Sunday, January 30, 2005

The Reserves

The day of the Iraq election has passed, but not the need for American troops there and elsewhere. Sheer numerial component of the Troop complements makes this difficult on both individual soldier and American Command. Here are quotes from several GAO reports on the Reserves problem:

The Department of Defense (DOD) currently cannot meet its global commitments without sizeable participation from among its 1.2 million National Guard and Reserve members. Since September 11, 2001, more than 335,000 of DOD's reserve component[Footnote 1] members have been involuntarily called to active duty--almost 234,000 from the Army, almost 56,000 from the Air Force, over 24,000 from the Marine Corps and over 21,000 from the Navy. Furthermore, thousands of reserve component members have volunteered for extended periods of active duty service

If DOD's implementation of the partial mobilization authority restricts the cumulative time that reserve component forces can be mobilized, then it is possible that DOD will run out of forces. Faced with critical shortages of some reserve component personnel, DOD considered a change in its implementation of the partial mobilization authority that would have expanded its pool of available personnel. Under such a revised implementation, DOD could have mobilized its reserve component forces for less than 24 consecutive months; sent them home for an unspecified period; and then remobilized them, repeating this cycle indefinitely and providing an essentially unlimited flow of forces.

DOD has sometimes implemented stop-loss policies, which are short-term measures that increase the availability of reserve component forces by retaining both active and reserve component members on active duty beyond the end of their obligated service

There are already indications that some portions of the force are being stressed. For example, the Army National Guard failed to meet its recruiting goal during 14 of 20 months from October 2002 through May 2004, and ended fiscal year 2003 approximately 7,800 soldiers below its recruiting goal.

There has been no real publication of Partial Mobilization changes, but National Guard and Reserves are going back for a second trip to scenic Iraq. Here is where it gets surreal:

some measures taken to meet short-term requirements have degraded the readiness of nondeployed units, particularly in the Army National Guard. To deploy ready units for overseas missions, the Army National Guard has had to transfer equipment and personnel from nondeploying units. Between September 11, 2001, and July 2004, the Army National Guard had performed over 74,000 personnel transfers. Similarly, as of May 2004, the Army National Guard had transferred over 35,000 equipment items to prepare deploying units, leaving nondeployed Army National Guard units short one-third of the critical equipment they need for war.
the Army is still structured and funded according to a resourcing plan that does not provide Guard units all the personnel and equipment they need to deploy in wartime, so the Army National Guard will be challenged to continue to provide ready units for operations expected in the next 3 to 5 years.

It does not specifically cite loss and machine wear in National Guard equipment, which would lead to another one-third loss of National Guard readiness. Absence of a Draft without change of Presidential policy predicts a third or even a fourth trip to Iraq, while Regulars, Reserves, and National Guard are extended beyond their enlistments. The IRR will lose Manpower because active Military will use up their military obligation on active duty. This remains particularly galling in the face of the fact that a heavy percentage of the active Military will never see Iraq; they are too specialized for such service, and know every Trick to stay Stateside. Health issues with the Reserves have still not been resolved, and special Pay disbursements have not been relyed to Reserve Dependents in a timely fashion.

The Vietnam Vets thought they were abandoned, but they were not married, and could opt out after a year. Has George W. attended one military funeral yet? lgl

Saturday, January 29, 2005

Trade Disaster

The GDP report for the last Quarter 2004 is out, and it is a disaster (source Reuters ).

The U.S. economy grew at a weaker-than-expected 3.1 percent annual pace in the final quarter of 2004, its slowest since the beginning of 2003 as the country's trade performance deteriorated and inflation picked up

The GDP report painted a bleak picture on trade, showing a steep 3.9 percent drop in total exports during the fourth quarter. Imports of goods and services surged at a 9.1 percent rate, more than double the 4.6 percent third-quarter rise.

The drop in total exports can be explained superficially as lack of Aircraft Sales and with lowered industrial machinery Sales due to the Christmas season. This masks the real rationale, though, and stands as fundamentally untrue. Industrial machinery is in short supply in the World economy, and Sales are brisk. American industrial machinery Sales are down because American Producers are passing along all Material Cost increases onto foreign Customers; this resultant from the fact base Costs cannot be covered by the domestic American market for industrial machinery, which has disappeared due to Imports of foreign Consumer Goods. Aircraft Sales remain a specialized market with limited deep-pocket Consumers, and with stiff Competition with higher R&D budgets along with better Support Services.

The Federal Government insistence on borrowing almost a quarter of its Operating revenues from foreign lenders triples the adverse effect of the Trade deficit. We must take steps to limit Consumer Goods Imports, and contain the Federal deficit, or expect heavy loss of Standard of Living within this administration's term. Devaluation of the Dollar will not help Exports, not when external foreign Materials pricing advances more rapidly than does Consumer Goods Import pricing. American Producers need an American market for Goods in order to spread the accelerating Costs of Material price increases; otherwise, American Producers will lose their competitive advantages in the World economy.
The GDP report reflects another hazard:

The GDP report showed that personal spending -- which fuels about two-thirds of U.S. economic growth -- increased at a 4.6 percent annual rate in the fourth quarter, slowing from the third quarter's 5.1 percent rate.

Its employment cost index rose 0.7 percent in the last three months of 2004, as salaries and wages grew at their slowest rate in nearly six years. Wall Street had forecast the index, a broad gauge of what employers pay in wages and benefits, would rise 0.9 percent between October and December, after a 0.9 percent gain the previous three months.

Economists wax estatic over the latter data, but should they be? Consumers are increasing their consumption at approximately twice the rate as their Income. Economists provide discount for this, stating that Corporate dividends are increasing. Several facts should be noted: Eighty percent of the Consumption being conducted could not come from Consumers who make three percent of their Income from Corporate dividends; Sixty percent of the Corporate dividends are being reinvested or spent as various Taxes; and almost all the increase in Consumer Spending comes from aggregation of Consumer Debt. Household Assets/Debt ratios are already too low, with high Mortgage payments and high-interest Credit Card debt. The basic American Taxpayer, the Employees, are getting debt-ridden.

One of the Author's infamous predictions:
Total Consumption 2005 will not exceed Total Consumption 2003. lgl

Friday, January 28, 2005

Bush's Government

The Budget and Economic Outlook: Fiscal Years 2006 to 2015 January 2005

no funding has yet been provided this year for
activities in Iraq and Afghanistan. Such funding—when
provided—is likely to add about $30 billion to outlays
this year, raising growth in total outlays in 2005 to 7.1
percent, higher than the 6.1 percent growth experienced
from 2003 to 2004.

Total spending as a percentage of gross domestic product
dropped slightly between 2003 and 2004, from 19.9 percent
to 19.8 percent. Under baseline projections, CBO
estimates that outlays will remain at that level of GDP in
2005; once additional funding is provided for operations
in Iraq and Afghanistan, that figure is likely to rise to at
least 20.1 percent

In the absence of further
appropriations, outlays for discretionary defense activities
are projected to climb by $10 billion, or 2.2 percent, in
2005. Once operations in Iraq and Afghanistan are fully
funded, that rate of increase will most likely grow to
about 8.9 percent.

What is the horror in these Comments? It resides in the fact Federal Spending is increasing at 7.1% per year(higher if you accept the expected $80b Iraq-Afghan appropriation, rather than the CBO projection of $30b). This becomes especially disturbing when Federal outlays are expected to equal One-Fifth of GDP with the Iraq/Afghan appropriation. It does not make one smile to realize GDP growth did not exceed 4% for 2004. A greater disturbing element comes from the expectation that Y2006 spending will increase greatly through implementation of the Proscription Drug benefit, while the Economy is expected to slow to a growth rate of 3.5% of GDP this year.

Where is the Enemy of Big Government on the 2000 Campaign trail? It would not be so horrible, except We need more Troops--not fancier Weapons systems; We need fewer foreign commitments--not more, check the Bush desire to move against Iran militarily; and We need more Tax revenues--not more Tax credits for Everyone. lgl

Foreign Exchange Bank

The G7 meeting is coming up, and China has indicated prior to this Meet, it will not unpeg the Yuan from the Dollar at its current rate of 8.28 Yuan to the Dollar. Current statements by Chinese Banking officials must be contrued as a form of intimidation--with unofficial Officials calling for an adjustment, official Officials denying contemplation of such an adjustment, then an officially unofficial statement by a Government minister saying that readjustment could not come for at least 6-18 months. The Chinese are old hands at the business of International negotiations. It can be understood as Chinese refusal to adjust the Peg without unamious G7 demand, which the Chinese believe they can forestall.

The Bush administration may not understand the necessity of raising the ante, but the Chinese must be instructed in the old art of 'Two can play this Game'. The current Peg of the Yuan is costing American Jobs in lost Product sales, costing Americans seriously in artifically- high Oil prices, and allowing Chinese Goods to be sold below Cost throughout the World. China will assert that the United States cannot take unilateral action, and will be supported by OPEC; with the other G7 nations folding in the face of the unity of OPEC and China. It is precisely for this reason the United States must take unilateral action. But what unilateral action could the United States possibly take?

