Business Morality

Ben Stein basically asks what is socially responsible Investing, and why should We engage in it. The idea enjoys much favor among a certain class of Investor, but it place the emphasis in the wrong place. We must not ask what type of Profits are acceptable, it only leads Us into a vicious circle of Changing nothing, while costing the Profitability from the best investments. The direction We must adopt is the definition of responsible Corporate leadership, where Military Weaponry meets its Design specifics under Combat Conditions, understands that the Incursion into Iraq was based on World Oil Price maintenance rather than protection of the flow of Oil, and that effective Securities regulation require a universality of enforcement. When these Concepts are firmly embedded in Our mentality, We can begin the difficult process of correcting the Excesses of the Business world.

Louis Uchitelle attempts to explain that the UAW Contract Agreement with GM will not even begin to sell more Cars. It was a very good effort to explain why GM basically wants to move their production Overseas. It does not mention that the Contract Agreement granted GM an escape from the Pension obligations of previous Labor Contracts. This Escape brought GM release from Labor liens on GM Profits, and will not guarantee American labor any Job security. Dissidents to the new Trust might try a Court challenge, citing a denial of Contract obligations without a recognizable financial consideration forwarded. The trouble here lies in the fact that Republican-packed Courts will not accept common Contract litigation obligations involving Labor issues. This article, though, would state I am being too harsh in this Assessment of the UAW/GM Contract; I still wonder at the loss of $20 billion for a Guarantee to keep the 16 Plants open, when GM needed those Plants anyway to meet adequate performance in their Distribution network.

Joseph Stiglitz reviews Naomi Klein’s new book: The Shock Doctrine. The primary thesis of the book must be considered Wrong, but as Stiglitz comments, there remains too much reality is the circumstantial evidence. He attributes the basic trouble which both Klein and himself witness as wrong turns, faulty policies, and basic unfairness. I would say there is a much greater evil at work; not a great Conspiracy, which it never has been, but a lack of ethical morality on the part of Corporate leadership. The Later believe it is Right to do Anything where they can escape detection, while they lack a real sense of humanity. Klein does not come out and flat state that it is all the fault of the same Social Set who brought Us the McCarthyism of the early 1950s–though she should have mentioned the personnel transference to the Corporate world. lgl

New Growth Incentives

Japan will create the largest commercial bank in the world on Monday, when It takes Japan’s Postal system Private. The Plan is to split the Postal system into four Companies which will eventually be separated. Pressures have been mounting for years to allow the Plunger mentality of the Corporate world to absorb the $3.03 trillion in Reserves into their manipulative policies. The Changeover will ensure that Japan will join the United States in allowing no safe haven to keep funds free from Market stress. Devotees of the Market and Rapid Profits insist on a total Armageddon, if their flow of wealth is not maintained. The Reader might reach the Opinion I oppose a too-integrated organization of the financial structure, and they would be very right. The worst hazard for the Japanese depositors, though, will undoubtedly be inability to pin responsibility for the security of their Savings on Anyone; I will assure that the good, old-fashioned Run on a Bank will live in Japan as well as Britain.

Loren Steffy presents another example of the 3-Card Monte practiced by the modern Corporate world, this time in the arena of nuclear power. The new Plants are supposed to be cheaper than the old Plant to construct, simply because of the lack of regulation in the construction effort. The Public relies on the Honor system among Corporate Contractors to assure that the places will not melt down, and this is somehow supposed to suppress electrical charges to Ratepayers. It is one of those ‘divine mysteries’ in How the new setup will bring relief to Ratepayers, when Construction Costs are almost double today than when the old Plant was constructed. Hint: Expect that Maintenance Costs will be higher by a factor of 5 upon normal Operational Running of the new Plants, simply to avoid a 3-Mile Island Scenario.

Dani Rodrik obviously lacks faith in the great Power of Markets to raise the standard of living of the Poor. Food Prices will be better when the Corporate structure assumes the distribution system, diverts about 12% of the arable land to ethanol production in their envisioned final form, and route all Food Service; and all this at only a 14% demanded Profit. Hedge Funds and Speculators have already made great strides in the effective establishment of a sound Market in the Commodities arena. The Poor will obviously gain by the interjection of Third Party monopolistic Middlemen into such a system; granting lower Prices to the rural Poor for their Product, and much higher Cost Product to the urban Poor. All the Poor will gain all the advantages of American Dieters without the need of Will Power; even American Dieters will gain added incentive from the emptier wallets they carry. lgl

Signs of Corporate Management

China may be the first nation, as it has been foremost in rapid economic growth, to run out of fresh water. Chinese Studies have determined almost Three-Quarters of the aquifers of the North China Plain are contaminated to some degree, and the Water Table is dropping by more than a meter per year. The article cites that China has about 7% of the World’s water resources and 20% of the Population, with Four-Fifths of the Water in the South. Diversion of water North in China does not alter the actual ecological balance of overdraft of water due to necessary farming and overpopulation. The real Solution of Population reduction will not work, Some get real grouchy about this Right to Life issue. I could suggest massively numerous underground waste water aquifers, where water is force-fed through Sand and Gravel beds until the remaining materials of Waste can be composted; it would require concrete sidewalls slanted to a small opening, water forced-fed by heavy Pumping, and covered by concrete roof covered with sufficient Topsoil to be arable for Cropping–8-12 feet.

What is wrong with this discussion? John Carney would cancel Shareholder rights, simply because special Shareholder interests might seek their own personal agenda of Funds distribution, in conflict with Management desires. Carney seems unable to recognize that there can be definite differences between Management and general Shareholders’ desires, and an adequate Profits distribution Schedule is high on the list of all Shareholders’ desires. These Stockholders have an overriding want of beneficial Return on Investment, plus an aggregation of Stock value; they particularly unconcerned about Corporate growth per sec, not enjoying much personal Gain from that Growth. Management, on the other hand, adores Corporate growth because of the gain of their own Management power, and because they can award themselves most of the value of that growth through Salaries, Bonuses, Benefits, and Stock Options and Grants. Justification of a monopoly is never Right, even when it is unconstrained Management practice.

I heartily dislike this type of article, basically because it ignores the economic reality of the situation. Importation of Slaves is very expensive, and functionally impractical with the goal of supplanting Minimum Wage labor. I am not saying that Slavery is not existent, but it is most concentrated in specialized forms of expensive labor–like Prostitution. Most Slavers in the unskilled Trades probably are good-hearted Individuals easily susceptible to a hard-luck story, who allow unsafe Housing standards, and probably even aid in transference of Money home to their Workers’ families. The hard-core Slavers need to be separated from the Sheep, and pursued for their violation of Human Rights. Coating all Immigration Violators with a Paint of Evil does not help, and confuses the search for the actual Slavers. lgl

Environmental Solutions

This article by Ronald Bailey may be a Must-Read for both Environmentalists and Economists. I personally side with Richard Lindzen in his belief that the Earth is self-regulating, though I also believe that humanity may be overburdening the ecosystem involved. Reality states that Carbon sequestration policies hold the only value for reversing current climate ailments, along with measures to reduce Carbon burning (new Energy systems will never come online at sufficiently rapid a rate to serve any purpose). Carbon sequestration also promises the sole means to reduce soot. I again reiterate my Plan to line Road ditches with Bushes, which when properly cultivated, will present sound Road barriers and Cuttings for a fuel source consisting of surface Carbon, along with massive sequestration of Carbon.

A scientific fact I wish was verified is the Depth scale of Oceanic Temperatures; Ocean and Wind currents could possibly be altered by simply having platforms pump water from the depths, this creating a draw-off of Heat from the Arctic regions. These Pumping systems could easily be Wind-powered. Some have informed me that We could attain a 6-8 Degree differential. The Cost would be unknown, but I would guess that viable Rigs could be built at about $2 million per Unit, and any effective effort would require less than 8000 Units. This Plan is nothing but a uniform spread of Temperature throughout the Oceans, without a current Viability Study on potential Environmental damage to the Oceans.

