Enclave Mentality

Here is an obvious statement of an Untruth. Bush is not hearing the Consensus of American military leadership about further American involvement in Iraq. The Words might resound, but the Administration has already given indication that they are going to ignore the Reports. A short Rundown of the Situation might be revealing. The Iraqi Military and Police about on a numeral par with foreign fighters (call them al Queda, Terrorists, whatever), who find it unnecessary to announce their presence except through Terrorist attacks. I also believe that the Iraqi Army and Police are outnumbered by the militias by about 8:1. Everyone seems to be efficiently armed. American Military leadership here suggests a complete Turnover of the Iraqi Police, because of later’s corruption and affiliation with the militias. No One mentions that Police recruitment will be hard due to the obvious Short-term employment at high risk and low Pay, or that the Police cannot work the territories of Iraq without some affiliation with the localized militias. The humor is American military leadership’s praise of the Iraq Army, trained by themselves, and which is not deployed because of the real fears of rapid attrition of such elite forces; at least in Vietnam, We attempted to waste ARVIN forces at the same pace as American Troops. Which Side of this Debate are We supposed to listen and support?

Here is another indication of the current American leadership. Ben Bernanke first states it is not the Mission of the Fed to protect Investors from the Costs of their mistakes, but will move to protect the national economy. I will not enter a debate suggesting that the sole Mission of the Fed is to secure the national Banking system, not the economy. Attempts to underwrite the success of the national economy will always introduce insecurity into the financial institutions. A notable aspect here is that the Fed has already endorsed Congressional financial excess by basically underwriting Sale of U.S. Treasuries–this from a central bank whose Charter and Duty is to restrict unsupported financial instruments.

Here We have a Case of Presidential Doublespeak. The Message, which is a preview of the Message, outlines what the President is about to say; meaning that authorized Leakers have been told to expound what the President can’t really say; all before the President says what he is going to say. The first element states that the President is moving to save Wall Street, the reason behind the repetitive denial of the obvious. The Whole is predecessor activity prior to allowing the Fannie Mae and Freddie Mac Investment limits to be raised–check the Trice-stipulated denial, Bush must present angelic appearance to the Right of his Party. Reality states Wall Street need the large Mortgages to be underwritten (over $250k), while the lower Mortgages are relatively sound. It is interesting that George W. Bush never worried about poor people being forced out of their homes in Texas, while he was Governor combined with a high Foreclosure rate. lgl

Banking Procedure

Mark Thoma tells a good story when he get started, and his version of ‘bubbles’ has a great deal of relevance. There remains a surreal amount of underlying causation left unexplored. One can start this discussion by stipulating that bubbles originate in the creation of Consumer Demand. Incontrovertible fact states Business practitioners earn high Wages or Profits only with a high level of Sales in their gifted endeavor. This means that their Paycheck depends upon convincing the Consumer that they need some Product or Service. Business personnel, as expected, become quite good at not only Advertising of their particular Service, but at the acculturation of the Consumer to compulsive purchasing. It is instructive that most successful Individuals express early on a profound ability to discern the difference between Real and Generated Product and Service desires, committing only to the Necessities.

The high level of Advertizing Costs amidst other Production Costs indicate this Need to generate Consumer Demand. Deliberate Business decision has much to do with the creation of bubbles. There is a famous Story in some circles of a Developer who conducted an economic survey, and found that his area of development could only accommodate around 500 Homes based upon the base Salaries of the Residents in the area. He immediately doubled his Advertizing budget, starting a campaign of migration to the area, and continued his original Plan to build 2000 Homes in the area. Here is where I bring in the Concept that bubbles are deliberate in design, though free of overall Concept. My Point states individual Business personnel utilize malfeasant Business decision-making to maximize their own personal Income, expecting the overall health of the economy will rectify their decisions. The Reader should not criticize such behavior, until One has paid for his children’s College education.

Bubbles are inevitable in this Business context, and there resides only one Curative to deflate such bubbles before they adversely impact the overall economy–here is the definition of the role of financial institutions. Here is the exact location of the demand that efficient Business practice by established rules of procedure need be positioned. The current Crisis is a failure of Banking practice; one where the basic Rules of Business were ignored, again for reasons of personal gain. Banks, at least, should be proscribed from Bonus awards based upon the levels of Deposits registered, or total value of Investment loans made. Bonuses should be granted to Bank Employees only for successful completions of Repayment schedules of issued loans; something which should be taken out of the hands of individual Bank management, and placed within the realm of Regulatory agencies. A firm stand by the Fed and Bank Regulators would save by the effective reduction of bubbles. lgl

How to Handle the Loan Crisis

Why do I expect the leadership in this Country and the World possess the wrong attitude to the entire Issue of financial regulation? What is needed is to shut off the Spigot controlling the flow of foreign cash into the United States. Americans, whether Individuals, Business, or Government, are borrowing too much Cash–domestic or foreign. It is good for Business, but destructive of effective Repayment schedules. International regulation of the financial markets are not going to make the current deluge of Borrowing any more sound. Transference into economic terms would suggest that the U.S. economy would have to expand in excess of 3% per year to actually meet Repayment schedules of the total outstanding Debt–both Public and Private. A lot of bad Paper has to be washed out, and Everyone should start to consider restriction of Debt expansion; regulation will not accomplish anything!

This article amplifies the Problem created by Central Banks trying to shore up what is basically bad Paper. They are still disgorging vast amounts of Cash, in Hope that the added liquidity will cancel the tendency of restrict Lending, when it is exactly the restriction which is necessary. No Lending agency can afford to extend risky loans, when faced with the level of already-held unsteady Paper, no matter how much Cash they are offered. One does not Double-down in Poker when One is only holding a Pair of Deuces; long-term viability suggests too great a Risk, especially if One is operating on borrowed Capital.

I agree with Martin Regalia at the U.S. Chamber of Commerce that We are not likely to slip into Recession; there remains sufficient Consumer Demand to meet Payrolls and Business financial commitments. I disagree with Martin in his supposition that the Fed should take further action to increase Liquidity. The Fed, if intelligent, should turn to the more practical policy evaluation of how to vent the large amount of bad Mortgage Paper. I personally would incite control procedures for forcing Foreclosure Proceedings, setting a Date where financial institutions must untangle the ream of financial instruments they created, and list the estimated Value of such Instruments according to Guidelines set by the Fed. lgl

Compassionate Conservatism

President Bush may be too hard on motorcycle Police. This may seem like a Joke, but the Speed of the motorcades does increase the risk for such Officers in performance of their assignments. One can make an allegation that increased motorcade speed lowers the potential risk of attack, though it is only in the Movies that Terrorists present a full-scale attack against a fully-reenforced Response team. Speed makes only marginal difference in the presence of mined Routes. The real reason for the rapid motorcades is Executive demands for rapid transit. This does get Serving Officers killed! Where are the Democratic Officers who can write Speeding Tickets?

This lengthy article explains what is happening to the Middle Class throughout the Country. Businesses are dumping their expensive labor by transferring Ownership, and abandoning labor in the process. Maytag serves as an excellent Example, basically because the Company was suffering no structural liabilities when it was purchased by Whirlpool. What I am trying to say is that the higher Wages of Maytag was not incompatible with Profitability, the cheaper Wages at Whirlpool simply paying for the Buyout of a Competitor. Current Federal labor policy and Tax law favors the betrayal of labor, and the Middle Class will lose their lifestyle.

Arnold Schwarzenegger has yet to publish his position on a new labor bill in California which would allow Unions to acquire signed membership cards, rather than face the coercion of Workers by Growers in holding an Election. It would nominally seem like an Election by Secret Ballot is the most democratic of processes, though Growers tend to run out of Work immediately upon their loss in any Union Election, and can seem to find new Work with new laborers shortly thereafter. The signed Union membership cards establish that labor has chosen to be represented in Labor/Management negotiations. Coercion by Union Organizing can be limited by Organizers having restricted ability to provide financial reward to Workers, while Growers should be shed of their ability to withdraw Worker Income. We shall see how the Hollywood actor responds to his fellow Conservatives. lgl

Biting the Bullet

Felix Salmon brings Us this Post which should be read. The major theme of the comment states that the major Players are trapped inside their self-created financial instruments, and cannot find Anyone to unload the Paper on. They cannot unload because they can’t and won’t establish a clear value for the assets involved; facing a high magnitude of asset-value loss if presenting a clear financial worth, lacking Buyers if they do not. No one, it seems, wants to bite the bullet!

