Friday, February 29, 2008

Accounting Procedures

Washington is again Talking past each other, and it is just as well. Judges do not need to get involved in writing Mortgage terms, the federal government does not need to own troubled Mortgages–it has a troublesome one of it’s own, $4 billion to rehabilitate abandoned Housing is a simple giveaway to construction companies, and it is only Job-seeking that drives any need for Mortgage counseling; understand that Mortgage lenders will only change Mortgage language to regain the confusion they desire. The Republican position may be equally as stupid, as We need those higher Mortgage interest rates and larger Down payments in order to prevent future crisis in the Mortgage industry. The most important Republican item, making the Tax Cuts permanent, only ensures default on the greatest Mortgage of all–the federal debt!

We can find excellent examples of primetime Accounting, where Investors find bad business decisions only after they have reached the state of Bankruptcy. One can ask what is the basic problem with this Accounting. Executives–and not just in the Banking industry–take high Risks to generate high Profits, all in order to obtain huge bonuses and Pay packages; they being little concerned with the Risk level of these investments, as they estimate a high Percentage of the investments will work out. The trouble comes in the fact that there is a vast difference in the performance factor of these Investments because of the state of the Economy; they are almost always paid in a growing economy, and have major default rates during Recession or no-Growth economic conditions. Regulation will never divorce this Policy-making from the Corporate structure, because of Executive thirst for Cash. I would suggest a law, though, which would insist on Executive firing (termination of employment by the Corporate entity) if off-the-Balance-Sheets losses exceed 25 times the Executive’s Pay Packages yearly, and where all Executive must sign for all the off-the-Record business investments.

Evan Dooley identifies the problem described above. Dooley could see supposed market advantage with which he could make extreme Profits, but he did not possess the financial potential to exploit the Profit-making potential. He simply did what he had likely been doing for years, entering bids which he could not cover without a Market gain, thereby making a personal Gain as the market paid him off; an easy way enjoyed by many such Traders to triple or quadruple their Incomes. The trouble only arises when the market in the Commodity tops out. Evan Dooley tried to ride the wheat market for too long with too high a commitment. He got caught short. The Reader should understand all Executive types try to make a successful career from risking other peoples’ money. Accounting practice is utilized to make sure these Risk-Takers employ only viable Risk options, but they are naturally Plungers in search of vast wealth for themselves. The Result is predictable without rigid Rules of Accounting compliance. lgl

Thursday, February 28, 2008

Friendship and Power

Bill Buckley made you curse, then smile, then smile and curse at the same time. He was the Voice of Firing Line, and One didn’t read him, you only argued with him. He was so prolific that you had to be a librarian, just to keep track of him. One didn’t agree with him, because that was an impossibility. He knew everything about what you never wanted to know about, and explained your problems before you even knew they existed. He was the Don Quixote of American Society, and defined a Generation better than they did themselves. He was your Mentor, though more reminiscent of your Academic Advisor for a Dissertation. You wanted to put him in a hole and bury him, and you are crying now that it is finally going to happen. He was The Enemy and your Best Friend, and what a emptiness in your life now that he is gone!

Here is an article which brings a complete Opposite to the reaction to Bill Buckley. The Clintons are good people, and truly care for the outcomes which impact people, but one finds it hard to develop a real friendship with them; though the American people could easily accept another Presidency from their camp, even if it can be avoided. Could it be because they are professional politicians, or is it that their search for political support leads them into the wrong circles. Alternate Energy is overwhelmingly necessary, ethanol subsidies are more injury than value. The Clintons live among the Bottom Feeders, and the smell of backroom deals may permeate their clothing and outlook. They are on your side, and are an obvious help, and you don’t deny them; you just wish they were more circumspect.

I suppose I should return to some discussion of Economics. This article talks of the G7 Countries standing ready to maintain the stability of World markets. It also mentions the Japanese discussion of Japan’s possible creation of a Sovereign Wealth Fund. Both ideas hold many pitfalls. Government intervention in the Markets could only mean distortion of those Markets, and a Japanese Sovereign Wealth Fund would join a Group which will eventually create a super-Great Depression, as they forestall any Recession to stop their own losses until such Time as there is no reality to the Markets. Governments have never held the power to forestall Recessions, only the power to restart economies after a Recession, and their Debt loads are even eliminating this effective power. lgl

Wednesday, February 27, 2008

The Real Danger of Bush

Who was that poor guy who suggested that Iraq might even cost a $100 billion? As long as We are pointing fingers at people, We should charge him with Fraud at well. Bush and McCain are wrong about Iraq, but it is nothing new when Republicans are connected with foreign policy. I am not being specifically partisan in saying that; it is just fact. I think the basic problem lies in the Republican demand to treat foreign policy with the formulas utilized in Corporate Board room fights; a Conceptualism which they can understand. This is not to say that Democrats hold a greater proficiency in dealing with foreign policy. The basic problem with the approaches of Each comes in their demands to publicize all Initiatives; foreign policy best conducted in the dark of night, without Public knowledge of the concessions exchanged. Politicians have never understood that Transparency clutters foreign policy with a widespread commentary which operates in opposition to effective policy.

Alex Tabarrok indeed holds the correct attitude towards Life, and reflects the American attitude towards the Stimulus Package; Freebees should be spent on the irrelevancies of life, never distorting the Business format of Anyone. I would suggest Anyone could send such Gratuities to myself, as I could utilize an additional T-Bone Steak, and fill the old Truck. The impulse of Americans to act like a Millionaire for a night may be one of the strongest forces in American society; think how many Poor insist on taking their children to Disney World, at an average Price of $6000 per trip. It is not up to Economists to adjudge the morality of such Expense, but simply to integrate such funds into Consumption sales. Here is a group of people who does not understand the principle of letting People blow their money in methods which are detrimental to the Savings function; leaving alone the Status symbolism of owning a Product which is overpriced and not economically efficient.

I have now supplied a supplemental list of Readings which provide some kind of ethical attempt to counter the nonsensical attitude of my blog, so I can turn to the main Thought of my Day, which is the fact that American foreign policy actually stops during the Election years. No one, Domestic or Foreign, holds great desire to make any deal with Bush, who is a lame-Duck, short-term possessor of an Office, and who will be replaced with an alternate Candidate and management policy. There is no guarantee to any Deals which could be made, so delays are instituted in order to not cancel potential Negotiating strengths. I am quite sure that Bush himself complains that the Machine does not move with the old alacrity. The trouble comes in the fact that such a lengthy Vacation from effective policy remains disastrous to American Interests. lgl

Tuesday, February 26, 2008

No Good-Time Early Out

Here is a good Post to explain the Options available to Federal policy, both the Reserve and Congressional stimulus action. Cactus may have the most efficient plan, which is to do nothing. PGL critiques a program which would reduce Consumption Demand, when there is already a decline in Investment Demand. One Salient Oversight advocates an Austerity program of high Interest rates and raising Taxes. I happen to agree with the assessment, but must say that the Author loses me in the pontificating of the policy. This is the manner in which I would approach the Problem.

Congress should enact the 1993 Tax law once more, and nothing else; nullifying all Tax concessions granted in the interim period. I suppose I should present some rationale for such a Policy, though I played hokey this morning, and decided I preferred the practice. Anyway, here is an attempt at a serious defense of my policy. The first Item states that We already have evidence that modern Business formations can navigate such taxation, and quite successfully. The second Item states that reversion to this earlier successful Tax policy will negate whatever misguided fiscal and economic initiatives have been adopted in the interim period. There is primary evidence available that this impact of Taxation could not reduce Employment below 2005 levels, a magnitude which could at most lose about 2.3 million Jobs; but the previous transition in 1993 expressed an eventual Gain in Employment, due to Business preoccupation with recouping lost revenues to Taxation. The rise in Tax revenues would aid in provision of welfare services associated with a Recession if it comes, and help to reduce federal debt levels if no real Recession occurs (my estimate of the likely Outcome).

The only trouble We ever had with the Tax policy of the early Clinton years consisted of attempts to streamline it to promote Business. I have previously stated that Capital aggregation was redundant with the advent of the modern Banking system. Claims that it is necessary for Investment is false, even at the Corporate level; early success in the Economy simply turned to Rent-seeking through adverse lobbying efforts, eventually distorting the impact on the Tax base. Changes are on the Wind, and We need an adequate Tax policy to channel those Changes. Labor Participation will have to rise within 7 years, and Wages will inevitably regain position in the Income format. The Dollar will have to stabilize, else Americans will lose their position as prime Trading partners; this can only be accomplished with relatively active repayment of Our foreign debt obligations. Too many Economists fail to recognize that the Austerity program is already with Us, and We need an effective Tax policy to cancel the agony of that fact. lgl

Monday, February 25, 2008

Gloom, Doom, and Agony on Me!

