Corrupt Practices

The Bush administration reverses its stance towards Chinese Trade, mentioning the threat of tariff duties on Chinese products to counter subsidies on Chinese Products. What does this mean? Way back in the 1980s, duties were taken off Goods from Communist countries, because subsidies could not be determined in magnitude when Production was Government-owned. The Result is much different Today, as China has adopted other Production and Marketing strategies. The article, and both American and Chinese leadership, stay away from the real presence of the actual nature of the Subsidies; almost automatic extension of loans from the corrupt Chinese Banking system, which are extended for corrupt Cash payments to Chinese Banking officials, and where the loans are never repaid. The Bush administration probably has a Green Light from Chinese leadership, who deeply desires to strip Profitability from this activity.

Gretchen Morgansen discusses the fact that many Companies are instituting "clawback" policies to force Executives to return Incentive Pay which they did not actually earn. Here again is action which basically consists of anti-corruption procedures. A Democratic Congress, traditionally in love with Regulation, should very much regulate this aspect of Business conduct. I would suggest an Incentive Pay Statement posted with the Stock Exchange Commission where the Stock is listed, with a mandatory delay for two years of Incentive Pay award, in which time such awards can be tested for actual value by the Company. This legally-enjoined practice would grant time to review awards, and ensure Corporate practice would be less likely to be based on the corrupt generation of high Numbers in the Short-term to get awards.

The South Korean and Panama Trade deals may again be examples of use of Corrupt Trade and Business practice. South Korea stands adamant in using Rice as a Salt Tax, resisting all Imports where the South Korean Government does not buy on the International Market, and resale domestically–at about a 300% Markup. The South Korea Trade Pact will not open the South Korean market to a vast range of American Goods; but will provide Copyright protection, and the ability for American business to import desired Korean Products without paying American duties. The Panamanian Trade deal also allows for escape from payment of American duties on desired Panamanian Products. This Escape from American duties is a end-around evasion of elimination of those Duties in Congress, where American Labor and domestic American business would forestall elimination of the Duties. lgl

Nix Consultants

Mark Thoma, among Others, doubt the efficiency of Government outsourcing many of the aspects of governing, something which has been growing fast since the mid-1980s. They criticize the lack of competitive bidding in Contracting, poor supervision, and poor quality Work and Product from the practice. This is standard fare, but examination of Numbers in the Contract business would serve far better to stain the practice. Some idea of the situation can be explained in this manner: Several Constructions have been built costing some 400% of Contract Costs, when including Feasibility Studies, Environmental Studies, excessive Consultant Fees, poor Management requiring Recovery efforts, and the Profit share on each aspect of the Construction. Some Specialists and Consultants present daily fees in excess of the Weekly salaries of Civil Servants who they replaced. Multiple Positions could be filled by Government Employees whose required Training would cost less than the presented monthly fees. Little of the outsourced Work done today even matches the quality of service previously supplied by Government employees; if such a thing can be believed.

Mark Thoma states a more discriminatory process should be used to determine what should be handled by Outsourcing, and what should be retained by Government employment. It is the primary question: What should the Government buy, and what should the Government produce? The Answer may seem complex, but it is very simple; the Government should produce all technological equipment which it uses plus all Construction which presents a Security hazard. The Government should purchase only Finished Products, and then only after they have been tested for Quality.

Consultants should be replaced with a Civil Service University, with Colleges in Personnel Management, Cost and Budget Analysis, Program Efficiency, and Bursar Techniques and Regulation. Requirements for Enrollment would be employment in the Civil Service, previous Collegiate degree or Work experience, and the written advocacy of three levels of his supervisors. Students would draw their previous salary through the estimated 10-month Courses, and his Graduating Salary will be determined by his academic performance and Job placement. The University would want a national campus (I would suggest a Work conducive area of low Construction Costs), Courses should run between March and November, present a consistent Enrollment for 50,000 Students, and present mandatory on-campus Housing for Students and their families. Students may apply for more than one area of Study, but they must work an interim Work year between Courses. lgl

Iran and Us

Clifford F. Thies presents a general overview of the process of hyperinflation for Students, with a economic critique of Iranian economic performance. The nationalization process which is continuing in Iran has a deeply religious bent, the Iranian President preferring religious fervor to business acumen. Iran is claimed to be in the early stages of hyperinflation in Theis’ view, though I do not believe it has even reached this stage as yet; Oil revenues have been devoted to promotion of Terrorism and development of nuclear weapons systems, while taxes have been increased along with extended use of the Printing presses. There is little outside investment in the Country, little internal investment inside the Country, lack of investment in the Oil industry, and huge Government payments to fund non-economic activities. Iran may have very bad times ahead.

Cactus at Angry Bear may give a better picture of why the Iranian economy faces deep challenges; because of strict adherence to the Koran by the Iranian Government. Cactus, though, only approaches one-half of the Problem; the other half of the Problem remains Capital aggregation, in order for Banks to function. The Solution in the old Iran was for Oil-Rich Capitalists to start their own Banks, or buy a piece of other Banks for a hefty Price. Nationalization of the Oil industry has eliminated the Oil-Rich Business leadership. Banks are fundamentally limited in their extension loans, even to the Government, so the Government resorts to printing money; thereby destroying what remaining Bank integrity that Bankers managed to retain.

Does the Above review gives Americans a feeling of superiority? It should not! I am One of the few, mayhaps only, Individuals who believe the U.S. Mint made a mistake in the issuance of the new Currency. It should have been Pro-rated to the 1904 Dollar prior to Issuance, and exchange rates established with the older Currency based on that equivalence. I could go back to a Nickel cup of Coffee. The economics of the situation possess actually greater advantage. A mathematician will tell you that Capital levels make no difference to the accrediting of Interest. An Economist will tell you that the increased amounts of discernable spending units will increase the dispersal of said units, with more rapid distribution of economic power (think Capital de-aggregation). lgl

Realistic Future

Alan S. Blinder shook up the Economic community today, after an article was written in the WSJ about his article in Foreign Affairs. Alan Blinder records very real impacts which will alter the shape of the Economy, but exhibits too great a degree of fear. Offshoring is upon Us, and will cause great locations in the years ahead; but the impact overall may be no greater than a variety of other effectual causes. I have long doubted the total value of Trade, even admitting the correctness of Ricardo’s Comparative Advantage. Energy, and its pursuit, will dominate the future, and provide real drag to Trade in the long-run. Actual machine operation will eventually be transferred Off-Site, freeing trained labor from geographical site. The first Industrial Revolutions were all the Comparative Advantages of concentration of economic effort. The next Industrial Revolution will be one of dispersal and decentralization of economic production and effort. Offshoring is only a part of this Movement, and will actually become a shrinking segment of the total.

Many positive assurances of current Economists will fail in the years ahead. The percentage of labor engaged in Agriculture will increase in the years ahead in my estimation; this not meaning a degradation of technology in the agricultural sector, simply a massive switch to non-energy intensive technology. There will be assumption of greater acreage tilled, less intensity of Planting, markedly less use of artificial fertilizer, and the use of far more electrical equipment than the internal combustion engines of traditional use. Farm units will become much smaller on the Japanese model, more carefully tilled and cultivated, with much greater labor intensity though this may not be marked with greater physical labor. I fully expect Agriculture to employ 20% of total labor by the next turn of the Century.

Manufacturing will change almost as much. All Products of Plastic or ease of Parts Assembly will be manufactured by Regional businesses; I already mentioned my belief that large Car Dealerships will assume the responsibility for Vehicle assembly. Such will be the same for Agricultural Equipment, Electronic Equipment, Household Products, and a vast range of other Products. National and international Corporations will evolve into basically R&D establishments, organizing Parts manufacture for their Products, distribution of Parts upon the Invoice Orders of regional businesses, and Royalty right payments decreasing to the range of Rent payments. The future should not be thought to hold no Jobs and Starvation; it will not happen. What will happen is that the Economy will evolve into a sound Production matrix. lgl

Trends of Economic Performance

Greg Mankiw presents a good Case for setting aside the 1911 Miles Ruling, prohibiting Retail Price Maintenance. The argument sounds alright if One leaves it in the arena which Business and Mankiw pose it. One must delve into economic theory, which has much relevance at this point, to develop a contradictory argument to retain the Miles Rule. The Market should dictate the quantity of Showroom exposure utilized to exhibit any Product. Retailers who wish to create a giddier Exhibit have the right to do so, but only in the context of lower Profit margins against competitive Retailers who use more conservative Showroom exhibits. The idea of provision of Public Goods is fallacious as long as the Retailer’s only desire is for higher Profits from Showroom detail. Provision of Public Goods works only to the benefit of the Producer and immediate Retailer, it does not guarantee Quality of Product or efficient Price. Competitive Retailers and Customers face a monopolistic Price with no assurance of better Product; and Cost-Cutting allowed through monopolistic Pricing hazards future inferiority of Product.

Greg Ip’s column and Ritholtz’s Post on the intentions of the Fed are correct in my estimate; We have a Fed on Hold, and for very real reasons. Energy Pricing is too high, Food Processing Prices will quickly reflect the Energy prices, and Utilities will ship Costs forward automatically. The Fall-Off of Capital Goods is to be expected, with recent technological upgrades with high Credit build-up which must be paid down; lower Fed rates would do little to affect Capital Equipment shipments. The fact of the matter remains there is little economic opportunity left unexplored until such time as a major technological advancement comes about; something which is of multi-Sector character. It has become a Time for sharp Production procedures reducing Costs, not a Time for easy Credit.