The real Problem resides in the fact that these Things (they do remind of the Movie) have expenses of processing, and Investors are charged with these Processing Costs. Few can actually inform as to the true value of these Instruments, but can easily stipulate the high Cost of their maintenance. Nobody functionally wants any part of them. Gillian Tett and Felix both want to call in the Bottom Feeders–Those who make a business of buying up bad Paper for far less than nominal value; making their Profits in the Recovery of the residual. The later Group, though, must be able to find a nominal value for Assets, before they can set a Recovery purchase price. It is unlikely Bottom Feeders will intervene, they insist on some resident value to begin with; a quite uncertain element with these Instruments.

All elements of the Post resound with the fear that the Markets will freeze, if some Recovery is not devised for the mess. I personally find no great terror in the Prospect of the Market freeze. The Markets have been too volatile in Recent years, and with over-reactive Gain for minutiae events; all on the Account of Hedge Fund manipulations. It amuses me that the Hedge Funds are deeply invested in these Instruments, as a touted Means to rapid Profits-Taking. It may well be Time for Hedge Funds and the Securities-issuing agencies to register deep losses. lgl

The Future Awaits

Menzie Chinn shows Us the real probabilities of actually balancing the Budget. There is a sincere dishonesty expressed by all currently in Government Service, as they base their projections on current law, while working continuously to ensure that the specific laws do not apply. It is the old Case of keeping Two sets of Books, only the Most Favorable released to the Public. One might ask what is the rationale behind the charade, remembering that the current Administration is the First of truly Corporate Management.

It has long been a goal of the Corporate structure to realign the Currencies of the World, to simplify Payments of all types, but especially to curtail the Expenses of Wages and Benefits to Labor. Their primary Dream is to pay Third World Wages to All, while drawing First World Profits from all Sales throughout the World. Such Dreamers estimate they can obtain First World Prices for their Product due to overpopulation, and need only accommodate themselves to a World of accelerating Poverty for the majority of humanity. Does the Reader imagine I vilify the Corporate Mentality? I suggest most Readers do not understand the Clique mentality of the Corporate Boardroom.

Will the Corporate structure achieve their Goal of restructuring World Currencies to facilitate their Sales patterns? The Answer is a probable Yes. Will it do great damage to the Labor Benefits attained by the advanced industrial nations, again a probable Yes. Will it produce Windfall gains to their Profits structure, here We have a probable No. Where is the hitch in the Plans?

It goes back to the basic equation behind the practical function of Corporations. The Later succeed over the common Business structure because of their ability to aggregate Resources, so that Production can be achieved at lower Cost, generating higher Profits. The real shrivel element here consists of a necessary transference of some of the Savings to a reduced Price of the Product, so as to gain the financial support of the Consumer. Reduction of the viability of the Consumer and his Income will equalize the Costs of Production betwixt Corporation and Cottage industry. The major applicable equation here is the reduced level of Currency exchange between local economies, when there are adverse Costs to that Exchange (poor Exchange rates, high Exchange charges, exterior Transportation Costs, need for balancing Credits, etc.). I perceive a coming decentralization of Managerial organization. lgl

The Iraq Debacle

Josh White provides the Reason why American Involvement in Iraq will fail in this article. I refer to failure because that is what it will be, and probably a failure as extreme as Vietnam, though the Exit may, or may not, be as dramatic. The underlying Cause behind the expected Downfall resides in the original Bremer’s 100 Orders, where the avarice of American Multinationals was sanctified into Iraqi law. A closer look at the circumstances will be a Revelation.

Order No. 1 threw the Top Rank of Iraqi Civil Servants out of Power. This Management Class was tough, experienced, and had little Control over Iraqi Security forces. They had maintained the Iraqi economy, though, through two Wars and years of Sanctions placed upon Iraq. They literally knew where the bodies were buried, and where the Weapons were stored. They knew exactly how the Iraqi economy ran, and who had to be reached to accomplish any economic decision. Bremer, by issuance of Order No. 1, assured that the Iraqi Resistence would be excellently staffed by skilled Administrators, and that Those effectively able to run the Iraqi economy would be living comfortably somewhere Overseas.

Order No. 39, as pointed out by White, completed the destruction of Competition for American Business interests. The American Occupation assured that the foreign Competition could not get a Presence on the Ground to assess the Costs of fulfillment of Contracts. Iraqi Contractors, because of all Bremer’s Orders, were convicted of complicity with the Saddam regime if they simply made Kickbacks to the regime; a necessary compliance to keep the Security police from knocking on your door under Saddam. Order No. 39 simply assured any new entrepreneurs would not be given any advantage, with disadvantage of receiving mandatory American Security clearance prior to bidding Contracts. American multinationals were free to charge outrageous Costs for Services which could have been supplied with Native labor at One-Tenth the Price. lgl

The 1000th Post

I have reached a milestone at this Blog, thinking of how much I have discussed so far. I feel an impluse to review and edit the entirety, but dislike the Thought of the trouble associated with such an effort. There has been some discussion of my collecting sufficient material for a book release, with some snide commentary that this time I could supply a full-length Work (I tend to run to 100-Page monographs). The only value to me would be to collate and organize various themes which I have promoted, as Few would buy any Work available Online for free. Anyway, on to Today's Post.

Durable Goods did a happy dance in July, confirming my estimate that the Mortgage Crisis will be isolated, with the Economy basically shrugging off any recessionary pressures. One month’s numbers does not a tale relate, but Non-Defense Durable Goods excluding aircraft at 2.2% gain indicates Wholesalers and Retailers still have little worry about overall Consumer Demand. I await the August numbers with hope and a little cynicism, because Flows have remained steady, and the Crack of the Whip has basically been felt by the Mortgage situation.

This article presents the data which may be the real Threat to the Economy. The Fed will hopefully "Just Say No!" to a cut in the federal funds rate. A "Yes" will only insert unnecessary liquidity, and start the Fan of Inflation. There is too much artificial Money (Commercial Paper) in the Economy, and excess liquidity will get it sold to beguiled Investors. Everyone in the Markets are set to make a Windfall in Profits-Taking Sales of Paper, and the Fed must disappoint this Group, or face the Prices of Real Goods marching in Step with the Silly Paper.

Here is the basic Advertising Campaign put out by the Silly Paper Agents to apply pressure on the Fed. What is not said is that a Cut in the fed fund rate is not a guarantee of increased Commercial Paper subscription, presenting no better deal to either Business or Investor, or lessening the Risk which must be endured by the Investor. The Fed has already presented a cheap alternative for Commercial investment Capital in their Cut of the Discount rate. An inability to accept a Percentage Point difference in Operating Capital Cost does not bode well for the security of the Business opportunity, and likely would not inspire Commercial Paper Investors to come back. lgl

Attitude-Driven Academic Paper

Tyler Cowen wonders if the Cato Institute is being serious in their Critique of Gasoline taxes. I myself read the Executive Summary to the Paper which Cato released. Cato bases the Call for Gas tax abolition on the fact that long-term Tailpipe Emissions will not be reduced significantly. Is their hatred of the Tax Gods so great that they cannot see the Sunlight for the heat upon their Skin?

The Gasoline Tax assures that Fuel Efficiency will be much greater, and the larger the Tax–the greater the efficiency. The fact insists that more People will have traveled further about their business for the same Fuel Cost. Why the Cato Institute would publish a Paper which patently ignores Interim values in the Cost Accounting of a Tax amazes this Author. Front-End Costs generate innovation, Middle Costs reduce extravagant use of the Product, and Long-term Costs insist on more efficient use of Product. The Tax revenues raised can be utilized for payment of Government Services already on the books. There exists an articulate Group who insist that Carbon Taxes must be Revenue-Neutral, but I have trouble with even this Proposition; effective impact on Consumer Purchase patterns cannot be realized with Revenue-Neutrality.

