Cap and Trade

Felix Salmon has a Critique of Larry Summer’s challenge of Cap-and-Trade of Carbon emissions. His point by point analysis should be carefully read, because it probably presents as good an argument for Cap and Trade as can be extrapolated. I am leaning more towards a Carbon tax over Cap and Trade of Carbon Emissions, and I might as well present my rationale here.

The first objection to Cap and Trade in Carbon Emissions lies in the bureaucratic snarl which it will create. There is the difficulty of establishment of Carbon districts; a Process vastly inoculated with gerrymandering technique to avoid high Carbon emissions areas. The establishment of Cap size will spend more Time in the Courts than it will be in force on the ground. Violations of the Cap will occasion even greater use of the Court system, and harsh Penalties for Violation will never be maintained; they must be in excess of the Profitability of Carbon emission Violations in the first place to accomplish anything. There is inherent restriction to new Entrants into Production, as current Holders of Carbon Credits will be loath to any dilution of the full value of those Rights; this providing full venue for monopolistic practice. Acquisition of Carbon Credits will devolve into one more Start-Up Cost, and one which is as expensive as Construction Costs (think of buying out currently profitable Concerns). The sum total of these influences will make Cap and Trade far too economically expensive.

I favor a general increase of Business Taxation, based upon a Percentage increase to all Business, if set Caps are not met. My idea here is a Scale of Caps combined with a Scale of Tax rates. I would consider a set of 5 Cap levels, with a 2% Tax differential between each Cap level. This can be considered as a Surtax upon current Tax rates, with the lowest Cap Tax rate set 5% higher than the current Federal Tax rates. There is no barrier to entrance for new Business Concerns, distinct Incentive to reduce Carbon emissions by all Participants as a continuous Propellent, no ability to introduce lawsuits as it is Federal Tax law, and real readiness on the part of Business to abandon heavy Carbon emission Production activities. lgl

James Hamilton doesn’t think that Consumer Spending making up 200% of economic growth is too important, unlike Kash Mansori, who worries that the isolation of positive Indicators other than Consumer Spending holds potential danger. I have previously stated GDP data was a poor Evaluator of economic performance, and that GDP was bound to decline in magnitude somewhere in the next decade due to the Ageing and Declining Population, coupled with the increasing Costs of Resources. That said, the BEA report was lousy.

James Hamilton asserted the common Economist belief that Residential Housing will drag down economic growth each Quarter by about 1%. I say it might be more Wish than Estimate, though, as the Housing market needs to lose about $1 trillion in Property value to reach a solid foundation; remembering, of course, that this is only my own Estimate. The decline in Exports may be the most worrisome element, because it might be the stickiest part of the matrix; this on account of the foreign development of cheaper Substitutes for American Product. The loss of overall American Investment, but more specific Business Investment, indicates full employment features under current technology, along with the heavy losses in the Residential markets. Depressing!

Jeff Cornwall gives access to a couple of his articles in the Tennessean which describes the roles of CEO and Bankers. It is my suggestion that CEOs read his article on Bankers. Boom Times make the aspects of Jeff’s description fade from Sight, but economic contractions bring on the worst appearance of Bankers. Most Business personnel never get to see Downsizing or Elimination of Revolving Credit Accounts, thinking such Instruments possess some kind of immortality–never failing like the Fountain of Youth. One should check the impact of rising bad Debt rates on Banker willingness to lend. lgl

Hairsplitting

Here is a fine example of Economists splitting hairs. All the Economists, including Mark Thoma himself, argues what economic model to use when. The only one I trust completely in the discussion is Ricardo, and maybe him only because he is dead. All the rest tend to utilize whatever economic model best suits their current argument. Now, the Reader and I know I understand damned little of much of the Trade argument; even Ricardo could not convince me with the simple model. We do know that the entire Argument revolves around a set of Relative effects, and which should be considered in the ascendency.

What amazes me is the lack of concentration upon the real Relativities. Here are listed a number of Considerations which I feel are most impactive on the Trade Issue:

1) Competition between domestic and foreign industry in the same Products will always produce Economic Profits as well as Normal Profit ratios for the Importer, else there would be no dedication to the Trade (lower foreign Production Costs are not passed on to the Consumer in greater degree than required to acquire Purchase impulse by Consumers).

2) The first Statement given, combined with other peripherical bounds, will always limit the Profitability gained in lower Consumer Prices to somewhere between 7-10% of contained Domestic supply of Product, which is diminished by any Welfare payments which must be forwarded by reduced Domestic production.

3) The benefit of lower Consumer Prices is spread over the entire Economy, while the contracyclical impact is focused in Domestic production, where the force is massive and Life Standard distortion. The benefits of Trade remain so diffused, with intervening increasing Price levels of other Domestic suppliers, as to be nonexistent; ask Anyone if their Household Expenditures have shown vast reduction since the passage of NAFTA. The loss from Trade currently extends to about 12 million Households who have lost up to 17% of Income when evaluated in 1990 Dollars.

There are various other issues which are very important in Trade (for example: How much increase in U.S. energy needs are consumed by transportation of foreign Goods in real Percentage terms?). Education and Training Costs have vastly increased under the impact of necessary Retraining, which would not have been necessary under domestic production levels of the Past. Outsourcing has led to declining Employment, declining Wages, and declining Tax revenues; all while Welfare payments have increased above the natural Inflation rate. Economists like to automatically assume that Trade is beneficial, but I am not so sure. lgl

Government Regulation

William J. Polley has a very intelligent grasp of economic reality, here and here; but equally, Cactus at Angry Bear, here and here, has many fine points to make about market structure. What difficulty I have with both attitudes comes from their lack of use of the elements of Supply and Demand in the discussion. Here is where one will find the real development of markets.

We all have a rudimentary grasp of externalities, asymmetric information, and criminal intent which impacts upon any market structure. Demand in a market may be defined by Public willingness to participate in a market, a variable context based upon the needs and desires of the Participants in that market. The simple existence of the Competitors, Craigslist and Ebay, acknowledge that those needs and desires vary among Participants, who will migrate to the markets best suited to their personal needs. Supply can be expressed as those Traders willing to adopt a pattern of regulation which suits the level and type of Participants they would service. Here again We have reached a simple estimate model of Supply and Demand.

The Reader should at this time question the imposition of Government regulation, stating this would exist outside the Supply/Demand model, but does it? The Answer is that Government regulation does not extend beyond this Supply/Demand model. Government regulation appears only the most stringent of regulatory controls on a Market, based upon the degree of security desired by the Participants, and the desires of the Traders to promote the image of security in their market structure. Government regulation, in order to be passed, must possess the support of the majority of Participants in the market structures. Here is the essential truth: Government regulation is nothing more than another market structure to ensure the degree of security felt by Participants, though the reality may possess more threat than imagined. lgl

Impact of National Debt

Here is a good composite Post (read all the links) concurring with the current sentiment of ignoring Deficits with no consideration of establishing a balanced Budget. There are a great number of reasons why such a policy is Short-sighted and flawed. The lead element, though the next is more important, consists of the loss of the solvency of the Dollar where foreign investment in U.S. Government debt will begin to dry up because of the poor Repayment schedule for such Debt; which will be proclaimed to be nonexistent under this policy. Interest rates on the Debt will escalate to entice the funds for the construction of vastly more Debt. The real point of impact here is not foreign governments diversifying their Holdings of Dollar debt into other Currencies, but in the diversification of their Trade dealings to expand to a wide spectrum throughout the world; enabling themselves to cut the United States from the loop, if Trade Dollars slip out of the major Currencies of Exchange in Value.

Foreign purchase of Dollar Debt will facilitate the decline of American domestic Manufacturing, as foreign Wages remain lower in relation to American Wages, through the propping mechanism of hiding the real loss of Value of the Dollar. It is like the Dream of young American Workers, who wish to borrow Debt to live at the Standard of their parents, for the 20-30 years it will take to reach their parents’ Age, with Debt accumulation and Interest throughout the entire Period; somehow expecting they will have the wealth of the parents by this maturity. One cannot live, or build capital assets, working on the Margin between Debt Service and Wages;unless there exists a definite schedule of Debt reduction. This is true for entire Economies, as well as individual Participants in that economy.

One of most destructive elements of Debt accumulation has been the need to resort to Inflation to expand the differential between Debt Service and Living Costs. Debt Holders, plus even a number of Economists, believe this Inflation is beneficial and finances economic growth. It simply does not! Any rate of Inflation assures that the future Costs of Production are not fully funded by the previous finance of Production through Product Sales. The higher the rate of Inflation, the higher levels of Costs which are not actually paid by this Purchase. Studies have not been conducted in this economic area, but I believe Inflation settles in Profit Margins to the greatest degree in an Economy; this means most Inflation settles in artificial declared Profits, as the Costs of Production must be paid with real Value exchange through escalating Pricing of Resources of Production. I may be an old Fush-budget as Some have claimed, but Inflation is definitely not a Savior for individual Debtor or Economy. lgl

Definitions

Here is a Post which subconsciously declares a need for Definitions of some of Our most-used terms. The Angry Economist asserts that Inflation is only an increase in the Money Supply. He himself fails to understand that the study of Prices holds the only true evaluation of such Inflation. Many ignore the real impact anyway, which expresses a misallocation of monetary payments for Resources or Production processes. One has to understand that any Economy (even Command economies) is a fluid stream of Extraction, Production, and Distribution processes acting concurrently. Inflation consists of the temporary excess payments to sectors, which bleed over into the general economy as increased overall Prices. This definition becomes important with the Conditions I hope to elaborate clearly.

