FEMA

Tyler Cowan probably has the best Post of Today, discussing methods to better Disaster Response performance. The entire subject needs to be explored objectively. Mandatory Risk insurance will be an added burden on the Poor, driving them from currently affordable Housing, while giving Insurers carte blanche to set unacceptable rates. The problem is not with the principle of FEMA, but with the organization of it.

I would turn all of FEMA into a loan program. How? By turning FEMA into a modified Banking and Equipment Service Center. Congress would establish the FEMA loan system, coupled with an automatic Federally-imposed Income Surtax upon any State which owed FEMA for extended Loans or Rental of FEMA equipment (said Equipment to be loaned with or without Skilled Operators, but States would have to prove presence of Skilled Labor to obtain the cheaper Rental). What would this do?

The States would be in charge of the Disaster relief process, immediately responsive to the needs of Home and Business owners in the affected areas. The entire State would find it advantageous to acquire a Group Risk Insurance policy, to help defray the Cost of the special Disaster Federal Surtax to repay FEMA loans. The Poor would be assured of necessary maintenance for their Homes under Disaster conditions, and Small Business in affected areas could avoid destruction from lack of sufficient funds for Reconstruction.
----------------------------------------
Like Jeff Cornwall, I like this Columbus Dispatch article about Shippers moving into the Small Business supply mode. Will such practices actually add much to the GDP? The idea is humorous, but carries a real hedge against Recessive conditions. The more business out there, which is providing real Return to their Owners, the greater and more sustained is the Consumer pool. Multiplex small business infrastructure holds relative premium status for Market continuance. lgl

Smart Thinking?

Larry Summers has begun writing a column in the Financial Times. It starts with a really good shot, and deals with the ‘Left Behind’ of the globalization world. Arnold Kling remains a skeptic of middle class squeeze. I stand on the position that Those who lose out from globalization may not exceed Those who gain, but are of such magnitude that the Objective must be to provide a Soft Landing for Those who do fail.

Ritholtz has a very important Post on real placement of the GDP values. I have revised my personal estimates, believing We have entered a Contraction already, which started with the decline of Factory Orders last month. This was combined with a delay of Factory Delivery of Orders, and a build in Retail Inventories. The Oil Price drop was accompanied with a general drop in Material Costs which was not economically sympathetic. The increase in Civilian Aircraft orders hid apparent Manufacturing and Construction shifts.

Dean Baker likes pay-as-you-go auto insurance, as do I. He uses as a disincentive for Energy consumption which is Cost-free as it does not raise the Costs of Insurance. I like the Concept for its propellent inciting People to adopt Mass Transit systems. People regulate their Long Distance and Cellphone charges by limiting their Communication time. Individuals will start to utilize Mass Transit systems to cut Household Costs. lgl

Perils of Blogging

I wrote a blog Post this Week, and received a sudden reaction--for which a reason was not forwarded. It does not matter--these things happen, but I wondered why it occured; it taking me until Today to mentally review the Incident and Post in question. I, like all bloggers, often am hammered by a tight schedule, which can lead to inattention. I puzzled over the Post I had written in my spare time, and finally realized why the reaction.

It was the use of the terms 'Models' instead of the useage of the term 'economic Models'. It was regretable most for being the second mistake on the Post which I corrected. The upshot of the two mistakes comes in an inadvertent insult to Dr. Menzie David Chinn. I wish to apologize to Dr. Chinn for the lapses on my part, entirely due to lack of attention to detail.

Here is a list of Dr. Menzie Chinn' achievements:

Ph.D., Economics: University of California at Berkeley, December 1991
M.A., Economics: University of California at Berkeley, June 1988.
A.B., magna cum laude, Economics: Harvard University, June 1984.

Professor of Public Affairs and Economics
Previous Senior Economist for International Finance, President's Council of Economic Advisors, 2000-2001.

(I sure pick the wrong people to wrong.) lgl

A NYTimes article comes on strong with a praise of Gridlock. All professional Observers quoted in this article seem off the mark to this Author. Gridlock may be something We cannot afford; needing decisive leadership to eliminate the Deficit, repay the oversize National Debt, and rationalize the Tax system. Making the Tax Cuts permanent ford not accomplish any of the Above.

Republicans could get rid of the ‘so-called Death Tax’ which refers to elimination of the Inheritance tax, if they would acquiesce to some form of taxation. I would suggest leaving the non-Pay deductibles at the same level, and charging on a Social tax equivalent to the combined Business and Personal tax for Social Security–or around 12%. I deem this a positive decision which would raise Tax revenues, while removing the motive impulse for Tax evasion and finding alternatives to acceptance of the imposed Tax.

The Tax Code must be revamped, and special provisions removed, to be replaced with a low, uniform Tax rate applicable to Everyone. I would even eliminate Personal Exemptions, only allowing Dependent exemptions where dependency is proved. Much anger will flow from this Statement that the 401(k) style programs have been a failure. They have not resulted in adequate levels of real Investment, only generating a Paper inflation of actual non-Investment so that Corporate Executives could make windfall Profits from Stock Options and Grants. 401(k), IRAs, etc. should all be canceled, replaced with a Savings credit on Bank and financial instruments equal to the Interest rates attained from this Paper, so the effective value of Savings is doubled.

Corporate Tax credits need be eliminated in all forms, it replaced with a lower Corporate and Business Tax rate of 0.0% for Earnings less than $100,000, 10% for Earnings less than $1 million, and 22% for Earnings over $1 million. All Corporate shifting of Tax burden backwards or forwards will be canceled; Tax will be paid the Year in which it is earned. The Practice of splitting into taxable Divisions so Tax payments of subordinate Divisions can be accounted as losses must be stopped; such Accounting practice will only lead to double taxation as full Charges are assessed. Payments between Corporate Divisions also must not be accounted as Expenses by the Covering Corporation. Claims of Double taxation and/or double Expense will not be accepted by IRS auditors. lgl

Taxes and GDP

George W. Bush feels the Republicans can gain ground if they claim Democrats want to increase taxes. Democrats refuse to confront the issue of Taxation directly, saying basically they would let the Tax Cuts run out according to schedule. Democrats are allowing the Republicans to set the agenda on Taxes, and in a manner in which they can be defeated.

