The Modern Reality

I always agree with what Greg Mankiw has to say, though I invariably disagree with the importance of the information. Keynes stands as a defunct Economist, but Greg does not understand why Keynes fails; a simple Case of the specialization of labor, We insist on putting too much Capital behind every laborer so that Keynesianism fails. Government Spending will work when you hand out Picks and Shovels, and fails when you hand out Back-Hoes and Bobcats; not even Government able to support Swarm labor under such conditions. Such commentary, though, does not provide a lucid description of why Keynesianism will not Work.

The first error behind the Economy is not an element of Keynes, but of neo-conservative Bushism. I am talking about the Bush Tax Cuts, which promoted too high a level of Consumption in the first place, inciting too much Production capacity, and funding that over-capacity in the Down Payment stages. Consumers ran up personal debt while paying excessive Prices in comparison to Production capacity, racking up overly large Debt service charges alongside great inability to Pay, and choked the Credit system with bad Debt. Investors, buoyed by Taxes never paid, generated too much Production capital for unneeded Products; placing only minimal money into it, stretching long-term payment on mortgages even when Debt reduction was easy, solely to grab more Tax writeoffs. Economy policy according to Bush dictated huge Debt, ill-Covered by Collateral, and refusal to reduce the Debt even when capable because of potential loss of Tax reductions.

Bushism also reduced the effectiveness of Keynesian Spending by the artificial expansion of the economy, shrinking the size of Government Spending in relationship to the total economy. Government Spending, to meet the specifications of Keynes, must be about five times as large to possess the same Effect, as seen in Keynes’ Time. This is not due to the degree of Inflation, as that expansion of Keynesian Spending must be in real terms. Much can be said about Our current economy, but Everyone should realize there is already too much Cash in the system, and the Fed and Treasury are intent on pumping more Cash into the system. The entire Question becomes whether We will still have a viable Monetary system, when the necessary Losses are finally taken. lgl

My own personal advocacy

Robert Reich started a sort of debate at his blog concerning Keynesianism. There are several important differences between Keynesian Times and the Present. A basic disconnect has been introduced between Capital Investment and Labor Capital utilization. Swarm labor has never been in force, even in the CCC camps of the Roosevelt era. Today, if it is a Choice between human labor and robotic mechanics, then Business will chose the Robots at a rate of about 80/20. The primary must be asked is whether Keynesianism can operate as it did in the time of Keynes; the Answer being No! Can it operate at any measurable Scale of Assistance? Keynesianism must always be based upon Consumer Spending, otherwise no additional Cash flows through to absorb the production of Business. Nothing is accomplished without the later, and the current Choice matrix of Business for Robotics could mean that Keynesian Spending will even lead to a reduction of Consumers due to Investment.

The obvious response is to state that the Government should employ greater amounts of labor, either directly or indirectly. This brings up another Problem in itself, as there is much hazard to absorption of Private Sector industry, just to promote Employment. I favor universal plans which would impact the entire economy, so that adverse effects are spread, and local controls are not displaced. My second favorite Option is for the Employment to be indirect. I also think any Plan will fail, unless it is centered upon the individual laborer. Ideas become striated under such strictures, but it is the function of academics to change the ridiculous into project able Planning.

Here is my Gift to the confusion of the era, which might lead Obama to shake his head, and Wright to curse White men again:
1) Unemployment Regulations should be altered, allowing Part-Time employment of up to 20 hours per Week, without loss of Benefits. Part-Time Employees need a Consumer Spending Assist even though they are Working, and the limitations of Weeks of Benefits will limit the Gaming of the system; though the interim period will get Us hopefully past the Recession.
2) A Law should be passed stating that Businesses can employ unlimited numbers of Part-Time Employees, where Employers can deduct up to the Minimum Wage level from their Profits for each of the number of Hours of Part-Time labor utilized. This is Double Dipping, with the Wages first deducted from the Operating Revenue, then redacted from the resulting Business Profits. Both Employees and Employers gain from this program, and there is double advantage to Consumer Spending; all for an estimated Loss of less than 4% of the Business Tax revenues which can be recovered.
3) There is a real Need for a universal Optional Health Care system. This System cannot guarantee the best medical care available; We are talking about warehouse hospitals, a Drug list of only outdated Patent rights, and medical procedures limited to reconstruction of lifestyle or immediate life-saving operations. Does it remind of the old VA hospital system? It should, because that is what it is based upon. Government can assure the necessary number of Beds, extort whatever medical insurance is in force, and will insist upon reversion to Home health care upon capability in order to save on Budgets. There will be maintained desire for individual health care to obtain the best medical treatments available, but there would be no patients without some form of Care; especially if the enabling law insisted on Out-Patient clinics to relieve Emergency room clogging; total Costs could be less than the current Medicare/Medicaid system, and quality Health Care would still be available. lgl

Orwellian Sense

I have been asked to explain this article and will, though I sincerely do not want to do such a saddening thing. We are in four straight months of Consumer Spending decline, which is still accelerating. Consumer confidence is retreating, the article claims the wave of Layoffs and Cutbacks, though Consumers worry more about the lack of New Hires; the Condition which worries them if they lose their Job. The Orders for Capital Goods dropped 6.2% in October, not particularly worrisome except for the 4% drop in civilian Capital Goods (which excludes aircraft, but aircraft should not be considered civilian because of airport organization). Housing numbers are lousy, down some 7% year over year in Price (I remember a previous Post where I stated that Housing need to drop over 20% because of the runup since 2004; I amazed by how difficult that was going to be). We are backing away from a balloon Boom where far too Many were tied to the balloons, and the experience is scaring Everyone.

The Fed and Treasury generate more despair than hope as well, as they seem to restrict their activities solely to keeping the balloons inflated, rather than normalizing the economic state. Both Paulson and Bernanke remain too close to the Banking system, and don’t seek advise outside of the Communities which brought on the Crisis in the first place. Every action taken has been a effort to protect the Bankers from the Injured Parties (Investors and Depositors), where the Bankers can maintain their own Pay schedules. This level of insulation has already cost the American Taxpayers hundreds of billions of Dollars, and will do nothing for the economy, until the degraded corruption of bad debt is driven from the system along with the management who produced it. We have to move forward, and current Government economic policy will not recognize that Need.

Obama promises a Change, and hopefully, it will come to pass as rational economic policy. I fear for major change, though, as he allowed Everyone to stampede him into rapid choice of economic Team. What is needed in America and the World today consists of a very Public discussion of the current crisis, and the Pick of his economic team could have allowed Obama to open a Public forum to discuss the crisis. As it is, Obama is trapped in a backroom deals format, from which he will likely be incapable from extraction; an entrance which will color the rest of his administration. My only advise to Barrack is to learn two well-known expressions: ‘Do it’ and ‘No'. lgl

Draft of Resources (you figure it out)

The Bush administration has at least taught Us How Not to do things, which I guess may be one backhanded benefit. Here is a tirade against Contractors which has some merit. The real error in Contractors consists of a lack of Accountability, both in the general sense, but also in the specific sense of details. I once heard that F-16s had radar systems which had to be maintained after every 20 minutes of actual use, because the design Contractor knew that the system overheated, but utilized the overheating design because of the huge R&D Cost drain over a couple years when success was not ensured to cure the Problem; when the system could meet Test qualifications for the short period Military Procurement would demand. That was my classic Example, though a little research can produce such malfeasance from every sector of Contractor performance.

