Good Readings

Greg Mankiw comes forward with an excellent Post on Tax Policy. He presents the exact matrix necessary for discussion of Tax impacts. He deals with Efficiency from the viewpoint of Incentives, while I would be more concerned with Tax Placement confusion, and the structural inability to match Spending and Revenues. This also is a question of Goal orientation, and is not to suggest that His position is not a very defensible position. I do not put much weight on Intergenerational equity, believing as I do that such inequities are canceled by Wage Restraints and Inflation. Greg and I possibly agree on the issue of Egalitarian measures, which I believe only interrupts normal Profit flows, though unlike him, I could accept something like a 20-40% Surtax of devolvable Tax revenues upon the appearance of success (Income some 20% higher than the Average Income of Taxpayers). I probably will find extreme disagreement with Economists on my doubts as to the viability of seeking Full Employment; predicating Business success upon issues of Volume become increasingly irrelevant under conditions of rising Material Costs, retirement of the truly heavy Consumers, and an eventual shrinking Labor Force. We need to produce Smarter, not Greater.

This Post may explain the State of the Union better than Bush’s Speech, but I must forewarn the Reader that it is not as bad as it seems. It certainly does not call for a Tax Rebate package, though no one could stop the Package, considering that it is an Election year. Readers should not expect an immediate reward, though, as Politicians will come to realize that the Rebate has to materialize in September or October to impact the Election. Downgrade of the Ratings for the monoline insurance firms could shake up the Market, but not really affect holdings; the Investment Tie-up is already existent, and unstructured Selling will only provide sharp losses immediately. The communications cable disruption is not actually so bad, as it drains a lot of the hyper activity in the Markets when We need a Breathing Space.

Those concerned with Inflation should read this Post. I could attempt a long-winded discussion how every Point of Inflation reduces a set Cost of future Debt Service, but would entangle within Numbers, whilst Economists could all claim that the Numbers are wrong. I will only say that Inflation is only the failure of Tax Policy (to get back to the first paragraph), which should insist all Expenditures (both Public and Private Sector) should be adequately funded. Think of the Concept of unsecured Debt which is never paid, but revolved down through the years, with draft of material Profits which were never earned by the Expenditure. lgl

Marketing Strategies

Starbucks will open 1,175 new Stores this year (1,250 Stores including foreign Openings), but is worried about the 1% growth in Sales last year. Maybe it is only me, but Starbucks is trying to push into already saturated markets (covered by other Business stores), with a format of higher Prices than current Coverage, during a downturn of Consumer Spending. I would suggest they need to get rid of more than Breakfast Sandwiches, possibly returning to their original Company format, but more likely to insist on a Cut in Pricing. Of course, I may be one of the older Generation, who does not understand Precepts of Status Marketing; still, the later Concept may require less-congested Stores to be effective. I knew that I should have taken Marketing courses in college.

I like this article about the advantages of Small Business going global. I think it is a question of Marketing Costs compared to Volume, but with a possible extended Consideration. Small Business Executives may be in search of free Tourism in Europe. Can any Product of less than 3000 Sale units be marketed in a foreign land at extreme Distance? The Mark-Up of Product due to Transportation Cost would seem to alienate Sales, unless the Product was of high Price and complexity, and not facing regional competition of relatively equal quality.

I seem to remember JC Penneys’ trying something like this in previous years, and suffering some Sales loss because of it. Their Stores cater to a clientele who likes to evaluate the quality of the Product before Sale, plus a wider market who need an immediate source of high-quality Product for unexpected Events. They could actually lose in Sales because of this change in format, which will not serve Customer interests. I could be wrong in this assessment, as I could possibly be in my other commentary on this Post; it basically being an attempt to outguess the Consumers. I personally would make a reconsideration of such Moves. lgl

Current Construction of Operating Costs

Kraft starts to find that an additional Production Cost, i.e., ethanol subsidies, has begun to eat into their 4th Quarter Profits. I would comment Kraft has benefitted from its Share reduction program, without which Today’s announcement would have been a funeral dirge. High Commodities costs had dragged down operating earnings in their Food Division by 53% by their Accounting, even while the Food Division is trying to spread the Profit loss away from their primary Products to their sideline Products; an attempt to mollify the 40% increase in dairy prices. Kraft lost 15% of full year Profits because of higher Operating Costs, though revenues increased by 8.4%. I am not an Intimate of Kraft business details, but you can bet at least 80% of the increase in Operating Costs came from ethanol subsidies, given that Kraft’s Food Division has maintained steady Operating structure for years.

China endures a major natural disaster–Snow. How to explain to an Average American what the danger of that Snow holds for the Chinese economy, when We traditionally undergo much deeper Snow drifts. It is all a question of Population density, combined with absolute lack of Transportation expansion for Product. American Snow Days means that the kids legally get to play hokey; Chinese Snow Days mean that Product doesn’t move, and lack of excess Transport units entails that Production fall behind, from which there is no basic recovery. The Chinese Production year is shortened by a much larger number of Days, than is the American trend response. There is also no realistic Recovery mechanism.

Mike Shedlock will tell you everything which you didn’t want to know about the American economy. Price Wars between Discount houses will not bring out the Shoppers this time, except to grab the announced Bargain offers. Shopping carts will remain empty of the associated items common in ordinary Shopping, due to constrained Consumer income. The later has been reduced by an induced higher overall Cost structure without Wage Increase relief. A Tax Rebate will not change the context of current Shopping structure. It reminds of the Federal Court Review issued today which reversed a lower Court Ruling that stated Packing companies must pay for knowingly underpaying Beef Producers, because the Beef Producers could not prove that the Packers had read current federal regulation on such Pricing; whatever happened to the long-established dictate that it is the duty of the Criminal to know and understand the nature of the Edict? lgl

The Current Hipe

I thought to respond to the Bush State of the Union Speech this morning, but then considered that Everyone and their Dog would have their own Take on it. I will only say that the same mistakes of the Administration will be continued to the End, and whoever is likely to replace him will likely adopt the same Mistakes for him or herself. We will still be operating in Deficit, still covering Problems which do not exist, while leaving the political spectrum to deteriorate. We have had several years of hectic growth of the Economy, and some degree of slowdown is expected; but a spread Evaluation of GDP numbers sees no Recession over four years. Spastic attempts to stimulate the Economy is much like whipping a dead horse. All should just accept the current advance as the best accomplishment possible, until a retrenchment drives false Profits from the bloated system.

I chose instead to examine the ridiculous role of Drugs in the current economy. I stated, accurately or not, last night that the vast majority of Drugs designed in the last decade replaced already existent Drugs treating the same Conditions with 98% of the Drug effectiveness, and the earlier Drugs carried only One-Quarter of the Cost. I called for a 45% reduction in Research Budgets for Medicine, in response to Bush’s Call for increased Funding. I even vindictively suggested that Researchers actually Pass their Medical Boards, and try attempting to treat Patients personally for Profit–We need more Doctors, not more Medical Patents. I may have made permanent enemies in the American Medical Association.

Here We have a real battle of the Numbers, with Durable Goods up a solid 2.6% in December, but with the ISM (Institute of Supply Management) manufacturing index reading of 47.7, detailing potential Recession. What is Right? I will adopt the irreverent attitude which suggest that the ISM indexes show greater aptitude for evaluating the viability of recent economic trends, than it calculates long-term economic performance. This means that the ISM does better at evaluating the effectiveness of current initiatives over the long-run, than it is at examination of economic funding of long-term economic performance. Study of latest industrial trends and their survival factors remain easier than Crystal Ball research of total economic performance. It still might not explain it to Readers, so I will say that ISM indexes adequately express the survival characteristics of recent Investment Capital, leaving economic Brownian movement to evolve as it will. lgl

New Fed Policy Option

Manchau has a Post which I believe is essentially correct. The Fed will again drop 50 base points on the Fed funds rate, and could even equalize the Discount rate. I do believe that the next financial crisis is pre-programmed. The Stimulus package will not stimulate, due to Inventory drag and the excessive debt of current Consumers. The President could help in his State of the Union Message, if he would actually forbid Government agencies from spending the earmarks, whether they are Congressional Report terminology or legislation; he is in the perfect position to do so, with the Democrats shooting themselves in the foot, alongside his own inability to get reelected. It would not matter if the Courts later overturned his Ruling, as the earmarks still would not get spent in the remainder of his Presidency.

Another potential Gain for both Stimulus and Fed policy viability would be the passage of a Rule by the Fed stating that both the Fed funds rate and the Discount rate would increase automatically by 10 base points every month that the rates were below 5%. This would trigger immediate Stimulus, because Investors would understand that Investment must be immediate to retain favorable funding rates; reliance on Fed Open Market meetings could be very risky. Most would ask why I would set the automatic mechanism at 500 base points when I believe 425 base points is the proper setting, the higher Signature setting would maintain the power of the Fed to operate significantly within the financial markets; the Fed retaining a real Whip. lgl

How to get less from More

Shipyards cannot find Help, even recruiting at High School level for in-house Training programs, and Pay approaching $20/hr. They are covering vast areas, and even importing foreign labor. The main Stumbling Block appears to be aversion of modern Labor to adopt Blue Collar Jobs. Everyone wants to labor from a computer keyboard; but if some sweaty occupation must be endured, nothing which entails special clothing or Protective gear. A Welder has a hot, sweaty Job requiring protective clothing, including the Threat of Burns–both major and minor. A Shipyard has dozens of Jobs similar to that of a Welder, and finds little Interest expressed by the available Labor market. Job Imports from foreign countries even seem to be on the wane, as Labor looks to Automation to even greater degree than Management.

