Don't burst my Bubble!

The Reader may or may not be able to work their way through this Post, yet it should be Read simply to note that the debate is there; it had a huge consequence if True, Inflation pushed forward is worse than natural Inflation. Return to natural Interest rates will bring not only generated Inflation, but the suppressed Inflation held down. It becomes obvious that the Fed pushed a overheated economy after 2003, though David Beckworth fails to understand that the real problem was the suppressed Mortgage rates for Homes; which vacated the countercyclical pressure of the rise in Resource prices. The Mortgage Tax Credits completed the Picture, with the Treasury destined to absorb the Inflationary pressures by reduced tax revenues. Most Economists would disagree with myself, but these negative tax revenues should have been added to the other values of the Period, to register a negative Savings rate for the Period.

I decided to follow one Wonk with Another, and knew Brad Setser serves as well as Anyone. The real telling point in the entire article comes in Brad’s definition comparison to American Exports, where the huge debt of 40% of GDP rests on (his Words) ‘a modest export sector’. Bard’s Graphs are pretty, and carry a subliminal message: the Dollar is very much in danger. It reached its exalted status when U.S. foreign Investment holdings were a excessively large percentage of the World’s total. This position has been reversed in the following years, and with the huge debt incurred by the United States (both Public and Private), Many are searching for a substitute Currency to conduct Trade. Americans will be looking for a new friendly Banker, when this later Event occurs. The only Credit rating We have left is the World’s demand for Dollars, in order to purchase necessary supplies.

I will present this Post to finish the confusion of the Day. There are those Economists who wish to ignore the distributional impact of Utility Costs in crisis, relying solely on the Consumption ratios. The refusal to admit to the Utility Costs involved is a defense of Class Inequality. Bubbles allow a specific segment of the economy to aggregate Riches at a rapid, unethical rate; propelling massive Consumption Cost increases which cannot be matched by the ordinary labor force. The expanding Wealth of the segregated Class, along with the higher Prices of Consumption, give a false Reading to aggregate Consumption values. Burst Bubbles, on the other hand, imperil ordinary labor cadres earlier, and far more dangerously, than it does these segregated Classes; who always possess greater Cash reserves to weather the clime. There is only aggregate Gain for all labor after the Bubble have burst, and Recovery has been attained. Do Not let them convince you that Utility Costs of Bubbles are unimportant. lgl

Reaching for the Light

Greg Mankiw has produced a Post which is almost essential to be Read by Everyone. First, I must say that I do not support the Wyden-Bennett bill, please read all his provided links. Splintering Contributors or Providers will never lead to universal health care. Paying for the system by Tax Exemptions which the Majority do not pay Now, can only lead to an underfunded system from the Start. I will not comment on the revenue-neutrality of the bill, because I do not believe in the general Concept initially, and know that any eventual universal system must have a universal tax allocated for it. Greg also places too much emphasis on bi-partisanship, when the Divide is not between Parties, but between Those willing to Pay, and Those Not; a Subject which is already quite bi-partisan. I would undertake to control the Expense of the health care system, and do so with a viable Single-Payer system; where the edicts of the Purchaser could not be ignored or evaded. The health care industry has to make a Profit indeed, but it is an idiocy for it to be the leading growth sector in the economy; it having to be funded by the rest of the economy. Full Disclosure–I just received a medical premium increase of 11% Saturday; I would rather be taxed!.

I have read this thing, and realize I must distance myself from Mike Shedlock. Bernanke may be a failure as Fed Chairman, though his only real Crime may be a lack of originality. Revelation of much of the data anywhere would have only deepened the Recession, without bringing satisfaction to Anyone. Ben’s first mistake, from which he could never Recover, was to save the Investment Banks in the first place. Once this Step was taken, there was no going back, or actual alteration of policy. The entirety of the Investment banks should have been in Bankruptcy Court within the first month of trouble, and forced the traditional banking system back to the fore. The current organization aids no one but the previous Violators of banking regime, and current Proposals from the Fed ensure extreme bureaucracy in both Investment and Commercial banking. I would seriously suggest sending Ben down to the Minors again, but doubt that the new Hitter will be able to make a .300 Average. You should not mix Government and Business–especially Banking.

