Roles of Leadership

Here is a Study which may be inconsequential because of the value inherent in the structure of review. Most of the Readers who have read the article imagine I am discussing the small amounts of money being utilized in the studies. I am not! Several studies have indicated that Dollars are only a yardstick guiding economic performance, with Self-Interest and Self-Promotion only entering the matrix when there is substantial Gain to the Individual to be realized. The criticism I would express is the lack of acknowledgment granted to social leadership, which is un-weighted in the studies. Small businessmen and Crew Supervisors overwhelmingly set the group consensus of society, with subordinate personnel deferring to the commentary of their economic leadership at the social level. A collegiate class does not contain such leadership, or is there existent a defined system to interview potential Recipients; there are not collateral lines of leadership to adjudge all relevant responses. The Studies define the entrance attitudes of Students into the classroom, rather than the experience of charity at the interactive level.

Cactus at Angry Bear has a Post which again plunges Us into the question of leadership, and the effect of that leadership. The instance of Bhutto only reflects the methodology of most of the World, but especially the Islamic world: even Democratic elections are expected to elect an extended family, rather than an Individual, to power. Such an attitude resounds badly in America, where the emphasis in on personal achievement. It, nevertheless, operates most efficiently in this Country, though Intellectuals can always be found to criticize the practice. Reality states that extended family leadership has built-in Consensus generation capacities which eliminates distortion from leadership. Is it a good system? That Question is debatable, but it probably maximizes survival potential with high Profits.

Here is a Post on getting leadership to work for you, and correctly identifies the corrosion of allowing real social interaction among subordinates; i.e., control the direction of social discussion in the Workplace. The manipulation of beliefs at the narrow social level curtails unproductive effort, and concentrates attention upon economically valuable discussions at the immediate levels. Management pushes a Social agenda for greatest Profitability at the localized center, and defuses any potential harmful intrusion of harmful discussion into that center. This mechanism expands to the greater Social definition of goals, if it has been successful at the lower levels. Leadership is not really a Question of propaganda, but one of focus. lgl

Fatalism

I so enjoyed Tyler Cowen’s Post on Uncertainty that I have decided to list my own Thoughts on the area in an Point/Point format. Readers should understand that this is the Means by which both Debate and Consensus becomes effective–with Individuals taking Positions which they are willing to argue and defend.

1. Medical Costs–I agree with Tyler that Means-Testing is functionally worthless; the essential Question being the provision of Medical Services, or the refusal to do so. Widespread medical provision will generate high Social Costs, which Private Sector payment will not cover; this because of increasing Medical Costs from shortage of medical personnel and equipment. The only method to limit Medical Costs effectively remains limits of medical provision.
2. School Vouchers are a non-sequitur. They will work only in experimental Cases. Universality will destroy any viability to the programs, with even mediocre performance being granted Rent-Seeking opportunity without consequential benefit.
3. Social Security funding is aided by Inflation, but only if Medical and Living Costs are suppressed. Tyler is correct in sensing no real Crisis in the numbers, and realizing that the danger lies in the extension of Services covered by the original program.
4. Tyler, like myself, doubts the efficacy of remedial correctives for global warming. We are already trapped within a matrix of damage from Greenhouse Gases, due to Capital construction already in place, when necessary alteration stays impossible because of the huge magnitudes of replacement involved. Large-scale Carbon sequestration policies appear as the only viable substance.
5. Biodiversity must be approached from the position of Replacement fertilization policies; constraint of current Food possibilities is not a viable option, noncompliance will be systemic as long as People are hungry.
6. Non-criminalization of Drugs will only guarantee of Drug use; Everyone under 30 would have tried practically all Drugs decriminalized within two decades. The only viable Option is to keep criminal penalties in place with massive publicity of the dangers.
7. I differ with Tyler on Immigration, thinking that American society is already over-populated. This may be my rural upbringing, and bias against Crowds. I do believe that exploitation of material resources could be more efficient and ecologically sound with reduced human population. Do I sound like a dinosaur?
8. Tyler and I are of one mind, I believe, concerning foreign policy. Any American foreign policy must face the traditional manner of foreign social conduct developed over Centuries, with incumbent deep resentment against America for any pressured change. We would do essentially better to exploit areas of mutual interest.
9. I also have advocated an effective Water policy for over a decade. The trouble here resides in an like sentiment towards foreign policy, with Water policy advocates facing traditional Water practices.

Do I think much will change about the listed conditions?–No! The only real Change will come through real Shortages of one type or another. I have always been a fatalist! I was once asked what I thought the human population size would be in 2100, and I replied that I estimated it would be around a billion people. There is a whale of human grief in that assessment, but I haven’t changed that evaluation. lgl

Where do you plant your feet?

I don’t agree with Paul Krugman on the need for a tighter safety net, but I also considr that Tyler Cowen’s idea of a budget surplus paid to the Trade Winners holds even less majesty for myself. I find more than a little difficulty with a Concept which would provide less protection for Labor, at greater taxation of Labor, just to pay Businesses who are making Money off Trade. Somehow Economics has lost the elemental View that Business Success should entail Business paying for itself through Profits. I believe that a far more effective Instrument would be a straight taxation formula for both Business and Labor, where only actual, real Production losses are excused from taxation. I sometimes think that there are more Tax nullifications in this Country, than there are People in this Country. Tax Reform must be the basic Corrective in any planned Alternative to Our current ad hoc compilation of economic performance retardants.

Mark Perry comes up with another reason why I worry about the current state of economics. I believe there is a greater coincidence in the Readings of the Study he cites which account for the Results; demographic movement definitely affects Business rotation, and People follow Job opportunities, but many other factors often impinge on demographic movements–the greatest being Lifestyle choice. This is only one side of the Question, though, as I ask myself what is the Result if the Study effectively pans out. The basis model states that a 1% reduction in State taxation leads to a 0.23% increase in Population. Proponents of the Study consider this Population growth to be an undefined Good, with no residual mathematical evaluation of the effects of that Growth. How much will Population Growth of that magnitude increase the social welfare Costs of the State? What is the loss of Tax revenues brought on by the 1% reduction in State taxation? What is the total Cost of Utilities provision and capitalization increase due to the Population Growth of 0.23%? Economics can take nothing for granted, unless We are willing to accept acute Shortages of Living Necessities down the Road.

Here is an sensible evaluation, but is it the correct one? The Krugman thesis may be better expressed as "If all elements of the Production Cost Schedule are identical except for Labor Wages, has the Pareto optimal for Trade been passed?" Of course, I am putting words into Paul Krugman’s mouth, and he can speak for himself; and may be a little resentful of my own rattles. Can there be a Comparative Advantage, when such advantage is based solely on Wages? The Answer is obviously Yes, but only with an introduction of monopoly pricing. Can the Reader make the Jump on that one? The Monopoly happens to be Capital formation, and Economic Profits are demanded above Normal Business Profits; Countries have to accept low Wages and high Product prices in order to obtain Jobs. Now the Economists can start yelling at me. lgl

Overworked Concepts

When are Markets being Overworked? I possess an innate sense that there are natural flow rates to any Market existent, and that current Money managers are attempting to set Market prices which do not actually exist, in hopes of making a quick Profit. The current Runup of Oil prices are a Case in Point, where there was $1.20/barrel drop in Price in transfer from the London market to the opening U.S. market in a World of electronic trading in nanoseconds. Hedge fund and Money managers are manipulating Market transactions to establish Stock positions, all at effective Cost to Investors, to say nothing of the residual Costs to Consumers. Exchange rules need alteration to forestall deviant purchase practices, though exactly how this is accomplished remains in doubt.

The residual Costs to Consumers may best be exhibited by Japan. They must Export to achieve economic success, unlike the United States, and thereby more directly reflect Changes in Oil prices. The Price surge in Energy was actually far less than in the United States over the year, due to previous high Pricing, but the accumulated damage was a probable One-Third greater; remember, this is the second largest economy in the World. The Reader should understand that the United States cannot retain its immunity to Oil pricing, as Oil imports grow in quantity and Price. Current Import practices will transfer the volatility of the Japanese economy to the United States within 40 months in my admittedly poor calculation.

Paul Krugman has an effective argument about the type of Trade which is positive, and the direction of Wealth distribution coming from that Trade. Is he Right? Yes! The humor of the situation, macabre as it is, lies in the refusal of all Economists to even contemplate the natural corrective of such disordered events–Tariffs. Economists analyze all aspects of Economics for the effects of macroeconomic action, but refuse to touch Tariffs with any mathematical evaluation. The ills of all World economies would be reduced with a uniform 11% tariff upon all Import Products–including Oil and Food. This is what I believe, but Who can get anyone to work the Numbers? lgl

Do I sound like an old Farmer?