Kash at Street Light present a informative Post about American Health Care. The most glaring fact about American Health Care not statistically graphed is how much of the American population possess no Health Care in terms of other nations; it is an extremely wide differential I believe, presumably consistent with some of the Third World nations. This is worsened by Medical Schools sharply restricting enrollment, and Doctors limiting their Patient load. American Medicine also utilizes approx. three times as many Drug proscriptions; it is also very hard to get Doctors to proscribe the adequate Medications used by other Nations with superior performance, simply because these Drugs are no longer Patented. American Drug Marketing precludes usage of non-royalty Drugs, with American Doctors losing many benefits if they do not maintain royalty-covered Proscription loads. The above incites both the excessive Cost of American medicine, and also the poor response factors of American Health Care. lgl

The Prospectus

Jeff Cornwall comes out with a good, short methodology for writing a good, accurate, Business Plan. His emphasis on thorough study of your market cannot be understated. Recognize that a failed Business attempt constitutes one of the most savage sorrows, and one which impacts your future Credit access. A failed attempt will result in a couple of years of wasted effort, and available market is far more important to you than to the Lender. Sales are the end-game which must be achieved.

I personally favor a Marketing Plan format where each segment is tied to estimated Costs for that element in a short summary at the end of each segment (it should not lengthen the total Plan by more than three pages). Most Business Plan application do not adequately break down Marketing projections and Costs. A detailed format does two things: it shows the amount of research utilized, and most Lenders will stipulate where you have projected Shortcomings. Lenders who like the general tone of your proposal will not only criticize, but also advise of the methods adoptable to alter the Business Plan to make a acceptable Proposal (hint: rewrite your Business Plan to be acceptable, rather than approach another Lender with the original Plan). The Financial Statement section should not be just a Repeat of the financial summaries after each segment of the Marketing Plan, but include your own vision of your Business expansion; this will include expectations of future finance needs, and how much of the Business Profits you are willing to reinvest in the Business. Lenders want to understand the character of the Borrower and what he is willing to stake in the Business Project.

Approach of the Lenders by the Borrowers is also very important. Lending organizations often utilize the Committee approach, so be sure to have separate Executive Summaries in surplus, at least 5. Only One is likely to read the entire Business Plan, the One delegated to make sure than the Plan is consistent and doable; but All will read the Executive Summary. No decision on your Business Plan will be made until there is a Funds Distribution meeting of the Committee; it helps to be helpful in provision of materials to make that Distribution choice. Many a favorable commentary has come from the foresight to provide extra Copies of the Executive Summary, belaying a separation and Reprint of these segments of the Business Plan. lgl

Credit Extension

Alex Tabarrok comes forth with another excellent Post on the extension of Credit in this Country, plus some Commentary on the advantage of supplying Credit to the Poor in Developing Countries. He claims there is a Credit Snobbishness exhibited by Those who worry about the current Debt levels in this Country; something which I myself can identify. The Point he misses in my estimation comes with the Statement that the real Credit Crisis resides in the overuse of Credit by the Well-To-Do in this Country. There has been too many facilities, like the Mortgage tax credit, created that all entice the Well-Off to adopt continual Credit level maintenance. Most Economists would assert such practices maximize the utilization of Budget management through effective use of Credit opportunities. It is a position I have great difficulty in accepting as a sound policy.

Credit extension has the unfortunate Side-effect of uniting the Economy in a manner where the concept of ‘economic shedding’ works most ineffectively. Stability of the overall Economy can isolate any failing sector under normal economic conditions, and can supply financial and other resources under the natural economic order. Extensive Credit also does not tie the Economy overmuch, if such Credit remains limited to Those who must have such Credit to be vital Participants in the Economy. The equation changes, though, when Credit is overused. Use of Credit by Those who lack real need for it, simply as a Profit-making advantage, can integrate the Economy through Credit extension across Sectors without need. Capital reserves which should be retained for viability of economic Sectors will be drawn from vital sectors, as Credit nodules fail in underperforming economic sectors; the Whole suffering an economic impact which should have been limited to a specific sector.

The central banking systems were designed and operate as a Risk-spreading network with the ability to isolate a poorly performing economic sector from the Whole; by diffusion of bad Credit over a spectrum of good loans. This ability, though, remains limited in extent; the proliferation of Credit instruments outside of the spectrum of activity of central banks cripples this authority, and multiplies the actual Sums involved in the extension of Credit. The ability is worst injured by the need to diffuse excessive amounts of bad Credit loans which were basically unnecessary in the first place. I actually am a Credit Snob as well, but One who attests that Credit extension should be limited to Those who actually need it, whether they are Poor or Rich. lgl

The Tax Bite

Daniel Gross has a good article in the NYTimes discussing the issue of tax revenues. It basically concentrates on the performance factor of the economy, and whether Federal or State tax revenues give the best definition of economic success or failure. I would like to concentrate upon the economic fuel question of such taxation, following the two previous Posts I have made. What type taxes do What?

Republicans and Conservatives of all Stripes focus on Federal Income taxes as the mechanism of economic fuel for the economy. State taxes are ignored, or at best, declared to be injurious to economic fuel efforts. This is at conflict with most Conservative demands which suggest taxation should be shoved off on Consumption. State level taxation contains the greatest Consumption taxation at present, through the median of Sales and Property taxes which make up over 60% of State level tax revenues. Consumer Demand is composed of People who have both the desire and ability to pay for Goods and Services. Consumption taxes decrease both the desire and the ability to pay. A method of discerning the effect is to translate Product Price to the term Product Income; an Income which is taxed 12-14% under the best of Conditions in the State taxing format. The only real difference between Product Income and Worker Income stands in the willingness of Business to raise that Income.

Consumption taxation can be estimated to decrease Consumer Demand by at least 2% in real terms (adjusted for Inflation). Every Businessman and Economist will tell you that Consumer Demand has been on the increase since 2001, but they hesitate to tell the Reader that Consumer and Mortgage Debt has been soaring as well. Incomes have not risen as fast for any Consumers, except Those most capable of exploiting the Bush Tax Cuts. Median Incomes, adjusted for Inflation, have not materially gained in the intervening Period. Consumption retains a fairly stable relationship to Population size of Income class (we all need the Necessities), though the matrix of Consumer Products vary drastically.

The Bush Tax Cuts, plus the federal government push of Social Welfare Costs onto the States, has actually decreased Consumer Demand, and fueled Inflation. The Bush administration refusal to limit federal spending, has actually maintained constant pressure on Median Incomes and below through Inflation, while pressuring the States to raise their Consumption taxation. Personally asked if the Bush Tax Cuts were good for economic performance, I would advance a definitive great No. Will there be a downturn in Consumer Demand if Conditions remain the same. A very positive Yes. lgl

More Tax Theory

I heard echos from the ether about why Taxes cannot incite Recessions, unless and until they are higher than Resource/Utilities Costs. One must first be skilled in Double-Entry Accounting procedures to get the basic understanding of the Issue. Government Spending is the expenditure of Resources and Labor from the general pool of economic assets granted to the national economy. All of this Expenditure must be paid for by the greater Economy, as assets must be redirected from the Private Sector to the Public Sector. Government labor forces must also be maintained over the same Interval, without raising the inherent Costs of Labor in the Private Sector (Judge Posner presents an excellent Case for Judges holding down overall Compensation for lawyers–why don’t I feel sorry for them)

Back to the original Argument: Resources, Utilities, and Skills used by Government cannot be used by the Private Sector to increase economic performance; while at the same time, no pressure can be placed upon Wages, without Business Profit margins being unduly impacted. Increased Production Costs without increased Wages, leads to overall Price increases; allowing for simultaneous maintenance of Business Profit margins. Taxes of limited impact can be beneficial to the Economy by paying for Government Expenditures (remember that they exceed 20% of the economy) which would otherwise be covered by increased Debt. Actual Business taxes could be much higher than at present; but also, Government Expenditures could be much less in terms of actual resource consumption (fact: Welfare payments are good for Business, as they increase Consumer consumption without consuming Resources, except through the medium of Business purchases generating Business Profits).

Business and Labor must pay for Government Expenditures in the Private Sector Production, if they are to be paid instead of Debt accumulation (again, Debt Service effectively triples the actual Cost to Taxpayers, with Interest and the heightened Resource Pricing). Labor basically pay all social welfare payments, and increased taxation of Business above payment of Government consumption of Resources places pressure for Wage increases; making Business Profit margins unstable. Labor need understand that Government Expenditures raises Consumer Pricing above normal at a predictable rate, Labor facing a sticky Wage Schedule. Business should understand that trying to shove further taxation off on Consumers will destabilize Wage Schedules, and over the long-term, adversely affect their Profit margins. Government should understand deficit Spending is Inflationary, and any Spending above 14% of GDP simply curtails long-term economic performance (except social welfare payments paid for by Labor; do not spend Social Security funds for Government consumption purposes). lgl

Taxes as Economic Agent

I have just finished reading the article of Abhijit Banerjee by way of Greg Mankiw and Tyler Cowen. The article is very much worth reading, and I would advise it, if one is interested in improving the performance of schools. What captured my attention, though, was his discussion of the machine mode of definition of an Economy. Banerjee was rather dismissive of such an approach. I wondered whether such a degree of denial of consistent economic reactions was warranted, considering the similarity of performance between divergent economies. It seems to myself that the interaction of Resource Costs, Production Costs, Distribution Costs, and Labor Costs set Prices in a similarity, whether We are talking about a Primitive economy, an advanced Capitalist Market economy, or an Command economy of Government-set Pricing. It need a greater investigation of primary roles in the Economy, and their methods of assignation.