The Democrats need to challenge the Republicans to show that the current record of Federal expenditures without sufficient Taxation is viable economy policy. Democrats should set up a publicized Table showing how the National Debt will mount under current expectations of Federal Spending levels and estimated Tax revenues. The Table should include a column showing the increased liability per Taxpayer each Year, and a column expressing the added Tax liability in Dollar terms for each Taxpayer to replace the expected Debt with zeroing the Budget: where Expenditures equaled revenues. A second Table should relate how this Tax increase is spread across Income levels, under the current level of progressivity of Tax placement.

William Polley has written an excellent article, GDP disappoints, on the possibility of Growth or Recessive conditions. It should be read carefully. His doubt of a Growth reading less than 0.5% for Q4 surprises me, though. Examination of the basics leads me to think that Civilian and Military Aircraft contracts will decline drastically in Q4, Auto Sales will stay relatively static, and the Housing market will go even lower. This puts pressure on Christmas Sales to make up the difference, with a market increase over last Year’s Christmas Sales to even break even. I don’t think it will happen. lgl

Conservative Thought

Here We have an example of Conservative Thought. Charging higher Incomes a larger premium for Medicare coverage would supposedly unravel the system. They act like higher Incomes wait immediately upon such higher premiums in order to transfer for the costly and risky venture of Private Health Care, where they can be unsure of the Coverage and pay more. One questions an assessment which finds health care universality mandatory, yet probably insists on poorer Incomes not receiving as great a benefit in monthly allotment because they did not pay as much into the system. Do We have ‘Wolves in Sheep’s clothing here?’

Bad News with a heavy economic contraction in growth in the 3rd Quarter to 1.6%. This fits in with overall news, but Consumer Confidence seems to be high. It might be the prospect of change in Policy accompanying a change in leadership by way of the Election, real belief in the future, or the whiskey talking. Whatever: I would suggest George W. Bush stop campaigning on the strength of the economy.

The Above was the real News headline of the day. Inventories are high, but Orders are down. Most of the loss came in lower Fuel Costs, but real Downer comes in the form of reduced Business Investment. The Housing Price reductions were also a motivation, but previous Posts will detail why I am not sanguine about a return of Housing and Construction overall. The Christmas Season means everything at this point, because bad Retail Sales in the final Quarter can lead to the spector of loss of Jobs. lgl

Recession or Growth?

Year over year Home Sales down 14.2%, though largest Price slash in 36 years. Kash cautions that the Housing market has not seen the potential worst, and provides historical and current data. Ironman at Political Calculations finds a 43.9% chance of a Recession. Menzie Chinn provides a good article detailing a more coherent analysis of the chance of a recession (though the young man tends to be avidly addicted to Models). His (mea culpa: I first referred to Menzie as a woman; I reread my own Post, and decided to google is find out his gender) most important point may be missed: future Monetary policy will have much less impact because of the vast increase in Housing stock since 2001, around 45%. Another datum not provided consists of the youth (newness) of the Plant, Capital Equipment, Stock, and Consumer products (unknown by this author, but obviously at least 20% younger). Fiscal policy, meanwhile, remains hampered by Entitlements, and a Congress dedicated to high Defense spending for futuristic weaponry.

Jeff Cornwall wrote a short piece on Worst Case scenarios. I am like Jeff’s father, I prefer to know what I will roll out with, if it all goes to hell. Tyler Cowan has two Posts, here and here, which discuss the limits and potentials of State welfare systems based on the Nordic. Tyler's later piece provides strong suggestion that the Nordic model would not be transferable to societies which lack homogeneous nature. I would provide the Alternative: institutionalization of Public trust so that all benefits attained would be uniform in nature and largesse.

What have We learned today?

Monetary and Fiscal policy will decline in effect and impact, when they have previously been overutilized. Economies will only submit to a limited degree of stress, before Economies counteract to eliminate response to such stress. This establishes the rule that only so much economic fuel can be applied to the Economy, before it becomes useless to attempt any further directional push. Where do We go when a Economy starts into a Recession, after the Boom was created by economic fuel in the first place? We come back to a Nordic model of Welfare State with some degree of Government management of economic resources. lgl

Theory and Facts

Alex Tabarrok and Tyler Cowan write good denials that Natural Disasters bring a rise in measured GDP. I must supply a Dissent. The added Demand created in the Materials Markets raises Investments in Mining and Lumber operations; Business outside the Disaster area do not reduce their Construction schedules, they simply pay the higher Pricing for Materials and Construction labor. Business within the Disaster area receives new Plant and Equipment at below normal Market prices–due to Insurance and Government aid. Most of the Displaced Labor from a Disaster quickly find new Jobs either in Clean-up operations, or with the Specialty skills they possess elsewhere in the Country. All of these things bring increased measured GDP.

Kash works on the misconception of Minimum Wages costing Jobs. Where exactly does Business opposition stands to an increase in Minimum Wage? Business personnel do not fret about lost Jobs for the Poor, they knowing an minimum Labor force level remains necessary for business operation. They fear for the Profitability of Small Business, especially the Restaurant trade where they eat Lunch and often Dinner. They know they will not forestall the practice of Eating out, and Minimum Wage increases will be passed onto Menu prices. It is not only here! The Small Business Independent who clears only $2000/week finds a $75 per laborer per Week for Cleaning staff horrid. What am I getting at? There is no worry for Labor, simple worry over Profit margins. David Leonhardt says that a small reduction in Minimum Wage Jobs may be worth it, if it raised the Living Standard of all Minimum Wage laborers.

Ilyana Kuziembo and Eric Werker define the economic diplomacy of the United Nations. Their Stats are fairly accurate, but only reflect the state of International Politics. It could be slightly better if they researched the ‘feather-bedding’ of the United Nations itself, and examined the reasonable estimate by myself that less than 15% of all assistance actually gets to the designated Poor or Disadvantaged. lgl

Economics and Politics

Tyler Cowan wonders if the FASAB’s recommendation should be accepted, and future Liabilities from Entitlement programs be listed in the current fiscal Budgets. The Pro-argument states the Legislative process might get more fiscally responsible while under pressure from Public exposure of longterm Costs of their activity. The Con-argument states neither Party could possibly want it, as Politicians would lose Popular Support, support from Special Interests, and an immense lot of Campaign contributions. I favor Exposure, and might even get George W. Bush’s support, if the Exposure started the Year after he left Office.