This Author immediately calls for the creation of an American Foreign Exchange Bank. The guiding condition for an Exchange Bank lies in the name; all financial transations into and out of the United States must be funneled through the Exchange Bank. The Exchange Bank will be a subsidiary of the Federal Reserve System, and regulated by the Federal Reserve Board. The essential component of the Exchange Bank Charter will be the regulation of Currency exchange rates to defend the Dollar. These Rates will normally parrot International exchange evaluations, except where there are distortions. The Exchange Bank will be empowered to insist on appropriate Dollar payments for any other Currency, and vice-versa; all in the interest on maintaining the viability of the Dollar and American domestic production. Sheer threat of the new Bank charter should bring on a more reasonable attitude at the G7 meeting, but if not; Foreign Exchange banks can be very effective in operation. lgl

Thursday, January 27, 2005

Jobless Claims

Economists and News Agencies are downplaying the most important number in the new Jobless Claims data. This is the fact that Continued Claims jumped by over 140,000 to total 2.84 million. It is the highest since July, and shows a definite sign reversal of trend; itself not a worrisome datum, except for the increase in American Imports. It means the Recovery may be returning to a Slump.

Economists also downplay the decline in Aircraft Sales. The key element here lies in the fact that Aircraft remains one of Our few competitive American Exports. Aircraft are indead volitile and somewhat budgetary seasonal, but a major component of American Export credits. Readers should keep this in mind for evaluation purposes in contemplation of the fact Airbus (European) continues to improve its Support services while remaining financally competitive with Boeing. The Latter's craft design stays marginally better, but not financially better in the face of Support service declines.

The real cause for concern in the American marketing picture comes from the reality that Imported Materials necessary for Production are increasing in Price far faster than are the Prices for Imported Finished Goods. This destroys the advantage of a weakening Dollar in the Sale of American Exports, because American Export Prices of Finished Goods must increase in Price faster than Foreign Product Prices. This results from the vast supply of American Dollars held Overseas, due to the Debt-funding of the Federal Government. The major restraint of American Sales Overseas is not a strong Dollar, but a Spendthrift Federal Government. lgl

Wednesday, January 26, 2005


This Author has always opposed Globalization based upon economic rationales, minus the common rheutric. The major factors of this opposition:

1) The Transportation of raw materials will always be cheaper than transportation of Finished Goods.
2) Economic development becomes technologically integrated with advance of technology, and failure to invest in total domestic production of Goods, retards the technological advance of the overall Economy.
3) Dependence on Transportation facilities and Transport guarantees technical Shortages.
4) International Trade will always destroy localized advantages of Labor.
5) Long-term advantages to Trade, because of the additional Costs of Transport, must always be financed by destabilization of the Money Supply of the most technologically-advance nation.

The First element is easy to expound: Bulk cargos require less-specialized Transport of less Cost to construct, elimination of protective bulkheads allow for more tonnage to be hauled within equal Transport-space, bulk cargo need maintain less stringent Arrival dates because of lower Warehousing Costs at Delivery site, and Energy/ton ratios always are lower. Bulk cargo will always generate fewer technical Shortages, because of the longer planning schedules allowed, so the Third Element is vastly reduced in number alongside less economic impact from such technical Shortages.

Loss of Technological integration within an Economy will slow the pace of Economic development, by a factor which is much debated; Factor analysis suffers from the weighting measurements of specific elements. What is known is Technical knowledge developed by one Sector of the Economy will eventually impact other Sectors through altered technological procedure, this functionally forestalled by exterior Production in contributing Sectors. Localized Labor advantages also being lost, as advanced Specialties fail to develop, and Unemployment develops from underemployment in Importing industries.

The Last Factor is the hardest to define. International Trade must always be funded by a flow of Capital from the more-developed economy to the less-developed economy. Transport Costs will always deteriorate the Profit gains of foreign production based upon lower foreign Labor Costs and Capital Construction Costs. The simple Capital Construction and development of foreign Labor production skills will raise the Cost of foreign product, through higher demanded foreign Profits and higher demanded foreign Wages. Business Profits from importation of foreign Goods into the more-developed Lender nation can be realized only through destabilization of the Lender currency--to reduce the real Cost return payment on the Capital lent. Inflation is induced to protect the Business Profits of Importing industries. This can be accomplished by suppression of Labor Wages within the Lender economy, reduced Employment levels in the Lender economy, induced Consumer credit in the Lender economy, and excess expenditure of Government within the Lender economy. Does the pattern sound familiar? lgl

Tuesday, January 25, 2005

Bush Budgets

A sense of the unreal contaminates Bush budgets. The CBO today stated its forecast of the Deficit over the next ten years would be $885 billion. It totally ignores Y2003--$377b, Y2004--$480b, and Y2005--estimated at $368b (this to pretend Bush is working on the Deficit). Two years at Y2004 levels would break the CBO estimate, three years at the Y2003 level or Y2005 estimate levels would break the CBO projection for ten years. Two Comments: the CBO should be instructed to run mid-Decade evaluations--five previous and five subsequent year estimates; and all known Federal expenses should be used in the estimate.

Absolutely no one, inside or outside the Washington Beltway, expects the Federal Government to actually reduce Spending levels. Bush will not put military expenses in Iraq and Afghanistan in his Budget--expected to be a total Cost since the start of $300 billion by the end of the year, or $100 billion per year rather than the projected total $100 billion over a decade quoted by the White House at its beginning. Privatization of Social Security will definitely cost $2 trillion by Y2030, and probably cost that much by Y2015. Elimination of the Alternative Minimum Tax is projected to cost $500 billion by Y2014; nobody mentions this is estimated with an Inflation rate of only 1.3% per year--not likely with the Bush Dollar policy and Debt accumulation. Making the Bush Tax Cuts permanent are estimated to cost $1.2 trillion through Y2014; nobody mentions this Cost was estimated with Y2003 Production levels and Inflation rate. Certain Estimates evaluate the new Drug Proscription law will cost three times the Projection used by White House and CBO. Spending Cuts are not the Odds-On favorite in Las Vagas casinos under a Bush administration.

Very Rough Rules of Thumb:
1) American Imports are increasing at a faster rate than American Exports, though both numbers are going up with American Exports close to the rate of Inflation; therefore, actual physical American production is static or declining.
2) Making the Bush Tax Cuts permanent will cause CBO used Tax revenues in the Projection to decline by 8% per year, if American production is static.
3) Elimination of the AMT will cause a 1.8% decline in the above Tax revenues, if American production is static.
4) Because the Federal Government borrows and spends all surpluses of the SS Trust Fund, Privatization of Social Security if American production stays static, will cause about a Percent drop in those Tax revenues.

American Production, without curb on American Imports, will not provide Tax revenues at the pace of Inflation. Most Republican desires will be realized by the current Congress and President. American Tax Revenues will decline by at least Ten percent adjusted for Inflation, under the impact of these measures. Growth of Federal Spending, because of already-passed or pending legislation likely to be passed, will increase at approximately four times the rate of Inflation. Bush and Republican refusal to curb Government spending, limit Imports, or raise Taxes will require funding for Shortfalls to come from Debt aggregation. The Dollar Inflation incited will eventually come home to America, through foreign demand for higher Interest rates on Government debt, and higher Prices on Imports.

The Bush Budgets are simply dragging down the American economy. It remains a fallacy to say the Dollar decline will make American production more competitive in the World market. The competitive edge for American Products will be absorbed by higher Foreign Materials Pricing on Materials essential to American production. Such foreign Pricing has already effectively doubled American Consumer debt. Bush obstinence to Tax Increases will have to be broken, and long before the expiration of his Presidency. lgl

Sunday, January 23, 2005

The Twilight of the FED

Alan Greenspan plans on retirement in January, 2006, bringing a crisis in itself. It is not the loss of his leadership, which has been steady through the years, but the fact he will have to present a Farewell speech. This Speech will necessitate an evaluation of the fiscal state of the American economy from the start of his Chairmanship to its conclusion. It will have to include an evaluation of future prospects. Greenspan must be in hard contemplation as to what he can say without destabilizing the Markets.

Most People offer Ben Bernacke's chances to the Chairmanship to be a long-shot. The fact remains that Bush cannot nominate one of his Cronies (Bush program supporters), not with a Federal Deficit greater than the entire Federal Budget in the early 1960s. Bush must find someone outside his political umbrella, and the only one with stature sufficient is Bernacke. This still leaves the problem of Greenspan's Farewell Speech.

Greenspan will have to criticize the Bush Tax Cuts, which did not enhance economic performance, led to American Corporations to offshore Production to maximize Profits left untaxed, and created the huge Deficits in Government spending and Current Accounts. He will have to condemn excess Defense Spending, which was not geared towards Counterterrorism, but to the issuance of huge R&D Corporate Contracts to protect Bush's political base. Greenspan will not directly refer to Iraq and Afghanistan, but will need to criticize the expanse of American military commitments Overseas. He must also slight the Bush failure to support the Dollar, hammer the extreme expansion of Welfare payments through the passage of the Proscription Drug law and Education law, and condemn the Private Accounts formula for Social Security, Health, and Savings because of detrieous expansion of a Stock Market balloon. The Speech will not be comfortable for Bush, the Fed, or Greenspan himself.

Bernacke, or whoever the next Chairman will be, must present a Inagural Speech immediately condemning the rapid expansion of Financial Paper instruments, currently hiding the true impact of Inflation; this through draining Consumption Dollars into declining P/E ratios 401ks, Koughs, IRAs, and Business tax credits. This Speech will necessitate mention of the Current Accounts deficit, and the need for intervention to forestall growth in the deficit. It should mention Bush Budget manuevers understate the Federal Deficit by approximately $200 billion a year, and this amount will only increase unless Government spending decreases. It will contain numerous other critical elements of Bush policy, and will not heighten amiable relations with the White House.