The mentality of Military Procurement almost dictates the creation of Corruption in the process. Two companies are vying for the Contract–too few in number to actually be competition. There is no competition in Price–living as these Companies do with only lack of Add-On imagination as limitation of Cost. No one in the Military imagines that Congress will ever fund more than 18-20 of these planes per year. No one in the Military believes either Tanker model is actually superior in design or performance. Everyone in the Military expects the Companies to demand Cost Overruns with the Award of the Contract, likely almost double the Bidding Prices. No one, in the Military or Congress, suggests that Duplication would increase the Cost of Maintenance of the Craft; which functionally would have to be sent back to the factories involved for such servicing along with any Upgrades. Still, it seems that federal Tax dollars must be locked in to the tune of 180 billion Dollars over 15 years, rather than buying yearly based upon adequacy of provision within the Time allotments necessary.

Tyler Cowen will always make a person worry, basically because he presents actual viable Scenarios; I must say all of the listed Components are likely to operate. What then? Humanity is likely doomed, at least I am; Tyler should get a Job with the History Channel. I believe some young, astute Economist should design a smoking volcano model, where emitted Carbon emissions by humanity are equated with volcano emissions; I believe We would be somewhere around 3.5 smoking volcanos. Is humanity eventually going to die off this Earth–Certainly! Is degradation of our civilization going to occur–equally certain, and probably much quicker than eventual extinction. The History Channel will relate that the average lifespan of a human civilization approximates about 300-700 years of existence, and We are getting to be an elderly Civilization; maybe the Mayan prediction of 2012 Apocalypse is correct. Now if We only had another five smoking volcanos.

Mish has a somewhat confusing Post on the relationship (or lack of it) between Commodity prices and Inflation. Readers should keep this Thought in mind when reading: Commodity prices restrain Household budgets, and Inflation equally restrains Household budgets; but that there is no connection between the two forces, until there is an inflation in Household Incomes. Sitting on Household Income will reduce Consumption Sales, and the Business Profits based upon those Sales; without the expansion of Credit. The main Point is that a financial suppression of Credit will present Recessionary conditions, but One has also to remember, that Recessionary conditions will have little effect on the Economy, unless and until Household Incomes are cut. Japan is living proof that a long Recession can be endured with rising Living Standards. lgl

Sunday, February 24, 2008

Afghanistan and Mortgages--Same Thing!

What can you say about Afghanistan? Americans are oversupplied with heavy weaponry, Insurgents are oversupplied with light weapons. The only real defense from L-ambushes are utilization of flankers, but how does a Commander use flankers in mountainous terrain? Americans still have not learned that they talk only with Insurgent leadership, as no neutral Civilians will be allowed to conduct long-term negotiations with the Enemy. Stop-loss of key personnel destroys troop morale, while making experienced personnel paranoid; American leadership still not integrating WWI doctrine of leaving troops in Risk areas no longer than 5 Weeks, before transfer to a low-threat area for Rest. American Outposts lightly manned and flown in must be positioned along traditional routes, and only these Outposts should be allowed access to Air munitions assets. Patrols should only be conducted within Daylight hours, and never where they cannot overnight at an Outpost; the later situated where they can oversee Patrol movements, and assign potential Air assets upon Need. Outposts need to be organized and zeroed in, so that Outposts can be defended by artillery fire. Sniper teams need to be rotated between Outposts, and allowed free fire upon confirmation of the transference of military weaponry by Insurgent elements. The overwhelming need is to switch the Risk from American military assets to Insurgent elements.

Alan Blinder has many good ideas, but has to worry about introducing too great a complexity. A Mortgage salvage Agency must keep it as simple as possible, because it will become confusing enough when placed in operation. The first doctrine is to employ the initial Issuers of the Mortgages, basically so they become too busy to engage in future poor financing practice. Criteria should be that Mortgage refinance is approved if a Property will retain 75% of its value, if Housing prices drop 25% in value. Federal law should be constructed so that the Federal Government only assumes the Mortgage, with Mortgage-holder agreement to assume a longer-Period Mortgage of lower Payment which will pay off the total value of the initial Mortgage. The Periodic Payments required will be within 70% of the originally-set Payment value, and the Time of Payment will be of whatever duration necessary to complete payment to the federal Agency. The federal government will be committed only to the payment of the original mortgages, and subsequent payment failure by the Homeowner will lead to federal foreclosure and sale of the Property. Federal involvement in the Mortgage debt will be minimized, with the least expenditure of Public funds, a set criteria for repayment of that federal expenditure, and will avoid the debacle of trying to straighten out the complex mess of failed financial instruments–ill-designed.

One can find Reasons for the Mortgage Crisis everywhere One looks, and is the prime rationale for federal law regulating the Mortgage industry. The simplest law I can conceive of would be One that required the filing of a One-Page Declaration form with the County Assessors Office with every Change of Title. The document would list Total Price, Interest Rate charged, the monthly Payment charges, the magnitude of any Late fees charged–both in total magnitude by Percentage and maximum amount levied per monthly payment, and prepayment charges which might be applied–both in Percentage and total amounts, and stipulation that the Loan officer could face 3 years imprisonment for any deception in the above declarations, or his failure to explain each declaration. Each stipulation of the Declaration page must be initialed by both the Mortgage borrower, and the loan officer; the Signature of both Borrower and Loan Officer required at the bottom, before Title will be altered. lgl

Friday, February 22, 2008

Do I Worry?--Nah!

I glanced at this Post of James Hamilton this morning, before I went to see my personal banker, who told me I would be paid only 3% on my renewing CDs; facing as I am escalating Costs in my own Consumption, I feel extremely comforted that the Fed are relaxed about further Rate reductions. I still believe I should restudy John’s Post, as it is always filled with amazing Insight. It seems that Core Inflation is near the high end of restraint levels, but would be capable of additional cheap liquidity. I felt almost Tears of Joy, recognizant that I would have to roll over future Certificates of Deposit in the near future. It appears that the Economy is structured well, except for a lack of cheap assessable liquidity, and could easily endure a combination of Price rises and lack of New Orders. There exists little complaint about anything other than a lack of ready Cash and raging Commodity prices. Only Mortgage-holders and End-Consumers elicit any temper tantrums, and good Economists try to deflect notice of such Spoiled Sports (pity that I am one of the later).

The New York Times tells Us that 8.8 million Mortgage-holders are underwater; a beautiful term for a Mortgage more expensive than the home it is based upon. The Reader should recognize that this state was created by a Housing balloon which burst, combined with a sponsored Consumer mentality (boosted by a greedy Banking community) that espoused a high-level of Mortgage Risk to create a Tax-Writeoff. The Bubble burst, and Mortgage-holders found they had to kick more into the Pot; in some Cases, more than the Tax Savings which were ever realized. The Zero-Down Bankers now blame the Mortgage-holders for the later’s fiscal irresponsibility. Indeed, there is incessant Demand by Bankers that the Federal Reserve and Government save them from the dastardly fiscal irresponsibility.

We should not worry, though, because Mark Perry assures Us that the monetary base grew only by 40%, instead of the 70% during the 1970s which was the last Period of Stagflation. I possess two Thoughts about this: the first being how the Eight year periods compare prior to the actual Start of the Stagflation, rather than to the period of Stagflation itself? The second Thought arises that the last Period of Stagflation exited without any reduction of funds in the monetary base (I may be mistaken, as I am simply Guessing), and current economic activities already contain the expanded monetary base of the first Stagflation Period. Until such time as I actually witness a 40% real economic growth (Product Expansion) in the last 7 years, I might be inclined to continue to worry. lgl

Thursday, February 21, 2008


A combination of factors are pushing the Fed to the edge of a Cliff. Member banks and the Bush Government demand cheaper Cash and more liquidity, in the face of mounting inflationary pressures. The Reserve board has already bowed twice to the pressures exerted, and faces increasing pressure to reduce the fed funds rates further. Here is the Problem: other Countries are finally shifting higher Energy Costs forward onto the Import prices which We pay, funds which American Importers account as total loss of Profitability, unless the higher prices are passed to the American Consumer. The American economy is currently tied to Imports, a situation which I have criticized for decades. The inflation arriving on American shores is intrinsic, and nothing the Fed does can alter it. American business, on the other hand, demand that the Fed provide the liquidity to pay for it; a generation of a source of domestic inflation. The combination of the two forces will create stagflation.

Nothing will stop the progress of any Recession which might come, remember We have yet to see visible evidence of it as yet, as inflation has hidden the drop in actual Product. Recessions are built upon forces operating on the Production cycle, and liquidity will not affect the Scenario until there is need for Recapitalization; a condition which does not exist with the updated technology currently in force. A Monetarist policy will not be able to help, but it can hinder dramatically the stability of the economy. American business now demands an easy payment of Short-term bills, but this is exactly the wrong proscription. My Solution would not be draconian, though it would be claimed as such; I would advise the Fed to cancel all attempts to provide liquidity, and raise the fed funds rates to 4.2% at the March meeting. This would force American business and banking to register a Profit loss immediately, but would mean little else to economy except continued decline in Housing and the Mortgage market. The foreclosures will occur anyway, because of the pressure of Consumer prices, and loss of Business Profits will erase a great share of the Paper Profits which have embedded within the last decade, these Paper Profits existing only as a drain upon the real Profits generated by Production.