Greenhouse Gases in the atmosphere display a totally different set of circumstances for Solution. It is clear that some form of catalytic coagulant must be introduced into the upper atmosphere, to bring these Gases back to the surface in some form of debris rain. The amount of coagulant added must be reasonably small as to facilitate transmission to the upper atmosphere, while highly reactive so that huge amounts of Greenhouse Gasses are coagulated and fall. Many people would say such a system would be prohibitively expensive, but Coagulant could be mixed with heated air in Hot Air balloons, the later sent to the upper atmosphere, and then a Timed Pressure release of the Gas in the balloon, both to bring the balloon back to Earth and to release the Coagulant. The heated air of the balloon may even aid the mixture in its concentration function. I have always advocated sound, cheap solutions to Our Problems, because of their ability to be easily and quickly funded. lgl

Inflationary Pressures

Today’s key issue may start with this article by John Wasik, followed by this Commentary on the article by the Big Picture. All of the Message in both Pieces was intrinsically true. The Scenario may be best presented in the sphere of Household Capitalization, where the evaluation is adjusted for the loss of value of the Dollar. Another obvious discrepancy resides in the Government’s refusal to separate Health Care and Pension benefits Costs from the rise in paid-out actual Wages. There has been much juggling at the BLS to hide distractive elements from Public view.

The real culprit behind the mess is not actually the BLS, though its leadership has not fulfilled its duty-bound responsibility to provide accurate, understandable numbers. Congress, at the behest of Business Interests, has provided a Tax format allowing Business to obviate the destructive impact of Inflation on their Profits structure; but the manner in which it was conducted, threw both the actual impact of both Tax and Inflation on the Consumer and Households. Reality states that Profits have been running in excess of 300% (Some would claim 500%–like me) of the Inflation rate, and has been doing so for a great number of years. Some people (at least Me) do not believe that Inflation can be reduced under any Construct model, if the Profits of Business enterprise exceed 300% of the Inflation rate; this being a ratio relevance with the consideration that Business Profits are an additional source of Inflationary pressure. Remember here that this is an Estimate of the reduction in the rate of Inflation, not a Statement that Business Profits cannot exceed 300% without an increase in the rate of Inflation.

The above analysis remains one of the reasons why I am more sanguine about a potential Recession, though I still do not believe a Recession is imminent. It is also the rationale why I find that Fed funds rate reduction so disappointing. It not only released the funds necessary to fuel the Inflationary pressure existent in the Economy, but allowed the nominal Profits of the past years to escape reduction to major degree. I have come to the conclusion that those massive Business Profits of the Past are exactly that balloon which must be reduced, in order for Inflationary pressures to be vented. lgl

How to Get Where We Want to Go

I do not believe that Don Boudreaux is correct in his Mosquito analysis, though I believe he is absolutely right about the increasing Costs of Oil Recovery. I bet the Reader thinks I am going to delve into a boring discussion about Oil, Oil prices, or Oil Recovery Costs. Wrong! I went clear off the deep end with flights of fancy, and conceived of burning the most abundant natural fuel existent–Seawater. It would take only electrolysis of raw Seawater to produce Hydrogen and Oxygen, and to concentrate the slurry for burning in a Hydrogen/Oxygen–fired furnace. Now, any Physicist will tell One that the Energy exchange between Hydrogen and Oxygen would be a zero-sum ratio, without gains or losses; but this is without examination of the BTU release from the burned Salts in the Seawater, most of which contain high levels of energy release under Oxidation through burning. It would simply require simple experimentation to find the highest Temperature burn level of concentrated slurry, the preparation of excess Oxygen by electrolysis, and a methodology to turn the excess Hydrogen into Helium or Water. The Reader must be glad I never finished my Engineering degree.

This Post again made my mosquito-infested blood boil. I knew that the Rich were getting along better than I was, and it is the ultimate defeat of the ‘Trickle-Down’ theory. The Reader who has difficulty understanding diffuse issues like myself will be warmed to know it is all about Wages staying ahead of the Curve of Inflation. The Later is an Average of Price increases in comparison to previous Prices, but that Average affects practically all who buy anything. Wage Increases, on the other hand, retain a very Personal nature, affecting each Worker differently. Those who face a empathic Management (best if you work for yourself) find little difficulty in staying ahead of the Curve of Inflation, but pity Those of Us who must confront a relentless Management quite willing to make a Profit off of Our misfortune; this type of Management are far too often among the Rich.

Andrew Samwick and the Treasury Dept. may believe that the American Public is unaware of the present dilemma of the Social Security Fund; though they need no further Papers to explain that these Programs are too Expensive under current Market conditions, and that additional revenues will be necessary to sustain the Expenditures. I personally would not further afflict the Business enterprise and Employees with greater taxes from Payroll. I seriously suggest the Solution must kill two birds with one stone. My Proposal is to introduce a high Carbon Tax, whose total revenues would be devoted to properly fund On-going Social programs, where Carbon Tax revenues will be immediately vetted back into the Production cycle, and the Payroll deductions will continue to build the long-run Social Security Trust Fund. Now to find ways to forestall Government from spending the Fund, and instead invest it through the Banking system. lgl

The Trade Advantage Argument

Robert Driskill wrote a good Paper(pdf), and I decided to read it, because of the Thoughts of Dani Rodrik and Arnold Kling. It will inevitably led me into trouble, as I feel I must place my own impress upon the Issue. The confusion of the Issue resides in usage of the Ricardian Two-Good model in the first place. Understand that the Ricardian model is a formalization of an efficiency model which expounds methodology for compressing Production inputs in the Production process, in order to attain a higher rate of Output at less Cost. It works equally as effectively internally as externally, and will carry over into the arena of technological advance theory as well. One does not understand that the Ricardian model will work in the periphery of Trade Advantage, though Most assume that it will work effectively.

The basic Argument of Trade Advantage necessitates a Gain in national good; whether it is a discussion of an increase in Gross Domestic Product, a rise in the average standard of living, or the average Capitalization of Households. The Ricardian model teaches Us a methodology for reduction of Production inputs in constructing greater Output, but actually attacks most principles of full employment theory–calling for less Labor, less materials–again less Labor, and actual higher Pricing–due to additional Transportation Costs, greater Distribution and Marketing Costs, etc. Exterior Costs are always entailed, due to multi-national Marketing and the Accounting Costs of managing a multi-national business. These Costs are all-important in the Trade Advantage decision process, as the Price Markups lack real labor-intensity. The upshot of Trade basically results in a necessary sophistication of Labor Skills, while at the same time, reducing the resultant labor required.

Arnold Kling postulates that free trade is justified because it is essentially Voluntary. Robert Driskill believes, as does Rodrik, that there is inherent advantage in Trade, but that Economists fail to adequately expound those advantages. I would take an alternate position of suggesting those Advantages are not highlighted because they do not exist, in all too many circumstances. My position would not matter, except for the belief I possess that Free Trade practice will lead to long-term degradation of Living Standards; a factor hidden in the Short-run by wide sweep of new Products and Services generated by open Trade. Perhaps the Driskill thesis should be restated as the real difference between Trade Liberalization and Trade Advantage. lgl

American Practices

Someday I am going to make a Complaint about the favoritism shown Our grandchildren in their higher Education. I would have liked a Ranch-based MBA, if it had been heard of at the time of my formal education. The Program at Texas A&M, though, may well even miss the boat; future Ranch Managers may have to understand how to get Two Cuttings of Specialty Hay for Ethanol production, with the rendered mash returned to Ranch Feedlots integrated with Ranches. I know for a fact they will also lose another potential High Gain potential for modern Ranching, if the Program does not include Management of an integrated Transportation network for their Product; the modern Ranch hand must be a licensed Commercial Driver to gain consistent employment, and Ranch mechanic facilities must match most Private Sector Services. It is in these areas that the real Profitability of Stock-Feeding appear.

Thomas Friedman hit the Nail on the Head with this Opinion, even though We are in the Age of Nail Guns. It is also the Problem of China, who is using cheaper, out-of-date technology to attain the growth Communist leadership must introduce to retain control of China. Perhaps the greatest factor in China stands as the necessary growth of Employment Rolls. Communist leadership can produce Red Guards or Jobs, with little flexibility between the extremes. Both Public and Private Sectors are stressed in this Country to absorb the yearly Graduating classes in the United States; China wishes it had only to deal with the American Problem. Do not entertain feelings of superiority as Americans, as We have real Capital-Stocking issues, and a tendency towards Corporate fascism.