A financial Crisis is approaching American shores, much of it manufactured by poor Executive policy. It is not especially worrisome to Americans, nor should it be; it is something which will have to corrected. Leadership in this Correction cannot be expected from either White House or current Congress, so American financial institutions will have to take the forefront in the Crisis. The next Chairman of the Federal Reserve will need to express the knowledge and toughness shown by Alan Greenspan in his tenure. lgl

Saturday, January 22, 2005

Military Transport

Most have heard of the 'unarmored Humvee' scandal; it has generated an Army evaluation of upgrades of current military transport. They are currently being conducted, but without any Mission orientation, only with a list of suggestive-upgrades from Field Commands. This is equivalent to carrying a bucket of water to Hell. The U.S. Military needs a Concept Strategy for military transport.

Line Command suggests We need 'removable armor' for Our Transport vehicles. There will never be enough armor available, or will there be sufficiently rapid transition time. Armor once put on will never be taken off, until the vehicle is taken out of service due to Combat casualty or vehicle malfunction. The Military, on the other hand, will pay for the upgraded suspension systems on all vehicles, even when there is no armor to be found for them.

This Author suggests the Military must transition to a 'Pull-Trailer' Concept Strategy. We do not need upgraded Humvees, but lightly-armored light tanks of superior power, engineered to operate at high speed and function a Semi-tractors. These light tanks would have the armor to stop small weapons fire, mine penetration, and all shrapnel. It will have the suspension and weight to act as a Semi-tractor, with the quick connection of railway cars. It would have the transmission capacity to act as a Semi-tractor, or a high-speed role as Scout vehicle; all while maintaining the same Fuel consumption ratios of a Semi-tractor.

Pull-trailers can be produced for all uses: heavily-armored for Troop transport with cross-Country capacity; off-road capacity for Fuel transport and Munitions; or regular road Transport of materials. These Pull-Trailers should be easily stackable for Naval transport, and sturdy enough with necessary suspension for the role assigned.

The light tanks should be equiped with a short-barrel tank gun(or TOW-type rockets) for fighting APCs, armored cars, or bunker systems. There should be an on-board grenade-launcher for fighting Infantry, plus two Automatic Rifles to cover the rear and sides of the vehicle. The vehicle(crew of 4) should have the capacity to transport Troops in Pull-trailers, support those Troops in ground assaults, operate as Patrol vehicles, and operate as simple Semi-tractors for transport--in Peace and War. lgl

Thursday, January 20, 2005

Articulated Social Security Plan

This Author has just finished reading a transcript:
Brookings Briefing
Thursday, January 13, 2005

The general Consensus of the Panel was only two Solutions offered real elimination of the Problem: raising FICA taxes or cutting Benefits. The was also concensus to the fact that altering Baby-Boomer benefits would shortly become politically impossible. This Author will concentrate on what issues were not debated.

There was no discussion of the viability of increasing FICA taxation upon Labor; a consideration of some importance, as loose projections by this Author suggests that every additional FICA dollar collected from Labor will mean $1.70 decrease in Consumer Spending, as well as dropping another 7% of Households into the Working Poor. There was no talk of the cost to the U.S. Dollar of funding Private Accounts, or worse, the General Revenue Budget liability to the SS Fund by Debt financing; another loose projection by this Author suggests the devaluation of the Dollar due to the Debt financing would cause another 13% of working Households to drop into the Working Poor. Cutting Benefits to make up the Shortfall projected would drop 27% of Senior Households not already in the ranks of the Poor into those ranks; while switch to Price-Indexing Benefits would drop an even greater number of Senior Households in the Poor after a period of 34 years. None of the propounded Solutions were really a Solution, if the Goal was adequately providing for Our Elderly over the next 75 years.

Here is where the Author articulates his own Social Security Plan (Don't start laughing at this Point, it gets better later)

Two points must be paid prior to the articulation. The first states there must be a cessation to unfunded liability collected by the Government, so Medicare and Medicaid must be intregal to a Solution to the SS problem. The second issue states the problem remains to integrate retirement and medical benefits of the Elderly into the greater Economy.

Conditions of the Plan:
1) The FICA tax on Labor income will remain at the same level, but the Cap on Labor income will be removed. This will equate to a long delay before the 2018 projected SS Fund deficit, and replace the scheduled downfall of the Alternate Minimum Tax.
2) Business will be required to provide $1.80 for every $1 contributed by Labor as FICA tax. This throws the projected FICA deficit back until about 2060. It additionally allows little additional Cost to Business, who can expense such contributions as Labor Cost. A loose projection says this is the perfect time for implementation, as Labor employment finds only about 0.04% loss of total Labor hours worked for the average 5% increase in Wage costs, eliminated by improvement in Production.
3) The Social Security Fund should purchase the Federal Reserve Banks in exchange for the special Treasuries held by the Fund. This will decrease General Revenue Budget debt substantially. The rationale: The Monetary policy of Zero interest as late advocated by the Fed has proved to be of dubious value as economic stimulus, and the purchase would bring Interest revenues into SS Fund coffers. Federal Reserve management would be left relatively unchanged, but Seniors would regain participation inside the Economy as well as a prime source of funding.
4) Medicare and Medicaid benefits for Enrollees would be capped at $30,000 per year, or $90,000 over the three total years of two prior and current year per Individual. This would include all benefits--including the Drug benefit; but not disbersements from a Special Case Fund set up for High-Chance Restoration cases.
5) FICA taxes will be declared actual taxation. A set monthly amount (One for All) will be made to all Recipients of SS benefits including Disability Benefits, and because of medical costs, no FICA Taxpayer will be attributed to have built a personal account; no matter what amounts of FICA they have paid, they will be ascribed no further benefits.
6) This Set Benefit will be Wage-indexed to preserve Consumption ratios, and to eliminate elderly diress.
7) All Current Beneficaries will be grandfathered into the new system, simply not drawing COLAs until they are inline with the new program. The new system of Benefit allocation could, of itself, put off the projected 2018 Fund deficit off until 2026 by a sketch projection by the Author.

The SS Fund deficits can be put off for a period longer than Baby-Boomers will draw benefits, if the life expectancy of those Baby-Boomers does not increase. Real increases of Life Expectancy will not come easily, as all the Easy and Quick gains have been realized. Projected SS Fund deficits can be covered far more readily by slight revenue-generating increases in the Fed lending rates than anywhere else. This is a realistic pay-as-you-go system. lgl

Wednesday, January 19, 2005

Social Insurance Programs

AEA Annual Meeting Papers
Rethinking Social Insurance
Martin Feldstein*

Social insurance programs have become the most important, the most expensive, and often the most controversial aspect of government domestic policy, not only in the United States but also in many other countries, including developing as well as industrial nations. . . Together they accounted in 2003 for 37 percent of federal government spending and more than 7 percent of GDP. These ratios have increased rapidly in the past and are projected to increase even faster in the future because of the more rapid aging of the population.

Research by Jeffrey Liebman (2002), based on a large sample of actual individual earnings histories, showed that less than 10 percent of Social Security benefits represented net redistribution across income groups within the same birth cohort.

Unemployment Insurance (UI) also does not redistribute to the poor. In Massachusetts, a state considered to have a very generous UI program, the UI benefits were financed in 2003 by a payroll tax on only the first $10,800 of earnings (with a zero marginal tax rate above that level) while basic benefits were 50 percent of previous wages up to more than $50,000 of wages per year. An individual who earns $50,000 a year pays the same tax as someone who earns $11,000 a year but would receive benefits that are nearly five times as high.

Social insurance programs cost $800 billion in 2003, while federal spending on all means tested programs except Medicaid was less than $150 billion.iv Over the past four decades, the spending on means tested programs (except Medicaid) has remained relatively constant (rising from 1.0 percent of GDP to 1.3 percent of GDP) while the social insurance programs that are not means tested rose from 2.7 percent of GDP to 7.4 percent of GDP.
Feldstein and this Author diverge at this stage. Feldstein's panecea for the overall problem of social insurance is Private Accounts. He argues that the current system of Unemployment insurance produces higher payments paid longer because of dismissal of less-than-perfect Job availability; suggesting Private reservior Accounts which would have to be refunded after each period of Unemployment payments. An Accounting hassle beyond imagination; Solution: Simple garnishment by Unemployment (UI) until all remittances have been repaid.

Feldstein stipulates Social Security benefits effect inverse redistribution by varying Benefit payments and the Better-off living longer; proclaiming Private Accounts would be individually-filled with Benefits based upon total size of accured assets. Facts: current unlimited Medicare assures all SS beneficaries receive in excess of contributions. Adjusting Benefits to Price-Indexing, rather than current Wage-Indexing, will adversely affect long-run Consumption patterns. Solution: Establish One-rate Set amount of monthly Benefit which is Wage-Indexed, place an yearly maximum on Medicare contribution to health expenses, and stipulate that FICA taxation is taxation which is unlimited as to amount of Income taxed with no additional Benefits accurring from added contribution.

Feldstein's worst solution may be Health Accounts. Health Underwriters would raise the Deductible and Co-Payments to absorb all Health Account funding at about 14% Profits ratio, without braking Health Care Cost increases. Solution: Adopt a basic policy Universal Health Care system to handle basic medical costs (see Previous Post) significantly cheaper than current payment through Tax levies at all three levels of Government, where Additional-Care policies could be purchased by the better off.

