Lack of Education

What do all these articles have in common: here, here, here, and here? Is it not wastage of Money, without thought to the relevant factors involved? All represent a practice which is destroying the long-term functioning of economic activity, and yet no one will intercede and establish guidelines of improvement. This article purports to establish a trend, but factors of Age seems of greater impact than does higher fuel costs. People wonder why signs are appearing of a hollowness in the current drive of the Economy, both here and Overseas. lgl

Immigration Issues

Tyler Cowan presents a seminal analysis in his Review of the Brown, Haltiwanger, and Lane Paper. The lifestyle of the American people is improving, clearly recognizable to All who study the Expenditure patterns of Americans. But the question remains: Is it sustainable? Job Turnover stands as a problem, and a trouble which afflicts all of Production; the overall Cost resident in the Downtime. The later eats up the Profitability of previous Jobs, brings on the growth of Consumer debt which does not seem to decrease in future Jobs, and eliminates the practice of individual saving for retirement. The instability may have benefit for industry, but does it possess viability for the labor forces engaged in it?

Tyler has another good column in the NYTimes (read it). He worries about the incentive the United States presents to Mexican labor, which presently consists of desire for less-educated manual labor for men, while desiring more educated women for duties of Child-rearing etc. He knows the less-educated contain less chance of social integration in American society. He does not mention educated Mexican women have less inclination to be attracted to uneducated Mexican men in American society, but mentions the shortage of Mexican men in their native society. He stresses that American employment practices currently cripples Mexican educational practice, while building dysfunctional Social practice in the Mexican community among Transplants to the United States.

Mark Thoma reads the Cowan column, and basically agrees with Tyler’s assessment, adding some commentary of his own. The whole situation will present explosive conditions in future years. One thing which Neither mention consists of the need to redevelop the American desire to engage in manual labor. Mark has the greater sense that improved educational practice in Mexico will slow immigration of labor north, and that such educational gains must be accomplished for Mexico to survive as an economic and political entity. Both men lack the foresight to understand that immigration, what with Ageing of Labor and economic gain from education, will dry up in the years ahead. Americans will once again have to provide their own labor force, and the development of this labor force insists on Social programs of higher Minimum Wages, Job security, and provision of Health services. lgl

Tariffs and Trade Agreements

Robert Samuelson provides a good argument for Free Trade, though it may not be as simple as presented. The denial of the Bush "trade promotion authority" would as an intrinsically good thing, noting his relative quick removal from Office, and the fact most of the Trade negotiations within his two terms of office were stymied by overreaching demands of his political supporters in the Corporate world. Economists possess an immediate and total aversion to tariffs of all types, refusing to consider their value in the regulation of Trade. I personally would prefer an economic scenario where Congress and President were allowed allowance to introduce their own tariffs when of benefit to the United States, rather than elimination of all foreign tariffs on American Products overseas. We currently deny Ourselves protection from outrageous discrimination, while ranting about the use of such protection by other nations.

Economists claim Tariffs as a major culprit in the occurrence of the Great Depression; something alleged, but never totally framed in my mind. The limited amount of Trade in the Period (based upon Cargo haulers, and Distribution Costs) could never have had sufficient impact to counteract the over-Investment of the Period, the build-up of Warehouse stock without established market for the Product, or the impulse of Business management to save Profitability through massive Layoffs of labor. Trade cannot resolve a basic economic failure.

Tariffs have a traditional base in the World economy, serving not only as protection of Job security by Labor, but as insistence that national economies develop as balanced entities. The only element proven by Globalization has been that the World economy can be as adversely affected by economic misallocations, as are national economies; the only difference consisting a degree of magnitude. An innate national integrity of economy remains the sole protection from Recessive conditions. Integration into a Global economy at too excessive a bonding can bring a long period of national recessive conditions (ask Japan about this effect). Tariffs can be a good source of revenue, protection from dependence, and an effective manner to control Consumer Prices and Import Costs. Do not sell Tariffs short, without examination of possible benefits. lgl

The Continental System

Arnold Kling has written a good article for the TCS Daily where first he defines his own view of
entrepreneurship, then goes on to examine the difference between the U.S. system and the Continental European system which Edmund Phelps had written on after his award of the Nobel Prize. I choose to make a defense of the Continental system after the Phelps article, and because Arnold has presented such a clear articulation of the American system, I will take a more direct look at the two systems.

The American system provides an extended financial structure, allowing entrepreneurs to quickly find capitalization for their Startups independent of serious Review or outside evaluation of project success. It is at this Point where Creative Destruction sharpens a vicious edge. Advocates of the American system never mention the financial losses entailed in Business Fold-ups, duplication of Capital investment, and the flow of Investment Funding to areas of high Profitability in successful ventures. Losses from Business failures remain concentrated among the entrepreneurs and their immediate Prime Investors, they lacking high publicity though their financial reserves are seriously depleted, if not wiped out. I have long ranted against the 80(?) Types of bar soap retailed in this Country, but consider the 16-18 different Beta-Blockers currently marketed. Other Business, like Small Farming and Leatherwork, find it impossible to achieve new Start-ups; Agribusiness gained power because new small farmers cannot finance Startup Costs considering Land and Equipment price, and when did your shoes last contain the tag ‘Made in America’?

The Continental system, on the other hand, insists on an outside Review of entrepreneurial ideas conducted by trained Professionals in the Banking industry, controlled by evaluations of Market share potential, sound Business project construction, a good Marketing policy, available labor assets, and effective capability of proposed Management. Investment funds flow into areas of evident economic need, irrespective of immediate rates of Profitability. Business failures are reduced, and bad Investments are re-channeled; this Process saving of Jobs, entrepreneurial talent, and Investment funds. The Continental system invests less than the American system, making fewer though more solid investments, and European Consumers still find an emulative assortment of Products to the American mix at less Cost. Which is the better system? lgl

Consumer Expenditure, Inequality, and War

The Economic Policy Institute tend to be a little too liberal for my taste, but I have always found them solid in their statistical presentation with all due care to maintain accuracy. Their new Study out therefore bothers me. All economists concern themselves too excessively with the broader numbers, always worried about potential Recessive conditions; such numbers mostly appearing suddenly by magic act which is hard to quantify. The consumer expenditures data, on the other hand, may present the more reliable measure of the health of the economy. A different definition of Recession, one based upon consumer expenditures, could seriously state We have been in a Recession since 2000-2001 (Economic disagreement on the real Starting Date), and that the Bush Tax Cuts actually worsened the impact of the Recession because they muted Wage Demands necessary for correction of the Recession.

Chris Dillow asks the very important question of whether We should worry about relative poverty or inequality. One can escape relative poverty, and still leave the great mass of citizens in the misery of Want. Inequality can be righted artificially by doctrinarian redistribution, which could potentially leave All in the misery of Want (Historians need check out the development of the Two-Tier Wage system of Stalin’s Soviet Union–his recognition that loyalty must be bought under conditions of oppression). The intrinsic difference of righting inequality rather than relative poverty stands as All are united under equalization to destroy the misery of Want, while cure of relative poverty splinters popular support into Vested Interest groups. Which will eliminate the misery of Want in the shortest time?

Cactus at Angry Bear has a very balanced Post on Withdrawal from Iraq. Most Readers have not read my Comments prior to the invasion of Iraq, or worse yet, the book I published back in the late 1990s which provided the Caution that any military incursion by the United States should never last more than 90 Days; a statement that Leave-taking was a Must, whether Incursion goals were attained or not. It does not matter whether civil war will come to Iraq or not, Americans will still be opposed and that opposition financed by enemies of the United States; immaterial to the origin nation of those enemies (the United States being the target, not any national Government We might desire to aid). lgl

Manufacturing

Russell Roberts presents a strong view with stylized (some design craft) graphs to imply complementary movement. The correlation of information may be a little dubious. My fears are not with the Job picture, but with economic direction: What happens when dependence on Imports couples with high Import pricing alongside falling American credit? Foreign supply of American Needs can become an American nightmare. It is especially sad in that it has base only within a Corporate desire to maximize interim Profits, before Americans must return to supply of their own Consumption needs (it will come).

Another aspect equally devolving from Corporate desire to maximize interim Profits come in the role of Pharmaseuticals. Dean Baker points out that Medicare negotiation of Drug prices will not raise Drug prices, or will it cause Pharmaceutical companies to lose Profitability. One of the great difficulties in this debate lies in the pretension of loss of Innovation. Such loss implied of some elemental deterioration of Patient care. The Conditions which impact 99% of Patients have been diagnosed and treated by the medical profession for decades, and treated very well; does Anyone understand that the current length of life is based upon those drugs which have been around that long. I myself have a primary Physician who attempted to transfer me from Toprol to Coreg; I will not say that both do not do a good job, but Toprol seems to do it better, at least for me. The real basis against Toprol could be that it can be obtained in generic form of less Cost. I regret to state Patients continue to be persuaded to transfer to new Drugs, when older Drugs have worked very efficiently; I finding the major factor separating the usage being the introduction of a Patent royalty.