David Altig presents a good Post which he titles ‘Laffer’s Defense’. It is good analysis of tax revenue generation under varied series of Tax impact. I seriously don’t see it as a likely defense of Laffer. Here is the Problem: All Specialty forms of taxation incur drain of Income reportage and expenditures to alternate forms where tax impact is avoided. There has to be a universality of Taxation, where Income shifts do not affect Tax impact. I have always claimed that a Flat tax is viable, if and only if, it taxes all forms of Income irrespective of generation. A lot of Economists would disagree, saying some forms of Income should get preferential treatment for economic growth. I always respond that the best Incentive for economic growth stands as a low, universal Income tax which must be treated as a Production Cost.

Eduardo Porter still does not get it: It is the Economy! Voters are unlike Economists and Politicians, and view the Economy only from the impact on their Households. Bush promised great economic gains with his Tax Cuts, which Republicans proclaim, but Economists remained divided. Voters see advancing Product pricing (except for Oil, which Oil Producers, Oil companies, and Speculators attempt to reverse, and Consumers have expectation that they will) coupled with relative stagnant Wages and Salaries for themselves. They look back at the late 1990s, and ask ‘How the hell did the Republicans get Us here?’ lgl

A monozukuri campaign for America

Japan is losing it's skilled manufacturing labor similar to the United States. Young school graduates opt for the easier life of sitting at a computer, or gossiping as a Retail clerk. American manufacturers can relate to this issue, as they have to look to Those who do not speak their native tongue to gain conscripts for their production. Why do We suffer thus?

Here resides the information to help One understand the need for a monozukuri campaign. Can an industrial economy truly function without an effective Labor Movement? Entrants shy away from Occupations where little protection operates to maintain Income in real or nominal terms. Current Business practice forestalls true development of Craft skills, and even Production speed; it demanding rights to downsize and shift Production source to maximize Profit ratios, without any consideration of Labor duress. They are the worst practices, but not the only practices which destroys vitality in the Labor force participation.

Business insists on automation of production process, but then abandons Labor to still exist and work in bad environment. People doing nothing more than monitoring computer screens still need stand on the Production floor in the Smoke and Grease. I have long advocated closed Production, where supervision of automated equipment could be managed and operated within Office work conditions; still retaining the Craft skills necessary for superior Production. I witness Car maintenance facilities cleaner than my own home--I'm sloppy Okay?
------------------------------------------------
Felix Salmon wonders whether a steady relationship between National Defense and GDP would be a good thing. He does not trash the graphs used by the WSJ, but he probably thinks as much of them as I do (remember, much of the data came from a time without Walmart or Color TV). Can there be massive Car Sales before an Interstate system? It is all a debatable question of relative Volumes. Mark Thoma finds that Afghanis do not like Toll roads either.
-----------------------------------------------
Car manufacturers are squaring off against the Soccer Moms. Will they win? It can actually be hoped for their success. Proposed regulations demand too much, will Cost too much, and further sap fuel economy. Moms must realize that if they are going to haul the little Snots all over, there will always be some risk. lgl

Wrong Side of the Bed?

I sometimes wonder if it is only that I feel out of sorts this morning, but I read several Pieces which gave me a bad attitude. Mark Thoma examines the behavior pattern of the Poor. My own take, maybe being Poor myself helps, states Poor people do not trust people who they cannot identify with, and make their economic decisions so as to be able to deal with People who they can understand and be understood. It is worth any added Charges involved, and they realize the People they deal with are just trying to get by as well; no one expecting to become wealthy.

Mark Thoma again provides access to the Cost of the Iraq War to Iraq. These type of Studies remain basically flawed, because they ignore the basic realities of the warfare itself. One cannot determine losses in terms of what mature labor could have accomplished in pre-war Iraqi society. The destruction of infrastructure by the War precludes the same Income-earning capacity. Loss of lives, at this point, generates actual Savings to the Iraqi economy with a reduction of Services which must be provisioned; this is not to say Iraqi infrastructure should have been destroyed. It is simply to state brutally that the elimination of labor assets generates a higher Labor return for the remaining labor assets under current economic conditions.

Greg Mankiw gives access to discussion of the Libertarian swing vote. I think they, and Greg, make a fundamental mistake: they think that a significant number of Voters are fed up with the expansion of government. This is very true, but the number of actual Libertarians is very small. What People are fed up with consists of too much being done: there are too many Government programs, there are too many social programs, there are too many social associations, there are too many family problems, there are too many social problems, and there are too many Products on Retail shelves. They are tired of all the Junk, of all types, and most especially of rising Prices for Products they don’t want in the first place. There is a basic thirst for Peace and Quiet, of which All could attest there is an acute Shortage.

Maybe the real injury I feel comes from the seeming celebration of the fact that Sweet Crude has dropped below $57/barrel, for the first time this Year. The Production mechanics still attest that Oil is overpriced by some $13/barrel. I get a malacious joy at the thought of the OPEC ineffectiveness in imposition of a Production Cut. Could it be this ineffectiveness will reign until Oil drops another $13/barrel? lgl

Changes

Tyler Cowan likes Means-Testing of Medicare, as do I. Means-Testing has infinitely small impact upon the aggregation of wealth, and promotes Tax progressivity without stringent duress. Means-Testing can also be altered to a form where Specific services are paid for, and exotic or excessively-expensive services must be paid Out-of-Pocket. An important element would be introduction of Statistical Success ratios mandated to be observed past a certain Age.

The Above may sound like a form of ‘Mercy Killing’, but it does not have to be. I would think an evaluation chart of five sections with about four measurements apiece past a certain Age with set overall Score level necessary would be sufficient to determine whether an individual was a qualified medical Candidate for advanced forms of medical treatment. The wishes of the Family, or the sentimentality of the Doctors, seem a poor judge for determination if Public Funds will be utilized to keep a Patient alive past his natural death.

Solar Power turned into a business with realistic Production Costs and Profit Margins. The final step must be taken, with these businesses integrated into the Utility Power Grid.

Agriculture gains can be made in Crop development, but do Developers fully comprehend what is necessary? We need a viable Wheat plant that possesses the viability of the original grasses found by Pioneers. An effective Wheat would only have to be planted once, repetitively growing each year thereafter. It’s roots would extend some 12-20 feet into the earth, so as to be highly resistant to Drought. It would be capable of being grazed by animals for most of the Year, excepting a Six-Week period prior to the harvest of Grain with High Yields. Impossible? I think not!. lgl

Pigou?

Greg Mankiw likes Pigou, Others don’t. What if I propose something which is both better and worse, at the same time? Will I been honored, or pillared? You Kids will be able to understand the danger of being different.