Tyler Cowen implies that Growth theory clearly expresses a degree of failure, when he forwards Charles Kenny’s closing argument. I have always held the suspicion that real Growth comes only with technological innovation, which impels development of a new industrial sector, or radical change in an older sector. The rest I term ‘Paper Booms’ which is a nonsensical name for financial marketing efforts for the purpose of absorbing Profits derived from previously successful economic sectors. Most Economists would assert this does not apply to fundamental economic growth theory, where the focus is most generally on development of poor Countries. The fact exists that Developed nations show little interest in developing economic resources in Undeveloped nations when the economies of Developed nations are generating only mediocre Profits, and then only in pursuit of material resources under the influence of a Paper Boom. The key element, here, is that real interest in Development policies ends where the Profits of a Paper Boom disappear, which will always happen without technological invention propelling all economies.

The next relevant Question would be why the Profits of a Paper Boom always disappear. These Profits are basically only marginal excess Profits of the Technological Boom, which are limited in size once the market for the Technological innovation has been fully exploited; this is the source of Investment for the Paper Boom, and cannot be exploited from Undeveloped economies because of the lack of financial capital to provide the technological Profits–the original source of Investment in Growth development. The Reader must understand that the economy stands upon a foundation of Production–whether physical Good or some form of labor Service. Paper Booms are based upon provision of Imaginary Goods, which in some way leech off the Profits of Production in some manner; personnel needs for Employment ensuring this creation of Imaginary Goods will always exceed the real Profits to be drained. This later fact brings forth the loss of momentum known as Recession, as the drain of Profits from the Production process actually retards the Production.

Almost all Economists would have difficulty with the Above argument, but almost Everyone can accept the prime basis for Recession remains too many hogs at the Feed trough. The hogs of Imaginary Goods chew the same feed as the hogs of Technological Growth, and eat too much feed that is needed to keep the hogs of Tech Growth well-fed and maintaining their weight. The worst aspect of this Process lay in the inability to identify the hogs effectively; the Must-Feed hogs cannot be realistically separated from the unnecessary hogs. lgl

What's Your Poison?

A Trade War will arise over the issue of Bt corn. Normative reaction to genetic modification would be study of the effects of the new creation in a Test area. The Seed companies insist that sufficient observation has been conducted in the United States, where about 40% of the Corn planted uses the genetic modification, with some areas having planted the Corn for over a decade. At the center of the argument are Seed company Patents, but not mentioned in the article, which are likely the most-engendered species at this Point; the EU unlikely to endorse the new Seed until such Time as the Patents are extinct. One could empathize with the Seed companies, unless One happens to purchase the new Seed; the Seed companies attempt to imitate the pharmaceutical industry on Pricing. Genetically-altered natural Products will continue to be utilized in any case, and eventually like all activity of Mankind, will be overused to the point that We will poison Ourselves. It is the nature of the Beast!.

Dani Rodrik’s has found the beauty of politicalization of his Commentary on economic issues. Everyone tends to draw Stock from whatever is said, and teaching Economics provides the Source material for Propagandists. A lowly personage such as myself derives great comfort in knowing that I am always characterized as being in error on most everything, due to the benefits of the practice. The only consolation in the practice lay in its concentration on the arena of immediate Events, so you can spout about the immediately unimportant with some degree of prestige. Again, it has to do with the suicide practice of Self-Poisoning.

Felix Salmon finds some value in buying lottery tickets. He may miss the great value of lottery tickets to the working Public. Most of new Labor feels some guilt as the great amount of taxes drawn from the Poor, and the lack of taxation on their own true Proceeds from their occupations. They cannot be Revisionist, and state that taxes should be increased for the greater value of Society. They rationalize that lottery tickets can be considered an Entertainment, with Purchases being contemplated as Entertainment Costs. They suddenly possess a mechanism to assuage their guilt over the plight of the Poor by directing their Entertainment allowance in a manner where tax revenues replace the reduction in their own personal taxes; some Studies already confirm that lottery winners have a serious emotional letdown after the initial flash of Winning large in a Lottery, this could be attributed to a massive influx of guilt. Most People would doubt, but History is replete with instances of resentment against Wealth expressed by People who receive great Riches without effort. lgl

Merry Christmas

Here are academic centers devoted to pure research, but may be better suited to commercial applications. Posing the proper Questions may clarify the economic possibilities which could open up environmental issues to Profits exploitation. We need better understanding of the transmission process of Pesticides and Petrochemical residues to Food products. Vast expansion of agricultural lands could be entertained if this transmission process could be genetically stopped. Think of planting the sides of Road ditches to potatoes, where the harvesting process could not only make the United States a World exporter of potatoes, but also reconstruct the form of the ditches; the very form providing the additional levels of water necessary for successful growth of potatoes. This one initiative could alter the World Hunger situation, and even potentially turn Petrochemical exhaust into a form of Fertilizer by genetic engineering. Much Research is limited by the lack of imagination of the Participants in that Research. The new effort described in the article might alter the World, if Exploration is allowed free rein and debate.

Here is an article where People take their religion too seriously. Alms for the Poor necessitate that One is not Poor himself. The other side of the Question states Politicians from a High Income bracket do set the Tax rates for both Rich and Poor, and by the way, spends the Tax revenues derived; think of a millionaire possessing about $3-4 million in Assets, who can suddenly spend some billions of Dollars, by the simple process of gaining Consensus from a small group of Peers. One might wonder at the sincerity of claimed desire to curb Spending, or willingness to cut Taxes, especially on Those of lesser Income. I can empathize with Those looking to the Bible for Relief, but One must be realistic; the last major Conflict between religion and the Wealthy was when Jesus drove the Money-Changers out of the Temple. Since that time, both Sides had decided to make an accommodation with each other. These Rabble-Rousers are trying to upset the longest Accord in history.

Dean Baker provides Us with his traditional "Bah, Humbug" for the Christmas season, and like always, it is perfectly true. Crony Capitalism is destroying the Market system, and if allowed to continue and expand, will eventually result in the Resource Misallocation associated with the Soviet system of Communism; this also true, but don’t ask me to defend that assertion as I prepare to eat Christmas dinner, ruining my appetite. I will do my gig as well, and wish All a Merry Christmas–a somewhat hypocritical position, as I believe Coroners suffer from serious underemployment. Merry Christmas, anyway. lgl

Food for Thought

I wish to recommend this article by Brad Edmonds, though I have a real issue with the complete remission of the duality of liability for the Stockholder. This reminds too much of the Nazi excuse that they were only following Orders. Liability should pensively resume at such point that Stockholders become aware of structural Wrongdoing. Such a position insists that Stockholders themselves share the responsibility to ensure obedience to the Law. It is nonsensical to protest that beneficiaries to the commission of a Crime, should be absolved of liability for that Crime, it being actually committed by individuals in their employ; tacit acceptance of the commission of the Crime for the Profits from it, returns the liability to the Crime. Edmonds also denies the real existence of a link between Corporations and the State, but the link does exist, and is identical to the Stronghold banditry and Letters of Marque of Old, though the substance of the agreement is limited to the nonviolent.

Here is a Post which is most informative, but has a totally erroneous attitude to the current Trend. The basic fallacy resides in the thinking of Economists, who believe that absolute maximized full Consumption fulfills all requirements for the Economy. It first stretches the Consumer, leaving them without the financial reserves to sustain setbacks. It encourages such Business practice which makes inferior, short-life Product, where more durable Product would consume less material resources in Production, less energy in usage, and actually increase Consumer financial reserves. The perfect Scenario is a Consumer who buys three Houses per lifetime, all of which have already been built, and about an equal number of vehicles for Transport. We need Houses which last for 125 years, vehicles which last 15 years, and Computers and TVs which provide 20 years of Service without maintenance. Clothing should last 20 years, or survive through 1,000 Washings: Second-Hand Clothing stores should sell approximately 70% of all Clothing by volume.