Recessions remain a basic misallocation of Production and/or Distribution. The Economy has been flooded with a group of Goods and Services for which there is insufficient Consumer Demand, where this Production and Distribution will not be financed by Consumer purchase in an economically efficient Time frame. This erroneous Production/Distribution schedule will have already generated, or will generate, a shortage of Production/Distribution efforts which are necessary for other sectors to maintain adequate Production and Distribution for their full Participation within the Economy. The final Result causes a reduction in two areas: the first in the Production/Distribution schedule which is not financed in efficient Time, the Second in the less than full Participation of the sector shorted. It is this Double-Whammy which heats (accelerates) the economic downturn in the flow of Goods and Services.

Inflation is the simple flow of Funds into sectors where there exists inefficient allocation of Resources, due to the fact that shortage of Production or Distribution has created an artificial Consumer Demand for Product or Services which are needed; thereby raising the Price level for the sector. It also raises the Price Schedules of the Consumers of the artificial high-Priced Demand, as they transfer their excess Costs forward. Purists might say only this later Event of raised Price Schedules due to increased Costs stands as the only true Inflation, but the Generative factor should also be included; else the major driving force for the Inflation is ignored.

Blaming Government for Inflation because of their control of the Money Supply remains a futile effort. First because Government has marked less control over the Money Supply than a lot of Economists would claim. The greatest fuel in Money generation is in the increase of Demand Deposits banked; Governments unable to control this avenue except with extremely high taxation, which is in itself a Drive for Inflation. The second element to Government ineffectiveness lay in their own Expenditures, which are again an artificial Consumer Demand for the entire range of Goods and Services; bringing on sector shortages and higher Pricing. Government is bad, and Some might say evil; but is not some malicious Force trying to destabilize the economy, though sometimes One has to wonder. lgl

The 1993 Clinton Debt Reduction Program

Here is an excellent Post to read about the 1993 Clinton Budget Reduction program. It gives a fair sample of the general Economist expectation of the Effect of the program. The reduction of the National Debt had some impact in creation of the Boom of the 1990s, though not overly large, is that Sentiment. I, on the other hand, take a more militaristic approach, and that the actual turnaround of Debt growth was a schwerspunt, which altered the Business plans inside the Economy massively. It was this alteration of Business format which brought on the Boom.

The repayment of National Debt threatened a real reduction, if not in the Money Supply itself, then in the growth of the Money Supply. Higher taxation of Business Profits actually led to more determined investiture in Capital, in a recognized Need to obtain larger Profit revenues to maintain the same Take-Home funds after Taxation. Business leadership knew they had to hide major amounts of their Profits in their own Debt Service, lest they face horrid (at least to themselves) levels of Tax payments. It created the major source of the Investment of the Era.

Study of pre-Boom eras suggests this Profits-Hiding in Debt Service to avoid Taxation is one of the major compulsions of Capitalization; so that actually raising Marginal Tax rates may in itself be an economic incentive. Maybe I am back to not understanding the modern economy again, but maybe I am not. I do know that Business personnel actually work harder, and longer hours, when Marginal Tax rates are high. I know Production efficiency rates seem to increase under the impact of higher Marginal Tax rates. I deeply suspect that Percentage volumes of Capitalization debt increase under higher Marginal Tax rates. I may even get Radical, and states that high taxes is Good for Business, if they are not too high. lgl

Pushing the Economy

A Dream I had last night sighed the suggestion that I did not understand a modern economy. I thought to myself, "Well this is true! Thirty years ago I believed economic texts would bring me to Understanding of the modern economy. This long Period later, I fear I understand the modern economy much less Now, than when I had the energy of Youth."

Your Average Graduate Student holds much faith in the economic models developed by the Esteemed of the economic community. More travel-worn individuals, both highly Educated and Those less than Perfect, have witnessed the economic models fail too often at most inopportune times. We may still be True Believers, but even the old Standards carry a cynical tinge of propaganda for Us. We wonder why the Sure Cures always generate debilitating Problems for the Economy.

I have mentioned previously in my Writings that economies exhibit different Characteristics at alternate magnitudes: this means that the U.S. Economy of the 1950s did not function like the U.S. Economy of the 1970s simply because of its size. The current Economy does not even function according to the same Rules as did the Economy of the 1990s. Every level of magnitude for an Economy presents a new set of Stress factors, and Whole and Item variations to those Stresses. A lot of Economists and economic models gained fame in an Economy which is not what We have Today. Here is one of the reasons for economic model malfunction.

Another factor resides in the commitment of almost all economic models to economic growth. Every economy faces increasing resistence to expansion, this resistence growing under expanded previous performance; percentage increases of economic growth become disturbing hard to generate. Put in another way, New Goods not only have to face competition from other New Goods, but Consumer allegiance to Older Goods absorbing Consumption capital; New Services face the same reality, while in actual truth, almost all human needs have already been supplied. Consumers, in the final analysis, possess insufficient Time to utilize the current matrix of Goods and Services; they cannot provide another levels of attention to integrate large amounts of new Product.

The entire Scenario of the current Economy also troubles the contemplative mind. Most economic thought bases their Projections on greater Education and larger cadres of Skilled Labor to produce the economic growth. The fact remains We enjoy a shrinking Resource base (this is not a Claim of vanishing resources, but of increasing Extraction Costs), an ageing and shrinking labor force, an underemployment of the Skilled Labor already employed and employable, a lack of a sufficient Resource Recovery industry, and a basic lack of Basic Labor cadres. Marginal Tax rate reductions simply reduce tax revenues without major spur to economic performance; leaving an excessive Investment capitalization which drives up Resource pricing. There would be nil economic growth without the artificial Spurs of Inflation and Government Spending. Yes, I plead guilty to the Charge that I do not understand a modern economy, but maybe We could All wish for a little more Understanding. lgl

Emergency Spending

Here is an article which discusses the War-Funding bill rapidly turning into an omnibus trash heap of collective payment of campaign promises of Congressional membership to get political contributions. Bush states he will Veto the bill if it has excessive Spending associated with it in the form of Attachments, but let’s face it; he will go ahead and spend the money anyway for the conduct of the War, and any legal justification of that Expenditure which does not tie his hands will not be Vetoed. Any Time limit will force him to negotiate a removal of Troops, when he can slip out of the Presidency in 2009 without the onus of admission of failure resident in any Time limit set before his departure. He would leave it to his Successor to endure the shame of another debacle; while he can claim successful leadership in difficult times, though We know Now who engineered this Incursion.

I so not propose to dwell on this fact extensively in this Post, which I hope to sculpt as a Critique of the practice of Emergency Spending legislation. The practice evades the due consideration of proper legislation budgeting, allows advantage to pack such legislation with Pork Barrel attachments to meet campaign promises, avoids any legislative mandates to meet Budgeting restrictions, and allows Representatives and Senators to trade Votes on known unpopular legislative elements without blame to themselves. I have previously commented unfavorably on the practice of omnibus legislative bills, and Emergency Spending bills are the worst Offenders of a bad lot. What do We do about such politically malfeasant practice?

I would propose a Constitutional Amendment which specifically prohibits Emergency Spending bills in particular, and omnibus Spending bills in general. Emergency Spending needs can be canceled by a Amendment which states already allocated Funds for other purposes in the same Agency or Department may be spent to meet immediate Necessities, with Congress specifically delegated by the Amendment to replace the expended funds if desired through regular Budgeting practice. Original Contract obligations are to be averaged with new Emergency Contract allocations by this Amendment, so as Profitability of all Contracts are equalized to the degree that all Spending has been approved through the normal legislative budgeting process. The Amendment would also limit all Spending bills to 10 Budgetary items of like nature, with each Budgetary item being passed in Committee, and the total Budget Cost being passed on the floor after being Read Out in both House and Senate. All Conference bills must again go through the Process of passage by Committee in specific line-item, and general passage on the floor. The Amendment would grant the President a line-item Veto, but all line-item Vetoes must be collected as a unitary assembly for an Override Vote, if attempted, overturning such Presidential Vetoes. Such an Amendment grants the best chance of restricting Budget excesses, while getting effective legislation through the Process. lgl

Food for What? Peace?

The Bush administration wants to ship Food for Peace program funds Overseas, instead of American Grain. Such Funds currently must be used to purchase American Food Products, and shipped in American vessels. It is claimed that Local areas Food Purchases would be lower in Cost, and Shipping Costs can be reduced if not avoided. It sounds good, Right? Wrong!
The Food for Peace program was started in 1954 for the specific purpose of disposing of Grain accumulated in the then-Current Government Price Support system. It made Sense then, and the Bush administration wants it to make less Sense now, after it has already lost any truly viable substance. Most of the rationale for the initial program had disappeared by the mid-1970s, but Administrations had already adopted Food for Peace as a diplomatic Chip to get preferential Trade and Support Agreements from Nations needing Aid. The Tradition still survives!