The Cato Paper, though, holds some real kernels of Truth, best visualized by reading the Sidebars followed by the Conclusion. It also shows the fallacy of the Paper. The Overcharge/Undercharge allegations are a non sequitur–granting the largesse of the variation. The fear of internalizing motor vehicle externalities by venue of Gas Taxes is somewhat baseless, as economic efficiencies established on acceptance of major Externalities lacks real efficiency, and increased mass transit use actually increases the efficiency of mass transit practice; a prime desire as political motivations resist elimination of mass transit systems, Routes, and Schedules. The worst excess of the Paper resides in ignoring the ability of Interim Costs to alter Consumer Desire to travel in the first place. lgl

Economic Outlook

Here is an article which tells a greater story than imagined. Agricultural Futures for December are listing above the Tech Buy prices, at a time when the Wheat harvest was poor, but the Corn harvest is expected to set a Record yield. What does it mean? It is hard to define the exact context, and Secondary Price changes extremely hard to evaluate. I would seriously like to know the level of Ethanol plant purchases of Corn in tonnage for next year. I smell something coming, and it is beginning to stink already. The Consumers should brace themselves for a potential 20% rise in Food Costs year over year. Economists would discount this with numbers, though I would suggest Hedge Fund Market Calls could do the same for Food as they have done for Oil.

This article tells the woes of the Banking industry. The Second Quarter was the fifth straight Quarter where noncurrent (90 Days or more past due) loans increased, and not by a minor fraction; listed at $3.1 bn, a rise of 12.6%. Foreclosures are up 93% since a year previously. The major trouble may actually be that Banks and Thrifts have relatively little to do with the subprime mortgage market. The Thrifts have the highest level of noncurrent loans since 1993. It is clear that the Tax Cuts, especially the Mortgage tax credit, led the American Consumer into oversubscribed Debt. The Crime is that even Government-regulated, sound Banking did nothing to retard this Trend.

I felt I had to include this Post by Michael Shedlock even though he presents a picture bleaker than I could endorse at this time. I cannot see a Recession coming because of one basic Condition, this coming from the Manufacturing Sector–surprising isn’t it. I doubt that there could be any further reduction in this Sector, and that it will support Business Investment. The actual Quantity of Goods and Services out there are being produced. The current problems are basically created by oversubscribed Market activity, and the loss of financial reserves will impact only the Market plungers, leaving All of the economy except for Personal Households untouched; serious depletion of the Nuevo Rich may only adversely affect the luxury sector. lgl

High-Power Spin

Mark Thoma does a fairly decent job of discussing four major views of what the Fed should do to mitigate the Mortgage-generated liquidity crisis. Most Readers know my position, but for who don’t; I oppose the Fed taking any further action at this time. The new Financing policies are the stuff of Robber Barons, who spied the excess funds held by the Public, and dreamed up new ways to grab the Cash, add on their fees, and spread the Risk forward. They need two things to maintain their positions: the confidence of Investment Depositors, and viable Entities to lend the Cash generated. Good Times continued for too long, and the Robber Barons found themselves with substantial Cash potential uninvested, from which they could not draw fees. They dumped their Standards, and started Lending to Anyone who wanted the Cash. Then the Crisis occurred, which was basically the loss of Confidence of the Investment Depositors. The Market shakes, and the Robber Barons want the Fed to underwrite the bad Paper, so they can regain Depositor confidence while escaping any culpability for registered Losses from the bad loans. It reminds one of Michael Milken and his Junk, redressed in a pretty package to attract the Greedy.

What are the chances that the Mortgage Crisis will incite a Recession? Here is vitally important to define Recession–with Two Quarters of Declining Production. Can the American economy run in negative territory for two continuous Quarters? It might drop One Quarter, to expire Overreach by the Bill Gates Wannabees. Getting that second contiguous Quarter really seems improbable, considering present Consumer Demand which would have to take a Nose Dive over 20% for the Two Quarters; given the level of New Household construction. The biggest fear of Business should be an Immigrant law which expels all those Immigrants with their brand-new Credit Cards. A forestalled Recession, though, does not a Market make!

The worst aspect of the Mortgage Crisis is a major drop in Hedge Fund Subscriptions, as Homeowners redirect their funds to payment of excessive Mortgages; understand Many of those Mortgages were entailed simply to attain Funds for Hedge Fund Subscriptions. The Concept needed a little Work from the Start; now with Mortgage rates going up, and Hedge Fund Returns going down, there will be another transfer of Funds (Hedge Fund Managers might remember the biblical story about the Good Cows, and Bad Cows). The Fed may retain sanity, and let the Securities sector take the Fall for their malfeasance. The balanced Portfolio, though, will survive with retention of their Market Share–regardless of a very unstable Dollar count. Now if We only can talk Corporations into buying back all that ridiculous excess Stock issuance. lgl

Complaining Again

Bryan Caplan seems somewhat critical of Kip Viscusi because of his refusal to utilize risk analysis in the issue of Terrorism. Bryan ignores another form of Terrorism, which is a Result of Democracy itself. Economists and Public Officials who advocate a realistic appropriation of Resources based upon the degree of Risk, run their own risk of destruction without prior accreditation for the massive expansion of Security, if and when a future Terrorist attack takes place. A repetitive Terrorist attack with identical level of Damage as 9/11 could potentially get George W. Bush impeached before his Leave-taking, even though he enjoys some Popularity, and though the Chance of having sufficient assets in place to counteract the Terrorist attack would only confirm the inept stupidity of the Terrorists. Mothers, Fathers, and Wives do not respond well to rational excuse, especially when they can reinforce each others’ deviant attitude; check out the Miners’ families in Utah.

Tim Duy and Dave Iverson may have misinterpreted the Fed position, and it is my hope that Ben Bernanke and Crowd do not make a misstep like a Rate cut, though the pressures will be strong. There are immense amounts of inflationary Profits coming from the Business community, and the Fed cannot afford to underwrite the only Venting process that the Economy possesses, which is excessive financing swallowing their Losses. I personally would not lower Rates for Two years, even though I believe the Rates are too high; simply because We cannot sustain a Profits picture which is too rosy, it costs too many Resources which raises Pricing, and must not supply the financing which will pay for those Resources at extreme Pricing.

Readers will think I am grouching about Past events, but the Problem has always been the Bush Tax Cuts. Their existence has always incited excessive Profits-Taking, and the financing which providing the Capitalization of excess Production. The best Economic policy would be to allow the Bush Tax Cuts to sunset. I will show how ancient and contrary I can be, still opposed to granting Investment Tax Credits for foreign Investment, and I want to sunset the Mortgage Tax Credit gradually. The trouble is, my dear Readers, that these Tax mechanisms will generate Inflation pressures in the domestic economy; they already have. What was wrong when they were first proposed, is still wrong Today. lgl

Intended and Unanticipated Consequences

Chris Dillow gives Us a good Post on acceptable equality, but cannot see a right level to the Gini Coefficient. I personally dislike using the Gini, finding more information in the old-fashioned Point spread. The Gini coefficient hides the Pirates’ Treasure–who is putting a Lock on necessary Goods and Services. Big Pharmaceutical companies certainly have a Lock on the dispersal of Drugs; promoting Patented Drugs, and even going so far as to cut Production of unPatented Drugs. Computer Hardware locks in the Mechanics, and Software has to be tuned to the basic DOS systems, or it will find no Market. Car companies lock the Consumers into Maintenance programs to meet their Warranty fulfillment. The Gini Coefficient never tells exactly Who is raiding the Cookie Jar.

Maybe some Readers will not understand why this article makes me growl, as it is the basic attitude of most of the Economic profession. This Call for high-end Production with wide-open Markets simply writes off 80% of the domestic population of Europe, who cannot hope to match the Skill levels necessary to succeed in the high-end Production labor pool. It also discounts older Production facilities and Investment Capital. The labor being dismissed from the Production cycle are also the First to face accelerating Import Costs, while older Technologies cannot find the Operating Capital to supply abandoned Consumers with Product. I am glad that I will probably not be around to witness the long-term impact of Free Trader policy.