The Shipyards might look to Emporia, Kansas, where there will be an excess of Workers, who will likely not care seriously about Work Conditions. Tyson’s decision to shut down beef slaughter in eastern Kansas doesn’t simply highlight a Switch of beef production to western Kansas, but a major cutback in total beef production because of the ethanol subsidies. I have a running battle with a friend over the issue of more expensive Feed, he naturally taking the position that the subsidies are a Godsend; he being the Producer of several Hundred Thousand bushels of Corn per year. Emporia is only one example, missing 10-14000 Head of beef per day in eastern Kansas which had been previously raised. I expect the entire loss of my native State, Nebraska, would average a 30,000 Head per day loss; remember, We are talking about Two of the most Productive Beef Producer areas in the World. This Process will entirely lack humor for American Housewives.

Another practice which tends to endanger American production, as observed by Tim Haab. Cap-n-Trade inevitably creates the opportunity to make Money by curtailment of Production, this establishing alternative Means to earn without former provision. Little economic preoccupation has been given to this potential Practice, especially in industries with rapid related Increases of ancillary Production Costs. Agriculture utilizes very expensive Fertilizer, and much Fuel, in addition to Water. These three areas often make up half of the Operating Costs of Agriculture. What happens when We make all Three into Cap-n-Trade entities; ask the Co-ops about the hidden Private Sector conversion to Cap-n-Trade for Fertilizer. Some may not understand the danger of paying Producers for not working, but Consumers will eventually feel the difference. lgl

The New Strategy

The role of successful Dictators always fascinates the News media, and Suharto of Indonesia may have been the most successful of all Time. He differed from his predecessor, Sukarno, by never attempting to move the Country in any given direction, and only responded to the Events he had to respond to in order to survive in power. It may have the key to his survival, though I believe that Survival came from his refusal to impede economic agents from Capitalist operations. The article makes much of his family acquiring great wealth under his Rule, but so did all Indonesians, as well as private segments of Indonesian society and international conglomerates. Suharto fostered a regime which was economically profitable to All, and fell only under economic crisis. Indonesian rule since his reign can arguably not have been as superior from an economic standpoint. His Human Rights abuses, while admittedly vile, can be seen as the commission by the entirety of the Ruling classes of Indonesia, not his or his family’s alone.

Robert J Shiller gives Us an excellent article which should be read by Those interested in Market structure, but is a basic Argument with which I disagree strongly. The current trend by all major scholars in the area remains to remove Risk from the operating environment of the Markets. This is exactly the wrong Signal to send. Government never successfully removes Risk as a factor in the Market, and that Risk inevitably carries greater impact, due to the enjoined delays of its operation from Government intervention. Markets would be far more stable with less Inflation in their expansion, if Wealth was allowed to be destroyed as easily as it is constructed; We would lose the basic Wildcatting so prevalent under the current system. Profits are supposed to be bounded by the degree of Risk associated with the investment. Reduction of those Risks to leave only Profit-taking capacities only incites widely inadequate financial management.

Christopher Caldwell has written an article I can agree with, though I doubt We would agree on the adoption of Curatives. The decline in Manufacturing over the last thirty years contains the aberration, not the development of ancillary Marketing venues. Our labor cadres will never be geared towards an international Marketing framework; unsuited by Education, Experience, and Imagination. The failure of the modern American economy is the failure to provide sufficient employment for ordinary labor, who are afflicted with only average skills. Their effective underemployment is pulling down the American economy, while Trade Deficits are eroding our Exchange rates. Domestic entrepreneurs must once again be reinvented, providing widespread employment at competitive rates. We need labels proclaiming American Made on the extensive assortment of domestic consumption Products on Retail shelves. Technical Minds need to forget about designing Software programs, and start to contemplate construction of competitive Production lines. Financial Minds must invent the new competitive American Product lines. lgl

Monetary Policy

I was looking for a Counterpoint to a verbal debate I had yesterday about fiscal and monetary policy, and this Piece gave me exactly what I wanted. It should be carefully studied for what it says, and the graphs reviewed. Then I can stipulate that I disagree with the entire field of Thought. Comparison with the 1930s Depression is always the great Bugaboo of the economics profession, even though every economist has agreed that the Great Depression was an aberration which was instigated by a whole series of adverse economic factors which are nonexistent today. Inventories are not overly large, Employment is not keyed to massive unitary Employers, Banks are not tied to limited Subscription markets for liquidity, Trade barriers are not massive, and Consumer Credit is widely extended. It is hard to conjure an economic pattern today, which could even come close to imaging the economic structure of the 1930s, without sharp reversal of modern day economic practice. A Depression may still be possible in this Time, but it would be built upon totally unrelated circumstances.

The Argument I had yesterday concerned basic monetary policy. Simply put: I have never believed in the secular power of Monetary Policy. I have been a longtime advocate of setting the Fed funds rate and Discount rates at 4.25%, and keeping it there throughout Time; a Concept which disagrees sharply with most Economists and the Open Market Committee of the Fed. They hold a belief that manipulation of monetary rates possesses a power to alter the Purchase patterns of Consumers. This may be understood as effective by comparison of Consumer Expenditures in the United States versus other advanced economic nations, but the Argument is still missing for the high economic value of this excessive Consumption. We burn more Energy resources, fill more Landfills, and automate more Production facilities–all at greater Production Costs, and yet; can never seem to fulfill Full Production criteria for exploitation of Unit resources.

I believe that Stability of financial institutions is the greatest Key to economic success. I chose a set rate for the Fed funds to insure that stability. I pick 4.25% because it is a traditional approximate 70% of the real Return on Stocks and Bond issues, the lesser rate of Return determined by the greater guarantee of safety from Bank Deposits. Stability is extended throughout the financial structure: in the value of Currency, the demand for collateralization, the existence of Repayment guarantees, and the uniform spread of funds to investment potential. The rate of 4.25% also serves as a vital suppression of Inflation, which under such circumstances, entails a curtailment of Investment return. Students of Economics should understand that extreme Consumption is not a Sign of economic health, or is a lack of Savings generated by a failure to pay sufficient Return on those Savings. lgl

The Sad Role of Americans

A real article which you can sink your teeth into; can you find the Rent-seeking here? The IRS is much too busy collecting last year’s taxes to send out the Giveaway checks. Only Taxpayers who file Tax Returns will get a Check, whether Withholding was applied or not (One must join the mess, to get paid for the mess). Earning less brings on discrimination, unless you had other Organizations earn the money for you; though non-filers are seldom pursued, let’s face it, expensive bureaucrats spend more than they collect. Reprogramming the computers will cost money, again one must spend money to make money. They try to assure that the alternative tax patch will not affect the Rebate patch, We wouldn’t want one Tax Giveaway to cause delays in other Tax Giveaways. There will be a Time lag, though, and one which will undoubtedly be very expensive for the Budget and Taxpayers.

It is reassuring that the projected slowdown has not yet affected the Military/Industrial complex, an excellent avenue for Government fuel to the economy. It is nice to know that revenues for equipment to supply deployed military forces is down (the F16), while revenues for the equipment not to come online (F35) is also down; it seems there must be less flights, or Servicemen are not using up their equipment sufficiently fast. The total appears to be that Sales are up, Product is actually decreased, but Prices are doing a jump. It looks to be typical of Government finance.

The rest of the World is angry at American Consumers for not Spending enough, though they are also angry at Us for using too many resources, and contracting bad debt. Did I forget that Americans pollute too much? We are responsible for Recession, bad Mortgages, the declining Dollar, the lack of American Exports, and We are not paying our Credit Card debt on time. It is obvious that Americans are the demons of the World, and We should take responsibility for Our behavior, though not by exercise of fiscal restraint. lgl

Rousing Bronx Cheer

It has been a long time since I have read any Commentary on Karl Marx, and I would first like to admit that The Skeptical Optimist effectively and accurately described Marx’s Thought, this not being any criticism of his evaluation. I would further state that David Ricardo presented a better exhibition of the ‘labour theory of value’, than did the bitter Marx. The Point I would like to stipulate consists of the fact Capitalists of the time in which Marx wrote were basically as evil as Marx alleged, and Marx misconstrued the Capitalist system as the Evil, rather than the Social system in which it operated. Bill Gates also tends to blame the Message for the behavior of the Messenger. I wonder if he realizes he is functionally that Messenger.