The Timing of the Bush administration push to switch Food Purchases to foreign sources coincides with Energy Companies’ Investment in ethanol production; they actively seeking the lowest cost for Corn possible. Energy Companies want to eliminate a serious competitive buyer of Corn stocks, even though they cannot rid themselves of the American Consumption market; One should expect higher Meat Prices domestically in any case. Federal purchase of foreign grains grants opportunity to gain influence in foreign economies, while any consideration of Sourcing practice in the Grain markets; the multinational Grain Corporations will still sell the majority of Grains to the Program, though it will admittedly be quite inferior to the current American standards imposed on Consignments listed for human consumption. Enrichment of Local farmers will not led to capital infrastructure investment in Grain production, as such Subsistence farmers will spend any Gains on human improvement. The Gains for these Local farmers will be minor, as Corruption in these areas erode any benefit to Producers. It is assured, though, that Food Prices will increase Worldwide with transfer to purchase of Local grains for the Program.

The Food for Peace program is outdated, and should actually be replaced. I would suggest that Congress repeal the enabling Law, and substitute a Law providing only Supply of Fertilizers, Farm Implements, Irrigation project equipment, and Fuel for Farming purposes. This, of course, would defeat the Corporate agenda of serving their Profit line, at the expense of the initial Intent of the Program. lgl

Rigorous Tax Law

This NYTimes article focuses on the failure of Democrats to divorce themselves from the Republican mode of discussion on the issue of Taxes. Democrats are still responding to the Republican rhetoric, rather than resetting the terms of the Tax negotiation. This failure will devolve into less Votes at the Polls. Republicans are talking about the expiration of Tax exemptions as a vast Tax increase, for God’s sake! The Tax Cuts would not have had an Expiration Date in the first place, if they had ever been contemplated as a permanent fix of the Tax Code. The Cuts were to be a temporary economic incentive package, with follow-up Tax legislation to provide long-term reordering of the Tax Code. Democrats had better start thinking about a permanent Tax Code, before they lose another Election.

A first Step which might be taken, and thereby advocated, would be the realistic unification of the Tax Structure. Why? The Answer states the Tax devolves into the simple Withholding Tax, whose Proceeds distribution can be turned into an internal function. The rationale here stands that Tax rates can be simplified into percentage rates of Income. There will be no Combination Punches exhibited by the Tax system; Everyone can determine how much Tax must be paid, irrespective of knowledge of revenue destination. I would even suggest negotiation of Tax law with the State and Local Governments to eliminate their forms of Income Tax; to be replaced with a Federal distribution program, leaving Federal economic policy to set levels of Income taxation.

Readers may ask why I think this is important? The Answer stipulates that We can introduce uniform rates of Taxation upon all forms of Income, and vary those uniform rates solely on the base of Income size (reintroduction of progressive taxation). We eliminate the distinction between Income and Capital Gains etc., and will later remove the related Tax exemptions tied to those distinctions; this later essential for an overall reduction in actual Tax rates.

Setting Tax rates become simple thereafter: I would suggest an range between 12% through 35% for all Income. This would easily pay for the Expenses of excessive Government Spending on all three levels of Government, if We could enjoin lawmakers to follow a Budget process. No one would get out of paying Taxes–as is now allowed in the lower reaches and in the extremely high reaches of Incomes.

The Fund Allocation process becomes even simpler: The first 8% of all Tax revenues goes to Social Welfare programs (Social Security, Medicare, possibly universal Health Care), the next 2% goes to Local Government, the following 2% of tax revenues goes to State Governments, and the rest goes into the Federal General Revenue Budget. State and Local Governments supplement their revenues with Property and Sales taxes, and the Federal Government utilizes Excise Taxes. Tax Exemptions and Tax Credits should be eliminated, except for the general Business Expense allowances as existent in 1960. This is how We go forward into a Balanced Budget format with limitations on Government Spending at all levels. lgl

What Actually Happened

Mark Thoma stands as an excellent Economist, and this Work proves he does his homework; the Question being does it actually describe what happened in the Great Inflation? One trouble with Economists lay in their becoming overwrapped in their economic models. One remarkable separation between the stability of the 1950s, and the Period of the Great Inflation was the great Cuts in Business taxation Worldwide. A second tendency starting about the time of the Kennedy Tax Cut was the Business attempt to double their Profits percentage in relation to total Volume of Sales. The Tax Cuts left more funds in the hands of Business, and their increased pressure for Profits sought to double the largesse of those Profits.

Along came a War, a War on Poverty, an acceptance of higher levels of Public Debt, more Investment capital, and rapidly rising Resource pricing; all within the spectrum of increasingly hard Consumer Products pricing to maximize Business Profitability at advanced expectations. Business practice quickly acclimated the lower Tax rates, and resisted varied attempts to limit the Profits percentages they desired to previous Decade averages. The surge in Resource Costs were rigidly passed on to the Consumer, plus the amplified percentage Profit demanded from that evolution. Increased Consumer Pricing quickly brought forward rapid Wage increase demands, which Business resisted by limiting Employment, and by shifting the increased Costs forward on Consumers; tacking on their insisted percentage Profit. The practice did not stop until there was a final Contraction in Consumer Demand in the early 1980s (this assessment will led to vast waves of denial from Economists, who utilize only bulk Economic data to assess Consumer Demand; though the real evidence was in shift to Maintenance purchasing by Consumers).

The real Cause for the Great Inflation was doctrinarian Business policy, and a Political process which would not endure an increase in Business taxation until Reagan could push through a sounder Tax policy in the mid-1980s. Actual sound Tax policy was continued through the intervening Period, until Clinton allowed erosion of Tax impact for Business after 1997, allowing the buildup of excess funds leading to the Tech Boom and Bust. The Bush Tax Cuts of 2001 and 2003 has again allowed an excess of Business funds, bringing on the Real Estate and Stock Market Booms of Today. We have yet to see the disaster of this Policy. lgl

New Economic Cops

Stormy at Angry Bear has a good Post on the new Chinese Tax law. There seems to be some animosity to the WTO in it, but there are few places where you will not find such animus; one must remember the WTO was created by Corporations for Corporations, input from elsewhere is window-dressing illusionary. U.S. Trade policy is likewise rooted in Corporate gain, it not being an accident that all leadership positions in the current Administration come from the Corporate structure. Stormy might suffer from the mistaken impression that U.S. Trade policy is directed to keeping Consumer Prices low. It’s form and direction is to maintain high Corporate Profits with low Wages, Resource prices are even brought in by Corporate entities; this means it is not unusual to find high Energy Pricing along with extreme Pricing for raw materials. What can be expected from an engineered Corporate government?

The Chinese Tax law, though, will be an eventual break for American Consumers. China has to someday develop a sound domestic Consumer market. The Chinese Government expects to depressurize Inflation with lower economic growth goals due to the higher taxation on foreign firms. Loss of foreign investment will be engendered, but it will be a slow process as long as Chinese Wages are below industrial norms. Domestic firms will evade Chinese Government regulation, and not pass along their Saved taxes in higher Wages to their Help, unless the Chinese Government institutes a program of Minimum Wages increases to match Western production (this does not mean reaching Western rates, just keeping pace with their increase). Failure of the Chinese Government to accomplish this Goal will actually pressure a much higher rate of domestic inflation; one of the sins of development of Communication technology which can reach the rest of the World.

I feel that the Chinese Government will fail in their attempt to control the growth of the Chinese economy, basically because they are not exerting the effort to control Corruption as the Middle Management level of Business firm Executives. I personally would advise the U.S. Government, the WTO, the EU, the Chinese Government, and NAFTA to negotiate a Financial Pursuit Treaty, where Funds obtained by Criminal Conduct or Corruption can be located, and returned to the Governing entity where the transgressions took place. There is real opposition to such a Treaty from financial institutions and Depositors of such illicit funds, but control of such criminal complicity will only come with the ability to recover ill-gotten gains. Recognize here that the Goal is not the return of the Proceeds in themselves; it is the removal of the Profitability of the criminal behavior to forestall adverse consequences to the various economies. lgl

The Edge of the Cliff

Dave Iverson gives Us quotations from Gideon Rachman, who brings up the issue that Climate Change will produce Winners and Losers. Rachman basically worries about the impact on Agriculture and Population distribution, Iverson questions the impact upon animal species. There is no doubt there will be Climate Change, but assumption of the worst Scenarios may be equally bad.

Rachman mentioned Agriculture with improve over northern Europe, and mineral deposits will be easier to access in the North; he fails in analysis of the impact of extension of Wind patterns from the Atlantic across Europe, which will swing across the Mediterranean Sea picking up water to deposit over the North African continent. A warmer Europe may reintroduce an agrarian economy into the Sahara extending down to the tip of Africa. Wind and Current patterns presently exhibited suggest an Ice sheet travel West from northern Europe, and East from Russia. The warming of the Antarctic will not only increase Fish populations in the South, but improve the ability of the Fishing fleets of the World to draw from those fish populations. The Southwest United States and Mexico can be expected to double their Rainfall much faster than the Midwest United States can be expected to either ‘Dry-Out’ or ‘Flood’; in any case, it will be a Boon to Agriculture in the West.

China has a problem with Fresh Water, as does the western United States, simply because of Population concentration. This Hazard cannot really be blamed upon Climate Change. More effective Water policy in the regions involved is the only recourse, whether Rainfall increases or decreases. A Ice Sheet shift, rather than a overall Ice Sheet reduction, seems likely to produce more arable land rather than less, with Chinese agriculture extending away from the River systems, the American Southwest and Mexico more heavily cultivable, and the sub-Sahara actually expanding northward. Population shifts have been with Us since the dawn of Mankind, and most often followed the pursuit of Resources. It will undoubtedly continue.