Ned Phelps may finally be earning his Honors, with his focus upon ‘unanticipated consequences’. Younger Economists take their Training too seriously, while older Economists realize that all Economic models are Best Guess at most. Several years ago, I advanced a theory that the relative size of the Economy (based upon the Production levels of Product) set the Rules of Economics. Older economic theories lost relevance simply because they were defined in and for smaller economies. Some Economic forces gained Power, and some Economic forces lost Power, in an expanding Economy. The interactive structure of the Economies, therefore, altered their basic nature, and those ‘unanticipated consequences’ become a natural consequence. lgl

A Revalued China

Lestor Thurow makes an attempt at reevaluation of the China economy through study of its component parts–something like I tried in my previous Post; now don’t tell me that he did a much better Job, possibly true, but remember I am very sensitive. His discussion on electricity usage is quite valid. The Guangdong province and Hong Kong example may have been a poor choice, as a huge population in Guangdong was living in truly primitive conditions, while Hong Kong was an extremely advanced economy tied to the Global economy. It is easy to show a good Record when starting from a relative nowhere; check the economy of southern Nevada in the 1930s (Hint: think Hoover dam v. the United States Economy at the Time). The Chinese One-Child Policy must be considered the best venue, as only sharp reduction of Population will bring the Chinese long-term Personal Income Wealth (Hint: the American concentration on Cheap Labor from aboard may be very Short-Sighted). I would not like the Reader to see my Commentary as any criticism of Professor Thurow, who did an excellent Job.

The real trouble with China resides in their failure to develop Internal Markets for their Productivity. The rationale is obvious: why waste the Profits of their expanding Exports on the Cost-laden Internal Market system, which will only put added Pressure on limited Resources and scarce Electricity generation capacity? Current Chinese Rice Production suffers from artificial suppression of Prices, as do other Agricultural Products. Creation of Internal Markets would deteriorate these suppressed Prices, and Inflation would take on real Meaning in Chinese society.

The current Situation limits this impact to the industrialized cities, a convenient Situation for Chinese leadership where they can drain the excess Income of Labor involved in the Export industries. The failure of Internal Market development, though, will leave a primitive Population with primitive Incomes which cannot possibly provide a Substitute Market for industrialized Chinese Production; China becoming ever more tied to the Global economy, and limited in scope to the foolhardy Free Trader policies of the West; sheer Portage difficulties and the lack of adequate Bottoms limiting the Ocean trade–think that We are at 85% Global capacity at this Point. lgl

Not really my Forte

Andrew Samwick finds an article in Science magazine calling for two programs which I have known for some time: reforestation, and switching biofuel production to prairie grasses. Ethanol production from Corn is too resource-intensive to be efficient; it requiring .60 of an inch of Water per day for the growth of Corn as currently planted. Current Irrigation methods can put about 2 inches of Water on the land per rotation, so that without Rain, the entirety must be watered twice a Week in excess of a month. Please remember I have not been engaged in Farming in over thirty years, so my numbers will be highly Contestable, never do anything from ancient Memory if it can be helped!

Agricultural land must be covered at least Four times in any growing cycle: Working the ground for Planting, Planting, Cultivation, and Harvesting; notice We have not even discussed Irrigation at this Point. I have not attained recent information from either Farmers or Implement dealers, but hope they have kept Fuel usage to 3 gallons per hour, but it could be easily be more than triple that figure. Modern machinery can hopefully cover 80 acres per hour, though 60 per hour seems a trifle more realistic. Irrigation Walker systems possibly use about 12 gallons of fuel per hour (We are talking massive Resistence of Movement of extremely bulky machine systems). A Walker rotation requires about 10-12 hours to cover an entire Section of Land with a 2-inch Water dispersion. Does there seem to be a lot of Kentucky Windage in this, a primary reason why Economists stay away from such discussion.

Here I will get even further off the Mark: I suggest One can derive about 2 gallons of Ethanol from a bushel of Corn, though I might be full of it (it is terrible considering that I have a Nephew in charge of New Development at an ethanol Corn Plant). Farmers currently claim they are growing about 200 bushels of Corn per acre, though my own experience suggests a more realistic amount of 140 bushels per acre (Farmers tend to pick the best acre they have ever produced in their career). Notice how I keep switching between acres, Sections, Gallons, and Hours in the discussion–I am not a stupid man, and do not want to appear foolish! Someone who wants a simplified Answer could possibly say that a Section of land requires 40 hours of Machine coverage, and about 60 hours of Irrigation per Growth cycle. This might translate into about 150 gallons of fuel for tillage, and 800 gallons for Irrigation, plus or minus about 400 gallons of fuel; remember We are talking only one Section of land here. (Now you know why they told me not to quit my Day Job).

I could go on this way for hours, but should keep this Short. My own estimate is that an acre of forest can sequester the Carbon extruded from about 70 gallons of Carbon fuels yearly. Prairie grasses are perennial, would require a Machine Cost only for the Harvesting (itself much faster than normal Farming tillage), can subsist without Irrigation or Fertilization (forgot about that one, which require about the same fuel Cost as Cultivation) saving the aquifers and the Carbon Cost of the fertilizer, and produce about 60% of the Ethanol as Corn. So ends this Class of Agriculture for Dummies (no insult to any Reader). lgl

Bad Debt

Andrew Samwick articulates an intelligent methodology for handling the Mortgage Crisis. There must be several abbreviated asides to any proposed legislation. Lenders must be restricted from selling any Residence without prior 90 Day notification to the Mortgage Holder, even if the Holder reverts to simple Rent-Paying. The Mortgage Holder, though, must not get a Free Pass. The Holder should be prohibited from engaging in a future Mortgage, except to pay off the previous Entailing Mortgage, for a Period of 36 Months. I would suggest all Bundling Agents of Mortgage-backed Securities which fail must return all Bonuses and value of Stock Options and Grants, though they need not return their basic Salaries and Benefits. The Whole of any legislation should be directed at punishing egregious behavior leading to Market failures.

Arnold Kling takes the position that either Borrowers or Financiers must take the Fall, i.e., that the burden cannot be split once the Mortgages are bundled. I believe this position is too static, and Investment Depositors can be left out of the Equation entirely. My thought follows the line that the bundling institutions must take the Fall, with Borrowers restricted from their previous excess financing. The Above Plan envisions Borrowers paying a Substitute Rent in place of the Mortgage commitment, leaving Depositors some reduced Interest Dividend; to achieve this, though, they would have to accept inability to sell the Securities. The lack of Judgement on the part of the bundling institutions, on the other hand, should pay a definite Cost for such misjudgement by loss of Profits. Legislative action is far preferable to the present expected Lawsuits.

The Fed action bothers me because this is a Prop Job to stabilize the financial markets, something I have trouble with as it forestalls real Venting of bad debt from the loan apparatus. As long as the debt is on the Books listed as Full Value, the bad debt is going to affect every aspect of the financial world, from the construct of Reserves to the proper End-Timing of loans. Now no one would claim I am as financially astute as Ben Bernanke or the rest of the Fed Board, but Someone should quantify how much bad debt is out there, and the End-Time when We will be free of it. We are oversubscribed with excess Book loans, all of which are in doubt, and trying to sweep the mess under the rug won’t necessarily cure anything. lgl

Principles of Ecology

Lake Superior, and the other Great Lakes as well, are shrinking at a fairly rapid as far as large Fresh Water lakes go. I personally suspect the Effect comes from two Sources: high atmospheric Temperatures, and delays of Melt runoff from reaching the Great Lakes. The Former allows for more rapid Evaporation, and the later allowed for greater Warming of Melt water before it reaches the Great Lakes. Uniform Testing of Lake water at 200' depth would highlight potential seismic action at the Lake bottoms, though lack of previous Temperature recordings would inhibit this evidence. One has to remember that the Great Lakes have previously been much smaller, the last previous Period was from 1000-1200 AD. Natural Forces have a much higher probability of Effect, than does human activity. One should remember that Lewis and Clark called the Great Plains the Great American Desert.

Edward Hugh would think to excuse the rating agencies from responsibility for the subprime crisis, and so would I. He takes on the Subject with an eye on the Sovereign debt outstanding, while I would look to boundary causation for the Crisis. I will try to apply this as gently as possible.

Current Worldwide practice has been to minimize taxation of Profits. At the same time, Corporate demands insisted on high levels of Contract issuance by Government, to generate high Profits in the first place–Politicians not likely to object. Financial Markets altered their Lending practice at the behest of Business desires, while Advertising began to practically force Consumers to purchase. I have had at least 50 Credit Card companies attempt to enroll me, one or two where you had to tear up forwarded Checks, else Anyone could sign you up with established Credit. This is not a tirade against such Practice, though, as I attempt to get beyond such trash.