My proposed policy relies upon the magnitude of the American economy, which will concentrate upon the supply of Necessities to the American households. It would be assisted by alteration of American Tax structure to penalize American business and industry for reducing Employment; I would like to see a Tax charge on saved payment of Wages for the rest of the Tax year as Income, for all reduced Employment. There are some other methods to maintain Employment as well, like double payment of Unemployment Benefits taxation if a Business lays off more than 10% of its Labor force yearly. Employment numbers can be held relatively constant will relatively little duress to the economy or businesses themselves; a combination of the Above Tax measures could not possibly exceed $30 billion per year. It will notify American business management that there has been a definite change in Government policy, and one which will punish deviant business practice which is of injury to the overall American economy. lgl

Wednesday, February 20, 2008

Economic Views

I would not agree with either David Gordon or Paul Krugman, but David wrote a masterful Review of Paul’s ‘ The Conscience of a Liberal’. I say this because David adopts a effective description of Paul’s work, clearly outlining the disagreement between themselves in a lucid manner. David establishes that Paul may be too harsh in his anger at the growth of the Super-Rich, and sets the foundation for the necessity of Incentives. The trouble enters with the fact that von Mises was also forever too harsh in the promotion of those Incentives; marginal utility must be brought to the table, what is exactly the value of the added Marginal Dollar of Profit? The economic theory, of which Gordon says the Krugman book is so remiss, would suggest that progressive taxation is valid when added Riches to the Individual will not have the utility as in its expenditure by Government programs. Still, no one brings the proper economic model to the Problem.

Both Author and his Critic mix economic and social values quite liberally. What is the Marginal Dollar value of Charity v. Government Expenditure? It is obvious that Hayek’s Lack of Information will exist to great degree in the provision of Charity, the later never capable of handling the magnitude presented by the health care industry. It must be Government Expenditure, or lack of Provision for Those incapable of paying the high Charges of the health care industry. Krugman’s solution remain too generous of other peoples’ money, but Gordon’s solution would leave the health care industry stunted with Millions not receiving proper medical care. Economics suggests that the health care industry must have effective funding, but Krugman’s proposal that Everyone gets the Best is equally unsustainable.

Gordon punishes Krugman’s support of Unions, and praises the Tax Cuts of the current era. The criteria seems to be invalid. The Poor and Middle Class suffer from high Taxes, this affliction coming from a withdrawal of forwarded Tax revenues from Business and the Wealthy. Both of the good Gentlemen may disagree with that assessment, but it is true, and has more to do with the creation of the Super-Rich than does the loss of Unions. The common economic contention that We could not have had the economic growth We have achieved without those Tax remissions, I would place in the Wrong column. Economic growth has always remained far more dependent on liberal amounts of Labor and Talent, than it has ever been dependent on the mechanisms of funding the resultant economic growth. If they are there, they will build it! lgl

Economic Decision-Making

I may have always misunderstood the genius of Ronald Gallatin, but the auction rate market seems to be failing, as I expected it would. Here is a market dependent upon the appearance of buyers who have Parking Cash, buying high-Risk securities at low Interest rates, in the hope of penalty Interest rates being imposed; all based upon guarantees published by unreliable Bond holders. The entire market is based upon Parking Cash–excess funds without other short-term Investment opportunities–which disappears rapidly upon the appearance of safer and more lucrative Investment than the poor auction Interest rates. The securities possess high incidence of Term fulfillment failure, and Bond-holders show instability under failure conditions. I have never been a financial specialist, but there would seem to be too many loss-points, with very inadequate Return rates.

Mike Moffit brings Us an excellent Post on the Tax impact of Carbon taxes. It explains the shift of marginal efficiency Costs (MEC) of the tax impact, transferring from a high MEC to a lower one, while maintaining a revenue-neutral taxation. The trouble I have with this type of Reasoning lies in the position of maintaining a lower MEC and revenue-neutrality in the first place. The goal of Carbon taxation is a reduction of Carbon emissions. Both revenue-neutrality and a lower MEC work to insure a constant level of Consumption can be held. It is hoped that Business will devote the saved potential to Carbon conservation efforts, but it smells amazingly like the Stimulus Package passed by Our Government; Everyone knows how the funds will be spent, though they wish Consumers would chose otherwise.

Fears truly traumatize American markets, an excellent Case in Point being the Oil market. We have run up to a $100/barrel Oil each of the last 3 months. Each movement was based upon fears of human reaction, this time being other refineries could not make up the loss from the refinery explosion in Texas (which provides an insignificant percentage of the Refining capacity), the Nigerian rebellion which has been with Us for years, and a distrust of OPEC reaction to the World economic downturn. Horse Hockey!! Alternative Refining capacity will increase if there is a market for more Fuel, neither Nigerian Government or Rebels will seriously interfere with Oil exportation (which funds both), and OPEC will not destabilize the market for their Product. Fund Speculation is the real danger to the American Consumer. lgl

Tuesday, February 19, 2008

Old and New

Exactly the News that I didn’t want to hear, Rift-splicing by the Fed to rescue bad Bank debt. One-Month debt would be acceptable, but Everyone knows that the Banks will renew, and the TAF can only expand. Running a revolving debt of that magnitude will adversely affect Deposit Interest rates, and is bound to expand. The Term Auction Facility stands as a mechanism to save Bankers from registering Bankruptcies. The concept is laudable, except for the fact that it does little more than hide Banking malfeasance, and the Fed becoming the Depositor of Last Resort is too easily transferable to Money creation; the worst form of Inflation existent. I had my doubts about the TAF from the Start, and can say now that this example of Bankers covering their own Ass, will have very serious down-the-Road consequences.

China’s Inflation has Good News and Bad News. The Good News will be a welcome spread of competition throughout the World, as numerous other Countries can more easily match the Production Costs of the Chinese. The Bad News is that Chinese inflation will raise Import Costs in both the U.S. and EU, without having any reduction of the advantage of foreign production in comparison with native domestic production. I should say that what increased competition is induced, will improve Quality Controls of Production throughout the World, as competition extends beyond outright cheap Cost. It is a sadness when the Good News is not good enough, and the Bad News is worse than expected.

The BBC ended its Shortwave English Broadcasts to Europe last Monday. The historian within me feels saddened by the passage of a major symbol of Empire, considering the contributions of this Service in its time. The economist, on the other hand, wonders at the longevity of the Service outdated with the development of the Internet. Computers and Internet access have become almost as cheap as Shortwave Receivers today, and the self-programming choices available on Internet makes it far superior to the editing efforts of the BBC. Young Readers, though, may not understand the conflicting emotions of old Hands hearing of this cancellation, never having listened to the Service or having watched the old Movies highlighting the Service. lgl

Monday, February 18, 2008

Sources of Wealth

One needs to read this article, though One does not need to agree with it. I have a problem with it, as I suspicion that it will take a Recession as curative of many of the structural problems in the American economy. Here is the Problem: Many new structural financial mechanisms have been introduced within the last decade, and a great share of them are proving to be unmanageable and unsustainable. The trouble comes from the banking industry attempting to maintain their operation, even though they have been a proven failure. It is exactly this refusal to bankrupt and shell these mechanisms out that threatens the American economy. The Fed actions, and the Congressional Stimulus Package, may simply be building on shifting Sands. It might take a Recession to blow out these faulty mechanisms, and reach bedrock again. This article may help explain the creation of the muddle which has to be resolved.

Morris Altman, thanks to Tyler Cowen for the link, has published this Paper (PDF) carrying this Abstract:

The hypothesis that economic freedom and related variables are significant determinants of
real per capita income and growth is critically evaluated. Economic freedom is found
necessary for higher levels of per capita income and growth largely in terms of threshold
effects as opposed to persistent marginal effects. More economic freedom does not appear to
yield higher levels of per capita income. And securing particular levels of economic freedom
does not guarantee higher levels of per capita income or growth. Secure private property
rights is found to be a most significant positive causal variable as is sound money, whereas
moderate amounts of labor regulation and big government are not found to be bad for the
economy. Also, good corporate governance, in addition to economic freedom, is of
considerable import. Unlike most studies, traditional statistical methods are supplemented by
graphical analysis in an effort to determine threshold values for economic freedom and its

This generally conforms with my own beliefs, but I have as yet not found the time to research the Paper throughly; I am getting lazy and behind Schedule.