Economists today expect certain Givens to remain in force. They expect the American Standard of Living will remain higher than the World average. They expect Americans to retain the ability to purchase foreign products if the American Standard of Living fails to maintain its position. They expect a continual flow of foreign Labor into the United States; something which will reverse with great rapidity upon development of foreign economies, rising economic opportunity for foreign labor in their home country, rising Costs of Living in the United States, and dropping birth rates in these foreign countries. I have failed to mention the Ageing of Labor which will be the major Problem of all nations in the direct future. Economic planners may be missing the most elemental Problem of the World economy. lgl

Readings and Solar Energy

Menzie Chinn provides two Posts here and here, which should be read. I disagree that the carry trade has much effect upon overall Trade, but I don't believe either has long-range value to the economies of Countries or World. Katy at Sybil’s Star has a good article on the value of Gold in technology (be sure to use the link to Mining Online). The use of Gold in air and water purification, though, may be a misuse (I think manufactured Isotope Plastics might do a far better job much cheaper).

Arnold Kling provides access to an article by Ronald Bailey, as well as a good Post himself. I disagree with the content of both pieces, though, because I do not believe the Earth can sustain such a level of economic activity. Guess Who I sound like? Any Propellent to get Energy from Solar Power of such magnitude will require generation of artificial Lightning strikes in the atmosphere, which will connect to the Earth only at electric grid terminals. Can this be done? Anything can be done if it is economically profitable to do, and within the schematic of economic accomplishments. Do you worry about my sanity?

Lightning Strikes may seem far-fetched, but some form of power cable raised by some form of balloon into the atmosphere can be attained; elevation equipment immune to advanced electrical charges. Spreader systems can be designed to distribute such massive Charges to usable form. Polarity attraction elements can be designed to draw Lightning energy to these power lines. Special energy converters can also be raised to the atmosphere to translate the Solar energy to electrical discharge energy. It is doable, and even without interference with natural Air traffic lanes. It could possibly, in addition, bring upon Us the Climate Cooling forestalling that over which Scientists waste so much Paper.

It still brings Us back to the Potential available for great Population growth. Can this planet subsist under the massive weight of such projected Populations living under conditions currently available to Americans? I think not. lgl

Corruption Home-Grown

Joseph Stiglitz has a good article on Corruption in Business Day. The most relevant he makes comes in this paragraph:

In some countries, overt corruption occurs primarily through campaign contributions that oblige politicians to repay major donors with favours. Smaller-scale corruption is bad, but systemic corruption of political processes can have even greater costs. Campaign contributions and lobbying that lead to rapid privatisations of utilities can impede development, even without kickbacks to government officials. The response to corruption needs to be as variegated as corruption itself.

Does this remind of American Politics, especially since the 1980s? Let Us count the ways:

1) Why are We financing the Military/Industrial complex to the tune of a half trillion dollars a year?
2) Why can’t Medicare and Medicaid negotiate for bulk Drug rates with the Drug companies, a standard business practice with all heavy users of any Product?
3) Why have Corporations storing Wealth overseas attained special Tax rates to bring their wealth home and record it for Tax purposes?
4) Why was Bankruptcy law changed to make it harder for Consumers to avoid their Debt, and easier for Business to shed their financial commitments?
5) Why are Pharmaceutical companies allowed to engage in all the Price-gouging practices once forbidden to industry, especially to Railroads of a century ago?

There are many more elements which could be singled out and cited. America must learn to clean it’s own house before they voice condemnation of other regimes. The Corporate structure seems to walk hand-in-hand with Corruption, and Politicians give reverence to Corporate Executives; individuals who appear to control the political campaign contribution streams. Americans often do not recognize how We appear to the rest of the World, but the old adage of Pots should not call the kettle black genuinely applies. lgl

Modern Medical Practice

Arnold Kling comes up with a thoughtful piece on Health Care. I don’t agree with him on the necessary separation of Business and Government from health care, but I agree totally about the need to cut unnecessary health care costs. The current usage of placebo Proscriptions must be stopped (Proscriptions which have small chance of providing relief, but are proscribed so Patients feel like their Doctors care). Proscriptions are written about Six times as often as before the introduction of Medicare and Medicaid, and one can question whether health care on a basic level has improved over the interim. Doctor Visits have also increased dramatically over this period, though these sessions have decreased dramatically in amount of investigative procedures. Hospital stays used to be for care of sick people, now they rely on medical Testing procedures of high Cost, without a true economic Saving in reduction of illness or Health treatments by reductions of future replications. The only Scorecard on which American health care soars is in longevity of life, but other nations express equal gains at much reduced Cost.

Proscriptions could be aided by legislation demanding Doctors inform Patients in percentage terms the likely benefit of such Drug use; most truly sick Patients can understand a Doctor who says this Drug will make you feel 10% better at $12/day. They could also understand a Doctor who states this Testing procedure at $800/per Test will give the Doctor a 7% greater surety of what is actually bothering the Patient. Other Patients might achieve greater comprehension hearing a Doctor state: Chemotherapy and Radiation treatments at $40,000 per year might keep you alive the two Years which I think you will live, but you will feel worse than you ever have before in your life; this combined with a 90% chance you will die in two years, and a 40% chance you will not last out the year anyway.

Laws could be enacted curtailing a Doctor’s use of expensive Testing procedures, and equally the adoption of expensive Treatment procedures. Something like a law stating a Doctor is allowed 50 MRIs per year, with Patient, Insurance company, and Government escape from payment past that point; where Doctors will themselves have to foot the bill. A limit can be set on other things like only 30 Radiation treatments, and 30 Chemotherapy treatments allowed per Doctor per year. Patients would be allowed to search out other Doctors who would not provide such if recommended. Doctors would be forced to allocate expensive procedures among their Patients who possess the best chance of success. Government and Health Insurance could put a Cap on the spendthrift activities of medical professionals. lgl

What's wrong with the Tax System?

John Irons presents a quality Post which should be closely read to understand that the Bush Tax Cuts basically did more to cut the progressivity of the Income Tax, than it did to actually bring Tax relief to burdened Taxpayers. Actual Tax payment by percentage favored the top 20% of Incomes with Tax share reduction, The middle Incomes paid an increasing Tax share by percentage through all these years, while the bottom Incomes were forced to pony up an increased Tax share from 1996. Denials will state that overall Tax payments went down (this means that less was collected), but did Anyone notice that the National Debt went up drastically (I await the specific percentage rise of the National Debt over the two George W. Bush terms as he leaves office; this is not to say the Democrats were not as irresponsible as Republicans).

Someone asked what my major complaints were against the current Federal Tax system?

Now the Tax policy Economist in me comes to the surface. Business Tax credits for investment jars my nerves, as they stand as sheer Tax escape; Business should invest in worthwhile investments established to show a Profit, not for a hidden Tax loophole to blend high-Profits division with mediocre Profit divisions of inflated-Costs Production facilities employing little labor or producing effectively desired Product. I detest Tax Accounting procedures which allow double-exemptions and massive Tax shifting forward or backwards in time. I cannot express my contempt for Tax credits allowed for foreign Investments which allow for permanent Tax escape. Why should American industry be granted Tax credits for off-shoring their Production with the entailed loss of tax-paying American Jobs?

The famous Mortgage Tax credit has led to ridiculous House pricing, while We are currently developing a wide set of Tax losses by purported losers in Capital. This Tax credit incited Inflation not only in the Housing market (leaving the Poor even further away from adequate Housing), but created a real Debtor nation of Incomes who cannot effectively pay off the mortgages obtained except by selling their Homes for reduced Price–all to chase the wondrous Tax credit. More Households, today, lay claim to two or more homes than ever before; many cannot pay off even one. How many Couples with Two Incomes, combined to less than $100000, enjoy Housing (and Mortgage payments) in the $1 million Housing range?