The role of Contractors may be the epitome of the failure of the bonus system. The Promise of an End to the lifetime struggle to maintain Income leads to erratic and inferior Workplace performance, if the Shortcuts will get past the Pay queue. The Object becomes the necessity of getting past the Paymaster, not the provision of sound practice. News Services had a field day pointing out the shortcomings of contracted Construction in Iraq, where electrical systems were not grounded, and set Concrete crumbled after mild hammering. The Investment bonuses used by Wall Street were as equally damning; the Object becoming to get the bonuses when a year of bonus was worth a lifetime of labor. Who cared if the impact would bring down the system? They needed the huge Numbers to gain the bonuses; it did not matter if the bad decisions led to Bankruptcy in the long run.

Do you know what Knightian uncertainty is? Mark Thoma presents Us with this practical manifestation of the difficulty of talking People into risking their Money, when it is not definable risk, and the potential loss cannot be determined. The current Crisis in the financial world can in one way be laid at avoidance of the Knightian uncertainty, when it should have entered the calculations of all Participants in the underlying transactions. It might not have saved Us, but it would have put an upper limit to the Capital at Risk. The authors criticize the observance of Knightian uncertainty now, but they should have studied the loss of it from previous Business practice, and proposed methodologies to forestall such loss in the future. lgl

View from 'On High'

Can one estimate the multiplier effects of a Stimulus Package before the Package has been spent? The Answer is No. This is not a Critique of the Analysis, simply a Statement that the multiplier effects will alter every time, based upon method of dispersal, rate of adoption by Private Sector business, speed of Hiring, and the rate of Expenditure. Large-scale projects will have a longer Period of Dispersal, double or triple the Share of funds taken as Business Profits, and is affected seriously by the Cost of resources used in the Stimulus decisions. All of the Above portends a suppression of Wages, and therefore; it is counter-productive to generation of Consumer Demand–the prime rationale for Stimulus in the first place. There is a natural corruption of Stimulus by Profits-taking by Business as well; the Businesses involved immediately spotting the opportunity, with both Labor and Government Supervision brand New, and untested in conflict with tightly organized Business structure. The later entities will aggregate a normal half of the Windfall for themselves. Consensus multipliers generally hide more than they reveal.

I disagree with this Post by Alex Tabarrok, but it highlights the hazard of provision of Tax Credits to economic performance. Universal Tax Credits always brings multiple Players to whatever production sector is defined, Most without the requisite qualifications to actually produce successfully in the sector, and all inhibited from utilizing Market conditions to determine Production schedules. Ethanol production consumes Animal Feed at outrageous rates, Wind farms generate too much electricity for Power Grids which must introduce a safety factor of off-Wind capacity which must be paid in a high-Cost, high-Interest environment, and all Business seeks high Profits on total Capital investment. I would favor a guaranteed Profit level rather than Tax Credits, based upon actual Units of Power delivered and Sold.

I might as well introduce all the articles with which I disagree to some degree. John Taylor assumes that the Bush Tax Cuts were actually beneficial without Proof, and his thesis states that We should continue like behavior rather than expensive Stimulus measures. I would first like to say that the necessity for Stimulus developed under the system which he advocates. I truly believe that the Bush Tax Cuts supplied an excess amount of Investment Cash to the Markets, and subsequent efforts to absorb the Cash reserves brought the bad Lending practices to the fore. Funds which should have been drained from the Production process as Taxes later generated a Demand for Profits which could not be matched by the Production practices in force. The Reader is advised to read the article, and determine for himself what the Bush Tax program did for Us. lgl

High Finance

I don’t know what to say, but this is not the way to do it! The Fed and Treasury keep effectively printing Money, and We are reaching the Point where We will have both Recession and high Inflation. Nothing will cancel the Recession; it being basically an incapacity of Consumers to Spend, because it was fundamental over-consumption in relation to their Incomes. Most Consumers had increased their Consumption by about 45%, when their Incomes increased by only 25%. We cannot base a Recovery upon the principle of maintaining this over-consumption. The underlying factor is to employ more People, not to keep Bankers at work, when that labor simply continues bad practice or underwrites Production which has no Market.

Felix Salmon does not think much of the Citigroup bailout. The killing element stands as the $3.4 billion which has to be paid back each year, before Stockholders can even begin to draw a Dividend. Citigroup Stock will not appreciate in Price where the Government takes a probable 30% of the Profits off the Top, and the bad Securities are still within the Citigroup portfolio to the tune of in excess of $670 billion based upon mortgages which will be beat up. The guarantee of $250 billion seems hardly enough in consideration that $1.3 trillion of their assets must be judged Sour; where there will be delays in Payment, if payment comes at all. I begin to wonder who is going to bail out the Treasury, as Paulson chameleons it into a Goldman Sachs Look-Alike.

Greg Mankiw presents Us with an interesting Post with an analysis of the proposed Obama package to promote Employment. It is obvious that Obama plans to save the Jobs of Bankers and Businesspeople as well; it being the only possibility for the shortfall in Job numbers under the Obama plan. I wish Greg had analyzed the Cost per Job Saved for each Banker, and the potential Cost for each Business Job saved. The discrepancy clearly portrayed that saving Jobs is more expensive than creating Jobs, especially when it comes to Bankers and Business. One-Percenters, it seems, are always the most expensive Welfare recipients! lgl

Wading through the Swamp

Tyler Cowen and Christina Romer are very bright people who have faith in monetary policy, though I really have doubts of its efficacy. It works great when opportunity exists to absorb created Cash, but may fail drastically without mechanism to transfer that Cash to the Consumer for Consumption. The current Outcome of monetary policy has no structure to deliver the Cash to people who would buy the increased amount of Product hoped for by the Regulators. One should remember that this Crisis could be called the Consumer Cash Flow Recession, where they had incurred too many liabilities while lacking any Income increment avenue. Monetary policy can mean nothing in such an Environment; it reminding of the old adage that Generals are always fighting the last War.

Tyler advocates getting the small things Right, then enters a condemnation of the Roosevelt system of agricultural subsidies; he doesn’t like them, and I don’t particularly care for them either. The qualification, here, remains that Farmers will be planting next year at a Production Cost about $2 per bushel higher than the Market price for that grain. The ideal Economic argument states that the Market price of these Grains should rise to pay for agricultural Production Costs; the qualification being that such a Rise would absorb about 30% more Consumer Discretionary Income, when the greatest danger to the Economy is a decline in Consumption of large-Ticket items by Consumers. The first thing to go from Household Budgets under stress is renewal of large-Ticket items. One has to ask why there is such animosity to agricultural subsidies, while there is no critique on subsidizing financial institutions.