How to obtain such Visionary desires? Property taxes on Housing should be set at the time of construction, a definite finite amount defined by 60% of the original Cost, and made an integral element of the Mortgage; paid within the same Installment system, and coming due in full with payment of the Mortgage. Purchase of already-constructed Housing will have an identical Property tax based as 60% of the price of the home, paid in the Installment plan of the Mortgage. The Ringer, here, is that the Property tax decreased in Cost to all Homeowners with longer residence in the Housing; the worst scenario is paying off the Property tax twice, and still paying off a third allotment of Property tax. Motor Vehicle manufacturers should receive Tax Credits based solely on the number of their vehicles still on the Road after Twelve years. This would impel design for endurance of vehicles, because it would provide Incentive to Car companies. Regulation could insist on a Clothing Buyback program for Retail clothing stores, where new Clothes could be returned within 3 years for 50% of the Purchase price, and second-hand Clothing could be returned for 50% of the Purchase price within 3 years. Clothing Retailers would get very interested in the Resale value of Clothing. lgl

My Basic Attack on the Affluent

Greg Mankiw tells Us the Fed is doing an excellent job, and We should allow it to do its duty. His entire article in the NY Times suggests that a natural Cost of Money does not exist, or if it does exist, the Fed is the natural instrument to nullify that Cost. Greg also mentions that loss of Currency value (which some fools would even consider to be Inflation--well me, with the Inflation simply pushed off on the Consumer) does not matter, as long as Business has a cheap access to funds with which to pay off their rising debt (he lacks entrance to the deep Question of whether this attitude fueled the Credit Crisis through provision of deeply inadequate real returns on the Money). I suppose Greg holds to the Fed reaction that overall Inflation numbers can be ignored, as long as Core Inflation remains low (even when the Volatile sector begins to absorb a much greater share of the finance of the Economy). Perhaps my greatest criticism of Greg’s actually good article lay in the assumption of a Intellectual aristocracy, remembering that a great part of the success of Hitler, Stalin, and Mao Zedong lay in the excellent intellectual advisors they had in abundance; come to think of it, the Saudi family is probably the most excellently trained Intellectual family in the World, and may even surrender Third World Slave practices if Americans apply high levels of bad PR to such activity.

Here is an article which should be titled ‘Tax Evasion for the Affluent’. I enjoy the term of ‘Tax harvesting’ as used in the article, which for Those slow to understand such terms, can be translated as Measures to cheat on your Taxes, so the Middle Class will wind up with more of the Tax Bill. This title, though, may cloud the Issue with Class Conflict issues. Maybe the title should be ‘How to utilize Tax discounts which your Employees are forbidden to use’. No, that will still not do it! Let’s go with the title ‘How to Draw your own Tax Bill, using the Pencil set of Tax Discounts built just for you’. Remember, this article is written only for Those owing more in Taxes higher than the Income levels of most Labor.

Mark Thoma finds an article from Gregory Clark which claims We can survive the experience of cheap Oil. I have nothing against that View believing it myself, but detest the avoidance of true discussion of what must be done to obtain such an idyllic state of being. Things like Federal prohibition of Property Tax exclusions, coupled with a progressive, graduated Property taxation based on square footage. Vehicle taxation set by Miles traveled, adjusted by the MPG enjoyed by Vehicle type. Legal enjoinment of Home Delivery of all Purchases, making Public Transportation more attractive. Legal requirement of Local and State Governments to fully fund Public Transportation facilities, based upon a national grid of Public Transportation. A federally-mandated Public Parking tax of $2 per Space, collected immediately and good only for a 24-hour period; think on how many Meter Maids could be employed collecting taxes. Employers could pay up to $2 per Day for Employee Parking, but going out for Lunch will cost the Employee. An Energy Tax will be mandated which will be set by Building Temperatures determined by Utility monitors based on an internal Temperature between 68–78 Degree F, with Tax frequency based upon Hours at each Temperature (square footage not adjusted because of the graduated Property tax based on footage). It is only these measures which will change American preference patterns, and lose the desire for high Energy use. lgl

Getting Out the Vote in Two Ways

Cactus at Angry Bear asks a good question, but could it possibly be rephrased to attain a more positive Answer? Is this not a Question of correct and efficient Parenting skills? A dysfunctional family probably exhibits less success than an institutional framework, while the Later could maximize potential success to the point as it provides real leadership cadres. Under all Cases the process of Parenting relies upon statistical Averaging, which comes into competition with the Concept of personal attainment, concurrent with all systems producing Duds of personal achievement. Should We not be asking whether social mobility ever surpasses the Heredity component of proper Parenting skills however produced?

Mark Thoma brings up an interesting Question: Should Voting be Made Compulsory? He says No, but after reflection, I decided the Answer should be Yes–but with Qualifications. Just like the omnibus bills of the Congress, where the evil is in the fine print of the Conference Reports; the hook should be in the Qualifications to mandatory Voting. The later should alter the entire direction of Voting in the democratic context. The first rule need be that all Candidate are voted upon; in the Primary, Voters will be asked to signify which Candidates are acceptable to Run for the Office, and signify with a No vote those Candidates who the Voter finds unacceptable. Candidates will have to prove their worth as a Candidate; this best spelled out by definition of a clearly outlined program if elected, which the Voters will have the power to review in the upcoming Election.

The last Sentence to the last paragraph holds an essential key to the success of the new Voting process. Candidates will have to articulate a definite program for implementation, Voters will be voting upon Initiatives rather than Candidates, and Voters will cast their Votes for the Candidates themselves by voting No on Candidates found unacceptable. The Winner will be the one with the most Yes votes (least No votes), and the voting Public will make known what Initiatives they would approve, no matter which Candidate advanced the proposals, with expectation that the Winner must adopt all successful proposals, or convince the voting Public that proposal elements are unacceptable or unworkable. Does this sound somewhat like the No Confidence Vote of the British Parliament? lgl

China and the American Way

Here is the lead Story of the Day, though Most are not likely to recognize it for some 3-6 years Why? Well, the actual numbers realistically equal the new numbers put out by the World Bank, but there is little recognition of the coming crisis–something like the current Credit Crunch in the West. Other nations, both Undeveloped and Developed, will eventually match and probably exceed the competitive advantage currently enjoyed by China. They have consistently denied development of Consumer-Role institutions in the Hinterland of their Country. They possess only a very inadequate replacement Consumer population (no Cash and lacking Stores). Once China loses the Export Trade, all those Bad loans become bad commercial paper. China has become addicted to the Imports they currently will accept, but will wind up without ability to purchase them. The West will also suffer, and Western Investment will turn into empty, shutdown Plant.

The Free Exchange highlights another danger for China, who does not possess sufficient technical advantage to design and build clean-burning Coal for electrical generation, when it is yearly increasing its electrical generation at a vast magnitude. Electrical Power Plants and Smelting Furnaces have a Life Expectancy of 30 years, and the magnitudes of Coal-burning utilizing inadequate technology remains relatively locked-in within that Period. Alteration of these Plants to utilize clean-burn practices typically equal or exceed the initial Cost of Construction. The Time to get Chinese compliance with World environmental standards is Now, not after another Ten years of Coal plant construction.

This Post, like all from this blogger, knows no boundaries, but it does have a graph which Readers should look at. It reminds Us that it is not only China where Ignorance is Bliss. Consumers are still building Credit debt in the midst of a Credit Crisis, and much of it is coming from Households where Mortgages will fall into Foreclosure. Economists might ponder these events with some degree of Pleasure, though sensible men might wonder at the sanity of it all. The World gets more confused and confusing, as it becomes more complex. One has to ask whether it is the Common Man, or the Experts, who need therapy. lgl

An Economic Forecast (Maybe?)

This article implies that there was a sharp Braking action last Fall in the Economy, to which aim is an attempt to press for the remedial action of easy Cash. The spate of economic activity of the summer was actually a basic Contract fulfillment on basic Orders already negotiated the previous year, and in the 1st Quarter of this year. Contract Orders had already been slowing since the start of this year, and will only speed up upon appearance of Profits-making potential, easy Cash or not. Reality presents a picture where Land values are too high, Residential and Commercial Properties are too expensive, Utility Costs are too extreme, Advertising for Market capture more expensive than Oil, and a saturated Consumer market possessing reduced Consumer Demand. Fundamentals restrict Business expansion at Present, and no amount of Government Fuel will alter this Fact.

I mention this Post by Menzie Chinn because it is excellent, and cancels the Propellent claimed for State and Local Government Spending. This Spending has always presented a counter-Keynesian bias, local legislators of the realization that the limited Revenue-generating capacity of their Taxing arms would not get them Preferred Status from Money lenders. State and Local Governments simply lack the Size and Capacity for Pro-Keynesian policy.