The a priori need for a theoretical examination does not insure I will make such a Study, but as I thought about its necessary component parts, I began to wonder about the economic role and purpose of Taxes. Everyone can work out the basic declared need of Taxation to pay for those Goods and Services necessary to the Economy, which are not likely to be paid by the Private Sector. This definition presents an inadequate posture, though, when contemplating the actual role played by Taxation in almost every economy; a role established by a governing Authority much influenced by the Private Sector itself. The scope of the examination has immediately expanded exponentially through the practical Whole of Economic literature.

I have not, or could claim, knowledge of all the miniate of Economics relative to the issue of Taxation. Any discussion must be general of note, and suffer the impact of inexactitude. Taxation pays for Government expenditures, at least to some degree; adoption of some practices of Government lead to dismissal of considerable amount of Debt, either through direct abrogation, or by the expedient of generated Inflation. Taxes express various other impacts as well. The percentage amounts of Taxation often spur Booms, though rarely Recessions, no matter how much Conservatives and Libertarians would insist; taxes must be sufficiently high as to rival Labor Costs, not just Resource Costs or Utility Costs as they do now (the theoretical argument here is so involved I would not even write a Book about it). Taxes may even forestall Recessions, as effectively high percentage taxation cancels the real Pay of extremist Ventures and corruptive practices; expansion of the Economy is not so rapid, or is the eventual Recession near as deep. Taxes are currently also utilized to reward desired Ends, and punish identified deviant practice; the problem here resides in the defining Authority of what is bad. It is clear that the Economic Function of Taxation will require quite a number of Posts, if I choose to pursue the Subject. lgl

Legislative Policy

Monique Morrissey says We are ‘Looking for Savings in All The Wrong Places’.We are, but where We look is a ‘No Man’s Land’ of legislated junk which goes back all through the last Century. Og course, much of the shell holes in the current Tax Code have been caused by recent barrages of Special Interests in the last decade. It amazes how passage of any Tax legislation, no matter how bad, automatically makes the legislation sacrosanct; the will of God, or Allayh, or something. Notice how refusal to renew the Bush Tax Cuts has turned into Tax increases, even though Republicans initially hailed them as temporary economic fuel at passage time. It clearly highlights the reality that any Tax Code over time will become a mishmash of Special Interest desires, and only change of the structure of the Tax Code will bring effectiveness back into Tax policy.

The above is the reason I have come out for taxing Labor hours instead of Incomes, and taxing Capital transactions instead of the Gains themselves. It can be as effective in raising Tax revenues are an Income Tax, and it will be a long time before Special Interests can devise any legislation to counter the effectiveness of the Tax Code. One has to continually circumvent Those who wish to undermine all legislation for their own advantage. It is why I would insist (like Anyone will listen) that if a Tax Code based on Work-hours is introduced, it must contain an automatic Inflation adjustment mechanism; one which might best be set to Wholesale Price indexes.

Morrissey also talks about the practice of ‘earmarks’. Again, one must outfox the Pack racing to rip effectiveness from legislation. I would hereby re-advocate passage of a law insisting no future legislation can exceed 10,000 Words in length; longer legislation to be automatically defeated. Earmarks immediately disappear, though they may resurface as new separate Bills, they must sink or swim on their own merits. We bring clarity to the Issue through enforced brevity, focusing attention on immediate defined values. Readers should always remember some Games can only be won by changing the Rules of the Game. lgl

New Tax Policy

Lori Montgomery wrote a good article in the Washington Post about the Budgeting process. She semi-states that Representatives and Senators refuse to accept the lack of tax revenues when their own preferred programs are threatened with reductions. What is the real problem? It is not the extremism of the Tax Code, quite the opposite: there are too many modifications to the Tax Code so that real tax revenue is not generated. The Republicans are worse than the Democrats–one time Republicans were giving back Rebates on Taxes which had not been paid in the first place–but Democrats think tax revenue shortage should never prevent social programs.
Which is the worst of the Two?

I am currently hawking the purest simplification of the Tax Code. I would charge individual Workers $1 per hour of Work. The first $1400 of each Worker’s tax payment would be devoted to Social Security contribution. Business Tax would be $4 per hour for all Labor worked, including their own self-employment. The Capital Gains Tax would be $1 per Thousand Dollars, the Tax assessed with each Transaction transference to a Monetary sale, and charged both Sides of the transaction. There are to be no Exemptions, Deductions, Tax credits, or place for 401(k) style Tax shelters. The Taxing Authority will not recognize whether Anyone is making a Living or not, so therefore, Everyone will get on quite well.

Such a Tax Policy will eliminate Constraints on Work Incentives presented by any tax, the main howl of the Republicans. The Tax Code would raise a definite expected Tax revenue level, and legislators cannot confuse with artificial expectation of economic expansion generating real new tax revenues. Democrats and Republicans will not be able to pretend that the funds will be there, if they will not be. I would hope that Inheritance Tax will be retained, but remain equal to the new Capital Gains Tax of $1 per Thousand Dollars (simply adjudge that a monetary transaction had taken place). The real gain of the new Tax Policy would be that it would generate real tax revenue of magnitude acceptable for Government operation while limiting Government excesses, and bring reality back to the Budgeting process. lgl

Burning Sewage

I enjoy Russell Roberts, and find comparison of him with Al Gore even more entertaining. One can compare the Gore position on the environment with Roberts position; do absolutely everything no matter what the Cost, and do nothing at all because it will subtract from Business Profits. This competition will eventually devolve to Popular support, which will translate into a fight between Money and Social Consciousness. The resultant beast will be a strange freak, idealism mixed with Rent-Seeking. Gain for the environment will be small, and accomplished only with great Cost.

Are there alternatives to such cynical Results? Study of environmental issues will assure that coal-powered electrical plants will have to adopt efficient Scrubbers to eliminate CO2 emissions, as well as a number of other deadly, or undesirable, particle emissions. Power companies will have demanded and received extreme financial assistance from the Government, and the surrounding environment of the Plants cannot expect the Plants will maintain the Scrubber system at the Peak condition to grant Pure Air; entirely due to the Costs of the Scrubber system and its filters. The Scrubber systems can actually be expected to work at only about 50% efficiency after 8 years, due to the Cost of filtration

How can We change this dynamic?

Here is one Suggestion I would advise exploring. Coal is prized by the Power companies because it is plentiful, and therefore of low Cost in comparison with other fuels. Coal, though, burns at a very high temperature; actually such a high temperature that vast quantities of Heat is lost in the Generation process. Power companies might tell the Reader that they would mix the coal with other substances to burn, utilizing the Coal to maintain combustion and Heat levels, if alternative fuel was available to be burned at low Cost; something which Power companies cannot currently find. Wood cannot supply a high replacement content, or could Garbage. No one has considered concentrated Sewage. Concentration of Sewage would be cheaper than Waste Treatment, and concentrated Sewage could be transported in Pump tank trailers.

A practical experiment on Sewage’s concentrated use as fuel would have to be made, but there is no reason to doubt such Sewage could be concentrated and transported without major environmental hazard or economic Cost. There is no reason to forestall a 70-30 percentage ratio of Sewage to Coal being burned at sufficient temperatures to generate electrical power. The Cost of Sewage treatment and transport could be made much cheaper than Coal extraction, and save major Costs of Waste Treatment. Local environments and Courts would be quite sure to insist Power companies maintained their Air treatment facilities at a constant basis; one only has to smell untreated burning Sewage once to understand. The Power companies make money, the suppliers of Sewage save and have additional gains from selling what is currently a offensive waste product, and the total environment is better served. lgl

Commodity Prices and Inflation

There is a new Paper out by Frank Browne and David Cronin which is a prime Read for Those interested in the origins of Inflation. I must first state I do not find their thesis any more compelling than my own expectation: which is the interaction of Supply Shocks and Speculation overshoot Commodity prices in a fluid market, and that Consumer prices (much stickier in movement) overcompensate in Price shifts to stay in the Black. We both agree that the basic bulk of Inflation derives through interaction of a fluid Commodities market and a very sticky Consumer Price market set basically solely by Producers. The Later will always overcompensate in setting their Prices with inclusion of the full speculation of the Commodities market.

The type of Price stickiness of the Consumer market stands as highly relevant in the impact of Commodity Pricing on Consumer Pricing. Consumer prices are likely to rise far more rapidly than they are likely to fall. Supply Shocks in the Commodity market resound in the Consumer pricing far more quickly than do Oversupply reductions in Commodity prices. In fact, Consumer prices express almost complete resistence to Price reductions below previous Consumer pricing before the expressed previous Supply Shocks, ignoring any Oversupply in the Commodities market, and assuming the difference as Business Profits.