We really must increase Employment. It would help if the Government would cease declaration of a reduction of employment by venue of Unemployment Benefits running out; it being an immense gain simply to honestly state the Unemployment rate. Obama’s new Green policy could and should employ Millions, and in a manner which is self-perpetuating; actually producing a Product which can be sold–Energy, even if it is not immediately Profitable. The Answer to a loss of Consumption remains a solid increase in the number of Consumers. I also am old-fashioned in a belief that Employment will increase with greater Productivity with the good old venue of decentralization of sector industry. I would advocate a law stipulating that Product must be sold within the State into which it is distributed; this would provide greater Consumer satisfaction due to distributor access, and greatly raise Employment at a Cost equivalent to less than the current Bush Tax Cuts. Current policymakers must be imaginative. lgl

Revisionist Theory

Daniel Gross highlights the fallacy of comparing the current Crisis to the Great Depression. Right or Wrong, his comparisons all end up viewing the alternate Conditions of the two Periods, rather than the root causation of the Two. He makes a powerful argument, but also a hollow thesis. We have instituted massive programs to cancel the Results of adverse Conditions, but is there an substantial improvement in the actual curative treatment of the Economy? We are close to Eighty years away from the impulses inciting the Great Depression, and still not sure what impelled the economic breakdown, or can even answer whether We endure a repetition of the horror.

My thesis, fortified by the knowledge that all good Economists will think it to be Bull, states that Everyone pushes what seems to work farther than it can work. Social Welfare Spending may have reached its apex; further devotion of assets may only generate less economic production as excess funds absorbed reduce Production. The Liquidity issue may become self-defeating, as it narrows the Profitability of Investment by low Returns, while pressures on Resources bring high Price increases, and saturation of Consumption markets constrict viable Employment in the sectors. The promotion of Business through low Business taxation obviously promotes spurious Capitalization of Business ventures to escape taxation, while low Business taxes require Consumers to replace the funds; their increased Tax burden eventually translated into reduced Consumption. The Economy is a complex snarl, reminiscent of the Tower of Babel, where humans are challenging the powers of God.

I must first take that all these measures of various types can be introduced, and they may appear to work for years or decades. There is a maxima and a minima to such initiatives; definite boundaries beyond which these efforts are counter-productive. It is my Contention that all the Measures adopted since the Crash of 1929 have functionally ran their course, distorted the Economy with artificial funding of unusual economic activities, and introduced a false Price mechanism to the Commodities markets; the End-Result being that Production Costs have been woefully inflated, to the detriment of normal Profit ratios. We witness a process where industry capable of normal Business Profits under normal Production Costs cannot survive under the new Price structure for Resources. Further economic propellent simply will drive an increasing share of Business into Bankruptcy, when and if they are dependent on normal Production Costs. I believe We extended beyond the maxima boundary of Business promotion with the Bush Tax Cuts, and the slowed development of the World finally forced American Business back to a normal Production matrix; one dependent on normal Production Costs. Continued Economic propellents may yet cause another Depression. lgl

The Three Major States of Life

John Quiggin writes from one End of the spectrum, believing there is only doom and gloom ahead. The Problems are most assuredly there, and the Banking community will take the major Hit. Simply put, too much Cash has been loaned with insufficient collateral, and pumping Cash into the system will not provide Profits to the bad loans; let alone simple repayment which will not occur. The many Fat Cows are being rapidly eaten by the Lean Cows as the Bible does state, and is causing Meat prices to go up. There is the Rub, as the cannibalism not only consumes the Fat, but also the Meat. The pretense that Banks can ignore their insolvency by refusing to take Bankruptcy is not only ridiculous, it remains quite expensive for Depositor, Investor, and Taxpayer. We need Recovery, not Cosmetic surgery.

Here may be the opposite End of the spectrum. Mark Perry condemns the utilization of Socialism to provide Personal Services as only a form of Slavery. I would agree with his assessment to greater degree, if he would join me in condemnation of the $700 Billion Bailout Package. There is nothing different between a little old lady and a multi-national Corporation, if they are both looking for a Handout from Taxpayers. The one significant difference may be Cost, the little old lady being satisfied with much less expenditure than is the multi-national Corporation. Look into your Heart, and if the Solution seems to shoot the old lady and pay the Corporation; you probably require Empathy Training. I favor a good solid, "Pax on all your Houses", but would grant preference to the old lady, if only because she is cheaper to keep in the style to which she is accustomed.

I would imitate the little old lady, and beg some charitable organizations to pay for my legal fees, before I filed a Class Action suit for Bankruptcy for the American Taxpayers. I would assert that the current Debt load was too large to be repaid out of current Revenues, and improper Management was increasing the Debt as a tremendous acceleration without a proper program of repayment scheduled. The Problem, here, stands as most law firms would charge a Quarter-Million Dollars simply in Investigatory procedures to determine if there was justifiable grounds in the eyes of the law (basically a Review of large Bankruptcy outcomes, and study of previous Class Action proceedings). Lawyers like to get their House payments completed, before even entering real Billing stride. I remember decades ago when I went with a friend to file for personal bankruptcy for him; the lawyer heard his desire to file for Bankruptcy, pulled a set of Papers from his desk, and asked my friend’s Name, Address, and Social Security Number. The lawyer then put the Papers in an envelope, and delivered the Envelope to a Court Clerk, paying the small fee entailed. It was thirty years ago, and Money was worth a lot more, but the lawyer still billed my friend some $700 for such complicated legal maneuvers. Watch out for the Parasites who pose as hard-working Sheep. lgl

Enlightened Hindsight

Read this Thing, and find out what a failed Investor felt some 75 years ago. Irving Fisher got it right Then and Now, but that being said; there is far more to be said on the Debt which is out there. The first element to be discussed is the irresponsibility of the Lenders, whose failure to ensure adequate Cash reserves and Borrower collateral, functionally guaranteed an insecurity of Debt; all in the insistence on Bonuses for themselves, rather than safety of funds. The second factor is that Borrowers built their empires on unsecured assets with original debt against it, and hired good liars (called Investment bankers) who told such complex Lies that no one can define the exact Lie to this Day. Derivative authors can be directly challenged for Fraud, and would be liable for criminal penalties if they were not dressed in tailored Suits. We are basically in the Business form of Watergate, and Everyone is trying to hide the Evidence, all while the economy tanks.

One has to read this article to know why you feel Depressed. Andy Kessler lists the progress of the Market downturn, giving a rationale for each Trend. Remember that this is all happening in Real Time. People have been watching their Fortunes drift away for a long time, and wonder where it will stop. A mild Secret about the Market states that Gains and Losses are supposed to be canceled out, a Buyer’s success is countered by a Seller’s loss, or vice versa. Markets are supposed to Gain itself, only because of technological innovation or Capital Investment. The trouble here revolves around the fact the technological innovation must generate Productive Gains, not be simply Capital consumptive; and Capitalization must be hard Investment in Plant and Equipment, else extension of Capital is only Inflationary. Corporate diversification solely for Tax purposes is a Disease which eats Productivity, and Paper Investment Instruments are a Cancer that grows only with the absorption of Profits. Far too many Investment designs have been created not to increase Productivity, but simply to grant Originators a Profit or Tax advantage.