The facts state that the generated Consumption created huge levels of Debt, and extremely high levels of Business Profits relatively untaxed. Here lies the major problem, as most of the Profits were Paper Profits: Product Debt left unpaid, and with Investors transferring the Profits to financial instrument investments. The previous Condition combined with the Later created financial instruments to maintain the running Production practice. We end up with Paper Debt financed with Paper Profits, and Government Spending paid for with nothing but further Paper Debt. Here is the exact Problem!

Financial institutions want a normal Return on the Consumer Debt. Investment Depositors want a normal Return on their Deposits. Consumers want escape from their Mortgages and Consumer Debt. Governments decide to continue Spending unfunded by real taxation. Business shows high Profitability, but lacks real Operating Capital. We are being choked by a overbearing load of financial paper which demands a Normal Rate of Return, when it actually consists only of flotsam which should never have been created in the first place. lgl

Security

Angkor has always held a special fascination for me, basically because of the sheer magnitude of the Site. It was developed over the Period 800-1500s A.D. The entire area was greater than modern day Los Angeles, and there is still some debate on whether they possessed the technology of the Wheel. The Water system developed not only served as Irrigation, but undoubtedly as a Transportation network similar to Venice today. There may be some question as to whether Angkor could be defined as a City in the modern sense, when the major industries were Agriculture, Transportation, and Marketing. The real economic contention I would make here lies in the fact that a very advanced Market economy had to exist during this Period, for the Complex to have been completed in the first place.

I would suggest that at least One-Half of the Angkor Population had to be engaged in Agriculture, to meet the Nutrient requirements of the Million+ population. About Twenty Percent of the Population seem destined to find Employment in Canal, or Waterworks, Management. An additional Twenty Percent needed to be engaged in Transportation itself, in order to ensure the flow of commercial Products. The remaining Population would have been employed in Service Trades and Marketing. The Market system may have developed haphazardly on a spotty basis, but it would have taken a strong Central Authority to allocate the Resources necessary for River diversion and Canal digging. The element most interesting here comes from the fact that the strong Central Authority must not have interrupted the Market system drastically through the long Period of Angkor’s existence, as indications express that a huge Population existed there for many Centuries, and State Planning could not have been effective for such a length of Time.

Scientists on Site believe the decline of Angkor resulted from deforestation. Such Concept seems most unlikely to me. A Central Authority in place for Centuries would already have integrated principles of proper forestry. Major Silt deposits would have passed through the Complex every year because of the Monsoons. It would have been the duty of the Waterworks labor to clear the canals yearly. My best bet would be that the previous Central Authority was replaced by Conquest or Revolt, and this later Authority interfered with Market and Labor dispositions. The depopulation of Site under these Conditions may have been rapid, even accomplished within a decade.

Angkor may best serve as Example of the dangers of rapid Change in the economic landscape, even under the best of Intentions. Free Trader principles Today has rapidly been eroding the Manufacturing capacity which built the American economy, while Welfare provisions and current Wage dispersions for Labor express a discrimination against Manuel and Trade employment. Educators avoid any concentration on basic Trade skills–how many Students know what a Board Foot consists of by dimension? Could We shut off Our computers for one day and survive? The Future will be bright and glorious, but We should keep Our feet firmly on the ground. lgl

Mortgages--Phooey!

I am tired of reading about Central Banks this morning, and decided to turn to this Post by JP. The Central Banks are still pouring Money into the Markets, trying to forestall a rupture of the Mortgage Underwriting system. This Post shows that year-over-year increase of the Producer Price Index was up 2.4%. The Fed will be less likely to cut its rates, of course, but what is wrong with this Picture. The Fed is pumping in Money to prop up the Mortgage structure; this can only mean that the most Resource-intensive Construction practice will continue unchecked, so what is there in the high Rates which impedes the economy as much as underwriting One-Third of past Housing construction?

Economics has a theory called Creative Destruction. Fed monetary policy has the practice of setting high Rates, an element designed in purpose as a form of creative destruction. The idea is that Operating Capital becomes more expensive when the Interest rates go up, so Opportunity Costs are higher for Business development, while high Rates slow Consumer Purchase through Debt aggregation. Now We find the Fed buying Mortgage-backed Securities to float the Mortgage Market which had overextended Credit. Is it only Me, or do Others perceive the Conflict of Policies here?

Consumers had financed much of their Consumption through expansion of their Mortgage liabilities under Conditions of rising Prices for Housing. The drop in Home Pricing brought on the Mortgage Crisis in the first place. The Fed dumps Money in the Market to cover the Mortgage Crisis, with the implied Promise that they would absorb any Losses coming from the bad Credit extension. Is there anything in this Policy which inhibits Consumers from financing their Consumption through Mortgage expansion? Is there any admonishment to Mortgage Lenders to restrict the practices which caused the Mortgage Crisis in the first place? Is there any vicious impediment to Contractors, to enjoin curtailment of their Construction Schedules?

The PPI will not reduce significantly without contraction of Industry Construction Schedules, no matter where the Interest rates are set. Mortgage Lenders will not cut the size of their fees, without Shortage of liquidity or lack of Mortgage potential; as constant Intake is their personal Income. Investment Depositors are going to underwrite these Mortgages, as long as the Fed will guarantee Coverage of any losses. Greenspan previously mentioned the Fed was losing control of Monetary policy because of these Mortgage-backed Securities and other later-Day financial instruments. I don’t think he even came close to the actual magnitude of the Problem. lgl

Theory of Markets

John Paul Koning has a very real Point in this Post, and one which will come around to bite the Fed. The Fed will probably need to permanently purchase the Mortgage-backed Securities, if the quality of such Mortgages guaranteed is poor; Markets do a horridly bad evaluation of poor quality Product of dubious value. Pricing will descend easily to Scrap wholesale, and Financial Paper holds the Conditions of only Good or Bad without intermediate values which are trustworthy. An Intervention by the Fed, by its basic nature, must be permanent to regulate the Securities throughout the Period of exercise. Predecessor Sale of the Securities will only renew the Market insecurity.

John Whitehead comes up with another good Post reflective of the power of Markets, both Gains and Limitations, to affect the economy. I agree with John that the Government policy must be to harness the economic incentives, and there is nothing functionally greater that can be accomplished with restrictive policy. Government has never been effective at any practice in comparison to Private industry, except in the arena of Taxation–therefore I even oppose Cap-n-Trade. James Galbraith is correct in the expectation that Private industry will never succeed in Budgeting for delay of current Production, in order to maximize long-term Production potential. Where I disagree with James and Scientists is in the level of Threat existent in Carbon emissions. The worst Situation devised would be some form of desert conditions to some level approximately three times the current geographic amount in my estimation, and Land Reclamation practices are much cheaper than complete elimination of fossil fuels as Energy source.

Alex Tabarrok explores aspects of Markets today as well. I forewarn Readers that they study Alex’s Post carefully before understanding my message. My Stance on Markets states that Participants need neither be competitive or rational, in order for Markets to be efficient. This flies directly against the First Theorem, but is true in my estimation. The efficiency of Markets are dependent on the best employment of Resource and Product. Few Markets are totally competitive, and yet they express a high degree of efficiency. Participants are not rational, if efficiency is the expectancy of highest Profitability; Participants being concerned only with the maximization of their Productive capacity. Here is the key element: Market efficiency is determined by the continuous, high level of Productivity; degrees of Profitability and Rationality being subverted in the pursuit of Productivity. lgl

How History will judge Us

I have been reviewing Economic History at Wikipedia, a relatively boring practice, but seemingly fit for a Sunday morning. I feel an affinity for Thomas Aquinas’ ‘Just Price’; maybe it is only my attendance at a High School named for him. Mercantilism, on the other hand, was nothing but an expanded oligarchy. Colbert set up guilds to regulate national industries, incipient origin of Communism–control of the economy through control of the Workers. John Locke started the practice of Wealth using Government to protect itself from the demands of the less fortunate. Dudley North brought in the Concepts of Trade to achieve benefits of specialization and division of labor. My heart is with the Physiocrats in my own personal belief in and love for small villages and Towns, over mass concentrations of humanity. I favor Adam Smith more for his prior published labor, The Theory of Moral Sentiments (1759), than for his celebrated The Wealth of Nations(1776). Modern Students hear much about the later-day Economists of Note.