Here is a Post with great relevance and little Point. Canada does get better medical results for less Money, and with more universal subscription of medical services. The actual Dividing line between the two systems is not really the quality of health care, but the Profits distribution system between the two Countries. Canada considered Health Care to be a Public Sector function with only a minimal system of Profitability within the sector, sufficient to cover Expenses. Canada imposes the constraint that all medical facilities be fully employed through maximized Patient loads. The American health care system would maximize the Profitability of the sector, with excess Pricing and less utilization of medical facilities due to the high Pricing. We are actually talking Apples and Oranges here. Canada wants maximized health Coverage, the United States wants maximized Profits margins; Canada get universal Health Care, the United States gets bloated medical salaries, extreme Drug Profits, and half the Population unable to afford Health Care. What I don't understand is how Waiting Room Times are longer in the United States. lgl

Politics and Fedspeak

Greg Mankiw asks a very important Question: Where is the exact line to differentiate between Public and Private Information? The Bookstore, The Coop, went to the Expense and Labor Cost of finding the exact textbooks currently required by the Instructors at Harvard. Another point, though, consists of the limits of behavior that a Bookstore can demand of its Customers. The Bookstore’s contention was the individuals were not Customers, but Competition who were utilizing their facilities to advance their own business format. I would side with the Bookstore, and suggest the Website go to the Source, and ask the Harvard administration for a proper Reading list at whatever Cost the Administration places on the Information. On the other hand,
I also believe the Bookstore over-reacted to the stimulus of Competition, estimating that the total Cost to the Bookstore was slight loss of revenue; something which should just be accounted as normal Cost of doing business. The Bookstore could well attribute it to Advertising Expense, courting Good Will among the Student Body.

Caroline Baum churns out an excellent article, but one which is probably unfair to Alan Greenspan. Anyone who has spent a lengthy Period in the Public Eye cannot avoid the stigmata of personal reaction to past on-going policies. Greenspan faced almost universal pressure to advocate some degree of fiscal policy for much of his reign. The development of his skills with ‘Fedspeak’ amplify his need to limit his intrusion into areas where he felt the Fed should not go. Caroline criticizes Greenspan’s ‘Irrational Exuberance of the Market’ Speech, though as Fed Chairman he perceived definite deviant market behavior, and knew some Warning must be given. It might simply be the fact that Greenspan as Fed Chairman was right too often, anathema to any Conservative when contemplating Federal Oversight of any kind.

The Congressional Budget Office might again incur the anger of Conservatives with this Estimate of the potential Cost of Iraq and Afghanistan. Once again the Information is couched in Fedspeak to lessen the onset of Conservative wrath with little Publicity attendant, and based upon a best-Case scenario where the violence will decrease. I see few grounds for violence reduction in these Contested areas, except for the aspirations of both political Parties; who have no ready Answers for an expanded Conflict. Both Nation-Building and neoConservative Domination of the Region wane in the face of continued Violence, and Our Enemies in the Region gain by Our inability to control the Situation; remember those Enemies are who are funding the Violence in the first place. I would place the CBO scenario in the overly-optimistic column, and suggest that an escalation of Violence is not only likely, but probable. lgl

The Trouble with Mercenaries

A Post with an important message, but One which loses contact with its central theme somewhere along the way. I will try in my poor way to get it back on track. A probable 70% of all medical needs could be handled by Nurse Practitioners rather than Doctors, with a probable 40% Savings in total Cost of Treatment. About 99.8% of all Nurse Practitioners have some form of Doctor fallback organized in the less than 2% of questionable Cases they examine. It is also true that Nurse Practitioners are about 980% as likely to proscribe a cheaper Drug over a high-priced Drug as is a Doctor; with probable irrelevance as to which Drug is most effective in Treatment conditioning. The availability of Nurse Practitioner clinic access is probably about 5 hours per day longer than is Doctor clinic availability. Nurse Practitioners, on the other hand, cost a probable half the Cost in clinic visit as that of a Doctor clinic visit. This is all a Sketch analysis by myself of current medical trends off the top of my head; Those who want more precise numbers should either collect the data, or pay for the Doctor services in the first place.

Mark Thoma does not focus on the real problem of Private Contractors supplying the Military in war zone conditions. The real Problem is lack of integration. The Military solves this Problem in the Short-term by over-Stockpiling of essential materials. This does not cure the long-term Problem of massive pilferage, and inadequate and unsafe storage conditions. Some Defense reports have listed up to 180 billion dollars worth of materials which cannot be found; they have disappeared into the War Zones, never again to be seen. Other Reports indicate that outside of facilities specifically delegated for habitation by American military personnel, almost all Rebuilding efforts endure shoddy construction, and maybe up to 90% of such facilities are in some way incomplete to the point of being ‘Mission defeating’. A real rationale can be made for an additional 150,000 Combat Support force in Iraq.

The real trouble with both preceding Paragraphs may lie in the lack of supervised Junior Command. The AMA could actually serve as a great unifying force in Medicine, if they formalized a medical structure under which Everyone must operate, instead of simply underwriting all deviant behavior of their membership. Placing all Servicemen and Contractors under the command of Zone Commanders, based upon High Command guidelines and Military Police supervision, could forestall Theft of military materials and Payment for incomplete efforts by Private Contractors. Mark Thoma suggests War Zone accountability is hard to ensure, it is not; the difficulty resides only in Command incompetence. lgl

Modern Democracy

Does Anyone else spot a little bit of hokum in this Case. Let’s see: Chungs were Dry-Cleaners in the District of Columbia, who undoubtedly had clientele who were members of Congress. Pearson is an administrative Judge who is functionally impossible to remove from his position. The Suit over a pair of Pants was $67 million reduced to $54 million. Chungs have to go out of business because of Court Costs. Pearson, it seems, can easily withstand the huge Court Costs to persecute the Chungs–wildly expensive as it is D.C. litigation. Pearson, a probable life-long Republican, and undoubted aware that the Chungs could not pay such a level of Judgement; hell, they have to go out of business because of the Court Costs alone. Business, Lobbyists, and Republicans have long wanted Business immunity in Law from Lawsuits. My only Question is: How much were the Chungs promised to be the Scapegoat?–probably about $2 million Cash.

Here is another Piece describing how Business is done in the D.C. area. How did Eric Whitehead get a $2-6 million license last year for $200,000?–there is a real smell here! Is there an implication here that the Democrats are expected to take the coming Election?–and that Democrats are known to be sexual deviants, who would spend much more on Nude dancing and alcohol. I may be slightly off here (not real Math skills), but both paying for a $6 million Mortgage and Operating Expenses would require and Establishment to make in excess of $30,000 per night, every night of the Year. I do believe that the new Bar seems destined to be the Playground bought by Lobbyists to entertain Congressional personnel. I will bet that the place will have a very restricted Guest List, and do Congressmen and Senators still only pay $2 for a T-Bone steak in the restaurant on Capital Hill?

I bring this Piece to the attention of D.C. Businessmen, who I know are terribly concerned about the Environment. It is also a good place to end this Post for any Lobbyists who might stray into this Post. Most of the Nation’s leadership in Washington might be able to find true purpose with pursual of Eternal Reefs. I fear that a large segment of the American Public would also underwrite their use of the organization; hopefully, without taking the decision out of the personal hands of this leadership. lgl

The Fed Funds Rate Cut

The Cut in the Fed funds rate immediately showed up in the Markets. Speculators and Hedge funds swung out of the Commodities markets, and into the base materials markets. Oil bounced to $82/barrel, and will stay there. Construction materials will be going up. The rise in industrial metals is far more important than the rise in Precious metals. The Fed made the ridiculous Cut under pressure from the financial markets, before getting rid of the Profits balloon; giving a green light to disastrous practices which brought on the Mortgage Crisis in the first place. I predict a Year-over-Year Inflation rate in excess of 5% by the end of the year.