I often ask myself what I am doing in this land of Plenty; but then, I recognize I will hit the bottom after Most. Many would allege that it is the irresponsibility of American Consumers at fault. I must insist it is a Tax Code which awards only Debtors. Happy Thanksgiving! lgl

New Direction for Democrats

Ken Jarboe issues an excellent post on what the Democrats should do, his ideas somewhat better than the chart listed from the WSJ. I decided to provide a detailed Plan of my own, as suggestion to a Democratic leadership who still allows a Republican Conservative agenda a multiple-rostrum on which to attack any agenda. Be sure to read the Jarboe piece, before reading my list!
1) Raise the Minimum Wage: While it has been claimed such increases effect higher Unemployment among such Workers, no one has ever come up with definitive data, either here or in other countries, which documents such effect; basically because the enhanced purchasing power of this class of Workers generates an increase in business greater than imagined–basically due to the need for added Retail Workers.
2) Do not restrain CEO pay, simply legislate that CEOs cannot get a Benefits package any year greater than their salary; they must return the excess gratuities to the firm.
3) Forget about Unions, but in a nice way.
4) Eliminate the Earned-Income Credit, fix the Tax system overall instead.
5) Ignore the Bush Cuts, simply replace them with an effective Tax system.
6) Treat Capital Gains like any other form of Income, but give a 25% Tax Credit for Investments over 3 Years duration in business sited on American soil.
7) Establish a formal Buyout system for all Job eliminations, a universal Federally-mandated Point system based upon years of employment and Wages previously paid. Save the States and small business by delaying Unemployment Benefits for 6 months past date of release.
8) Establish a Universal Health Care system based upon salaried Health personnel employed by Health Regions, who can transfer Personnel as Need arises; and upon Drug and Equipment payments based upon Production Cost, Patent rights of the later are to be determined by set fee upon award of Patent–based upon relative estimated use of the Product and the Production Cost of the Product.
9) Education and Community college education should be merged, paid for by local School Boards with Federal subsidy. Students should have extensive Counseling as to their Occupational choices, and have their curriculum set with Occupational fields in mind.
10) Health Care Costs should be paid by a Regional Pool of Businesses within the Region, supplemented by Medicare and Medicaid payments.

That is about the size of my program. Did I mention the need to reorganize the Frederal Tax system? lgl

Belief in the Tooth Fairy

Bloomberg survey reports this Quarter may be better than the last, with an annual GDP growth rate of 2.5%. The Problem with this assessment comes in that it assumes consistent Consumer response, based upon Payroll and Income data. The drop in Housing pricing has led Consumers to start paying down their Consumer Debt, and the index and Bloomberg survey would require further Consumer debt acquisition rates as previously based upon Income increases during the Housing boom. It seems unlikely.

The Consumer Federation of America and the Credit Union National Association found 7% more Shoppers intending to spend less this Christmas Season than a year ago (32% instead of 25%). The survey states one can discount these statements to some degree, because Shoppers traditionally spend more than their intention. Almost all Shoppers cited higher Household Costs, or the increased cost of Christmas products, as the major deterrent. Master Card finds 3-out-of-4 Shoppers using Debit Cards instead of Credit Cards. We are still prior to the Christmas Season, but this time, the Shoppers might mean it.

A Wall Street Journal survey of economists reports by a 2 to 1 margin that the Housing Market slowdown is over. The economists expect the Office of Federal Housing Enterprise Oversight index to fall only 0.5% next year, which contrasts with a 13.4% increase in 2005. Reality Check: Estimate that Federal Tax credits for Housing account for approx. some 7% of the double-digit increases of yesteryears, and that Inflation overall in the industry may have increased by 4-6%, and how many double-digit increase years were there? The major trouble with Tax breaks comes in inflationary pressure built in to the Tax breaks, and the fact that actual inflation nullifies the impact of the Tax breaks as Pricing accelerates. Do some people sound a little wistful around here? lgl

The Perfect Draft

PGL at Angry Bear has an excellent post on the Draft. I will first say I support the imposition of the Draft; in fact, I opposed the All Volunteer Force when first proposed. One has to propound a rationale for his position, so here is how I see it. I actually believe in paying below-Market slave wages to Draftees; perhaps the greatest deterrent to warmaking which exists. Servicemen should never fully trust their leadership, or should they ever be truly compensated for their Service. Combat morale can be sustained by Team support of each other. The common response to leadership should be anger, when they believe that leadership threatens themselves. A Junior officer who faces no resentment in the ranks probably is not doing his Job. Command leadership should only be respected by Survivors, well after the Conflict has ceased.

I advocate a mandatory Reserve Training conducted in the summers individuals attend High School. Trainees should be paid a set monthly stipend, differentiated by the rank attained–never above Staff Sargent; Wage never to equal a basic Minimum Wage equivalence. All trained Reservists would be subject to military call to duty between the ages of 18-42, while a military chosen 10% must serve either a maximum tour of 2 years, or yearly summer training for 6 years. All Ranks below E-4 will receive equivalent Pay equal to Civilian Minimum Wage pay, with military pay increasing by 2% per Stripe (E-rank increase). Legislation should preclude Enlisted Ranks from marriage until they have reached position of E-5, and forbid retention in the Military of any Enlisted Rank who has more than two Dependents; unless a general Call-Up has been issued. Under the latter case, each Dependent of a Serviceman or Servicewoman shall receive only a basic equivalence to Minimum Wage income per Dependent (and no other benefits); this dispersal totally subject to necessary proof of Need.

I do not want Americans in military service, but I want them fully competent to accept advanced military training within a 6-month period. I do not want Americans happy in the Service, or of the thought of it as a successful Income for raising a family. I want every American to be conscious that they themselves, or a close family member, could be Called to Duty in any American military adventure; this Call based entirely on their military skill records. I want every American Serviceman to be angry at their Government for dragging them away from their families, angry at military leadership for poor military strategy or tactics, and ready to do battle with an Enemy that caused their placement in danger. Such Americans will not accept half-baked Calls for military incursion or occupation from their own leadership, and feel semi-rage at Anyone who has to be defeated by the American military. lgl

Globalization Effects

Job security stands as probably the greatest problem to be resolved in relation to the current movement towards Globalization. Mark Thoma presents an excellent piece today on the decline of Job security. The Periods of Job loss create severe damage to individual lifestyles; I have yet to any Economist readjust lifetime Wages on the basis of factoring in an estimate of Wage cut including the lost period of Work. The loss would be very substantial with shift over the entire spectrum of Worklife. Lifestyle can only be maintained with continuity of labor to build capital assets.

Another inherent problem centers around the actual value of Globalization. This author has often doubted the true worth of Globalization, thinking it contains much of it’s value only in the context of saved Taxes, and in non-payment of earned Wages. It might be different if Globalization had actually resulted in concentration of Capital; but rather than a reduction of Capitalization Costs, there appears to be a multiplication of such Capitalization Costs which is paid by reduced Wages of the labor involved. No One factors in the Transportation Costs involved within Globalization as well, such Costs probably cancelling much of the Business savings coming from reduced Benefit packages to labor; Economists ignoring the later because it leads to creation and expansion of a new industry. The overall loss to Labor, though, might negate any real advantage to Globalization, other than Business Tax escape allowed by corrupted Tax law, which basically deducts Investment Costs no matter where the Investment occurs.

Quotes from Andrew B. Bernard can enhance the relative knowledge of Globalization:

Even in sectors where the United States is thought to have comparative advantage, such as Instruments, a majority of firms produce only for the domestic market. Similarly, some firms are exporting even in net import sectors such as Textiles and Apparel.

Second, exporters are substantially and significantly different than non-exporters, even in the same industry and region. Exporters are dramatically larger, more productive, pay higher wages, use more skilled workers, and are more technology- and capital-intensive than their non-exporting counterparts

"potential" exporters have better characteristics years before they enter a foreign market, including higher productivity, higher wages, and larger size. However, the most important finding was that exporters do not have higher productivity growth even though they have higher levels of productivity.

high productivity firms are able to pay the sunk costs of entering foreign markets but that, once in, they do not receive an extra productivity kick.

In a study of the role of firm structure and multinational ownership on plant deaths, we find that exporting is strongly correlated with survival at U.S. plants, even after controlling for productivity and numerous other plant, firm, and industry characteristics. Ownership by a multinational, however, substantially increases the conditional probability that a plant will close.

These results suggest that the effects of trade on labor market outcomes may not be confined to job losses in comparative-disadvantage sectors.

The price declines associated with these productivity increases inflate the real-wage gains of relatively abundant factors while dampening, or even potentially overturning, the real-wage losses of relatively scarce factors. (I have real difficulty with this one, in the face of the increased overall Inflation associated with Trade.)

High levels of import competition from low wage countries are bad for plant growth and survival but are especially problematic for low-capital, low-skill plants in any industry. In addition, we find that plants facing high levels of competition from low-wage countries are more likely to change their output mix towards products made with more capital and more skilled labor. This discovery of product switching in response to foreign competition has led to a new series of papers documenting the extraordinary amount of ongoing product switching in the U.S. economy.¹

increased wage inequality was largely associated with changes in employment across plants in the same industry and that rising demand for exports played an important role in this employment shift

Of the 5.5 million firms operating in the United States, only 4.1 percent engage in importing or exporting. However, these trading firms are hugely important in the U.S. economy, accounting for more than 47 percent of total employment and typically importing and exporting multiple products. Even among the firms that trade, the most globally-engaged dominate: more than 95 percent of U.S. trade is conducted by just 10 percent of the trading firms (0.4 percent of all firms) and multinationals operating in the United States account for more than 90 percent of U.S. imports and exports.