The Bailouts may be the Problem anymore. Everyone is maneuvering to fall within the canopy of the TARP, ever since the amount of Money was announced. The economic downturn, if other Recessions are any indication, would already be in containment by Six Weeks into the falling Markets. The turmoil in the Markets stays only because Everyone is jockeying to get a piece of the free TARP pie. No One wants to take a Chance until the Winners and Losers are determined. The distributors of the Bailout funds cannot speak on TV without generating Market losses, as Players abandon likely losers in the battle for Taxpayers’ freebie Cash. I would advocate the Statement of "Shoot the Politicians", but that will get the Secret Service on my tail. Instead, I will say,"Hang the Politicians!"; to be Politically Correct, I will add, "Only cloth Puppets please." lgl

Resurfacing in more ways than One.

David Leonhardt still cannot define the Problem. We don’t need new Roads, We need the Roads that exist to be in better Driving condition. I here propose Congress pass a $50 billion Stimulus Package, each State to get a billion dollars, which can only be used to improve existing Roads within each State. It does not matter whether it is new Bridges, expansion of Roadway, or simple resurfacing; it is all devoted to improvement of Roads. The widespread dispersal of funds would maximize the employment of labor, correct the most pressing Need, and eliminate current desire to Name highways after themselves. The Cash will actually get something done, and there will be more value in the dispersions.

New Cars are building up at the Ports, and creating a congestion at the facilities. This is because Everyone is producing Cars, but no one is buying them. Henry Ford, during the Depression, cut the Price of the Cars dramatically to stimulate Sales. Car companies today will not follow like practice, even as the Stockpile of Cars grow. Congress should pass a law charging $200/month Tax on all Vehicles warehoused over 30 Days; this Tax to be doubled if Production is cut at any Production line to less than 2000/month. This Tax would serve two Purposes: removal of the vast overstock of Vehicles; and an advantage given to Consumers by lowered Transportation Costs. The Tax would mean little Now, when most of the Automakers seemingly destined to enter Bankruptcy, and heavy Sale of Vehicles would bring temporary sources of Revenue; even if the Vehicles were sold below Production Cost. This is an idea far better than the Country turning Socialist.

Here is an article which angers Me. There is only one factor behind the Credit Crisis today, and it is the promise of Bailout Aid. Bankers are all looking forward to vast sums of Cash from Congress and Taxpayers, knowing that this flow of Cash will disappear if they return to natural Banking practice. None of the Banks have significant imbalance currently, but real Greed for federal dollars forestalls natural performance. It is Time for another Tax, one on hoarded Reserves. I would advocate a 2% Tax on questionable Reserves higher than 12% of Deposits, if they cannot justify the greater Reserves to Fed regulators. Readers should understand that the promise of something for nothing is the most corrosive element in the Business world. Federal Bailouts and Stimulus is a two-edged Sword, which can easily defeat the intended purpose if not carefully controlled. lgl

Body and Soul

I don’t want to do anything important today, so I will waste some Time on this article. The simple economic aspects of the Subject state that the stele ( 3'x2') was quarried by two Workers off original stock for probably $200 in Today’s Prices. The Shaping and Inscription on the stele was probably done by one skilled Worker over a probable 4 Workdays with an estimated Cost of about $700 in Today’s money. This was not the Price paid, though, which was likely to be around $7-8000 to the Purchaser at the time in Today’s reevaluation; the area being within a highly-developed Trade route; things have not changed all that much! Excavation of the stele can be expected to have required a Team of Eight some three Weeks, and probably cost somewhere around at least $70,000; all depending on how many good artifacts will be found on-Site, and the method chosen to redistribute the Costs. One can define that it is an expensive Piece of Stone, and some museum will be estimated to fork over a quarter-million Dollars to display the Stone. It is good to know We are still in business.

We can now turn to the Inscription, since I have established the economic context. The Site resides inside the old Hittite Empire, was an independent kingdom, and later a part of the Assyrian Empire, and was abandoned in the 7th Century. The importance of the City in which the stele was found was it’s position upon one of the Trade routes; it’s abandonment was probably caused by abandonment of the Trade route, due to climatic changes which altered the desirability of the route itself, probably a Water shortage. The City probably made less than $10 million per year from the Trade route in Today’s prices even in it’s heyday, and likely was abandoned when that Profit dropped below $2 million per year; especially if Agricultural products for Food had to be imported. Readers should realize these are only loose Estimates, having little to do with Reality in the scope of modern economic modeling.

The Meaning behind the Exercise states that the Student of Economics should always keep an Overview of the Subject under discussion, simply as a Countercheck of economic models where mistakes on inputs or resolution can lead to wide errors. It is like unto the separation of body and Soul under the Indo-European tradition to which I subscribe: the Soul basically being a Template which cannot be altered or destroyed; Conception of the body simply drawing the Imitation of the Soul into the physical world. One has to have some belief in the shape of what you search for, before you can even begin to accomplish that which you desire. Economics, like the Soul, crosses all boundaries–political, religious, and even Time. lgl

Copycat Killers

It took Me forever to read this Post from Tyler Cowen this morning, because my Mind kept cycling out into Space. I could say that it is too early for either Patinkin or Burstein; maybe I could make some argument about ‘weakly dominant game-theoretic strategies.’(in case Anyone is interested, Weki-up). The Bored and Resentful (like myself) must survive with the knowledge that the Math works out, but that definition of herd behavior is not the totality of economic description. One has to separate between primary impulse and 2nd Generation response, and no one has defined a clear separation along theoretical lines, at least not satisfactorily to me. The entire Subject is starting to give me a Headache, and People should not make me think about such things!.

One should read Gary Becker even when One is not much interested in what he is currently talking about (if you begin thinking like he does, it won’t get you a girlfriend, but might get you a Job in a Depressed economy). Here is one of those Times when I agree with Mr. Becker, but not his line of Thought. It is common Today to rile against the UAW, but the poor Union did not do what it should have in the 1970s, and everything turned into disaster Today. What should they have done? Way back when they could make Demands, they should have demanded Profits-sharing, and financed their own Health Care and Retirement Plans. Now, they are tied to their Opponents, who are going down because of widespread Expenditure of those Profits with no Gain, when they could have had a viable Investiture in a stable Fund. I must say in their defense that no one even suggested such a Course back then, not even Me.