I think that Robert Lucas agrees with me in that the Fed made a wrong Move. Economic conditions are especially dangerous at this time for the Fed to undertake additional policies over and above suppression of Inflation. Agricultural inputs are being misdirected. The Mortgage Crisis proves that the American Consumer is on shaky ground, overextended and highly responsive to Price shocks. Cactus at Angry Bear may have an insight with this Post. The fact stands that We can only expect a sharp increase in overall Prices, while there is no extendable Consumption Credit out there.

John Whitehead presents the potentially worst aspect of the Fed funds rate with his prediction on the direction of Oil pricing. Oil supplies are dwindling, and the functional end-result of the Fed funds rate Cut will be to pump Money into this market. My median forecast for light sweet Crude, with the advent of the Cut, is not $68/barrel, but around $74/barrel. This will produce a rapid advance in Oil prices in the New Year Contract season. Those not in the know must realize this does not bode well for American Consumers of Oil. I am not happy today! lgl

The Next Last Stand

Producer prices going down, a Sign of Good or Bad Times? The drop in Energy prices has been discounted even before the Fed meeting. The drop in base materials can only hint at return to normal Pricing, after a long run of inflationary pricing due to subprime financed Construction; the Fed would feel much safer reducing key rates if the Price reductions in this area has reached 6%. I must tell Mr. Levy that the Fed must focus on near-term Inflation, because lower per Unit Labor Costs without sufficient expansion of Productivity means an increased level of Consumption is financed by Consumer Credit; the Upshot is that it is total Inflation until such time as the Debt levels are paid down. The inflationary pressure in the pipeline has actually increased; it is simply hidden.

Here is an article which will explain why a reduction of the Fed funds rate will not translate into cheaper Personal and Commercial Credit rates; it would only increase the Profits margins of Lending institutions. Objective analysis suggests than Commercial loans will get only about 10% of the benefit of a Fed funds rate reduction, with Personal loans getting no benefit at all. There would be hardly any Lift to economic performance from such a Cut in rates. The Trick here lies in the huge Runup in Profits enjoyed by Lending institutions over the past years, and it is time they started to report a couple bad Profits years; to vent the huge Inflationary baggage of the Runup.

The Oil sector is going to break the Bubble of Inflation, not because Americans will reduce Productivity, but that the American people will get mad! Americans hate nothing quite so much as being told their Way of Life is too expensive; simply forcing higher Prices upon them may also be the worst way to inform them as well. An Oil Price of $85/barrel will create about $4/gallon Gasoline, while Heating Costs will increase by about 20%. Do you think this would be good? Americans will turn Mean, and they act with a rigid fanaticism which will get a huge Carbon Tax, a Cutback of fuel consumption between 11 and 24%, and a reorganization of Household finance almost draconian in action. They will unify and attack the Oil prices exactly as they organized after 9/11, and will turn bitter about the assault on their lifestyle; believing themselves trapped inside a Last Stand scene. God help the Speculators who aroused their Rage. lgl

??--Oil, Oil, and Oil

James Hamilton suggests the Iraq ‘surge’ is achieving its main objectives, and that Paul Krugman and Michael Greenstone each attempt to read too much into the economic data coming from Iraq. I guess I would agree with Hamilton to that degree, but the question must be where do We take it from here? Here is my quandary: I have read Estimates stating Foreign Fighters can be infiltrated into Iraq for as little as $9000, and equipped with Weaponry on site for as low as $4000 per man. I also find Estimates declaring a Foreign Fighter Contingent of 700,000 exists, and is ready to be transferred to Iraq. Intelligence Summaries have contended Infiltration Speed at around 25 Days, and Weapons Supply requires about 10 Days. Almost all Intelligence Reports indicate that Native Iraqi elements cannot fight armed Foreign Fighter elements by themselves, and Iraqi Police and Army personnel are identified and Targeted by a national network for Foreign Fighters, whereby such Personnel and their families are terrorized–often killed. Current American Troop levels and Troop assignments leaves 80% of Iraq outside the Protected Areas. My Question is: What impact is the Surge actually having, and what degree of longterm effect will it have?

I believe that John Whitehead is wrong in his view about the equality between a Carbon Tax and Cap-n-Trade. The real trouble resides also in what comes after. A Carbon Tax is unambiguous, at no point in the implementation of the Program does there reside opportunity to finesse more favorable position by Taxpayers. Everything about Cap-n-Trade stinks of accommodation. Is there to be auction of Carbon Credits, or not? Will there be a mixture of both Grants and auction, and based upon what–previous excessive Carbon discharge? Who will set the level of Carbon Permits–and will they become a form of Political patronage favoring Who? What and Who will set the regulations for setting Carbon Permit levels–or will it become the first legal Black Market? Understand that a simple Carbon Tax can be passed, a Date set, and go into effect immediately upon that Date. Cap-n-Trade will actually never go into effect, as accommodations continually reset the Program to Zero. It is all a question of the amount of Corruption which is allowed.

Lord Oxburgh has excellent view of the coming Oil Crisis, knowing that the price of Oil can do nothing but go up in the future. The simple Cost of future Drilling and Extraction of Oil will eventually raise the price of Oil. He also makes the Case for a Carbon Tax, stating that current Oil prices are not sufficiently high to generate Investment in alternative Energy sources. The Carbon Tax serves the purpose of making such Investment more advantageous through higher Oil prices to the Consumer. Component position insists it is better to have the higher Oil prices now, both reducing Consumption and increasing alternative Investment; rather than raising extreme Production Costs in the future. lgl

Occupation Theory

Wesley Clark is so right, and so wrong, in the same article. I should not do this, but will pick on the Wrongs, rather than the serious attainment of Right in his article. The first horror of his article is the Statement that Superpower military forces need a Nation-Building capacity. Any Government can be destabilized, especially in the face of enemy determination, and permanency cannot be granted to any Occupation Government. The most Anyone can hope for is that the Quisling Government works efficiently until all Occupational forces are extracted from the Country. Americans need to concentrate less on making a better World, and focus on effective punishment of Transgressions against Us. I have advocated that no U.S. military intervention last longer than 90 Days, whether Mission Goals have been accomplished or not; further extension of Occupation duties will generate both an Enemy insurgent movement and American Casualties.

Clark’s second mistake is estimating that Generals need to be better educated. I would say that they are overeducated at Present, while both junior Officers and NCO cadres lack serious Training and Educational needs. Generals tend to over-think their military capacities with advanced Education; a Man waving a gun probably makes the worst possible Example of Democracy. One cannot alter Cultural values with a helicopter gunship. Junior ranks, on the other hand, must exercise a virtual domination of exactly those behavioral mechanisms which produce atrocities if let loose. The Crisis of American Military Training expresses itself in overemphasis of Assault tactics, with basically little Training in Occupational duties. We do not need effective Teams to attack Main Force enemies, but have overwhelming need for Military Police.

Wesley Clark has advocated an increase in Military Force of 100,000, We actually need a million man Reserve. Trained as they currently are inoculated, though, it might be better not to increase the Main Force at all; starvation of military assets does defeat the grandiose desires of an uninspired leadership. I sincerely wish that Command and Staff College had an extended Course in Occupation Theory, and that perforce, even Presidents be entailed to attend. A sensible Beginners’ Hint: Military Occupation Forces must interdict Insurgent Arms at the Border, leaving Native forces to actually police private citizens in the manner traditional to the Country; recognizing that any extended interaction of private citizenry and Occupation forces will lead to natural development of Insurgency.

The prime element which American leadership must realize comes in the form that American military force cannot resolve any Problems in the World, only suppress any violent impulses generated by those Problems. Islamic Fundamentalism must be defeated by the Islamic world, by loss of support by Muslims; such a Process is not helped by giving the Fundamentalists an exterior Enemy for native populations to hate. We, as a military Power, must protect Ourselves from Extremists everywhere. The best avenue lies not with Main Force elements stationed on Islamic soil, but in subscription of Native elements and their anger at Fundamentalist behavior. lgl

Executive Pay

I thought I might discuss CEO Pay Packaging this morning by way of an introduction by this article. I quickly decided I would have to make an in-depth review of the Issue, before I could establish a causal relationship for the increase in Executive Pay. An overwhelming much has been written about such Pay Packaging, and still relatively Few, if any, understand just how Executives managed to create a new Social spectrum class based upon Wealth. Just How was It done?