This data tells Us that both the Import and Export Trade are driven by multinationals, who have the highest record of Plant closings. The greatest impact on Wages comes from inside industries, and not across industries, so that it is deliberate manipulation to reduce Wages by the major firms; direct impact upon Wages. Trade is initiated by those firms who endure the highest Wage and Benefit packages to labor. The switch does not provide major productivity gains, and that Wage losses affect the entire economy. lgl

Gambling sure enough

Mark Thoma cites an important Paper on Social Security by Kotlikoff, Marx, and Rizzo (which I have not read because of the Price tag). Mark provides a good summation, though, which projects losses of Living standard accountable with reductions in Social Security benefits; the seeming orientation of the Paper. I would use it in alternate manner if I could verify the math models. It appears an excellent weapon to prove individual retirement savings can never compete against an effectively organized Pension plan. Individual retirement Savings will always suffer erosion of the capital base, no matter how luxurious the Worklife funding. They will additionally suffer from unknown rates of Inflation. Pensions, on the other hand, are still clamped onto and within the Production process, and are sustainable as long as the Production process is economically viable.

Andrew Ross Sorkin provides some simple rules for Buyouts among the corporate world. Will his Rules make Buyouts a safer deal for Stockholders? Some, but the major components of Risk for Stockholders are left wide open. Corporate leadership is left free to distribute the liquid assets of the corporation as they please. A Solution would state all stored Profits must be distributed equally to all Stockholders, before such a Buyout can be made. Sorkin makes an issue of stapling, where the advisor and the Lender as one and the same. He may not have checked the corporate boardrooms, but a considerable number of corporations possess the liquid assets to pay off the lending very rapidly, actually paid by the old Stockholders who did not get a Profits distribution. It is not only Highway Robbery, but contains all the elements of 3-Card Monte.

The IMF Director Rodigo Rato gave an upbeat Report at the G20 meeting, but warned against inflationary pressures all over the World, including emerging nations. Lehman Brothers issued a Report stating that Oil prices will rise through 2007 to around $72/barrel. I would contest this forecast for Oil, the future will tell. China has made a lot of commitments, Chinese Wages are going up, and Trade orders to China will level out; the roar in China will soften in 2007 if I am right. Prices for Oil will descend even further dependent upon what happens in China and India, and how closely OPEC can enforce the Pumping reduction. lgl

Physics and Friedman

John Whitehead has a Commentator who might need a Physics lesson. One of the most important elements states that weight in must equal weight out. A 6lb gallon (?) of fuel combined with sufficient amount of Oxygen to consume it will not equal 18lb. of CO2 gas per gallon. One must also consider the emission of solid Particulate in weight, and the overall weight of oxygen, along with the lack of burning involved with liquid or mist runoff. Then there is the process of transference from liquid to Gas, with the gaseous state requiring much greater volume to equal the poundage found in a gallon of fuel, which must find expansion in a constant pressure atmosphere; curtailing the full combustion of the material. I am not completely confident about this estimate, but doubt that the total weight of the CO2 gas could even equal the weight of the fuel.

Richard Adams will be criticized for his Posts, here and here, on Milton Friedman, stating the man was a basic failure; his one success coming with the Withholding Tax. Adams states that Paul Samuelson was the greater Economist, though I believe that assertion would both men laugh if heard. I am reminded of the George Schultz comment that people love to argue with Milton, when he is not there. Adams comments on Friedman’s analysis of the Great Depression, something over which I myself disagreed with Friedman (my contention stating the Fed was right to remain tight during the Depression–the loan default was too massive to be stopped; no use throwing Good Money after Bad, and destroying the viability of money creation instruments). Adams simply attempts to set up a adversarial role between Samuelson and Friedman, on the order of artificial strife created between Keynes and Hayek.

The first economic text I ever picked up was written by Paul Samuelson. The economist hero of my youth was Galbraith. I revered Keynes, at least until I started to read his work. I came across Hayek only late in my economic life, and still cannot comprehend the great loyalty given him. I even felt affinity to a couple of Economists hardly mentioned today. Milton Friedman, though, was always around. I can justly claim I possessed little dedication to his beliefs, although I always felt the warmth and humanity in the man. The real enthusiasm for Milton Friedman comes for his love of life, his capture of and commentary to the major Events of his day; right or wrong, you knew his feelings were real and strong. lgl

Studies in Corruption

Poverty and Growth Blog has a Post by Ignacio which outlines the importance of institution quality in the advancement of the economy. The development of a super-rich Elite hampers the growth of institutional quality, as this Elite moves to protect their own interests. One could apply this formula to U.S. law and Court decisions over the last 30 years, but that is another matter. The main detriment to institution quality remains a culture of corruption. A overall government implementation of good governance cannot compete with localized long-term enjoyed advantage of a bribery system.

FINCA International receives a $10 million grant from USAID as part of a $80 rural microfinance project in Afghanistan. Microfinance serves as Watchword this year, ever since a Nobal Prize was given to it’s originator. It might become a powerful tool in alleviating Poverty, though I possess personal doubts. Expansion in war-torn arenas creates greater doubt. War generates vast destruction, nullifying years of effort of natives in capital construction. Aid should be either massive capital reconstruction to reverse the losses, or individual self-reliance to replicate past performance. Microfinance could potentially introduce extensive competition at a time in which financial reserves must be built. All that Glitters may not be Gold!

I rarely agree with Don Boudreaux, but this Post gives me pause. He encapsulates my own basic Thoughts on the Body Politic. Every society becomes entrapped by their own conventions, and Politicians work religiously to assure that this prison is totalitarian. Case in Point: Racism–both overt and covert–cannot even be 5% of what it was when Dr. King first marched, but One could never recognize that fact in the Politics of today. Conservatives rant about the great damage Democrats could cause both to society and the economy; though, if truth be told, their greatest fear is passage into law of an effective Tax system, which would negate their passed-into-law protections of personal Income from taxation. Read Don’s letter, but from the view that a different interpretation could also be written. lgl

Sadness

Kash at Street Light has a good Post on the falling (at least temporarily) rate of Inflation. It is not simply Oil pricing going down, but other basic materials dropping somewhat. A serious Problem establishes for the Fed at this point; almost all Economists would call for a downshift of the rates by some base points. I would hesitate at that. It would stimulate Christmas Shopping, but in an unacceptable way, as Americans begin to pay down their Consumer Debt. It will not spur Business activity to great degree, as Construction slows naturally during the winter months, and Retailers will be slow to reorder until the Profitability of the Christmas Season is accounted after January Sales. Quick revision of the Interest rates will artificially pressure Inflation upward, without real capacity to generate economic activity. I would wait to revise the base rates until possibly March.

Ritholtz at Big Picture provides a good assessment, alleging that BLS estimates function more to limit the excessive COLA giveaways, than they are effective evaluations of Inflation pressures in the economy. BLS estimates do not provide year over year data which remains a primary discretionary factor in Inflation study. This is even more reason for the Fed to hold on current Rates, for Inflation likely only needs fuel to roar ahead.

Russell Roberts provides an excellent article on the use of Comparative Advantage, coming by way Tim Schilling. The story expresses clearly the gains to be made, not simply by Specialization, but by concentration of effort. The moral of the story resides in the fact, that with intelligent analysis, even simple elements of Trade can provide betterment of the condition of the entire polity.

The real economic story today was the death of Milton Friedman at age 94. Samuel Brittan in the Financial Times has a very good article on his life and work. What did he mean to myself? I never watched him on television, and read markedly few of his books; yet, I think he propelled most of my interest in economics, as much to prove him wrong as anything. A very hard thing to do! I once heard he referred to me as a ‘demagogue’, though I have my doubts as to whether he had ever heard of me. I will miss him terribly. lgl

E tu, Brutus

Cactus at Angry Bear attempts to counteract Conservative efforts to justify the Bush Tax Cuts with statistics, but fails to some degree; like always in any such discussion, inclusion of too many numbers blocks the overall view, too few, and it opens the door for contention. Proper evaluation might be better with the addition of statistical float lines for GDP and Government Spending for the Periods involved.

Greg Mankiw tries to guess where the Democrats will go, with some good links. He, like most Conservatives, place too much emphasis on the ‘deadweight’ drag of the tax system. Economists, those of Free Market persuasion particularly, refuse to add in the increased Profitability assumed by the economy of infrastructure provision. A simple Accounting Cost of $.01/per ton mile of freight on publicly-provided highways would make that ‘deadweight’ go spoof. They also fail to state infrastructure Costs are the second Biggie in Governmental budgets along with military spending. Social welfare programs and R&D subsidies come in Third and Fourth.