Everyone in the blogosphere is weighing in on any Stimulus package, but this Post gives a good, balanced view of the possible venues. I do not like Tax Rebates for a number of reasons. They reinforce economic trends which need no assistance. Rebates to the Poor will inevitably be spent on the most Inflationary aspect of the economy–Energy, Food, and Utility bills; providing no increase in provision, only increase in Pricing. Rebates to Business do not lead to Investment within a declining Consumption pattern, only an effective entrenchment of policies which led to the Recession in the first place. Rebates to the Wealthy, or even the Middle Class, do not generate the necessary amendment of Consumption patterns which favors future economic performance, while simply expanding the Debt of Government. The Whole is trying to use a Mistake, as a Cure for a summation of past mistakes.

Here is a projection of the various positions on fiscal and monetary stimulus by PGL at Angry Bear. I do not agree with Most of the Espousers listed, and their Views leaves One with the desire to retreat into the Mountains, and leave the World to its fate. I must chose some option from the Measures proposed–or must I? There is always the Option of letting the Economy alone, and letting market forces extend whatever curatives to be obtained. My Favorite Option would be to reverse the Bush Tax Cuts immediately, introduce a $1/gallon Gas tax, and repeal any and all Tax remissions for Investment Overseas. Do I sound as bad as Karl Marx? Nah, about as many people read Me as much as they ever really read him. lgl

Cutting Edge Theory

Joseph Stiglitz wrote an honest Opinion this morning, basically stating that We need to find a Stimulus that actually works. I agree with him, but also wonder why We need stimulus at all. What is wrong with economy can best be enumerated with the Statement, ‘The Rich are not getting Richer.’ All the Stimulus packages proposed bring on some form of giving this savaged group Relief. I, on the other hand, have the suspicion that the distress extends beyond this prized, and select segment of the economy. I actually believe they might suffer less from the expected Downturn than other groups like Mortgage-Holders or the Poor. It would be nice to extend potential stimulus to all Groups likely to face a bitter Retreat, or not.

Everyone who reads my material steadily realizes I hate Tax remissions of almost every type. My proposal of any such type benefit suggests not only significant hypocrisy, but a fear which does not reside in my breast; I believing that We are working out of the Recession already, it only being a fact that the major losers of the Recession have yet to record their losses. I still need to get back to my original argument, though, to state that any stimulus should counteract the common potential Business reaction to losses, which is Layoffs of labor. My Stimulus package would be far simpler than that advanced by Others, though very specific: Business should be allowed to deduct 120% of all Labor Costs incurred within the confines of the United States, and this with direct provision that this Tax remission can only last for Three years; with absolutely no other Stimulus offered.

What does this Stimulus do? It will be of short duration, and grant succor only with the extension of employment. Those who are responsible for factors igniting the Crisis will be left in isolation to work through and record their losses; the most wondrous methodology to teach such Plungers not to repeat their adverse performance. It does not do anything for Consumers who already have a Job, but increases the ability of Consumers without Jobs to find one; a beautiful method to again teach Consumers to adequately budget their resources. Businesses quickly realize that they must extend Employment in order to enjoy potential stimulus, and Employment could possibly increase in the Period cited, simply because only about 40% of the labor value to Businesses will be taxed. Labor Productivity in the Period would obviously lower, raising Employment, with little Complaint extended by Businesses–increasing the number of Jobs. Total Wages will increase, while lower Consumption sales will be received less frantically. It is also one of those incredible Tax remissions which might actually raise long-term Tax revenues. Of course, We could also do nothing, and let the economy correct itself. lgl

Reality--Where are you?

David Smith gives a good factual presentation of the events behind the Fed rate Cut. Everyone is happy–except me, and possibly William Poole. The source of my unease consists that the rate cut will not spur anything, but will erode any remaining stability within the financial markets. The financial Wizards of Wall Street imagine Investors are going to race back into the market. It won’t happen! The P/E ratios are waving the wrong flag, the Households are getting no Gain from the Rate cut in the near term–probably not in the long term, and Business will not invest in a shrinking Consumption market. It is stealing about 75 base points from about $1 trillion, where neither Banks or Depositors can easily absorb the loss. The Feds simply have informed Banks that they must receive less from their Overhead loans, when they are already scrambling for extra Cash.

Ken Jarboe provides Us with an Insight of the potentials of current stimulus thought, but I find the entire Stimulus argument to be somewhat foolhardy. It is Six months too late to generate the Effect which they desire, induces greater upward pressures on Prices, and leaves Businesses searching for Profits that will never appear. Business will be faced with a reduced Consumption Sales schedule, until Household debt has paid down 12-14% of their Debt load. No amount of Stimulus will likely alter this fact, the Stimulus packages simply repaying previous Consumption expenses. The Party lasted too long, and the booze was too expensive.

Readers should understand the effects of the Bush Tax Cuts. They created an artificially-induced pressure for Investment, when the potential for real Capital Investment did not exist because of saturation. The desire to invest the Cash split into two forms–an upgrade of Housing, and the creation of middleman Paper Investment options. It has led to an additional $2 trillion in Paper instruments, all of which hope for a 5% Return on the initial Investment; a capacity which does not exist, given the state of current real Capitalization. Five Overnight Millionaires per million people per year is a tribute to Hard Word and Genius; 200 Overnight Millionaires per million per year is an infestation of parasitism. Creation of Billionaires without the advance of massive industrial innovation means only economic distortion of the economic reward system. lgl

The Market Solution

This Post by Stumbling and Mumbling started me thinking about the exact nature of Spending, especially Government funding and expenditure. My Conclusion simply states that Government overspending results from the unification marketing of Government programs and the raising of Government revenues. Persistent Spending desires retain their corrosive power because they are obscured within the Budgetary formulation. A separation in the Process may be mandatory to effect fiscal stability.

I thought of varied forms of Separation, the leader being the creation of a all-powerful Budgetary Committee, which could only be overruled by Acceptance of President and Supreme Court. This had two factors wrong with the methodology: Presidents and Courts possess a worse Record on fiscal Conservatism than even legislators, and two, any degree of developed Expertise would not forestall the power and impact of Special Interests manipulation. There did not seem to be any Means to impel fiscal responsibility among elected officialdom.

I chanced upon the stray Thought of a Market solution. This was like a dim memory with no shine to it, barely spotted by the acquiring Mind. The first element of the Process would limit legislative activity to determination of the Budget size, and determination of How it would be funded. This determination would be limited to the first Three Days of every legislative month. This Period could be made effective by Constitutional mandate prohibiting any new Government Spending without in-place allocation of Budgetary funds; legislators would spend the rest of the month convincing themselves that some sound Budget had to be implemented in order for them to derive the political clout of Program funding. This system would require a mutual willingness to work with each other, or lose their ability to gain political support.

The second element is to create a Market floor in the halls of Congress. Each Congressman and Senator would be granted the Dollar amount of Revenue expected from his District under the current Budgetary constraints, consisting of both the actual Tax revenues collected from his District, plus the Dollar evaluation of Cost to his District to repay any Federal Debt incurred by the Process. No Congressman or Senator could bid more Dollars per monthly session than have been allocated on the totality of programs he would underwrite, as recorded by the Congressional staff. The Process would set the relative level of political clout any Member could exert, and structure that Clout in a manner that would inhibit excessive Spending; the Whole of the Process itself constrained by constitutional prohibition of any expenditure of funds until such time that the measure has been fully funded. How serious is your belief in Markets? lgl

The Failures of the West

The Past has always been only a Step away in Africa. Ethnic Violence has always meant that racial identity becomes too often a Death Warrant. Tradition and Overpopulation guarantee that the Practices of ethnic cleansing will not end. It also puts the national policies of the World in a quandary: Throughout the Twentieth Century, We were bombarded by the ideological condemnation of Colonialism, yet it was Colonialism which kept Tribal rages under control. It did this effectively for practically half a Century, also bringing these Tribal societies into the Twentieth Century in terms of economic adjustment; although Colonialism produced a very ineffective effort to exterminate Tribal rivalries. The Period since Colonial Days has been systemically predicated by Violence, utilized by Tribes in their bid for Power over other Tribes. Colonialism was evil because of its failures, not for its successes.

The inability of the Whole to combine to prevent deviant behavior may be the real legacy of Western Civilization. I chose this Reminder basically because it is still controversial. The Planet is Warming, there is no doubt of this effect; but there is no actual indication it is the fault of humanity, or even that humanity has the power to affect this Warming trend. My own estimate states simply it is the degenerative process of Species overpopulation; We are drafting too excessive an amount of resource to survive. I simply await the arrival of a successful Pandemic, knowing that in my case, it will make little difference.