You should read this article to understand How Europe is reacting to the Crisis, and the options open for policy alteration here. Most of Europe wants to balance Public outlays, raise Taxes, and cut down Public expenditures. They tend to adopt the ideation that the Recession must be felt, with the economy reacting to that impact, before the Crisis will dissipate. I am of like belief. The glutton must eat the lean Meals, as well as the Bounty. The economy has lost its major share of Profits, and there should be no Protection from that loss; whether it takes the form of Government support, or release from Taxation. This is the only method that future growth can be ascertained as Real. lgl

Nonexistent Conflicts

I read this Post and came to this article. I ask myself Why the Pot is calling the Kettle black? The panache is remarkable on both endeavors, and Solutions are left to Crystal Glass easily shattered. Each are almost equally Wrong on opposite Sides, and also equally Right on some issues. Our Economy is built on poor quality Toilet Paper as Teitel would allege if honest, but Chris Dillow would defend the denizens of the Toilet bowl, which no one can. Trading is an absolutely honest profession; it is only the Practitioners who might lack some degree of honesty. An attack upon the Margin Traders might be wholly unjustified, but so might be any defense of them. We must admit that We have arrived where We have today, and these people were heavily involved in the Flight plan. Curse the Traders–No!; though Cursing and Spitting on the Sidewalk may be appropriate upon hearing their Name. I remember the old Spanish Saying that God will sort the Souls; I think the Devil has a much worse Sorting process to go through.

Mark Thoma is trying to equate Apples and Oranges, where One element only loses potential future economic advantage, while the Other incurs higher down the road Costs for lack of immediate application. Education relies on economic advantages which may be reality in the future, while Medicine relies on economic losses which will immediately incur. Education can rely on a system which generate high future expectations, whether they will be realized or not. It is good venue for private industry, which does not have to prove that there will be any future economic benefit. Medicine has to deal with immediate observable losses, and private industry does poorly unless immediate favorable Results can be proven. Education will always be a haven for private institutions, which even gain popularity from their exclusivity. Medicine will always face eventual Public takeover, simply because medical failures will immediately bring economic disadvantages and condemnation. The most favorable position is to be in Public Education, where Wages are determined by Private institutions, but possess bureaucratic protection of Jobs and Benefits. The worst position is in Public Medicine, where Salaries are held down by the Numbers employed, with immediate identification of failure. I could explain exactly How this altered the Profits profile of the two Sectors if I were a good Economist; therefore, I won’t.

I will state that We will never permanently escape universal, Public Health Care. There will never be an End to the Demands made by the Public for relief from medical Costs. There will never be a cessation of howls for any medical failure, or any real guarantee of advantage from Educational opportunity. Both are Demand industries, but only One must face the music of bad outcomes. The humor comes it the fact that defined Outcomes have slightly less financial rewards than does Success in the other Sector. Success for a Doctor leaves them will relatively the same Pay scale as their less-endowed co-workers, while Educators get huge side Pay Increases from Lecture tours, etc. They don’t pay me, and they don’t grant me a Job; but I am still better off than Doctors, who have to show up for Work in the morning. lgl

Consumer Spending Reality

I provide this link for the Wonks out there in Disneyland, and it is all pertinent to the Subject of Consumer Spending v. Saving. Now, a serious Student of Economics would pour through this documentation; but who has ever said I was serious about anything, and the graphs only vindicate previous beliefs held by almost Everyone on the Savings issue. I would especially read the Forecast, which presents some serious conceptional ideas, and a model formula. I am not a great fan of models, because I hate reading them to pick the specific values the Authors assign to each specific component; a quest utterly necessary in understanding the functioning of the specific model. I specifically do not enjoy this model because it implants no evaluation for Resource Cost response; I finding that the availability of replacement resources for further production has a sharp impact of the Savings ratio–a real rationale for the degrees of separation between the Chinese, Japanese, and Americans Savings rates perchance. I must for once Thank Mark Thoma for the link access, something I often forget and never should.