Mike Sedlock (Mish) provides a good Post analyzing the current trend of the American economy. He notes that the PPI is down two months in a row, the first back-to-back decline since July 2004; not extraordinary, except in combination with other economic indications, it portends future economic strife. Pray for a good Christmas Season. George W. Bush could have another First to his credit–namely having two Recessions within his Presidency.

Felix Salmon reviews the Social Security debate, thinking it to be a "Tempest in a Tea Cup" as do I. He outlines the simplicity of Solutions to any Gap in funding, other than the herculean task of efficient Privatization; others, before and since, have reveals the lack of gain to be expected from dependence on the Financial markets to attain the desired Solvency. It was a good, straightforward Post, and should be put in a book somewhere. lgl

Changes are Acoming

Dean Baker criticizes the Lobbyist and Congressional use of the term ‘Free Trade Agreements’, attesting they are neither free or truly beneficial to either Labor or Consumer. I concur with that basic assessment. The trade barriers which need be broken is the Tax barrier, and Tax impact to fall where the Business Profits are made (i.e., where the Product is sold, not where the Product is made). Establishment of this Rule simplifies all things, and would prove to be the end to Offshoring, Capital flight, and Tax escape from claim of payment of foreign taxes.

Mark Thoma presents a possible better understand of Cecil Pegou than can be found in the concentration on Pigouvian taxation. I stated earlier, at least I think I did, my distaste of this form of taxation; it changes the capital flow ratios between industries without compensation, not being simply a loss to Consumers but also to competing businesses (some residual anger–I would still be Smoking, if it wouldn’t kill me). Like Tobacco taxes, a Carbon Tax would devolve into revenue-raising, and other more realistic and viable taxation would be canceled. Did Anyone notice that most Proposals for a Pigouvian Energy tax will not set rates applicable to the point contraction of Consumption occurs–Greg Mankiw decides on a $1/gallon tax on Fuel phased in a Dime per year over ten years, only after it has been shown by the market that $1/gallon tax would not place a constraining burden on Consumption (which expanded throughout the last Price rise).

One of the reasons why I like Jane Galt consists of my inability to agree with her, even when as now she makes perfect sense. Here is a Statement for the Record: Americans will have to learn to subsist with less, but far more practical health care. The current state of affairs in health care present Charges–whether Public or Privately financed–functionally double what they should be, and three times more that can be afforded. This has to Change!

I would suggest local hospitals open 24/7 but lightly staffed, which serve as both Clinic and Hospital. Specialists rotate between area hospitals, all on salary to regional district. Special medical treatments are delivered by Patient transfers within the region: all hospitals devoting to one Specialty. Regional Medical Committees consisting of Doctors employed by the region will distribute the set financial budget distribution between areas and hospitals in the region, and region staff will provide central billing for the entire region. Regional Accountants for the region will set formal rates for all Medical services based upon the allocation decisions of the Regional Medical Committee, and Private medical insurers must agree to pay full payment for all medical charges from the Region, if they wish to retain the right to sell medical policies within the Region. Government payment of Charges will be set by Medicare and Medicaid in State capitals and Washington.

Pollygot

Chris Bertram has an excellent Piece at Crooked Timber. I side with Chris in thinking that domestic relativities can be the only real focus on such an argument. Global relativities would and will only matter if a solid, integrated Global economy can be achieved; remember, the Global economy flourishes because of nonsectarian delegation of economic activities. Sectarian sectors means a specific economic group has capitalized and specialized to the point of defining an industry, with all of the barriers to entrance naturally entailed. The richness of the Global economy derives from the inability to establish the above barriers to entrance, all Competitors incapable of excluding other Competitors because of their self-generation of capital and expertise. Domestic relativities, on the other hand, devolve directly from barriers to entrance raised by some segments of the economic society against other segments of that society; these erections forestalling alternative opportunity for All.

Tim Haab cannot understand the economic models establishing the fact that Jobs will not be lost, if Minimum Wage increases are held below a certain level. His belief coincides with all views which cannot register Cost-of-Living increases, and is as misinformed. Minimum Wage increases held within proper range will promote overall economic growth with a greater empowerment of a certain segment as Consumers, while its universality assures that labor will be required for the service of that greater empowerment. Such people complain about Inflation everywhere, except in the personal Case of their own Take-Home Pay. Inflation will attack their restaurant charges anyway, with or without a Minimum Wage increase. I could still get a $4 Breakfast most everywhere when the last Minimum Wage increase occurred. Restaurant Customers will see $6.60 Breakfasts anyway, and mine are already $7+, so like I care.

Bryan Caplan asks a sensible question, but one which raises a particular question in itself: Why should Income and Property taxes be exempted by the federal government? Any answer must confront the advantage given to Wealth, at the disadvantage of the Poor; they being penalized for lack of property and Income.

Mark Thoma came in with an excellent article on the Military Production Function. It discusses several good points first outlined by Ralph Rotte and Christoph Schmidt, whose Thoughts have provoked much discussion about military theory. They fail to present a most elemental point: the necessary quality required in Junior Officers. This reaches realization in two parts: junior officers must be highly trained, skilled, and motivated; and they must also enjoy a certain latitude in interpretation of Orders. The junior officers must motivate the troops, and provide on-site direction of the battle, and Command must avoid micro-management in this process. Command interference can demoralize both junior officers and troops through misunderstood Movement and unnecessary labors. lgl

Read Between the Lines

Web 3.0 seems like a great tool, right? It is so good that Advertisers will corrupt it almost immediately. Users will find it develops into a prime methodology for hiding actual beneficial information which leads to Cost-savings. Less than ideal advantages will be dismissed before they reach the eyes of the general public, even though One could save immense amounts up to 70% of the total Charge with sufficient provision. Such a system will also allow ideal Providers to raise their Charges through elimination of competition.

American Arms sales practically double year over year. This is a prime Production opportunity for American Arms manufacturers and helps greatly with Our Trade Deficit. Where is the wrong? Nowhere to the casual reader, but what is being sold–F16s, C-17s, and Blackhawk helicopters which stand as on-of-the-line World warmaking machines. The military/industrial complex uses such Sales as lobbying pressure to obtain R&D funding on new replacements, as the United States loses it’s technological edge over other nations.

Another element of Deception outlined here, no one expecting the Oil Drilling off both Coasts will be stopped forever if Our addiction to Fossil Fuels continues. On the one Side, they want to open the fields when the price of Oil is high, and buy from Overseas when the Oil price is down; they knowing the longer the fields operate, the greater the danger from Hurricane and Spills. The other Side knows they will lose the battle eventually, but want to maintain the Tourist advantage of clean beaches; they also cognizant that beach erosion will ruin Tourist attraction over the next few decades. Everyone, though, proclaims their dedication to Environmental protection.

Major Buyouts are all the rage these days, with total commitments over a half-trillion dollars this year (compared with $72 billion in 2001). The article states the risk is greater with the magnitude and number of Buyouts coming down. The reality states normal Production operations are never going to pay off the magnitude of debt. The resultant Companies will be asking for Government relief and Tax escape almost from the first day of operation. The World We live in, brought to Us by Republican-style economics. lgl

Credit Bubble?

Sybil’s Star outlines the greatest risk that our current Economy faces, which is the leveraging of risk by the Credit establishment; study of the Great Depression of 1929 found the same identical factor collapsing the economy, only that time, it was integral to the Banking system itself. Why does Anyone engage in leveraging of risk if it can become so dangerous? The reason remains simple: it is the fastest method to attain great Wealth with little starting capital. The trouble lay in the reality much of such Wealth consists only of Paper, which is crushed and shredded in a strong economic wind.

The commentary of Doug Noland presents excellent material for contemplation, if you can withstand the impact of massed statistics. Some excellent quotes from the article:

November 10 – Bloomberg (John Glover): "Sales of so-called collateralized debt obligations have surged about 50 percent to almost $700 billion this year, according to Barclays Capital. Investment banks create the obligations by taking pools of bonds and credit derivatives and slicing them into chunks bearing different levels of risk with ratings from the top AAA to the riskiest so-called equity portion, which isn't rated. The popularity of the instruments is holding down yield premiums as banks buy debt to put into the securities…"

Today, in the euphoric late-stage of this historic Credit boom, the attribute of "The Moneyness of Credit" has created virtually insatiable demand for $ Trillions of Credit instruments – top-rated and perceived highly liquid. And, as we’re witnessing, the greater the degree of Credit excess, along with resulting asset inflation and economic booms, the further the "Moneyness" attribute gravitates out the risk spectrum – and the greater the gulf between the perception of safety and liquidity and the reality of highly risky Credits acutely vulnerable to a reversal in the Credit Cycle.