The basic Means to usurp the Money-making generator of Corporations came in the obvious form of disenfranchisement of the Shareholders. Corporate leadership accomplished this loss of Shareholder Voting equity by first serving the Shareholder’s interest: Stating Share Price had to remain within a marketable range; Shareholders unable to sell, buy, and Trade equity if the Asking Price was too high for efficient Market transactions; they achieving this End even if they initially had to authorize Split issuances of Stock. Anything they had to do was done, so that the Shareholders’ position was diluted, and Ownership was spread so that attendance at Stockholders’ yearly meetings became valueless. Such Attendance devolved to restriction to only Institutional Investment Stakeholders, who could be negated by venue of promised effective Rates of Dividend Return.

Corporate Management, once Shareholder equity had been nullified of Voting power, turned to Interior Lines of Communication; ensuring Outside Parties could not collect sufficient data on Corporate operations to organize a competitive Managerial policy. This was the effective elimination of an Alternative to the current Management, it basically taking the form of inability to reach the Stockholders with an understood alteration of Policy. Stockholders had a watered Vote, unknown Competitive management, and inability to discern what was the best Corporate management in the first place. The resident Corporate Management could at this point begin to redirect Profits from Corporate operations to themselves, having left Shareholders powerless to combat the trend. Here is the real causation of the growth of Corporate Executive Pay. lgl

A Cheaper Health Package

Greg Mankiw brings Us links to Robin Hanson and David Cutler. Both are good articles, but examine the Issue of Health Care under stressed Conditions. They and you, the Readers, need to understand there will always be a mix of provision between the Public and Private sectors when it comes to Health Care in this Country. Patients want Public supervision of Medical provision, while Economists and Business personnel want the Profit-making activity of the Private Sector. I can say to Hanson, Cutler, and the Reading Public that they will never define an real degree of significance of difference in whatever Sector provides the medical care. Of course, the above issue is not the real driving force behind the continuous debate: Here, it is Who gets the Money?

A sensible split between both Sectors remains the most sensible venue to adopt. Periodic Health Care should obviously be conducted by the Public Sector; it being the most expensive in total Cost, while Government organization of Services the cheapest aggregation of total Health inputs necessary. I advocate passage of a Law stating all Citizens will have a yearly Health Checkup at a localized Government facility on their Birth Date every year; the Charge being a set amount placed upon All, which I would set around $100, but all necessary Medical Tests will be conducted at whatever Cost necessary paid by the Government. The Government by law entailed to utilize its Purchase capacity to get the best Price for Drugs and Equipment. The value of periodic Checkups is gained, while the Cost of such medical provision is minimized. Medical Counseling will be provided for the Patient’s evaluation of his Health, along with lists of potential medical treatments for found ailments available in the area.

The next amendment of law would allow Pharmacists to proscribe a much greater list of all Drugs, except for Opiates or synthetic Drugs of like nature. A Government Committee of Doctors will be commissioned to supervise Pharmacy Proscriptions, and entailed to publish the necessary information for prevention of dangerous conjunctive use of Drug types. Pharmacists must be granted immunity from Liability for Drug provision which stays within the guidelines of the Government Committee. It is estimated that a decently-administrated Program of this nature would eliminate 35-40% of all Clinic and Doctor visits, an immense Savings in health care Cost while giving Doctors the advantage of expanding their Patient load.

The first Proposal will cut 12% of current Health Care Costs, by early detection of serious medical conditions; at about One-Third of the Cost per Patient of Private Sector provision of these Services. The Second Proposal would cut about 28% of current Health Care provision, while expanding the quality of such provision. Drug Costs can be seriously reduced by legal insistence that Pharmacists proscribe the cheapest Generic capable of providing relief to the medical condition of Customers. The Total effort could reduce the medical provision Cost by half, as advocated by Hansen. lgl

High Tech and the Fuel Tax

John Whitehead sends Us a good view of the technical elements of fuel economy technology. Car companies claim it is a huge Expense, and cannot be accomplished within State guidelines. Some Economists declaim fuel efficiency, as it would only encourage greater travel. OPEC no longer has the Reserves to influence World Oil prices. Most sensible Economists accept the efficiency of a Carbon or Fuel Tax in slowing Consumption, while Traffic bottlenecks continue to inject their own great Cost in fuel inefficiency. The most fuel inefficient, though, remain the Speeders upon American roads, where excess Speed ruins fuel consumption calculations. It all need to be resolved at the same time with an equitable Solution; over the current abject deterioration of fuel efficiency elsewhere due to any Proposal.

The Mad Genius studies the situation, finding the disaster somewhat ridiculous. I ask what current Vehicle production has which could improve this dreck; finally arriving at the realization that current Vehicles are built with an onboard computer, which can be programed to record almost any functioning of the Vehicle. I also remember the American addiction to Lotteries, and their wastage of Millions to make Thousands. I further think that fuel pumps are currently made with onboard Computing capacity, and that connection between fuel pump and Vehicle computers takes only an on-board plug on the Vehicle with attachable fuel pump cord.

Now We have moved on to the Mad Hatter stage. We must first put in the Cost of the Fuel, something which Economists and Oil companies insist upon. We next need to program the onboard Vehicle computers to record the entire Means under which a previous Tank of fuel was consumed. Starts and Stops are fuel intensive, but Many are relatively mandatory, so We will charge only a Quarter Tax per gallon for Fuel consumed at Idle (We have to first compute how many Minutes at Idle it takes to burn a gallon of Vehicle fuel). Vehicle fuel efficiency does not maximize in most cases below 40 miles per hour, and again starts to decline after around 53 mph. Lower Speeds with low automatic gearing is not as fuel efficiency expensive as Speeding, so the fuel consumed at below 40 mph will pay only $1 fuel Tax over Cost. Gallons consumed at Speeds between 55 mph and State Speed limits would only be charged $1.50 fuel tax per gallon, plus the Cost of fuel. All fuel consumed above the stated State Speed limits would pay $3 per gallon fuel tax in addition to the Cost of fuel. Notice that the fuel consumed between 40 and 55 mph has to pay only the Cost of the fuel. The fuel Tax will actually be charged on the Replacement fuel, presenting the idea to Consumers that Care today is cheaper today than tomorrow.

The Program is Mad, I tell you, Mad, Mad, Mad! It is cheaper to implement than almost all other technological innovations for fuel efficiency. The fuel Tax would actually punish improper Driving procedure to the degree and Cost that such illicit behavior should be recounted. It provides automatic enforcement of State Speeding laws. It gives the Consumer direct ongoing measures to reduce his own Tax burden. It could even incite further Car Pooling, if multiple occupancy granted an overall Tax rebate of one Dime per gallon at all taxable Speeds per Occupant over One in the vehicle. The excess fuel tax Cost at high Speed for Commercial vehicles would slow excessively-pushed Load times to greater safety levels. Overall milage would reduce for Private vehicles, as travel increases in Cost. Total Cost: approx. $85 per vehicle, $200 per fuel pump, the Cost of the fuel, and finally, the outrageous fuel tax revenues. lgl

New Footing for Social Security

The long-term Liabilities Crisis in the United States perhaps can be viewed in camera, by the study of Japan and Italy. The realistic story of all such crises lies in the refusal to Tax at levels sufficient to actually fund the future Pension liabilities. Japan and Italy are only the first nations to be caught in the Trap of unfunded liabilities, a Situation which is unforgiving and accelerating. Foreign nations are basically to utilize the higher Retirement Age option, and finding little success, due to the organized resistence of the Elderly with their expectation of retirement.

I will propose a different Option, which will automatically gain myself great enemies. I will call this Option the Disability Option. No One retires under this Option until Medical Tests prove that Workers are too physically insecure to hold a Job. I can already hear the Screams suggesting this would be the worst system of all. The thing is that We can play with this Option in real ways, to remove the onerous nature of the Proposal. There are vital ways the Program can be worked out to satisfy many important Gains, while restricting the potential injury.