The previous analysis presents primary theory (which has not been checked within a data framework), but seems sufficiently relevant to conduct further analysis into the de facto Stickiness of Inflation itself. Readers, who think I am talking out of my hat, may be able to understand that Inflation is a common occurrence happening normally in an Economy; while since the organization of the central Banking systems, deflation occurs only relatively infrequently with short duration, and only in circumstances of rapid Unemployment, severe Commodity shortages, or major changes in Currency. The depth of the deflation due to the severity of the economic conditions causing it, gives real Inflation control (light deflation) a bad name. I have long been speculating on how to induce a slight deflation (believing this venue would cure far more than injure). lgl

Guilds

Bill Testa, and this Paper by Dey, Houseman, and Polivka, think that BLS statistics on employment in the Manufacturing sector fail to account for the rise in employment in Employment Services, which allow Businesses to outsource many functions where it is difficult to maintain consistent competency, steady rates of employment necessary for Permanent Hires, and to avoid the increasing Costs of Personnel Hiring procedures and provision of Health/Pension services. Bill Testa makes the real Case that Manufacturing Employment is hidden because data from Employment Services is listed as Service data, not Production data. There is also much artificial increase in Productivity rates, simply due to BLS numbers not catching the increased devotion of ES employees to production functions, though unlisted in gross Productivity calculations.

Read both article and Post if the Reader is interested; but my major venture here is in the study of the flow of Employment into ES, check out the Paper on exact values for this increased flow. It truly amazes Me how what goes around, comes around the study of Economics. Business is abandoning Permanent Employment as too costly all-around, though they must have a source of trained Labor. Labor is coming to find that assurances of Business will lead neither to Job Security, or adequate protection on the Job for Health provisions Costs–likewise for Retirement security. Outsourcing and Offshoring emasculate the ability of Unions to artificially inflate Wages and Benefits. No One in the Employment process holds optimum placement for highest Profit for themselves, or All Participants.

Now the Reader may ask why the goes around comment. The only venue I see viable to meet and match all Participant needs are Guilds. What? Guilds serve as the perfect vehicle to train Labor to the skilled professionalism required by industry. Guilds easily acquire the negotiations skills to contract Labor to Business. They provide the greatest Population, and best avenue to negotiate for Group Health Services. Guilds would generate the least friction of any organization in setting Employee Withdrawals for Retirement plans; Wage rates would be even and consistent, Employment could be maximized across the Country and World by internal dispersal of Labor assets, and Pension Rights could be easily established. Most Guild negotiation with Consumers and Providers could be via Internet. Business, Investment Broker, and Health Insurer would all possess knowledge of Guild resistance to lower Wages or higher Fees. Is it the way to go for Labor? Yes! Is it the way to go for Business? Actually, Yes! Will They? lgl

New Iraq Government

Anthony Arnove and Tom Engelhardt present a good argument for exiting Iraq, though I do not agree with much of their stance. It is true about 16% of the total Iraqi population has been dislocated by the War and Occupation. The Iraqi loss of life is somewhere over 200,000, but I have found little to justify estimates higher than this number. The monthly average of death, though, is rising; and will continue to increase until one Side wins the Civil war which is de facto in effect. The American Occupation now most closely resembles the British Occupation of Palestine after WWII. Everyone knows in Iraq that Peace will never be achieved until one Sect dominates all others; and actually, Iraq will probably be split into three States–Sunni, Kerd, and Shiite.

The only political solution to Iraq likely to last consists of a 3-Assembly Legislature, where passage of legislation require a majority in all three Assemblies. The Government would be formed by a Majority Vote of at least two Assemblies, on the order of the British system. A Popular election system will not work, because there would be a tyrannical rule of the greatest number. Under the British style system I propose, each cultural Assembly would represent the Power structure of their own ethnic group, and while each ethnicity would not enjoy a de facto Veto power, the Power structure of each Group will have to get consensus outside their ethnic power base. Terrorism will be robbed of its base, as even their own ethnic group will not lend support to further violence when a peaceful resolution can be achieved.

This still leaves the essential problem of American occupation. The Bush Initiative will not work, as it only feeds Troops into the battlefield in piecemeal fashion. American Troops could attain success if and only if the American Occupation adopted full Police power; unreachable with less than 2 million American Troops. It is an Involvement which We would not desire, even if We had the levies of Troop personnel. We have already expended a half-Trillion Dollars on a Program without realistic Goals; and even yet lacks an Exit strategy. We have vital national interests elsewhere in the World that are not being served due to a lack of military assets, which We cannot extract from Iraq under current Policy. We do not want to spend more, either in terms of financial commitments, or in terms of loss of life. It is time to get out! lgl

Bottom of the Pyramid

The Next 4 Billion presents a wealth of material to be Read, and I may pursue a great deal of it; my Blog-Server bots having defined me as a Spammer, and precluded my Posting until my Blog is reviewed. It seems even the Software is turning against Me; an unusual form of Critic if I do say so myself. The above published Paper has much to tell, even if some elements may eventually turn out poorly; presentation of information in itself is valuable. The Paper does present a huge Market which is poorly served by Business–having only access only to what the Paper describes as an informal economy. Here the inhabitants lack Communications, Financial Services, accessible Job opportunities, and effective Products for purchase.

The basic thesis of the Paper appears to be that elements of the formal economy need to develop strategies to reach the great mass of People of the informal economy, and present them with the Products and Services designed for this Market segment. I have some doubts such a strategy will succeed, as elements of the formal economy have already adopted their Business formats, and will find the Profit Margins within this lowered-Income class too slight to make a difference; one cannot achieve Business success under Business formats where cheap Product has to be produced and marketed by a Work force paid a Wage-scale equal to Those extended to the formal economy. Transfers between Job Skill levels decree a Wage spectrum impossible to maintain. There are numerous examples in the Paper highlighting where this has been effected, but in every (I believe) case, it revolves around turning bulk Production capacity into individual Sales units of minute size.

The real threat which must be countered lies in the area of Energy, as alternate methods must be devised to serve for Cooking and Heating. Garbage and trash foliage must replace the use of Wood and Propane, to forestall deforestation and the buildup of Greenhouse Gases. Electrification must also be provisioned, the probable Outcome being charitable construction of the infrastructure, with pressure on Electrical Suppliers to supply such endeavors at the bulk rates extended to heavy users. The next biggest Threat comes in Population Growth, and Health provision must be coupled with Family Planing at the least. lgl

Carping

David Altig provides the information that the Inflation registered in February was functionally widespread increase across the spectrum of Goods used in the CPI basket, and volatile Goods actually held the composite rate down. This stands as serious, knowing that the Republican conservative choice of the BLS slants the basket towards a policy which ignores Price changes to a majority of Consumers (they not buying the rich basket of Goods), and who do injustice to the estimate of Consumer Service Price increases. The majority at least saved somewhat due to the decrease in Food and Fuel Costs, but will be hampered this month by returning high Pricing in these areas. The fact is that the CPI is highly likely to be adversely affected overall by these Goods in the months ahead.

Calculated Risk brings forth another argument stating that though nominal growth in Consumer Spending did increase an annualized 4%, real GDP increase will be only about an annualized 1–1.5%; this is important because it will not readily increase GDP at conformance rates with last Year. It is mentioned that this does not include consumer spending on Services-as stated, about 60% of all personal consumption expenditures. Here is the flaw in this argument, and I will attempt to explain why.

Consumption on Goods act as Competitive Goods to consumption of Services, and vice versa. Reexamination of the data will incite the suspicion there is a major split (because of the reduction of share of Food and Fuel) between Inflation rates on Consumer Goods, and Inflation rates on personal Services. Health Services are pushing an annualized 10% Inflation rate, and other supportive Services charges are beginning to reflect this drive to higher Prices. Consumption of Goods undoubtedly will decrease as Inflation runs rampant in the Services sector. The Goods sector remains much more responsive to Employment Layoffs, and far more likely to generate Employment Layoffs, than is the Services sector. Layoffs are more likely because of the Retail Overhead Costs, and Consumer Purchase patterns generally fall after the payment of immediate Service need Costs.

The expectation that nominal and real increases in Consumer consumption of Goods will continue at last Year’s rates seem unlikely. It even appears doubtful that the Service sector will continue to hire at consistent rates of the past year. The subprime mortgage debacle suggests that while Consumer Credit may not tighten, Consumer expenditures will cycle down closer to payment of Bills, with little adventurous assumption of new Credit. These considerations argue for a revision downward in real Consumer consumption practices, though nominal increases may remain. lgl

Saudi Oil

Steve Verdun and Stuart Staniford both see Saudi Arabia facing a Oil Production constraint. Staniford has arrayed a series of graphs indicating that Saudi Oil production schedules have not been matching normal economic growth expansions, as they would have if acting as the swing Producer of Oil in the World. Staniford assumes the physical constraint comes from the Saudi need to develop smaller fields to increase Oil Production. This could be it, but I have some doubts.

My surmise is quite different. My Take on the Situation, based on no special access to information from Saudi sources, comes from my belief that Saudis have engineering analysis suggesting they need to double the depth of their Wells to fully exploit current Operating fields(to get as much Oil out as they can). Depth alone presents it’s own set of problems. Pumping from the depths imagined requires significant energy devoted to the Pumping itself. The Saudis can divert Natural Gas from the process of Pumping itself to fuel the Pumping process, but Natural Gas is itself becoming a highly marketable Product with a large Marginal Profit ratio. The Saudis are in excellent location to utilize Solar power, though there is serious difficulties in Solar energy concentration of sufficient magnitudes necessary for large Pumping operations. I am certain the Saudis are looking into nuclear power generation for Pumping purposes; a Move I believe Iran is already attempting to adopt.