A major problem with the current monetary boom – the "Moneyness of Credit Bubble" – is the enormous and widening gulf between the market's perception of safety and liquidity and the acute vulnerability of the actual underlying Credits

There may be Some who are lost by the terminology of the article, but it is really somewhat simple in principle. Almost every Banking and Corporate organization has been selling Risk by use of leveraged credit instruments for set Interest payments. The People who are buying this Risk, though, are selling their own Risk utilizing leveraged credit instruments, so they are responsible for only the denominated Interest payments. Can We understand the Trend which has developed? Does it seem like the old Pyramid Letter scheme? Well, many including this author think the whole process is only fancier. What could go wrong? What happens when one leveraged level cannot meet it's obligations? It starts a chain reaction with successive links in the chain not being able to meet their obligations. The original Risk initially centered in one enterprise has now spread through several levels, and through their economic contacts, throughout the entire economy. The failure of one enterprise, or one industry, could bring down the whole economy. lgl

Access

What I wouldn't do for my Readership (actually, I have not better compile a list). I hereby present a link to my Work Station Concept (poor me had to type the whole thing on a sad Saturday afternoon). lgl

Government and Governing

Greg Mankiw has a good Post detailing how the Bush Tax Cuts, though bad for the economy and artificially directing resources (remember Greg did not say that), are not the major culprit in the debacle of the Deficit; a spendthrift Congress and President made the magic negative numbers appear. Political maneuvers to assure Support was the real villain. The idea to be kept in mind on this Issue states that Defense Spending, itself, costs more in R&D for Weaponry, than does the actual occupation of Iraq and Afghanistan. I am a personal advocate of ending both activities.

Ritholtz provides a good Post, and access to an article by Alan Abelson. The real point of both pieces stands as the Economy looks good, but has not been a help to the vast majority of Americans. Good, high-paying Jobs continue to disappear, to be replaced with low-paying Service sector labor which does not pay the bills. Old-time Economists, or maybe only this tired Author, always found fault with an Economy which benefitted only a small segment of the Population. Certain Economists could possibly understand the Economy to greater degree, if they ran old-fashioned Standard of Living models, having first eliminated the top 10% of Income-Earners. I suspect they would find a loss of over 7% from American households during the later Bush era.

Dean Baker ties into the Washington Post over the issue of Social Security. He states correctly that a Social Security Fund deficit will not appear soon, if at all. I would state that Privatization of Social Security presents no Corrective of such a Deficit (if it appears: It is a tricky argument subject to many economic considerations–the Great Depression of 1929 was not supposed to happen). Privatization of Social Security can find success only through the massive influx of funds into the Markets, all based upon a finite number of resources and financial instruments; inciting a vast drift away from actual values of the later. The propensity of Market values to flux with wild swings increases drastically, and the withdrawal of funds for Social Security funding will bring rapid and stark Market contractions.

(I will attempt to get a link up on Work Station technology for Those interested. The Problem lies in I have lost all but Paper files, and All should know my disinclination to type.) lgl

Drugs and Work Stations

Dean Baker voices a genuine concern, but provision of a Medicare Drug plan promises little benefit, if Medicare negotiates only for the small, select group who would enroll in such a Plan. Negotiations possess substance only when the empowering act designates Social Security to negotiate a Drug Price Schedule for all enrollees in both the Medicare and Medicaid programs. A Democratic agenda which seeks less will only make the situation worse.

The Skeptical Optimist claims We are morphing into a Service economy. It is a good Post, but the value of transforming into a Service economy seems not as wonderful to me as it does to him. An Appendix in one of the books which I had written back in the last Century describes my Concept of the modern Work Station; it being my contention then and now that a proper Work Station could perform any act of Production, Security, and even Transportation necessary with connection with the Production equipment. The flow of Production from the United States comes from Tech refusal to develop such a Work Station (which should be Standard, and basics of such Work Station operation taught in every High School). The Nerds refused to devise the equipment to aid their brothers, who had neither the time, or the capacity to attain advanced Skills. It most definitely not true that it is natural for the United States to become a Service economy.

The Above paragraph assumes far greater important after one reads this article by Michael Mandel. He lists very effectively how the United States may be losing on the Globalization front. Development of Work Station technology and Training for that technology could be the answer to the American problem. I have long been an advocate of closed environment Production operated from Work Stations. Does it seem futuristic? It should not! The Day will come when Production facilities are underground, and all labors (including Maintenance) are accomplished on Work Stations manned by Labor aboveground, who come to Work in casual clothes. (I actually await the Business which draws Work Station labor from the Net for the entirety of its Labor force.)

Environmental factors enter into the equation as well, and not just as Production pollution. It is a ‘given’ that Coal will be the fuel of future Production. The United States has both the technology and wealth to develop environmentally safe Coal usage, which China and India and other Underdeveloped Countries cannot. We can put the Common American back to Work, and do so to the benefit of the entire World. lgl

Carbon Tax

Nouriel Roubini claims it is high time for a Carbon Tax, but immediately sinks the idea of the tax by thinking to direct the revenues to correct problems, which were not of the making of Those who would be forced to pay the Tax. The Comments listed under his Post highlight the Problem. The Voters turned down the Republican economic policy far more than the war in Iraq, though it was a obvious element of disgust.

My Plan to direct the revenues from a Carbon Tax to a forced Savings Plan of the individual Consumers has a chance of passage, Taxpayers conscious of the need to reduce the use of Oil, and acknowledging that a Ten-year delay in accessible funds could allow them a Savings ratio, improve their Credit ratings, and provide actual reduction of unnecessary use of Carbon energy. The later can only come through a sharp bite in the Tax, the reason I advocate a Tax equal to the Cost of the Energy source. The only hazard I see to such a Program would be if Congress and Taxpayers allowed the Government to borrow such funds to balance a deficit Federal Budget. Economists and Congress need to understand they must fix poor Federal Tax policy, not corrupt Federal programs that can pay for themselves if left alone. lgl

Inventories and Democrats

Wholesale Inventories rose by 0.8% in September, not really news as it was back in September. What it does signify consists of the fact that Retailers downshifted their Purchase policy way back then. Overall Wholesale sales declined by 1.2% in September. This is a low-Risk policy on Retailers’ part, but based upon ongoing Retail sales patterns. It bodes ill for the upcoming Christmas Season.

David Altig gives a good Conservative reaction to potential Democratic initiatives after the victory in the Election. Dave is quite right in his estimate that the main focus should be on addressing the longterm fiscal imbalances. Greg Mankiw sees the Pharmaceuticals taking a hit from the Democratic control of Congress. He predicts lower Drug Costs to be better in the Short-run, but worse in health care in the long-run. I tend to disagree, cognizant of the over-drugging of Patients under the current system, and with realistic doubt that measurable gains can still be derived by fancier designs of Drugs. How long can Health Care Providers continue to saturate Patients with Drugs to their betterment? Maybe We should just quit eating in favor of stimulants and depressants.

Dean Baker must also be included, at least his disgust at the thought that Income taxes could increase to 180% of current rates (he has a slight difficulty in explaining this fact). I would be equally disgusted if I considered it true, but doubt such tax rates could be imposed; especially not during the tenure of the new Congress. Health Care liabilities will have to be settled by revamping the health care system, not by paying the Charges dictated by an unregulated industry.

All the problems the Democrats will face call for systemic change, something they will not accomplish without Republican assistance. The acrimony prevalent in the Beltway atmosphere cannot achieve the necessary unity required. Democrats would well be advised to drop the Adversarial roles of late Years, and concentrate on common cause. lgl

Minimum Wage Debate

We have to turn to Worthwhile Canadian Initiative to find a coherent discussion of the Minimum Wage. It places the impact of Minimum Wage increases in the statistical realm of probability. The Post, though, makes not extrapolation to determine exactly where underutilization of the Minimum Wage actually presents economic profits to the Employers of Minimum Wage labor. Some may ask why this is important.

Economic Profits will always expand Supply (shift the Supply curve upward) because Employers will attempt to maximize these excess profits without a correspondent shift in Price demanded. Consumers will not pay the equilibrium Price for the Good, and undue resource will be devoted to the production of the Product. Minimum Wage labor find themselves working harder for even less actual draft from the Economy for Living Costs. Consumer Incomes rise with more Product demanded–raising Prices overall; yet, Minimum Wage labor find greater labor effort demanded, while enduring again lessened ability to pay for Living Costs. Consumers and Employers use cheap Product and economic profits to suppress the Living Standard of the least-provisioned element of the total Labor force.