The foremost Benefit of this Option sits in Workers staying on the Payroll of Employers, a Labor Cost which is deductible; and one where Wage and Salary are set by overall value of the Labor. The previous Sentence is a very important cachet. A Law can stipulate that all Workers under the Age of Thirty receive One Week of paid Vacation, all Workers under the Age of Fifty receive Two Weeks of paid Vacation, all Workers under 65 receive Three Weeks of paid Vacation, and all Workers over 65 years of Age receive One Week per Month of paid Vacation. The Law could further stipulate all Workers receive a potential of Six Weeks of Medical Leave per year, and Vacation time can be compounded at whatever rate agreed to by Employer and Employee. All Disability Payments for Retirees will be accounted as One-Third of Salary at the time of Termination, but with automatic Cost-of-Living increases; half of the Disability payments to be paid by the Social Security administration, and half paid by the previous Employer–who will be able to account the Payments as Labor Costs. The Social Security Administration will assume all failed commitments by Employers due to Bankruptcy, but with the right and ability of the Administration to sue Employers for the unpaid Benefits under the Program. lgl

Government Legacy

Tyler Cowen shows the stupidity of Government program expansion. Menzie Chinn has a good article on the spread of Crisis from financial markets to the World Economy. Two seeming unjointed Posts connected by only one element–Government interference. Still cannot see the Connection? Alan Greenspan lowered the target funds rates to 0% to gain a more rapid Recovery after the last Recession, which produced a less-than-normal Recovery; not exactly a 3:1 Benefit-Cost ratio. It also had another detrimental effect: There would be no Talk of reducing the funds rates again in this financial crisis, except for Greenspan’s previous interference in the market structure. It is especially bad because the Greenspan interference was the element which excited the growth of the subprime Mortgage market in the first place.

Chris Dillow points out that current Union activity serves only to hide the nature of the true Rent-Seekers in the economy. Labor Income has remained relatively static, even in the unionized market, but Management Income has soared. Some might postulate that Management did not actively seek that Income increase, there are Fools everywhere. A tie of this paragraph to its predecessor would state that the less-the-normal Recovery does not promote the ascribed increase in value of Innovation. The Result of the current Crisis might truly focus on the fallacies of current Business and Economics theories.

I personally like Robert Reich and Mark Thoma along with their Work, but have some difficulty with the direction of their theory. They, like almost all current Economists, have never questioned the basic foundation of the American economy. I hold that the Economy is overheated, with over-rapid growth of Debt, fueling an over-Consumption both unnecessary and unpaid. Economists may be paid to ignore Reality, but I am not, so I can state that the pace of Capitalization need be slowed until a greater share of Investment has been paid. A restriction of Consumption can only reduce the purchase of Exports by Americans, slowing the Trade imbalance. The Jobs lost in the Process will be exactly those Jobs which should be eliminated; most especially as their labor created Most of the economic imbalance observable in the economy today. The humor behind this entire Scene comes from a real doubt that this restructuring will even result in Recession. lgl

Alternate View

Mark Thoma gives Us another column by Paul Krugman. I have a problem with Paul, but it does not reside in what he says–which is quite true, but perhaps in the manner in which he says it. He states what the Bush Tax Cuts have accomplished, but he fails to describe how the sleight-of-hand was set up. The massive Tax Cuts to Business and the Wealthy was evident, though the nature of structured Tax Credits for Business was hidden. Business suddenly acquired the Tax haven of deductibility for the Benefits packages which they granted to Workers. Business gained the power to keep Dollars out of Workers’ Paychecks, while still reporting Labor Costs, needing only the expedient of Business-to-Business Transfers; such burdens less onerous by venue of investing in the Recipient agencies. Employee Wages became an guaranteed Investment opportunity of high Returns, with no one but Employees enduring any long-term duress.

The Above argument provides real substance to the Proposal of universal Health Care. Employees may learn someday that a national health plan is cheaper to pay for under Paycheck deductions, than is the current suppression of Wages by Business claims of Health Care provision. The same argument can also be made concerning Pension benefits. A Fair Share law where Management is entailed by law to supply Employees with an equal Percentage amount of Profits as enjoyed by Management would decrease the Demand for Downsizing and Productivity, so that there would be sufficient Help to achieve current Business goals. The tenor of the Workplace will harmonize to greater degree, with much less stress. Labor needs a Congressional Ombudsman which is conscious of the needs of Labor, free of the heavy Lobbyist money of the Corporations.

Trickle-Down economics will only evolve equitably only if Labor has a Voice and Hand involved in the control of the faucet. Letting Business set the agenda of Congress will only produce Advantage for Business. Unions no longer truly reflect Labor desires, basically because Union leadership attended the same MBA programs as did Business management. Labor probably will not achieve any gain until they demand to self-finance their Medical and Retirement programs through massive increases in Wages, which might lead both Congress and their Lobbyist friends to reconsider their current program of Tax reductions for the needy Businessmen. lgl

The Direction of the Winds

John Kay writes a short history essay of the Economic profession. His Thoughts on Keynes and Schumpeter are cogent, but attributes their degree of success to the aptitude of their Personalties. This is realistically unfair, Schumpeter coming from a failed society and economy, while Keynes was forever close to the action of a vibrant center of the World economy. Schumpeter and I would agree that the dynamic of Capitalism has been destroyed by Corporate procedure and archaic Patent law. Kay does a really good job of resurrecting John Kenneth Galbraith, mentioning the fact that most Conditions which he criticized are still with Us, and still impacting the successful functioning of the economy. His later treatment of Milton Friedman lacks some sincerity, conscious that the Friedman Devotees share the Neoconservative attitude towards criticism of Ronald Reagan. I will not actively cirticize Anyone, but will say that Paul Samuelson had a real impact on Economics, while the Rest will have prestige through the lifetimes of their Students, and possibly through their Student’s Students lifetimes; after which discrepancies will lead to the short Sermon of ‘Rest in Peace’.

This NYTimes article by James Broder contains a frank Warning to all Parties, the Bush administration will attempt to block effective Change in future administrations by massive writing of regulations governing all elements of Government. This would not be so bad except it will undoubtedly serve only Corporate interests; later protected by massive Lobbyist effort. Many of the Bush initiatives will actually aid both Economy and Environment, as the structural problems of doing business remain too involved and Time-consuming, but simple blockage removal for advancement of Corporate Profits can promote economic as well as environmental damage. A sensible Congress would create a Standing Committee to review all new Government regulations, by law establishing that new Regulations must be Read Out and passed by the new Committee; possibly even examining old Regulations for lack of validity.

Tyler Cowen gives Us an excellent column in the NYTimes, which contains far more truth than Most would enjoy. I will say now that I agree with Tyler in about every particular, but will state I believe the Fed has gone about as far as desirable in maintaining liquidity. A dip into Reality states that necessary funds are available at the Present, financial institutions simply dislike to borrow at the current rates because it affects their own personal Profits structure. This is not a rationale for the Fed lowering its funds rates. Loss of Book value Profits–consider the buildup of Profits since 2002–would essentially generate a huge deflationary effect on the Economy; which currently expresses little indication of recessionary factors. Actual fact states We could benefit from a Clearing Operation, removing unearned Profits. lgl

Tricks of the Trade

Mark Thoma gives Us this article from the Financial Times. The article will provide useful information about Central Banks, and the means to surf to the Central Bank of most likely choice. I could even navigate to the Bank for International Settlements, which I intend to use later in this Post. The article is light and artful, as well as providing a sprinkled list of sites that are hard to find elsewhere.

This Paper most definitely requires advanced specialty training to understand all the ramifications of the Carry Trade, but it outlines the basic manner in which the Carry Trade is conducted. Scan of Footnotes presents great ancillary information to the Reader, often redirecting to sound comprehension of the material when lost (and Most will be, unless there has been much previous study of Finance). Study of the Graphs will at least grant the Reader identification of the Funding currencies and the Target currencies. The Carry Trade basically borrows funding at low interest in funding currencies to buy high yield assets in the Target currencies. Carry Trade growth parallels Hedge Fund growth to great degree, and basically works by chipping currency value from the funding currencies; this characteristic functionally working at cross-purpose to Central Bank stabilization efforts.