Nuclear power Generation for Pumping purposes at the depths described may seem to be the cheapest mode of operation, but nuclear waste will become a problem in the long-term, and neither the Saudis or the Iranians will have either the wealth or territorial resources for adequate nuclear waste disposal. Use of Natural Gas for the Pumping will use up Natural Gas deposits a probable 30% faster than would a Salable Product market, and would cut Pumping Profits about 40% from full Distribution Sale of Product. Some form of Solar Pumping power would seem the cheapest both in the Short and Long run. The trouble will the later Solar Energy is the necessary development of technology for energy concentration. lgl

Alternative Tax Position

Budget discussion is again the rage on the blogosphere. PGL at Angry Bear has this good commentary, as does Andrew Samwick with this overview piece. Republicans are accusatory about Democratic intentions, prior to any significant legislative measures even being advanced. The real content of the blogosphere, though, seems to wish and desire ‘Some Truth in Borrowing’ on the part of the Government. I personally have presented a numbers of way to Tax effectively, which I believe may be the entire Problem; no one desirous of an effective Taxation.

Everyone may have evolved to a position of ‘Spend and Spend, and Forget about Tax’.
A Land without effective Taxation, but One where the Government can pay the bills, with Everyone implying there is no effective way to Tax in the first place. There are good ways to Tax, and there are bad ways to Tax; but rare is there Tax which is ineffective. I decided in this Post to review high revenue-generating measures which would substantially increase Tax revenues, and maybe give some hint of the economic impact of Each.

1) Tax Filing Fee: A $25 Fee per Individual, and $250 Fee for filing Business Tax Returns will be assessed every Return. Tax Compliance will be generated by provision of the law stating failure to file by the registered Day will incite an automatic 30-day Jailing, or payment of a non-refundable Fine of $2500. Exemption will be granted only to those Responsible Parties who have filed for Bankruptcy before the registered Filing Date.
2) A new Surtax to be imposed upon all Tax Returns stating an equivalent sum must be paid as Tax equal to the sum paid to Accounting professionals to prepare the Tax Return; this law also assessing a Surtax equivalent to the Labor Costs of the IRS in auditing this self-same Tax Return.
3) An additional Finders’ Fee Surtax will be charged to any Taxpayer exactly equal and in addition to payment of any Tax shortfall found by IRS auditors. This law and Tax may lead some Taxpayers to err on the side of Righteousness.
4) A further law will state that Business enterprise or Charity organization and Foundation which does not fully-fund their Health and Pension guarantees for any given year, must double their contribution to the Pension Insurance Fund for that Year; it also stipulating if such Contribution increase is not received by the Pension Fund inside the following Tax year, then the responsible Financial officers of the Enterprise will be jailed until it is paid.

Here are some admittedly radical Tax Proposals, and Republicans may think I am worse than your average Democrat, but it remains a viable Construct in which to raise Tax revenues and cut down the size of the Deficit. lgl

Defense Spending Shortcomings

James Joyner brings in a really good discussion in short form about military spending. He mentions that the United States spends more on Defense than all of the rest of the World. Joyner shows by graph that Defense Spending is decreasing as a percentage of GDP, but also asks if Defense Spending should keep up with American Productivity; remembering that economic sectors often meet maximum utilization, even though the overall economy continues to grow. James also presents a graph on real (inflation-adjusted) Dollar Expenditures which are definitely up.

What can be read out of the Post?

This is where the good Economist, or poor Journalist, starts to get yelled at. The real Dollar Expenditures graph clearly establishes that preemptive Spending will not lessen the Cost of entrance into Conflict. It cannot be determined by this graph, but preemptive Spending does not even seem to moderate the added Spending brought on by entrance in Conflict; this a simple Statement that initial Conflict Costs cannot be significantly amended by preparative Spending. Initial Costs of Conflict requires Individual behavioral change of high economic Cost; personal equipage and Transportation, and dislocation of economic function for not only Those engaged directly in the Conflict, but also of Those dependent upon their previous economic endeavors. The graphs provided by Joyner indicate that preemptive Defense Spending have little or no impact on the initial Conflict entrance Costs. Expenditures for the Korean War were of greater magnitude than the following Wars, but the lowered Expenditures prior to the Conflict Costs probably saved more than the minimal added rapidity of Dollar expenditures from the Korean Conflict.

The fact that the United States is spending more than the entirety of the rest of the World insists the U.S. Military attempts to incite a military technology advance too expensive and ahead of its time; and any actual superior development will be eventually copied by Opponents of the United States at much less developmental Cost, and countermeasures even cheaper: the new Iranian Devices used in Iraq cost about $70, but can effectively take out a $2 million vehicle plus four Soldiers. Current U.S. military planners are effectively funding Enemy R&D.

What We need in military expenditures in what We are not getting. We need a vast increase in the Reserve component of the U.S. Defense posture. I am talking about an additional Force Reserve of 15 Divisions of Troops. We need an additional 15 Divisions of National Guard as well. These 30 potential Divisions must be supplied by at least the equipage to supply 5 Divisions in the field above Our current complement. Training Costs for such a Force Reserve would be about $75 billion per year. Division equipment complement would cost about $12 billion per Division, plus approximately a $2 billion per year per Division upgrade. What We don’t need is more Super-weapons which Our Enemies will find easy to Copy. lgl

Macro and Micro

HedgeFundGuy makes the mistake of asking whether Economists understand macroeconomics, specifically if they understand business cycles. He goes on to ask if there is any general consensus. He doesn’t know it, but he has found the exact rationale for business cycles: Consensus. When too many People begin to think there is economic opportunity, then there is created over-Investment, over-Production, extreme drop in Unit Profits, and massive contraction of Sales per Participatory enterprise. This is what incites the Recessionary aspect of Business cycles. When, on the other hand, Everyone thinks the business climate is poor; they curtail Investment in Risk ventures, and the Holdouts reap the Profits of semi-oligarchy of the Market Sales, rapidly increasing their Unit Profits. Here HedgeFundGuy thought Economists did not understand such profound ideation. The Devil made me do it!

A brigade enroute for its third deployment to Iraq, and Command is scraping up bodies for the transfer. Alteration of Medical Profiles seems horrid, but is a long known practice in the Military. The abuses cited have undoubtedly happened, though the Author may not know how to write on military affairs. Here is the information I desire as an informed Reader: How many Casualties has the brigade taken in previous Deployments to Iraq? How many of those Casualties are returning to Iraq? What has been the duration between Deployments? How many empty slots are in the brigade Table of Organization? What specific Troop Specialties do they lack? Why can’t trained Troop personnel be transferred to the brigade to fill whatever necessary complement is lacking? All these Questions must be answered before sound Judgement can be made about the altered Medical Profiles is made.

The most serious Charge to be leveled at the Bush administration is their attempt to fight a War without the prerequisite expansion of military force necessary to maintain an Active Force in the Field. The Military should have been expanded immediately upon deployment of forces, at a minimum to a level to match the Numbers of the Deployment Force, this simply to maintain an extended Reserve component. Troop Specialty schools should have expanded their Course ranks to graduate the greater Numbers of Troops necessary, and immediate Steps should have been taken to equip the new extended Reserves. None of the Above has been done, or in any way initiated. Troops will be entering their Fourth Deployment to Iraq or Afghanistan by the time Bush leaves Office because of his refusal to assume the added Costs on his own Watch. It will leave the next Administration without effective Policy, and with exhausted Troops. lgl

Real Tax Reform

Jeff Cornwall shares my despair at the lack of progress in Tax Reform, citing the extreme cost of Tax compliance for All, but most especially for small business. The numbers utilized may seem somewhat excessive, until One understands Tax rules makes it practically impossible for any Business entity to file a Tax Report without outside intervention of a bonded Accountant. The old days of ‘Keeping your own books’ leads almost automatically to Audit en masse, and the Accounting firm will charge far more for the hours consumed. One Friend was dissuaded from an Investment opportunity by his Accountant, who stated that his own Billing charges would make the project uneconomical. Welcome to Life in America!

People have been screaming for Tax Reform for as long as the Tax system was being developed. The horror simply continues to grow, without any but the most egregious outrages being moderated. Foul mess piles upon vile corruption, and nothing provides any hope of betterment. No one will surrender any advantage in Tax law, even though it is a complete Prisoner’s dilemma in reverse, where no one will gain until All allow effective revision without impediment; any effective Holdout dooms the Tax reform project. This means only one effective Lobby will infect Tax reform, inciting dozens of other Lobbies, cancelling any effective reform. The only option states when you cannot change the nature of the Beast, change the Beast!

I immediately propose alteration of Income Tax law from one based upon Income, to one based upon Production Hours. Business would be charged $4 per Hour of Employee labor expended, and $1 per production machine hour employed. Workers would be charged $1 per hour of labor worked as Social programs Cost. Nowhere existent in the Tax law would there be any deduction of any type from the basic Tax rate, or would there be any tax reduction incentives. What there would be is a Tax Arbitration Committee established which could reduce the Tax charges by $1 decrements, but for no Period greater than 1 year in duration; complete renegotiation with a newly-appointed Committee must be endured to renew the reduction.

What do We gain by this Change?