This article may pinpoint the Savings dilemma more than most discussions I have seen. I don’t know if this Argument will make any sense, but I will give it a good try. The current Recessions differs in many respects from prior Recessions, except for perhaps the Great Depression. The lower Income classes have seen relatively little change throughout the Period since the previous Recession, with sharply increasing Living Costs coupled to higher Energy prices. The suppression of their Spending has been almost continuous, and their Household budgets had already adjusted to the limitation of Income. Consumption was not sustained through extension of Sales to lower Incomes, but through the spread of credit to rising Incomes, or Those who expected their Incomes to rise. The financial crisis came, and the Banks reacted in panic, and spread the crisis to Consumer Credit by higher Interest rates. The beneficiaries of the last Boom felt a huge increase in their Monthly household expenses.

Rapid Income Risers make the absolute best Expense Constraint Spenders. They are previously used to a much depleted Income expenditure, and are easily more capable of faster Expenditure constraint. They are most expectant of higher Incomes, but are consistently higher in Expectation of rapid Debt repayment. This means that they cease Spending patterns rigorously. Gas is high–so they buy much less Gas. Entertainment Centers are expensive–so they are much less Visited. They have bought their Clothing previously at Walmart, so a return to the fold is not outlandish. They are used to eating Hamburgers, so Steak only once a Week is no sacrifice; fancy shellfish can await repayment of the Mortgage. Date Nights were fun, but not so much fun, that either partner wanted to pay the Credit Card charges. Put in as simple a manner as possible, the new Wages are going to people less likely to spend it, and traditional heavy Spending limited Incomes have been priced from the Market. Much of the Spending will also not Return, as the Seniors adjust, and the younger Income Earners find they are just as content without the compulsive Spending. lgl

Universaql Health Care

People tend to get a little Nuts when discussing the health care financing conflict. The first thing which must be established is the Time thing: Health Care Costs are going to continue, so every projected Cost will be reached, sooner or later. The only importance rests in understanding How Much finance must be raised, How Fast. It is will immediately become obvious to Anyone who studies the issue carefully that We are spending about two times faster than We should, and are sharply putting off the Collection process necessary for such payment; a fact which will surely increase the Total Amount paid by at least 8%, coming from Debt Service. We are also shredding Our capacity to invest in alternate sectors, simply because of the Collections delay. People on the Right criticize the Canadian universal health care, and I will as well; but only to state that the Canadian economy cannot maintain such level of Expenditures over time. I feel like the last Soldier left in a fortification as the Enemy organizes for attack, but I must declare that the first order of business is to control health care Costs.

Interested Readers should preview this Post before going on. Health care Expenses are simply a diversion of Production Profits and Wages to another Sector of the Economy, though the Author ignores that the Speed and total amount of such diversion is a real determinant in the Payment structure for such Costs. His Solution is to spend more, based upon the assumption that current Expenditures are sustainable. It is my belief that health care Costs must be cut in half, and We must do so, while equally expanding such health care to many more Americans than Now enjoy it. The real crisis comes in finding the methods to do it.

I will attempt to give some methods by which health care can be constrained:

1) The Government need to determine a set Payment Schedule for paying for health care services to Providers. Readers may have spotted my 1-3-5 program of payment, where Doctors could receive at most $1000 per Patient per year, Clinics $3000 per year, and Hospitals $5000 per year; all payments based upon actual Costs incurred up to that amount. Doctors, Clinics, and Hospitals would be proscribed from Charging a greater amount, and cannot bill the Patient, though All can charge an Entry Fee up to $50 per specific Visit–not exceeding Two per year. All Those who can afford Insurance must pay the Limits; Those who cannot will attain some form of Government sponsorship, but will pay for their share of it by a 4% Tax upon their Income. The later Program being optional, based upon degree of difficulty and Cost of Collection.