Opponents to a Pigovian tax on Energy ask how it can be determined, without the avarice of Special Interests interjecting their evil designs, while the Planners cannot adequately decide the proper size or Percentage that the energy tax should take. Pro-Pigovians say any form of tax will have beneficial effect, and functionally, any level below economic retardation has benefit.

My Special Case Pigovian Taxation:

The Pigovian tax should be passed, but not allowed to victimize the Consumer. We also need a Forced Savings plan in this Country, to care for all the Costs of Ageing. Here is my law for Pigovian taxation of energy:

All revenues collected are to accrue to the Consumer’s own personal Saving account (We are talking Credit Card style Accounting here). The Tax will be exactly equal to the Cost of the Energy source, and all Proceeds from the Tax will be deposited in the personal Savings accounts. No Withdrawals will be allowed for at least one decade past their deposit, and the Federal and State Governments must utilize this Credit source before turning elsewhere. All personal Savings accounts will receive equitable Interest from deposits consistent with current lending rates available (Interest will be deposited in the accounts every Quarter).

Consumers could determine how much Energy they could afford to consume. Consumers would have an effective form of forced Savings imposed upon them. Most of the Cost of the Tax would be assumed by the Energy Producers, through loss of Product sales or lower Pricing of Energy. The question remains whether this equal Tax and Cost is economically viable. The answer states the Cost of Energy in Production activities is high, but under 20% of total Cost; this implies that the equality of Tax and Energy Cost can be maintained without economic deterioration. I also can hide from Those who would crucify me. lgl

State of America

Peter Boettke provides an important Post on Corruption. Americans congratulate themselves that We live in a Corruption-free society, but We do not. The collusion between Doctors and Drug companies is a classic case of Corruptive practice. Doctors over-drug their Patients because they receive free gifts and vacations from the amount of Drugs they proscribe from a Drug company. I personally have been proscribed a Drug which is more inefficient than the older drug previously used which costs less; you can bet I am going back to the cheaper, older, and more effective drug. Elsewhere, it is Government regulation which allows Power companies to charges established Customers for the Costs of new construction to gain new Customers. The list, compiled, could go on and on. Americans should not think We escape from Corruptive control.

Menzie Chinn examines the White House claims of halving the Deficit. The important element, here, comes from the fact that the Short-term trend which is not remarkable (expressing more Accounting than economic growth) can be expected to reverse in Y2007. The truth states the Federal Government is spending too much, getting little bang for the Buck, and will present real down-the-road Costs.

William Polley supplies consideration of the CPI core increase. What is wrong with this one? Current Corporate profits are extremely high (excellent to sell Stock Option stocks for Corporate Executives), but shows little promise as a longterm trend; while future Investment opprotunities may be crippled by returning high Oil prices. Household Equity may decline with Housing also dropping.

Mark Thoma presents material showing that American labor is straining to maintain their positions, though the numbers say the Economy is booming. It might be one of those time when Robert Reich is actually politically correct in his assessment. As the World Turns, and it might be turning against Us. lgl

Economic Agendas

Tyler Cowan and Jacob Hacker were asked to present economic agendas for the Republicans in Tyler's case, and Hacker for the Democrats. Tyler presents his agenda lucidly as does Hacker, but both talk of Wishes, not passable agendas. I agree far more with Hacker than Tyler, but course, Cowan would expect my position. We would have to put Tyler’s Means-Testing for Medicare on top of Hacker’s universal health care system in some form; I prefer provision of Basic Services to all, Specialty Treatments coming out-of-Pocket, coupled with an Access fee of around $35 per Appointment. 401(k)s will express no greater promise than the greater economy, and no benefit comes from an intrinsically-built privatization system; likewise, Capital Gains tax reduction makes no sense, only allowing a specific Income set to pay less Taxes than average. An upgraded unemployment insurance program only makes sense, if coupled with a privatized 401(k) account; do I seem a little inconsistent? It only means a mandated Personal Savings system with cancellation of Public Fund dispersal in this Case. Hacker’s Stop-Loss protection signals only the failure of Capitalism, as there is no more risk in Business Risk.

Gerald Prante critiques political use of fundamental economic forces as justification for their own economic policies, even when there is no relationship. I must say, though, that the contention of progressives of Minimum Wage increases incurring added employment has some greater validity than Bush’s claim his Tax Cuts produced the added Tax revenues. The universality of Minimum Wage demands excite additional Production Costs, which pressures for Innovations; these might incite the need for additional labor. Minimum Wage increases will generate greater Emplyment when the Economy is not contracting.

John Irons presents a different analysis of the Bush Tax Cuts, more aligned to the actual impact. John always provides a good numerial case for his argument. All the articles protray other than current conditions would be radically more beneficial. This means that the current policy matrix is sadly lacking in provisional power to advance the interests of All Concerned; and accomplishes this insufficient task at great price. lgl

Nobel Senility

Edmund Phelps states Taxes should be maintained on the lower Income levels, while Yunus received his Nobel prize for advancing the Poor minute loans at usurious rates. Greg Mankiw and Mark Thoma give the story. I should make my own position clear: I agree with Ned Phelps. One of the greatest pressures for Wage increases comes from Taxation, and to eliminate the threat, cancels one of the servicable Demands for higher Wages. Living Costs remain so defuse that Labor cannot gain sufficient material for confrontation with management over Salaries and Wages.

Wilson Mixon and John Tierney think the Nobel Prize should have gone to Sam Walton instead of Yunus. Bryan Coplan already opened the idea of awarding a dead Economist at Econlog. What is more important: Affordable Product or unaffordable financing? Felix Salmon cites an article which might provide insight by Henny Sender. Sender talks about predatory Hedge Funds, and actions taken to forestall their assumption of control through Debt purchase. Are the two forms of Debt disassociated?

David Artig cites an article by Andrew Browne on the accumulating Chinese Reserve of Dollars, expected to exceed $1 trillion (said sum greater than the GDP of all but nine Countries. Brad Setser is still trying to figure out who eats U.S. debt liabilities. It seems like Americans are already started selling foreign equities. We are no longer riding on American Holdings of foreign equities, and the ride could get a little rough in the future; especially as Our creditors remain relatively unnamed. Maybe I should have named this Post 'Hazards of Debt'. lgl

Affordable Labor

Daniel B. Wood has an article in the Christian Science Monitor, link provided by Ken Jarboe. This arena contains where Americans are going to revitalize Our economy. Specific trained Labor will return Production to the U.S. from offshoring. Nothing else can return a significant number of Workers back to the labor force. Economists continue to insist on discrimination against Unskilled labor by suppression of the Minimum Wage; a short-sighted view which increases Welfare payments with reduced Taxation. Gary Becker may present the worst Case and avenue to get qualified labor. Overpopulation reduces the overall quality of life, and generates worse longterm labor shortages.