The first element gained is the Sidetracking of years of special Tax dispensations granted, which have ruined the nature of the Income Tax progressivity. The second gain comes in removal of excessive Accounting procedures from the estimation of the Taxes owed. The third benefit consists of the easily estimated levels of Tax revenues to be gained. The fourth element provides ease of establishing Tax Arbitration Committees, if they are establishing on the same order as Grand Juries. The fifth advantage states that economic incentive is not destroyed by increasing Tax rates as Business prospers. The sixth benefit states that the Aggregation function for Investment and Recapitalization is least impacted with a limited, recognizable Tax. The last benefit lies in the fact that Taxes would actually work out to be lower in Cost in the long-run. lgl

Private Equity

Here We have a Case where a practice should never has been started in the first place. Private Equity fees are Income, and the fees should have been registered as Income from the start. Capital Gains consist only of profits on Investment. The problem is the same problem there has always been: the separation of Income registry defining a difference between Earnings and Profits. The distinction does not exist in fact. Sound Investment, no matter how it is examined, is nothing more than a Job in progress. All the elements for sound Investment require the same attention and effort to achieve as does any other form of labor. There is no question of any form of double taxation which is viable, the original claim for the separation of the two forms of Income. It is simply another Job which is performed. The advent of the 401(k) system further complicates the Tax Code, attempting to give initial Investment the same advantage of less taxation as enjoyed by Private Equity. Real truth states there has never been any evidence that Income separation leads to better or more gainful Investment, though the 401(k) system has assuredly provided an oversurplus of liquidity in Investment funds; something which has lowered the Productivity of Investments overall, led to funding of poor Investment options causing overconsumption of Productive resources, and shrunk tax revenues of both Income and Capital Gains.

The simple transference of Capital Gains into Income would eliminate the Charade which causes such injury to the economy. The current distinction is artificial in nature, and does not truly serve the advantage of either Government or Taxpayer. The reduced taxation of Capital Gains generate pressure to raise Income tax rates to make up for the shortfall in tax revenues because of the reduced tax rates of Capital Gains. Transfer of assets into Capital Gains incites Transfer fees for the individual Taxpayer, a hidden form of taxation charged to avoid taxation, such Fees excessively high because of the protected volume of tax avoidance; these Fees later unavoidable, if the Taxpayer desires to maximize his Income through Investment transfers. Government tax revenues lose in all cases because of the distinction between Capital Gains and Income.

The real question of maintaining the distinction of Capital Gains revolves upon the potential impact of liquidity loss in Investment. The existence of the distinction between Capital Gains and simple Income Tax is known to generate excessive liquidity, but would elimination of the distinction excessively restrict liquidity in the Investment markets? Practically every Economist would have a separate answer for this Question, Most suggesting there would be a rapid and vicious constriction of Investment funds. But would there be such a decline? It is obvious there would be a transfer of funds back into Bank Deposits, a safer and more favorable Investment with the introduction of a higher taxation upon the added Risk. Here the Question must be asked whether this Transfer of funds would exceed the natural over-liquidity of current Investment. One must remember the Banking system is of basic design to promote Investment opportunity through underwriting Investment; could it not be true that the Banking system would retake its natural position as the normal Private Equity agency? lgl

Co-ops

Chris Dillow gives Us an excellent evaluation of why Co-ops are not more numerous. Every one of his listed reasons for a shortage of such organizations is quite valid. He fails to present the two most important, though, which I will try to present. The First is the lack of Insight, or otherwise defined as lack of the business acumen to discern the full benefits of co-operative union for Market purchase and Sale success; this requiring knowledge of Markets, formal Accounting practice, unified Direction of Market activity, and knowledge of Investment capability for directional exploitation. Labor may possess all of these attributes, but recognition of these attributes must be common knowledge to the entire group to properly delegate Management staffing; lack of the previous will lead to the breakdown of the Co-op.

The second rationale to be presented is the loss of Productive effort. All members of a Co-op association must involve themselves in the Management formula, which is mostly unknown, and where much Time must be devoted to learning its elements. Failure to do so results in reliance on Hired Help which requires intelligent education to supervise, or inability to find qualified personnel. It is equivalent to taking on a moonlighting Job, where the eventual Pay is indeterminate. Distraction from One’s primary occupation has known losses, while assumption of the new duties provides no guaranteed increase of Income; all within a Schedule which must be maintained for success.

Chris criticizes the feudal concept of leadership, but the Business world is fundamentally based upon such a leadership; it is hard to separate such leadership from the Production process, and maintain the Speed necessary to successful Business operation. Co-operative associations functionally need a ‘Guiding Light’ who is willing to assume the managerial functions necessary for successful operation. I am quite sure these associations will attain greater expansion in the future, due to the greater educational levels of Labor and the availability of online managerial Accounting formats, but I also think there must be a lower-Cost decentralization of the Market system; something based upon online rapid transit of managerial Job performance, inside a specialized Service sector. lgl

Economic Impact of Tax Cuts

Mark Thoma again criticizes the political rhetoric of the common assertion that Tax Cuts raise revenue. I would agree with Mark’s assessment, but what I concern myself with runs even deeper; the fact that Tax Cuts are actually hazardous of economic performance. Here is a much greater valuation exercise, and one which can be far more damaging. Tax Cuts not only curtail collection of tax revenues, they introduce instability into the Production cycle; I will try to explain why in a method that Readers can understand.

Simple economic models will outline the impact of Tax Cuts on marginal unit profitability. Guaranteed Profits levels will lessen desire to maximize marginal unit profitability, as well as raise the Cost of the labor consumed by maximizing marginal unit profitability. Management loses care in the pursuit of Production efficiency, relying upon low Tax rates to replace the marginal unit profitability lost. These low Tax rates also input added Cost to Quality Control measures to insure effective Productivity, as such measures will decrease after-Tax profitability because of pre-Tax drain of Income. Labor, itself, feels the lack of intensity in Management, and begins to slip from prime Productive effort. It remains hard to evaluate such sub-efficiency alterations of Production schedules, but I estimate it costs an approximate 9% of total Productivity.

The Above analysis should not be utilized as venue for Management ranting for greater Productivity from Labor. The Question confronting Us continues to be the impact on Production efficiency of Tax Cuts. The issue is not one of Production speed, but of Production quality. This devolves into a loss of Management supervision of Production due to the Tax Cuts, not some failing of Labor performance. Actual fact states Tax Cuts may finance Offshoring, due to ability on the part of Management to avoid the Costs of Quality Control. Tax Cuts may be the force of erosion which contaminates Our economy. lgl

Still Full Of It

COUNCIL OF ECONOMIC ADVISERS
WASHINGTON, D.C. 20502
March 9, 2007
WEEKLY ECONOMIC BULLETIN
FROM: GARY D. BLANK
SUBJECT: An Assessment of Current Macroeconomic Conditions
The employment report dominated this week’s news. Payroll jobs increased and the
unemployment rate dropped, but overall the number of hours worked declined. Stock markets
appeared to stabilize after the previous week’s losses.

Nonfarm payroll employment increased 97,000 in February, in line with market
expectations. The unemployment rate dropped from 4.6% to 4.5%. This good news was
tempered by a decline in the workweek so that total production-worker hours fell 0.3% in
February. As a result, hours worked in January and February are little changed from the
2006:Q4 average, suggesting slow GDP growth in the first quarter.

The trade deficit decreased to $59.1 billion in January from $61.5 billion in December.
During the past 12 months, exports increased 10.7%, while imports increased 2.7%. The strong
growth of exports suggests robust economic growth of our trading partners.

Productivity growth in the fourth quarter was revised down from an annual rate of 3.0% to
1.6%, reflecting the downward adjustment to output from last week’s GDP revision.
Productivity growth was also revised down in 2005 and 2006 due to the 750,000 upward
benchmark revision to payroll employment (announced last month). Productivity growth since
the business-cycle peak in 2001:Q1 has now averaged 2.8% at an annual rate, slightly above the 2.6% growth during the preceding 5-year period.

After sharp declines last week, the stock market stabilized this week. The S&P 500 climbed
1.1% through Thursday’s close, recovering some of its 4.4% decline last week.

The February gain of 97,000 payroll jobs was below the average of the preceding 12 months.
The trade deficit has steadily improved over the past 12 months.
International Market Developments

Retail sales dropped 0.9% in the EU in January, which could be an early signal of a weak
2007:Q1. Germany had a particularly weak month, with retail sales falling 5.1%. Meanwhile,
the European Central Bank raised interest rates by 25 basis points this week.
Sales at the major (America) chains fell 0.8% in February
---------------------------------------------------

Some Who read my Blog on a regular basis know I predicted an increase in new Unemployment Claims of 18000 shortly before BLS release of its report. I find the Council of Economic Advisors also releasing their Report (the Above is seriously abridged by myself). It is obvious that I was far off the Mark, or is it? One may want to read this Post by Mish. Read the small print of the CEA report again after you read Mish. 374000 were dropped from the Labor Force, 39000 of the New Jobs were Government Jobs (almost twice the normal monthly Average), and the CEA report states Hours worked in January and February were little changed from 2006Q4, which was revised down from a annual GDP growth rate of 3% to 1.6%. The last part of the CEA report kept by myself gives a hint on the health of Retail Sales–both domestic and Worldwide. I am just trying to find Excuses for my poor Prediction. lgl

Better Elections

I read this blog by Stephen Dubner, and I came up with a sensational idea. One of the Questions advanced related to the role of Personality in elections. Another Question asks the value of forcing Candidates to answer the real issues. Another asked for Clinton’s position basically on the principle of ethnic cleansing. There was the One asking about the balance of power between Congress and the Presidency after Bush. I read through these Questions to be asked of an ex-President, and came to realize the real underlying cause for the poor performance of Democracy in action, at least of American democracy in the Present Day. Then came the Idea!