I will discuss the prior Four rationales listed in Menzie Chinn’s piece. The Fed is currently afflicted by an over-sized Economy, already over-packed with Cash. More Cash will not provide greater Productivity, only secure temporarily the Profit ratios of earlier years. A Monetarist approach to the current Economic trend will only generate Stagflation. The Housing downturn has not even started its retardation of economic growth as yet, because of Government and Banking intervention. Foreclosures will come; it is simply a question of how much Money We will waste trying to prevent the Foreclosures, before We allow the Mess to clear. The Job market is a bright spot because of the lean and trim Job Hiring of the Boom; Business cannot exercise Layoffs and Downsizing without losing productive capacity. Exports will not fuel the Economy as long as Imports increase faster than Exports; the Equation here remains Production Costs continue to rise faster than effective Export pricing in real terms. The Hedge against Recession is more illusionary than fact, but We should still get another Quarter of real growth, and Spring will cut Energy Costs next year (I predict that the current decline in Miles traveled will continue throughout the next year). lgl

Charge Cards and Recessions

Here is Action which suits my Taste. The multiplicity of Credit Card charges remains the great abomination of the financial world. Card companies use the complexity of fees, all of varying rate levels and unknown rate-fixing policy, to impose whatever Card Costs they require to remove any Risk from themselves. Central Banks or Government Regulation should have forestalled this practice long before, it being a constraint of Trade and elimination of Competition. Annual fees should be forbidden, to cut discriminatory charges for non-use of the Card; a $50 annual fee requires an average of 14 Credit transactions with any Card to prevent Violations of most usury laws still on the Books of some States (Debit transactions, and Credit charges paid within 30 Days of Billing, will run into usury violation unless monthly balances average about $700 per month for over four months). Exchange Costs are business costs which should be integral to the adaptability of the Cards, and are the responsibility of the Card companies themselves; not mechanical Costs to be borne by the Card-Holders. Card companies should be legally bound to charge a unitary Charge of a percentage rate of the Amounts utilized, based upon the length of time which the funds are used, and the largesse of the outstanding balance.

A Translation of such Credit Card practice would be a 0.5% charge on the first $1,000 for the first month, 0.75% charge on the next $3,000 borrowed in the first month, and 1% for amounts over $4,000 for the first month. Delay of Payment past the first month should raise all Charges to 1% per month for the remaining balance. No other financial charges should legally be allowed, with Card companies allowed the sole venue of setting Credit limits to reduce Risk. The real heart of any such legislation or policy would be prevention of Charge Rate increases above 12% per year, unless Central Banks funds rate raise to within 5% of the allowed Rate limit–above 7% per year. Such a policy would establish sound banking practice for the Credit Card industry, and prevent the distortion of Consumer information which is currently existent.

This Piece from Larry Summers, coming by venue of Mark Thoma, outlines the fight I need make against the current trend of Economic Thought, from both Liberal and Conservative sides. A Tax Cut of the amount proposed, $50-75 billion, would be swallowed by the Economy considering its current size, and would do nothing to alleviate the root causes for the malaise. It would simply be throwing Good Money after Bad. Reality states that the Economy has to bleed out all the inflated evaluations generated by bad Fed policy in the Past, and harried Homeowners must accept about a 30% depreciation in Home values. Banks will be forced to engage in renegotiation of Mortgages at lower Rates, or face the loss of value incurred in Foreclosures. It is actually a relatively good time for a Recession, with most business and industry incapable of Layoffs or Downsizing, without loss of sustainable productive labor. We have seen all types of Recessions, this may be Our first No-Layoff Recession. lgl

Direction of Economic Policies

Here is where Greg Mankiw and I reach a Divide, he asserting that only the size of the Incentive is required, while I would claim that the Stick is very important in the reach for compliance in maintaining health care coverage. Using a Stick approach, Violations will generate a repetitive Tax, one which will be inflicted every time the individual approach a health care need (a new Doctor, Specialist, Clinic, or Hospital visit); the cost of the fines could easily exceed the cost of the health care coverage within one year. Under the Carrot approach of a Tax credit, the value will never equal the cost of health care coverage, and the lucky individual could save money over the interim period of a decade of youth by avoiding health care coverage. There are times for a Carrot, but there are also times for a Stick; Greg should place the entire situation in an economic model by the size of the Incentive, he would find health care coverage becomes about 80% more valuable under the Stick approach, rather than the Carrot approach (under the Carrot–the Insured can only lose the size of the Incentive; under the Stick, the Individual could easily lose an average four times the size of the Incentive).

Tim Haab gives Us a View of the new Drug of Choice–Ethanol. Here is the essential problem: continual construction of ethanol plants will soon make ethanol as expensive as Oil, and will not decrease easily; constructed Plant develops its own economic demand for Product, simply to pay for the Cost of Construction and Operation (another subprime Mortgage crisis). Corn acreage will be excessive, and that excess will not be Short-run, but will continue through the lifetime of the ethanol plants. Ethanol subsidies appear to be a heady Growth factor, except for the fact that Food Consumers will be paying a huge Price for those subsidies; the later can be translated as a indirect Tax on Food Products, and a Tax which will incite a Short-run increase in Food Costs of 10-12%, with a doubling of Food Costs through the full lifetime of the ethanol plants. And Economists say that Tariffs are bad, and Subsidies are great economic incentives.

Alex Tabarrok has a point in stating that the Income Tax is still progressive, even though modern Accounting methods encourage Everyone to cheat on their Taxes, as was inferred by this Post by Cactus at Angry Bear. The error in Tax policy, though, does not reside in this arena; realistically, Taxpayers are paying about what they should in taxes. The Need is for removal of the complexity of Tax law so that Individuals can rely on their own Math skills and simple IRS rules to file their own taxes without Aid or Charge. The next element necessary is an Energy tax with both limits Consumption, and replaces the Tax revenue lost to excessive Government Spending. The final condition is to force Imports to pay the same penalty in Tax, as does domestic production. There is no reason or rationale, or even justification for economic incentives, in the deficit spending of Government. We can generate a Budget Surplus, and still have excellent performance of the Economy, though with an actual 8% decline of Consumption as an operating factor in the Economy (People will buy less, but of more durable Product). lgl

Why Christ Was Born in Winter

Kids must have their Toys, and be allowed to play, but one wonders at the rationality of the activity. Turkish military activity, even if it was directed at Wall Street, could not affect the supply of Oil in January. New Englanders are in trouble, if there is not already sufficient Heating Oil available in the area to protect against a blizzard. Children enjoy manipulation of such Toys as arbitrage, but continuous flow market theory will rightfully suggest such influence could not affect Prices past a basic 6-Week Period; Supply alterations will alter allocations within this Period, rendering no post-traumatic impact past that point–this means essentially that arbitrage can only affect about 8% of the total Supply, and do so only for about a month. The Run-up of Oil prices for next year, based on minimal threats of short duration, simply expresses Children are trying to get their Toys to work in the real World.

Retailers may have to accept the fact that Shoppers are coming, but are not buying. I wish the Big-Box stores would release Check-Out Counter data for the Season. It appears likely that the Sales/Customer are down drastically, and if this is the Case, Retailers will have to accept the Season will come in poor in the Dollars exchange. Customer volume appears relatively high, and they have been turning away from high Prices. It does no good to hide adverse economic data, which could present evaluative data for Retailers; who still do not understand that Customers have allocated about the same total volume of Funds for Christmas shopping as they did last year. Customers will not pick up on Sale prices, which are 3% higher in Price than was Full price last year.

Mish has a Post on California and its budget woes, which just shows that the discussion could be about the entire nation. The entire Situation shows the fallacy of economic policy which exclaims that Public Debt is a good and necessary thing. The prime justification of this policy resides in the claim that Business operates with this level of Debt continually. The difference between Government operation and Private Business contains the element of failure; Business will eventually start making a Profit on invested Capital, else the business format will fail. Government operation, though, will never make a Profit; if it does make a Profit, Funding to the operation is rapidly cut. Government borrowing only provides an added Expense which must be both paid, and pay Interest on what debt there is; what is an Operating Cost which is never Profitable–Government in full, in Part, and in Essence. lgl

New View

How to define the Lies one hears every day? Tom Redburn attempts an effort, but it falls far short of excitement. The Republican position on Taxes is idiotic, but the Democratic position on Spending is equally short-sighted and stupid. The first fact Readers should assimilate consists of the idea that the Economy will not expand more rapidly if Taxes are cut; We will actually be hard-pressed to keep the economy from withering under the bombardment of higher Energy Costs and Ageing Population, things which could be valuably improved with higher taxation. Economic performance is not impeded by efficient taxation. The second fact states that We could not afford a third Bush-style administration term; We are in the enviable position of either raising Taxes, or becoming a Third-World economy. Do Some imagine I am becoming hysterical? The current Mortgage Crisis has cost Our Neighbors about a Trillion dollars, We owe them at least an equal amount, and they are not in a Mood to lend more–check the climate control conference. Fact Three states simply that Tax Cuts cannot be funded, because We have no one to borrow the necessary Cash from, who is in any manner willing to provide it.

