4 percent, the strongest annual gain since September 1995.

The price of petroleum product imports fell 2.6 percent after 11.6 percent gain in October for the largest decrease in over a year. On an annual basis, petroleum import costs are up 60.4 percent.

The Dollar is sliding, and will continue to slide with unfunded Federal spending and an American Trade deficit. Bush cannot be permitting this for American products to sell at cheaper price in
foreign markets, as the markets for American Products where they are competitive remain semi-totally saturated. I feel an impulse to mention We have a Trade coefficent less than 0.03, which is a measure of the likelihood of Trade expansion, where a coefficent of 0.05 or greater is necessary to increase Trade Exports in terms of real Product expansion in Sales, not simply Dollar increases.

The unfunded liability of the Social Security Fund is only going to increase, unless COLAs are eliminated from the system. This will rapidly erode the program goals of the system, which was assurance that Senior citizens will have enough to live on. Social Security Private Accounts will reduce FICA taxes substantially, creating a debt load which would not be incurred until 2040, if the system was left untouched. Debt Service in incurring the Debt now, rather than in 2040, will increase the unfunded liability by at least $400 billion. Most Economists agree Private Accounts will not gain sufficiently in total Value to even pay for the Debt Service on the incurred Debt: the Stock Markets are already overinflated with Dollars due to the tax advantages currently existent. Bush deficit spending with sale of Treasuries to foreign central banks is unsustainable even through the end of the next Presidential term. We talk about Nero fiddling here! lgl

Do Funds Drive the Markets

Funds exist everywhere throughout all markets today. Are they beign?

"Funds are like flocks of geese,'' Nick Moore, global commodities analyst at ABN Amro, said, adding that the funds would stay in commodities but could now ride the market downturn by buying ``short'' to capitalize on lower prices."

The Dollar gained today against almost all Currencies, and Metals slid, "The dollar showed its first signs of life against the euro in weeks, prompting funds to pull out of metals as key price points triggered sale signs on automatic systems. (AP)"

Oil production is as high as ever seen, and American Oil stocks are higher than the previous year. What is driving the Price hikes? The posit can be made that Funds are using Scare tactics to drive the Markets in the direction desired, and Fund managements are in collusion through use of the News services to initiate directional movement.

Is this important? The Author filled up his truck for $1.84 per gallon today, while he paid $1.42 per gallon last year, though there is more sweet crude Oil in American stock than a year ago. He is also paying $1.74 per gallon, which was $1.26 per gallon in March. This though March was at the end of a hard winter, this beginning of a mild winter, and heating stocks are larger. The American people are paying about 30% more for their energy consumption this year over last, while there is no discernable rationale for it except the Buying and Selling strategies of the Funds. lgl

DOD

Anyone connected with the Dept. of Defense previously in life understands the complexity of bureaucracy, acknowledging the military form as being the most virulent. A penchant for Paper and Reports ensures no one can find anything. The GAO attempts repeatedly to bring order to federal agencies, but the Military may be functionally defined as intransigent. The GAO has produced two recent reports, one on military disbursements, and the other on Defense Inventory improvements. They can sound like 'an Accident ready to happen', but actually; things have been improving for years. Here are some profound Quotes from the Reports:

In our prior work on MILPERS budgets, we found that the obligations
reported at the end of the appropriation year were not always disbursed as
reported. In researching some of the differences, we also found that the
services’ obligation reviews for the 5 years after the obligations were made
could not identify the changes at the same level of detail as that used in
the budget request to Congress. Moreover, the reports used for the review
did not provide information on where the funds were moved or an audit
trail to the disbursements.
===========================

Department of Defense (DOD) has worked to achieve full visibility over and accessibility to its spare parts inventory. This initiative, called total asset visibility (TAV), aims to provide timely, accurate information on the location, movement, status, and identity of units, personnel, equipment, and supplies.