Here is the Question I feel I must ask. All previous Works have been minutely examined and defined, errors outlined, and Positives extolled. How will current Economists be viewed by their Successors?

I find incredible difficulty with the strict allegiance to Free Trade. Opportunity Costs are essentially valid, but there are various exceptions to the Theory itself. Price Fixation varies greatly from Price Theory through the Price-Setting from the Corporate Price Scheduling form of Oligarchy. Externalities invariably damage before restitution is sought, and full Costs never paid. Profit Maximization, itself, has enough holes in the Theory to build an Interstate. There is the dichotomy between immediate exploitation of Opportunity, and long-term safe ecological treatment of Production. It all makes Me wonder if We will be praised or cursed. lgl

A Real Military Posture

Governor Chet Culver of Iowa asks an important question in this article, "While the overwhelmingly majority of Americans want to bring the troops home, the question is what is the plan beyond that?" Everyone in the political game likes to imply there is no option outside of American troops serving at Targets in Iraq and Afghanistan. Is it just Me, or does this sound relatively stupid?"

Here is my immortal Plan for what comes After:

Step 1: Get the Troops out. We got them in these places in a number of Weeks. I am sure We can plan and carry out an exit with like rapidity.
Step 2: Tell all Participants that American Air Power will be used to level the Playing Field in the issue of genocide. Americans may have difficulty with this Notion, but genocide levels with American troops on the Ground is not so low as there would be any difference.
Step 3: Build 3 Operational Task forces consisting of 2 Carriers, Supply, Troop Ships, and Fuel Ships, with adequate Covering Force of Missile Cruisers and Destroyers; each Task Force capable of deploying a Division within 30 Days. The major delay here will be flying Troop Complements in, and Maintenance of stored Weapons systems onboard.
Step 4: Establish Mission Goal Orientation to a maximum Operational Incursion of American Forces of 90 Day duration. Withdrawal will come at end of this Period, whether Mission Goals have been accomplished or not.
Step 5: Establish the Policy that multiple Incursions of Short Duration are much preferable to any lengthy Period of Occupation. It is only a simple Statement that it is easier to blow Things to hell, than it is to rebuild economic infrastructure. The basic Policy to be outlined to the World at large states We will utilize blocking procedures to undercut foreign attempts to injure the United States, or its National Interests. This should be coupled with Statement that We will pay absolutely no War Reparations; if We have to destroy a Nation’s infrastructure to protect American lives and Property, We will not help that Nation to rebuild the potential to again attack the United States.

Do I seem like some cruel, inhuman type Person? I hope I seem so to Terrorists intent on destroying American lives, Property, or Society. Americans must learn that We cannot take care of the World, and the World must learn that We will not waste Money on such a fool venture. lgl

Agriculture

Great Britain spends an inordinate amount on securing their food supplies, something which could be expected in an Island setting; yet, the incidence of deadly disease there seems truly unusual, it again being an island. Another thing which feels wrong lies in the epicenter of Disease-threat to food supplies being focused in cattle. Could there be a Vegetarian Terrorist at Work, or could modern cannibalistic Feeding practice carry greater Risk than supposed? Again, the locale of southern England suggests a potential malignant ill will. The puzzle is compounded by the fact that Cattle are very hardy animals highly resistant to disease, and the normal use of Drugs in the agricultural network develops high immunities. The article suggests the spread of Hoof and Mouth disease came from a Research facility, and if so; it was extremely sloppy Research procedure. I may be paranoid, but there is something wrong with this entire Picture.

Everyone in the Agricultural community is planning for a Record Corn Crop, as Farmers planted the most Corn acreage since 1944. The practice has altered much since that time, Farmers planting a possible 5 times the plants per acre as was normal in the earlier period. This highlights a great danger in modern economic performance. Corn production results in greater soil depletion Today than it ever has previously, where current growth is leeching the Ground of nutrients and minerals. Aquifers are being drained of Virgin water deposits to fulfill current agricultural needs. Persistent Cropping at these levels will quickly defeat long-term agricultural use of the land.

Ethanol production from Corn must be considered an very destructive agricultural practice, and one where overuse of the Land will appear within Our own lifetimes. I have long been an advocate of ethanol production from renewable resources which require much less nutrient value and water, but commercial interests focus on immediate Profit endeavors. This is a very Short-Sighted view, as I estimate that it will require less than 9 years of Corn production at the current rates, to deplete the Soil to levels where Corn production will be cut drastically in size. It is really regrettable in that other Plant forms will not only replenish the Soil, use less Water, and provide greater Poundage of biomass for the production of Ethanol. lgl

The Carbon Debate

John Whitehead and I both suffer from kleptomania of stealing Posts from Greg Mankiw. Read John’s admission of Guilt, and especially the links to Greg’s Posts. What is behind Our great Theft? The real rationale lies in the fact all Three of Us attempt to express why a Carbon Tax is preferable to Cap-n-Trade. It may be that We are simply inarticulate, or more likely, that the Concepts are hard to get across.

Cap-n-Trade thinks to put an artificial limit to the use of Energy, setting an arbitrary limit to the Permits; something which can be amended about as often as One changes his Socks. Permits can be given away, in which Receiving companies automatically are given a valuable tradable Commodity. Permits can be sold at auction, thereby beginning to simulate a Carbon tax, but One which will be passed on to the Purchaser’s Customers, while higher Resale becomes a Profits-Making activity through Government regulation of the arbitrary limit of Permits issuance. It is really hard to get Congressional submission to directional devotion of Tax revenues, when auction inhibits the computation of total revenues generated. The real wrong of the Cap-n-Trade methodology comes in the realistic lack of enforcement: Ex: The Utilities call the Governing Authority on Permit Size, and states, "It is only the 10th of the Month, but Carbon Permits are too expensive, so We are going to shut off Power to LA for the rest of August; so don’t bother raising your arbitrary limit."

A simple, straightforward Carbon Tax settles many difficult problems. The Consumers are still taxed, but the rate of Tax is known and can be cursed; they would be left with the Cost of the Carbon tax anyway. No one benefits from the proposed Governmental tax, and Companies may desire to bear some degree of the tax load simply to maintain Sales volume. This brings up the further point of a visible Carbon tax does impact Consumer decisions, as Consumers hate paying excess taxes as much as Businesspeople; especially when intelligent reduction of tax payment not only reduces taxation, but also cuts Consumption Costs. A further element resides in the ability to devote tax revenues from the Carbon Tax towards Payment of already existent Government Spending, with real Citizen insistence that Politicians leave these Tax revenues alone. It also possesses the fair Side-Effect of reducing Carbon emissions by improved Private usage. lgl

The Imperfect Situation

Felix Salmon does a good job of analyzing the illiquidity/insolvency issue. I still believe, though, that the entire situation will turn basically insolvent, simply because there is too much interlocking debt producing illiquidity amidst Deposit Investors. About a year ago, I made some mention of the Stock Market Crash of 1929 being a over-leveraged Market failing because of Market Calls (at least I think I did). The Situation today does not directly threaten the Stock Market, because the leverage was not carried by the Market, but by financial institutions who had no business leveraging non-Collateral loans. The problem of illiquidity comes from legitimate business lacking Operating Capital through financial institutions being caught short of Cash.

Understand that Production potential still remains because Consumption Demand holds relatively constant. How long this Condition will hold force depends on the ability of financial institutions to clear up this mess. Another Problem arises in that Government has little ability to intervene, as the Treasury would have to issue greater Note issuances to capitalize Government contracts, and Fed purchase of Treasuries would raise their Pricing as Domestic Demand has rejoined foreign subscription. A recent appearance of EU subscription of American bad paper may seem like a panacea, but repayment of this debt is mandatory–else EU will be drawn into the illiquidity trap; while the delay of the Crunch will lead to inefficient clearing by American financial institutions. Inadequate clearing of the bad debt is the true threat to the Economy, and delays in that process will adversely affect the Production cycle. lgl

Blogging and the LAC

Dani Rodrik asks what a blogger owes his Readers, specifically, how he should respond to Comments. The Answer is simple for me, but may be more complex for Others. A Comment which is rational and expressive should be forwarded, whether the blogger agrees with the assessment or not. Commentators have a right to have their Opinions expressed, if the Comment follows the etiquette of the Net. I receive relatively little Commentary, mayhaps this means I am little read, but want to forward all intelligent Opinion and assessments.