Here is a sample of the current American Thought on Carbon emissions. It seems very convoluted with interminable counter-proposals, not just in the article, but throughout the Political matrix. The complexity remains the Fault of the No-Taxes mentality. I will attempt to straighten out the Mess somewhat–and probably only generate more confusion. Americans consume too much, and this Consumption remained geared towards heavy Energy use. Production worldwide has made no transition; using Energy-intensive Production methods to produce Products which require heavy Energy use; American still consume more of these type Products than Anyone else, the real Threat being foreign adoption of American consumption practices. Economics will explain that the only effective means to reduce Consumption still remains Taxation; to the point, extreme Consumption practices will not be reduced until such time as they are taxed (this Statement does mean I am in favor of any type of Sales Tax nationally).

What is needed is a Taxation on specific types of Product, but universal throughout the World economy. The United States should lead the effort to gain Treaty acceptance of a Global tax system on Product. The agreed Taxation, like Our Income Tax, should be graduated based upon the average level of Income within each Country. Developed Countries would admittedly pay the highest taxation, and low Average Income Countries would pay only a minimal Tax; the beauty of the system, though, is the fact that each Country would maintain its own Tax collections, and use the tax revenues to defray the Costs of their own Government and Development. The real bone of contention will come with the next element: which is establishment of Tax rates for each type of Product–actually a multiple rate of three levels. I envision Americans paying 12% for their Agricultural products, 8% for Construction materials, 40% taxation on Electronics, and 40% tax on Vehicles; all based upon the flow of Energy consumption through its lifetime of creation and usage. Middle-Income Countries like China would pay 6%, 6%, 25%, and 30% in taxes in the various sectors. The real Gain here is the Statement that the Tax has to be collected, even for Exports. Placement on Exports give an Advantage to lower-Income Countries, who can export at lower Price because the Tax is lower, while insistent that Developed Nations of high Income must stay technically efficient to remain competitive on the World market. lgl

The Real Grinch

Jared Bernstein rolls out an extensive Review of the Congressional Budget Office Report on Household Incomes. It basically states that 95% of the Households are losing out in the Income race against the top 5% of Households. Bernstein alleges that lower Income Households would have averaged a $3600 Income rise, rather than the $400 average (approximate) rise, if there had not been a $400 billion shift of Income to the upper 5% of Income Households. 63% of the Income Gain went to these 5% of high Income Households. Bernstein suggests this is unacceptable practice in a Democracy, a Thought which may be essentially true, but does not present a defensible value for Economists.

The Economist must start with the realization of the statistical Outcome, then question how that Outcome derived over the Period. Study outlined the Movement of the American economy from domestic production of Goods and Services, to outsourcing Product from foreign economies who possessed lower Production Costs. Households within the highest 5% of Incomes almost universally were involved in this transmission of Product, or had access to the Income and Profits generated in this transmission of Product. A great Share of the lower Income Households, on the other hand, had their economic fate tied to the previous domestic production; either as high-paying domestic production Jobs, or Income deriving from domestic production. It would seem that the general run of Households need to become involved in the transmission process of foreign Goods and Services.

Does this seem like an effective program? Well, it isn’t! This general Transmission sector is already overfilled with Employees, Investors, and Businesses. The sector is beginning to shed excess capacity by labor reductions, low Profits, and low Sales. This Discard is being helped by the weakening Dollar, which makes Imports increase in Price, cuts Profits generated in Dollars less valuable, and propels much higher Production Costs for Transport industries. The Federal policy to weaken the Dollar by shipping American debt Overseas is only the Tip of the Iceberg; the real value loss comes in the reduced Productivity of American labor in real terms, who have ceased Production for their own maintenance. The economy, luckily, is Self-Correcting, and eventually the American Dollar will weaken to the point that foreign production for the American market will not produce an effective Profit; thereafter, Americans will have to go back to provision of their own Sustenance. lgl

All I Want for Christmas--Bah, Humbug!

The International Energy Agency adjusted their estimate of Oil consumption upward next year to 87.8 million barrels per day. The Countries providing protection subsidies to their citizens are expected to continue their increasing rate of use of energy. This, in conjunction with the obvious manipulation of the Price of Oil in the Markets, will bring on a Oil balloon within the coming year; Oil Demand remaining constant in the developed nations. It may be time for the Federal Government to develop a real structural Reserve (unlike the current one) dedicated to a build-up of a 6-Week supply of Oil, and utilize the Buying agency organized to regulate Oil prices by direct intervention in the Markets. The Reserve should be strategically sited throughout the Country, so as to provide Security against Pipeline disruptions. Oil Specialists will declaim the program, citing the difficulty of acquiring the Oil without major disruption of the Oil market, but it will eventually have to be done, and Sooner will be easier than Later.

The Consumer Price Index jumped 0.8% in November, with the core CPI advancing at 0.3%. Consistent December performance will put Us on the road to a year over year 4.2% inflation rate. Further Fed fund rate cuts would throw Gasoline on a raging fire. The whole Situation , combined with the Producer Price Index, has brought on a challenge; the December CPI is likely to be higher than November’s rise.

Europe is suffering under the impact of Inflation as badly as the Americas. Unlike Edward Hugh, I can express a Hope that We are entering a Recessionary period, this because it would be a lot less painful than the Scenario which I suggest is developing–Stagflation. The evil Beast was not vanquished in the 1980s, only left to sleep until the Money managers would again awaken it. Excess Development was pushed ever since the Tech Bust, and We are left with a Mortgage debacle (Business as well as Homes) over-financed, with little chance of effective payment without rising Prices for Product; Production obviously being in decline to cut excessive Costs. I estimate the Stag will be running free within the year. lgl

Cracks in the Foundation

Reports would seem to deny my pessimism about the resilience of American Consumers, but I still await the end of the Christmas Season. The Producer Price Index went up 3.2%, and Economists attempt to put a pleasant face on it by stating it was only 0.4% rise when Food and Energy prices are subtracted from the mix. This brings forth two Protests: the first states 0.4% inflation at the Wholesale level is no small number as Retail outlets pass almost all Costs forward; the second element declares that almost all Consumers raise their consumption of both Food and Energy during the Christmas season, so they make a much greater contribution to overall Consumption. My mind would ease if I could locate some numbers on actual Physical Product Gains and Losses.

Here is what Economists make of the Situation of good Retail Sales for November. Drew Matus of Lehman Brothers may express the sentiment best if the trend in Consumer Spending continues, but I doubt most Economists would publicly concur, though almost All would surely Wish it so. Brian Fabbris honors the only real component of the Report, when general merchandise sales rose about 0.5%; this later is something which I doubt, considering such Sales on a long November as basic furnishings on Construction closings (I could certainly be wrong on this aspect). The Grinch could still steal Christmas, but Santa may escape one more year.

Phil Izzo and The Skeptical Optimist both note the decline in Federal Corporate Tax receipts. This is partially the fault of the continually revamped Tax laws concerning Corporate Tax breaks, but it also highlights the fact there is too much Corporate paper out there; paper which must generate a higher level of Profits to cancel the percentage increase of the paper. This has nothing to do with the level of Tax receipts, but will impact the value of the Corporate stock. It is mentioned here because Households are extremely reluctant to shift their Investment schedules to an increase in Consumption; yet, they will be purchasing less valuable Product (Corporate paper), and likely to minimize their Consumption to maintain Investment schedules. lgl

Faulty Decisions

The November Import Price increases in combination with the October Trade Deficit increase expresses to me, if not Anyone else, that the Trade Deficit position will only worsen for the United States with a weakening Dollar. Widespread segments of the economic community believe that a weakening Dollar will gain the United States a Trade advantage. The Import Price increases clearly show that the multiplex World economy will adjust Prices equally as rapidly as American business competition, and a weakening Dollar will only generate immediate Production Costs increases. The convex is also true, and a strengthening Dollar will lower Production Costs. Monetary policy will not sell Product, only quality Product at efficient Production Cost will sell Product.