Feldstein makes much of the disincentives of social insurance programs (Translation: Americans will not take subsistence Jobs because of the social insurance, therefore more immigrants have to be imported). Answer: Remove the incentive of Business tax credits which allow below-Living Wage expensing of Labor.
Manner of elimination of below-Living Wage Expensing of Labor:
1) Order the Bureau of Statistics to determine the Living Wage cost of labor per Product item.
2) Businesses which cannot prove their Labor Costs equaled the Living Wage Cost for their level of Production, will be faced with an inverse Tax credit (added Tax liability to the Mystified equal to the difference).
3) Accepted Labor expensing will consist Wages, Salaries, Pension benefits, Profit-sharing based on percentage of Salary or Wage, and Health benefit costs; but will not include Stock Options, Stock Grants, Paid Insurance policies or Annuties, or Housing subsidies.
4) Such Labor expensing requirements will be required of all Labor expensing for Tax purposes, if the Product is sold in American markets, without consideration of location of Production. lgl

Tuesday, January 18, 2005

Lifespan and the Social Security Debate

Arnold Kling provides a very informative article on Lifespan and Social Security at:

His essential argument propounds that all current data collection on Lifespan and longevity vastly understates what actual Lifespans are likely to be encountered. Arnold cites the fact that Infant mortality has dropped, better Health Care has lowered the percentage Death rates in lower decades, and there is every indication that percentage Death rates are declining in the older decades of Life, from which We still have no data. The primary point of his article states that Health Care outcomes are much better in the United States compared to other nations, but not reflected in the current data collection; and secondly, that with the actual greater longevity, the Social Security Fund is more insecure than Most attribute. This Author would like to express deep appreciation for Arnold's excellent piece, before he introduces his own Counterpoint.

Arnold, himself, uses a data set which is constrained by current Data collection. This limits the parameters of his work while it negates none of it. One cannot factor new health hazards and their effect on Lifespan, especially Those which possess longterm ill-health effects--like Asbestos inhalation. No accurate Studies have been conducted of the effect of Population density on longevity. This physical density must create added physical stress on the human organism. The Author currently drinks Tapwater laced with Arsenic, until such time as my community gets a new Water plant built--We can obtain free Drinking water. This highlights the lack of Freshwater supplies; this necessitates use of reprocessed water with the increased longterm health hazard. New deadly vuruses and bacteria are being discovered every day--Many claim it coming from deforestation; not matter, as new and old health dangers are expressing greater immunity to traditional and new Designer medical drugs. Too many factor-dangers to Health exist to express confidence in current Health Care being able to maintain--let alone advance--the lifespan expectencies of Our current Year.

How should We evaluate the Data?

Health Care may produce more positive results in this Country, as compared to other Countries; but these positive results derive from far too high of Cost/Patient ratio, therefore Universal Health Care--Public subsidy or Private underwriting--cannot be obtained. This will have longterm consequence (adverse) on Life Expectency in the United States.

The Crisis in the Social Security Fund must be considered manufactured, until such time as Real Benefit reduction or Real Tax increase, must occur within a Forty-year timeframe--the normal Worklife for most Americans. The rationale here is the same argument which Arnold utilized in his article, namely that Productivity, Longevity, Tax revenues, and Savings ratios can only be estimated for future Labor and Business elements; We can only exterpolate from Data currently derived from Working assets. lgl

Monday, January 17, 2005

Tort Reform--The Becker-Posner Debate

One should be careful in invading the turf of such gifted and experienced men as Judge Posner or Economist Gary Becker; but Everyone knows this Author has no shame. One must recognize their Debate is a Must-Read when it comes to Tort Reform, so don't just rely on this Author. Both Becker and Posner believe it is inappropriate to interject Federal Tort Reform into what is a basically State arena; Becker insisting such might be necessary to curb excesses in Class Action suits. They each see distortions in the placement and direction of Class Action suits, as does this Author.

Judge Posner perceives a real need to base malpractice insurance on personal liability experience, like the issuance of Car insurance; so that good performance pays less than consistent inattention to proper care. Posner also has doubt that malpractice has much effect upon the quality of care, though it is admitted to have some effect in the supply of defensive medicine.

Gary Becker finds need to fully represent Compensatory Damages, while putting limits on Punitive Damages. He would suggest that the Injured be adjudged for his own negligence in inciting the damage, this to limit excessive litigation.
The Author's own suggestions(some rehashed from previous writings)
1) Compensatory Damages should be based on all Costs of Treatment and/or Recovery.
2) Punitive Damages should be based upon the yearly Income of the Injured, or some equivalent equitable amount set by the Judge.
3) Punitive Damages should be awarded as a percentage of Injured's Income or Judically-set evaluation.
4) Punitive Damages should be paid yearly from an Annuity Fund governed by the Court, purchased by the Injurious Party found at fault.
5) Legal fees for the winning Legal team will be a set Judgement, paid by the Party found at fault, and determined by either a Jury or Judge. Both Legal teams will be allowed argument in the setting of this Legal Fee Jugement.

Separating the Legal Fees from the Damage Judgements will reduce outrageous Legal fees, and so minimize excess litigation. Limiting Punitive Damages to the Injured's Income, and making it yearly Installments, will decrease Plaintiff desire to pursue long legal Cases; a Course which will be undertaken only in the face of real Injury. There is no relevant case for Tort Reform, though there is real need for alteration of medical underwriting, and for Court rules of procedure alteration to accomodate fairer and swifter Justice. lgl

Mixed Bag

A Question of Numbers

Published: January 16, 2005

An excellent Read in the NYTIMES Sunday Magazine. Relevant Quotes:

The actuarial view is that the system is probably in need of a small adjustment of the sort that Congress has approved in the past. But there is a strong argument, which the agency acknowledges as a possibility, that the system is solvent as is.

If its more optimistic projection turns out to be correct, then there will be no need for any benefit cuts or payroll-tax increases over the full 75 years

Over a recent 10-year span, the trustees' intermediate guesses turned out to be quite pessimistic. Its optimistic guesses were dead on, and its pessimistic case -- sort of a doomsday situation -- was wildly inaccurate

The basic point here is that tiny swings in any of these or other factors could improve -- or worsen -- the program's balances. If a few of them lean in the direction of the optimistic forecast, the trust fund will cover benefits through 2080, or close to it. Would such a program, which appears to be solvent or near solvent until the limit of what is humanly forecastable, be improved upon by the various schemes for privatization?

George W. Bush is artificially creating a Crisis for his own political agenda, one which could only worsen the lot of the Social Security system. It is this Author's estimate that the American Taxpayer will have to pay an additional $1.70 in long-term Benefits, for every $1 allowed to enter Private Accounts; the rugged Independents will change their tune when they reach Age 65 without the necessary financial Reserves to sustain a viable monthly Income.
Worrisome details also bother in other areas. The Numbers come out later this Week, and it is getting a little late in the ''Recovery". We need get below 300,000 New Unemployment Claims, or above 200,000 New Jobs created. Remember We are destined for an new Graduating Class from Colleges and High Schools in May.

The International Front also is looking bad. The Chinese Banking scandals are not in themselves a big deal. The number of different scandals, plus the huge numbers of banking officials involved, begins to imply that the terrific Growth of the Chinese economy may possess many elements of a Ponzie game. D. Boerse attempting to buy the London Exchange also brings the threat of monopoly management of Trading practice. Action should be taken to insure that no American exchanges can be purchased by foreign Exchange interests. The Beige Book needs to show actual gain, else the lousy P/E ratios are going to take effect; this in the face of the Funds having a projected net Outflow for January. lgl

Sunday, January 16, 2005

Side-Effects of Current Medical Practice

Fast-Food chains gear to gain their Profits from selling Meals piecemeal; this Author has even been in sit-down restuarants where they charged for every Accessary--including a glass of Water. This has been the trend of American Business since WWII. Most Automakers still charge a Car buyer for a automatic transmission, even though a Straight transmission costs more to produce today. Americans have become used to such practice, but it costs excessively.

It is especially costly under the stress of medical illness. A Patient entering a Doctor's office or Clinic never knows how much the final bill will be. Any Economist will relate that a Market is not actually established, unless there is Price competition. Piecemeal add-on Pricing allows for creation of a Market, when and only when, there is a standardized Product where the quantity and type of Product is already previously determined. Medical practice fails the Test of standardization of Product, and in prior determination of quantity and type of Product needed. There is literally no actual Price competition in medical practice.

Various remedial solutions could be devised to introduce Price competition into medical practice--it assuring some medical cost relief; this Author projects and assumes a minimum of a 28% reduction in current medical costs. He likes the idea of passage of a Federal law ordering a One-Rate payment for each Doctor's visit, Clinic visit, and per-day rate of Hospital stay. Doctors, Clinics, and Hospitals would be allowed to charge whatever rate they deemed necessary to defray their expenses, but each Patient would be charged the set rate per use, and such set-rates must be publicly displayed. The Law would also dictate that medical personnel inform all Patients of Pricing for all acceptable alternatives for Drugs, medical equipment, and medical procedures. What would be the end-result?