The genuine reason for the failure of Democracy was that Voting was not sufficiently discrete. What do I mean by that? Reply states We are voting for Individuals, not Policies, Direction, Goals, or Desires. Once those Individuals are elected, they do not even have to follow the course which they outlined in their campaign. Relatively no Problems or Crises evolving are different in nature or context, only differing in placement, location, and impact. Election of efficient leadership (leadership which follows pre-approved methods) requires an evaluation system more intricate than ‘Does he sweat under Pressure?’ How do We arrive at this evaluation process?

I would suggest conversion of the Federal Election Committee into a Test-Creation entity, where Anyone is encouraged to send in sensible Questions to ask the Candidates, and the Committee develops a 50-Question Multiple-Choice Test which is administered to all Candidates prior to the Election. Voters will take the same Test on Election Day, and all Candidates will be elected by the greatest conformity with the Voters’ choices. It will be how We elect President, Representative, and Senator. Candidates will be tested early, so that They may campaign based upon their choices on the Test, though They will be disallowed from revelation of any of the questions of the Test. State and Local Candidates can be forced into a similar, but separate form of Election, if States and Communities deem such a Process valuable. lgl

The Future as I see it

Chris Dillow presents a really good Post with valuable links. It is basically a criticism of economic dedication to GDP data. It is especially timely because of the fact GDP will begin to decline sometime within the next two decades: it being a combination of more expensive Resources, a lack of specific Skilled labor, and an overall shrinking Population. Most Economists would disagree with this assessment, but there is a wide range of negative externalities which they do not consider. The greater expense of Resource Mining comes from the greater difficulty of Mining, which will not only require greater Capitalization, but also greater numbers of Workers devoted to Mining; I predict the Mining sector will triple its Labor force in the next 20 years. Skilled Labor will be in short supply unless and until the cost of Training is reduced; estimate We will have a 5% shortage per Graduation Year–additive over a 45 Year duration. The Population will shrink, but not necessarily decrease the draft upon Resources; based upon the Ageing of the Population, and the resultant greater Investment in it. I possess some doubt of Dillow’s belief in a Coasean world, though, knowing the impossibility of the organization of External Costs into a functional program for negotiation.

Hal Varian, Ramey, and Francis finds leisure time has not changed since the days of Keynes, who mentioned that People would have to find ways to expend their leisure time in the future. It was not one of his primary theses, though, and All missed reading my previous paragraph. The real fact exists that People have found the manner to consume their leisure time, basically in Women going to work in the Marketplace, and confining Child Care to their leisure time. Most Parents spend at least 2 hours a day getting their children to and from Day Care. Parent-Teacher meetings have gone up about 2000% in Time consumed in the last 70 years, and Child-oriented Sports events consume about an additional 7 hours per Week in duration or Travel time. Housecleaning is transferred to Prime-time leisure hours due to the Wife working, and attendance at listed Sports events etc., has been reconstituted as compulsory through issuance of Season Ticket and prohibitive Price. I think it is too early to call Keynes wrong.

Sarah Hamersma disliked the burden of Minimum Wage upon small Business, and claims the Earned Income Tax Credit is the better deal. This Proposition carries the hidden connotation, though very much a real sentiment, of suppressing the Cost to Customers of small businesses; i.e., insuring the Cost of Small Business enterprise does not increase at a comparative rate with the general Inflation of the greater economy, for the specific economic advantage of Those utilizing small business services. This sounds good, but effectively small Business must face the greater economy in all other aspects of Production Costs; this compelling outsize Price increases at lengthened periods (a Step-level of artificially-high Jerks). The Earned Income Tax Credit suffers from a low Participation rate (expected from less-educated Labor who fail to realize the existence of such a Credit), and a Business management which does not want to be bothered by the administrative cost of such a Credit. The Minimum Wage at least reaches the affected Workers. lgl

What I dislike about Bush

James K. Galbraith can always be counted on for a fresh view of the economy, as he presents in this article. His contention states that the Bush Presidency fueled Public sector expansion, rather than promoting the Private Sector as in the Clinton years. This may seem like a No-Brainer considering some trillions of Dollars Bush has spent on Defense. James gives Us a very telling argument based upon data without numbers–We have definitely traveled from the Tech industry to the military-industrial complex. The Bush administration hid this vast displacement, though, by his across-the-board Cut in Business taxes. The practice will glare when Democrats think to return Business taxes to a realistic Norm. Readers may ask why this is important. The excessive Public Spending, especially its transfer of funds Overseas to the advantage of the military-industrial complex, cost American Workers about 3 million Jobs (about equal to the Cost of simple Offshoring); the two major impediments of Job growth in the recent Recovery.

Here is an article which highlights the corruption inherent in the Bush pattern of Spending. Bush proposed a reduction of Firefighter and Homeland security grants in his new Budget, never expecting such Cuts would be implemented by Congress. First, such Spending should be concentrated at the State and Local level where actual Need can be identified; based upon the hard choice of allocating local taxation to procurement of such materials. Funding efforts above their natural level of provision always leads to excess: understand that in the Provision game, 100% percent equipage is often quite excessive, and economical provision can be as low as 20% without detriment from maximum efficiency.

The second element which should be considered in Spending at all three levels of Government is the Speed of Provision. Speed can become a very expensive commodity in the context of Provision. A good Case in Point is Defense Spending on new Weapons systems. Almost 60% of Cost of current Defense Spending on Weapons Research and Development comes from full finance of all elements of Weapons Development. Intelligence Estimates suggest no other nation has sufficient Weapons Development to even rival the United States until 2030. Defense Weapons Contracts use in the main a Target Date before 2015 for introduction of Production of Mainforce Weaponry. Avenues of Research are adopted which should not be accepted because of poor chance of success, Traditional approaches are adopted simply because their efficiency is known and Target dates can be met–though their effectiveness is challenged in currently-employed systems, and poor development is not abandoned because of prerequisite need to redeploy Research resources–Design, Research Equipment, and Labor. The Bottom line states We are probably paying almost twice what We should be paying for Weapons development, while current Mainforce elements deployed in the Field are not being adequately supplied.

Here is where We find the greatest injury in the Bush administration Expenditure pattern. Congress is equally at fault, along with the Military-Industrial Complex; who maintains one of the most intricate Lobbying systems ever devised; it mainly being financed by excess Charges placed on Weapons systems Development projects. Engagement in such Expenditure patterns always fund resistence to cutting the flow of such Funds–An Ounce of Prevention is actually worth ten Pounds of Cure. This is the real legacy of the Bush administrations, and it will cost the American Taxpayers a probable $2 trillion of overSpending before it is brought down. lgl

Economic News

Productivity increases only by 1.6% in 2006, while Labor Costs rose by 6.6%; drat, it be those horrid Worker Demands again. Wait! Why does this article not provide numbers on Labor Cost increases minus Management compensation? It seems like a logical thing to do, as Management is not really part of Labor. An outmoded Author, let alone concepts of Economist and Accountant, has me scratching on paper with all mistaken elements of arithmetic. I somehow come up with a number less than Zero with Management left out. It must be that Management suddenly found need for more Management personnel! Oops, somehow I came up with a negative number and Shrinkage again. Maybe I can find Someone who reports on the exact percentage of Management compensation gain, so I am not left in the Dark with my poor Math skills.

Here is another indication that many individuals in the Mining industry wants to stay in the Management cycle, rather than take a simple Buyout. The Majors want to buy out the Minors, to get to the Reserves which they have found, now that the entire Market for mined products has increased by about 25%. The trouble to the Majors comes from the low Prices they want to give to the Minors, who do not want to sell. The Majors could also think about extending Management compensation packages in their organization to these Minors; a practice enjoying heavy advantage in the Tech industry. Why does Everyone seem to want a piece of Management; at least, of their Compensation packages?

The ISM indexes showed real slippage, but the numbers are all above 50, the breakeven point for economic growth. The trouble here lies in the almost 5 point drop in the Services index, not a sure sign that Employment numbers will be bad, but the numbers Friday will tell the Tale. I would lay odds on an 18,000 increase on First Filers; this Guess solidified by a 0.6% drop in the new orders index. I don’t think in terms of any Recession soon, based upon the new Household Startups, but I expect a Pause in Consumer Purchase expansion. lgl

Reality in Carbon Policy

Arnold Kling comes up with a good article one more time, presenting a number of points about the practice of subsidizing Alternative Energy; the most important actually being the recognition that Taxation, not Subsidies, are more efficient at curtailing the use of bad energy. He basically states that no one but the Politicians and Lobbyists actually benefit from the current Subsidy programs, and nothing works directly on slowing use of bad energy forms. It brings up the question of what exact type of Taxation, or form of Subsidy, could alter this basic condition.

A combination of Tax and Subsidy might be a law to limit rapid conversion of land at below actual external Costs. Something on a law requiring Tree-replanting equal to the land area Developers use for new construction. The land consumed in Construction must have an equal area of deforested area replanted to get both Building Permits and Mortgages. Arnold says in his article this might cause heavier Carbon emissions due to the use of heavy equipment; this would be true under current practice, but such a law creates a new industry of Business devoted to Tree-replanting, who are subjected to Carbon emissions standards as well. The law could also stipulate that a certain percentage of Property Tax be devoted to such Reclamation Costs, until the exact area required is forested for old construction. The beauty here is the fact We get a genuine reforestation program properly funded, and long-term fixation of Carbon can be achieved. Here is another Case where We have to define economic Costs; I personally think such a program could be set up costing less than 15% of the initial Mortgage, and about the same for the Property Tax increase. Recognize that this will place a Penalty on new Construction, and implants a subsidy on Renovation construction even though the tax rates may seem the same (I let the Readers figure that one out–hint: think of the cost of reforestation land).