Paul Krugman agrees with the Financial Times which finds that growing up in Poverty stunts development, later forestalling the successful struggle from Poverty. I could agree with that assessment generally, but also suggest that it is the lack of Parental Example of cheating the system that could be at fault. Much of later-day wealth has been consistently earned through the Cheating of trusting Investors. Again and again, the high flyers are found to be deviant in behavior mechanisms of social structure, to the detriment of their Peers. Is it lack of opportunity, or too great an addiction to honesty which impedes the Poor’s success? lgl

Sunday, February 17, 2008

Will the real Correlation please Stand-Up

Correlations, Anyone? Impactual relationships being Variables has become the modern Fad of Economics. James Joyner would state that many of the Relationships are tenuous at best, and designed to be politically misleading. I will agree with that sentiment. I would like Someone to find a significant correlation sometime, like the evaluative data between Price Controls and Alternative Resource use. This would give me some relevant data for a posit I am trying to entertain, on whether some degree of Price Controls on the price of Beef Products in this Country could actually increase the literal size of beef herds. My Concept states that the lack of alternate land use would engender an increase in the herds through the advent of Price Controls, the potential damage existing in the ease of exit of Beef Producers from the industry. Would relevant beef Price Controls lead to the adoption of a reduced Profit per Unit with expanded beef herds, or would it only provide rapid leave-taking of beef Producers from the industry? Such a Correlation must be known before it is even worth the effort to design a Price suppression program.

Tyler Cowen presents a good Opinion piece, but it is just an exercise in common assumptions held by most of the educated elites. Here is another place where it could be helpful to find existent Correlations between expressed policy of Candidates, and their eventual Record in fulfilling those campaign initiatives. Another comparison of value would be Electee response to countervailing Special Interest demands to cancel the impact of those campaign promises. One could stipulate that Numbers have the power to connect Policy to Reality, if Statisticians would dedicate themselves similar to the expressed dedication of the Journalists; though the later has shown little real interest in defining the Truth.

Like most elements on the Internet, I find this Post by Henry at Crooked Timber which highlights my sentiment towards revealed preferences. Correlations revealed are often very weak, if existent at all, and the Internet should somehow achieve a Rating system to present the Readers with the estimate of the equivalent value of the material. Now I know many Readers would say I am advocating throwing myself off the Internet, but even Newspapers and Periodicals possess some form of Content editing. It may be time for the Internet to grow up, and establish some Evaluative system. I would favor a channel box, where every Post could be rated by each Reader on a scale of 1 through 10, with the Average updated with each Rating. Please–no throwing of Garbage, I already have enough around the Place. lgl

Friday, February 15, 2008

New Educational Format

David Brooks suggests an idea which I agree with, but Arnold Kling and King find fault with active participation in any form of community service force. I could take an entirely economic stance, and sketch out an economic model which would show that the Marginal utilities of Labor must adjust to the lowest value Labor entrant (l+0.43% of Minimum Wage) at base Wage, to avoid waste of Tax revenue in military Pay; Economists could laugh at this, but should account Military Wages as a Percentage of total Tax revenues. The Military, for all its gadgets, is a Labor-intensive occupation; tax revenues taken to pay for military forces must come from other programs usage. The United States, by the way, is unique in its regular payment of military wages, unlike most nations of the World in their history; I would not term the condition Slavery.

I did not undertake this Post to criticize, though, but in the hope of offering an alternative which would please neither David or Arnold, but could provide both the criteria of personal freedom and the benefits of personal Discipline. My Concept would state that military Basic Training be made a Mandatory Course at High School level, something I could find as equally rewarding as English Lit or going out for basketball. I know I am a heathen! It would still provide Students with an understanding of the military regime, and perhaps even some Camping skills. It might even instill an awareness of the propriety of a Dress Code, and could suggest more adequate Study habits to avoid a lumpen placement in the Workforce similar to the military usage.

An Incentive would have to be given to enjoin Parents to surrender their Children to such harsh conditions as a Mandatory Basic Training. The Opportunity exists right in the academic community itself. I would advocate Military Fund payment of Community college attendance, if the Students would take Specialized Courses equivalent to Specialty Training in the Military. Students would gain not only the appropriate Entrance Courses for a following College education, but also Specialty Rank in the Military Reserve. Students would be subject to 12 years of Reserve duty at Pay, but could obtain in addition almost 50% of their total College Education Costs. The Concept of Press Gangs has not disappeared, simply becomes more socially acceptable. lgl

The Modern State of Being

American ranchers are beginning to deal with a Problem which they deem as a environmental concern, but is in reality a bio-diversity issue. The rural investiture of a past century must be coupled with the lines of Credit of the current era. We need Feed Lots which process 300 animals at a time, Packing Plants which process 50 Head per Week, and Grain Elevators that distribute Feed by the single, Straight Truck to a multiplicity of animal feed operations. This requires a Population density triple the current rural setting, with a line of Operating capital open to all. Land and Animal husbandry must be intensely monitored, and guaranteed a potential equivalent Income to urban populations, under the constant criteria of being economically efficient. It is a basic Return to the Land, without suffering the constrictions of Living Standards current in the modern transfer. Many People will scoff at the Concept, but it may be the most important Concept of the coming Century.

Here is a Case where I wish the Echos of the Past would Shut Up. I have come to feel a Disappointment with Mr. Greenspan since he has left Office. An incredible amount of economic performance depends upon the optimism of Business leadership, the Government has passed a Stimulus program, and Mr. Bernanke is basically following a Monetary policy with which Greenspan agrees (even though I don’t); he does not have to be a foremost Doomsayer. The World will flow on, even with the tired old men becoming disgruntled; of course, the Same could be said of me.

I think I agree with Greg Mankiw on this One. The element I spot in this discussion comes in the discrimination found only in Joint filings of married couples. Any action taken in this area would suffer the same antagonism previous failures endured, not granting due homage to the bliss of married life and the family. I have long been an advocate of ridding the Tax system of all but Individual filings; the key here being that the extension of an umbrella cover to two Participants will never serve justifiably without chicanery. Participants will be tax evasive or overtaxed based upon the compilation of the two Incomes. The Result becomes a Average around a Pole Income, with anger and Greed being generated, based on how the Average rewards or injures. In all cases, single Incomes get to halve their liability, while equal Incomes often face more direct Tax impact without fully optimal Tax reducibility. No muy importante, but still capable of incurring great heat of debate. lgl

Thursday, February 14, 2008


Scientists are always right of course, but what would happen if they are wrong? The first Question should be what could they be right or wrong about. Read the links of this Post by Mark Perry. Here is the Scene: Greenhouse Gases are bad because they reflect Sunlight (and Heat) back into Space, cooling surface Temperatures. The World could continue to grow Colder as We heat Our homes. Heating your homes Today can freeze all Life on this Earth Tomorrow. The Mayans could have been Warning of another Ice Age in 2012.

The Scene is unrealistic, or is it? There would be a Warming Period (let’s say 200 years) before an adverse effect from the Greenhouse Gases, where these Gases would not reflect sufficient Sunlight from the Earth, but would help retain Heat on the Surface of the Planet. The Little Ice Age could have been a forewarning of future events, as severely dirty human practice created heavy Greenhouse Gas emissions shortly after the congregation of most of humanity in urban areas. There was a massive reversion back to rural settings, plus a massive transfer of population in exploratory settlement after the Little Ice Age; all with a reduction of Greenhouse Gas concentrations. Could the Scientists be Right about Greenhouse Gases, but Wrong about their impact?

One can attest that We are releasing far more Greenhouse Gases today than were being released before the Little Ice Age, but the geographic spread of those Gases are much greater today, while humanity has changed the Surface absorption capacities of the land from the Period prior to the Little Ice Age. Sunlight heats far more ground, concrete, stone, and fresh water today, rather than the Plant life it replaced. This means that the Days are much hotter, and the Nights cooler. I have not checked, but I suspect that concentrated human habitation produces greater Cloud cover; what happens under a permanently cloudy day? Do I believe what I have written–No! Do I doubt what I have written–equally No!. lgl

Biotech, genetic defect of federal government, and tranching

The World is going Biotech, and the Reception is similar to the entire issue of Grafting a century earlier. I am not becoming an advocate for the Biotech industry, now that I am trying to explain the benefits and hazards of the Process. Mutations are common in all Living Tissue, and abominations are equally generous. I once suggested, and was highly criticized by the medical community, that there were 190,000 mutations per million human births every generation, and 99.99% of all such mutations were failures which did not transmit to following generations. Non-successful mutations do not make the Cut in fertility. Medicine’s greatest fear resides in the threat that direct Cancer will learn to genetically transfer. Biotech brings suggestible preventions of these types of fear, as well as creating such fears. I take the Doomsayer position, and claim it does not matter; a massive Pandemic will get Us anyway!

I received this article by way of Dean Baker. I agree with the article, and suggest that the federal government will always be too slow out of the Gate to moderate economic policy successfully. I disagree with Dean’s own assessment somewhat, thinking that bubbles do not affect Households’ economic reaction too heavily; and if they actually do, then Households must learn to cancel temporary Windfall Gains from their purchase patterns. It is a question of proper economic education and practice.