Doctors, Clinics, Hospitals, Drug Companies, Medical Equipment Companies, and Health Insurance Conpanies would all make a Profit; this Author will assure of that fact. Medical Patients would pay a much higher rate per visit or use, but all Patients would be engaged in a medical underwriting spread of overall Costs among themselves. It does not seem like a good deal, until other aspects are examined. All would be desirous of obtaining Profits and making a living: medical procedures would be utilized because of need--not Profit-gouging; medical personnel would be dispersed according to need, not for Profit-generating income; medical business would have to compete based on Pricing, not dillusional referral; and outrageous Costs would be spread among all medical Patients. Health Insurance companies would adjust rates based upon Price competition, and use Expense projections for all Patients (instead of Age) to set rates of underwriting. Pressure from Health Insurers would also exact reduction in excess charging by the Health industry. lgl

Saturday, January 15, 2005

The Government Approach to the Social Security Debate

Malfeasance appears innate to Governmental conduct, never totally eradicated, but expanionary under loss of Voter constraint of political activities. The Bush administration use of Social Security Trust Fund monies to pay for a political campaign for Private Accounts expresses no greater failure in Ethics, than does the Defense Dept. utilizing Troop Budget funds to lobby Congress for new Weapons systems. These Crocidiles are foreign to Americans partial to Alligators, though native to Politicians who roll in the filth of corruption.

It behooves Commentators, even Us lowly Bloggers, to shine a flashlight on these crocks of dung, so that Readers may get a breath of reality above the fumes of rotten eggs. Here is the input of this Author:

1) The Social Security Trust Fund will be in trouble, but is not now, and will not be for at least two decades.
2) Nothing will be a long-term fix for the Trust Fund, except for an increase in FICA taxation.
3) That increase in taxation will not have to exceed about 10% of the monies collected by FICA taxation currently--though the sums will increase gradually as the Baby Boomers retire.
4) Private Accounts will provide no financial or economic solution to the Social Security problem.
5) Private Accounts will increase the balloon in Investment instruments, which has been created by the proliferation of IRAs, Koughs, 401ks, and tax credits for investment. Principal to Earnings ratios are already too large, with Profits already shrinking.
6) The Social Security program is not the real problem; the real crisis resides in the Medicare and Medicaid programs with American Patients paying exorbidant fees for health care.
7) The American People, if not the Bush administration, would be better served changing the current Tax Code, which allows American Business unnatural advantage in moving Production offshore. Return of Production to American soil will vastly increase FICA tax revenues.
8) Revamping the Tax Code will provide the best matrix for Labor to save for their own retirement.
9) Return of Interest rates to proper levels (base rate 4.25%) would provide the best projected Return on retirement investments.
10) The greatest stability to the Social Security Trust Fund would be it's purchase of real economic capital instead of IOUs from the General Revenue Budget. This is not advocacy of any Investment Commission to dabble in the Stock Market, but purchase of Banks, Insurance companies, S&Ls, and Federal buildings charging rent to other agencies.

The Bush administration serves Business Lobbyies, not the American people, when it pursues an agenda which provides Profit only to Fund managers. This is too much, even in this new Age of Corruption. lgl

Thursday, January 13, 2005

Brownfield Redevelopment

December 2004 GAO

Congress passed the Brownfield Act in 2002 to aid in the cleanup of contaminated sites. The EPA issues Site assessment grants to identify contaminated sites, and revolving loan grants to aid in cleanup efforts. The Act, itself, reflected a Republican-dominated Congress which estimated nothing is worth doing, unless Business interests made money from the doing of it. The trouble with the Act was it did not offer Business enough incentive to get involved substantially.

States, Local communities, and Tribal areas exploited the Site assessment grants, using Such to employ expertise and Labor. This aspect of the Act worked well, and contamination area identification has made great inroads:

EPA’s fiscal year 2003-2008 Strategic Plan states that the
specific objectives and targets for the Brownfields Program for this period
are to (1) assess, clean up, and redevelop 9,200 properties; (2) leverage
$10.2 billion in cleanup and redevelopment funding; and (3) leverage 33,700
jobs. In its fiscal year 2003 annual report, EPA reported to the Congress on
the cumulative (1) sites assessed, (2) jobs generated, and (3) cleanup and
redevelopment funds leveraged. However, EPA did not report the number
of properties cleaned up or redeveloped under the program.

EPA reportage was delinquent undoubtedly because of the lack of participation beyond Site assessment. Loaned funds actually equated to about 17% of the monies allocated to the revolving loan grants. The GAO cites:

1) lack of Fund management experience of those given revolving Grants.
2) A blocking pre-date of ownership for qualification.
3) Lack of complete immunity from liability for poor cleanup efforts.
4) And lack of a Federal Tax credit for such expenditures as incentive to participation.

This Author would suggest the Grant system only works where there exists local area established enterprise with competent experience. He also expresses likelihood EPA obligations and checkup are too stringent, when combined with lack of complete immunity from liability. The GAO report cites many professionals in the field stating the majority of such Cleanup projects are conducted without EPA funding; i.e., without Site evaluation according to EPA standards. All Stakeholders want less regulation and lower Standards in EPA participation.

Stakeholders, EPA, and GAO all agree there are far more contaminated Sites, than Federal funding could correct; it being far too expensive. A Republican Congress has curtailed EPA funding and investigative sources to determine whether there are contaminating Industries. Business might seem paid to contaminate, and paid to clean it up, if they wish to do either. lgl

China Trade

U.S.-China Trade, 1989-2003
Impact on jobs and industries,
nationally and state-by-state
A Research Report Prepared for the
U.S.-China Economic and Security Review Commission
By Dr. Robert E. Scott
Director of International Programs,
Economic Policy Institute
January 2005
EPI Working Paper #270

The Paper is a must-Read for Anyone concerned with the current American Trade deficit. It clearly outlines the Job loss due to Chinese Imports. It clarifies the fact that this Job loss is uniform across American industry, not just contained in Labor-intensive sectors. Chinese expansion into Advanced Technology Products comes rapidly, and American Labor is losing their advantage in this area. Many important points need be considered:

China now accounts for the entire $32 billion U.S. trade deficit in Advanced
Technology Products (ATP).

the WTO and the broader process of globalization have tilted the economic playing field in favor of investors, and against workers and the environment, resulting in a race to the bottom in wages and environmental quality.

U.S. exports increased from $5.8 billion in 1989 to $26.1 billion in 2003, a fourfold increase. Imports rose from $11.9 billion to $151.7 billion in the same period, a twelvefold increase on top of a base that was already twice as large as exports. As a result, the U.S.-China trade deficit increased $119.5 billion, or nearly two thousand percent.

Between 1989 and 2003, the growth in U.S. exports to China created demand that supported 199,000 additional U.S. jobs. In the same period, the growth of imports displaced production that could have supported an additional 1,659,000 jobs

The distribution of job losses between 1989 and 1997 closely follows changes in trade patterns,
The largest losses of job-supporting production in this period occurred in leather products (-66,000 job opportunities) apparel (-55,000 jobs), rubber and plastics (-38,000 jobs), furniture (-15,000 jobs), and electronic machinery (-69,000 jobs) — which included audio/video equipment (-18,500 jobs) and communications equipment (-3,700 jobs). The textile industry also experienced a major indirect effect, as it suffered a loss of output that would have supported 24,000 jobs, due to the growth of apparel imports

Several major shifts are notable:

The furniture share triples from the earlier to the latter period. Rubber and leather products decline precipitously. The share of computers more than triples and audio/video equipment doubles. Communications equipment rises even more rapidly, though its share remains small. These results provide clear evidence of China’s growing technological prowess and the rapid accumulation of skills in its labor force

Growing trade deficits with China have displaced production supporting 1.5 million U.S. jobs since 1989. The rate of job displacement is accelerating, especially since China entered into the WTO.

What this Paper does not relate to the Reader remains the net Causes for the Trade imbalance. The United States, EU, and other member of the G7 will not announce the Chinese peg of the Yuan to the Dollar is an Economy-wide vehicle to dump Chinese Product on the World market below production cost. The United States, on the other hand, must sell its Exports below normal industry profits due to excess amount of Dollars and Treasuries held by foreigners. This will not last very long, as the EU is beginning to suffer as does the U.S. from the practice, and Japan loses a like advantage as held by China due to Material Cost increases and low Export ratios. lgl

Wednesday, January 12, 2005

Success and the War on Terrorism

How to define success in the war on terror
By James J. Na (Guns and ButterBlog,

James J. Na is one of the more intelligent Bloggers and Commentators on Current Events, and could raise the consciousness of Many if read. His article outlines many points which should be understood:

To deter terrorists from launching attacks is better than catching them in the act, but as the official asked, "How do we know whether what we do has a deterrence effect?" In other words, how do we know if our homeland-security measures actually deterred attacks — for there have been none since 9/11 — or have the terrorists merely been waiting and preparing for the "right moment" to strike again?

Preemption can take a long time, requires considerable military-economic resources and is often politically very divisive both inside and outside the United States. Even when the right conditions are met, we cannot pursue every terrorist cell, sanctuary and state sponsor without exhausting our vast, but ultimately limited, resources. Whereas homeland security offers a short-term measure, preemption serves, at best, as a medium-term response to terrorism.

Before the rise of Islamic fundamentalism, the two dominant governing ideologies in the Middle East were corrupt monarchism (Saudi Arabia and Iran) and repressive, socialist dictatorships (Iraq and Syria). Given the absence of any attractive ideology in the region, the appeal of religious purism harnessed to extremism turned out to be irresistible to the many disaffected, including those from privileged backgrounds.
This Author regrets that Na's solution does not offer merit equal to his analysis. It remains basically a traditional adage of introduction of democracy into the Middle East. This equates to a Bandaid on a bullet hole. The Middle East has been as subjected to Warlordism as had China before the rise of Communism. Generations of the Middle East, since the time of the Persian empires, have always lived under corrupt regimes. No Government can pay its Civil Service to ignore the gains of bribery and corruption, which would require effectively making the Civil Service personnel millionaires. Western values are not going to reform Societies which pre-date Western civilization.