One can always take the low Road, and blame it on poor Product; the out-of-synch element here is that Auto Sales are down everywhere in the World, across all companies and Products. Here is a breakdown which clarifies that good operation varies little from bad operative behavior amongst Car companies, and the quality of the Vehicles have little to do with the End-Result. The real causation remains that the Car companies continually spent their Cash Reserves through the Years, and the fault was that of Management not Labor. It is obvious that Bankruptcy will be the only instrument which will get rid of bad Management, the real necessity in the Equation. lgl

That Vision Thingie

Every time you glance at a Newspaper, there are an additional half-dozen Advocates of some economic plan or other; all purported to Save the World. I read these things, and ask myself How people can complain about financial institutions using leverage of 30 to 1. We are already in Recovery efforts equal to a Year’s federal Tax revenues (which happens to be the World’s largest pool of financial capital), and Everyone states We need to spend more; talk about leverage. What is sickening lays in they are Plans only designed to restore the Mess we had prior to the Downturn. Nowhere is there the slightest hint or suggestion that the Recovery will ever pay for itself, probably the epitome of a bad Mortgage! We need to discuss the systemic improvement of the economy, not how to increase the efficiency of our Credit consumption.

Mike Shedlock comes in with another good Post that Everyone should read, especially at the bottom for a list of G-20 accomplishments and failures. These Group things are like Group sex; they tell each other that it feels Good, though everyone feels degraded and like Crap. Somewhere down the Road, people will call this whole corruption the Leadership Depression. Everyone claims that Stimulus is the Answer, but examination proves that it only a never-stated inflationary policy. The foundation of these policies effectively calls for greater Government debt for some Two years out of every decade, just to avoid any constriction of Consumption and Income during the bad years. It sounds good as Everyone is allowed to be an American Consumer, but where do Countries go to file Chapter 11 Bankruptcy?

The only major statement to come out of the G-20 meeting is that all Countries are pledged to not cap executive pay. What is this? An agreement to allow executive salaries to float upward at unimpaired rate, even though their errant decisions are more of the Cause of the latest Recession than anything else; what happened to the 99.5% of the Labor Pool of the World not covered? It seems they are to still endure Wage and Income suppression while maintaining even higher Consumption, all for the good of the Economy. Could this be an unlisted Demand for higher Consumer Debt, even though Consumers cannot pay for the Service of their Consumption debt now? I think We need a Sea Change in economic thinking, because such Planning has brought Us the current Recession in the first place. lgl

The Race for the Gold

Some 110 Banks, 4 Insurance Companies, AIG, and hundreds more Banks are expected to ask for Bailout funds. The buzzards are beginning to cluster, and an estimated 46 have already been granted assistance–if not Cash. There is a lot of Promise but little Cash coming out of Treasury, except to the big Corporate Investment Banks. It is beginning to represent a Lottery, one where the winning Tickets are all picked in advance. The trouble emitted by this ad-hoc Selection choice of beneficiary means that there is huge amounts of Cash disappearing for the most nefarious of rationales. One questions the feasibility of Organizations granting Hundreds of Millions of Dollars as Bonuses and Salaries, while receiving Billions of Dollars of Bailout Dollars from the American Taxpayers. There is a level of Graft coming out of Treasury not seen since Teapot Dome, and all of it coming from former Goldman Sachs employees; it does not play well in Main Street, Rural America.

Greg Mankiw has a good Post about Inferior Goods doing well in the current drop of Income among Consumers. He fails to point out the Backlash Effect which Inferior Goods always induce, as Consumers are forced to adopt Goods they are not used to Consuming. Consumer irritation rises rapidly after only a Short Interval of such Consumption, and leads to increased family quarrels, a rise in juvenile delinquency, and vast increase in the anger against Governmental authority. Some 1930s Soviet historians, I could not even hope to cite them anymore, even insisted that enjoined Dietary change was the primary impulse generating Revolution. I cannot verify the thesis of these historians, yet I would accept their Thought as authoritarian until more relevant data is found.

I guess it is up to me, to tell a Nobel Prize Winner and Goldman Sachs that they are approaching a Problem from the wrong way. Goodie-Goodie! They both think that expansion of Cash volumes is not enough, and there must be a vast Stimulus program. I approach the Problem from a different direction. About 55% of all Incomes are relatively Income Inelastic; this means that Prices must increase for an average 14 months, before they begin to enjoy an increase in their own Incomes. An expansion of liquidity, on the other hand, allows for free movement of Prices among those Products having high Price elasticity. This spread of liquidity actually pressures a Decrease in Consumption, and reinforces Recessionary conditions. The United States and Japan are just as irresponsible as any Government entity, We cannot presume any aura of Innocense. The real Curative for modern ills in both the U.S., Japan, EU, and China is to spike the Interest rates (think a standard 4-5%), control Government Spending, and grant reverse Income Tax payments to lower Incomes; this will induce reduction in Price in Price elastic Goods, and thereafter induce higher Consumption. Prove Me wrong!! (I still won’t get a Nobel Prize!) lgl

Diatride Against Most Everything

October Retail Sales were down 2.8%, and October Deficit was highest monthly toll in history–some $237.2 billion. Everyone can say what they will, but the Two numbers are Constraints which restrict the economy. They integrate with each other in adverse ways: low Retail Sales curtail the extension and assumption of Credit, while high federal Spending absorb the ready Cash in the Credit Markets–forcing States to raise Taxes–mostly notably their Sales taxes which further retards Retail Sales. Most Economists would claim such activity has little impact, but additional State taxes this Year probably cost a yearly loss of 0.37% loss of Retail Sales alone, and will probably triple the Cost to such Sales in the new Year. It is not a small thing when transferred to the national level.

Mark Perry is not completely correct about the Pay Scales, though his Numbers are basically right. The reason he is not Right comes in the fact that the Big Three did not maintain the Set-Asides to keep up the Medical and Retirement programs, and they shove such Sums off on the current Labor force. This is not the fault of Labor, or does it express a usurious Wage demand by them. It is a Question of Management malfeasance in not maintaining Reserves, and it most clearly becomes a judicial decision of redistribution of funds, so that Bankruptcy Court and Chapter 11 makes far more sense than a Bailout. I agree with Mark on that! It is also a fact that any Congressional dispersion of Cash will bring a host of Scavengers with their Hand out.

Arnold Kling comes close to the Truth, but again misses the main Point: Bailouts, by their very nature, are a profound redistribution of Wealth. Government take funds through Taxation, or more likely course of funds absorption of Credit avenues, to give Money to Individuals and Individual Corporations who have already shown an inability to manage Money properly; the sole criteria consisting of giving such Individuals the power to blow the Money again. Too Harsh! What I think is too harsh is Thousands of people getting Pink Slips because they did their Jobs efficiently, especially when the sole factor behind those Pink Slips being that Management had overspent their financial reserves, and cannot maintain reduced full staff operations. It appalls Me that the epicenter of every Boom and Bust Cycle has always an over-grasping Management mentality. We need Management replacement, not more efficient Labor. lgl

Another Reality Show

Anyone want to feel Sorry for the lawyers? They seem to be going through their own form of Downsizing. It appears People are not accepting the Billing hours for those individuals hired to make other Peoples’ lives miserable. I once thought to become a lawyer, until I learned what the Job description entailed. Even my Cousin, with the most questionable Morals in the family, gave up his Position with a prestigious law firm to become a Lobbyist. Any individuals who spend 2000 hrs of research simply to harass another Individual for an hour under Court testimony could possibly be applauded, but not at $200 per billable hour. At least that is the decision of the modern Corporation, afflicted as they are with lamentable Profits ratios. The concentrated Corporate law firm may be facing Extinction–it seems that People like the Clintons and Obamas cannot longer afford to lose an Election.