Arnold is very accurate in his evaluation of Carbon offsets and Alternate Energy subsidies. The Former will actually increase Carbon emissions (devotion of Energy production to intense Energy-usage industries, reducing bad energy Production Costs in the long-term), while any industry that need be subsidized will never develop the Capital revenues to become a self-sustaining entity (another form of Government taxation through bad Policy implementation); recognize no political organization can subsidize an entire major industry, and subsidized industry must be economically inefficient to the degree it will never replace current practice. Readers must understand We need an Energy source which can replace Carbon burning, or a process which at least draws the Carbon for Carbon burning for energy from Carbon deposits already on the surface of the Earth (We are talking of growing Our Energy source here, but ethanol will never do it; think trash Carbon). lgl

New Style

Read this Stephen King article closely, and you begin to detect a number of things. His take on the Markets stands as there being too much Cash floating around for too long, Investors become used to grabbing anything to get the Cash rolled into a paying Investment, and We are just now finding that a lot of that Investment is not making the Profits attributable in the manner where the Cash was first made. I did not actually use this Argument when I initially criticized the Bush Tax Cuts back in 2001, but I came fairly close.

Economists need realize that Taxation is a basic tool of economic policy, not simply a bane on the Economy; it being the overwhelmingly best Regulator of liquidity in any Economy. The Bush Tax Cuts granted greater liquidity to the Market, and allowed greater Saving of Profits from enterprise; so Investors went on a Buying spree, while Business managers went on a Cost-Costing binge, this all simultaneously. The End-Result was that a huge range of Investment was made, taking Immediate Profits over Long-Term expansion, and Business performance deteriorated with artificially-reduced Consumer Demand. I like to think this was prophetic on my part, though I must admit that my exact reasoning was ex-post-facto.

Mike Shedlock (Mish) delves into the realm of Retirement Benefit drag on the long-term economy. It is well-thought, and expresses the real need for revision of Pension plans in this Country, especially for Government Workers. The trouble here lies in his unspoken adoption of switch to 401(k) plans, the Conservative Economists’ curative for Pension reform. The problem with this formula lies basically in the content of the previous two paragraphs of this Post. Investment will never adequately fund Retirement for the greatest number of People; Markets are Conflict resolution in the realm of Pricing, only real Capital expansion will raise the amount of Cash exiting as Dividend profits. Reliance on Investment for Retirement basically forestalls Retirement, if the Individual desires an expanding portfolio rather than a rapidly decreasing one.

The probable only effective Curative for Pension woes lay in the proposition that all Pensions should be limited by Federal law–whether they are Federal, State, Local, or Private Sector. Notice I specifically did not say that any Pension plan must meet that limitation, I said there should be a limit placed on the Pension Benefit. Private Sector Workers would act as a brake on Public Sector demands for raising of such a limitation, until such time as their own Pension plans reached such a limitation level. Public Sector Savings in their traditional Pension plans would be fantastically great, though, as even high-ranking officialdom could be limited to a uniform Pension design. I would suggest something like twice the Average Social Security Benefit largesse, with a Health benefit set somewhere about $6000 per year to buy Health Insurance privately. lgl

Economic Models

Mark Thoma presents an Article which should really be read, and I feel I should comment on it; but it only provides material which the talented Reader already knows. Current Thought assumes that Recessions are based upon ‘Shocks’. What are basic economic ‘Shocks’? The best economic language might term them to be ‘adverse unaccounted variables’. I think this might be the best way an Economist could say, ‘We were surprised!’ Any ‘Shock’ must be described as a surprise, either in its magnitude, or in its impact. What would bring the Surprise? The Answer would be the insufficiency of the economic models currently in usage. Must there be this Surprise, in order to produce a ‘Shock’? Absolutely, as lack of Surprise would bring counteractive action before adverse economic consequences could arise. This is not to state that economic models are useless, as Mark goes on to explain, coupled with the fact failures allow Us to know what does not work.

Mark’s explanation of the secondary skill of economic models in which Recessions can be more easily understood and countered needs some qualification. This consists of the Statement that there are far too many still existent economic models out there, outlining a wealth of counteractive measures; often at odds with each other. The preservation of reputation for esteemed leaders of the economic profession has led economists to drop ‘This is wrong!’ from the lexicon of the profession, or at least leaving such phrasing for the work of young Upstarts just out of Graduate school. It would not matter seriously, except that many of the proposed curatives can become combative with each other (i.e., seriously work against each other). This Author would never slight Milton Friedman or Alan Greenspan, but. . .

I should mention another element under this Discussion, which is the growth of economies in general. I have long been an advocate of the theory that economies do not just change their volume with growth, but also the manner in which economic elements interact with one another. Economic models must in their essence be based upon past performance of the economy, which is unlikely to perform in the same way with growth. Variable factors gain in strength, or wane in effect, with the imputation of growth, resource recovery methods, Labor relations, etc. It is like Sailing where channels are narrow, and Shipping is heavy. The Maps seem unchanged, but the degree of Safety alters with traffic. lgl

Direction of Fed Policy

Mark Thoma, James Galbraith, and Dean Baker all discuss the impact of Federal Reserve policy. I personally tend to find the greatest value in Galbraith’s comments. The entire question revolves around whether the Fed is an effective Inflation-fighting agent, or an efficient Unemployment-fighting agent. Individuals interested in this discussion should pursue the link to the Stock and Watson paper in Thoma’s commentary. I believe that the Fed is remarked poor in delivery of impact in either area. Rationale for this restates the Galbraith position that We can have high Employment with low Inflation, already proven in the 1990s; Inflation targeting, therefore, does not target full employment goals precisely, and sharp pressure on Resources, while raising their Pricing, does not necessarily increase overall Inflation (here We have the advent of technology and increased Productivity).

The major value of Fed policy enters with the Interest rates on Federal Treasuries. Inadvertent Fed policy has worked through the 2000s to minimize the Cost of Federal Debt restructure. This has allowed the current Administration to pursue an adverse economic policy, without sharp consequence. Current economic policy allows for the low Labor Participation rate in this Country (Bread and Circuses), without the malformation of high Taxes. Removal of Fed constraints to mollify Treasury rates would double, if not triple, current Debt Service Costs. Here is where the major impact of the Fed resides.

The Question discussed by Thoma, Galbraith, and Baker tries to define the value of Fed targeting of Inflation or Full Employment. My position states that the Fed is a poor instrument to utilize against either goal. The Fed has little power to affect the growth of M3, which is based upon the capability and innovation of the economy, not Interest rates. Extremely high Debt charges can adversely impact Employment, but low Interest rates cannot be shown to have equivalent impact on Hiring, when those Rates are below a basic Nine Percent. Business will borrow at such Rates, if there is sound economic opportunity, and Profitability will still be assured with pay-down of Debt, as long as Capital Equipment life expectancy exceeds Debt life. The above discussion simply says the Economy and Business has ability to set aside Fed policy in the pursuit of Business Profits. Fed policy attuned to either Goal fails to achieve real impact, and the Fed should adopt a policy searching for reduction of Federal Debt; through increasing the Cost of Debt Service. lgl

Business Methods

Cactus at Angry Bear lists a Commentator who asks a real question: Is the Resource-Cost of Recycling greater than the Resource-Cost of producing new Product? The problem is very real, and the solution is simple: introduce economies-of-scale into the Recycling system. Use of Ole Keynesian’s example may provide Insight. An automated Steam process would clean Peanut Butter jars better than Kitchen methods of Hand-Washing. An automated Process could strip off the labels, Steam-clean the jars(whether glass or Plastic immaterial), separate into Class of Container, and ship to useable Provider; the entire Process utilizing the entire jar, label, and lids in Recycling condition. Automation could minimize Water use, Soap use, and amount of Discharge water.

Who would pay for both Capital and Labor?

Let the Market plus a specialization tax handle these complexities simply. A simple Specialization Tax of an estimated 7 Cents per Container could be charged to all Retailers of Container products. A Nickel would be granted the return of any Container to the Retailer–uncleaned; this to maximize Container returns, with Retailers allowed to subtract their extension of Payment for the Returns from the Specialization tax charged. The remainder of the Specialization tax would be collected by the Government agency responsible, who would be charged with purchase of the proper equipment, Recycling site, Collection of Containers from Retailers, payment of all Labor involved, and Sale of the final Recycled material. This is not far-fetched, and Recycle Centers can be set by Container volume, with Collection trucks visiting up to an entire County; it being especially effective if Retailers are charged with paying for any Containers, not just their own Sales products, with resultant repayments if necessary by the Recycling centers.

Any Economist will tell the Reader that Retailers will simply pass on the Cost of the Specialization tax onto the Consumers of the Container products through higher Prices. This does not detract from the Container collection system, in that empty Containers assume the character of Bargain coupons. An effective centralization of effort produces an effective Recycling system at relatively cheap Cost to the Consumer and Retailer. Effective redistribution, utilization of uniform Standard sizing of Containers, and modern Sterilization practice could eliminate need for remelting of Containers. The entire Recycling system could become a self-paying Profit company providing effective worth of Service to the communities involved. lgl