2) All medical equipment and Drugs must be sold at Production Cost plus 8% Profit. The Government grants Patent Rights, and the Government should pay Patent Royalties; all based upon a Payment Schedule set by Patent Office Committee, and reviewed by Congress. The total bill for such Royalties will obviously be much cheaper, especially from a Debt-conscious Congress. All Providers must present their Volume Sales to the Committee, and the Committee will decide on reimbursement based upon the viability of the Product in comparison to other medical Products, under a Congressional canopy of established Patent liability.

I am tired of Writing, and working under a Time constraint, so I will leave it at that; though there are any number of additional methods to cut health care Costs, the Reader can get a general idea of how to approach the Problem. Study on the formulation, and I will attempt to Answer any questions brought up. lgl

Zeroing in the Guns

I wanted to write on this Piece today so badly that my bones ached, but I came to realize that I would sound like a stupid dork in the land of Wonks. The real problem with the Real Business Cycle has always been that both Keynesians and the advocates of the RBC want to consider the economic failures as an Accounting problem. This comes from their implicit assumption that Booms are normal, and Busts are deviant; any other ideation would require Growth to become detrimental at some extreme. Such a Conceptualism could even hazard that Economists and their labor could somewhere become inimical. I would not go that far, yet I might proclaim that Booms were basically deviant in their own right, and any Push applied to the economy as stimulus is basically wrong; as it elevates an artificial condition to a misappropriation in the balance of the economy. I always remember the famous military axiom of building your fortification below the crest of the hill. Anyway, read with care, especially this link.

Simon Johnson thinks that the Fed should lead the Charge up San Juan Hill again, but I think the Troops are too disorganized to attack the bastions of the Banking industry. The Banks protected themselves during the Crisis, not their Debtors, Creditors, Stockholders, or the economy itself. They are now posed for expansion through the areas where smaller Banks failed. They are ready, but look around and ask what happened to their business. They are back to being willing to loan Money, but there are no Applicants who are willing to accept their doctrine of full repayment at extreme Interest rates; no Risk accepted. The Banks are insisting on the Profits of a Boom, with the Risk-taking of a Bust. The Banks are bound to fail naturally, because they will likely receive the Profits of a Bust, their hesitancy developing any Risk into the Risk-taking of a Boom.

I read this link, and had some real Thoughts of derision. I have just spent a Week listening to Everyone extol the vast wealth that the new series of Cell-phones are going to generate. There have been vast proclamations of huge Sales of the Product; still, Cell-phones are a fad product attaining great levels of desertion as soon as a new phone hits the market. Any Company which plans to sell more than a half-million of any specific unit of Cell-phone may be orchestrating their own doom. I would prefer an organizational structure which could provide cheap Cell service–some relatively cheap monthly service with Worldwide service–and upgrade of phone units upon request at some sensibly-priced fee. You can whip a struggling horse to some advantage, but don’t use a Club; it leads to further deterioration of effort. lgl

Solve the Simple Problems First

Cactus has a Mind which I enjoy, and asks the Question I have long asked myself: What exactly generates Inflation? No one knows for sure. Cactus presents a serious hypothesis which under Study possesses much Charm (totally having nothing to do with his posis, an Instructor once told me Charm was Harm with clutter). I enjoyed such a similar ideation, until I once wrote a Work on Inflation on which I got blasted (Ancients may even remember the Incident). I finally arrived at the place where I connected Inflation with Production. The Later always expands under the Growth formula, but Growth always increases the magnitude of Maintenance Costs for the Capital used. Production drops come through the Bust cycle, but also through saturation of the original market of Product Supply. The essential Problems comes that Maintenance Costs invariably increase under Production reduction, as Capital must be consistently utilized to be adequately maintained. The associated Cost of Capital degeneration, or the curative Maintenance of it without Production, constitutes the real element of Inflation. Easing of the Money Supply allows for easy payment of such Maintenance, but removes Market controls on these Costs; allowing for rapid assimilation of Inflation after Consumer Demand picks up for the Product. This means that Inflation comes automatically with renewed Expansion.