Alex Tabarrok criticizes the artisanal nature of Medicine, and Arnold Kling asserts Education suffers the same dilemma. Neither seem to understand that both areas need a Uniform National Standards Board, whose duty was to dictate what is current acceptable practice for the Practitioners. Dean Baker also comes in with a sharp critique of both the Media and Medicine.

Why is this avenue not considered? Creation of Mandating at the Practitioner level would not reduce Innovation or Research. The main obstruction comes in the form of the downward pressures exerted on Wages and Salaries in these areas. Still, We need more labor assets certified in these areas.

Tim Haab asks what exactly composes a free market economy. His argument also applies to determinations of Standards, as well as Wage levels. Private Cartels of both Labor and Business currently decide Wage and Salary standards, and Consumers suffer from overCharges and inefficiency of Skill levels. We spend too much to get too little. Readers should preview the list provided by Political Calculations with the warning I have not read much of the Posts, and probably disagree with a great deal. It will provide other than outright Media views and orthodox thought. lgl

Signaling

Greg Mankiw provides a Post on Signaling, with a link to a Signaling system. I wonder about the effective use of Signaling ever since I applied for some Teaching positions, mentioning I wanted to teach the Economic history of the World War economies. No Response. Seems like they might of wanted efficient treatment of Introduction Courses in American and International history. Oh well!

Cactus at Angry Bear presents a very good Post on Bias by presenting a challenge, along with commentary on personal bias–his own and that of others. He bases his argument on Republican claims which he finds hard-pressed to find corollary evidence. The Post, though, might go unread if a Reader followed the poor signaling of the Post title. A NYTimes article loses impact because of placement in the Paper, though it should be Read: the real loss of labor comes from Technology providing efficient replacement for Skill levels. There is another article in the NYTimes which loses impact also from placement, but might signify a real trend opening in the Corporate world. Rafael Correa, a professional economist, describes his five "axis of reform" as constitutional revolution, ethical revolution, economic and productivity revolution, education and health revolution, and dignity, sovereignty and Latin American integration revolution. He might have done well in hiding Signals from International jounalists--read the links provided. He is now the President of Ecuador.

The Winner in hiding Signals, which can come back to hurt you, may be the Nobel winner Yunus, said Post provided by Mark Thoma. Hal Varian has possibly the best view on the process of Microcredit, for which Yunus received the Nobel Peace Prize. I wonder if Anyone besides myself noticed Extenders of Microcredit can still be arrested in this country for Juicing operations. Yunus may have noticed the American practice, and realized there are no laws forestalling usurious rates or harsh Collection practices in developing nations. lgl

Pigovian taxation vs. Exterior Financing

One critical Reader of yesterday’s Post (don’t you just hate those people) asked: What in the hell does exterior financing relate to Pigovian taxation, and how could it possibly be a replacement for such taxation?

Corporate leadership loves immediate Profits and rapid Investment schedules, rightfully expecting this affects immediate Corporate Salaries and Bonuses of all types. Financial institution leadership finds appeal in sound loan extension and uninterrupted Repayment schedules, rightfully thinking this has immediate bearing on financial institution Salaries and Bonuses of all types. Corporate leadership wants to get Profits and Investment schedules on the Books as fast as possible, and often do not invest the Investigative time in research of all problems concerned in an Investment capitalization. Financial institution leadership, on the other hand, carefully studies the Prospectus for an Investment capitalization, reviews all potential problems which might appear in both construction, and in later Production from the constructed facility. They will also reread all legal complications which could potentially apply to the Investment construction.

Financial leadership does several additional things: they examine what materials will be used in both the construction and later production, they examine the potential market for the produced Product along with the spread of volume of Product sold at various Prices, and they evaluate what additional Costs might reveal themselves during the course of Construction or later Production. Financial institutions do this to establish the minima and maxima of Prices and Product volume salable with which to pay all Costs plus Debt service of the loan. Bankers can get quite finicky about such things.

Here is where exterior financing replaces the need for Pigovian taxes. Financial institutions assure sufficient Profitability in the planned Production so as to supply Debt service. Risky or hazardous production (whether Pollution because of production or usage of the final Product) will require higher Profitability of Production (guaranteed by a higher Interest rate charge) or by refusal of loan extension. This added Interest and heavier resistence to loan extension serves far better than Pigovian taxation in impact, and requires no regulatory power or determination. lgl

What to Write Today

A lot came out Today, but this author is feeling functionally bored with the whole process. Real issues are that Retail Sales dropped 0.4% overall, but Fuel stripped, rose 0.6%. This might sound good, except the Trade Deficit with China ran $22 billion. Does this seem like American productivity growth? Michael Mandel and Dean Baker worry about real productivity growth at New Economist link. Their worries, especially Baker's worry about the Cost of technology replacement make real sense.

American productivity seems stalled at a high Peak, and American Products (outside high Tech) appear ready to decline. Lumber and Construction materials are down, lumber at a 5 year low. Everyone's attention is on $59/barrel Oil, though all Commodities are tending downwards. Is there an overall sag in American production? Recheck the Mandel comments, then read this Reuters article.

To Pigou or Not to Pigou. Read both links provided by Greg. Each is compelling (a sorry state common to Economics). Rather than endure pigovian taxation, I would prefer Federal legislation dictating all Production and Production investments be mandated to exterior financing, with financial institution oversight of development. The law would insist all Profits must go to Investors or Stockholders, with a limit size of bonus awards to an equality with Salary packages.
But how could this help with Investment choice? Exterior Oversight by financial institutions would assure Production investment had a potential market share, was clear in Capital Costs and Production expenditures, and had standard Sales staff and policy. All this would come from financial institutions desire to be repaid all Debt. It cancels overduplication without Taxation. lgl

Tales of the Bush administration

David Altig on the Future Shock of Government deficits. Bush may not have fulfilled traditional Republican conservative desire to limit the role of government upon both the nation and the economy. John Schmitt has a good Paper on Job Creation, link provided by Dean Baker. Further information from this article. Menzie Chinn on the Costs of the Iraq war. Fed unlikely to lower Interest rates anytime soon. Trade Deficit article showing American industry is losing across the board. Tim Haab on the Ecoterriorists suggests We should All get Along on the Issue.