I picked this article, not because it is of very much interest to Anyone, but because it explains the extreme Sweating coming out of the pores of the high-ranked financial market. They bought heavily in the high-Risk market because of the high Profits involved, with equity tranches seeming to protect against loss, as long as the greatest majority of the Mortgage field were completed. Now, they are highly suspicious that an endemic Mortgage failure will occur, where no tranche can distribute the losses through the Profits at a gainful rate. They are looking to dump the tranches, but find no market for them. They are feeling like I do this morning. lgl

Wednesday, February 13, 2008

Outline Form

The CBO agrees with Greg Mankiw and myself, I choosing Greg’s rather than the Director’s blog because it is better organized. The trouble is that every time Someone puts anything in outline form, I think I have to do something like it. Most will have heard a great deal of this stuff previously, but I am trying to get a Pavlovian reaction here.

1) The Carbon Tax is a Tax, not a Commandment from Heaven. People and Business can burn whatever Carbon they need to burn, and have a definite concept of the total Cost. A Cap-n-Trade adds Cost to Carbon combustion, not solely through the Permit Tax and Energy Cost, but also through the usury Costs of the artificial market set up, where Speculation and Holding positions can be expected to add Cost.

2) Startup operations for new business and industry would always first need to access the Spot market for Permits, establishing a relative Permit Demand before Permit authorities recognize their need for Permits. This could raise Startup Costs by as much as 15%.

3) Consumers would have to pay for either Carbon Tax or Cap-n-trade, there is no doubt about this element. The Carbon Tax, though, will raise Government revenues, thereby canceling potential Tax increases elsewhere. Cap-n-trade Proponents say Government revenue would be raised by Carbon Permits as well, but it is a far more insecure revenue; over time, the gap between Permit purchase price and Spot Market price for Permits will widen to approx. 2.25 times the Inflation rate in Percentage terms (don’t ask for those numbers, as I even confuse myself), before entering into the Speculative phase.

4) Governing authorities will continually be burdened by Business lobbying efforts to issue more Carbon Permits, and at cheaper Price; added to by Public demand for creation of Jobs. Nobody is likely to lobby for a higher Carbon Tax, and authorities will enjoy a respite, until such time as it is evident a higher Carbon tax need be imposed. lgl

What is Wrong

Boutique creations and looking for sure political polling at Intrade. Does there seem to be a form of schizophrenia within the American fabric? We prefer to buy Tap water at $1/glass, rather than bottled water at a probable $2/bottle, and appear to be ‘sheik’ in the decision. We want the ‘bragging rights’ to honestly claiming We have won a bet on Intrade, only for a potential loss of $10. Is this how modern fortunes are made, by finding captivating methods to intrigue the American psyche? Could this mean that We must invest the American Public with Toys to play with?

I have a friend who has made a fortune from Wheat recently. How did he do it? By the same mechanism he has used for thirty years–simple farming. The Answer can be asked: When did Markets develop too much volatility to effectively distribute Product? The Culprit might be the overpopulation of the World, but this is a condition which has been with Us for decades. I think the real onus belongs to the Hedge traders, who altered Speculation into a institutional framework. Speculation left the realm of Betting, and entered the arena of automatic Buying and Selling, based upon mathematical models. The Hedge traders planned on making their fortunes by automatic manipulation of the Markets, but it got out of hand, and Windfall Profits have drifted to lucky Players based solely upon Position, and costs Everyone including the Hedge Traders. We may have to design Market structures eventually to limit such forms of mechanical Trading.

Here is an article designed to produce exactly the Result desired. The Fed has published a survey which says Economists believe there is a 47% chance there will be a Recession. Okay, fine! Business personnel read the article, and potentially change their Purchase policies to batten down their houses for a recession. What happens to the 53% Chance that there will not be a Recession? Economists, and especially the Fed, should change their Tune since the Stimulus package has already been passed; a Package which I believe has only value in inflationary pressure. I wish some responsible organizations were more responsible in their distribution of information. lgl

Tuesday, February 12, 2008

The Old Rehash

I read this Piece by Greg Mankiw, and wonder about many things. I read this effort by knzn and can understand his desire to maintain the potential of Poor people to higher Income. PGL at Angry Bear sounds too angry, and takes the Argument far afield, though it must be admitted in a quite cognizant manner. They all make valid Points, but I could make some comments, which could possibly distort all the arguments, hopefully not in any adverse way.

Greg Mankiw makes the argument that one treats leisure as a normal Good, though I ask if One can make that simple proposal. There are adverse effects to leisure either way, too much or too little are both bad. There are several semi-successful techniques to avoid too little leisure, most centered around a Love Affair with your Work. Too much leisure is not as accomplished in being circumvented. Most Efforts fail from either jaded boredom, or a lack of wealth to exploit the leisure in a meaningful manner. The only truly successful removal of excess leisure is occupation, which interesting enough, happens to repel any need for lower marginal Tax rates on higher Incomes. The Case can even be made that lower marginal Tax rates have impact only upon a range of Income extending from $60K-$95k in Our poor economy today; the only real Grouping of Income affected by the Tax rates. Below $60k per year, Income Earners will still pursue added labor to increase their Income, even if it is heavily taxed; all efforts heavily invested with the need to maintain their overall employment. Above $95k per year, only driven Individuals like Obama, Clinton, or McCain will work harder than a normal Workweek, if they work at all; this dependent upon facility to maintain their Income without effort.

Knzn suffers from the delusion that his version of a Safety net is not a Safety net, and would not have an adverse effect on the Work ethic. Poor people have to be convinced to jump for the good Occupations (actually, I agree with him because We need to fill all Jobs; still, I must present the Conservative argument), which can insure that they can permanently join the higher Incomes. PGL’s descent to the Dooh Nibor distortion to criticize the marginal tax rate debates is more Act of Faith than description of policy. I will finish by saying Greg would be seriously disappointed if the Concept of Externalities were extended to the marginal tax rates debate; of course, this is the standard old Progressive Tax debate. lgl

We are getting too damned Old!

The poor hedge fund managers need sympathy, as their $1.9 trillion bet against the market did not show a Profit in January. It appears that math models only work well when the Markets are ascending, where slow-moving Stocks can be immediately replaced by quicker Stocks; the trouble coming in that the faster moving Stocks are heading downward. Old Operators on Wall Street could explain this is the traditional bent in the Markets: they either move too slow to define a Trend, or they move too rapidly to take advantage of the Swing. I once tried to explain to an Individual that hedge funds were like flipping a Coin; the Odds would eventually even out. He did not wish to listen to me at the time, as I sounded somewhat too convincing.

The White House agrees with me on the proposition that there will be no Recession this year. The only real difference is that I actually believe it, while they don’t. The rationales behind Recessions have being altering from the traditional causation through the last several Recessionary periods. The old-style models do not encompass or explain the modern expanded economies. The Housing sector does not play a significant Determinant under the force of a programmed 401k system. Loss of funds from bad Mortgages is systematically replaced by a flow of funds coming to escape Taxes by Tax-allowed investments working with the Mortgage Tax Credit. The consistent flow of Money not only buoys the Markets, but bring the exchange Credit to fuel Production even when the Retail segment cash flow shrinks; i.e., Business can avoid constriction through Recapitalization and potential expansion into new Retail outlets. I believe that there will be zero Growth over the year, but doubt there will be little Contraction.

What I believe will happen this Year can be explained as Business will firm out their foundations by keying in Production and Distribution to maintain a consistent flow of Product. This entails not only Streamlining, but also expansion into new markets for their Product. It is a Question of Retail and Distribution catching up with advanced Production. It will be exploratory Marketing, though it should be successful, even if it holds little expansionary capacity. I believe that the American economy will find it much easier to accept zero Growth by the end of the Year because of this flow, a telling element due to the lack of Production expansion potential in the American economy; the American economy constrained by high Resource Costs, and an Ageing Consumption population as well as an Ageing labor force. lgl

Monday, February 11, 2008

Feelings--Nothing but Feelings

It is all a Question of what "Is" is. I agree with Strauss-Kahn of the IMF that the American economy will slow, but disagree with the thought that it will be long and sustained. A Slowdown which is a Downscale will be a permanent thing, but a Slowdown involving sharp cutbacks will be nonexistent. People who have a Job will likely continue going to Work, though their Employers might rotate. There might even be an increase in Part-Time labor, and such attained without a substantial Layoff of permanent labor. I can even see Opportunity for creation of additional new Temporary Labor organizations–thinking this Service industry may even increase somewhere up to 14% of its current load; Business desirous of location of Temp skilled labor. The pace of American activity will slow, but the volume of productivity may change little, as American business firms its foundations.

The Technology sector is finding a reduction in Growth projections, but still finding a sustained market, which is good indication of the temperament of overall business. Forrester Research expects a 2.8% growth in information technology this Year, down from their 4.6% prediction in December. The Crab Orders (long-term Upgrade Contracts) are firmly in place, and Retail Outlets are continuing their purchase pattern; Everyone hoping that Turnover rates will continue in Retail.