Here are initial numbers which I do not trust very much, though they may be solid. Wall Street may expect a 0.6% rise in Sales, but I smell an air of putridity in that belief. Car Sales, Gas Sales, and Home furnishings Sales all dropped, and Black Friday Sales did not continue through the month, though many of the Discounts of the Big Box stores remained in place. December Sales seem a far-off dream for an increase, especially in the face of the volatility of the Markets in recent Weeks. American Consumers feel a great deal of insecurity as the present time, something which is not conducive to strong Sales increases.

I think highly of Mark Thoma as an economist, but disagree with him on this one. The Fed action will put more nominal cash in Markets unlikely to expand significantly due to exterior economic conditions; adding excess funds pressuring a weaker Dollar. The Move will push up the Price on Oil, overall Imports, and Wage Demands; all without producing an expansion of business. The Market positions will worsen, as P/E ratios become untenable with artificial increase in P and reduction of E through Capital Cost charges. Economists and Wall Street wants the easy Money which fueled the Mortgage Crisis in the first place, but it comes with hazard equally as great as when it was generated by the Crisis run-up. lgl

What is Wrong!

Edward Hugh usually comes up with a useful set of graphs and charts, and does a superb job this time. I gaze at his material on Japan, and wonder how the context differs from the American outlook. I believe there is a deep-rooted similarity in the attitude among both Japanese and American Consumers. They perceive relatively stagnant Wages, overall rising Prices, and Businesses making a healthy Profit from the Price raises. Everything is attacking their standard of living, as the big Business interests rejoice at the Cost increases where they draw a likely 12% Profit from the increase. Of course, only the Money men and the Corporate environment feels such joy; small business join the Consumers in bemoaning the loss of economic viability.

Jeff Cornwall may have pinpointed the problem exactly. Small business optimism dropped with the Fed rate cut in September. Small businessmen recognize what is generated in an economy when there are heavy inflationary pressures, and Government thinks to flood the Markets with easy Cash–high Inflation. The later is far worse for small business finance than is even a Recession. Small Business remains based on provision of Goods and Services of basic nature to Consumers, and actually wear well under recessionary conditions; that is, they would if they had a Source of reasonable Credit, which they will not have with Inflation rates approaching 5%. They still can acquire adequate business finance, but they also know that the Fed and Congress are planning to open the economy up to heavy Inflation.

This may be why We have such a poor operational system of a Democracy. Candidates slam early primary States, spending Big Bucks, promising great things, and presenting a Vision of Greatness to a few million Voters. All hope to gain the cherished momentum which is continually echoed by the lunatic fringe (modern Journalism). The Millions spent in these States have disappeared by November Election Day, but so has the Promises and images of Greatness; still, We are left with the repetitious tarnished Candidates. The worst element comes in the permanence of Special Interest policy in Washington, they who paid for the charade in the first place. lgl

The New Dictatorships

Bryan Caplan often gets a little Wild in his postulates, but he occasionally asks the right Questions in a correct format, like this Post where he tries to define the popularity of dictatorships. He lists three structural rationales for longevity for Dictators. His first definition should be rewritten, and defined as the fear of the Alternatives to the in-place Dictator; especially if those Alternatives espouse radical change at the Social level. I glanced at Bryan’s new Paper, and wished I had the time to read it (found in his Post). I believe seriously (like von Mises) that Dictators are constrained by the events which brought them to power, and have little ability to alter from that initial direction; remember, the creation of ruthless Police power almost guarantees a violent replacement mechanism. Propaganda and Brain-Washing has relatively little power until an entire Generation has been raised from childhood under the tautology; while violent Police power operates effectively from the Start. Propaganda also only works well when it does not have to face alternative opinion, possessing only about 10% of the enjoined commitment if there is alternative discussion.

William Polley brings Us an Argument which seems to have no relevance to the previous Post by Bryan, but it still concerns the Expectation of the Polity for provision from what is understood as an economic dictatorship; the Big Box stores have the Routing mechanism to provide quick Supply of disaster materials. It does not matter the manner of payment for those Services, the Big Box outlets would be crucified, if they were not seen as part of the Recovery effort. It is a question of the Dictators stepping up to the Plate, and has nothing to do with the Cost of the performance. The Dictators (Big Box outlets) must show some Concern for the Polity, else they would be ousted; the problem being this Aid is too often pro forma without content, because of the Cost involved.

Mark Thoma and Paul Krugman point out that the Bush administration's plan for the Mortgage Crisis is basically a pro forma instrument without content, designed solely for the purpose of deflecting popular demand for adequate relief. The Plan basically protects the Money interests which provide the basic support for the Administration, while giving lip service of helping the Mortgage debtors. It only provides Cover for the financial administrators who created the crisis by bad lending practice, and effectively grants little Relief to debtors. This gives the image of Concern and Involvement to the Administration, while allowing Escape for Those culpable. Such are the mechanisms of Power. lgl

The World According to Carp

The lead article in the NYTimes claims that a lot of net Exporters of Oil are going to become net Importers in the next decade, and present some data which is very scary. Is this Oil shortage predictable?–Yes, but it is also unlikely. One must first decipher that the economies of these Countries are not Stand-Alone economies, which can subsist in any form of autarchy. They must possess a Credit of Exchange that their current Oil production currently provides them; in most cases, Oil is the only viable Export which they possess. They will be unable to compete with other Trade Goods in a World where all other nations are trying to produce the same mix of Goods for Export. Most of these nations depend upon Oil to finance their own Governments. None of these Countries can really afford to adopt the American model economy. The Result will not be a shortage of Oil, but a Price for Gasoline and Diesel equalized in the World by taxation.

Robert Frank delivers an important Argument about the need to raise Taxes. I will put the entire Issue in a slightly different light. Americans are living way above their means, and the only method to maintain the charade is to pass the mythical beast of Debt onto the Government through demanding Services without Taxation. The only problem with the mythical beast is that it must be paid Interest, and finally must be paid off in full. Some mythical Political leadership has designs on the value of the Dollar, insisting its value be cut in half, before the mythical beast of Debt must be paid; dependent on their own personal Earning Power being maintained. Why it is all mythical resides in the fact that the World will not let Us get away with it; and two, the greatest majority of Americans will only be ground down by the practice. An honest Taxation could still have Us running a Surplus, like We did during much of the Clinton administration, until Politicians starting playing with the Tax laws again. Fool Me once, shame on you; Fool Me twice, shame on Me. I guess the American people want to be called Fools.

I like this article because it is basically honest, unusual in modern Journalism. Consumers are a bit down, and Economists ask why? Could it be that overall Prices rose better than 3% last Year, Energy Costs rose better than 8%, Property taxes and Licensing requirements have increased by more than 4% year over year, and actual Take-Home Pay has been stagnant for a couple of years. Add that the wide run of Christmas Run-up Sales has reduced Christmas Shopping Costs to approximately a Price some 3% more than last Year. I think Consumers are in a grouchy Mood, especially as Interest rates on Consumer Credit may have doubled year over year. Don’t worry about it–Santa loves you All; though he may be filing for Bankruptcy next year. lgl

Any Health Care Plan

Everyone should read this Opinion by Paul Krugman, though I really don’t know why, as We all understand that any Health Care plan must be paid for; and any Payment plan must have some form of mandate. I would approach the entire Problem in a different manner, which seems somewhat complicated in design, but would be very simple in action. I will try to outline the basic components of the Plan, warning All that the opposition from the Health Care industry will be great.

The biggest Problem with Health Care comes from the increasing Costs of that Care. The entire health care industry is currently geared towards providing the most expensive health care available, as all of the newer medical techniques are covered by Patents, in one form or another. The health care industry goes to great Expense to educate medical personnel in these new techniques, so that they are readily adopted. Older, less expensive techniques, no longer covered by Patents, are still viable in most medical Cases, and could be utilized in the greatest majority of Cases. Any mandate must be coupled with some form of compulsion on the medical community to utilize the cheaper forms of health care, until more expensive forms of medical treatment are found to be necessary. The rationale for this coercion lay in the necessity of making universal health care as Cost-effective as possible.