While total asset visibility (TAV) has been a goal of DOD’s since the early
1970s, target completion dates of 1980, 1995, and 2004 have not been met.
In fact, DOD’s target date for achieving TAV has slipped by nearly 30 years,
most recently being moved from fiscal year 2004 to fiscal year 2010.

we recently reported that DOD experienced logistics management weaknesses during the build upand early phases of Operation Iraqi Freedom due to inadequate asset visibility. These weaknesses are similar to those experienced during Operations Desert Shield and Desert Storm.

as Operation Iraqi Freedom began, a number of asset visibility weaknesses contributed
to a $1.2 billion discrepancy between the material shipped to Army activities in the Iraqi theater and the material acknowledged as received. While Army officials believe that this material was received in theater, lapses in asset visibility, in some instances, resulted in units cannibalizing major equipment items, submitting duplicate requisitions, and circumventing the normal supply systems to obtain needed parts.
===============================
Does the above information frighten? It should not, it is the normal Military procedure of "Situation normal, ...................." What should frighten is the fact there are multiple Warehouses existent, filled with WWI and WWII inventory goods, which the DOD cannot sell for Army salvage because they cannot find the proper paperwork. The DOD finds itself unable to identify all Military property (land) owned in the United States--not foreign. Do not worry about Our troops in the field, though; there are a probable five requisitions for every military item, and generally one or two get filled. lgl

Productivity

Productivity will always reduce when new Workers are hired, their inexperience produces at s much slower pace than those kept specifically for their productivity. It can also markedly reduce from lack of Production orders. Data on Production Orders have been slow lately, not reaching the Public with the speed of Boom times. Government and Economic Surveys can be quite slow in Output as well, especially with a political interest involved.

The Christmas season starting the day after Thanksgiving has gotten off to a slow start. Some Surveys claim a gain over the previous year, some claim a remarkable loss--depending on which list of Retail stores are used. The Giants--Walmart and Target--both claim disappointing or lackluster Sales. The one element all Surveys have in common is lack of Customer Count. Some Surveys point to previous years of seeming slowness, and remark they were decent Sales seasons with Customers shopping later, even the week after Christmas. No one, though, jumps for joy over the data.

We are entering a Christmas season of special note: We are still 200,000 Jobs short of pre-recession with four more million adults; Consumer Debt stands at an all time high, with more Americans holding more mortgages than ever before; the Employment Compensation rate of increase was 2.6% slower than the Inflation rate over the last year; and the rate of Imports expansion is advancing faster than the rate of Exports expansion. The total rate of Job eliminations exceeded the 112,000 new Hires in November. Retailers shed Jobs in November, these 16000 lost Jobs were in the lower-to middle Income levels. Some might ponder whether Retailers expect a joyous Christmas season, at least not a robust one. (Information from NYTimes, Reuters, and AP) lgl

Housing and Economic Growth

A new Study out, plus a NYTimes article today, present the dilemma of the American economy:

Housing’s Impact on Wealth Accumulation,
Wealth Distribution and Consumer Spending 2004
Eric Belsky, Joint Center for Housing Studies of Harvard University
and
Joel Prakken, Macroeconomic Advisers, LLC,
remarks that,

housing remains the primary store of wealth
for most Americans. Home equity constitutes roughly one
fifth of total household net wealth. At last measure, over
two thirds of households owned a home but only about
half owned stocks or mutual funds containing stocks. And
fully six in ten homeowners had more home equity than
stock equity.

Wealth effects of real estate plainly ramp up to their long-run
effects much faster than the wealth effects resulting from
gains in corporate equities. The likely reason is the lower
volatility of home values than stock values. Households feel
more confident of gains in housing wealth and thus spend
more readily and quickly when they occur. This is consistent
with findings that the wealth effects arising from gains in
volatile technology stocks take longer to reach their long-run
impacts than wealth effects from other types of stocks
(Edison and Slok 2001).

Falling rates spark refinancings
and home sales. These in turn trigger a spurt of consumer
spending in the short run. Conversely, tightening can slow
home sales and reduce home equity borrowing. These in
turn quickly act as drags on consumer spending and slow
economic growth. Given that consumer spending amounts
to about two thirds of total economic activity, monetary
policy that contributes to it by stimulating short-term
spending in response to greater realized capital gains, higher
property values, and accelerated liquidation of home equity
can make the difference during periods of economic
weakness between a steep recession and a soft landing.