Now it is only necessary to determine exactly where economic profits begin to appear. This author is not really great in crunching the numbers. I would suggest economic profits begin to appear somewhere before Minimum Wage drops below 38% of Average Labor Wage (position where access to Minimum Wage labor starts to disappear from Labor inability to support themselves), and starts to disappear around 46%, reversing once Minimum Wage reaches 50% of Average Labor Wage (decaying normal Business Profits); this information consistent with the findings cited in the Post. Will there be a drop in Minimum Wage employment with an increase? Only to the elimination of the artificial shift in the Supply curve. lgl

Radical Change

DAVID LEONHARDT provides a good expression of current avant garde economic proposals in vogue, but may not express the exact context of political alignment, their reaction to these economic proposals, and any realistic result which may come from such interaction. Democrats will be gun-shy about any immediate increase in Taxes, knowing they will be crucified in the media by their Republican opponents. They will be looking for less sensational Correctives to Budget woes at the start, and in new Designs of older programs to save Taxpayers dollars and reduce the Deficit. Here presented stands my view of how the Democrats should approach their reorganization of Government operations.

Fiscal Responsibility should become the watchword of the Democrats. Organization of the Congressional Committees need be the focal point of Engagement. The foremost effort in the reorganization is removal from the fiscal and Armed Services committees of as many advocates of the military/industrial complex as is possible; pick inner-city Representatives and Senators from States with little Federal military spending (remember: these Companies contribute almost twice as much to Republicans as Democrats). The Key to fiscal responsibility is to cut military spending by at least one-third, none of it coming from current Operational potential, and almost all the Cuts coming from advanced Weapons systems designed to fight a World war–currently unnecessary. Delight in Election results must be curbed with Restraint, as all Senators and Representatives want the prestigious Committee seats, but individual Cash flow stands less important than Public fiscal responsibility.

Publicly announced concentration should be on correcting old deficit-spending programs, rather than creation of new programs to spend more Public funds. Options here can be listed:

1) establishment of a standard Social Security benefit, based upon a Minimum Cost of Living standard. It would be available to All who have paid in, but no one allowed a greater payment. It can be passed by grandfathering current benefits at current rate (no increase until it is no higher than the uniform benefit which receives Cost of Living increases or COLAs). Justification can be raised that none of the contributions match health care Cost increases now.

2) Passage of legislation completely separating Doctor/Clinic/Hospital payments from Medical service payments. The former would be paid solely per visit or Day, Doctors to receive a per hour Wage of surgical attendance. Medical service payments to be paid by a national schedule set by a national medical board. All Drugs paid for by any Government service or program will be paid a uniform Dosage payment across the board for any and all Drugs; I would suggest something like $12 per Dosage. Federal legislation should preclude any subordinate Government agency paying more, and forbid any Medical Provider from billing Patients for any more.

3) I personally would be radical in operation, and pass legislation stating all Federal Enactments will be null and void by the termination of the next Congress, if not repassed under its original language, or supplanted by superior legislation.

Does it sound crazy? Won’t it take a little crazy to cure the current fiscal debacle? lgl

One Man--One Vote?

The NYTimes provides a sort of micro-analysis of the political practices which have led up to the Election today. The basic Test of this Election, though, concerns Party loyalty. A lot of ordinary Republican voters feel real resentment against the current Republican leadership. The Tax Cuts given by Bush were to small to be effective, and taken away by Republican State and Local administrations through increased taxation. The only Republicans who chortle about the great economy are the Super Rich One-Percenters, who are intensively involved in bringing foreign Goods to America, and charging foreigners high Prices for American Goods.

Democrats watch their Candidates kowtow to Special Interests, and concentrate on Issues which are irrelevant to their mainstream lives. The John Kerry remarks are a Case in point of the lack of Democratic leadership charisma. Bush and Rove were allowed to turn the remarks into a political blunder, without Democratic leadership coming out with a sharp counterattack. The refusal of the Democratic leadership to formulate a sound alternate Policy to Bush’s failed leadership over Iraq turns into the debacle of Bush being able to cry "Shame, Shame" at Kerry without noteworthy response. All Voters, even Republican grassroots, recognize Republican claims of excellent economic policy constitute horse hockey; yet, does Democratic leadership even attempt to proclaim a viable alternate economic policy?

One aspect of the Campaigning of both Parties which destroys the rigor of Campaign Ads comes in the form of national Press attention. Voters all over the Country witness a standardization of nonentity political bombast extending everywhere in the nation. None of the Campaign Ads address any of the real concerns of the Voters, or is there any attempt to do so. There is no Voice in the Wilderness to stem their Doubts with a degree of Hope. Political Candidates are united in being prepackaged, picked Entities who propose nothing to improve any situation, except for overused Proposals around for Years, if not Decades, never implemented before because of basic political or economic flaw. This is what Voters face as they approach their local Voting stations. lgl

More Retirement Woes

Mary Williams Walsh expresses the desire of State and Local Governments to shed pension benefits wherever possible. A new potential Congress could realize that rationalization of pensions can come only with national action. My Thoughts on the matter tend towards complete separation of pension benefits and health care, but a unified system where certain maxims exist in the Charter. Below is my take on what such a Pension system would require.

Vestment must be in Dollar evaluations, not Years. I would suggest $30,000 per segment, and call them Years–for Those who insist on a Career performance. Contributions would be made by all Employees and Employers at equal reduction–Employers subject to completion of the payment. All Labor will be assessed a Withdrawal for Pension Fund based upon the base Wage granted–I would suggest this be done as a doubling of the Social Security tax with half of the taxes going to the Pension fund. The limitation of the Earnings taxed will be eliminated. Failure to comply will be assessed double of the recovered taxes immediately, or an additional 18% Interest per Year will be charged to the Employer. Bankruptcy will not void compliance, and the Pension Fund will be the first Creditor paid.

The Pension Benefit will be paid out in Segments each Year, with the Pension Fund determining how many Segments are to be paid each Year; each Beneficiary getting how many Segments are due him or her–split into 12 payments, but all getting at least one Segment to avoid excess Welfare Costs. The Charter will forbid expansion of the Pension Benefits beyond the total of revenue collected each Year.

Will it work? Who knows! The trouble is known–Program breakdown in the Public Sector, Private Sector abandonment of Pension systems for Employers. Stopgap programs like 401(k) and IRAs fail to cover the substantial number of Workers necessary to provide a sound retirement system. We have to create something to handle the essential Problem of Retirees who live too long; therefore, the Period of sustained Income will exceed current Public or Privately allocated investment for future retirement. lgl

The Election

Greg Mankiw presents the National Taxpayers Union’s grade of Nancy Pelosi. The bugbear specter Seems lessened by the fact she is a Stylish Electee chosen in the days of little competition. The Democrats would be the first to dump her, if she could not manage the position. Radicals always perish in the realm of Deal-making.

Andrew Chamberlain attempts to portray the U.S. as backward because We are not lowering Corporate Tax rates. Is it wise to lower Corporate Tax rates? Andrew implies it is, I can present some serious doubts. Boom Economies have been attained in the United States with even higher tax rates overall. Cactus at Angry Bear(see my previous Posts for a link) has used the numbers to prove that constant Tax rates seem the best economic incentive over the last 25 years. The Worldwide trend in lower Corporate tax rates stands as a loser, in that Cash Flows in Investment are not significantly altered (the proposed shift inward). Lower Corporate Tax rates, on the other hand, throws the tax burden onto Consumers (The touted European countries who have lowered Corporate tax rates all suffer from insufficient Consumer Demand).

We do not need to lower Corporate Tax rates in the U.S., but We need to sincerely eliminate all the tax loopholes, tax credits, and manipulated Accounting Expenses (like interior Corporate Tax divisions paying each other and deducting the payment as an Expense while the Parent Corporation also deducts it as an Expense). Will either Party in power move to stop such practices? No–they like large political campaign contributions too well!

Rithholtz at The Big Picture may have the most balanced assessment of tomorrow’s Election. The big Middle Incomes (they making the bloc of American who do vote) are the losers of the new Economy. They also make up the bloc of Republican Call-Out Voters. None of these Voters can seriously believe that Democrats would raise their Taxes substantially, but All of these Voters (if they vote with their Pocketbooks) will decide the Republicans have done nothing for them, in either the Economy or Iraq. lgl

Global Wrming, Debt, and Risk

David Smith presents a good review article of the Stern report published in the Sunday Times. The essential elements are: We have more proven Reserves of Oil than have been used so far, though it might be extremely hard to recover; the second element stands as the Stern report only actually claims a 2.2% loss of global gross domestic product per head by 2200–not 20% of GDP any time soon, with only a 0.9% effect on per capita GDP by 2100; the Stern report of 1% of GDP spent to eliminate global warming from human economic practice is horribly undervalued–it being at the rock-bottom range–absolutely discounting Rent-seeking and Profit-taking. It is a good analysis, and should be read carefully.

The concept of Global Warming seems to be seriously overused of late, and human practice may be the slightest of the causation of it. This Author would like to possess the statistical data of weather patterns in the period some fifty years prior to the Little Ice Age. I have the suspicion We may be in the midst of a periodic weather pattern for the planet, which might extend outward towards the Sun; it might be building to a major Solar flare before a significant Cool-down at Sun surface. This though, like the Stern report, remains purely theoretical.