The failures of Western Civilization could best be examined in this format, where both Journalism and Blogging refuse to point out the failures of military intervention. Criticism is countered by refusal of access by military authorities, and the Wars continue; though still without essential purpose or Goal. Success is adjudged to rely upon the development of a political process, a idiocy even in terms of the truly democratic nations of the West. A Coup d’etat could eliminate in hours all the Work accomplished by years of struggle, while the Struggle will continue as long as foreigners reside on Native soil. We always seek Pinnacles which could not be maintained, even if they could ever be attained. lgl

Austan Goolsbee points out that the Supply-side rhetoric still lacks a real flair of honesty. What evidence of Gain which can be garnered may be countered by other downside factors, which are given little play by Supply-Siders. The whole issue actually has little flavor as the argument has gone on for some Generations now. The real compelling Point for me is the functional freezing of Income for the 90% of Labor. We all can understand the possibilities of Labor Substitution, but should such substitution functionally freeze Labor Costs in place? Conservative Economists, especially Supply-Siders, assert that the heavy inequality of Reward is the main drive of the Economy. Is it? This is the Question which must be answered, before We can properly assess the impact of Taxes on this Wealth-building. I suspicion that the real culprit in the novel is the intermixture of Payroll and Equity, which always led to the downfall of the Laboring Class; and here you thought that the Butler did it.

One reason for the freeze in Labor Wages can be found potentially in this article, which basically accounts how Corporations force the Cost of countering Greenhouse Gas emissions lower into the Supply Chain, onto the small Companies which make up that Chain. It is the smaller companies who are the labor-intensive elements of the Production cycle, and large Corporations are forcing their utilization of Profits to meet the larger Corporations Greenhouse Gas emission standards, rather than to allow those Profits to flow to Labor participation at the lower level. The Goal of the large Corporations wears a good Public face, but will undoubtedly wipe out Growth and Wage Growth potential at the lower level; all while the larger Corporations are lauded for their monopolistic purchasing pattern. Most of what glitters is actually Fool’s Gold!

One cannot blame Environment Concerns for everything, though, as this article will describe. Slowing vessels and turning to alternative Energy-sourcing will not only cut Emission and Fuel Costs, but the transference will basically bring higher Labor Costs. The Equipment must be serviced, and more machinery and longer voyage times bring higher Wages to employees. Good for the Environment does not have to mean Bad for Labor. I am toying with Vessel concepts of elevated generator risors and submerged current swells to generate electrical power for new electric motors. All of such Toys require huge Manpower hours to design, build, and supervise during Operation; all of which is done at actual Savings to Ships and Owners. lgl

Definition of Recession

Some Readers have been asking me what exactly is a Recession, and the simple Definition is that it is a drop in level of actual production of Gross Domestic Product. Simple, isn’t it? No!!! The GDP cannot be evaluated in actual Product, because there are always variations in the levels of Product production, while there is the impossibility of comparison of the value of one product to another, except through equating a third value to them–i.e., Money. The later is a poor evaluative tool, because not only does the tool tend to inflate and deflate, but it does so because of the alternating value of the various Products in comparison to one another. An Example is Food: A highly rated Product value in comparison to other Products, but one which loses value rapidly after Supply equals about 1.8 lb. per day per person (seems like it should be higher, doesn’t it?). What this means is individual Products inflate and deflate at individually-dictated rates, and this really screws up Evaluations made upon the data translated into Dollar values. Economists are always trying to find alternative formulas to evaluate Recessionary conditions, this article is a Case in Point.

I have always thought to concentrate on Households myself, or more specifically, on the resiliency of those Households; a concept which becomes as confusing as the original monetary evaluations. The major elements of such an evaluation as I undertake consists of the increase or decrease of Household debt by Income class, the Food Costs of the Households–due to the fact that Food is a mandatory staple, as is Utility Costs and organized Rent Costs. These taken in total, is compared to the average monthly Income of Households, and when these Costs rise over 8% of the monthly Income of Households (measure of resiliency); I deem the Economy to have entered Recession. Economists will insist there is much wrong with this evaluative process, but what process is perfect? I only know Households are contracting their Expenditure patterns under such an evaluation.

Most Economists would access Recessionary conditions from the position of Business enterprise, but such proclivity ignores the actual interaction of all Participants in the Economy. It does not account for the viability of labor or the impact on Stable Income dependency. My system is complex, and brings forth a degree of false Readings, but gives a rendition of the impact of the Economy on the entirety of Participants. It foreshadows actual declines in economic participation, including the all-important Consumption cycle. lgl

Late Out of the Gate

Mish has a great amount of intelligent commentary in this Post, most of which I find highly relevant to the issues involved. He touches on one aspect which I want to reinforce. Can the Federal Government even mount a stimulus package that would be effective? We have had an extreme amount of expansionary, Second-source lending (utilizing Bank Reserves), while there has been a huge loss of Bank Reserves due to the Credit Crisis; the old Bean-Counter accounting element that does not recognize the difference between Reserves and Second-hand money creation. The Accounting models only register loss of Reserves (artificial contraction equally starting from the origin). This systemic fault, which cannot be corrected in any rational form, defines a multiplicity to the contraction of Credit. Stimulus may be impossible inside such a rigged deck.

Tim Schilling presents another Post which should be read by those interested in the stimulus dilemma. Tim assures Us that Congress will act too late to be of value; a Comment on which I could agree. I am of the conviction that a Recession actually started in July, 2007, and was only hidden from the traditional Index models by a combination of circumstances–expansion of Exports, Household creation of Immigrants and School Graduates, the Run-up of Energy and Food prices, and high expansion of Credit Card debt. All of the effect from these factors fully utilized the full impact of the heavy Inflation rate of 4%. The Households were already in trouble in July, and We had our heads in the sand. The key element, here, is the Two-Quarter impact of the Recession has already inflicted almost full Recessionary damage to the Households, and a stimulus package is already too late to aid. lgl

Validity of Economic Concepts

Erwan Quinton and Jason L. Saving provide and excellent article on the interrelationship between Income Inequality and Poverty, by exploring current theory on the issue; I scalped this link from Mark Thoma (a tendency I should quit, but a lot of bloggers find better material than I can). My essential position on Income Inequality states that economic growth does not demand such inequality with the advent of modern banking practices, and effective Markets cannot be established with the existence of Income Inequality (the concept of Consumer disenfranchisement). One cannot get sustainable growth without full utilization of Consumer potential, and growth should not be geared to massively reward innovative, effective economic behavior because the reward system has to be changed to institute full Consumer participation (Returns must eventually be Percentage-reduced to gain superior Sales). The issue is very important as the great Wealth sectors are rarely focused prior to their development, and little evidence exists that this specter was a factor in initial development.

I often disagree with Mark Perry and WSJ editorials, finding them to be a tad ruthless in their expounded Conservatism. This time they have a decided Point, much as the Politicians would like to ignore it. Simple creation of Debt is not an economic stimulus. The ‘leaky bucket’ does exist. There is the added dictum that economic stimulus which is too weak may be worse than no stimulus; I have always claimed that any Rebate less than a Week’s Income will only pay down bills (finish off previous Consumption), without providing venue for additional expenditures.

I think Tim Worstall is talking about me, as I have always doubted the projected benefits of the Laffer Curve. My major problem with the Concept origins in all effects are focused in creation of a specialized Wealth class under the tax modification, with no real transference to the general class of Taxpayers. The later inevitably are faced with a heavier Percentage taxation, or a greater Debt burden–which is the current preferred stream. The Laffer Curve may simply extol the beauty of Tax evasion. Tim also makes a somewhat outsize claim that somehow the Laffer Curve can produce a greater progressivity of taxation, through the use of Personal Exemptions. This effect might occur, but in what manner of tax neutrality? I am not saying precisely that national debt is taxation of the future; my claim states simply that We must accept a consistent 4% Inflation rate to maintain Debt Service into that future. lgl

Deficient Economic Theory

Craig Depken provides an interesting Post on the effects of Price-setting by legislative action. He gives the Conservative traditional view of legislated prices, an alignment which in striated situations will apply (condensed market of limited volume with high variable Cost spread). It is clearly not the case in the presence of varied Cost markets where achievement of service possesses extensive routes with large Consumer volume (Case in Point: the Energy Cost of the trip between Grand Central Station and Wall Street with projected Consumer traffic v. the route from the Harbor to the Bronx). Most legislative action insists that the longer, less-traveled Routes be subsidized by the greater volume of the shorter, more traveled and cheaper Cost Routes. Conservatives would acclaim that this rerouting of Corporate Profits is a Government invasion of Property rights, but lacks validity when Companies themselves engage in such practice to engender higher Volume sales. Governments only claim for themselves an Accounting procedure to aid the Poor, which the Company utilizes for itself to attain more sequestered Profits.

Ben Bernanke proves that he has greater intelligence than most of his Critics. Keynes himself was a brilliant Economist of great worth, who failed only in his acceptance of the principle of continuous economic stimulus. Such Aid extended beyond two economic Quarters will automatically transform into Inflationary pressure past this Point, and will even start in the transformed condition, if Capital Goods have already returned to 60%(of the interum loss) of their pre-Recession value before interjection of the stimulus. Permanent Tax Cuts will not present any economic stimulus, even in the Short-term, beyond simple Investment of the saved Revenues; where they serve as little value because of their distributed array (insufficient for real Capital construction), but demand an immediate draft of Return from the Economy. The Costs of Capital concentration for Investment always erodes the Short-term benefit. The Short-term and Intermediate effect of Permanent Tax Cuts will insist on deficit Government spending, while the Long-term effect will always be the implementation of adverse taxation elsewhere.