Islamic Fundamentalism itself holds the cure to Terrorism. The Iranian Clerics already have lost significant support among the Iranian population, due to the corruption of their own regime. The real panecea for Terrorism resides in allowing the Islamic Fundamentalists to rise to power. Their own corruption will erode popular support, while they become the greatest Protector of Middle Eastern Oil; they needing the Trade credits to maintain themselves in Power. Terrorism will decline due to their found need for Western assistence (requiring Western presence in the Region), and the Masses' realization that religion alone will not produce Salvation(at least no food on the table). lgl

Trade Deficit

The nation's Trade deficit was $60.3 in November, up 7% from the month before. Most of this increase was simply inflationary--with the explosion of Oil pricing and falling Dollar. The stated rationales, though, find base in the existence of the Trade deficit in the first place. We are in a vicious inflationary spiral, eroding the value of American products in relation to foreign products. The fall in American Exports for November--2.4%--was equally a result of the inflationary spiral--American product prices rising faster than the more-stable currency Competition. The current Administration, as expressed by Snow, would proclaim the dollar should be set by market forces; all the while the Government will not curb excessive Spending, the true existent Cause of the falling Dollar.

A short Course in Economics:

1)Trade deficits are automatically corrected by market forces. Trade exchange must shift without Government intervention, or the value of Trade products will automatically devalue for those running a Trade surplus. This devaluation will lead to purchase of Trade product from those running a Trade deficit, or less provision of Trade product from those running a Trade surplus; i.e., everything else will lead to a loss of profitability for all Trading enterprises.

2) The only thing which can interrupt this Trade balance is Government intervention. The real element here resides in the fact that this Government intervention meets failure, unless it is entered into by Both Governments: Trade Surplus and Trade Deficit nations. An attempt at intervention by only the Trade Surplus Government will lead to loss of Exchange value profitability--Labor and Capital liability exceed the Trade surplus. Government intervention by the Trade Deficit Government leads to loss of Employment, with resultant loss of native purchasing power for Imports.

3) Maintenance of Trade imbalance requires Government intervention by both Trading partners. China insists on pegging the Yaun to the Dollar; if it did not do so, the Trade deficit with China would be only about $3 billion per month instead of the current $16.7 billion. The Trade deficit with China would also be about $3 billion per month, if the United States was not running a Federal deficit.

4) Much contraversey will ensue from this statement, but the Federal Government would not be running a Federal deficit if the Bush Tax Cuts had never been passed. Federal expenses could be cut by 30%, if Defense measures had not be expanded beyond funding of Homeland Security. Imports would be 55% less than their current level, and American Employment would have acquired 4.7 million more Jobs. The Bush Tax Cuts were unsound Economic policy.

There is immediate need to introduce a Import Sales tax on Finished Foreign Products, but the impact of such a Tax will be delayed; while immediate reduction of Trade imports must be made. This Author immediately calls for a 7-Day quarrentine of all Ships entering American ports. This effectively requires a 25% increase in Bottoms to haul the same amount of Product, requires a 17% increase in Shipping Costs of Imports, and leads to a 7% increase in Consumer prices. lgl

Tuesday, January 11, 2005


The Author is going to attempt an Essay, as he has been off-line for a few days, not keeping up with his reading.

Economists, Business Interests, and the Conservative Right(drifting into the Fascist Neocons) all believe Taxation remains the labor of the Devil. They maintain Taxes drag down the Economy, retard Business investment, and creates huge Accounting Costs for American industry. Taxes stand condemned for Unemployment, loss of Business profits, and when funding Welfare transfers--tantamount to killing Business incentive. They, on the other hand, stand first and foremost in the line to gain patronage by way of Government supply contracts. They finish by saying that Taxes, if they must be paid, should be paid by Consumption--not Income or Business Profits.

Study of the American economy will state that Taxes, especially Business taxes, are relatively low currently(in terms of real percentage rates paid). The American economy fought WWII with much higher real percentage rates of taxation. The wild growth of the 1950s-60s had much higher real percentage rates of taxation. Even the Reagan Years held a much higher real percentage rate of taxation. The Boom of the 1990s can even be seen, at least by this Author, as finding origin in a shift of taxation from Consumers to Business profits in real percentage rate terms. Propaganda relies on the fact that if you tell a Lie often enough, People will begin to believe it, even knowing it is wrong. There is no evidence that simple Taxes, as contratemps excess-charge taxation, causes economic imparment. The American economy between 1940-2001 belies such economic dogma.

There exists ample evidence that Government deficits, Current Accounts deficits, and Trade deficits all cause economic imparment. Government deficits can be elimated by a real percentage rate of taxation--without economic injury. Current Accounts and Trade deficits can be vastly reduced or eliminated by a effective real percentage rate of taxation. Taxes actually cures a vast array of economic adverse effects.

Consumption taxes are extremely regressive with adverse economic effects(refer to previous Post). Tariffs get a bad rap, and serve to control Production patterns which can be adverse to an economy(again Previous Post). Income Taxes, when properly set, provide an equitable method of tax payment. Business taxes do not impede Investment(Capital accumulation comes from a central banking system plus financial instruments), provide the best curb to Inflation(better than Fed rates), and take pressure from Consumers--who propel the Economy. lgl

Thursday, January 06, 2005


The author just finished reading:

Joanne M. Fish
Samuel J. McCraw
Christopher J. Reddish
September 2004

Academians can understand persuit of a document to the end, though the Reader disagrees with the basic precepts outlining the work. The above listed Work was of this order. Some excerpts to give perpective:

The NSS provides a comprehensive list of
rogue state attributes but then sidesteps important
issues such as how to apply the criteria, how to
identify and track rogue states, and when use of
force is authorized. To rectify these shortfalls,
we develop conceptual thresholds, or trigger
points, for each of the three components of the
converged threat. Only when all three threat
trigger points are crossed is the use of force
sanctioned (represented by the crosshatched
triangle in Figure 4). It is important to ensure no
single threshold inadvertently or prematurely
instigates military force. With the limited utility
of estimating reaction time for threats in the gray
zone, there is no proposed trigger point directly
related to threat timelines.

1) when FCP is
employed, the President needs the legal
authority to treat detainees as POWs—the
Geneva Convention’s categories of armed
confl ict and war are not suffi cient for the
converged threat;77 2) the military tactical
rules of engagement must be adapted for
use against converged threats;78 and, 3) the
United States must review posse comitatus
to establish new appropriate boundaries for
using the breadth of military capabilities
in operations synchronized with law

FCP can be used as a quick in and out operation,
leaving basic elements of sovereignty intact; or it
can disrupt the converged threat and contend
with the underlying causes by forcing a regime
change. The decision to affect regime change is a
function of reaction time, maturity of the WMD
threat, and state disregard or unresponsiveness to
international resolutions

Serious errors with this document:
1) Using Triggers, especially publicized Triggers, gives miscreants the ability to maintain either low visability, or disperse their activities across national borders--never tripping all three Triggers. (Case in Point: N.Korea is widely known to be planning to sell nuclear weaponry to rogue states, once their nuclear program is up and running.)

2) United States should never announce under what Conditions the U.S. Military will intervene; such publication abandoning the element of Surprise, and constrains Our own Initiative.

3) American pursuit of International support remains the wrong approach; International Sovereignties will never condone concepts of regime change as International policy. American policy should instead develop a publicized context of Intervention/Invasion. (The Author proposed a detailed scheme in a published Work: it's major elements consisted of: a mandated 30-Day period of Operation--exit whether Mission Goals had been accomplished or not; stated Mission Goals of Individual pursuit or Complex destruction; total and unilateral military action--the United States will enter and exit upon it's own discretion, without response or reply to any other nation; and the Military will not pursue Economic or Civilian targets.)

4) FCP advocates treating foreign Nationals as POWs, because of Triggers being tripped, with no reference to question of their guilt or association with Terrorism, Rogue states, or WMD.

5) Use of Force is a nulification of negotiation. Reestablishment of foreign relations holds little function when One Side can use obvious force. We should go in because of Need, stay only an established time, and use the phrase "We'll be back" if We need to be. lgl

Scattered Economic Data

Warning Signs: The new weekly Jobless claims jumped 43,000 to 364,000, maybe bad--maybe a simple blip with averaging only rising marginally over four weeks(wiping out the gains of the first two Weeks). The test will be tomorrow's figures on New Job creations, seriously disturbing if We dropped below 100,000 rather than the estimated 175,000. It would be the second monthly drop in a row, with the Dollar value falling, Crude Oil rising, Treasuries gaining in Interest realization, and increasing Prices overall. This must be termed Stagflation, even if it lasts only one Quarter.

The new Big Three Shipbuilders are South Korea, Japan, and China. Shipbuilders have record Orders because of the expansion of the Chinese economy, with Japan producing as much Steel as in 1973, it's previous record year. The Problem here: The price of Steel has risen approximately 30%, and most Shipbuilders are facing losses because they are completing 2002 Orders with current Steel prices. Japan, itself, borders on Recession even with the increased demand for Product, because of the increase in Energy and Material Costs.