My Plan would consist of a legislative mandate which would limit all medical Payments to Doctors or Clinics to an amount per Patient equal to the estimated yearly Cost of any health care tax imposed upon Workers; an equal amount which would impact as tax upon all Employers. Surgical procedures and Hospital Stays per Patient would be limited payment equal to only four times the average yearly Cost per Worker of the taxation. Medical Equipment will be amortized over the life of the Patient, where Payment cannot exceed one month’s estimated Average of Cost of a Worker’s yearly mandated health care tax; the total Price of the medical equipment is treated like a Mortgage, and paid by the Health Care Plan. The legal Mandate for the health care system would dictate that nothing in the health care industry can bill any Patient any year, for more than one month’s Average Estimated Cost per Patient of any health care taxation as Co-Payment. The legal Mandate for the health care system will precisely state that all Health Care Providers must average their Costs among their entire Patient load, and assume any financial burden which is assumed with individual Patient Care exceeding the limits imposed. Will it work?–We’ll see. lgl

Value of Trade

Students should read this Post by Greg Mankiw, who tries to define Paul Samuelson’s position on Trade, by citing the Bhagwati, Panagaryia, and Srinivasan (2004) rebuttal of Samuelson’s Paper. It sounds good, but may contain some elements of confusion (remember this comes from a individual who has read only parts of the Samuelson Paper, and none of the Rebuttal). The first Step in the Trade cycle develops, not necessarily because of Comparative Advantage alone, but also because of a lack of knowledge (Technology and Expertise) in the continuum of Sales in the Other’s domestic markets. The second Step is achieved with the Trader learns to effect Sales in the Trading Partner’s domestic markets, providing competition in those markets under the pressure of minimizing Production Costs. The third Step consists of domestic Producers learning to match the competition of their Trading partners effectively, and much of the value of Trade dissipates for both Trading Partners, with Trade reduced to basic raw Production materials. I happen to agree with Samuelson, and believe that the spread of Information and Technology will destroy any Comparative Advantage of Trade, except in the realm of raw Production materials, over the long haul.

Hillary Clinton may be mistaken on her views on Trade, but where has this ever stopped any Politician? My contention, possibly or impossibly backed by Samuelson, attests that Economists overinflate the value of Trade. My ideation fundamentally asserts that all Trade must be either discriminatory or confiscatory (as hidden taxation), based upon a lack of Information and technology spread. Even raw materials must be based upon a Worldwide Pricing system, with full spread of Information, to avoid this artificial taxation. The basic trouble with Ricardo’s Comparative Advantage lay in its excellent analysis of Costs; its basic failure comes in its inability to integrate Assets pricing successfully into the spectrum.

Economists will say the Above is a Question of Ethics, not Economics, and they will ignore the natural Cost pricing of discrimination. There is real reason why leading Trade partners invariably lose their preeminence in World Trade, which is basically the spread of technology and expertise. Great Britain was the leader in Trade in 1900, and trailed drastically by 1950. Japan was a major leader in the 1970s, and has been struggling since the 1990s. Is this some major loss of Comparative Advantage? Well, yes, but a specific loss through Information Spread; remember, Japan still remain as a technological leader. American Economists should realize that the United States needs to take the lead in some industrial advance–Computers and Boeing jets are getting a bit worn. lgl

Government Mentality

Here is a prime example of the Workings of Government, Science, and bureaucracy. Even if they can finally establish that there is a Danger, any Solution can be blocked by any segment by multiple counter-Proposals. I will tell Kids right now, that if We are actually dependent upon reaching some critical goals within a specified Period–We are doomed! I am reminded of the old Racist statement that if you put Two Jews in a room, you would come up with five Opinions; I have always contended it cannot just be restricted to Jews. Before I scare these same Kids about the Danger of Global Warming, I will say that if Greenhouse Gases continue to be released by humanity at current expanding rates, We should equal five active Volcanos somewhere in the next thirty years. We might fry in Our own homes, so be it; I think We should talk about scraping the Greenhouse Gases out of the atmosphere, a sensible Plan which could also counteract those Volcanos.

Here is another instance of the intricate workings of bureaucracy. The Federal Government wants to put a driver away for life, because he drove bin Laden around. They claim this individual knew of the Sept. 11 attacks prior to that date. So what? What were the Options of the individual involved? He might have made a Collect Call to the White House. He might have told bin Laden to hell with his $400 a month Job, which would not have stopped the Attack or saved anyone, but would have showed he was not a Terrorist. He might have refused to carry Weapons in his car, though he had a legal Permit to carry firearms, and there has never been any Injunction seriously enforced to carrying Arms in Afghanistan–ask any Taliban member or American soldier. It is another instance of burning the Small Fry, while leaving the real issues unresolved.

We now turn to the subprime Mortgage bailout announced by Bush, but devised by the industry itself. The industry only wants to save those Mortgage holders who cannot possible renegotiate new Mortgages, with all the charges of refinance. They lock in those losers into paying what they originally agreed, and forcing all Others to refinance with all the expenses involved. A real humanitarian effort exhibited by the big money Lenders; who can claim righteously that they have been injured horribly, and insist on even more years of indebtedness for the Mortgage debtors–at higher Interest rates. I love America, if you can stay above the flow at floor level. lgl

Short-Sighted Economic Theory

This BLS Report may miss the boat. It bases its evaluation on past performance, not resorting to a study of economic trends. I will first say there is no obvious indication of a Recession anytime soon, but that a Recession will undoubtedly occur within the next 5 years, based solely on the extreme complexity of current economic integration. The next Recession, whenever it comes, will create a great Watershed; Government having already exploited almost every venue to expand the economy: the National Debt is huge, the Dollar is already declining, and the economy has already expanded into sectors capable of utilizing lowered Interest rates because of quick Profits turnover. The Government will itself be a major Debtor looking for subprime financing, which will not be found. It is my Thought that the only avenue out of a new Recession will consist of a reconstruction of American industry, there being no where else to regenerate positive growth. We are going to need those Blue-Collar Workers once more.

Gilles Saint-Paul presents an insightful Argument on the impact of interest rates as a price of a Product–financing. A Fed-dominated Interest rate constitutes artificial shelving of Product at non-Market pricing, remaining unconcerned about the quantity of the Product unless it raises the prices of other Products. Normal economic theory would suggest that the practice would bring constriction of Product provision–or finance. The trouble resides in there being a inversion of normal economic theory concerning the flow of Money resulting from the practice of Reserve banking. Extension of Loans become increases of Reserves, through the simple practice of the Debtor, or later Seller of other Product, redepositing the funds back into the banking system. Reserve banks obtain an almost limitless supply of Reserve funds to be lent out, all they need is the Debt purchasers. The Fed can set the interest rates, or Reserve rates, too low, and suddenly there are more Borrowers than is economically sound.

Gilles touches on how low Interest rates will affect Imports, which will increase in amount. Debtors and Product Sellers will wind up with a larger flow of Income because of low Interest rates, and will want to spend a greater share of that flow on themselves. Demand outstrips Supply of Consumer Goods, and foreign Imports quickly fill the Gap; a practice helped by Production Costs historically being cheaper Overseas. Those Products which must be filled by domestic production rapidly increase in Price, due to the increased Demand; Gilles’ increase is assets pricing. Saint-Paul says bubbles might be created, I will say that bubbles are automatic under such practice, it only being an equation of impactive Time and Pressure. lgl

Extortion and the Abuse of Police Power

Cactus at Angry Bear provides two Graphs which should make the Reader contemplate current Conservative economic theory. Marginal Tax Cuts do not appear to operate as economic theory would dictate. I have previously written of my belief that higher Tax rates with sound Tax collection practice, if not beyond the absorbent qualities of the economy, provide a spur to economic growth; my position being that Management is forced to work harder, greater Wage Demand exists, and Service industries expand to acquire the added Wages generated. Cactus may focus on the lax Tax collection practices under Republicans, but the real Story is that there is a spur to economic growth under higher Taxes, and elimination of a spur to growth with Tax Cuts.

The EPI studies the better outcomes of Canadian health care compared to the United States system, while the U.S. spends almost double that of Canada. They also note that Canadians consult with Physicians almost twice as often (6.0 v. 3.8). The American practice of limiting Medical School enrollments has been a major factor in the last statistic, which is not endured by the Canadian system. The limitation has cost the American economy greatly, ever since the Grenada invasion to rescue American medical students. Why must Americans go Overseas to attain Medical School, if We possess the finest health program in the World?