This is not a creed advocating continuance of adverse environmental practices. Carbon emissions should be radically reduced, and Resource salvage need be vastly expanded. Reforestation efforts in the entire World are minuscule in comparison to the actual need for Forest growth. Population growth is the root of all Our environmental problems, and no Country as yet has a sound policy for Family Planning or Education. We are like Californian Housing, always building on the edge of a cliff, then wondering when We are going to slide off into the ocean. lgl

Voter Mood

David Leonhardt thinks Presidential Candidates can be evaluated by the choice of economic advisors. It might be nice if it were a fact, but Candidate positions are most often set by their political advisors. Here sets the Problem with American Politics. Political advisors are traditionalists rooted in conventionalism. The actual mood of the Country may be far from the expectations of political advisor, or political Pundit. The Voters’ will cannot be asserted, if it is not allowed a place at the table. People may wonder how Change can be affected, without outrageous stretch of American values and practices.

My Proposal is to alter the Ballot in the Primaries, simply to find out what American Voters may actually want. Political advisors would say such a system would invariably be overly complex, and rejected by the Voters. I suggest the Political advisors do not want their own jobs to be on the line, when it comes to American sentiment. Here is a list of Questions which I would advocate be placed on the first page of every Ballot in the Primaries:

1) Would you approve of a Tax increase to balance the Federal Budget?
2) Would you approve of a single, set Social Security benefit for all Recipients?
3) Would you approve of a Gasoline and Diesel tax of $1 per gallon?
4) Do you believe in a Universal Health Care system with common benefits for All?
5) Do you think the Bush Tax Cuts should be repealed to balance the Budget?
6) Do you desire Elected Officials’ Salaries to be frozen until the next Presidential Election in four years?
7) Do you believe Patent and Royalty rights should be issued with a limit to the Charges which might be imposed by the Patent holder?
8) Do you believe all Corporate Office-holders should be compelled to publish all Salary and Benefits received from their position Publicly?
9) Do you believe all Hospitals, Clinics, and other Health Care Providers should be compelled to publish all Government Subsidies and Payments received for Patient Care without naming the Patients, and this done Publicly in local Papers?
10) Do you believe all Government Departments and Agencies should publish a total list of all Employment positions along with their Duties, and the amount and type of subContract labor which they employ?

The above Questionnaire, plus all Vote Totals coming from the Yes and No answers to it, should then be Publicly accessible. The basic Mood of the American Politic could then be assessed, and Presidential Candidates would know what Positions the American Public would desire they run on. lgl

The Federal Budget

Ritholtz at Big Picture gives Us the basic consensus of his Thoughts on Taxes. I agree with the greatest part of what he said, though I can find no reason not to raise Capital Gains back to the realm of taxation of the Reagan later Years. No one I have found as yet can find an actual numerical increase (percentage or real levels of Investment) sufficient to justify the tax revenue loss. I actually define a misanthrope level of Investment simply to avoid Taxes, which adversely alters the allocation of Resource. I most adamantly agree that Taxes are not too high, and actually should be somewhat higher; remember that I am a Radical, one who believes Corporate Income Taxation should resume their subscription of much of the Expenses of Government, say around equality with Personal Income tax.

The only basic fix to the AMT (Alternate Minimum Tax) is making Everyone subject to the Tax. It will nullify the Bush Tax Cuts, a state necessary to any balance to the Federal Budget; a reality accepted by all Students of the Problem. By the way, the AMT simply forestalls the excessive utilization of Tax loopholes by the Taxed; it never stipulated what economic Class they would belong within, only that Everyone should pay a relevant level of Tax. Much as current entrants to the AMT realm would like to cite otherwise, it is still doing a fairly good Job of accomplishing what it was designed to do. Lack of knowledge does not nullify the commission of a Crime; pretense of insufficient funds will not nullify the impact of the AMT.

Pay-As-You-Go actually does not work, and has never worked. The reason: Pay-As-You-Go is never enacted until the Federal Budget is already in crisis, never adopts a program to reverse the adverse effects already engendered, and always develops Loopholes to avoid enforcement of the Rule. I prefer a radically reactionary effort: All Federal Budgets and Programs to be cut 5% per year, until Federal Expenditures equal Federal Tax revenues. No Program Budget may be increased over these limits, without Congressional Review in Committee, and passage in Read-Out to the general Congress. Government Contractors could integrate this consistent Downsizing of Federal Expenditures, Congress would have to provide exception to the more popular Programs before the lesser or unknown Graft systems, and many obsolete Programs would remain permanently reduced. The yearly reductions would insist that Congress streamline their legislative program, and abandon their ridiculous omnibus Bills.

Correction of the Federal Budget process requires a Hardline enjoinment of Pork barrel politics, which is not touched with Pay-As-You-Go. Effective Tax rates and Creative Destruction will balance the Budget, and probably with less lethality than will commonly claimed. It is the time to act. lgl

Lower Marginal Tax Rates

Mark Thoma lists a debate between Robert Frank and Greg Mankiw. I must first say that I side with Robert Frank, seeing little Work incentive propelling the Rich because they achieve higher levels of post-tax Take-home pay. One of the elements of the whole discussion which I find revealing is the assumption by All including Mark, which is the suggestion that higher Pay levels equated perfectly with greater Output. I have rarely found this to be the Case, believing Pay scales depended much more on position than on Productivity. It is clear that Pay scales have no relationship with the ability to make correct decisions, as is continually revealed by reportage on Business activity in the News.

We may, for theoretical purposes, adopt the mythical proposition that high Pay enjoys a positive correlation with high Productivity, and still find lack of need for reduced marginal Tax rates on Income. There is even a Case to be made for the economic advantage of assessing a negative Overtime payment (charging higher Income individuals a Wage loss for hours worked over a Standard Workweek of 40 hours), when initial Pay is within the top 10% of Wage-Earners. The later would pressure for the Training of skilled Substitutes above the Norm number for such positions; the practice expanding the level of skilled Labor, and supporting a greater Household expenditure pattern due to more Households with the higher Pay.

There is the elemental advise as well: All Work and no Play makes Jack a dull boy. It also makes Jack a less competent Worker, whether he has the academic credentials or not. There is even a rationale for starting a Second Job or part-time business, if higher Incomes desire to increase their Income; it provides both the capacity for diversion from monotonous daily grind, and the access to fully explore individual talents. The above grants a much greater propellent to economic growth, than does marginal reduction of Taxes at any level above Middle Class Incomes. lgl

Privatizing Warfare

Cyrus in a Commentary to an Alex Tabarrok blog had this to say:

Letters of marque might attract people to profitable violent occupations, such as armed robbery, but for unprofitable violent occupations, only direct compensation can suffice. While busting terror cells might sometimes lead to large seizures of cash or commodities, my gut feeling is that this is rare enough to not be worth it.
Now, licensing privateers to fight the war on drugs would be another thing entirely. Violently suppressing a profitable commercial enterprise is almost guaranteed to generate loot.

This comment was in response to a Query by another Commentator as to the possible effectiveness of these instruments in the War on Terror. There is some rationale for Privatizing the War on Terror. Multiple levels of Information could be gathered if the Mercenary impulse was exercised. Actual levels of violence would decrease with removal of Occupations; which would leave far less Targets of Opportunity, Targets unidentified until initiation of the short duration Raids. The argument of Cyrus relates the lack of methodology in the award of Pay to the Adventurers.

A program of Arbitration could be conducted to award Endeavors ex post facto, based upon an estimate of the damage done to Terrorists. The problem here would only be burden of proof, where Claims are verified. This would require an alternate Intelligence verification process. A War on Drugs campaign could utilize the principal of Drugs turned in, a War on Terror could utilize a bounty per Weapon or Explosive turned in.

The American people, though, would have to alter their idealistic commitment of refusal to pay for assassinations. This leaves only the potential Cost of such Switch to Privatizing warfare. The Answer, here, is a marked decrease in the actual Cost of such unconventional Combat, as it requires far less infrastructure elements. The actual difficulty of setting up such a Program stands far less complex than mounting an Occupation force, and Training Costs could be reduced to almost zero. It would require a vast increase in American cynicism, but acquires a marked decrease in American sorrow at current losses. lgl

Tax Policy

This Associated Press article amplifies the current discrimination practiced by Taxpayers against Taxpayers. Commercial Airline Ticket prices include high Tax, sometimes one-quarter of the total, and vast sums of those tax revenues go to the upgrading of Air facilities mainly used by Personal aircraft. Those utilizing the upgraded facilities want Ticket Buyers to keep footing the bill as is natural, while Commercial Airline Trade Groups want a switch to a heavy fuel tax, which they can pass on to Ticket Buyers; coincidently, costing the Private plane industry a much higher rate of Tax, said revenues helping to hide the passage of tax forward unto the Ticket Buyers. Why is it that Customer advantage always seems to be factored out?