The Study is funded by a Realtors association, but the economics and math are good. Their basic argument resides in the last Quote, with the implication this stands as valuable economic policy. Several criticisms can be made:

1) Such manipulation of Interest rates propels Consumer Debt.
2) The boost to Consumer spending generated is almost universally fueled by Consumer Debt.
3) Such economic policy will incite Inflation in Housing far faster than the Consumer Price Index.
4) Consumers invariably choose Housing beyond their financially stable means.
5) Housing is such a huge component of total Capital accumulation, that it is one of the prime propellents of Inflation. This economic policy spurs Inflation by exciting Price rise in the Sector.
=====================

In Housing Sales, Frenzy Is Giving Way to Balance
By ROBERT D. HERSHEY Jr. Published: December 6, 2004

One reason for the cooling could be heavy recent speculative buying, with people acquiring houses in hopes of a quick profit without making improvements to the homes. Such purchases contributed to a 12.97 percent surge in average home prices from the third quarter of 2003 to the third quarter of 2004, the biggest four-quarter increase since 1979, when inflation began to rise at double-digit rates, according to the Office of Federal Housing Enterprise Oversight. That was almost five times the gain of other goods and services measured by the Consumer Price Index.

Current prices are at record levels in relation to average incomes, so higher interest rates would almost certainly make purchasing a home harder for prospective buyers. The low rates of recent years have helped buyers afford more expensive houses

Houses have appreciated 1.5 to 2 percentage points faster than the rise in the Consumer Price Index. With inflation at about 3 percent, the 7 percent advances in house prices in recent years are at least twice the norm.

Mortgage Bankers Association of America predicts the volume of mortgage refinancings will slide almost 43 percent next year, to $680 billion from an estimated $1.19 trillion in 2004

This Author opposed the Fed policy of lowering Interest rates shortly after George W. Bush took office. Not least in his rationale was knowledge of the above effects. Such economic policy always generates Inflation, and higher Interest rates always generates a deeper economic trough when the Bust comes, as Consumers are deeply in Consumer debt with higher and harder Repayment schedules to meet. Rebound economic growth becomes difficult, as lower Consumer spending comes from abnormal Repayment schedules and lower Employment rates. lgl

Corporate leadership missing the Chance

The NYTimes reports Corporate liquid assets are $1.3 trillion, up 20% from the start of 2003. Reuters has a link
http://www.nytimes.com/reuters/business/business-markets-forex.html, which provides data on Dollar losses:

The dollar crumbled to $1.3460 per euro (EUR-), according to Reuters data, a decline of nearly 1.4 percent
Against the yen the dollar was off more than 1 percent to 102.07 (JPY-).
Against the Swiss franc the dollar fell 1.76 percent to a new 9-year low at 1.1302 francs (CHF-). The dollar also slid to new 9-year lows against a basket of currencies (.DXY).
Sterling was up 1 percent to $1.9436 (GBP-).

Both articles mention that Business investment has dropped, and is unlikely to increase dramatically in 2005. One article even made the remark that the Unemployment rate is actually low in historic terms. It was enough to make One nausous.

Corporations have a enormous Cash reserve which is depreciating in value. American Consumers will have to start paying much higher Prices for foreign Imports. Real Unemployment, if translated into those Who has lost Jobs since 2001 and increasing number of Adults coming of Age, stands at over twice the official numbers of 2.7 million. The professed rate of investment indicated in the Business poll in the Reuters article assures not the 200,000 monthly estimated Jobs for 2005, but more on the order of 112,000 Jobs created as were last November.