This Post will fulfill the desires of the most masochistic of Readers. The Housing market is in the dumps, and the Outlook for rapid improvement does not exist. Unsold Homes will have to be cut in half before Realtors will again start to smile. That level of Sold Homes cannot be reached until the Mortgage markets can again establish a flow of Cash. A real drag on the entire Process is the vast numbers of Homeowners who cannot get their equity out of their homes, and the real dangers such presents to their personal Consumption patterns. I only wish Economists would recognize what got Us to this place: lax Mortgage lending practice; and stop preaching that what will be a curative would be an extension of such lax practice. lgl

The Fast-Forward Tax System

I am probably the wrong individual to come out against this FDA decision, but there it is cluttering up my day. The reason I am the wrong one comes from my long advocation for turning Food crops into Perennials, thereby cutting out one of the most expensive Steps in Agriculture to a substantial degree. My problem with the FDA decision resides in its rejection of the process of Natural Selection. Cloned animals takes the chosen animals from the process, repeating a locked genetic strain over and over, the rationale for Production in the first place. The trouble comes the process also rejects the natural construction of Immunities within Nature, not only in the animals, but also with the Consumers of the Product. This freezing one aspect of the Natural Selection process could cost Us some essential Amino Acid at some future point.

Alex Tabarrok seems destined to challenge the hallowed American tradition of Freedom of the Roads. It is not him alone, as Many at the Local and State levels of Government find the Work fascinating as a Means to cancel one extreme Expense from their budgets. I personally detest Toll roads, as much for the congestion at Toll booths as anything, a national transference to Toll Roads could cost Us an additional 2% of Fuel Costs, due to the heavy fuel consumption of altering Speeds. Alex’s suggestion of monitored Charges utilizing GPS technology lands close to the National Identity Card Issue, and I am also somewhat unhappy about that element. I think I would prefer a new Vehicle tax upon Sale, based upon expected Fuel consumption and the Cost of maintaining Roadways. The only element I am happy with is my expectation that total Travel by Americans will decrease by 12% over the next decade, as my fellow Americans discover the joy and Savings of staying relatively stationary.

This Piece from Eddy Elfenbein comes by way of Greg Mankiw, who should be read for the Indictment of the Fed; I would not scream at them, except for my Thought it was the initial tampering with the Fed funds rates which got Us here today. The Elfenbein Piece wants more complication than the Flat Tax, and compiles his Reasoning in mathematical form. I still prefer a simpler Tax, but based upon criteria other than a Flat Tax. I would see a complete elimination of all Tax Deductions or Reductions of any type, with Tax rates set by averaged Expected Costs of each Income tax rate group. It would nullify Need for all that intricate Bean-Counting, but still shaft the Taxpayer. Some, like Elfenbein, would claim the lack of Foreplay was rude. lgl

Recovery Policy

The shape of the Economy seems bad, but I have much more favorable expectations; believing that We have been in Recession since last July, and are climbing out of it, with good numbers coming in the Spring. I have already received Comment which basically assured me that the numbers precluded a Recession starting last year, but I will assure that lack of adjustments for Population Growth, and Household Construction to house that increased Population, created false Readings in the traditional numbers. Slowdown of actual Consumer Consumption has been continuous since July, and Credit Card debt has been increasing at the same speed as occurred in 2001; all indicative of a Recession. The evidence of the Recovery coming in the Spring is harder to track, though Oil price is expected to recede in the coming months, and the Beige Book hopefully with show stronger draft of Capital Goods.

The worst threat for the Economy may come from here. All plans to provide economic stimulus either is directed at incited increases of Consumer Spending which will not occur, or consist of Tax Cuts that will only destabilize Tax revenues further–increasing the levels of national debt without benefit; in either case, such action will come too late to affect the current economic condition of Capitalization choice. Any Fed funds rate cut will only incite hazardous loan processes, without any increase in Investment in the Short-term. The viability of Tax Cuts are themselves highly debatable.

Mark Thoma gives a link to Lane Kenworthy, his own reaction to Justin Fox, and Brad DeLong. The basic position of Thoma and DeLong states that all Tax Cuts are Revenue-losers, and accepted by All almost. Kenworthy, on the other hand, finds little evidence that Tax Cuts actually spurred economic activity, making the Revenue Cuts costly without sustainable benefit. Continuance of the Tax Cuts of 2001 and 2003 expresses little benefit economically, and Paul Krugman can find little only reduced Recovery from the 2000-01 Recession. This equates to the Tax Cuts being relatively poor economic stimulus, with the interjection that the previous Tech Boom was itself an economic aberration, where there was an artificial run-up of both Employment and Income. I side with Krugman, though I would suggest that the last Recovery possessed about 80% of the effectiveness of the prior Recoveries in history.

My basic Contention has always been that the Tax Cuts have put too much Cash into the Economy, where real physical Capital Construction potential did not exist, and which created a widespread Paper Boom–which is basically the interjection of middleman Profits-Taking (Some would call it artificial Rent-Seeking) simply to absorb the excess Cash. Now We are in a state of over-flush Paper assets, and an excess amount of middleman Profits demanded. The Economy really needs to drain both Paper assets and Cash, and Fed policy will be wrong if and when they start to extend extra Cash simply to maintain those Paper asset Profits. lgl

Yes and No!

GM plans a new strategy, providing a fuel source for its better technology, and actually consists of a wonderful addendum to my previous blog. They have an engine which can utilize 85% ethanol, but no fuel for it; most other engines utilize only 15% ethanol. Fuel consumption type grants them an technological advantage, and they are looking for a similar advantage in the fuel. Animal waste is the desired platform, as it consumes less energy, less water, and puts less Carbon into the atmosphere. The later is important because We must subsist with the amount of surface Carbon, though We don’t have to choke from spreading underground Carbon deposits. The interesting thing are this method lies in that the bacteria method of producing ethanol could enrich the actual fertilizer quotient of the residue. The real Bottom Line will be that its production can actually be made competitive with Gasoline production.

James Hamilton gives Us a Piece representing how the Fed is likely to react, though I regret the likely Fed reaction. The Federal Reserve has altered policy over the years, but the current trend bothers me. It has become a Welfare system for the economic plungers of the World, with the provision of a kind of safety net through ready, easy Cash. I remember the hysteria assumed by the thought of deflation some years past. Now there is hysteria about a Cash shortage to cover overextended Banks. Why has the entirety of rugged Individualist marketeers abandoned the effective tool of Self-Correction–the natural Market solution?

Here is one of the factors leading to the current Credit Crisis, but reminiscent of the old Shame on You–Shame on Me story, the fault is basically with the Banking system. Bank officers have become too dependent on production bonuses to do their jobs. The rapidity of pace of loan extension is a poor vehicle to reward. Bank practice is at fault for the greatest majority of their troubles, and Fed underwriting of easy Credit will not bring quick change to negligent Banking practice. The Fed may be attempting the creation of the next Banking failure, but We should not applaud the effort. lgl

Waste Management Practice

The NYTimes has a Story close to my Nose, having grown up on a farm. EQIP–The Environmental Quality Incentives Program–sounds like a great Conservation program, at least until you pass one of these sewage lagoons; I having passed a number in my life. They are the cheapest form of handling such Waste, and the Federal Government is funding this Cop-Out. Sewage from these facilities should be pumped through a compression chamber where the liquid is separated from the solids; the liquid Product to be immediately sprayed upon farmland, while the solids should be dried for eventual grinding and spread upon farmland. Why isn’t this done? The Answer is about $13 per ton Cost for the treated Affluent, and this only under a Unit size producing at least 70 tons per month.

Economists often talk about Externalities, and the Above is a great one deliberately engineered by the Animal Husbandry industry, while financed by American Taxpayers due to Lobbyist interests at the federal level. The industry claims that the switch to intensive cycling would increase the Cost of Meat in this Country. This is a basic Lie–with the Cost not studied, but my guess-estimate would be about $.07 per pound of Meat. The real factor involved here is the inability of the industry to pass the Costs forward, because of the multiplicity of Meat buyers and because of the easy provision of foreign Meats. My further estimate suggests that the industry would suffer about a 2% loss of Profits, with transference to adequate Waste Product management.

The real Answer to the problem is not the further financing of sewage lagoons, but Government finance of Cooperative Waste treatment facilities, which would extend long-term loans at adjusted Interest rates to Farmer Associations. The Solution would entail haulage or Pipe pumping of raw Wastes, so Plants should be small and geographically sited to lower Transportation Costs, The Ideal Unit would be a Compaction system light enough to be transported on a Truck trailer, with Feeder trucks to spray the liquid Wastes, and transport the compacted Solids to a Drying facility for grinding and later spread.