Adequate Carbon sequestration requires regulatory as well as Tax placement alterations. A good regulatory law would decree than Prop planes could not rise without Four individuals onboard, unless it constitutes Freight haulage, or Crop spraying. No Jet can fly unless there were at least Twelve individuals onboard, canceling luxury flights from Business flights. The use of Carbon fuel in each endeavor suggests this would be the best course, especially if backed by a Percentage fuel tax in excess of 20% of Fuel Cost. Airport Lighting and Air Traffic Control should also be prohibited under Conditions where less than Three flights are scheduled to utilize the Airport. All planes under such Conditions should be diverted to more heavily-used Air fields. This cuts the portrayed national need for All-Weather, All-Times upgrading of Air facilities.

The ‘Pump the Masses for Taxes’ attitude so typifying the Bush administration will soon come up against severe obstacles. No Conservative ever mentions that the Bush Tax Cuts really served only the Wealthy, as Bush Grant Cuts to States insured replacement taxes imposed at the State and Local level; no Economist has ever done an effective Study of the effect which I know of, but I guess-estimate that Households had to make around $85000 per year to find any Gain from the Bush Tax Cuts with the increased State and Local taxes. Airline Ticket taxes are simply another proof that this Administration thinks that the Poor should pay the Taxes. A check of the direction of Government Expenditures also indicate that the Bush administration believes it is the duty of the Poor to make the Rich richer. lgl

Medical Staffing

Mark Thoma Brings on Jason Furman early on Sunday morning (at least for Me). I am supposed to approach some kind of rigor in study of the Furman plan, for the viewpoints of Tyler Cowen, Mathew Yglesias, Arnold Kling, and Erza Klein–read the Post for links. Also try Mark’s own Post on Amy Finkelstein. Paul Krugman points out that Costs-sharing has its own limitations.

What We have here is a lot of Queries by very intelligent people, none of whom has a good Proscription for the provision of quality health care. Please don’t blame any of them! The fact is there is no good way to provide health care, and get it funded; all while maintaining high Standards for that care. I will attempt to present the basic causation for the excess Costs in Health Care, and a manner to minimize such Costs.

There is a vital need for ‘Early Detection’ in most issues of Health Care; this generating all the discussion about Screening and Periodic Doctor Visits. Detected ailments often become very expensive–early Detection or not. There is a very real Discussion about overmedication, with much Comment of an overly large Expenditure on that medication due to the Patent royalty system now in operation. The Payment schedule for Medical Services is herein discussed, with few truly enviable Proposals to make such Payment acceptable. Here is where We stand, and it is not Pretty.

My Proposals–short because I have a First Communion to attend later for a Great Niece–Bless you, Hannah!

The first element is establishment of regular Check-Ups; Early Detection achieved. Here I would set Check-Ups for Everyone based on three months intervals, starting from your Birth date. Testing Centers to be open between Noon and Midnight, and staffed for only Doctor supervision of Staff with evaluation of resultant Tests by a specialized Evaluation Center. The Time will lead to greatest compliance, and Staffing leading to lowest Operational Costs. Patients will become comfortable with seeing a Doctor only when there is trouble. Proscriptions will undoubtedly be reduced by some 70%–a benefit to All; think of this as a Goal.

Designated Trauma Centers (Emergency Rooms) will handle all Cases of Accident and Injury, with rapid Transit to area centers dealing specifically with real Issues–Cancer centers, Stroke centers, and Heart Attack centers. This rapid Transfer will be conducted by Military specialty Transport (mostly helicopter–Ambulances); this allows for Military build-up and Training of Medical Specialty personnel while cutting Medical Transport Costs domestically. Military Busing will also be utilized in transport of Outpatients to specialized Treatment centers. The Whole is a multi-tasking effort serving both military needs and the general Public.

The Whole medical treatment system will be connected by a Hot-Line network easily accessed with a number similar to 911–though different. This will be Direct Access to a online Doctor, who will issue Proscriptions, or redirect Patients to the proper center upon understanding the complaint of the specific Patient. It is not near Perfect, but it at least has possibilities of limiting medical costs, and reaching a universal care system at low Costs. lgl

Behavioral Models

Chris Dillow tends to come up with a Way-out Post on weekends, which approaches some aspect of life from a different prospective. What makes this practice uncommon lay in the accuracy brought to the practice. This Post on Managerialism highlights the erosive destruction of supplanting professional ethos with an alternate Value system. Maximization of Profit corrodes almost every great endeavor outside of distinct Business opportunity, and even Business sinks into Corruption if exterior ideals hold no sway. Chris attributes Managerialism to the practice of Micromanagement which may well be, though I think it is the simple practice of ‘Keeping up with the Jones’ among leadership cadres; they feeling compelled to express superiority over their Peers. This translates into egregious Salary and Benefit awards, which existence percolates downward as knowledge destructive of moral values. The end-result tarnishes the ideal of professionalism, and propels a dedication to crass Materialism.

R. J. Waldmann presents a perfect example of why One should not rely on Economists to write on Economics. His basic assertion states that Taxes should be confiscatory, or nonexistent. This is the policy dictated by standard economic models with impact of policy set to zero out. The trouble here is that in the real World, Governments do exist and do spend. His allegiance to a Poll tax cannot, and will never, cover all Expenses of that Government expenditure (any setting of the Poll tax above coverage of the simple Salaries of Government officialdom will again reintroduce a Capital tax with its distortion; i.e., Government Workers simply working, and thereby Spending, brings back the entirety of the distortion). It is a prime example of Economists getting wrapped up in their own models, and missing the functioning of the real World.

The basic intent of his Post does have a Point: Capital will alter the intent, purpose, and result of any Tax, if allowed the Time to affect that change. Waldmann does protest the Reagan/Bush policies have it wrong, and they do. Economic performance will be enhanced with an increase in the tax on Capital, not in an decrease in the tax on Capital; Waldmann undoubtedly would protest going this far. The fact exists, though, that the increased Capital tax is an Incentive upon Business; who are concerned with the maintenance of their personal levels of Income, and who will work harder and be more inventive to achieve that Income. Here is where the gradualism in Taxation works effectively, rather than the Waldmann confiscations. lgl

Tax Revenue Offsets

The CBO came out with a new Report on the effects of Tax Cuts on Labor Supply, and Greg Mankiw disagrees with the conclusion that the shift in Labor offsets about 4% of the tax revenue loss. I disagree with the Report as well, but not as Greg does with the weighted Labor elasticity of 0.14. Well, actually I do, but I would go in the opposite direction from Greg; thinking the weighted elasticity of Labor should be 0.06. Labor elasticity stands almost frozen, held small because of cultural standards with relative rigid reaction to Overtime beyond 48 hours per Week average as the Norm, except in the Construction industry (60 hours per Week Overtime Norm). Tax Cuts do relatively little to expand Current Employment numbers. Increased Marketing and Sales efforts do not express Business desires to expand beyond these cultural Norms; such Business content to minimize utilization of Overtime production.

The Tax Cuts, therefore, must generate new Employment. This element relies to a far greater extent on expandable markets, than the Current Employment matrix; the existence of Current Employment consistently saturating the normal spectrum of Marketing Sales. There must be a market expansion of Product and Service Demand in order for New Employment to be sustainable. The rise in Temporary Employment has come about to service Spikes in Consumer Demand, but even here, Temporary Employment can only attain levels consistent with Market saturation. All this garbage means that Tax Cuts will not seriously impact Employment in the Short-run beyond some expansion in Overtime within normal ranges, affect Temporary Employment only in the Intermediate term, and only reflect natural economic growth in the long-term.

The CBO report was not as critical of Supply-side economics as it actually should express. Tax Cuts only basically impact the salvation of Business Profits, not real expansion of labor. Only when those Profits are reinvested in hard Business capitalization will there be an offset in tax revenue generation, and then only to the degree there exists a sustainable market Demand for more Product and Services. I must be honest to the point of stipulating I did not read the CBO Report, only Greg’s Post; still, Supply-side economics will, in themselves, not produce tax revenue offsets to Tax Cuts. lgl

The New Wealth

Tyler Cowen attempt to excuse the maldistribution of Income of late years, he linking to this Post from a current Post. Daniel Gross published this article in Slate where he wonders about a future Tax Crash, all because most Corporate Taxes collected were Short-term speculative financial transaction Windfalls. Examination of the real Gains in Income must rise to the surface, and the Question asked: How will all this affect the Economy and Government deficits?

A simple Answer states there are only two basic Ways to achieve massive increases in Income in this Country (though People will talk about $400/hour Lawyers, $700/hour Accountants, and $3000/ hour Surgeons). The first method is to be a CEO of a large Corporation, whose Stockholders are such a diffuse Group that attaining a Majority position for Alternate Board membership is almost an impossibility. The second method lay in design of complex Computer Software of high value. Here is where there is a Split: ordinary Software program developers seek a huge Sale price for their Software, Money Manager Software convince Investors to invest heavily at an extremely high Management fee. Study of the above information will conclude that these methods, at all levels, exclude discretionary power of Customers, Stockholders, and Labor. A simple Statement is that in all Cases, vast Income growth comes from establishment of a very limited Cartel (something which the above lawyers etc. have also managed to create).