I am coming up on my Thousandth Post on this blog within the month. Like most efforts in Life, it is a Decision Time on whether to continue Posting. I throughly enjoy Blogging, and yet this might be a fault, as I have not engaged in serious Writing since I have started blogging on 11/02/2004. Students should realize such a Decision as whether to continue is a common issue, be it concerning a Job, any activity, or even a Relationship. It is always a Personal Issue, and should be approached analytically. The difficulty resides in the sense of loss any long-term activity will engender with discontinuance.

Mark Thoma gives Us an article by Lederman et al, where I find functional difficulty with its Content, but it presents material I believe my Readership should be conversant of its existence. Reordering Latin American economies to Materials recovery and IT labor places the former labor into self-destructive employment as Material resource is used up, and the later labor into a challenging labor market of eventually diminishing labor force. My primary Concern, though, consists of the delay component involved in the creation of domestic markets. Dependence on foreign sources for primary Goods, even though they are initially cheaper, will retard long-term Production Capital and Infrastructure. It is all a Question of where, and in what, should Investment Capital be devoted. lgl

Economic Education

This article proves that bureaucrats lack a precise definition of proficiency. The fact that 12th Graders could recognize the obvious solution to simple Problems might not exhibit great economic skill. I did not, but could have, organized a Spread Sheet table for the Cost of feeding cattle when I was in the 8th Grade. Was it easy to do? Try it using 3.7 lb. of Protein and 6lb. of bulk Hay for each pound of Gain, Corn at $4/ bushel, Hay at $47/ton–desired End 300lb. of Gain in 95 Days. Hint: Corn=about $5.23 a Hundredweight.

David Leonhardt presents a good article on why Preventive Health Care will not cut Health Care Costs substantially. The Reality of the situation is that Preventive Care is only a Time Delay function, and an expensive one. People are all subject to the same illness, and without Accident or serious Injury (both expensive in themselves), will age to the point where they will be afflicted by the same illness as all others. The real Problem works out in the final analysis to a Question of how much dedicated Care We are willing to allocate per person, whether on a Universal or Selective basis.

George W. Bush promises a Veto on any Congressional measure which would constitute a Tax increase. He may not recognize the full Content of his economic message. He has validated a program of increasing national debt, as current Tax revenues do not cover the already passed Spending measures. This is not holding down Government Spending. He has taken no action to forestall the COLA system of most Federal programs, thereby insuring that Government Spending will go up while Tax revenues are static. He has never advocated, nor has any of his potential Successors, any systemic program for reducing the huge increase of Debt which his administrations have generated. His basic Statement simply established that he would use his Veto power, in conjunction with his political support in Congress, to insure that a defective Tax policy would remain in place throughout his Operational sphere.

The degree of honesty involved in the Occupation in Iraq might not be valid in a Post about Economic Education, but then again, it could have extreme relevance. The Supply of the Military Mission in Iraq probably stands as the most-expensive economic product purchased by the American People in the Bush administration. The veracity of the Baghdad Diarist directly challenged the quality of that Product. The Results of the Army Investigation is overwhelmingly likely to have been dictated from the Top down. There is always the potential for False Advertising in any economic endeavor. lgl

Drunks Rule

Gregory Clark suffers from the mistaken impression of many economic historians that the industrial revolution produced the affluence of some Countries. This all revolves around the common belief that it was the development of Middle Class values which spurred the advance of affluence. I do not grant allegiance to this typical doctrine. Long Work hours started Centuries before the first signs of a Middle Class, basically occasioned by a Feminine refusal to endure unnecessary occupancy in crowded Housing except for Meals and Sleeping. The Concept of Village Inns derived from cold and rainy days, coupled with the disposition of Females as already stated.

The Village Inns was the primary instrument of economic advance, as the Concept of Keeping up with the Jones origins in the bragging in these early businesses. Deviant economic practice was derided if proven a failure, imitated if proven a benefit. Those nations later expressing affluence had, in the early years, adopted a pattern of experimentation at the Village level; non-affluent Countries had not adopted the Village Inn model, instead developing Traditional Shunning practices to deviancies from the Village-accepted Norms.

The practice of Education evolved the culpable skill exercised from Those who could Read and Write in Village Inn debate. Here again, successful practice was imitated. The desire to Read and Write became common to the Villages, and functional group Schools began to be organized in the Villages; it being the natural outgrowth of Village Inn debate. Affluent Nations all possessed Public School systems (whether Government-funded or Private) initiated from the dawn of the Industrial Revolution. Most non-affluent Countries in the World today still lack a universal Public School system which all Students must attend; the Worst Offenders often demand restriction to religious schools which indoctrinate against the principle of Change. The lack of an educated Peasantry, not development of a Middle Class, remains the real constriction of advancement. lgl

The Majesty of the Raj

William Polley rightfully criticizes attempts to make Judgements about the degree and type of Carbon usage, suggesting We simply apply a Carbon tax, and let Markets assess the proper distribution of Carbon emissions based upon Profitability–I guess; Polley meanders a little in this Post–most unusual. I will add my less-than-Two Cents. The Scheduled Routes of Public Transportation, if designed to maintain levels of Public use, will inevitably be cheaper than Private Transportation because Route intervals are determined by the Profitability of maximized traffic. Systemic addiction to mandatory Period service at low-traffic intervals will bring low Profitability and high Carbon use rates.

Is Greg Mankiw in search of his Inner-Self? Or it simply a self-serving effort to dragoon Students to the Economic profession, with the insidious reference to the higher Salaries of the Profession; a hyper attempt to raise those Salaries. The later explanation would seem more inline with the ISTJ personality type. I have always held Economics to be the attempt of Businessmen to turn a Profit from the Academic world; a clandestine bunch who are not primary Consumers, and exhibit suspicious behavior which Homeland Security must supervise.

Mark Thoma and Matt Miller focus on the Conservative claim that it is all a Populist agenda. I may risk the possibility that I may be subjected to surveillance, but must ask: What is wrong with Populism? It is an idea somewhat related to the Concept that All Men are created Equal. Both Populism and this Concept are in error, but it would be unseemly to make too great a Mention of the fact. People try to do the best they can, and simple Intellectual or Structural failings should not be accounted against them. I know I get aggrieved when Critics whine about my lackluster performance. lgl

Now How do I pay my Bills

Mark Thoma gives Us an argument by Ken Rogoff, who suggests that Capitalism may be doomed by the rising Cost of Health Care, under the condition of Universal Care. I believe the later is doomed by the increased likelihood of Pandemics spawned by Population congestion. These epidemics, though, will also doom Capitalism as We know it; Free Trade replaced with localized Cottage industries of high technology. A major Outbreak of one of the deadlier little critters will turn Trade into the transfer of electrical impulses. Read Rogoff, he will tell you what will happen if People actually don’t get Sick anymore, simply wear out.

Mike Shedlock has written a fine article on the status of Employment, with proper discount of the BLS report. Employment is likely not rising, but I do not possess the fear of Unemployment which Mish does. Of course, I also do not fear the Mortgage Wash which will come from
overleveraged Homeowners. I estimate it will require about a 6% Mortgage failure (with actual foreclosures) to dump the excess House Pricing since 2004. This may not be a bad thing, if Employment numbers stay relatively steady as I predict.

This NYTimes article by Peter Bernstein should finish a blase attempt to energize myself on this sleepy Sunday. Almost Everyone in the economic profession will state that the Indexes are off big time, and that Inflation is severely undercounted. The Reader must recognize that this is as much Politics as Economics; Pray do not exclaim that Economists do not engage in Politics. The only true Index on Inflation would consist of a Test pattern of American Households, establishing their total Value of Consumption purchases year over year; requiring a minimum of 10,000 Test Households, and only testing their actual Purchase prices on new Production items. It would also be valuable as Tool to mathematically list the volumes of their Used Item purchases in the Secondary markets; this to evaluate their varied use of these Combination markets (New and Used) to stretch the value of their Purchasing Dollar. Now to get a $20 million Funding allotment for the Program. lgl

Worker and Investor Woes

The American Prospect makes a good argument against outsourcing Government labor. The Reader should know that the primary rationale actually in use in the privatization drive was neither Government size reduction, or saving of Wages. The Republican administration has never shown indication of real desire for Budget reductions; downsizing consisting only of introduction of Profits-making opportunities for Contractor companies. These forms of Employee reductions, whether in Security, IT, Tax Collections, or Social Services, has never been as effective in provision, and generates greater Operational expenses. There also exists an exterior threat of Contractor Sales of internal information, for the benefit of themselves and purchasing parties. Current Contracting practice functionally produced actual excess Costs with less value for the legally-sanctioned efforts involved.