Cactus at Angry Bear comes in with another good Post on which Presidents actually managed to increase the National Debt among the last 10 Presidents–Ford, Reagan, George H. Bush, and George W. Bush. He also presents the fact that the geometric mean in economic growth of their four Presidencies was only 1.64%, while the other Presidents managed to achieve increases of real economic GDP growth per capita of 2.32% per year. This is the best argument so far for stating acquisition of National Debt is harmful for the economy.

Another danger is represented by economic integration, even though it promises economic reward. The Blackout in Europe, like Our own, has suspicions flying; but cannot really be traced effectively. A simple sign warning that global economic integration overall presents it’s own set of hazards. Government, Business, Economics, Technology, Education, and Religion–all require some degree of Local control, else the Demons arise and ravish the countryside. lgl

Military Training and Eating

Uwe E. Reinhardt says that John Kerry simply tripped over the truth. I agree with Reinhardt, but unlike Greg Mankiw where I attained the Link, I thought I would define that truth. I would approach the problem from the prospective of a military Training Officer. Over-Intelligent recruits pose problems in Training, such individuals resistant to the rote (Production-line style) Exercises, continually attempting to sculpt them for their own personal ease. They are additionally hard to prepare for deployment conditions, asking themselves if this particular Conflict is worth risking their life over. These Recruits come from privileged Households, taking little entertainment from rough Sports and hard physical effort, and utilize their intelligence to acquire the cushy slots in the military; often developing the corruptive skills to make Money off of their positions. None of these characteristics are prevalent among the ordinary recruits in the military. They think in the more basic elements of Team and Family common effort, perceiving personal advancement as being attained from the promotion of the Team.

Mark Thoma takes an alternate tack, and states that real efficiency must be proven, which does not occur in excluding rich kids simply because they are rich. He also contends there is a moral hazard in separation of the decision to make War from Those who have to fight it. He does not expound, as I will, that the American Doctrine of Military exclusion from Politics forestalls adequate portrayal of the risks of Deployment under any given circumstances. The Optimal would be a televised hour by the Joint Chiefs of Staff of the rigors of any proposed Military initiative; this solely to prepare the American Public for estimated potential Outcomes.

J. S. at Environmental Economics deals with the environmental Externalities of animal production, which I treat with great skepticism being a most-satisfied Carnivore. Such polemics always amuse me, knowing Nature will always fill a vacuum. Will they propose a War of Annihilation against the wild animals who will soon graze the pastures abandoned by cattle, sheep, and hogs? Would they accept a 700% increase of Sharks along Beach areas, propelled by the total abandonment of Fishing for half a Century? No one seems able to answer these also environmental externalities. lgl

Hedge Funds and Jobs

Dave Inverson provides a good Post on the risk of Hedge Funds with very good links to other work. The real problem is the concentration of wealth not actually owned by Hedge Fund managers, who are inspired to high Risk-taking to attain the Profits of which they draw around 2% for Hedge management. The industry is far greater in Wealth concentration Today because of previous success and draft of Investors, the Managers concerned with keeping both. Mark Gilbert suggest that Hedge Fund managers are getting erratic, as Hedge Fund investors lean
toward leaving because of the low Hedge Fund yields. Thanks to Felix Salmon for the link.

The Job market has a slow gain, but the previous two months of Job Hires were revised upwards; now to determine the Job destruction over the last three months(???). The Unemployment rate is way down at 4.4%, and Wages are up almost 3.9% year over year. It all sounds good, but Consumers don’t seem to be spending the increase (something not really bad–the Savings rate was only $15 bn short of being positive last month). The Christmas Season will tell the Story, as I have said before. lgl

Getting my hands dirty

I do not know whether I agree with Political Calculations on the possibility of a Recession, as I have never reviewed their analysis methodology (I might not understand it anyway). Factory Orders rose less than expected: 2.1% in September. The PMI, or Global Factory index, fell to 53.9 in October from a previous 54.7. Jobless claims rose by 18,000 in the latest Week. I did hear from a Birdie in my ear that the ISM reading would have been 49.2 overall, with subtraction of the anomaly of Civilian aircraft Purchases and production. I do not know if this is true, but still believe We entered into a Contraction last month; this is still a long way from a Recession.

Dean Baker says that a cyclical downturn of Productivity is not the real Story, which is the economic growth of the last five years. Others think it is a Problem. I don’t with the understanding that the process is organic. Productivity levels off from two factors: the hiring of initially less-Skilled Workers, and the age of capital equipment determines the amount of Downtime and Maintenance time which must be utilized. A lot of this equipment has been at full Production over 24 months, and adjustment and correction delays can be expected.

Both Greg Mankiw and Arnold Kling remark on a Edlin/Mandic paper on the externalities of Accidents, Greg from the potential for Pigovian taxation, while Arnold simply wants people to stay off the road. I think my Personal Savings program by way of a Energy tax equal to Energy Cost serves better on both Counts, rather than a bureaucratically-defined percentage of Tax; doing this to the actual benefit of Consumers through a forced Savings rate. Sometimes, I think Economists need to spend some time in the real World. lgl

Real Growth

I truly like Cactus at Angry Bear, though at times, he requires a Translator. An example is this Post by him. It begins with a declamation of utilizing straight average growth rates instead of the geometric mean; not bothering to explain the reasoning behind that decision (simply put: it remains a methods to eliminate Highs and Lows from distorting the data). He also needs to learn the ‘Cut and Paste’ practice of putting a discernable Table in a Post (Don’t think this is easy; it is the reason I never use Tables or Graphs). The basic contention remains that keeping Taxes constants outperforms both Tax Cuts and Tax Hikes, as determined by the statistical growth ratios over the last 25 years. It is a truism! Cactus makes the Contention that Tax Cuts imposed during one Administration, brings slower Growth in Successor administrations. Also True!

Where Cactus fails in his Post comes in his assignment of the slower Growth to the lessened capacity of Government spending. Actual curtailment of Government spending would actually lessen Growth rates, but suppression of the growth of Government spending will not have an adverse effect on overall economic growth. Why then does maintaining Taxes constant, or even introducing Tax hikes, perform better than Tax Cuts?

The Answer lies in superfluous Investment–financial instruments introduced to act as a Middleman between real Investment in Plant and Material and the Retail of Products. Tax constancy acts as a brake on Money Supply (see my previous Post), Tax hikes acts as a Contraction of Money Supply, and Tax Cuts spurs both the Money Supply and superfluous Investment instruments. The later actually sap Business Profits by artificial financial Charges, and raise overall Pricing in all Markets. It is real Investment in Plant, Material, and R&D which promotes actual economic growth. lgl

Bad October

The ISM index fell to 51.2 in October, down from September. A recent Study due to be out soon suggests that the Outsourcing of White Collar jobs will only increase in the future. The Housing market is slowing down, and Construction spending is down as well. Nouriel Roubini provides a good Post showing that Corporate Profits had only about an 8.5% growth in Q3–this still pre-inflation scaling. How did We get here?

This article states all Central banks are getting worried about the rapid growth in the Money Supply. First, I would like to say that the threat is very real, the U.S. economy already suffering from the excess flow of Cash. Excess funds without real Investment potential will vastly inflate the Markets–Stocks, Bonds, Commodities, and Real Estate. The Bubbles created hamper normal Business Profits, raise Consumer Prices, and inflate the Cost of Government social programs; even if the Bubbles do not burst to the detriment of All. I wish to thank Sybil’s Star for the link to the article. Where does the flow of Cash come from?

Mark Thoma presents a good Post on Populism. The worries of the Democrats are real, but everyone stills misunderstands the rise of Inequality. Almost all of the Those growing Rich hold an intrinsic position in the Export Trade, not matter the manner of such involvement. Why is the Export Trade so important in the factorization of Inequality? Because American Exports extract economic profits from the Goods which they trade; coming through the usage of Patent rights, monopoly of markets, capacity to fulfill Good quantities, or mastery of the Distribution system. Foreign Consumers cannot track the actual Production Costs of American Producers, while the U.S. Government has no interest in monopoly controls in the Export Trade. The trouble resides in the fact that increasing Inequality raises domestic Consumer Costs for Goods and Services, and therefore, American labor outside the Export Trade endure a falling Standard of Living.

The huge flow of Cash comes from the Export Trade, but has no position in the American economy in which to be soundly invested. The excess cannot be absorbed by Consumerism of the SuperRich, though their attempt to do so raises Real Estate Costs and some degree of Consumer pricing overall. The Cash Flow invasion of Markets generate the greatest threat, and Labor demands to keep up with the Standard of Living propel Outsourcing. lgl