A Democratic Administration and Congress could possibly decide to extend legislation curtailing Monopolies, to limit Cartel-style Profits-Taking by utilization of Patents and controlled access to preferred Expertise. It is highly unlikely, though, as legislators find themselves excessively lubricated by Lobbyist contributions. It is a nice Thought, but will without Doubt not be initiated; at least until such Cartels can be prosecuted under the RICO act. lgl

Environmental Questions

Felix Salmon attended a seminar on climate change at Columbia, and wrote on it. Stern, Stiglitz, and Sachs were in attendance, and it seems all Three managed an excellent discussion. It appears to me, though, that the Whole was simply a presentation of position rather than a discussion of viable solutions, with the potential Costs intrinsic in those Solutions. One of the great elements which sink the environmental ship comes from non-avocation of definite Plans, as Business switches to discussion of Cost; a factor paramount in the thinking of Business interests. They want to know what can be done, and how soon, what are the Capitalization Costs, and whether it can be turned into a Profit. Until Environmentalist and Economist can fulfill such Expectations, Business agreement cannot be attained.

Here are Some of the things I want to know:

1) What are the available Capital assets to sow the major Ice Sheet systems of the World with lichen and ice-rooted grasses? How much would such Cover lower the surface temperature of the ice? How would sub-levels temperatures alter with such Sheet-cover? What would be the yearly Costs of such a Seeding program be? How much Carbon could be absorbed by such a project in plant growth? How much Sunlight deflection could be attained by cover of these Ice Sheets?

2) Much effort has been forwarded in attempts to translate Sunlight into electrical energy. Most efforts has proven to be Cost inefficient as major Power producers. A different avenue need be explored. Has there been major efforts made to utilize Solar energy to convert Water into Hydrogen and Oxygen? How much Hydrogen can be produced in Solar energy conversion units? How much would such a Solar energy conversion unit Cost, how much Hydrogen can be produced daily from a unit? How complex would a Hydrogen Pipeline system have to be to safely transfer Hydrogen to Distributors of such Hydrogen as Fuel? What would be the total Cost of such a system, and how much could be produced daily and transferred?

3) Experiments in mass production of burnable fuels from sewage are being conducted in Iowa and Indiana. How much burnable fuel can be produced per ton of sewage, and what is this Unit Cost? How easy and safely can such a burnable fuel be transported? What is the expected Cost of conversion of City and Town sewage systems to compacted Transport systems connected to such Conversion plants?

4) The supreme Need of the Environment consists of the limitation of the release of Carbon Deposits into the surface ecology of the planet. This is a 2-Part problem: the first is the conversion to Energy production from already present Carbon; the second part is reburial of excess Carbon into the earth, or into Plant growth on the surface of the Earth. What Research is being done on conversion of Garbage and Sewage into Humus construction of Soil? What Costs would such Conversion entail, and can they be structured competitively with current Disposal systems? lgl

Echos from the Past

Kash gives a good graphic display of the weak Recovery We have endured since 2001. It has been consistently poorer than in previous Recoveries by all measures. It might be quite damning except for the matter of Size. The current economy is much larger than previous Recovery economies, and percentages reflect greater magnitudes of Product and Services transfers. Such added magnitude, though, would only conceal about a 19% hidden Gain over most ranges. The final analysis is that this Recovery has been sickly, and based upon extensive Business and Monetary practices which will engender long-term adverse consequences.

Most will disagree with me, but We are overinvested in residential property. Economic policy pushing for Home ownership, while proving a boon to financial markets, has overpriced Housing and curtailed both Pension-planning along with hard Capital investment. Heavy Government push to expand Trade beside increasing State and Local regulation of Business practice has produced about a 14% greater Cost of Domestic production in excess of foreign production. This later fact has pushed about 31% of Labor out of Production areas where they had experience and competence, while current practices have increased competence Training about 90% higher in Cost. The result is natural, a major underutilization of existing Labor assets based upon experience and education, a marked leave-taking of qualified labor from the Labor market, and generating at least 50% of the suppression of the Wage Gains of this Recovery. (All of the above Estimates are of my manufacture, and therefore, much contestable).

The run of Business trends have worsened the position of the U.S. economy. The sheer volume of Trade since 1998 has probably increased Our foreign Oil consumption by at least 20% of the current volume (think about 37-8% higher than the mid-90s Boom). The disqualification of trained Labor assets from previous employment effectively doubled Our Consumer Debt. Excessive Government Expenditures destroyed Our ability to implement Economic policy through overdraft of Our natural financial capital. Relaxation of Banking and financial instrument regulations has led to a vast increase in Margin buying, placing the overall economy at greater risk from failure of singular sectors. We have a far more stable economic environment than existed in 1928 so any crunch will not be as realistically harsh (plus the fact the economy is simply too damned big to grind to a stop), but I do not enjoy a political leadership who shape an economic structure similar to that of 1928. lgl

Lack of Economic Controls

I always enjoy reading Chris Dillow because he often draws focus on economic matters few others even pretend to see. This time he has set his Sights on New Labour policy impact on the British economy. Chris immediately zeroed in on the basic object from the starting paragraph: economic policies have become so diffuse and random, that Few can determine what type of impact any policy is producing. I contemplate the American economic policies and their impact on the American economy, and the commentary seems to parallel the British experience.

What do We really know about the Economy?

The first thing I notice about the American economy is that Government at all levels are overspending their ability to tax. Conservatives and Economists would assert that economic performance remains dependent on shipping Government Costs forward, as Government Contracts must be maintained while keeping Tax rates low. Liberals assert that Keynesian Spending actually boosts the economy, and mounting Public Debt pursues optimum economic performance. I assert We are spending Ourselves into a grave. I know economic performance can withstand a much higher rate of real taxation. I also know that We and the Economy could still perform with much less Government expenditures. I once asserted, and was consistently ignored, that optimum economic performance was best attained with Government Expenditures no higher than 14% of GDP; Government Expenditures including all Federal, State, and Local Spending, but excluding domestic Self-Insurance plans (think Social Security etc.). I still think I am basically right in that assessment; but a real Tax rate of 14% is still frowned upon by Conservatives, and lack of Government patronage seems outrageous to Liberals.

The second thing I notice in the American economy is the fact that all fiscal and monetary policies have led to economic bubbles, which burst with greater loss than the estimated real Gains previously realized. Interest rates should be low, and consistent; it is too late to lower Interest rates after a bubble has burst, and too late to raise Interest rates after a bubble has developed. That such policies produce Bubbles are beyond doubt; consider the ridiculous mortgage tax credits, and the resulting subprime debacle. Passage of a tough Bankruptcy law will not save the situation, after Consumer Debt has become astronomical. The next bubble to burst will be Bankruptcies of the Private Equity Borrowers. Lack of legislation is itself an economic policy, and the Bush administration has surpassed all other administrations in allowing semi-fraudulent Business practices through restriction of administrative controls. Conservative concentration on economic incentives has denuded the economy of resiliency, Liberal concentration on patronage practices have only hidden the real losses in the Economy. lgl

Speed Limits

Tim Haab commented on this EPA News Release, asking how the numbers were calculated and if they were accurate. The Answer is that they are extremely optimistic, and not very well devised. The real component is very heavy weight transported at high Speed. I had a discussion with a Trucker last Week who was complaining of the 2 mpg loss because of the high Winds; this is serious when you only average 5.5 mpg to begin with on his heavy load consignments. Bumpers and mirrors might reduce wind resistence by 2% at most. It might be capable of saving thousands of gallons of fuel, and so the fuel cost; it is no panacea in any case.

The optimum solution is to set Speed limits according to prevailing Winds. A national Speed limit system set precisely to Wind Conditions would require specialized Speed signs with Wind testing equipment, and strict law enforcement. Speed variance, to maximize fuel efficiency, would be somewhere between 35mph and 75 mph. Fuel advantage would be cut down if the Speeds restrictions were limited to freight transport alone, because of the rapid speeding and slowing of passenger vehicles to get around trucks. Overall Traffic slowdown, though, will vastly improve Traffic safety and Fuel efficiency for all vehicles.

Remember the Song: ‘I can’t Drive 55'. Traffic slowdowns will endure much opposition. Some of the problems which will be encountered: Drivers will insist on a higher Price for each Freight-ton mile, Business will need approximately 11% greater Warehouse capacity, and more Truck Drivers will be needed. Actual effect states that directional Speed limits will not injure real Transport volumes, though lengthening Transport times. New Transport Relay businesses will probably be initiated, where Truckers only transmit trailers to Depots partway to their destination, before they pick up a Return load for themselves; only the Relay businesses will deal with the Consignment agents themselves. More Trouble: Yes! Baseline: savings of between a guess-estimate (mine) of between 23-29% of total Fuel consumption. Added Benefit: between $5-7 billion in Speeding Tickets, rather than ordinary taxation for Government Services. lgl

RBC and NK Models

Bruce Bartlett and Mark Thoma take on the conflict arena between the Real Business Cycle (RBC) model and the New Keynesian (NK) model. Bruce sketches out his concept of the difference, and Mark brings more of an in-depth analysis to the subject, while disagreeing with Bruce’s basic conclusion. Both accept that the natural rate of Output is subject to Supply shocks, but Mark goes on to assert that Actual Output is affected by both Demand and Supply shocks. Study Mark’s analysis closely as it probably relates most closely to the commonly held beliefs in the economic profession.

My problem resides with the exact definition of Supply shocks. Both Bruce and Mark imply that while Supply shocks are natural, they should somehow be reduced by Public policy. Supply shocks are a natural condition, the result of process of business development; a process of investment followed by a recoupment of financial reserves (a Period of Marketing distribution to make initiated Production profitable). Artificial supplement of these financial reserves through favorable tax rates dissipates Business energy from optimum organization of Production and Marketing to maximize Profitability, and directs Business interest into new Production modes before the ‘bugs’ of the older Production have been worked out. You can definitely place me outside the Supply-Side spectrum.