Another source of further Downsizing will come in the Import/Export business, where both are suffering from basic systemic downturns. Foreigners will not buy American Goods, unless they are selling a wide range of Goods to the United States; the solid Dollar actually having little input in the Trends, it not being of such an impact to cause dislocation in and of itself. It may also indicate a new direction of economic Investment, as new enterprise opts to utilize American Job Skills under a regime where both Exports and Imports become more expensive, and foreign Wage levels rise to conform to American levels. A national Health Care system might be all it would take to develop a domestic Manufacturing boom.
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I have been put way behind schedule this morning, by people who think I should be doing other than what I am doing; I enduring numerous delays getting to this Point, the worst being a medical appointment rescheduling–I should bill by the Hour for the malfeasance of Others. The Big Three Bailout reminds of such debacles, where neither Management, Labor, or Stockholders are willing to take the Hit; so the common theme is for the Taxpayers to endure the loss. One should read this article with the retentive Thought that this comes only with increased Taxation or greater National Debt. An idea to be held is that the vast stock of Vehicles which are 85% of the Assets of the Big Three is only worth about half of what is claimed, and decreasing about $2000 per vehicle per year. Americans do not have that much invested in the Big Three–either in Present or Future Needs–and Chapter 11 is the best Option for All. lgl

The Deviant Root

Jeff Cornwall would seem to be suffering from a little paranoia, if thee was not a Reality in his statements. The High-Brows of the Economy imagine there is something inferior about a Business structure, which cannot magnify itself multiple times rapidly, and draw itself into compound Debt where it can pay it off only by maintenance of Boom conditions. Small Business fail at about the same rate as the Growth machines under Recessionary conditions, but Small Business failure rarely destabilizes the Banking system; a consistent pattern whenever the Rapid Movers collapse inward upon little actual capital assets. What amuses Me is the actual dependency that the Corporate world has upon Small Business; where a lack of small Service Providers lead to outrageous Operating Costs for their Big Brothers–even Walmart.

I seldom agree totally with Robert Reich, basically because I have always seen him as a little too utopian. I do agree with him about the intrinsic value of Bankruptcy rather than Bailout. Bailout attempts no alteration of Management or policy, simply flooding past mistakes with Cash so as to hide the bad performance which brought the crisis. I disagree with Robert at the Thought that the Big Three should not go through Chapter 11. Bailouts presage the ability to resume normal Business course, if adverse financial liabilities are paid. The Big Three have a huge Inventory of Cars, which are quickly Ageing into Junk; they possessing little other tangible assets. There is no Expectation their Sales will increase markedly in the near future, and loss of Jobs from Downsizing will automatically deteriorate the sanctified Call to Save Jobs. I Vote No on a Bailout of the Big Three.

I include this Post from Mark Thoma because every Student should have some understanding of this Issue. A singular Solution to correct one factor will inevitably affect other factors as well, meaning that you obtain an alteration of the Whole; a meaningful result often undesired. The common Solution has been Bang-Bang as Mark identifies; a Solution where modification is completely On, or completely Off. This creates the actual least intrusion to model operation, with the smallest corruption of model desire. There is mathematical substantiation of this form, and enforces the Chaos theory of deviation along ordered lines. I am sure that most Students who study this Outline will understand it more than I. lgl

Who is the Rube?

Mike Shedlock possesses little belief in the Bailout, and even less in the manner in which it is implemented. I will only say that I basically agree with him. Nine out of Ten Government economic initiatives adversely affect Market structure in ways more detrimental than the original Problems. His Comment that it is unusual for People to complain about the Money they are given, though, is inherently wrong. People almost continuously harp on the fact they did not get enough to fulfill their desires, or that Others got more than they themselves. Bankers, being Bankers, forward another gripe: they are not collecting Interest on the Gift, which the Government should supply. Gifts should always supply all desires, or be standardized with an inbred ‘Screw You’.

My Readers may wonder why Treasury made no movement towards the endangered mortgage paper, as the funds provisioned by Congress were directed, and I thought to provide some Answer. Mortgages are composed of two types: those taken by debtors with sufficient Capital and/or Income to pay the mortgage payments; or those taken where mortgage payments are a magnificent feat which must be replicated repeatedly month after month–a ravenous child who is permanently hungry. The former type of mortgage has the Social Graces of a normal Business loan, and does well in polite company, the later is a Manic-Depressive who ruins every Party with outrageous outbursts at inopportune times. The first Type receives payment, the second Type will, at best, hold until renegotiation to a first Type mortgage.

It should clearly be understood what happened to the Paulson Expenditure pattern. He grabbed the Money, then looked around for good Buys. He finds only Type 2 mortgages for Sale everywhere, not hopeful or helpful, when Type 2 mortgages require renegotiation or endure an 88% failure rate. A closer Look tells him that derivatives forestall renegotiation of mortgage terms. Hank Paulson is not stupid, and decides buying Banks is more fun, than being known as the Treasury Secretary who bought $700 billion worth of scratchy Toilet Paper. Bankers, on the other hand, grew up dealing with Horse Traders; and can design beneficial Accounting methods faster than Congress can say, "Accounting Rules." Paulson is trying to play 3-Card Monte with Bankers, who designed the original Computer model for Card Games. I wonder that the Bankers haven’t stuck Paulson with a monthly ante to play! lgl

Revisionist Theory

I am so tired of talking about Money, especially knowing that the End-Result will only achieve Inflation. I agree thoroughly with Mark Perry on his assertion that Government bureaucrats will screw it up as badly as a Market already skewed by Government interventions. It expresses my disdain with the entire Subject that I am back to reading Austrian views on the Topic. Their paranoia about the State may seem somewhat overblown, but their distaste of central banks is very real and relevant. I do myself believe that Investors should lose the Cash, when they blow their funds on bad ventures; just as Capitalism is supposed to work. Central banks do serve some good purposes, though I am hard-pressed to define them. The bad effects of central banks seem to far outweigh the benefits, and have seemingly become a medium for making Debt ratios worse than they were before interventions.

The worse aspect of central banks must be considered its usage as vehicle for deficit Spending on the part of Government. They sell the instruments (in Our case Treasuries) which allows Governments to spend without Taxation, while allowing these instruments to proclaim a high Credit rating, no matter what the Markets determine by Purchase pricing. Treasuries might hold as high esteem as Credit Default Swaps, if the Fed did not intervene. Now, central banks are thinking to utilize the same process to underwrite bad Paper from the Private Sector. Rating agencies have been getting a bad Rep of late, and I think they should counterattack in a vicious way, and rate the central banks. It could help the entire Market structure, if the Assets and Liabilities of central banks were also on the table.