I continue to read this morning, and find that Paul Krugman filed a Post which a basic better rendition of my first paragraph. I have a basic contention with him in his Statement that the high Inflation of the 70s and 80s was caused by the high Interest rates of the Fed. The high Inflation of the era was incited by deficit Government Spending, where Government induced a massive resource inflation by their purchase pattern. Understand that the Housing sector has never come close to absorbing the GDP percentages as produced by the federal Government’s 20% of GDP. Heavier Government Spending has always incited a subsidiary round of Inflation, while debate still continues as to the exact impact of high Interest rates; they obviously can become so high as to impede economic performance, but where is that exact level. I believe that any Interest rate below 8% can be endured by normal business practice without itself being Inflationary pressure. I do know that a Government deficit spending increase of 3% of GDP will always bring inbreed Inflation. lgl

Sunday, February 10, 2008

The Washington Two-Step

Can you dance? One needs to when One thinks to operate in the Beltway. Bush criticizes Congressional earmarks, and Congress complains that the Bush administration uses as many earmarks; they are only better hidden in the Budget. The American Taxpayers must face the fact that both assertions are quite correct. Bush gives Us our first $3 trillion Budget, with a hoped Deficit of only $400+ billion. Congress, left to their devices, would traditionally cut about 4% of the Budget, and add on an accruemental 11% to the proposed Budget. Both will claim the fault lies with the other Branch of Government, and rigorous pursuit of their own agendas would result in fiscal conservatism. A Trade Secret: There has not been a fiscal Conservative in Washington since the Kennedy inauguration.

How could Anyone possibly control the Budget which is so large that it will not even be commented on by Experts on the Budget, once they leave their specialized areas? There is only one method which will work, and then to accomplish anything requires the passage of a Constitutional amendment. Here is the context of the amendment, which must eventually be passed:

Congress must set the level of Government Expenditures each Budget Year with the receipt of the Presidential Budget Request for the Year. They cannot entertain any other measure before it until this level is set by law–through passage by Congress and signature by President. Upon passage of the Budget Limit, Congress and President can determine what Expenditures it would provide for the Year, with proper Congressional passage and Presidential signature. Under no circumstances can federal expenditures exceed the Budget Limit, except in the Case of a passed Declaration of War, and then such Budget excess will be authorized for only one Period of Six months duration.

Does it sound Draconian? It is meant to be harsh and disciplinary. Elements of Variable Cost can be accounted to a set-aside Fund, called possibly the Acts of God Fund (Constitutional issue with Separation of Church and State), could provide the requisite funds for unexpected Costs; but only within the greater Budget. Will it work? Who knows and Who cares; it will surely embarrass the Politicians, at least provisioning Entertainment to the masses. lgl

Saturday, February 09, 2008

The New Business Format

Tax Reform resounds as an absolutely necessary measure. This article offers a fair presentation of the growing debate, at least as seen through the politicized lens of Washington D.C. There are other Viewpoints, and Some of these need consideration. I will not try to discuss these Viewpoints here, but I will attempt to approach the Tax Problem from a comparison angle, and hope to obtain support for new initiatives.

American Households are, if anything, worse off since the origination of the last Round of major Tax breaks. Tax Savings from the new Tax Breaks do not quite equal the rise in Energy Costs to American Households since their inception. This is not actually incidental, as I have already gotten a Letter from my Vehicle maintenance unit, advising a list of high-Cost maintenance should be implemented immediately; guess what, the total of listed Charges equals about $450, the Letter mailed immediately upon it being apparent that Taxpayers would get the Stimulus rebate of $600, marking the most expensive maintenance efforts. This is the first rule of Tax Cuts: Business will expand their Prices and Services to absorb all realizable Tax reductions.

It highlights a second reality of all Tax measures. Lobbyist efforts will always insure that Business is not harmed by the new Taxation measures. Households will get at most some $1200 from the Stimulus Package, while Business will get another $100,000 Write-off on their Capital outlays. Translation of the new Write-off could be thought: If you buy it, the Government will pay for the first $100,000. The measure has a slight detrimental effect of delaying actual Capital investment, as Business stage large Capital outlays over a number of years, to fully maximize the Tax break. Case in Point: A business needs $1 million in Capital refurbishment(with a new $250,000 Write-off limit), but it is not Time determinant, so the Business spreads the Capitalization over four years; allowing the Government to absorb the Capital Cost. Many would claim that Most Capital Investment is Time determinant, but a probable 70% of all Small Business can utilize up to 80% of the total value of the Tax break.

Almost all Business personnel will acclaim that these Tax Breaks must be mandated to remove undesirable aspects of Business Risk. This is not true, and Business delinquency is also protected by transference of Income across Tax Years. Business people can even get Tax Rebates to recoup losses, so as to continue future Business operations; either Capitalization of the old business, or creation Capital for a new Business. The ordinary Taxpayer faces discrimination from the current Tax laws, and must endure the real Risk of higher Taxation, simply because of their failure to start a Profits-Write-off enterprise. lgl

Friday, February 08, 2008

The Modern Business Environment

Biofuels are not Our friend, so says a new group of Scientists. Farmers love the $5/bushel Corn, but shortages of animal Feed is raising Food prices, and destruction of native habitat will release far more Greenhouse Gas than will be saved by use of biofuels; the article cites 93 times, but which is a highly suspect number, Crops normally absorbing about half the CO2 of simple pastureland, which sucks up about 25% of the CO2 of forest. This is not to say that agricultural farming of Energy will pay in the Greenhouse reduction program, but extreme numbers do not help in the argument. I still think the development of a liquid Plastic explosive, which will explode only with the introduction of a electrical charge is the best Bet; the added milling Costs recouped by greater combustion of the fuel, and that the proposed liquid could serve as its own lubricant.

Gazprom again has to apply pressure on the Ukraine by threats to cut Natural Gas shipments, in order to receive $1.5 billion in unpaid Supply to the country. The Ukraine is the transit pipeline for Gazprom supply to western European customers, and the nation will siphon off any Natural Gas necessary for domestic use; an unamusing form of Price Controls which neither the Company or its Western customers appreciate. We may be seeing the prelude to the first of the Gas Wars.

Exxon Mobil has been moving through the Courts to stop Venezuela from selling some $12 billion worth of Venezuelan Oil assets on the World Market. Hugo Chavez is running out of Cash, and he wants to spend it now. One wonders if he would actually get full value from such Sales, given his advocacy of nationalization of industries. His policy seems to be Nationalize, regain the assets, then resale; after a polite interval, again Nationalize and resale. This policy incites some hesitation among the World Business leadership, especially as Chavez shows no indication of paying Government Expenditures by any real form of Taxation. Doesn’t this sound like the subprime Mortgage crisis somehow–writing Mortgages, selling bundled Mortgages, declaring Mortgages are worthless, writing more Mortgages, again bundling Mortgages? lgl

Thursday, February 07, 2008

Real Program Costs

Some rapid Thoughts on a very thoughtful Post by Cactus at Angry Bear. He is correct in believing there is no value to a Government running at deficit, as there is for a Business; he mentions Tax advantages, though I could possibly supply the value of paying Operating Costs by shipping Capital Costs forward while leaving financial avenue for Profit-aggregating Short-term opportunities. A government cannot achieve this End, as all Government activity must pay the real-time Cost of resource utilization, from a periodic limitation of potential venues. Explain in English, Please! It simply means that Government must forestall Resource use by Taxation, or Government activity will inflate Resource Costs, said resource inflation persistent until such time as those Resources are saved from future Consumption by adequate Taxation of the Private Sector; a function clearly understandable in a fixed-rate Production cycle, even when it has an expanding Production Peak.

Cactus describes the ease of running up Government debt, all of which is true. He might has missed the greatest danger of Debt accumulation, which consists in Sector construction tied to the Government Spending. A good Case in Point can be the existence of the Medicare and Medicaid programs. I would first like to say that I advocate Universal Health Care, but most decidedly not with the current Health Care network construction. Back to Medicare and Medicaid, Specific Services are paid utilizing Payscales set by the Private Sector industry; an industry which insists on an intense Profitability and high Wage scales. We wind up with the situation that Poor people pay wealthy labor at Payscales set to maximize Profit ratios geared to extended Care for wealthy people; it all accomplished by redress to a rich benefactor–Government. The Situation is worsened by industry demands for limitation on Patient levels; Doctors and Clinics limiting their Patient load, and maximizing their Profits by artificial Check-up and Check-back Consultations. There is no doubt Americans would still be paying about 8% of GDP for health care today, as they were in 1965, but for the advent of Medicare and Medicaid, with comparable levels of health insurance premiums.