Did I touch on all Points?
Hmmm--Bush initiated: Iraq War, huge Government spending, huge Government deficits, lower Present taxes but higher future taxes, and loss of Job creation. Bush failures: poor attempt to spur Job creation, no attempt to end Iraq incursion, huge expenditure of assets on National Security without significant reduction of Terrorist threat, no attempt to limit Speculation in the Commodities and Materials markets, artificial spurs to create Housing bubble which failed, and provided no impediment forestalling movement of American industry Overseas or expansion of the Trade Deficit. There is also denial of Global Warming until all Sides became radicalized. Could Bush have done more? Did Anyone want him to?

Other Things:
Testa at Midwest Economy has an important article on rural areas and Globalization. John Whitehead provides description of Stiglitz’s proposal of establishing energy tariffs, along with a rebuttal of Stiglitz’s proposal. Tyler Cowan provides good material about auctions, plus a good link describing auctions. Greg Mankiw provides an attempt to define Edmund Phelps. lgl

Response and News

I have received some feedback over my previous Post, mainly asking what I have against the American-style Capitalist system. The current system in America was suited for the time of the Robber Barons. Material Resources are in tight supply, with an ever-increasing Consumer Demand from all parts of the Globe. Multiple Competition environments lead to rapid Turnover of Consumers Products, early scrapping of Capital equipment, and underproduction of what Capital equipment is actually producing. It also generates a rapid and early scrapping of Consumer Products which still have much life left to them (I would be in the business of shipping Used Cars overseas at the current moment, if I was concerned with making more money for my heirs to inherit). We are in a time where We need higher quality, better Consumer Products of long-life. Read my previous Post as to the likely origin of much of the Inflationary pressures We endure.
---------------------------------------------
Jad Mouawad in a NYTimes article is very quotable:

After years of low prices, producers have gotten used to today’s higher prices. They need the higher revenue to finance their booming economies, their huge investments in energy projects and in real estate. Arab gulf countries, led by Saudi Arabia, will spend an estimated $700 billion by 2010, according to the latest report on the region by the International Monetary Fund.

Some countries — including Algeria, Libya and Qatar — are producing way above their nominal quotas and will resist calls to return to the old allocations and give up some of their market share.

OPEC again will fall apart in the details, as all Oil Producers are pushed by overambitious Investment schedules generated by the previous rain of Cash. They cannot afford to endure Price reduction and Oil export curtailments at the same time.

Menzie Chinn presents a sharp picture defining the BLS benchmark revision on the number of Jobs added. The less-graphically gifted among Us, like myself, can take a guess and think the revision simply blends in well with the Household Survey. The real threat comes in next month’s New Job numbers; a lack of rebound from the previous numbers means that the Gringch stole Christmas.

PGL at Angry Bear on Defense spending clarifies that Budgeting on Defense is total confusion. Different Government accounting agencies all start to add up the bills, and no one can come up with the same numbers. It would not be so sad, but these numbers come from the People who are supposed to manage (use of the word 'rule' stands as ridiculous) Defense Budgeting. An independent Accounting firm would obviously come up with an Estimate which is higher than all the Government estimates. lgl

The Coronation article

Mark Thoma provides access to the Phelps commentary at WSJ. I personally tend to favor the socialist market system of Western European countries, but not because I am a Europhile. The Capitalist system suffers drawbacks like unto those stipulated by Phelps. There is a huge wastage of Resource–Human and Material; the Capitalist system endures excess duplication, and high levels of longterm Unemployment–numbers hidden by the BLS recording systems. It leads to greater Poor and Labor distress than is necessary.

One of the great failures of the American-style Capitalist economy resides in the realm of Education and Training. No one in the Capitalist system can receive adequate baseline Skills for high-Wage Jobs without acquisition of high Debt burden as well. The inflates Entry-level Pay for such Occupations to compensate for the high Debt volume of Appliciants, and splatter older Job Holders of equal position with Seniority Pay raises which are actually economic profits. The system inhibits Job Entry of the Poor but capable, automatically shelves high Wage Costs into the Production cycle, and artificially inflates Consumer prices for the Goods developed and produced. This effect, alone, may cost Us some 60% of our Inflation rate.

The socialist market system developed by Western Europe has its problems (as expounded by Phelps), but issues proper Training standards and availability of Training at reasonable cost to Job-seekers. More functional trained labor stands available in all areas, and Workers do not suffer pressures (as does American labor) of working excessive hours. The result is European Poor do not lack for services and Aid, while American Poor exist in an environment of true deprival of essential services. I have always been of the persuasion of keeping them smiling, as you robbed them blind.

Another Note:
Cactus at Angry Bear has a Must-Read on tax enforcement. There was surprise exhibited that Reagan showed heavy weight in tax collections. The two Bushs expressed the imminent desires of their own Class in enforcement of the Tax Code. Who ever expected different?

Edmund Phelps

Tyler Cowan may have been prophetic about the award of the Nobel Prize for Economics. No one can contest Phelps' right to the Nobel Prize. He suffered through the fires of contention from 1959. He established proof vindicating the augmented Philips Curve. His work since then has been of high order, fully in the Peer realm of Contemporary Economists. He deserves it, if Anybody does, and likely should have received it twenty years ago.

The decision of the Academy, though, remains a testamont to staying above the fray. The Academy and Bank resides in a high welfare state climate. They live in a land where Taxes remain high Percentage, and most of the Decision-makers are past Contributors to the Welfare State environment in which they reside. Edmund Phelps was a known quantity easily accepted, coming prior to the post-Reagan era arguments which have sanded all younger Contenders with partisan grit. They had to stretch in their efforts, but they found their Consensus nomination.

Will Phelps make a good Nobel laureate? Absolutely! Did he even exist in the Betting pools around Academia? Who knows. Is Everyone satisfied? No, and the conflict between economic streams of Thought only delays, it does not settle any issues. The Academy found a Short-term Solution, but Longterm directional trends in economic thought still awaits. lgl

Birthday Dinner

I will cut this short, as I have a family dinner for a Birthday coming up (mine actually, though it is tomorrow). Steve Hannaford at Oligopoly Watch has a good Post, and links to other of his writings. Be sure to read the article, but if it leaves you slightly dazed, read his own assessment , and also check out this item on small business v. Credit Card companies. The entirety may paint a darker picture than exists, but it does mean additional Credit Charges for all Users. Whether this equates to economic profits, or simple business practice, constitutes the real issue. Consumers must pay more in either case.