China had restricted it's import of Soybeans in 2004, and the World price of Soybeans dropped 30% since. This does not bode well! China indicates it intends to maintain and enhance it's Trade surpluses, while refusing to unpeg the Yuan from the Dollar. This is disadvantageous to all of it's Trading partners. The Soybean crop in Brazil(second largest Producer behind the U.S.) is threatened by Asian Soy rust, which has been detected inside the United States this last year. It can destroy 80% of the planted Crop if left untreated by fungicide(2-3 applications), and spread through 80% of the Soybean Croplands of Brazil since its introduction some four years ago. (The Author once tried to buy 8,000 of Brazilian Soybean Cropland an age ago, when it was selling for $4 an acre.)

The one element which glares out from December Sales reportage is the high Price-responsiveness of the Sales. Retail Chains had to slash Prices in order to maintain Sales volume. Only Prestige Chains could maintain Prices and volume. The reported Sales volume simply suggest it was maintained at real constant volume with last year(Inflation-adjusted), only by cutting Prices and Profits to levels of real constant pricing with the previous year(Inflation adjusted). Retail pricing can be a good economic indicator in itself, and it suggests that 2004 was a No-Gainer on the economic stage. (Data derived from NYTimes, Reuters, AP) lgl

Wednesday, January 05, 2005

Universal Health Care--Payment Schedules

Medicare and Medicaid break the Social Security system and State Budgets. There seems no methodology to forestall this fact. Both programs break the fiscal Sponsors, and they do this because they are not inclusive; the programs lack funding due to the fact they cover the entire potential Population, but possess a constricted Tax base. This Author believes the only Solution must be integration of the entire Population into health care. The trouble with a universal Health system lies in the bureaucracy of Government. Traditional universal Health Care systems operate very inefficiently. He previously offered a potential example of a working universal Health Care system, but did not enter into the Funding payment schedule for a Health Care system of universal nature; this is the 'Meat and Potatoes' of any discussion. Here is the Author's Health Care Plan in terms of a Payment system:

1) Medicare and Medicaid would be phased into a universal Health Care system,
2) Government would draft a health insurance policy with the Insurance industry, which would cover basic necessary medical care, including all Proscription drugs, but would have a yearly maximum financial obligation; Hospice Care, Pain Relieve, and Injury repair to be excluded from the limit on financial obligation. The basic premium rate would be negotiated yearly between the Government and a Insurance industry board of negotiators.
3) The Bureau of Labor Statistics would determine the peak Income-earning Years of all Labor, each Age-year given a factor multiple (Year One--0, Year 14--0.4, Year 30--2.8, Year 50--3.7, etc.). Premium rates would be set by peak earning capacity, not by the current system of expected health care cost per year.
4) Employers will be obligated by law to match Employee contribution.
5) Only American citizens and their Dependents(Resident or Nonresident), or foreign labor employed on American soil(Dependents must be resident) will be covered by the universal health care system.

Certain reservations occur with this Payment Schedule: Only American citizens and their Dependents will be covered in conditions of Unemployment; foreign labor plus their Dependents will lose medical coverage upon Retirement; Employers will actually be underfunding the universal health care system under this Plan--so some inequality to their bias may need to be introduced; Insurance companies must be refused the ability to refuse medical payments, but allowed to make only industry-standard payments in lieu of excessive charges.

This is the best the Author can come up with. We must resist the Money gleam in the eyes of the Health Care industry, resist expansions of Coverage, resist Insurance industry desires for huge Profit-taking, and listen to the protests of Employers; still, We could get through this. lgl

Tuesday, January 04, 2005


The Author grew up on a Nebr. farm, and worked on a Feedlot during High School. He likes to express his 'Hick' roots, simply as manesfitation of pride in his deceased, small Farmer father. He like additionally to eat a majority of Beef, thinking the admonishments against eating red meat to be overdrawn, even if accurate. Below is presented:

State of the Beef Industry 2004
Gary May and John Lawrence

It is a good Report, but the real 'meat' was in the Sidebars:

Reflecting decreased production, per capita beef consumption declined by four pounds in 2003.
Retail beef prices set a record in 2003, reflecting reduced domestic beef production as well as imports.
Beef trade was interrupted in 2003 by BSE, as import restrictions cut off Canadian imports for three months.
Beef and dairy cow numbers declined during 2003 for the seventh consecutive year. The dairy industry reduced their cow inventory as well.
The 2003 calf crop was the lowest since 1952. The 2004 calf crop is projected to be down another 1%.
The total cattle inventory for January 1, 2004 was 94,882,000, representing the smallest inventory of cattle since 1959. Beef cows accounted for 35% of the total inventory.
Registered cattle account for less than 1% of the 95 million beef animals in the U.S. However, these 706,974 cattle are the genetic base of the beef industry.
Fed Cattle prices set all-time records in the fall 2003, boosting the annual average price to a record level as well.
Cow/calf returns have been relatively favorable in the past 5 years, suggesting producers may be willing to build their herds in 2004.
The number of beef cow operations in the US totaled 792,000. Contrary to other segments of the livestock industry, the beef cow sector is relatively diversified and does not appear to be consolidating.
Feedlots with 1,000 or greater head capacity make up only 2% of the total U.S. feedlots but they control 82% of the total feedlot inventory and 85% of the total marketings.
The "Big Three" process 72% of steers and heifers, 63% of all commercial cattle.(Tyson, Excel, and Swift--with Farmland not far behind)
Cattle slaughter in 2003 was down 0.8% while beef production was down 3.3%.
The number of smaller lots make up almost 98% of the U.S. total, but only market 15% of the total cattle marketed in the United States.
The larger feedlots continue to grow much faster than the moderate-sized lots.

Other items were included:

With the exception of Canada and Mexico, the major foreign markets for US beef products remain closed. (The Author read recently that American Beef is back in Japan, he thinks)

Outlasting any impacts on the demand for beef will be the new regulations enacted in the aftermath of the announcement(BSE in the U.S.). For example, packers are now required to segregate and remove specified risk materials from cattle over 30 months of age. Furthermore, slaughter plants can no longer accept sick or lame cattle, forcing producers to dispose of these animals at a cost rather than collecting salvage value from their sale.

In spite of a record corn crop in 2003, corn prices are climbing to the highest level since the 1995-96 marketing year. Even 30-40 percent higher corn futures were unable to lure corn acreage away from other crops. Consequently, most market analysts believe a record crop will be needed to keep harvest prices in the $2.75 to $3.00 range.
Some may need a scoresheet to analyze this data; if you don't, the Author will give you one anyway! The Cattle population has dropped drastically since 1959, and need be recouped. The increases should come in the Purebred Cattle(best-flavored beef is Angus). The Cattle population should exceed 100 million again, both to lower Retail price for Consumers, and to utilize grazing land and Feedlots fully. Feed prices has been adversely affected by the recent Farm bills--which encourage and underwrite large Corporate agribusiness in their monopoly pricing by constriction of Feed supplies. The concentration of Feeders in conglomorate Feedlots leads to adverse feeding conditions (highly chemical-based). Small Feedlots lead to more environmetally sane feeding practice, and due to the less-Processed feeds used, produce higher quality Beef. BSE probably would not have entered the U.S. if small Feedlot operators had excluded the 'recycle' cannibalism feed practices of the big Feedlots. USDA should be required to reimburse Producers and Feedlot Operators for destroyed Cattle under the new regulations; one lost Head will normally destroy the profitablity of five Head. lgl

Consumption Tax

This Author has long opposed a structural Consumption Tax, accepting certain forms of Consumption taxations to redirect Production sources or materials; he currently favors an Import Sales tax to curb import of Finished Goods. President Bush, on the other hand, does favor a basic Consumption Tax replacement for most Income and Capital Gains taxes in force presently. It is incumbent to study economic effects of Consumption Taxes.

Consumption Taxes are basically regressive in that lower-Income Households inevitably pay a higher percentage of their total Income as tax, than do higher-income Households. The higher expenditures of wealthier Households only marginally affect this regressiveness. The reason lies in the necessity of lower-income Households using a higher percentage of their total income for consumption purchases. The lower the percentage of total income a Household expends on Consumption, the more favored the Household under a Consumption Tax.

Consumption taxation interacts with Inflation. Modern extension of Consumer Credit propels the Economy, but it also propels a normal Inflation rate of about 1.4% under the best of conditions, and generates higher Inflation with increased levels of Consumer Debt: based on a formula where debt service becomes additional creation of M2 supply(think of addtional Interest as more money). Now enters the Consumption tax based on the Retail cost of the Products purchased. Consumption taxation, combined with modern extension of Consumer Credit, has yearly assured increases of tax revenues. Now comes the real Tax sticker: Whoever spends the greatest share of total Household income on Consumption, pays the greatest amount of the Inflation-generated increased Consumption Tax revenues. The Consumption Tax becomes increasingly regressive under the impact of Inflation. This is true whether or not the Consumption tax rate changes.