Such a Program will not work unless there is prohibitive legislation which would penalize, on a per ton fine basis, the retention of such Wastes longer than a 30-Day Period. This would not require on-site Inspections on a continual basis, only the establishment of minima and maxima limits of Waste limits per animal on a monthly average, and an automatic system for fining Violators unless they can prove compliance with the legislation. The real key to Success in this endeavor is the ownership of the Waste treatment facilities by the Farmer associations themselves, where they are responsible for the profitability of the Units, and where they will thereby provide assistance in Regulation enforcement as it affects their own Profits. lgl

The Bank Deposit Tax Again!

I read this Today, and worked through its links. All the material involved distorted the reality, in one way or another. Here are the points which are distorted:

1) Everyone expects a elimination of Payroll taxation—Wrong! Social Security contributions, Unemployment Insurance contributions, and various assorted mandatory contributions will be maintained. This means that it will be an increase of taxation for approximately One-Half of the Taxpaying population. It also means that Those currently absolved from Taxation, will have to pay a Mean taxation equal to that imposed upon the Poor.

2) Everyone plays with the numbers, and blandly asserts that some set Percentage of Sales tax will replace the lost Income from elimination of Income taxes. Unadjusted Tax revenues volume to replace Income tax revenues equals a 47% tax rate, and adjusted Tax revenue volume would require a Sales tax rate almost 62%. The adjustment above is concerned with Collection Costs, Verification Costs, Transfer Costs, and Averaging Costs of variable Spending.

Poor people will find a definite bite in the new taxation, but the Wealthy also possess oversize expectations of the Windfall they will attain. The new form of Taxation will bring on a Intermediate Term increase of Minimum Wage to about $14/hour, and an effective Wage for common labor of around $17/hour, simply to gain the employ of desultory labor; you can imagine what the Costs of Expertise labor will be. You insist that the Poor must pay taxes, they will insist you pay them a Living Wage. Effective Income status will lop off 20% of the High Side, and slide it to the Low Side of Incomes.

It is time to bring my idea: the infamous Bank Deposit Tax! It is not Revenue-neutral, as it will raise a lot more Revenue than presently, if set at the sensible 2% of Deposit, and yearly repetition tax of stationary funds from Date of Deposit. It is much more sensible than a Sales tax; here, what We want is what you put in the bank, or pay to some Credit facility. We want it every time you put it there, the reason why it is much lower than an Income or Capital Gains tax. It impacts Everyone, even Those who operate in the Cash economy must eventually deposit almost all funds to obtain certain types of acceptable Payments. The rapidity of Business transactions ensure that the Tax revenues would be high and relatively Constant, and the Tax on amounts going in possess the least impact upon the Poor, who could be granted some sensible Rebate system which need be paid only periodically. I would personally keep Capital Gains taxation, but set it as a steady 20% rate of taxation, without any Tax Discounts; this to provide the progressivity of the tax system. I think I have the most brilliant tax system; and will inform the business community that this will probably be the cheapest long-term tax system. lgl

Unusual Request

This morning was destined to be out of the ordinary from the moment I opened my eyes. I felt tainted by the minuscule ridicule of human nature, which One always gets when he thinks to change the state of the World; the last being impervious to change, and sharing contempt for the aspirations of men. I wondered at such a feeling so early in the morning, then I received this request, and understood I had only been forewarned by the Gods and Beasts through the Goddess of Derision.

The Request: What directions do I think Technology will take within the next Century?

I undertake such a Quest into the Darkness, knowing that the Gods possess knowledge of my ant-like nature, and realize I am only attempting to fill empty space with some Excitement for the children. I chose as my first venture, the freeing of Power transmission from the evil God of Landlines. Failure to achieve this Goal will lock Us eventually into Our villages, never to reappear until such time as We become used to riding horses again. I like horses, but I wish they liked me. The fact is We freed Communication from dastardly landlines, and We must free Power, for the simple purpose of movement. The dastardly demon who would damage the environment by this transmission must first be defeated.

The second line of development must be Genetic reconstruction. I once make a wholly inadequate estimate that Trees receive almost 9.25 times the solar energy they need for growth. Genetics must turn Trees into a solar generator, and One which can transfer solar energy to Collectors, which will concentrate and transmit Power for human use. I simply do not pick on Trees, thinking every form of Plant form need be adapted for such purpose. I envision whole fields of Corn which do not require conversion into ethanol, and where One can feed the Produce to humans and livestock. Does this sound like Science Fiction? Beam me up, Scotty, because once they laughed at my cherished Cellphone.

I am going to quit here, before they send the men in white coats to haul me away. I will only comment that One must open the Mind, to embrace all forms of idiocy, so One can discount that which needs a Washing machine. I hope this missive has properly propelled Great Thoughts amidst the Intellects of children, and dangerous Schizophrenics. lgl

Will the Real Recession please stand up!

Hillary Clinton wants a $70 billion stimulus package, which Republicans scream is ‘reckless’, thinking it is far better to have Tax Cuts which will not elementally change anything either; while Wholesaler stockpiles increase, all because Consumers have no more discretionary Income to distribute. Do either the Democrats or the Republicans seem realistic? The Machine is not broken, and We will come out of the non-Recession by Spring, in spite of both Parties attempting, each in their own way, to destroy the proper Correction. I would favor a far more radical approach which will never be adopted: An earmarked 10% Surtax on all Federal taxes for 3 years, the tax revenues going solely to paying down the National Debt. The reverted taxes would pay off an estimated $1.3 trillion of Debt, and raise the value of the American Dollar by about 13%. The enhanced position of the American Consumer would potentially lower Consumer Prices by 2%, while lowering Governmental expenses by an estimated 7%. Now how do We get rid of Congressmen and Senators who insist on running Budget deficits?

Here is where the major opposition to such as the above Plan resides. Many Economists are enamored with Exports, and claim a weak Dollar and higher foreign Sales remain the Solution to American economic woes. My first Contention states that North America, and the EU, are the major Import consumption nations, they being the only nations altering their internal Consumption patterns to absorption of foreign Consumer Goods. A reduction of this Consumption will reduce foreign demand for American Exports far faster than a weak Dollar will increase that foreign demand. A weakening Dollar which loses an additional 30% of value against other Currencies will reduce American Imports by an estimated 11%, while at the same time, reduce foreign demand for American Products by almost 28%. All estimates provided are my own, and subject to wide debate. I can assert positively that weakening the Dollar is not a solution, but an additional economic restraint which American Standards of Living cannot accept.

I have come to the conclusion that We have been in a Recession since last July, the traditional Index evaluators failing to register the Drop due to the weakening Dollar, advance of Exports, and increased Price of Imports. I am reinforced in this idea by the increase of Consumer Debt over the Period, a rapidity of advance rarely seen in an expanding economy. I am also certain that We are coming out of this Recession, not entering one. Any stimulus package will actually be introduced into a re-expanding economy, and will only act as Inflation pressure. I have often been wrong, but I am sure on this one! lgl

The Rustle of Economics

Students of Tax Policy should carefully read both contributions in this Post. Their Comments are accurate, and fiscal stimulus based upon Tax Rebates rarely attain the desired effect. The immediate destructive element to Tax Rebates lay in they become politicized upon transfer from theory to proposed policy; i.e., self-interested Greed arises to ensure political supporters get their share of the Take, even though it doesn’t fit the actual theory, or actual propellent to the Economy. There are Those (Me) who would claim that there is no stimulus to Tax Rebates at all, as Business Interests stand ready with Price increases prior to any award. The Price increases spur Business Profits, but does nothing for Consumer Demand, Employment, or reduction of Production Costs. The sensible Taxpayer saves the Rebate, or pays off Debt, but still remains in worsened condition because of the Price increases.

Free Exchange gives good Insight into views across the Atlantic, though the links come mainly from American sources. My Answers to the implicit questions stands as January and February Retail Sales will remain basically static, but will begin to improve in the Spring for American Retailers. The ECB and the Bank of England were right in maintaining their rates, as there would not be an induced stimulus to the Economy, and the Production outlook will improve after a bad winter. China is doing absolutely the wrong thing, as Price freezes only builds bottlenecks in the Production process, while Consumer Demand continues to gain strength. The real Corrective is high taxation on Consumer Products outside the basic Life Support Products of Food, Shelter, and Public Transportation. The overall European view is sensible, and the Fed would do well to emulate the European banks.

I fear Cactus at Angry Bear is himself being disingenuous, as there are relevant arguments for a flat tax that are not facetious. The foremost argument for a flat tax being the creation of greater levels of business adventure; I use this appellation because rarely do We witness actual real increases of Product, just the creation of a multiplex of Middleman concerns dealing within the Retail or Financial sectors. By the way, Some (Me again) suggest that this activity is actually fueled by a Retail Pricing system which is about 22% higher than Consumers should actually have to pay. I regress, though, to the Protest of flat tax advocates at the inequity of having to pay more tax, simply because they are more successful; this argument being somewhat discounted by the fact greater expenditure must go in law and law enforcement to protect the Wealthy and their assets, as can be found in protection of the Poor.