American Consumers will have to switch from foreign goods to domestic goods eventually. The fall of the Dollar highlights this fact. Now is the time for Corporations to alter their production schedules to supply domestic goods for the American market. They should start investment for domestic production immediately, before they lose a substantial amount of their investment capital through Dollar devaluation. lgl

Electricity

Power Generation can never seem to get it quite right. Economists and Public policy entered into 'restructuring' for transference issues, problems of over-generation capacity, and reducing Costs to Consumers resident in heavy Consumption states. A new Study studies the effect:

POLICY ANALYSIS
Routing
Rethinking Electricity Restructuring
by Peter Van Doren and Jerry Taylor
No. 530 November 30, 2004
Executive Summary

Electric utility restructuring was initiated in
the 1990s to remedy the problem of relatively
high electricity costs in the Northeast and
California. While politicians hoped that reform
would allow low-cost electricity to flow to highcost
states and that competition would reduce
prices, economists wanted reform to eliminate
regulatory incentives to overbuild generating
capacity and spur the introduction of real-time
prices for electricity.

Unfortunately, high-cost states have seen little
price relief, and competition has had a negligible
impact on prices. Meanwhile, the California
crisis of 2000–2001 has led many states to adopt
policies that would once again encourage excess
capacity.

Most arresting, however, is the fact that restructuring
contributed to the severity of the 2000–2001
California electricity crisis and (some scholars also
argue) the August 2003 blackout in the Northeast,
without delivering many efficiency gains.
The poor track record of restructuring stems
from systemic problems inherent in the reforms
themselves

The Study comments that 'restructuring' should be abandoned, with a return to balkanized regional integration (the old system). This would appear highly unlikely, what with the necessary requirement of introducing a integrated National Power Grid, to prevent such as the August 2003 Blackout. The real value of the Work comes in their specific conclusions:

• focused on generation competition and
ignored the pricing and incentive issues
involved managing the transmission
system and its public commons characteristics;
• grafted a relatively free wholesale market
onto a still heavily regulated retail market;
and
• established artificial market institutions
that invited manipulation and abuse.
The end result has proven far from satisfactory.

The real telling Point resides in the middle issue; it is not practical to try utilization of a free Wholesale market on top of a regulated Retail market. Why? The highest regulatory Cost Retail supplier will always set the Wholesale market price. Consumers will always pay the Price which a free Wholesale market supplier perceives as their expected Percentage return on the highest Consumer Retail price. A strict Traditional Economist would suggest final Retail price does not set Wholesale prices, but honest Economists admit continuous Retail price increase will always generate higher Wholesale prices. lgl

The Numbers

We created 112,000 new Jobs, but new Unemployment claims rose to 349.000. The Unemployment rate slipped a point some time back, but nothing moves the 2.7+ standing Unemployment claims; we need 150-160,000 new Jobs per month to keep up with population growth, and the slip in the Unemployment rate simply meant an increase in the number employed, not a reduction in the numbers of Unemployed.

The rise in Manufacturing in October came only in the form of Short-term Perishables. Durable Goods and Intermediate Durables showed decline. We are still venting manufacturing production Overseas. This comes at a time when Consumer Demand is appearing to soften. The euro rose to $1.33something, and there must be an economic equation somewhere which establishes a model, where loss of manufacturing product times the increased American Debt divided by the percentage rise in the euro will give the inflationary pressure in the American economy in Dollar terms. It don't look good! lgl

The Falling Dollar--Understanding the Problem

The Author just crossed the Mexican border this morning, and paid $23.11 for a Product he had purchased from the same source a week before for $20.36. The customary Taco plate lunch with two margurittas cost $9.95, instead of the previous $9.45 ( stated to account for any fallacies found in his argument). This does not tell Anyone much.

Formible Economic argument suggests the Dollar must fall, in order to create Jobs. Brad Delong on his Blog today stated:

It is certainly true that foreign central banks and private investors have set
themselves up to lose amazingly large fortunes as the dollar decline that is
part of macroeconomic adjustment proceeds. The U.S., however, does have a large
stake in making sure that the dollar decline is gradually and orderly. The real
side counterpart of "financial adjustment" is that eight million American
workers have to move from working in construction and consumer services to
working in import-competing and export manufactures and services. If this takes
place over five years, few will notice--and those who notice will be pleased as
they will be pulled out of their current jobs into ones that are likely to be
high paying in industries that are already rapidly expanding.