The Bailouts to this point have not underwritten the Risk factors of Lending, simply ensured that the bad Investment decisions of poor Management and Investors would be pulled from the Fire without Cost or Loss. This is not a desirable pattern, though many Economists would claim otherwise. Nothing that any central bank has attempted works to reduce the Debt ratio of unreclaimed liabilities to assets. The one thing Everyone should realize must be that We hold more liability to assets than ever before, and central bank policy is orientated to increasing these liabilities. Economic theory remains very unclear about this Issue, but expansion of Capital structure and technology should eventually lower debt levels. Central banks may be the reason why this does not occur. It might be Time to evaluate economic policies on the basis of theory. lgl

The Righteous Path--Right!

China has joined the rest of the World in believing it can pump up the economy, like some weight-lifting exercise. All the major economies are now in the Stimulus business, and the Question becomes whether the economy is going to respond. Intelligent review says that it should, but old-fashioned Common Sense exhibits a tendency to ignore artificial expansions of the Money Supply, when there has been no increase in the disposable Income of the Consumer. The End-Result of Stimulus without solid economic growth is Inflation. This will not be the promotion We all desire, because it actually shrinks disposable Consumer Income.

Greg Mankiw brings Us this Comment, which shows the Restraint and Judgement of the Party out of Power. Greg states all the basic Truisms which every Economist will concede, but which are always forgotten in the heat of being in Power. Everyone brings forth their own nuance for Spending the new Cash flow, and then the Politics starts: Who has the most political pull? There is nothing wrong with this system, if there is unlimited funds available, and there is limited Numbers of Players involved. It is another Situation in entirety, where the Players are virtually unlimited, and Politics dictates that Everyone gets their individual piece of the Pie to maintain support. Widespread coalitions are a Terminal Illness under such Conditions.

The only Salvation from the above conditions is Leadership, and such Direction must act sensibly. The real sense of loss among Americans today resides in the sentiment that responsible Parties are at the helm. The first job of Obama must be a economic Plan which Americans can understand, where old and overused economic theories are actually dismissed, and new Options are explored. I would first tell Everyone that the famous Quid pro Quo won’t work, and a Budget will have to be organized cognizant of limited resources; the old political Payoff system cannot come into play this time. The second thing I would tell Obama, and other political leaders, is that they have to forget about the angry Middle Class who are Mad about finding Bills harder to Pay. The emphasis must be on getting Unemployed Millions back to Work, even if it is Minimum Wage; only this churn will bring Consumption back to necessary levels. The last thing may be the hardiest of the entire program: Informing the very People who supplied you with Votes and Contributions that their hard-luck Stories hold less sway than actual destitution. We still await a decision on Barrack Obama, and whether he has the cajones. lgl

New Policies

John Quiggin is looking for a new financial structure, and I would comment on his blog, but he would probably boot me for being critical of both the current structure and the bailout measures. Governments cannot inject liquidity into any economy, at best they can fuel Inflation; the criteria being that all Participants utilize said funds to either make up previous losses, or cover the Cost of future commitments. The current financial structure is actually not a structure, but a House of Card based upon leverage–how often must you pass $100 around at 2% Interest, for it to be equal to $1 million? Actual disposable assets able to settle Obligations against it was probably less than 20% of the stated Obligations in most Cases. The Run-up of Real Estate values past 2002 was undoubtedly due to such leverage, and any attempt to maintain those Values are doomed to failure.

Economists have always advocated some measures to alter economic performance, universally resulting in failure except through use of the Government’s power as a Consumer. The only two capacities which the Government possesses is the power to Tax, and the power to Spend. All other activities carry little weight in the economy, thought Regulation has great ability to impede economic activities, especially Growth. One has to recognize the limitation of Government economic action, before any economic policy can be designed, as John asked in his Post. Any Government promotion of the economy must be founded on Government’s strengths, not its weaknesses. Government cannot directly impel Consumers to Spend, or Bankers to Lend, in an adverse economic environment; any Stimulus package based on a Tax Giveaway, Tax Rate Cut, or Tax Credits will not work in any adverse economic scenario. Such measures can only be considered a waste of Money, when the Government needs to do what it really needs to do.

Governments must assume the role of direct Employer, and primary Contractor. This is the basic Infrastructure which Economists always proclaim in such Times. Government will have to directly or indirectly employ at least 2 million additional Employees over the next Two years, simply to generate sufficient Consumer Demand to achieve Recovery. This program will do was other Stimulus policies will not, and is the only sure way to produce the Business Profits necessary for the Private Sector to thrive.

The real Problem will be to set Regulatory policies so that the destructive components which led to current Crisis are not replicated, but still leave ample room for development of Profit options. The next Two years will either be eventful, or a Repeat of the Great Depression; all of it focused on the response of Government to the Crisis. lgl

Way Out of the Box

Bush and Obama may not be able to await the turn of the Tide (Office Exchange). Unemployment numbers will not give the luxury of calm, deliberate planning. Check the article for the evaluation of the ISM indexes, No. One Bad in 26 years. Wages are not matching Prices in Inflationary terms, and We are at 6.5% tending to 8% Unemployment (Advertiser Warning: it could accelerate in post-Christmas doldrums). We need some fast, and fast to implement, Solutions; while Economics does not really do fast! We are trying to counter economic tendencies already built in over Two Quarters, knowing that any Plan will take another Quarter before it is even noticed on the economic Screen.

I decided, in the goodness of my heart and hoping to coup respectable Economists, to attempt to think Out of the Box; meaning it will all sound pretty mundane. My first Thought is that We need to increase Consumption, even if it is a Lie because it will only be Government Spending laying in Sheep’s Clothing. I would suggest expansion of the Military Reserves by One Million men. The election of Obama, while it does not mean an actual lessened Threat to Military personnel, does calm many fears of Military service. We need the trained cadres, and there are many Incentives which the Military can offer: I would suggest a $2000 Signing Bonus, guaranteed 3-months of Basic Training, 3-months of Training in a Combat Service, and a 3-month Training in a Combat Support Service which can translate into Civilian occupation; all before assignment to any Overseas unit. The Downside will be active Reserve listing for Six years. A Supplement in the same Bill will be a $200 billion Restoration of Combat Units deployed Overseas.

I currently oppose a Stimulus Package similar to the one initiated earlier this year, quite assured that it would have as much effect. Extension of Unemployment Benefits stand as necessary, but We need further Moves to actually increase Employment. I would suggest what will obviously become a long-term industry: a $300 billion program to get local School Boards to establish Day Care Centers for Children, employing out-of-Work Mothers. Prices would have to be competitive, so as not to undercut current Day Care provision. The $300 billion would be for facility construction, with School Boards expected to run the program at a Profit.