The real equality of the flat tax is most understandably undercut by the insistence of Wealth in enjoying the Tax deductions which save the Poor from absolute destitution. Any genuine flat tax would nullify Personal Exemptions past a certain level of Income–say $30k per year. The Mortgage Tax Credit could have a maximum qualification that Properties be of less than $200k in value. 401k Contributions set only to discount contribution less than $10,000 per year. The only truly equal flat tax would be One where the Poor could live without any Tax reduction at all, and with the Wealthy paying a 40% Capital Gains tax where there are literally no Tax Discounts at all. lgl

Police State Systems

Mark Thoma has found an excellent atticle by Marcus Miller and Jennifer Smith. It revolves around the position of the Gulag of the Stalinist era, in relation to the economy. I agree with Skidelsky (1995) that it was an instrument of Police Power, but its success was rooted in the fact that it provided an economic solution to the Unemployment Problem endured by Capitalism at the time. The Stalinist economy could provide a subsistence level of Pay for All, through an inefficient draft of labor into the Gulag, their function totally dedicated to infrastructure construction. The implied inefficiency derives from the massive numbers of non-Workers associated with the program (social Spies, arresting officers, Camp Guards, etc.), combined with the low level of Productivity of the Gulag laborer. The Construct of the system, though, must lead to further economic contemplations.

The Gulag system can be maintained in a Scenario where competitive systems are suffering from an equal amount of economic distress, faced with the reality of the functional capacity of the Stalinist regime; it beginning after a Russian Civil War where the Soviet economy suffered from the same basic conditions later endured by the rest of the World by the Great Depression and WWII. It basically failed not simply because of Stalin’s death, but through the economic Recovery of the World from the distress of the disturbances. The Soviet regime had become an economic power through the regime, but was still structured by a Wage system of subsistence, while the World was racing ahead of it, both in economic performance and in Standard of Living. It begs the Question of whether such a system can exist when such economic competition exists. The Answer is that it can–consider post-War Albania and Romania, and currently North Korea; the principal criteria consisting primarily of interruption of Communications with the outside World, though other factors should be considered as well.

The entire Process to forestall creation of a Police State may be so simple as the widespread dissemination of both News and technological information; this View must be reconsidered by the rise of Police State regimes in Nazi Germany, militarists in Japan, and the Fascists of Italy, Spain, the Philippines, Argentina, etc., all of which had a high level of Information Spread expertise before these nations succumbed to their respective Police States. All Cases, though, reflect a previous Period of economic distress prior to development of the Police State; all eventually worked free of the regimes because of the low labor productivity entailed when comparison with other economic system was forced by the larger World. lgl

Financial Debate

Mike Shedlock has come up with an excellent Post for research into the Money Supply, it mattering little that I basically disagree with him and Dave Rosenberg. Contraction of M1 and M2 may seem like a Red Light, but it has been a simple Reserve transfer to M3; the internal damage to Banking practice will be nil, without need for injection of funds. The Mortgage Crisis, though, has forced Banks to review loan applications with more vigor; it is this element which both Mish and Rosenberg criticize. The Banking system had jumped off the precipice upon passage of the Bush Tax Cuts, and the Crisis was the result. Proper review of loan application remain necessary in order to prevent crises from occurring down the Road, as deviancies activate in the loose extension of Credit. An attempt to regain dangerous practice through extension of a additional Cash flow is bad policy.

I also disagree with Goldman Sachs. They predict a Recession based upon unimproved data, and I would estimate the new Year will see an end of a mild Recession which started in the 2nd Quarter of last year, but which did not meet traditional criteria for Recession. I believe it all depends upon Consumer reaction–which I hope is relatively over, and the price of Energy–which I believe will start to enter a Short-term Oil Glut in the Spring. The Reader should realize this puts me way out on a weak shelf over the Grand Canyon. The weak Employment picture hopefully stands as a mid-winter weak spot. I most certainly hope the Fed will not lower the fed fund rate below 4.25%, else We will never get the Money Supply flow adjusted correctly. It will only be an attempt to drown poor Bank management policies in a flood of Cash. lgl

Trade and Travel

Arnold Kling may be wrong on this one, and I definitely emphasize the word ‘may’. Labor Specialization, in my view, started from the first appearance of humanity, when people were trying to determine who was the best hunter. Subsistence labor combined with a small labor pool insisted upon Task specialization. The first markets may have consisted of Garage Sales, before Anyone got around to building Garages. It is known that early Mayans had already divided into Farmers, Fertilizer Specialists, and Builders. Arnold’s concept of Stationary Bandits needs a little work, as there is some evidence of Indian traders (think Gypsies) at work even before the rise of the Mayans and Incans. The trouble with this Discussion remains because none of these people thought to leave Us a Note explaining their economy; they may have been too busy making a living.

Academics have a long history of engaging in Lecture Tours. They have even long favored the principle of Conferencing. Criticism of such activity may be viewed with ambivalence, considering the system of Awards developed by the academic community. Award nominations and Votes often depend upon personal associations with the Electors, something which can only be gained with personal involvement in the propagation of ideas. Limitation of Travel for Academics places this dissemination process under great risk. A email suggesting other academics read your work just does not have the same impact, as an in-your-face confrontation; especially when it is accompanied with an articulate lecture. I personally agree with Keddie, but must warn that it threatens the Rewards system of the academic community, and thereby will not get a great amount of attention.

Travel is at issue in both of the above Paragraphs, and in both Cases the Profits/Costs picture becomes paramount within the discussion. Early Peoples found Travel extremely valuable in terms of Trade provision of Product, but potentially very risky–Arnold’s bandits. Later-Day Travelers find journeying to be personally-rewarding, but of very high Cost. In both Cases the goal is attainment of Product, which could not be obtained without such Transfers. Likewise, in both Cases the Participants found some value in the Travel itself–I always like those Conferences in Hawaii in mid-Winter. I would like them even more, if I could get some University to pay for my Ride. I would remind the Reader that this is not really a Criticism of the practice, just Resentment that I am not on the Pre-Paid List. lgl

Creative Destruction

I find there is much confusion about Creative Destruction, not the least shared by myself; so I may not be the best Source to explain the Concept. I am, therefore, probably one of the most ineffectual advocates of the Process. The Reader can research the Term, and find actual qualified Definitions for the economic theory. I will try a Statue of Liberty play, though, to attempt to get to the heart of the matter, and will be properly vilified when it falls woefully short of the scrimmage line.

Way back in the Dark Ages, Karl Marx co-opted a theory of Action/Reaction/Synthesis which he did not originate, and may have understood as well as I do Creative Destruction. Plodding Minds since that Time have always assumed a pathological Step process of progression, where Results come in stages. Creative Destruction, on the other hand, assumes the first two forces start simultaniously, creating a balancing opposition in any and every Market situation in which they apply, the new balance being the continuous operating Synthesis. Mechanisms such as Capital Costs, Construction Costs, and Operating Costs act as the adjustment levers by which the new Synthesis balance is maintained.

The key of Creative Destruction lies in the equality of power between the two opposing forces. Impediment to One will lead to the constraint of the Other. This Constraint appears as adjustments in the operating mechanisms discussed above. Economists can now explain to their Students that this is not what Creative Destruction is about at all. I introduce it simply to explain the effect of Creative Destruction on ancilliary Market Flow mechanisms. lgl

The Tricky Money Flow Problem

The seriously diligent should read this One, but following the Story line is not for the faint of heart. Foster and Catchings were basically wrong, but so to some degree was Hayek. The later failed to utilize Creative Destruction in his analysis, chiefly because its principles had not been explored at the time of Writing. The newer Concept has reality, and serves as the moderating mechanism to ensure that Consumption Demand always matches innovative Production Supply. This means that Savings can never destabilize the basic balance of Consumption. Savings is only a rerouting of Capital into other forms; even putting Cash under the mattress simply translates into lower Material Costs (Dis-Savings), while modern Capital formation substitutes for the power of the money absent from the Economy. Eventually spending the Cash has the opposite effect of raising Material Costs while raising the Cost of borrowed funds. Is this easy to understand? Well, just accept that Savings will never have the Effect asserted by Foster and Catchings, whether new Capital formation is economically sound, or a misappropriation of funding.

Here is a sensible man with a truly intelligent analysis. I could go into a vastly intricate rationale to explain that no Stimulus package has ever provided funds to necessary sectors, but will simply say that the Market model remains an extremely rationale distribution mechanism, which demands a slowdown of expenditure of certain segments of the economy, to bring other segments of the economy into Profitable alignment (equalization of Profit ratios). Helping Those who are already overextended will not help the Economy, and will actually hinder the Allocation process by requiring a longer Period of distress to equalize structural mal-distributions within the Economy. Translated, this means that substitute payment for loss of what were excessive Profits will only continue uneconomic practices which suppress economic performance.