The Author has difficulty with this standard Economic argument. Foreign central banks acquire Dollar stocks and Treasuries as easy means to get real Capital investment, while curtailing their own domestic inflation. Devaluation of the Dollar means inflation in an exterior Currency, without affecting their own domestic Price structures. Loss of Dollar value to them remains only devaluation of their real Capital accumulation, requiring lower Profit ratios combined with reduced Wage payments to their own Labor force. These same Governments will not allow American penetration of medium-Income domestic Households as such would disturb their own Balance of Payments, propel domestic Wage demands, and incite Unemployment. American luxury item and high-tech industries stand at effective full employment, and Dollar devaluation will not solve the current economic adversity--2.7 standing Unemployment claims over a year after entrance into a supposed Recovery.

Kash, at Angry Bear, proposes the actuality of employment compensation not keeping up with Price increases. He states that half the Income gain, adjusted for Inflation, was actually Profits of Business and Investments--sums which are not used for Consumption. His assertion states employment compensation is matching less than half the Price increases. Think of an actual equation at work: Inflation-Employment Compensation=Consumer Debt.

Brad Setser states: "It seems like American households are now saving about a penny of every dollar they earn, and recently even less. Foreigners exporting to the US, in contrast, save roughly 35 cents of every dollar they earn." His basic contention asserts that American labor must produce more, and buy less. He ignores the fact that foreign Consumers are restricted by Government intervention, while American Government and Business entice American Consumers to purchase Imports. The next intervention to save the Dollar should come from the American Government, and should come in the area of restricting Imports.

The only salvation for the Dollar comes from two sources: 1) American Government--Federal, State, and Local--must not spend more than they are willing to raise in taxes; and 2) We must start to penalize American Consumers for buying foreign goods. American labor must again supply American Consumers with their basic Goods basket. American Capital must fund American production for the American market. American labor's devotion to high salaries and benefits must come to an end, just as American Business must be driven away from the artifically high Profits of foreign manufacture to place their production on American soil. No other Solution will resolve the current economic accounts issues. lgl

War on Drugs

The War on Drugs was started by Ronald Reagan, and the Andean Initiative--granting overall survelience to the Pentagon was introduced by George H.W. Bush. Many American Taxpayer Dollars have went since then to fund Latin American military forces to counteract the Drug Trade. How well has it done?


DRUGS AND DEMOCRACY IN LATIN AMERICA

The Impact of U.S. Policy
Coletta A. Youngers and Eileen Rosin, Editors
EXECUTIVE SUMMARY
http://www.wola.org/publications/ddhr_exec_sum_brief.pdf

1) The United States’ insistence on zero tolerance for drug crops has led to massive forced eradication of coca and opium poppy crops, often the principal source of income for impoverished farmers. With few alternatives available, these families are ratcheted down into deeper poverty when their most important cash crop is destroyed.

2)The region’s militaries, which have not been held accountable for widespread human rights abuses and authoritarian dictatorships in the 1970s and 1980s, have been brought back into domestic law enforcement because the local police forces are either incapable or too corrupt to dealwith the threat from drug traf. cking and its associated violence.

3) The drug trade is more like a balloon than a battle. eld—when one part of a balloon is squeezed, its contents are displaced to another. Similarly, when coca production is suppressed in one area, it quickly pops up somewhere else, disregarding national borders. Arrested drug lords are quickly replaced by others who move up the ranks; dismantled cartels are replaced by smaller, leaner operations that are harder to detect and deter. When drug-traf. cking routes are disrupted by intensive interdiction campaigns, they are simply shifted elsewhere.