I like this Response by Tim Harford to a would-be author. He suggest a successful author has to be out of sync with the ‘hog cycle’. I find this to be a hilarious commentary, though by no means untrue. I would add this additional Comment: Pick a Subject with a significant degree of difficulty, so as to restrict speedy competition in the market, but only if the Author can reduce the difficulty to simplified terms, so that a Junior High Student will not feel resentful as he reads the material. The greatest Need of Authorship consists in carrying your Readership with you. It is not you that must understand the material, but your Readership. lgl

Gut Check

The Fed Directors will have a real challenge on Sept. 18th, and will probably fail the Test of responsible leadership. The Vultures are already out to recoup their overextended positions in the Mortgage markets, and the BLS labor report with its revisions for June and July as well as the 4000 Job drop will mean heavy pressure to reduce the Interest rates. A review of basic economic conditions, though, may express the futility of this effort, while actually causing a defusion spread of Risk out of the overextended Mortgage market to the general economy.

The Construction industry has been overheated for a considerable time, with the Stockpile of unsold Homes gaining for more than a year. Commercial Construction has been exceedingly rapid for over two years, and Land Prices and Public Utility expansion has been hard-pressed. Reality states that the Construction industry has to cool off, and that Job losses in this industry will remain permanent, no matter the positioning of the Fed fund rates. The other major areas of Job loss lay in the arena of Mortgage finance, Hedge funds, Securities, and Banks–exactly those places which brought Us the Mortgage Crisis to begin with; Rehires in this sector could only worsen the above-mentioned Crisis.

There is no reason for the Fed to shift current policy until there is a definite Job loss trend developing in the Manufacturing sector. There stands very valid reasons to maintain the present Fed policy, mainly centering on the need to reduce the Mortgage Crisis by forcing the Securities firms to reduce the current Risk threat by absorption of their losses. One has to understand Most of such losses are in the form of Book losses, said Profits derived by unsafe financial practices generating the Crisis in the first place; the Thieves want to claim their ill-gotten Gains are real money, and not the Inflationary Paper which it is and always has been. The Fed can straighten out the American financial markets, or themselves become another aspect of the Problem. lgl

The Traditional Worth of Gold

Mike Shedlock agains comes in with an interesting Post, with multiple links which should be explored. He examines whether Gold is a decent hedge against Inflation. I decided a real element of the value of Gold is its acceptance as a possession asset for nonparticipation in the economy. The Microscope must be turned on Inflation in order to discern the value of Gold. Here is where I will get into trouble, as Economists will begin to protest my Reasoning.

Inflation can be generated by multiple causation, but in the final analysis, must always be related to the Supply Process. I expect I should expound a Rule of Thumb for evaluating Inflation at this Point. The real reason underlying Inflation can be considered a constriction of Supply facilities for the production of Product. This means that the Demand for Resources spreads more rapidly than does the functional Supply facilities for those Resources. The very Risk to those Supply facilities can generate Inflation, let alone any substantial reduction in the Output of those Supply facilities. This means the Price of those Resources increase. The entire aspect of Inflation, therefore, revolves around on the speed of Demand expansion for Resources, in functional relationship to the speed of expansion of Supply expansion or contraction for these Resources. There is another element affecting this Process, that of the expansion or contraction of the Money Supply, which determines the Supply of funds available to Purchasers of Resources. This still does not explain the role of Gold in this Scenario.

This is composed of two Parts, and most Readers will understand the limited supply of Gold itself. This establishes, along with the limited but Constant use of the metal itself in Production, a basic value for the Gold in the Production process. The second Part of the Supply impact on the price of Gold consists of the largesse of Production throughout the rest of the economy. Gold is the Hedge commonly utilized by Investors who believe any one of a number of things: that the Economy is expanding at too rapid a Rate–already generating excessive Resource pricing, that the Supply of Resources is expanding at too rapid a Rate–lowering the value of other Resources, or expectation that the Money Supply is expanding too rapidly–lowering the long-term value of other Resources. Gold, in the final analysis, is the Hedge to protect against inferior functioning of the overall Economy through any number of circumstances.

Unlike Mike, I must say I have no position in the Gold market, though I wish I did. lgl

Drugs and Charity

Cactus at Angry Bear brings Us this Post from the Straight Dope. Does it seem a little extreme for mainstream economics–it really shouldn’t. I am trying to remember who told me this, but Someone once told me that Steroids were like non-biodegradable Plastics in not being naturally broken down by biological process, while having the property of accumulating concentration. We must take into account that We are dealing with very minute amounts of Drugs, but the universal spread of the minute amounts should give Us pause. It has effectively taken less than a half-Century to get a diffuse spread of these Drugs into a huge containment of soluble water. The investment rate of these Drugs is extremely high when charted at essential Origin in 1950. This is combined with the Condition that absorption by Plant life seems to be the only cleansing methodology available, and which itself has a Shelf-Life ending with Plant decay.

Ask Me why I cite Arnold Kling today, and I could not give a clear Answer except to say it is a Post which should be Read. Robert Barro and Marin’s theory of convergence, while accurate, did not postulate the real Gain coming from Interior Lines of Communication; Railroads followed by the Interstate system, Canals and Locks on American Waterways combined with the Coastal Carrying Trade–all cheaper than the base Import Trade. American Capital in the wealthier States came to realize that higher Profits demanded increased Investment in poorer States. I don’t believe that Arnold’s risk premium contains more than marginal incentive to invest in Poor Risks. I believe that the American Public has been overexposed to the true Cost of health care, and that it doesn’t require personal payment of health care Charges to make them realize the Price is too high; We need measures to control that health care Cost. The charitable tax deduction is a tax loophole which can be misused; consider the repetitive Court Orders demanding that the Gates Foundation actually distribute the funds collected.

One should read this post by Mark Thoma when considering all of Arnold’s positions. Exponents of Capitalism espouse Government protection of practices utilized only by the Rich by way of tax exemptions, so they can intervene and impact the lives of poorer Citizens with imperfect information, and misdirection of financial assets; all at the Cost of increased Tax pressures on their poorer fellow citizens. Allocation of financial assets through Charity innately disintegrates adequate concentrations to resolve major Problems, as the Rich all pursue their own Pet projects to the detriment of real resolutions. Common Taxpayers are asked to actually bankroll the flights of Fancy of the Rich by such tax deferments. Ninety Percent of all Charity contributions remain simple attempts by the Rich to maintain control over financial assets, when American Tax law has already determined such Control should be surrendered; the Charity tax deferments forestalling this redistribution for the common good of all of Society. lgl

Restructuring Debates

Wilson Mixon still does not get it, as this Post assures Us. Bilateral works, Multilateral does not work. Doha remains a simple attempt to introduce a basic Command structure into what is basically a Market system. Setting Price limits–which artificial reductions of Tariffs resolve into being–is simple Price suppression. The basic functioning of the Negotiation structure between two Traders becomes crippled. Each Side finds loss of counteractive measures to egregious Demands of the other Side, tied up in conformance measures set by Third Parties. The Truth will state that if the Doha Round succeeds, then International Trade will become less Profitable, therefore less used; and eventually, less rewarding in the reduction of Poverty.

Dani Rodrik has trouble explaining the value of Math in Economics (follow the links to read both Posts). I never utilize Math if I can avoid it, describing myself as mathematically challenged (though I did have 3 Courses in Calculus); I possessing a tendency to forget approved mathematical procedure. I do know that somewhere in higher Math, there exists something called a Slippage Equation, which is a Model predicating the average rate of degradation of Models based upon real activities, which have been adapted for exterior evaluations. No intention to get fancy here, but the more you twist a Math Model, the less utility will found in it; ask the Question: Can you twist the real forces themselves? Economists are the worst Violators of against-the-grain evaluations of natural forces. The actual Work of the Economist is not to place economic events in numeral equations, but to estimate the natural flow of the economy.