All of my Options are Expensive, but it is a well spent as giving $350 billion to Banks, which they will not spend or lend. We need the Military buildup, and We need the supervised Day Care with proper facilities. This may seem highly Socialist to Conservatives, but at least I am not buying Banks and possibly Car companies with Tax Dollars. lgl

The Lonely Victims

Some could find this amusing, yet what is the responsibility of legal representation? A lawyer is hired in the first place to ensure there is no false claims or failure of legal terminology within the context filed with the Patent Office. The Claimant would not need legal representation if he had such training in his own right. The Insert, as written, presented uncertainty as to who was to remove the false claim, with the implied expectation that the clause would be removed before filing. The filing with the clause constituted false representation on the part of the Author, and failure of representation by the final Preparer of the Document (a real indicator that this lawyer distorted the Applicant’s claim, and then compounded the defect by filing the Claim with the false assertion; one never made by the Applicant). I would mention that legal representation cannot bind a Client to a legally binding assertion without the Consent of the Client (this means the lawyer was legally bound to point out the error to the Client before filing). It is not as funny as it sounds, and the conduct of the lawyer should be up for Review at the instigation of the Patent Office.

Most Economists will think this Post applies to me, more than it attacks the position of Most. Oh Well, We must just struggle along anyhow. This pertains to the Above, because the World is filled with Crap, and a vetting system truly need be designed. The chevalier use of Papers little understood, and most often misinterpreted, does cause great lack of Judgement. The humor is that Economists refuse to utilize their great Math ability to explore the failings of economic Papers. Only one in three Papers are likely to be free of Error, and only one in eight is likely to contain any original material. Understand that is my own evaluation, not based on anything except my own non-mathematical experience. This Reservoir is adversely compounded by several separate Schools of Thought, All functionally found Wanting by at least one other School. I would advise the Reader just to listen to Me, as I am full of Bull, but do not have any other axe to grind (meaning I can assert innocense in the distortions I propagate).

John Quiggin provides Insight into the entire discussion today (I had previously planned on writing upon the European bank rates, but ran across these articles) by implying that most Economists know what models work, and they are rather simple in design. Complexity is introduced only to get greater details about the Production or Market process. I will not intrude, and suggest there is any injection of confusion, so that Economists can ask for a Raise. The path to the Truth is like a City Street map, and the Reader should stick to the main routes. lgl

The New World

The Country has now elected a President, and statistically, it probably worked out for the Best; Obama expressing a Conduct of deliberate, carefully-planned directional movement, while there was a definite erratic pattern to the McCain decision-making process. There is also a Sea Change from concentration on Business performance to Human Care. A decade of Business promotion almost killed the Goose which laid the Eggs, while the Business class proved as fallible as Anyone; and with too great a tendency to throw massive amounts of Money at any Problem. The real trouble entered in that they threw the Money the wrong way! This becomes an important factor with recent data being as bad as it is.

Paul Krugman sets a tone in the victory which Obama must avoid. The thirst for Sound bites by the media has functionally destroyed American civility. There may be monsters out there, and they might have been educated by the Corporate Board system; still, such rhetoric by a Reporter with such a responsible position destroys the capacity to join efforts into a unified policy to restore the American economy. Obama will be the President of all Americans, even the monsters, and will do well if he does not artificially incite them with an attitude which will anger.

I agree with this Post by Arnold Kling, though the Timing may be regrettable. The Troubled Asset Relief program was and is an abomination, and hopefully no federal negotiation team previously coming from the industry itself, will be allowed to conduct secret negotiations with that industry enjoying the power to commit the American people to vast Expenditures. Troubled Assets have not been bought, but vast sums have been granted to the industry; who have paid Dividends to Stockholders, and Bonuses to themselves, while holding the remainder of the Cash for Reserves granted only to secure Investments. The Troubled Assets are still out there, the financial crisis still exists because of those Troubled Assets, and the management team (both Public and Private) who set the policy which caused the destitution were paid for the total volume of the losses. Only in America, Land of Opportunity! lgl

Really Sour this Morning

I am battling a bad Cold today, one of the reasons I did not blog yesterday. It is also coming up to Election Day, and Readers should be concentrating upon political factors. I also have wondered how much the Economic Crisis has been manufactured, simply to find a Means to pay off political supporters, before the exit of the current Administration. This Post by Mark Thoma functionally outlines the concerns of Economists at the current time. It becomes a real exercise to estimate if the World will pick up the amount of Treasuries which will be generated.

A real Problem which few seem to analyze consists of the absorption of the Credit viability of the U.S. Government. Only Americans consider that Treasuries possess the highest Credit rating in the World. Treasuries which are not bought must be considered equivalent to Printing Money. We now at a position where Treasuries has lost their Shine in the realm of World finance. I would not advise the Fed to any form of Precipitate action, but Interest rates should be going up, not down. Fiscal responsibility will become a Watchword about the time any new President takes Office. I would not enjoy being in the White House, as this Individual is brought up to speed as to limitations he will experience.

There was one Pundit some years ago, who stated the next Election was already determined, by the time the last Election Results were tabulated. The guarantees offered by current Candidates to Win having already determined the anger levels of the Electorate next time. Such an assessment expresses an inevitability to events I can’t really agree with, but it certainly places responsibility where it belongs. The Pundit, by the way, was Will Rogers; American Politics have been a disgrace for a long time. The inevitability of Context certainly has some place in the determination of Events, though it may be more dependent upon the criminality of current administrations. lgl

View from the Top

There exists two views among Economists: Those who believe that the Economy is a naturally-flowing entity which should be left to find its own way; and Those who believe the Economy is a runaway engine which must be continually manipulated to gain the desired End. One could say this was basically Conservative and Liberal philosophy, except it crosses both economic and political lines. Just when you believe you have settled into a comfortable pattern with Comrades, you find your associates advocating some contrary rhetoric. It is said that Politics makes strange bedfellows, but the scenario reminds more of a ‘Dear John’ Letter.

It all revolves around the Concept of ‘Stimulus.’ One Group of Us, I am one, believe that every Government intervention in the Economy introduces a distortion to the natural flow of the Market, bringing a desired alteration in Market function. The trouble arises when further interventions are introduced, the intervention operating not only upon the Markets, but on the previous interventions; drawing the Markets further away from natural operation, and also canceling natural Market by-pass of un-natural Pricing. Third interventions upon this matrix will actually introduce an artificial taxation upon the Market structure, introducing adverse Costs into the Market; generating a very false Pricing system.

This argument has a very strong relationship to the current economic malaise. We have a Scene where Home Values are vastly overpriced, due to previous Government interventions bolstering Home Values; a basic Tax Credit system where lack of Mortgage meant a higher rate of Taxation. Home Values became overpriced, and Mortgage numbers were increased unnaturally to provide this Tax remission. Mortgage lenders, under Government pressures and promised Incentives, started to provide Mortgages which were basically unsound. Every Student of Markets know that the real Solution to the economic distress is reduction of Home Values to a more realistic Pricing, but too much of the Economy is tied to the artificial Price structure which has been created. The alternative is artificial Price Supports which will further distort the natural economy. lgl