I can always depend on Dean Baker to present a reliable example for my needs. The systemic economic Costs of the Drug industry are admittedly too high, basically because of monopolistic pricing and the ancient practice of ‘feather-bedding’. Everyone knows that Research facilities are overstaffed, and their budgets are a functional Lie, with their declared Costs almost 250% of actual practice; all for purposes to minimize Taxes, and to justify the monopoly pricing. The Drug industry, on the other hand, will be the major beneficiary of any Stimulus program, ready with an already developed Price Increase schedule. Stimulus packages are only Predators who smile innocently. lgl

Corporate Taxation

I ran across this Paper (pdf), and decided it is something I should act like I have read after glancing at this:
Abstract
We examine the extent to which taxes on corporate income are shifted onto the workforce in the form of lower wages. We use data on 23,000 companies located in 10 countries over the period 1993-2003. We identify two channels by which taxes can affect wages: indirectly through a lower capital stock, and more directly through wage bargaining for net of tax, location-specific rents. We find that a significant part of the effective incidence of the tax falls on wages. Our central estimate is that 54% of any additional tax is passed on in lower wages, even in the short run; other estimates are larger than this. In the longer run, a $1 rise in the tax liability results in a fall in total employee compensation in excess of $1.

I also found the Conclusion on pps. 16-17 also of immediate interest. I was seriously tempted to start at the Beginning, and read it entirely. Then I considered the liability of such a course, perhaps requiring me to adjudge the veracity of the Study, which would turn into real Work. I took the far easier Option of deciding that if it was good enough for the Oxford University Center for Business Taxation, then it was good enough for me (tis not an attitude encouraged amongst Academics). Still, I consoled myself with the knowledge that I had only to utilize the Results, not create a Defense for my own criminal misconduct. The mystified Reader can take heart in the awareness that the Study can be defended effectively by Someone.

The real value of the Study would be the assurance that Corporate taxes are very expensive to Labor Wages. This promotes an entirely erroneous belief that Business should be left to go Scot-free from any form of Taxation. The correctness of the Study should only make Us reexamine the basic types of taxation which We utilize. My evaluation of Tax theory brings the highly irreverent choice of Tariffs as the most effective type of Taxation to protect migrating Labor Wages, plus moderating diffident Production Costs; all within the context of a supervisory power for Governments to limit excessive Profits-Taking on the part of international Corporations. The Tariff also enjoys the additional benefit of forestalling the practice of Profits transfers by Corporations to escape Taxation, through the pre-charge before Retailing. lgl

Consumption Patterns

I am not alone in believing that the American Dollar will strengthen this Year. It is hard to explain exactly why I feel that way, but I think the United States is following a pattern first explored by Japan, and from which the EU is just emerging. It may mainly be based upon domestic saturation of the Consumption market combined with the savings in materials Cost associated with the new Technology; literally put, those Consumers who will utilize the new Technologies have become cognizant of the capabilities of the new Products, and will only purchase exactly those Products which serve their directed purpose. This could mean up to approximately 30% less Consumption purchases in the domestic market, as Consumers route their Consumption based upon accurate knowledge of their Needs.

Brad DeLong remains critical of the Huckabee Fair Tax plan, basically following the analysis of William Gale (pdf). This examination holds that the tax rate must be around 44% Tax-exclusive in order to remain revenue neutral (maintain the same amounts of Taxes collected). Brad adds on the Big Ticket knockdowns, and the federal prebates, and soon derives a Tax rate in the high fifties percent-wise, when moving to the Check-Out Counter. Arnold Kling brings the best argument to the table, stating that Consumption taxes reduce taxation on those people who earn more than they consume, which forces much higher taxation on those people who basically consume what they earn. The entire Movement, therefore, is in no way revenue neutral, but a probable 30% Tax Hike on Consumers.

The entire Consumption pattern would be drastically changed by such a Taxation. Consumers would rapidly learn they can adjust their Tax payments by alteration of their Consumption practices. There are both Pros and Cons to this activity: Consumers will immediately begin to demand Products of greater durability and lifespan, Consumer investigation of Product will become more concentrated and extensive, with Purchase coming only after satisfaction of those desires; an extended Business Cost for Retailers, who will be faced with larger necessary Sales staff, less Consumer traffic, and more articulated Buyers. Entertainment Products will decline in Sales, while equally being forced to exhibit extended longevity. I can go into other varied effects, but will leave it there, as this Post mainly focuses on Consumption patterns. lgl

Value Formation

I have never included a blog roll, never intent upon Anyone reaching anywhere from my articulation, though feeling somewhat guilty because Readers always desire a Second Opinion on most everything I write. Here is another of those Lists on which I am never named; included because Steve Waldman provides a crafted commentary on his personal enjoyment. I will not even present links as I evaluate his fare, being antisocial and resentful of the widespread attention which good bloggers receive. Brad Setser is good, but invariably too committed to minutiae–Some would assert such merits academic acclaim. You can find anything acceptable to read with Mark Thoma, like you can find links to these blogs in the Waldman piece. Felix Salmon is also excellent, even though he will not let me read him without a rss feed. Calculated Risk, Tanta, and Yves Smith are all Good, but often deviate from straight economic theory–Some people are so gross as to define this as Research. I enjoy Dean Baker, who like myself, is mad at the World, and just won’t take it anymore (forgot that the Kids probably never saw Network). There are People who actually think Finance is an Economics topic; if you want to go there, then you deserve the confusion you will feel. We finally arrive at Bloggers I would appreciate I can relate with, especially James Hamilton and Menzie Chinn, Tyler Cowen and Alex Tabarrok, Dani Rodrik, William Polley, Paul Krugman, Greg Mankiw, and knzn. The rest are probably equally Good, but I am fazed by big Words.

I agree readily with Greg Mankiw on this exposure of the Democratic Candidates’ positions on Energy. Any form of Carbon taxation will come down on the Consumer, as Utilities practice the Corporate Two-Step. The Readership of this blog should realize that Taxation is not part of the Evil Empire, and something around here must pay for itself. The tricky part of the Energy debate lies in the fact that the less apparent the Carbon taxation, the less effective will be that taxation. Carbon Credits provide not only plausible denial to the question of Carbon taxation, but allowed Utilities to increase Profits through gouging the Consumers; I expect Energy Costs to the Consumer to be about 17% higher in total cost with any form of Cap-n-Trade system, than it would be under outright Carbon taxation.

Mark Thoma may have missed the importance of the Zachary article, when he concentrates upon the substitution of Aid-Providers. The real impact may be the introduction of new technology, specifically geared to developing economies. The real dilemma may be that the Chinese should keep their Aid teams at home, to cancel the overreach of old-style technology in Energy production in their own economy. India cannot seem to alleviate the horrors of their own Poor, possibly attempting Model experiments far from native political resentment. One should never put down any Initiative without serious study of potential consequences, but there is something truly wrong with this experience. lgl

Ethics and the Modern Economy

Josh Ruxin gives Us a clear picture of the difference between Present-Day Kenya and the 1994 genocide in Rwanda, though his analysis of the economic consequences may be a little flawed. The root of both Conflicts remain Tribal antagonisms, and each was incited by an attempt to impose One-Party Rule by a significant Tribe. I include this Opinion because it highlights the fallacy of expecting too much Gain from the provision of Economic Aid to underdeveloped countries. Rwanda and Kenya each had a fairly stable, growing economy prior to the instigation of Violence; Kenya serving as a Pearl of African development. Tribal conflict will always destroy economic opportunity far faster than economic development can build, and economic aid must be distributed equally between Tribes, lest Tribal jealousy will lead to suicidal destruction to economic underpinnings. Such a Scenario always requires introduction of firm democratic institutions, before economic inputs can survive the rivalry.

The Chinese possess a long tradition of the suppression of Workers, and economic fuel from Developed nations can incite a prolongation of that subjugation because of its insistence on the cheapest production costs. Plant managers will always hide hazardous conditions for labor, if those same practices provide substantial savings in production costs. Business personnel from Developed nations inevitably limit their interaction with Natives to Plant management personnel, they literally aware that knowledge leads to added Costs to themselves in the final prices which they will pay. The Short-Sightedness of such polices lead to destruction of domestic Production in the Developed nations, the shift of Production Costs unto Native labor through destruction of their labor potential, and grant corrupt Native management undue wealth and control in Native societies. The sadness of the entire situation comes from the fact that such Gains will always be temporary, and only lead to the enrichment of criminal elements in the economies of both Native and Developed nations.

This article relates to the previous articles in a profound way, though most Economists will deny the connection. We have a Housing slump occasioned by the issuance of bad Mortgages, a practice engendered by an over-rapid increase in Home prices over the previous decade; a Condition created by an Imagery that Housing would pay for itself, which it won’t. The benefits of Outsoucing Production has long been canceled by higher Materials pricing, especially Oil. Business Investment has been channeled Overseas, and the business managements of Developed nations are finding that traditional labor Costs have not disappeared–only been shipped Overseas. The domestic economies of Developed nations, though, have been ripped apart by the loss of resiliency within their own Consumption markets, having disrupted their own Profit margins. The Situation faces many difficulties, and I am reminded of the old biblical story of Seven Fat Cows followed by Seven Lean Cows. We may have to trim a lot of Fat to make the Lean Cows survive. lgl