I have equally as much trouble with the NK model, knowing that artificial pressure on Demand generates Inflation more than it does efficient Production. The Fed currently finds itself in the Prisoner’s dilemma of Interest rates set too high, but unable to lower them for proper business performance, solely because of excess Demand created by low tax rates; the Fed cannot lower Interest rates without Inflation, without an increase in tax rates to absorb the excess funds in the economy. Demand shocks serve a very necessary function of distributing mal-allocated financial reserves through the drop in Demand. Readers may possibly not understand the last Sentence; simply revert to the loss of position Wages has sustained in the last years–a percentage of total Income below traditional levels. I am not saying there is too much financial funding of Capital ventures in this Country, I am saying there is too much funding of Investment in this Country in light of insufficient financial fuel for Consumption. I am afraid I cannot accept either of the RBC or NK arguments, or even a blend of them. lgl

Tax Cut Utility

Greg Mankiw presents a clip as Kennedy called for his Tax Cut of 1963. I would never criticize Greg, but his transmission of this clip to serious Economics students seems essentially flawed. The first comment I would make is the fact that One has to be 44 years old to have even been alive when he made this Speech, and about 65 years old to even Vote on the issue. The second comment I would make is that Tax rates are already only about half the real tax revenue rate for Personal Income, and about only 20% of the real Tax revenue rate for Corporate Tax. The real Capital Gains tax revenue rate is only about half of the 1962 rates as well. Kennedy talked of a Tax Cut in a time of high real Tax rates, which is a condition nonexistent Today.

Economists are most adverse to the usage of Marginal Utility analysis in the application of Tax Cuts. I am afraid, though, that such analysis developed for other economic structures work equally as well in decision-making determining Tax rates. There were extreme Gains to be made in application of Tax Cuts in 1963, when real Tax rates were extremely high. The early Reagan Tax Cuts proved to be marginally much less generative of economic performance, and Reagan had the foresight to raise those rates, as did both the elder Bush and later Clinton. It actually brought on the Boom of the 1990s, and corruption of those earlier Tax rates led to the Tech Bust bringing this era to an end.

The current Bush administration again turned to Tax Cuts, though they accomplished little investment in the domestic economy; they actually providing funds for the Corporate structure to invest Overseas in order to achieve the present level of Offshoring. We now have extreme pressure for Inflation, with huge increase in Public Debt, and untaxed Capital Gains leading to high pressure on both Business and Consumer Consumption Price levels. I am potentially in the minority of One, when claiming that the only effective Counter to Inflation is effective Tax rates. lgl

Inflation/Deflation Models

David Artig quotes from from an article from Ken Rogoff about the impact of Trade upon Inflation. It is a very worthwhile article to puruse, and I would advise all Interested to read it; Artig provides the link. I must comment, though, that I find the argument to be in error. Market set Prices remain a basic domestic function of the interrelation of Resources, Goods, and the Money Supply. Market Price is a function of Product or Resource availability and the availability of Money in the hands of the Buyers. Do I sound pretentious and boring? It is important, though, to highlight that Markets are geographically positioned, a most element condition of any Market. What’s the big deal? Imports are foreign by nature, and therefore, imitate the behavioral functioning of Resources in the Marketplace, facing a homegrown Product in the Market–the Money Supply. Imports do not affect Inflation, simply alter the distribution of Resources in the Market.

Now the question becomes: Does the concept of Inflation respond directly to an increase or reduction of the supply of Goods and Resources? The Answer is No! Inflation is the response to the increase in Cost of the supply of Goods and Resources. The later does respond to the growth of Money Supply, and creates deflation if the growth of Money Supply is slower than the growth of Supply of Goods and Resources; Inflation if the growth of Money Supply is more rapid than the Supply of Goods and Resources. The truth I am trying to get across states that Inflation, as it is totally dependent upon the local condition of the Market, will always remain the province of the Domestic economy; even when the Currency is multiplex-utilized across national economies.
Inflation finds propulsion in regional maldistribution of Money Supply, but rapidly expands to impact other regional domestic market in the national economy; eventually, it will spread to impact all Users of the Currency worldwide. Deflation is not as easy to create, requiring an acute shortage of Money Supply in regional markets sufficient to draft excess funds from other regional markets in the national economy or world. This draft of funds entails absolute necessity to sustain the regional market or regional economy, but also requires a limitation of Interest payment transfers; the later being a form of Money Supply creation. Inflation/Deflation models are one of those areas of the economy which does not have a natural smoothing process to general balance. lgl

Economics impacting new Administration

James Pethokoukis suggests that the new President may enter Office in 2009 with a Budget surplus, rather than with a Budget deficit. Here is a serious misreading of the situation. The current Republican Congress and President are in high Pork Barrel mode, and unlikely to discontinue their activity; expect a 9% increase in Federal Spending in the coming Year. A new Republican administration and Congress will continue their suppression of Business taxation at all levels–including Capital Gains. A new Democratic administration and Congress will possess an entire list of social programs which will rival the Republican Spending of the Bush years. It is high unreliable to belief any new Administration will reverse any Spending excesses of previous years. Do not expect any Budget surpluses in the near future.

Readers of this blog also know I am closer to being a Protectionist than a Free Trader, ranking me alongside the pretax Democrats though I don’t happen to be a Democrat at all. I say this for a number of reasons. I first do not believe there is any economic efficiency left in Trade, though there might be a Ricardian Comparative Advantage. Energy Consumption basically eats up whatever Profitability in Trade Goods remain, and the World is highly indicative that they will not continue any greater Copyright and Patent protection other than lip-service in the coming future; the real impediment currently consisting solely of inferior technological bootlegging. American enterprise places far too much faith in information selling. Republican, Democrat, and most especially Free Trader, expect We have a Lock on Development which constitutes the most grievous mistake of all at every level of American society.

I almost wish the above tendencies were more rapid in progression, because the more rapid the progression, the quicker the alteration of practice. American R&D should concentrate on redesign of American industry. American Capital should be invested in the American economy. American Products should be built by American Labor. This should all be done before foreign economies find little reason to trade with the United States, or to supply the huge American consumption of Energy. lgl

Europe v. America

Tyler Cowen says that Europe utilizes better government policy and practice than does the United States, so Europe can afford more government involvement, because European Public Goods are somehow more Cost-effective than American Public Goods. Bryan Caplan explains that European public opinion is the exogenous element–not government policy; suggesting Cowen put the ‘Cart before the horse’. Arnold Kling sharply disagrees with Cowen, insisting that Europe is more likely than the United States to have government failures.

I disagree with all Three. The difference between American and European government policy and its success lay in the lack of development of the Class system in the Americas–including Canada and to a lesser extent Latin America. The Americas are rare solely because economic progress in the modern mode developed concurrent to the development of the Class system. Americans could subvert the domination of Class structure by simple wealth aggregation. There is some reference to the concept of ‘Old Wealth’ in the Americas, but not like the concept in Europe; where ‘Old Wealth’ carries the trappings of aristocracy. Americans think they can work their way up the Social ladder; Europeans feels trapped in their Social Class, no matter the eventual largesse of their wealth.

Government policies in Europe carry the added element of protection of their Class from aversive invasion from other Classes; unlike the United States, where government polices are set only by the power of Special Interests-no matter the total Vote size. Voters in Europe are more likely to vote for Class interests than for political party advocacy; Voters in America will vote for Special Interests over political party advocacy. European politics will always be more social democratic progressive than America, because European Voters represent Class, while American Voters represent specific Special Interest coalitions built for specific sole issue ends. lgl

Trains and Taxes

Dean Baker and Kash bemoan the lack of use of the train system to reduce Energy use and Pollution. Kash stipulates discussion of improvement of the train system is forbidden on Capital Hill. The major impediment may lie with the train system itself, and its lack of technological progression. I would think some Software geniuses would identify the train railway system as like unto a computer processing system. Total Electrification and Computerization will eventually led to Computer-directed Coupling procedures between cars, developed after electric wheel engines replace locomotives; all governed by automatic Software programing. Trains can be built from component cars, speeded and slowed as to needs of the railway, Sidetracked, Split, and reassembled upon need; all directed with minimal human supervision from a central computer room. This technological development would then allow for the creation of an effective Computer-controlled Trolley system in major cities. Speed is not the prime need Today, Computer networking able to handle any rushed effort; and train travel allowing far greater space for actual Office work with designed compartments. I still prefer a Sleeping compartment to taking the Red Eye out of Chicago.

Jeff Cornwell doubts the efficaciousness of a Flat Income tax. I agree with him in his belief that anything that allow for deformation of the Tax impact through Add-ons will leave in as bad a shape as We now appear. I disagree with Jeff in his suspicion that any major alteration from the current format will work. Here is a short sketch of my Thoughts.