Greg Mankiw also has a Piece which should be considered. Greg has his own ideas about How health care Costs should be understood. He has genuinely pertinent Thoughts on the Issue, but does not comment on the under-supply of Doctors, the under-supply of medical training facilities, their artificially limited enrollment, and the fact that other health care professionals set their Wage Demands off the Wages granted to Doctors. The one area I know of no economists’ exploration is the Question of health care Standards, and the degree in which they could be lowered and yet maintain a consistency of health care outcomes. There is far too many Conditions of Excellence for Doctors’ degrees; Most of which could be easily abandoned without major medical failure. We need a adequately trained medical force, not super-Soldiers in an Apocalypse battle with Death.

Oliver Morton comes out with an Opinion which must be evaluated. Most environmental options cannot make a real difference to the general ecological trend, and would cost far more than any extracted value from such activity. An adequate means of Carbon Sequestration must be found before any real advance in environment improvement can be achieved, and this system must be low-Cost, functioning in the range of sequestration necessary to clear the Air. People must understand a fundamental axiom: An insignificant percentage of the human population can produce a magnitude of pollution which the majority cannot contain. Conservation naturally entail universal compliance, something which is almost impossible to attain. lgl

The Rape of the Innocents

There are always those Individuals who manage to confuse with clarity. Alex Tabarrok is just such a One. Study of this Post can accent this fact. No one has ever adequately defined a Quality Adjusted Life Year (QALY) because the definition is either too limited or too extended. Is there quality of life if two months of the year is spent in intense medical treatment? How much ambulatory capacity must there be to ensure quality of life? Is quality of life assured if an individual cannot escape a debilitating medical condition within the year? Still, there must be some measurement associated with life expectancy. Here again there is a problem, as it cannot truly be aggregated, but must be extracted from the projected Death rates and medical costs not segregated between longevity and maintenance values. Alex makes the truly accurate observation that We spend way too much on medical care, and gives a poor-grade, but effective, means to quantify the over-expenditure.

I would approach the Problem from a different prospective. I would examine those Countries with lower expenditure but longer life outcomes, and chose the lowest component Cost for each sector of medical treatment. It is the aggregate of these specific Costs which I would have the Government guarantee, and leave the rest of medical financing to the individual Patient. Government need not provision American citizens with greater medical care than exists elsewhere, Americans would find it far easier to determine what level of medical care they can truly afford, and medical providers would not be given a blank Signed Check as they are today. It could be a solution to our medical problems, or it may only be my desire to witness a Doctor file for Bankruptcy just once. In any case, there would be a real effort expended to contain the health care Costs in America.

Both Greg Mankiw and Don Boudreaux think this article from the grave by Milton Friedman is worth re-reading, so I will pass along the link. I do not disagree with Uncle Milton about the horrors of Third-Party payment, or the fact that medical insurance is nothing more than a Savings Account inefficiently run. I will even stand with him in thinking that the bureaucracy of Government involvement in the Issue has vastly increased the total Cost paid. I agree here with Friedman:

the increase in longevity did not have any systematic relation to spending on medical care as a fraction of income.

The actual fact is better Housing, Food, and easier Working Conditions had far more impact, than has Doctors, MRIs, or Drugs. The worst Welfare in the system is how medical Providers boosted their Charges by venue of superior ancillary Lifestyle. It is the worst Welfare boon since the confusion of Tax law granted Tax Accountants their huge bonus. lgl

Preventive Spending

I am a huge Consumer of the junk which Greg Mankiw and the Doctor discuss, but still think that We should introduce some practicality to the Issue. Preventive medicine has no proven verification, and no one discusses how many Days of Life will have been gained by the expenditure of any reasonable figure–say $100,000. I would comment I am biased against Medicine, especially Preventive, and contend it probably has a worse Record than Cosmetic Surgery in actually saving Lives. You don’t take your vehicle into an Auto shop when it creaks and groans if you are smart; you wait until it doesn’t move anymore. Doctors, Clinics, and Hospitals are better inducing Add-Ons than is even your local GM dealer. I estimate that a good 70% of all medical testing consists of simple Salad Dressing, and has a worse Record of Detection of medical ailments as does Passing Out in a crowded Elevator. One should recognize my sensible bias, where visitation of a Doctor has never relatively altered either my health, or my sense of contentment at paying that much for that little.