A secondary Sector construction is the military/industrial complex. We are going to be paying over $1 trillion this year, if Bush has his way, in military appropriations to combat Opponents who do not technically exist; while fighting two wars with Operational equipment and trained Personnel insufficient for the task. What does this tell Us? We have no Opponent to fight a War using the advanced military Hardware We are paying so much for, while at the same time finding Ourselves incapable of fighting in the old-fashioned methods. What I am trying to articulate in the economic sense states that Government-sponsored Sector construction by rich funding will never achieve the Goals desired, develop its own momentum for personal Profitability which lobbying efforts will sustain, and Government Debt will skyrocket. lgl

Disturbing Signs of Hysteria

What, oh what, gave Costco an Edge? Is it actually Customers, or a huge Employee Discount? I don’t mean to be Insulting, but maybe this is a Diving competition where you need to cut the High and Low. Walmart is understandable, there being too many Stores throughout the Country, so they acquire every suppressed neighborhood; they expressing incredible luck to get the half-point gain. When is a Gain a loss, a loss? When there is a 4% Inflation rate. There is a Revisionist, outlaw Opinion which suggests that Consumers are maxed out, like their Credit Cards, and someday must adopt a declining Consumption path. I shouldn’t be so rude so early in the morning, as I have made even myself feel bad.

Industry gets a good one-Quarter shot of high Productivity growth, then complains when they don’t get those Productivity growth rates every Quarter; they start a howl about rising labor Costs. Productivity growth rose a respectable 1.6%, while labor Costs rose 3.1% for the total of 2007. Business personnel look at these numbers, and start to scream they have been betrayed by Labor. The real lack comes in New Orders–the fault of Management and Sales–and Business and Investor must realize that recent year Record Profits was the anomaly. I told these People that they should keep up their Stock buyback programs–or did I? You put in a few dozen paragraphs, and you forget the Time references.

It sounds like the Fed is out of play, and will not further reduce Interest rates. I feel a profound sense of relief, even though it affects the Markets badly. Plosser mentions that the current Fed rates, coupled with the current Inflation rate, cancel each other out; a sensible evaluation which outlines the idea that We should not lose Profits in attempts to fuel the Economy from a Macro viewpoint. I should explain this Concept within a separate Post, but I am excessively lazy, and the positional points are hard to translate. Simply think that it an attempt to rob Peter to pay Paul, whose basic fallout is to raise Consumer Credit rates–nullifying any stimulus, but making Business balance sheets look better. What We do must aid Consumers, who We are trying to woo back. lgl

Wednesday, February 06, 2008

Are We There Yet?

Do I trust Larry Summers to give an effective argument for the Stimulus package? Do I change my mind because Brad DeLong agrees with it? I think I agree with Tyler Cowen, who sees hidden dangers in the program. Larry Summers first states that We have dodged the destructive Christmas tree. I don’t think so, unless you agree that Business taxes are horrendous; to my thinking, the word should start with the letter ‘W’ when discussing the issue. The chance of the Stimulus package actually has little likelihood of increasing Consumption, a real Suggestion that it is foolish to pay Consumers an equivalent $4 to get $1 of Consumption from the Package. The issue of national savings is distortion, as paying down Consumption Debt is not exactly savings. We do not get real increase in Consumption, or real increase in national savings, though We proudly do increase the Deficit.

Mish comes out with his Take on the Service Sector deterioration, as reported by the ISM. I have a little difficulty with the ISM readings, and with Mike’s assessment. The disappointing Christmas Sales produced a real decline in Restock issues, and too much emphasis may be placed on the Service Sector decline, as Business moved much of their ancillary efforts in-house, to fully employ their already Hired, while much of the decline can be attributed to Management cancellation of Weekend trips to supervise the in-house Move. This came on top of an escalating fear that their Investment portfolios hold less estimated Value, and personal economies should be adopted. This attitude will alter as We come off Winter, and such in-house activities impede the Work effort, and Management wishes some relief from the pressures.

James Hamilton gives Us the current Study trend of Michael Dueker on Recessions, especially his belief that We are headed for a Recession. I do not think much of the two negative Quarters rule to define a Recession. My basic Reasoning is such criteria only indicates the Result of Management decisions made much earlier, based upon observed Consumption patterns identified in Real Time. It is at the point in Time where those decisions have been made, which should be identified as the start of a Recession; an identification that would declare that the Recession of 2007 started last July. Finding a couple of consecutive Quarters in the red this year will only justify my estimate. It is one of major problems of Stimulus packages; they get passed long after the Race has been run, and the Horses are already bedded down in the Stable. lgl

Tuesday, February 05, 2008

Tariff Theory

Some interest has been expressed on my current views on Tariffs. I first must say that my ideas in the area scatter like chaff in the Wind, as support or antagonism towards Tariffs comes only from estimated overall performance of this form of Taxation, with chaotic Readings endures on all factors leading to the determination of value in Tariffs. I will try to list what is wrong with Tariffs, then list what is right.

What is Wrong with Tariffs:
1) Tariffs have always been decimated through Splinterization of the applicable rates. Tariffs need to be uniform and low, set to equalize non-Material Costs transference.
2) Tariffs, if not initially, has always been eventually utilized to reserve domestic markets for domestic Producers.
3) Tariffs have traditionally been utilized as a diplomatic foil to counter effective foreign interests adverse to American foreign policy.

What is Right with Tariffs:
1) Business uses the lack of Tariffs to avoid high Labor Costs, and evade payment of Taxes for Social Costs. Business and Industry can demand less Property taxation, below-Cost Utility pricing, and eliminated Marketing and Transportation Costs. Each of the Above Cost reductions to Business must be replaced by added Taxation of Laborer and Consumer.
2) Study of Tax Impact stresses Taxation cannot impact one Productive Component alone–unless this Component suffer economic functioning failures which will curtail the greater economy. Tariffs are a good Means to take much of the Tax Burden off Labor and Consumers, without impeding economic performance. Business pays for the higher Production and Marketing Costs by higher Product pricing, but only by reducing Discretionary Consumption by Price alone (without Income drains).
3) Tariffs has always had a beneficial effect upon the quality and durability of Products sold in domestic markets. Importers will only pay the additional charges of tariffs with improvement of these areas, and domestic Suppliers must match the increase in quality.

It makes Sense to utilize Tariffs to promote the advantages of Tariffs, while employing cognizant application of Tariffs to counteract the bad effects; One doesn’t throw the Baby out, because of the dirty Bath water (can’t believe I used such a stupid cliche). Tariffs provide an efficient Tax Impact spread, improve the quality of total Product, and actually costs Business nothing in long-range Profitability; All while better provisioning of the Consumption markets at supportive Pricing. lgl

The March of Mankind

The woes of the American Consumer fails to touch my heart, even though I am one of that persecuted Tribe. The key point of the entire article may lay in the fact that One-Fifth of the American population traditionally has made up half of the Consumption Spending, and they can no longer maintain this Record. The angst of this Group may be that they can no longer get Consumer Credit at cheaper rates, or a more involved incapacity to propel their Income growth at a faster Percentage than the Inflation rate. Readers who do not understand the previous Sentence, think that the Bills keep growing, while the Income stays static; most Consumers starting from a position of Consumer Debt equal to 2.3 years of current Income, with the subtraction necessary for Burger King Hamburgers and Utility Bills. A growing greater number of Consumers could even gain a real advantage of being thrown out of House and Home, leaving the huge monster behind; this being the great dread of the financial world: abandonment of current debt. Even the new draconian Bankruptcy rules cannot calm of the churning souls of the Banking world.

Trichet thinks to keep Europe on a counter- cyclical Course from the route chosen by Bernanke and the Fed. Study of the previous article makes a good Case for the irrationality of the Fed argument, trying to incite further Consumer debt; still, it reflects Banking concern with extracting Payment for Debt already laid out. I am of the persuasion that the Debt balloon must go in order for the Economy to advance, and that there is an inability of the American Consumer to pay it off. It might have been simpler and incredibly easier to have left Tax rates at the level of the late 1990s, than it will be to watch those excess funds evaporate in higher Living Costs (I sound a lot grouchier than I feel this morning, maybe it is listening to School Snow Closings on the radio).

The Whole of the modern economy reminds Me of the great Carson debate of the 1960s-70s. The Argument today is couched in alternate terms. Here are just some of the component parts: Electrical Demand is increasing by 2% per year, and We can’t match it; Natural Gas involves less Greenhouse Gas, less Concrete and Steel, and less initial Capitalization, but is 40% higher in Operational Cost; Everyone worries about Fresh Water supplies, while still building for heavy water use; and a World-wide shortage of Food is being met with ethanol subsidies. Religion will never admit to the proposition that there are too many People on this old World, though I may be relatively lucky in being able to exit this World before things get real bad. And some fools thought life was good, except for a little Global Warming! The Reader should not worry excessively, as humanity will solve its problems until it fails to do so; just hope you are not around when the Music stops. lgl

Monday, February 04, 2008

Old Ways die hard!