The Markets have been real dicey for the last two Weeks. Much of the Market is extremely worried, but should the rest of America worry excessively? The Answer is Yes and No. Too many Americans are invested in the Markets, and Those not, are too deeply in debt to oversized Mortgages. Consumption has long been financed by Credit, and the sources for this Money is tightening up with higher Interest rates. Is it the time to really begin to worry? The Answer is Not Yet.

Relevant Facts: We have been awash with Cash for too long, all of it expecting a high rate of Return. These excessive Expectations have needed to take a Bath for a long time. The Markets have not reflected actual Economic forces for a long time (I call it Paper Inflation, though most everyone else calls it overpriced Stocks and Instruments). The real Problem here resides in very Profitable Business operations which have been finding little opportunity for expansionary Investment in the original source industry. They transfer major financial assets to Markets, but with the Expectation of achieving the same rates of Profits as found in their original Business production. Traditional practice suggests that long-term Profits in the Markets will be only about 40% of Normal Production Profits; it is all a question of actual Participation in the Production process. This pursuit of Normal Profits for Business production in the Markets has led to whirlwind Trading in the Markets, and inflated Stock and Bond pricing.

Read Carefully Now as I am not saying these circumstances will occur, or even are likely to arise. The Markets could probably lose about 50% of their current value, without adversely affecting the actual Economy, though there would be a massive Shift in Consumption practices. Employment is not extreme, and can be curtailed only with sharp cutbacks in Production; a Situation unlikely with access to World markets and high Consumer Demand–even with major reduction of Splurge Spending. The major problem Today remains Investor refusal to accept and absorb their Losses and move on; those Losses being only Paper values never able to be realized. lgl

Rationale for a Sheep Dog

Greg Mankiw attempts to point out the three most important Concepts in Economics. I first must say I like Ricardo, find Demand and Supply fascinating, and discover that externalities have less interest for me than expected. On the other hand, I cannot find Opportunity Costs to be a God, as does John Palmer. Am I being particularly quarrelsome, or can I actually find some fault with it all?

I must say I have never found Markets to be terribly efficient. Markets are a mixture of Knowledge levels, always set to fleece the Suckers. The relative level of inefficiency in the Markets can best be judged by the degree of Commitment Contracts covering what quantity of a Resource or Product; the greater quantity given over to Contracts, the more inefficient is the Market. The allocation mechanism of the Market also remains a poor medium, one where devotional purpose is discarded to be replaced with Profit Motive. Best allocation is not guaranteed by a greater Profitability shown. A Case in Point is the huge devotion of resources to the Health industry, where long-term Outcomes are universal Failure, and intermediary Outcomes are probably mediocre by comparative industry standards. Worry about Markets and their ability to support Business formats which are obviously deficient.

Externalities are an excellent Study reference, but consider the relative impact of them. No matter what Externality which you examine in its economic context, invariably One-Quarter of the damage of any economic practice has already been done, and industry’s major Concern is avoidance of the Cost of continued damage awards. Business spends significant funds to extending litigation of Externalities to as great a length as possible, and stands entirely resistant to efforts to pay for previous damages (any Point prior to active Agreement). It is an wonderful variation of Three-Card Monte.

Opportunity Costs create an oasis for Pirates. Business, without Regulation, invade any sector and every resource in the Economy, reaping (or raping as is your preference) any Profit which can be pried from the Woodwork. There is also serious distortion created by the philosophy of realizing Immediate Profits, to the detriment of long-term Productive Gain. Unregulated Comparative Advantage fairs as poor Henhouse, unless limited to strictly Productive ease. All other Outcomes evolve into starving Labor, or defrauded Consumers. Economic theory in adorable in construct, but Business corruption of its principles quickly develops an economic Cost of its own. lgl

The Wrong Paths

Mike Shedlock (Mish) always presents good material, but it sometimes hard to interpret; this Post a good Case in point. His main theme, I think, consists in the Statement that We are entering a consistent pattern of counterproductive failures, one where the Profitability of Production is being reduced sector by sector. Companies and financial institutions are scrambling to maintain their levels of Rolling Capital. I believe Mish is wrong in his Thought that the Minimum Wage increase will be bad for Employment, because even if there is a Recession–still very much in doubt, Recovery will come easier with a higher Minimum Wage; it does create a more widespread Consumption market. I agree with him that there is definite excess of Shipping Capital, and will personally suggest squeezing Shipping Profits Margins will adversely affect the Employment market; there is a real Problem in replacement of retiring Drivers. Mike’s ideation that Corporate Profits will disappear in the coming Quarters does seem inevitable. No one would go as far as I in this assessment, but the economic theses on which the Bush administration based its economic policy has been flawed; perhaps even to the point of suppressing Inflation to uphold Consumption, as free-wheeling Inflation would have cut over-Consumption, excessive financial debt, and over-Capitalization of successive sectors.

Greg Mankiw finally comes up with a Theorem which I can agree with, and its inherent truth is undisputable. What he fails to clarify is the nature and structure of Cap-n-Trade; this has real importance because Corporations can manipulate the Caps through political lobbying so as to adjust the benefits of Corporate Welfare attained. A Carbon tax is set, understood, and allegiance granted it by Public awareness of the Problem. No one but Corporate Executives understand the real levels of Carbon Credits necessary for Production, and they will manipulate those Numbers for their own Corporate advantage. A second disadvantage of Cap-n-Trade is the incipient delay in it, a Carbon tax could be implemented by the next President election; a Cap-n-Trade system will take years to devise.

Arnold Kling once again points to correct critical academic evaluation of professional arguments. It is well worth a Read in itself. I personally use a different approach of belief that Everyone thinks I am wrong, and if I write long enough, Someone is going to be proved as being a damned Fool. I would personally suggest that Readers follow Arnold’s proscription, as it would quite probably lead to a greater advancement than my own antics. lgl

Why should Trade benefit Everyone but Us?

What does a man do when he opposes current legislation in Congress, but also stands against the economic policies advocated by the Bill’s opponents? Free Trade is not the panacea for vast growth; actually, Trade today could not dramatically increase in Volume, Air traffic, Sea traffic, Harbor facilities, and Airports restrict any major increase in Volume. Any perceived increases from this Point in Time will be more Inflationary than Technological or Provisionary. Any Specialty Advantage of geographic locality, if ever found, will more likely displace current volumes of Trade, leading to the reconstruction of domestic Production. Any reflective Projections suggest that any World Trade which will increase comes from Production wholly outside the United States, delivered to Countries other than the United States.

What bothers me about Free Traders as exhibited by these Signatories comes from their total rejection of the role of Regulation in Trade. They oppose Tariffs in any form, rile against any forms of Quotas, and deny any potential advantage in protecting Trade-sensitive industries when that Protection can be without major alteration of Trade flows or World prices. They tend to ridicule the Concept of Tariff compensation for the added domestic Production Cost of domestic taxes, granting domestic industries competitive Marketing status. I’ve heard rants against the Smoot-Hawley Tariff law until it is coming out of my ears, but it was only One tariff system out of a probable 6,000 such tariff systems passed in the history of this World. The greatest majority of those tariff system worked with relative effectiveness, and the current World Development was engineered inside their Boundaries.

I favor a uniform Tariff, based not upon type of Product, but resident solely on foreign production; whether in Unit or Part of Production. I see no Need to tax any form of foreign materials utilized in Production; though One could be established for the excessive use of foreign Energy fuels. It amazes Me that current Economic doctrines renounce the Traditional practice of regulating Trade for the furtherance and betterment of the domestic economy. Helping foreign economies to develop Industrial strength may be laudable, but why should there be this rejection of beneficial outcomes for domestic industry? lgl