Tyler Cowan has a really good Post on the impact of the Nobel Prize awards. He outlines what is done with the Nobel Prize, and what could be done.

A simple response to Greg Mankiw (I again forgot to obtain the link: Sorry) about Pigouvian taxes. They constitute, in their finer refinement, an equivalent impact to Central planning. This is the stuff of Legends, and a repeat of failed Socialism. lgl

The Nobel Prize

The Nobel Prize again infects all of Economics as Economists drop their work, in favor of estimating who will pick up the Prize this year. I may be simply too American for the Commission for saying this, but I think the Process should be run like the Film Academy awards. The Commission should announce five Contenders for each of the Awards granted every year. Why do this? The Prize is important and large, though no one expects any of the Awards will actually be devoted to Research (it’s original purpose as set by Nobel himself), or will it place any Winner on the same level as Bill Gates.

The Prize, as actually used, remains a supplement Payment for years of effort for the relatively small Return of royalties from sold books, it to be replacement of lost Wages from the extensive effort. I would propose five Contenders be announced each Year, and the level of Award be altered to the equivalent of $1 million to the Winner, and $100,000 to each of the four losers for the Year. The losers would be allowed to be reentered among future Contenders for a following Prize.

All of the Contenders, Winner and Losers, would enjoy the acclaim of their nomination. The Losers would lose no ground in their future pursuit of the Prize, and the Winner could say, "Been there, Done that!" All would gain respect among their Peers, and a might bit of Envy; each getting some payback for lost Wages in publication. Leave it to Me to rationalize something I can never possess. lgl

Heartland Reactions

The Job market appears in flux, adding only 51,000 Jobs in September. It is my Thought that the revised estimate will be a further decline, unlike August and July, though Retailers will begin hiring for the Christmas season to come next month. A lot of Job losses were concentrated in the end of September, and probably came from the closing Tourist season. An Associated Press report cites that Consumers' feelings about current conditions dropped 20 points (hint: September readings were upwardly skewed, and October's are likely low, it depends on who is polled). A second measure detailing Consumer response to buying, saving, and investment(the economic Mechanic's scale) showed a drop from 110 in September to 87.2 in October. This is a more serious measure to be falling, but reflects difficulty of Investment decisions when the Stock market is already high, early Shoppers finding Christmas Goods higher in Price, Interest rates frozen and not really high enough yet for retirement plan investment.

One Reuters report lists average hourly Wages to have risen 4% year-over-year for both August and September, and that hours worked only dropped 0.2 to 41.1 hours in the manufacturing workweek. The average Workweek overall stood unchanged at 33.8 hours in September. Shortage of Orders has not yet trickled to the plant floors, though can be expected to show up in October. The United Steelworkers striking Good Year remains a very sour note on the horizon, as the Company wants to close three more plants, down from the current 14. Aircraft and Defense purchase will not soften coming Readings. lgl

Natural Monopolies

Tim Haab provides a good Post about difficulties of Plant investment, but comes up with paragraph:

But, in some cases, monopolies are the natural industry structure. Electricity generation is one such case. Why? The cost of adding additional electricity customers is timy relative to the initial up-front investment needed to enter the electricity generating market. Once a company has made that up-front investment (building the plant, running the lines, etc), that company has a natural advantage over any potential competitors. The existing company can temporarily lower their price to simply cover the cost of additional customers, while the potential competitor has to charge prices needed to cover the cost of those expensive initial customers. The existing company has a natural built-in barrier to entry. These 'natural' monopolies are the least cost industry structure.

I would be the last to argue with this Statement, though it did make me think (dangerous). Are there really any natural monopolies?

Of course there are–maybe. Some might say (me) that monopoly means simply an organization and economic integration which precludes Competition. Electric Utilities were originally organized as mass concerns, based on the economic structure of the Plants existent at the time of its inception. Is this structure natural or inevitable?

This Author is still waiting for the combination Furnace/Generator to be designed. I also await the design of nuclear Fuel cells utilizing nanotech and Computer chip features, this to allow nuclear fuel to be distributed and transferred on open flatbed; the fuel cells neither radioactive or excessively warm. Both of these ideas stimulate small unit usage without Pollution or drainage problems in series outreach. It could well mean less Carbon transfer into the atmosphere as well, or at least dispersed emissions of said Carbon rather than the concentrated form which chokes at Present.

Most forms of natural monopolies, when examined, can be defeated by change of economic integration–technological innovation showing the most glowing promise invariably. Readers should always keep their minds open to advancement, even if it calls for reversal of traditional economic trends. lgl

The Comparative Advantage Cost

Greg Mankiw mentions the thorn of losing Comparative Advantage through economic growth of trading partners. He tends to discount the real eventual impact. My Thoughts on the matter stand insufficiently collected to present rational discourse as yet, but it constitutes the greatest problem which the American economy will face over this Century. Great Britain enjoyed like Advantage to what the United States does today in 1900, and found itself in dismal economic state by the 1970s. Our technical R&D must be co-opted into reestablishing domestic production with little energy usage. The real need is for closed Production processes run by Workstations, with no Pollution emisions, and Labor separated from the Production lines; which I wrote on back in the old 1990s.

Tyler Cowan has an good article in the NYTimes about Health Care, but it highlights the Cost of Comparative Advantage, which a Mark Thoma article has great insight. Mark constests Tyler's claim that a Single Payer health system would stifle innovation. I would use both articles to point out that the rest of the World was utilizing American health innovation to great benefit for much less Cost (absent Research Costs), and going down as Patents run their course. Many nations ignore Patent rights entirely for the full current Cost reduction. An Economy based on a Reseach base, rather than cheap Production, will always lose Comparative Advantage against developing nations. lgl

Globalization

Clyde Prestowitz uses a linear projection of growth for the global economy. It brings into question the positioning of world development. Is the United States destined to become a backwater of the world economy? Doubtful. An essential condition for long-paced development in underdeveloped Countries remains the build of native Consumers, who are both existent and capable of purchasing the Consumer products. The Consumer markets of the Developed economies are relatively saturated. The Payscales of the Developing nations remain insufficent to substitute as market Consumers, and the residential infrastructure still does not exist to utilize the Product lines. Dare I say that real labor unrest must occur in China, India, Brazil, etc., before both domestic and foreign business provides a Consumer-level Wage?