Economists should also fear the imposition of Consumption taxation. Consumer Demand is generated, or cut, by the total magnitude of the total cost to the Consumer--which includes taxation. The initial Tax rate has an impact, but so does the Inflation rate. Now becomes the horror: the actual regressiveness of the tax is factored in, and the rate of regression is deepest among the lower-income Households. They will reduce their Consumer Demand by the total impact of Tax and Inflation on the basis of the total percentage of their total income used for Consumption. Explained in alternate fashion: higher-income Households, under impact of Consumption tax plus Inflation, can increase their consumption by the amount of regression existent in the combination; as long as they maintain the total percentage consumption to the total of their Income below the consumption percentage levels of lower-income Households, i.e., the later Households effectually pay the inflationary impact placed on the higher-income Households. Economic instability results in the fact lower-income Households must maintain a Consumption pattern about 60% of expenditure levels of higher-income Households to pay for all Household equities, though they often have only a quarter of the Income--guaranteed to be overtaxed by a Consumption tax.

Further Posts will examine exactly why Corporate Executives, fueled by Stock Options and Stock Grants, want the elimination of Capital Grains taxation and the highest rates of Income Tax. lgl

Monday, January 03, 2005

Short-Term Oil Supply

Current dogma suggests Oil will remain high, around the $40/barrel range. Some suggest it could not drop below $30/barrel. They ignore fundamental factors in these estimates. The North (Worldwide) has basically made it through the Winter; if Fuel is not already in the pipeline, People are going to get cold. The second element consists of full employment of Drilling rigs Worldwide, still too few, but realistically bringing in 2500 new wells per year. Geology has improved to the point almost all new wells are high-end producing wells. Most of these new wellheads are being drilled in politically-secure areas, as well financiers become smarter. No number of Terrorist attacks on wellheads or Pipeline will cancel the added Quotas of the new wells plus old fields; capital replacement of destroyed equipment in old fields requiring an average time of Sixty days.

China cannot sustain the level of economic growth undergone of late years. Transportation and Tranmission systems dictate static growth rates until infrastructure completes construction. Chinese production will lose profitability through Above-average Transport Costs, alongside intermittent and higher-cost production materials. Japan will rise to the occasion to replace Chinese clog, but only with much higher cost to Consumers. Other cheap labor Countries face the same Transportation clogs as China. The World economy is going to slow until infrastructure is built. The Author's wild guess is Oil demand from Asian nations will decrease by 9-12% over the coming Year.

Construction on residental housing slowed in the U.S. in November by 0.3 overall. Most Economists think this is a momentary blip on current trends, but the Author disagrees. Seventy percent of American Households currently own their own homes (counting the mortgages). This level prohibits maintenance of the current Construction levels, with an Author-estimated reduction of New Starts construction of 7% over the new Year. Public construction appears maximized, due to rising Public debt with an already high level of construction. Private Business construction Starts were down in November, and will stay down approximately 15%, until domestic production replaces cheap Imports--which will get more expensive rapidly, if the Federal Government does not balance the Budget. Loss of Oil demand from Construction, back to the original argument, will be about 10% over the current Year.

Propane and Heating stocks actually are beginning to improve, as the United States requires less importation of such fuels. The Worldwide demand for Oil will decrease by some 8% overall over the current Year, and by almost 9% in the United States as estimated by the Author. OPEC's planned reduction of Oil production will only eliminate 3% of the reduced Oil demand Worldwide, if the Author is correct. Here comes the Author's wildest prediction: Sweet Crude will be $25/barrel by June. lgl

Sunday, January 02, 2005

Prediction for 2005

Predictions hold the greatest dangers for an Author, as it is here that he turns into a laughingstock. Prophets suffer from a very short life expectency. Predictions, though, still hold some value to Readers and Authors; they allow All to realize the utility of the central core thought. So this Author again sinks into the masochistic, suicidal art of propheteering.

The American Economy will grow at Two percent or less over this year. Reevaluation of economic data since the last Recession will find this to be the realistic rate of growth yearly from the confirmed low point. Consumer Prices will rise 14% over 2005, due to the devaluation of the Dollar and heavy American consumption of both foreign products and materials. Economists will attempt to hide this increase from the CPI, but they are able to reshuffle the bag of Goods only so much. The one bright spot is the drop in Oil prices, due to the increase in productivity coupled to a reduction in demand--due to higher American prices overall restricting usage both inside and exterior to this Country. American Exports will find zero growth, while American Imports will only be restricted by American Consumer inability to pay.

The Federal Budget estimate will predict the highest growth in Tax revenues on record, while actual economic growth rates would suggest no greater increase than $40 billion, and lower American Consumption figures may entail actual decrease in Tax revenues. Most Economists estimate the total cost of Iraq will be an additional $100 billion over a decade. Maintenance of current Troop levels in Iraq will require $30 billion per year, or $300 billion over a decade. Two things are relevant in this Estimate: 1) Troop levels cannot decrease without a huge upswing in Casualties--Troop levels are too low for Presence now; 2) Iraqi insurrection against American occupation will only increase, especially if no uncompromised Iraqi Government is emplaced.

Privatization of Social Security through Private Accounts will prove of far greater Cost than Economists perdict; their estimates adjuding no exterior effects to the functional increase in investment. P/E ratios will be adversely affected for Stocks, Bonds, and Hedge funds for at least a decade. Interest on Treasuries will have to increase by two percentage points to gain the funds to replace the tax losses to Private Accounts. Reduced Consumption due to higher Consumer Prices, due to the fiscal irresponsibility of Government debt, will reduce FICA taxes overall (this Author estimates a percentage amount greater than the percentage loss to Private Accounts).

Two factors glare out to All who study the Issues. Factor One states the Expenditure Curve of U.S. Government--Federal, State, and Local--stands as ridiculeous, and serves as actual detriment to economic growth. Factor Two expresses a real need for Tax reform, not with the goal of reducing taxes, but with the goal of increasing Tax revenues. The U.S. economy has had about as much needed stimulus, as a blind man falling off a cliff has need for encouragement to learn how to walk by himself. Republican and Democrat are equally at fault, with the Corporate Executive and Economist equally guilty. The Bush economic stimulus has been nothing but inflationary, though the real inflation has been hidden by transference Overseas. The Proscription: We must balance Government budgets, and do so by taxation, and not by cutting domestic spending; Domestic welfare programs are already deplorable unfunded. These Factors must be adjusted before sustainable economic growth and living standards can be realized.

The secondary goal of Tax reform must be spur of domestic production. This cannot be accomplished by tax concessions, as the primary goal must be increased tax revenues. This means Tax regulation which penalizes foreign sourcing of Product to sell in the American Consumer market. This penalty should be split between American Consumer and Business; this meaning a special Sales tax on imported Consumer Goods, and elimination of tax concessions and higher Business tax rates on Profits made from importation of Finished Goods.

Such is the Author's thought on the new Year. lgl

Saturday, January 01, 2005

China as Threat

Chinese leadership fears loss of control because of the precidents of the Soviet collapse and Tiannenmen Square. One of their greatest perceived threats comes in loss of support from the PLA--or Peoples' Liberation Army. They have just issued another Defense White Paper, where they propose to accelerate the alteration of the PLA into a more submissive instrument to Chinese leadership policy. They intend to do this by a number of Initiatives--most ongoing for the past decade or more:
1) increased indoctrinization of military personnel
2) reduction of total military force levels to loyal membership
3) Separation of military personnel from local social activities
4) Forestalling military personnel from developing equivalent pay alternative Employment skills
5) Paying military personnel higher Wages.

Some very telling quotes from the Paper:

Since the founding of New China, the work of supporting the PLA and giving preferential treatment to families of servicemen and martyrs has been gradually legalized and standardized. The State Council has, in succession, promulgated the Regulations on the Commendation of Revolutionary Martyrs, the Regulations on Compensation and Preferential Treatment for Servicemen and the Regulations on the Resettlement of Demobilized Conscripts. It has also formulated and issued policies and statutes on the resettlement of officers transferred to civilian work, on the employment of the accompanying spouses of officers, and on safeguarding the legitimate rights and interests of servicemen and their families. The Ministry of Civil Affairs and the PLA General Political Department jointly issue circulars on New Year's Day, the Spring Festival and Army Day every year on the arrangements for the work of supporting the PLA and giving preferential treatment to families of servicemen and martyrs and supporting the government and cherishing the people

In December 2003, the new Regulations on the Political Work of the Chinese People's Liberation Army was revised and promulgated. The regulation maintains that political work is the fundamental guarantee of the Party's absolute leadership over the armed forces and the assurance for the armed forces to accomplish their missions. It clearly defines political work as a significant component of combat capabilities of the PLA, and stresses the importance of giving full play to the combat function of political work. Education in the RMA with Chinese characteristics is given PLA-wide. Wartime political work is studied and rehearsed extensively. Political work is strengthened in all services and arms as well as the units carrying out special missions. Education in the PLA's functions and sense of urgency has been intensified in the PLA so that officers and men are motivated in their trainings and a tough fighting spirit and a good working style are fostered.

Implementing the Strategic Project for Talented People, the PLA focuses on training a new type of high-caliber military personnel.
The Chinese leadership feels threatened by the rise of civil unrest brought on by the growing disperity between Rich and Poor, Rural and Urban in China. The number of riots in China have been increasing greatly in percentage, with widespread vocalized resentment of Governmental officialdom. The numerial increase in Defense White Papers (more than one per year since 2000) indicate their dependence on the PLA to stay in power. They are losing the support of the civilian population, who want better living conditions and more equitable distribution of Wealth. The real threat from Chinese leadership comes over the Tiawan Issue, with the Separatist movement, which is a political high-Prestige issue for the Leadership; they having publicly indoctrinated both PLA and the masses in the One China concept. It is the Issue which could finally bring down a outdated regime. lgl