Tyler Cowen may give examples of overuse of mathematics in economics. The two Papers he links to beg for value criteria for the exercise. The First attempts to mathematically correlate the emotional impact of Deaths in the families of CEOs, while the Later tries to evaluate the Distraction factor impact of large Property acquisitions by these selfsame CEOs. I am personally of the persuasion that CEOs should be automatically fired every 5 years without chance of rehire. Why? The basic Reason states the Corporate structure will never gain experience, unless the particular Boss in question is irrelevant. Any Top-Down management of any endeavor is defeatist by its basic nature, and will fail with the passage of time. lgl

Personal Income, Mentality, and Farmer

Mike Shedlock wonders where the new employment is going to come from, after Wall Street stopped Hiring. Valid Question! Another one could be ‘Where are the Gains in Personal Income to come from, now that the High-End Jobs has been gutted?’ Ordinary people might not understand the full Context of this Question. One High-End Job with a rapid Pay advancement can cancel the Average deterioration of literally dozens of Low-End Jobs with their frozen Wage levels. The Game works in reverse, though, and vicious people like myself could ask what this has done to Personal Income; making young Economists squirm as they must admit huge losses in this area. A person with the Killer Instinct might even venture to question the Fair Trade values always so touted; remembering good Jobs are disappearing, low-skilled Jobs are shrunk, Prices of Trade Imports are rising, and Mish mentions that Medicare and Medicaid can’t employ Everyone. One of the most Amazing things about Bubbles lie in the ability of the Peons to laugh at their Betters.

John Lott contends the National Weather Service comes in Dead Last in Forecast Prediction. It also ties in with a TV News Spot on the Air Traffic Control System, which is still relying on Radar instead of the GPS technology. Both Cases result from a previous huge Expenditure in old technology, and Civil Servant reluctance to approach Congress for major, expensive Upgrades in system design, in an era devoted to Outsourcing of Services. Lott, himself, is a major Advocate of such Outsourcing, believing the lack of Charge correctly stifles Innovation.

Budding Economists should read this article, plus the eventual book of Roger Farmer. It is not that I have always distrusted Ned Phelps and Milton Friedman, but the fixed natural rate of employment always seemed a little extreme for myself, though Roger Farmer may over-Think his stationary Stops of natural employment. Employment in the Economy as a Whole appears to me as a Good; something which is a relatively free sliding Scale which flows to meet immediate terms assessments of long-term needs. I may be very lucky in never having any desire to publish anything in this area though. lgl

Experts, Productivity, and Fed Policy--same thing!

Chris Dillow does not understand the true role of Experts. The later Group knows they get hired at high Salary only if they reiterate that the activity of their Employers are correct. Suggestion of a Recession implies some criticism of Employer performance; at least, until such time as the Employers agree with the Supposition. Bosses possess a terrible tendency to react negatively to reflective criticism of their policy. The relevant value of Experts remain high-priced PR, sought to promote increased Sales and Vindication of slipshod financial business practices.

PGL at Angry Bear has an important Point in this Post, but bypasses a more important item upon review by myself. The emphasis upon Productivity may be what is wrong with the American economy; proper humiliation granted to the economic concept that higher Productivity pays for higher Wages. The higher Wages, though, promotes a ‘Plunger’ mentality where higher Risks are taken. This Drive to higher Wages and Profits causes abandonment of sound Business principles, leading to artificial Inflation rates, and eventual bubble formations. These Practices percolate Downwards to the activity of both Workers and Consumers. The Business and Financial leadership undoubtedly wish that the Mortgage Crisis would evaporate, but would still deny that they were the totally responsible Parties for its creation.

David Artig presents an excellent Post on Standford professor John Taylor’s evaluation of Fed performance. It should be studied by all Readers concerned with Fed policy. I should go on Record as stating I do not agree with the entire Concept of Fed policy. I do not believe that any Group can anticipate the direction of the Economy sufficiently to affect its direction by regulating its financing. I think the Fed’s funds rate should be set at 4.25%, and left there for all of Eternity. The basic argument behind this position states high Inflation will naturally restrict issuance of Operating Funds to Business because of lack of financial institutional Profits, while the rate is sufficiently low as to regenerate Business possibilities without bubble formation. The trouble in the current Case lies in the fact that a huge bubble has already been developed by lax policies previously implemented by the Fed concerning financial instruments. The Fed need force foreclosure proceedings before they lower current rates, else they are left with incredible pressures to inflate the Money Supply. My advocation for Fed policy is to force financial institutions to declare the Market value of their issued financial instruments, and reduce them, before a permanent Fed policy change can be introduced. lgl

British Woes

I read this Comment by John Quiggin immediately after reading this Post by Chris Dillow. Chris claimed it was inherited optimism bias, while John claimed that the Mortgage Crisis was of far greater magnitude in the U.S. John’s assertion about Foreclosures becoming the primary mode of financial catastrophe only reinforces Chris’s claim; Americans following the path of greatest optimism, and abandoning venues promising little success. The American people have a terrible attitude concerning a Government run by Businessmen, possessing the attitude that the American Public should be as protected as greatly as Business. This has led to huge Expenditures with insufficient Taxation from both Sides of Congress, and particularly bad when both agendas are combined. What happens when the Bubble of Government Borrowing bursts, and no one wants to loan the Politicians any more Money which they are unlikely to get back?

The British have been successively critical of the United States this Sunday. The greatest defect of the Jackson article lies in its utter truth. The reason the United States did not deploy sufficient Troops to keep Order in Iraq was the U.S. inability to maintain such a Force Level under rotation practice; the later wrong in both theory and context, leading to basic discontent in the Military and unrest in the American Public. The Bush administration vetoed any sound Plan to raise the essential Military reserves. Jackson praises the U.S. State Dept. Planning for a transition Government in Iraq, which he should not, as it was insufficient to the Task. The State Dept. Plan was rejected, though, for the wrong reasons: it advocated rebuilding Iraq with native economic elements; forestalling the awards of huge Contracts to Bush’s Corporate allies; it seemingly wrong to pay Iraqi labor to rebuild their Country with American Dollars. Jackson’s defense of the British Army position in Basra remains only a justification of his own role, as British failures relatively match American errors; understand that the Days of Colonial Rule has passed with the introduction of the Internet.

There seems to be a major discontent in British society this morning, and it is traveling. This article by a Dane in London finds Denmark is being corrupted by London–earlier corrupted by American practice–and suffering from a Brain Drain to the wealthier Countries, who can pay the higher bonuses. I cannot believe how greatly intelligent Minds are sucked into the Corporate mentality of the sanctity of Bonus awards. There is a simple Solution to Bonuses: passage of a law stating that at no time can a Bonus exceed base Salary through any Means. The search for great Talent can be achieved with the simple Question: Do you want to keep your Job in the first place? Is it that I am just a Simpleton, or that simple Solutions often work best? lgl

Moody Economics

Nothing truly excited me this morning in the News. I finally found this article about new Patent regulations. It does not incite any enthusiasm to ‘Man the Barracades’. Patent law should obviously be altered, but the worst way possible would be Regulation. There are so many regulations in the area now, that One can pick and choose practically any treatment he desires. The real Need in Patent law is for Governmental setting of the size of any potential Royalty, placed specifically so multiple use can be made of the Patent (properly-sized Production Cost), alongside specific award to the Patent-Holder (Companies forbidden to hold or purchase Patent rights). I have discussed both of these measures before, and could even work up an analysis of the reduction of Production Costs available under a revised system, if I had the energy this sad Saturday.

This article fails to point out that Investment Bankers are basically the organizations which brought on the current financial crisis. It does point out how well-off Employees of these organizations have become, because they did bring Us the current financial Crisis. The entire Situation smells in much the same way as did the S&L Bailout of the mid-80s, where stability finally cost American Taxpayers about half a Trillion Dollars. The current Crisis may eventually cost American Taxpayers about the same amount, though both Bush and Bernanke would choose to hide the final bill. It is interesting that the American economy basically gets into trouble in the same way–unsecured loans–and costs about the same to clear in inflation-adjusted Dollars; all brought to the American people by the same type of financial leadership at lending institutions.

I will finish my Post today with this Book Review. Alan Weisman wants an Earth denuded of humanity; not a bad Thought at my Age, but the kids might object. I personally would enjoy a Return to an environment comparable to the year 1800, though I would probably find the lack of a local Walmart to be a real frustration. Weisman also holds an imagined power within humanity for extreme longevity of damage. Five Hundred years would undoubtedly erase most of the existence of humanity. The Earth will absorb the radiations and the toxins, simply producing hardier animal species within Centuries. Plant life will cover over human images of greatness, think of the Hanging Gardens of the Empire State Building. lgl