Arnold Kling carries the banner for Crop Growers, claiming the horror of their losses from unharvested fruit. To state Immigration enforcement reminds of the Smoot-Hawley tariff, though, may be a bit much. The need again seems to be need of a Living Wage for Pickers, something which could even interest Americans. One could imagine a plan could be designed to pay Those drawing Unemployment benefits a premium for picking Fruit and Vegatables.

Greg Mankiw gives an excellent Address which does not actually say much about the relationship between Desired Prices and actual Prices. Everyone will likely say I do not understand the impact Globalization has on Pricing, but I must present my two cents. Globalization presents all the trappings of a Department store Sale. We have an excessively large Consumer market banded across a wide range of technological levels. Selling on the world market is not a question of meeting a Consumer preference, Product price devolves into a simple function of Time, where the Seller sets the product price based solely of the Time frame in which he must clear the shelves. Competition centers on Inventory management and the Period of Production replacement of Goods. Economists sometimes get too centered on the technical models, and cannot see the forest for the trees. lgl

Inflation-indexed Capital Gains?

Andrew Chamberlain cites a WSJ article making the case for inflation-indexing of Capital Gains. I am a sharp opponent of such indexing, declaring there is an insufficient amount of managerial talent expressed in the acquisition of such Capital Gains, if such nominal taxation cannot be accepted without a real Profit.

Donald Boudreaux reflects the attitude We should redirect to the concept of inflation-indexing of Capital Gains. Cheap imitations who do not met the standard of entrpreneurial talent should be discarded. Nominal taxation of Capital Gains is the best way to discharge poor Managers. Arnold Kling does not know it, and probably does not believe it, but he backs up my position with this Post; a more rational examination of environmental factors. I will leave it to the Readers to determine why I would refer to Nietzsche on Socialism at this point (think Socialism is the radical inverse of radical Capitalism).
---------------------------------------------------------
The Institute of Supply Management said yesterday that its manufacturing index dropped to 52.9, the lowest since May 2005. An index reading of more than 50 signals expansion.
The group’s manufacturing employment index declined to 49.4, from 54 in August. The index of inventories fell to 46.4, from 50.2.
Other components showed little change. The production index, a measure of work being performed, declined to 56.1, from 56.6 the month before. The supplier deliveries gauge, a measure of how long it takes companies to receive goods, fell to 54.1, from 55. The index of orders in backlog dropped to 46.5, the lowest since March 2003.

All numbers less than 50 are bad news! Will the Slide continue? We will have need to cut the bad Managers if it does. lgl

Perils of the Net

I had a very good post on Pay scales earlier today, which my Blog Server managed to vanish from human sight. I could reconstruct, but know I have since surrendered my link paths: atop the fact that I am lazy about restoration projects. My advise for my Readers is to study the Net, as there was a number of good Posts.

I wil instead pose a number of Questions:

Can the price of Oil be increased by OPEC cutbacks? Not in my belief. There are too many Oil fields online, and Investment Debt load on native Governments forestall sufficient levels of restriction for propelling Oil price increases.

Will Employment levels decrease as the Economy cools? Doubtful. The real push to maximize Business Profits has failed, as Corporations are finally feeling the effects of downsizing, and Business will likely have to increase Labor rolls in order to save Business Profits from a sharp decline.

Will Consumer prices go up? This is almost certainly the Case: domestic Business will have to pass their increased Costs on to Consumers, and Imports will increase in price because of increased Labor Costs and Maintenance Costs overseas.

What is the economic outlook? Business should not plan overlarge for the Christmas Season. Consumers will be hit with Winter Heating bills (hopefully declining), but the Summer's Gas bills ate up a lot of the Christmas budget for Many, and I see no early planning by the Soccer Moms. The Christmas Season will come and go, and may even be fairly good (with some doubt on my part); but I would advise Retailers stock with heavy emphasis on turning a Profit with the January Sales (which will have to be large dscounts). lgl

Public Debt

Daniel Gross has a good article in the NYTImes about Public Debt and the rising Interest rates.

the United States government is the largest adjustable-rate borrower in the world. Each year, the national debt grows. Congress spends more than it is willing to raise in taxes, so it finances operations by selling debt to the public. In the last five years, the gross national debt, which includes bonds pledged to fund Social Security and other entitlements, has risen 46 percent, to about $8.5 trillion, from $5.8 trillion at the end of September 2001.

According to the Bureau of the Public Debt, the average interest rate paid by the government on public debt rose to 4.853 percent in August from 4.176 percent in the same month last year — a 16 percent increase. As a result, the government’s interest bill is expected to rise to $220 billion this year from $184 billion in 2005.

Tyler Cowan has an interesting blog citing Andreas Bergh's analysis on the viability of Welfare systems according to the Scandinavian model. Greg Mankiw has a very good Post on the potential Incentives lost by Means-Testing and other fiscal procedures to reduce longterm liabilities of Welfare programs. Mark Thoma gives a link to a Hal R. Varian article on raising gasoline taxes.

What does it All mean?

The most elemental fact states that Public revenues can be raised without destroying economic incentives, so Public Debt does not have to exist. One of the elements which Cowan and Bergh may find in the upper European welfare systems consists of a sound Pay-as-you-go method of finance. Greg Mankiw's worries about Incentives are real, but without numerial placement of degree of Incentive loss, cannot be claimed as a Retardent until it shows impact upon overall economic performance; fiscal viability may increase much faster to replace any losses. Economists must crunch the Numbers like always.

The payment of foreign creditors by the U.S. Government in 2005 was $77 billion, according to the Daniel Gross article; and is scheduled to increase in both 2006 and 2007. Here is a major fly in the Ointment! Action should be taken to transfer this Debt to domestic sources. This would not be as hard as imagined, considering the current level of Business Capital investment in the United States, and in the face of rising Interest rates. I hope Administration understands this Transfer should be conducted in longterm Securities. This transfer would raise the Price of foreign Goods in American domestic markets (think Imports decreasing at a faster rate than Exports here), and Business Capital Investment would rise in the domestic economy. It is a debateable economic policy, but an Option. lgl