4) U.S. international drug control policy is designed to reduce or eliminate the supply
of illicit drugs in this country. In theory, their scarcity would then drive up prices and
consequently discourage demand. However, the price of cocaine and heroin are at or near
all-time lows in spite of intensive efforts to eradicate crops and interdict drug shipments.
Meanwhile, the Justice Department considers cocaine and heroin to be "readily available";
powder and crack cocaine use are apparently on the rise, and heroin use remains stable
after surging during the 1990s.2 Clearly, the supply-reduction model does not work.
In Latin America, the source of most of the cocaine and heroin on U.S. streets, the drug
war has not only failed to curb production and traf. cking, but has weakened democratic
institutions. It also disproportionately targets the rural poor, who have few economic
alternatives aside from growing illicit crops and who bene. t the least from the drug trade.
========================
The Pentagon and U.S. military already have too much on their plate, and the Andean Initiative did not work out as planned. The Executive Summary only suggests greater complication with the effort in Latin America, what with the suggestion of non-coersed crop supplantation. This suggestion will fail as well. Drug traffickers will force the planting of Drug plants, they will also pay higher per hecture of Drug plants than can be supplied by market forces for other Crops.

This Author would apply a different enforcement measure:
1) He would decriminalize Drug use in the regular sense
2) Define Illegal Drugs as Illegal Trade Products
3) Charge Possessers of such Drugs the full market price for such Drugs, starting with anything up to a Kilo, then per Kilo thereafter; this would entail an original fine to the User of somewhere around $2000 per Kilo for Marijuana, $14,000 per Kilo of Cocaine, and $22,000 per Kilo of Herion.
4) Arresting American officers will be granted 25% of the Fines assessed, to ensure rapid and prompt law enforcement, and markedly reduce the incidence of Bribery. lgl

Consumer Spending

Consumer Spending was up briskly, if One does not consider the effects of inflationary pricing, what with the increase in energy pricing. The same could be said for increases in Income. Both adjusted for Inflation and prices likely gained 0.3% in October. This effectively means a non-gain in terms of Personal Savings. This is getting to be the problem.

Less Cash in Their PocketsTrends in Incomes, Wages, Taxes, and Health Spending of Middle-Income Families, 2000-03
by Lawrence Mishel, Michael Ettlinger, and Elise Gould

Although employment has grown since September 2003, it has not done so at a sufficient rate to diminish the substantial labor slack generated by the downturn in 2001 (Mishel et al. 2004). Consequently, pre-tax incomes fell for three years in a row, leaving the typical household with $1,535 less income in 2003 than in 2000, a drop of 3.4%.

Even with a drop in federal tax payments, married-couple families with children still saw a slight 0.2% decline in real after-tax income, while young singles and elderly couples each lost 1.4%.

health care costs are indeed squeezing families. Out-of-pocket expenditures have grown by 33% for families with employer-based health insurance (married couples with children, single mothers, and singles), and elderly couples relying on Medicare saw a 37% increase. Payments toward employer-provided insurance premiums grew by roughly 50%, while Medicare Part B premium contributions rose by 29%. Family health costs rose 43-45% for married couples with children, single mothers, and young singles. In contrast, family incomes for these groups rose far less—by less than 4%—before any adjustment for inflation. For married couples with children, for instance, health costs escalated $1,125, from $2,630 in 2000 to $3,755 in 2003, while their non-inflation-adjusted incomes only rose by $2,283

Generation BrokeThe Growth of Debt Among Young Americans
October 13, 2004
By Tamara Draut and Javier Silva

Among young adult households with incomes below $50,000 (2/3 of young households), nearly one in five with credit card debt is in debt hardship-- spending over 40 percent of their income servicing debt, including mortgages and student loans.


A clouded outlook
Nov 30th 2004
From The Economist Global Agenda

America never suffered a full-blown recession: its firms shed labour, but its households did not rebuild their savings.
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The growth in Income seen comes mainly from new Employment and hefty Salary increases in the upper-Income brackets. The Consumer Spending, though, comes not from the new Hires, or the non-Consuming upper-Income brackets. Ordinary middle-Income Households maintain their necessary Consumer expenditure pattern by increasing their Consumer Debt. The picture worsens as Debt Service accounts an increasing share of Household Income. We remain in a poor health posture for the Economy. lgl