I find agreement with knzn, but then One has to explain the basis for such a belief. One cannot strip volatile Pricing from a Prediction model, unless you first possess a heavy expectation that such volatile Pricing will revert to previous normality in the Short-Run. This stands as an almost impossible scenario, if Production Costs increases keep pace with the volatility. The second element suggests that the near-term prediction must be heavier than the long-term prediction, due to the compilation of past inflationary pressures with future exhibited pressures, while future inflation can only consist of the near term prediction along with the estimate volatility. There is also a Short-Sightedness in the suggestion that an economic slowdown will slow the inflation rate–no other criteria introduced; Reality states that the Costs of Services replace Commodity pricing as inflationary push to maintain small business and Household Income flow in economic slowdowns, and any Stimulus elements will be automatically inflationary. I find real fault in the value of a Prediction which is based on previous predictions shown to be universally on the low side.

Jane Sasseen finds that economists are becoming increasingly disturbed by free trade principles. She has finally found my discontent, even if she has not found Me! The Problem comes in that she, like the economists she cites, interprets the Whole arena as flaws in application, not with the basic theory of Trade. The theory of free trade revolves around the evils of Tariffs, though they are nothing more than a elemental Tax system, with barely a glimpse of morality within their entire nature. It all devolves back onto the experience of the Great Depression, which Everyone now considers a aberrant reaction of the Time, and almost impossible to reproduce under normal circumstances. Tariffs, on the other hand, still find the hatred created by this aberration, unrelenting in its anger. Like the Great Depression, We find a deviant behavior pattern here; We must learn to ignore the Past, if We hope not to repeat it! I will not attempt to justify that Statement, but will say that the lack of Tariffs may defeat Productive growth in both established and emerging economies; this having nothing to do with the old Conceptionalism of nurturing baby industries. lgl

Sunday, February 03, 2008

As the World Creaks and Groans

What do you do with a Social Revolutionary, once the Revolution brings only adverse Social Conditioning, rather a new Way of Life? Ahmadinejad and his Iranian government is rapidly pushing to disenfranchise Opposition elements within Iran. The Natural Gas shortage may be the President’s downfall, but not through the simple discomfort; it consisting of having lost the mandate of Allah. One must keep the mantle of God, when One professes a religious State.

James Hamilton is an honest journeyman who leads Us to a solid assessment of the state of the economy. Things are literally not as bad as originally Reported, and there certainly exists little Need for a Stimulus Package, but remember this is an Election Year; the Politicians expect the same level of Corruption in Voters, as is resident within themselves. This may indeed be true of Business personnel, who are insistent on the additional $150 billion of Deficit Spending, they already prepared with enhanced Price Schedules to absorb the flow of Dollars; what does this say for the Fed’s adamant stance against Inflation? Everyone is telegraphing their Punch, and there will be no impact except in inflated Prices.

I agree with Joe Stiglitz so rarely, that I feel compelled to note my basic concurrence with him, whenever I can in clear conscience do so; remember that he is a Nobel Prize Winner, while I–well, never mind! American Bankers and Bank Regulators sold American Investors a bill of Goods, and they believe they should keep their bonuses for doing so, in well-rehearsed Recitals. Now, I disagree strongly with his Call for central bank activism, though I do believe risk management theory should be codified into law, with active Penalties for violation of those Principles, especially when there is great loss associated with the said violation; cutting their Bonuses will not work, but doing Time is a Country-Club prison and preclusion from further Work within the Banking sector works Wonders. We should at least think about Community Service! lgl

Saturday, February 02, 2008

The Energy Crisis

Here is another potential failure of the American educational system. There are currently about 20,000 employed by the Wind Power industry, and there should be that Many being turned out every year, as it takes two technicians to service every 7-10 turbines. There is equally much Engineering skill which must be brought to the industry, in order that 90% of the maintenance can be done from the ground; a matter of Safety and expansion of the number of turbines per technician. Massive Recruitment remains a Need in the industry, as the majority of current Employees will be in Supervisory capacities within three years, if they are not drafted away by easier Utility employment. I would like to see a program where Military Combat Engineering included a promise of Training in Wind Power generation, which could serve as an excellent source of domestic labor and cut down Military base power generation Costs; understand that the Military always comes in with the sturdiest effective equipment, after a period of Screw-Ups.

Here is another article on the same Subject, but has a poor slant to it; insisting as it does the need for vast Federal underwriting of the enterprises. It states that the Wind generation industry last year employed about 45,000 people with a Capitalization of $9 billion. One estimate in the article says that Wind generation could employ a half-million by 2030, while elsewhere it was stated that solar power generated 314 megawatts last year capable of powering 80,000 homes. The major Question must be asked: Would it not be cheaper and more viable to have a half-million employed by these industries by 2010, with $9 billion of Capital invested in such Stock yearly. The industry can easily be financed by the higher Costs of alternative Power generation, without real federal subsidies, and would be more industrially effective with mass Production methods utilized in the construction of the new industry.

Tax Credits are not the most viable Option to engage massive industry. It is actually destructive of Effort when industry limits their Investment to sole maximization of the Tax Credit potential. An alternate Scenario would be to pass a Surtax (I like them) of 20% on all Energy Profits, unless 14% of those Profits have been directed to Alternate Energy Capital Investment. A simple Case of ‘Establish the Alternative Energy industry, else We will take your Profits’. I would additionally frighten the major Oil companies by charging an Oil Reserve Depreciation Tax equal to 9%, unless the Oil companies can come up with increasing Reserve capacity. We must establish an effective Energy program to survive the coming Years, and that Program cannot be attained by paying current Suppliers more for their Product, without achievement of long-term stability for the industry. lgl

Friday, February 01, 2008

Current Unrest

William J. Polley has made the Suggestion that We will have an uncomfortable Weekend, which could extend into an unenviable Year. The 191k knockdown from the monthly Job claims when there is a total Employment of 138.1 Million is not a serious concern in itself, especially after consideration of only 7.6 Million Unemployed. My Concern consists of the fact of about 4 Million hidden Unemployed not caught by the aggregated numbers, and an Underemployment number focusing around 22 Million. These Numbers are far more worrisome, as they could only increase with Recession, though I must say I think We have already passed the Recession stage. I would also state that no Stimulus Package is likely to affect the Numbers I cited.

Employment Numbers bad, Chinese inflation is up, and the Oil companies profit at Record rates. The Whole is enough worry even the Childish, and I am feeling particularly Bratish this morning. I could really enjoy federal legislation insisting on a mandated retention of the Oil Profits for the express purpose of locating future Reserves; well, maybe a little Alternative Energy research as well. I just wonder at the practice of paying off Found and Drilled Reserves so well, most of which have been producing since Oil was $30/barrel. Does that make Me sound like a Miser?

This should explain the Mood I am in today, as I agree with an amazing amount of the material written here; and no, I am not a Conservative in Pink Tights! I simply desire the Reader to understand the basic Unrest which has shaken the American economic structure, and the ideas expressed may be too extreme for an Economy still statistically growing, if you ignore the 4% Inflation rate. I just hope the Fed is smart enough not to pump Money into an Economy which has lost its Growth fundamentals. lgl

Study of Inflation

I read today that Inflation was acceptable, as long as it could be contained to Food and Energy. I looked at this Statement, and said, ‘Huh?’ Now I know this is the Sentiment of many Economists, but why would they feel this way? They pick out two of the most inelastic Sectors of the Purchase economy, and proclaim that it is alright if only they go up. This compels me to enter into a discussion where I will be criticized by Everyone.

One of the greatest factors behind Inflation has always been Sector malignment. Various types of Shortages in some sectors expand the necessary budgetary allocations for those sectors to a greater percentage than normal. This does not necessarily generate higher overall Inflation rates, though they do affect Profit ratios throughout the economy. The later effect is highly constrained by the availability and Price of Capital throughout the Economy, hence the real excitement among Economists and Business leaders over the issue of Interest rates; All failing to state they would prefer to see a decline in the Profit ratios of Capital Credit, rather than declines in the Profits of Business. This is the practical rationale behind the great debates over easy Credit.

No one mentions a subject which I find apparent, though the lack of prevailing discussion perhaps simply means that the Effect does not exist; I would not bet on it though. Inflation is the structural mechanism to realign sector growth prices across the Economy. Overall prices will continue to rise until the budgetary allocation mechanism achieve balance (in sliding relative terms). Easy Capital does balance sharply-rising sector prices in the Short-Run, but this balance has limitations where Profit ratio losses cannot be restricted to Capital Returns. Failure of this balance brings on overall Inflation, until such time as budgetary allocations are in reasonable balance once again.

Specific Sector Inflation therefore determines the magnitude of overall Inflation which will eventually impact an economy, only affected by the singular elasticity of Demand in the original mis-allocated sectors. I can say, just recently having eaten Breakfast, than Food would seem relatively inelastic; Energy also seems somewhat inelastic as I prepare to do my daily Rounds. Maybe I will feel the Credit market is somewhat inelastic as well, once I begin to pay my monthly bills. The Principle to be considered here consists of the Thought that the overall economy must increase Prices to match the Sectors involved, the only alternative being an increase in Supply within these Sectors. lgl