This Piece brings Us back to the original paragraph, but ties in with the second paragraph in an insane manner. My Comment on the Free Exchange Post is that if the American economy was overheated by the low Taxes, the disparate Government Spending deficits of the Bush administration, and unsound Pork Barrel Spending of both Parties, then an excess of liquidity will not propel growth, only Inflation. Mark Thoma makes the essential point that Consumers are in the mood to pay down Debt, rather than engage in further Spending. I do not like the arguments of Thoma, and agree mostly with William Polley. He thinks there should be a lower funds rate, which I happen to also disagree with in both theory and practice. My Solution would be to eliminate the impediments to economic growth now on the books, like the above difficulty of obtaining a medical license if qualified. I would also incite new laws, like compelling fines for use of Tires more than 50,000 miles (Fine to be equal to the replacement cost of the Tires). A spectacular number of things can be accomplished with the simple application of Fines for non-performance, like a $200 Fine for filing a late Income Tax Return. Employment would rise if there was a $100 Fine per Compliance Report not filed upon scheduled Date. There are multiple way to affect Change. lgl

The Blitz never works

Here and here are two articles which reflect the pressures which Wall Street is trying to apply to the Federal Reserve for lowering Interest rates. Here is my dilemma: I have always wanted the Overnight rates to be pegged at 4.25% forever without change, and cannot fault the Fed if they cute the rate by 25 Base Points. The Economy, though, fails to meet the criteria for a Rate Cut. Mortgage rates have returned to Interest rate levels from which they will not decline. The DOW Industrial index is over 13,000, and cannot reach much higher numbers without inflationary pressures. The Slowdown for the next year is a basic restructuring to meet current Demand, and will not be viably altered by the presence of easy money. Little more Product will be produced, cheap money or not. The value of the Dollar has suffered drastically this year, and a Rate cut will incite foreign exit from their Dollar Holdings, probably without increase in the purchase pattern for American Products. Neither Wall Street or the Fed will gain from a Rate Cut, and it will provide an additional Shock to an already battered Economy.

Edward Hugh puts an intelligent Take on the stability of the American economy. The real factor remains the growth of foreign competition to American development, a reoccurrence previously seen in the 1960s with the rise of the Japanese economy. The real problem comes in the U.S. economy being tied to systemic technologies due to previous Capital investments in the technologies, while Developing nations placed initial Capitalization into sounder technologies. The whole situation will revolve to an improved American position with further Capitalization, though We currently have reached a certain plateau. The American economy is not going to disintegrate in the interim Period; it will simply redirect its Capitalization efforts. Efforts to propel faster change will fail, and stupid efforts to do so will worsen the situation. lgl

The New Wrong Direction

Here is an erudite article about the potential Gains and Risk of Deflation. I remain a prime Deflator on the basis of theory, knowing Currency stability must include the provision of Risk, in order for Value to restock in the currency; pure Economics insists that any Product cannot be set by Market forces, if measures are taken to artificially support the Product price–impacting Currency as seriously as any other Product. The most serious fault with such Protection comes from excess liquidity, which compounds what inflationary pressures are existent. Giving Consumers more and cheaper Money is not the Means to fight Inflation.

I am most offended by the Concept of making Debt too onerous to repay. Debt should be hard to repay, it being the sole inhibiting force forestalling Spendthrift policies. The Fed may take the Credit for the loss of Savings in this Country; educating an entire Generation to live on Credit Cards and Mortgages until the Debt is so preponderantly great that it is time for Bankruptcy. Everything is today organized to empower Everyone to Spend until they literally Drop, without any recourse to establishing financial reserves. We now have a Government which has the lowest Taxes but greatest Debt, the greatest instability of Low Income and High Debt coupled to a lack of financial reserves, and a continuous need to refinance Debt obligations. There once was a Time when a new House cost about 3 years Wages; today, 70% of Labor will retire with outstanding Mortgage debt still existing on their homes.

There are Economists who exclaim that this Condition holds no impact on Prices. There is underutilization of Product throughout the Market; how many empty Business facilities exist, solely to gain the Tax advantage of Mortgage Costs, such new facilities ever more elaborate and expensive to increase the Tax deductibility. All Product prices increase due to the transfer of the financial costs of financing Sales to the initial Price offering; this is no mean thing, which can generate 30% of the total Cost of the Product. Garbage Dumps are filled with last year’s Christmas Gifts and PCs, most still in fairly good operating condition.

Thanks to Mike Moffit for the link to the article. lgl

Tyler Cowen presents an excellent argument for ignoring the declining Dollar, and there are sound economic reasons for such an attitude. The trouble resides in the fact there are some resounding economic arguments to support the Dollar. The major impact for Consumers sits within a rapid change in Pricing in Dollars, coupled with extreme resistence to Wage inflation. Business and Fed policy is firmly committed to Wage suppression, though rather open to Dollar devaluation; such a combination does horrid things to Consumer viability across decades. Tyler’s comment about there being little to do about Currency transactions may be a little evasive, as simple reduction of Federal Debt would have an immense impact upon a sound Dollar.

William Poole at the St. Louis Federal Reserve is admittedly a Front Man for Bernanke and the Federal Reserve Board, but he talks before groups, like the Cato Institute, who overembellish any Comments forwarded. Poole’s advocacy of interest rate cuts irrespective of current trends in the financial markets excites the rapid Profits crowd, who want the cut rates to finance the Margin markets. Mortgages are extremely tight, but this is because of decreasing Home values, not because of outrageous interest rates. We are coming off a extended Period of construction push, and a slowing construction rate was bound to bring Value adjustments. The fact exists that liquidity actually exists in the Mortgage market, if Mortgage applicants accept a sound Mortgage structure. Study of other Markets indicate acceptable liquidity, considering the high Stock values and Commodity pricing. The Federal Reserve should be cautious about an effective ‘Guns and Butter’ policy, when We don’t need the Guns, and the price of Butter is already too high. This Graph from Mark Perry proves my previous Point, as Mortgage rates are again coming down.

Here is a NYTimes article which accounts the corruption in Iraqi society, where Everyone steals from the Government and the U.S. This is a Feel-Good article pointing out how much safer and easier it is in the United States, where you have to be an Accountant to steal from either the Government or Private Contractors. The real point of the article, though, is that it is impossible to engender proper Business ethics, unless and until Splintered Law Enforcement can be eliminated. Punishment for Corruption must be uniformly applied to be applied at all. lgl

I will never make a Bookie

One should read both the new Forecast and the News Release given by Eddie Lazear, provided by Greg Mankiw. My own Take on the Forecast is that it is too optimistic, I believing that growth will be present, but only about 1.5% for next year. The basis for my estimate is the fact that the American Consumer is shaken, and plans to pay down some of their Mortgage debt, refinancing more for safe Repayment schedules, rather than for more Spending. A real criteria to watch is the total Finance numbers on new Vehicles; if these numbers start to retreat, even if they are only very marginal, it means that Consumers have altered their Preference practices. The real element of discrimination will probably be the After-Christmas Sales, determined by the Percentage rollback of Product Pricing, conjoined with the total volume of such Sales. Eddie Lazear did an excellent Job in the Press conference, but he might be promoting a Product which will require an excessive amount of Advertising, and still fail.

You can find the major opposition to my Position here, with Lawrence Summers promoting an Activitist policy. I personally believe it is the wrong time to be loosening the Fed control, what with the shaken Dollar and rising Energy and Food Prices. I have always held the supposition that volatile Prices, if they exceed 3% of average Consumer Income, negate any reliance or trust in consistent Core Inflation; the volatile Prices will impact on Consumer Sentiment (maybe the exact Point at which to reset the Inflation rate). I will probably be crucified for this sentiment, but it might be time to Sunset the Bush Tax Cuts; they providing no stimulus–if they ever did, raised Tax revenues will stabilize the Dollar, Production impact will be effectively nil, and both financial markets and Business interests will find it easier to accept Profit Margin Cuts. It is a Mean Call, but Investors never liked me anyway!

I am not a whiz at Math, but I do not understand the equating of this game to Investing. All Investment I have seen possesses a premium for Engagement in the Game. A better formalization would have 4 White balls, 6 Black balls, and freedom to withdraw from the Game at any time. Continuance in play, though, would provide a 4% payment for the balls remaining in the hat, every time a ball was removed from the Hat. At a Dollar per ball, the preference premium under normal Investing was be $.36/removal of the first ball, $.32/removal of the second ball, . . . Initial investment is very profitable if White balls are pulled out, loss is minimized by the premium if black balls are pulled out, while the odds of pulling out White balls increase with every removal of a black ball. I might be wrong in this assessment of the actual functioning of Investment, but I will retain my own ideas, even if proven wrong (Born Loser). lgl