Labor Hours Factor Tax

1) All Labor will pay $3 per hour as Tax as Employee, and $2 per hour as Employer. One Dollar would go to Social Security from Each, and One Dollar would go to Health Care provision. The remaining $1 of the Employee would go to the general Treasury Fund. Labor Wages would automatically Market adjust to pay for Living Costs of Employees.
2) A Factor of 2 would be introduced for both Employee and Employer at Wage levels of $30,000, so that Employees would pay $6 an hour ($2 Social Security, $2 Health Care, and $2 general Treasury Fund). Employers would also find their payment of Tax to be $4 per hour after any payment of $30,000 in Wages (no matter how many Employees).
3) A Factor of 3 will be introduced will be introduced after reaching $60,000 in Wages for both Employee and Employer, so the Tax would be $9 per Hour for Employee and $6 per hour for Employer.
4) A Factor of 4 will be introduced on Employers paying more than $100,000 in Wages, so that Employers will pay $8 per hour of labor.
5) Employers will be able to account all Steps and Factors as a Business incentive to encourage small business.
6) A Capital Gains Tax will be set at $1 per $1000 at every Transaction sale, making it not a Capital Gains Tax in reality, but an Investment tax collected by the Selling agent. lgl

Occupational Monopoly

Felix Salmon makes a good assessment of the Private Equity growth in recent years. The real generator for taking Public companies Private comes for the Tax loopholes currently written into law. Sharp Accounting practice can translate almost all Income into Capital Gains taxed at much lower rate, then defer payment of such taxes for sufficient period to double or triple the total Profits in excess of the owed taxes. Private Equity Managers pay only such taxes as they must to possess the funds to life maintenance for themselves. Most Economists would say this is good business, but it is not if the Debt load which those deferred taxes were to reduce doubled or tripled in size. Is this the basic malfeasance of Private Equity Business? Only to the degree that they lobbied for the Tax loopholes. The real corrupt intent lay in the legislative bodies, who turned these Tax loopholes into law.

Chris Dillow wonders whether high Profits actually are a good measure for economic performance. He mentions that high Profits are a sign of monopoly power and lack of competition. He sees this as the result of overgenerous Government regulation which gives Workers and Consumers a bad deal, and leads to market inefficiency. I feel it is a greater and more personal effect, which I call Occupational monopoly. One does not hear of Doctors, Dentists, Lawyers, Engineers, and Plumbers entering into Price competition to garner Customers. Many of these Classes of professionals do pro bono work, and even provide a Two-Price system for preferred Customers; but One never hears any public advertizement of such effect. Any deviancy from such practice leads to ostracism in the field involved.

The very silence in such Marketing about good deals expresses both the existent power of monopoly in these Professions, and cause Markets to adjust to the known Prices charged in the Occupational division of labor Wages. Such effect on Markets could be seen in the Automotive industry in reverse, where Advertisements always listed the rock-bottom lowest Prices for vehicles; but actual Price increased with any added adornment past a total stripped-down Model. Silence is Golden, but as far as Professional Occupational speciality, it causes almost a 30% increase in Prices for about 70% of the Consuming Public. Realistic evaluation would state that Prices would increase about 5% above the preferred rates for about 70% of the occupational Customers, if the Marketing was efficient with informed Customers. Lgl

The Real Face of Corruption

Dean Baker again delivers an ideation which provokes serious thought. The current reign of legislative action, which does not just start with the Bush administration, has been to route Government subsidies through Private firms whenever possible; all for the sole purpose of generating Corporate profits. This may not be entirely a bad practice, as circumstances can dictate that Private Concerns can deliver Services at better Price and less bureaucracy creation. It becomes a vitally different matter when such reroute generates a massive increase of Government expenditures to provide the same Services. It is a further problem if Journalism has been so incorporated that such activities are not reported. We find Corruption here because of such practices; such effect not just being limited to Third World nations.

The practice is especially bad in the field of Health Care. Here, Private Insurance has joined with Government misbehavior to wildly inflate the Cost of all services. There is widespread resistence to any form of Government assumption of Medical Services, though there is vast demand for Government assumption of the Costs of Medical Services. Why? The basic causation consists of the fact medical provision in this Country is twice the Cost of other Developed Nations, and with less viable Outcomes from Medical treatment. Almost all of these added Costs comes in the extra provision of Profits–both Individual and Corporate–settling into the Pockets of the leadership concerned in the provision of Medical Services. Ordinary Employees concerned with Health Provision see little of the Gains garnered by this practice.

Corruption, though, is not limited solely to the Health industry. We have Troops undersupplied and military units understaffed, many of which are deployed in the field, while major Contracts are fully funded to produce futuristic weaponry which will never reach Field Complement; solely because rich Corporate Profits can be attained by mystical Research and Development. Road construction expands at massive rate, while Road maintenance languishes; mainly due to the vast Corporate Profits resident in new construction, and minimal Profits attainable in Road resurfacing. Vast tracts of farmland is falling into urban use, and Land Prices have become exorbitant; this due to Tax law which gives advantage to holding Mortgages–leaving vast numbers of empty shells dotting the landscape.

One should consider all economic costs associated with all of the above practices. We have overuse of Resources, misuse of Land, misdirection of Labor assets, failure to provide essential services, misappropriation of funds, and artificial creation of wealth by governmental regulation. All such activity reduces Wages, distorts the Standard of Living of All affected, reduces actual Employment through misallocation of Resources, and endangers life through non-provision of essential services to the Needy. Americans should not complacently dismiss Corruption and its practices as Third World invention, because it operates with dangerous effect right here as well. lgl

Real Wages

Mark Thoma generates a good rundown of the general state of Social Welfare, both Worldwide and national. Mica Panic asserts the U.S. and Britain fall short of the other industrialized nations, something on which almost All can agree. Mark himself utilizes the argument that Protest against the expansion of Health Care to Children relies on an artificial Income assessment made by Government bureaucrats, demanding an allocation of Income to Child Health Care which Parents cannot economically endure when confronted by many other exorbitant Living Costs. Readers at this point should consider Dean Baker’s comment on the Health Care industry.

Eduardo Porter, link to be found in Mark Thoma’s Post, states all developed nations, both Social Democratic and Darwinist, face trouble in putting people back to work; the major issue being the insufficiency of Wage, though Porter does not say this is the prime element. No Worker will reenter the Labor Force at Wages incapable of paying minimum Living Standards. Jared Bernstein comments that Circuit City simply decided to fire 3400 Employees, in order to rehire Scabs who would work for less than the $11 per hours the laid-off Employees made. Anyone trying to raise a family will tell the Reader that two adults both working full-time for $11/hour can barely support a family of Four, and assuredly not finance Private Health insurance at the same time. Potential Risks get shoved aside by the Necessities of Mortgage or Rent, Utilities, Food, and Clothing in that order. The current Administration and Republicans think such Households should finance Private Retirement Accounts as well.

Manco Dollars in the Comment section of the Thoma Post states that Companies will simply layoff more Minimum Wage Workers if the Minimum Wage is raised to $7.25 per hour. This is first of all not established, and has not been established through all the Minimum Wage raises since the 1950s; Business needs cheap labor to get productive effort achieved, and the type of labor of which We speak is not the type where mechanization or higher-Salaried labor will do it with greater efficiency. Second, effectively large labor pools will not exist until and unless a viable Wage is paid; Employers will be offering cheap-Wage Jobs without Takers as they are now. The need is for greater Labor Force Participation–not enhanced Business Profits. lgl

Inheritance and the PCT

I was picking through Chris Dillow’s advocacy of a Progressive Consumption Tax, and followed a link to this description of such a Tax. I basically disagree with Tim Worstall’s sympathy for Parents desiring to Save for their Children. The primary reason for capital aggregation lay in the accumulation of wealth for personal security; Tim advocating this security be passed on to their heirs. There is a marked degree of denial of economic incentive in this train of Thought, and a fair amount of injustice as the worst can benefit as well as the best. A secondary consideration of inheritance rights states that invariably Those who did most to aid the accumulation of wealth, are invariably disadvantaged with no participation is the distribution process. I would advocate an Inheritance Claims Court where Anyone could initiate a Claim on the Inheritance, and division of the Inheritance be distributed according to the labor involved by each Party in it’s accumulation. The right of award will be denied to the Benefactor, as he or she did not make a distribution prior to Death, but demanded the economic power of his wealth through his lifetime; thereby forfeiting his right of distribution.

Such an Inheritance Court grants previous Employees and Partners some degree of protection from unbridled patrimony damaging previously viable business practice. It assures the maintenance of economic incentive in Children, who must now gamble on whether effective claim can be made against their inheritance rights. It pressures Benefactors to divest themselves of economic power upon their Retirement from business organizations, and to properly awards grants to their Children prior to their death. Proper distribution of Assets should be conducted by the Benefactor, but only in such circumstance as to properly supervise the distribution and utilization of those Assets. Failure to fulfill such duties is avoidance of basic patrimony in the first place, so effective replacement discretion should be effected on all Parties.

The Progressive Consumption Tax, returning to the Dillow argument, has some serious pitfalls. Definition of Necessities would always endure pressure for expansion, a prime Bone for lobbyists. All Income groups use the same basic Necessities, though they be divergent in Price, they are not in Kind. The PCT thereby assures higher Income groups of a like unwarranted reduction of taxation, to the effect that higher overall Tax rates will be imposed. The PCT raises an additional barrier to lower Income groups advancing their quality of life by buying above the Necessities. The last point is that the PCT is too complicated and hard to regulate, presenting a quite at variance set of Opportunities to Economist and Politicians. The end-result would be the higher Income groups would escape even more taxation without benefit to Anyone. lgl