Ask me if I believe this Hype. The federal government is spending a huge amount to gain practically nothing. No one has actually kept their Jobs, no one has actually kept their Homes, no one has actually reduced the loan contractions from the financial world; but We did spend a trillion dollars extra to make sure the economic plungers of the Past did not lose their capital stake, or their ability to create such havoc again. Everyone else is paying more to get less, and are worrying about where they are going to get the Credit rating sufficient to borrow enough to maintain their Standard of Living. The federal government will be the next one to economically fail through loss of their own Credit rating, and We can call the next Downturn the Fed Fed Recession. I keep hoping that my lack of Preventive Medicine will allow me to avoid watching it.

I actually wrote the Above before I read this article, though no one is going to believe that. It is nice to witness Others are equally concerned with current economic practice as I am. What worries me is the fact that it will likely not make any difference. You have about one chance in 25 of getting Majority agreement in D.C. that Spending should be curbed in any specific area, and no one will breathe any utterance of dollar amounts of reduction; they all fearing Voter reaction to the loss of any benefit granted–no matter how absurd. The only thing which will stop Excessive Spending is enforced stipulation that all future Spending must be within the collection of Tax revenues from higher Taxation. The real truth of the financial crisis is that corrupt Spending practices of the Government bled across to the financial sector, who developed a belief that they would never have to pay their bills through the simple issuance of Credit Default Swaps–which never had to same excellent Credit rating as Treasuries. It is indicative of modern life, though, that the Credit rating of both are rapidly descending. lgl

The Great Ferris Wheel

The question of medical care seems simple on the surface, but has many interior complications. Read this Post. There is no limitation on Consumer Demand; when people are Sick or Injured, they want to be fixed. Here is the first Problem faced in the health sector; people simply do not know what they need for health care. The Supply Side not only provides the Goods and Services, it supples Us with the sole source of expertise to determine what health care services are needed. It is at this Point that the business managers enter the Picture; either with the Doctors owning or being employed by the provision centers. The Expertise will always underwrite the capitalization of all medical services provisioned; i.e., they will create their own Consumption base. Medical equipment never before used ever anywhere will be over-proscribed from the first year, even though no use for it had been witnessed previously. It is an economic fact that a single piece of medical equipment or practice can increase the medical cost per patient by 50% per year in a given area, simply by its introduction. Everyone knows the basic destruction caused to the medical allotment per patient coming from X-ray machine, MRI, and internal surgery. There is literally nothing to rein in the health care provider and his employees.

The second major problem with health care comes in the fact that Payment schedules can always be shifted. Nowhere in the health care provision process can the restraint of the Price of Provision fully impact. Doctor, Patient, and Clinic all know major Costs can be switched to a Third Payer; big Pharmaceuticals even pay Patients to take their Drugs as Advertising gimmick. No one feels any Guilt at over-Pricing, and Doctors have even received Kickbacks for Patient referrals to equipment use. Patients are never faced with the real bill for the medical services received; Everyone gracious about helping the Patient by doing the Paperwork. A major Restraint on medical Costs might simply consist on insistence that Patients alone can be paid by medical Insurers; said Patients themselves forced to write the Checks necessary to pay the medical personnel. By the way, I know what a Screw-up such a dictate would achieve, but it could cut medical expenses some potential 30%; as Everyone tired of the medical reimbursement procedures. Here, though, We have the additional Problem of Patients being paid as well as Doctors; a Condition guaranteed to produce fraud.

I personally would favor a health care plan where Doctor, Clinic, and Hospital would go to a defined lump-sum per Patient, then the Patient being liable for the entirety of the medical Cost thereafter. The health care Provider would have to prove usage of their services by the Patient in question in every payment period, and Insurers must prove that they have a Premium schedule designed to repay all medical Costs within a 10-year premium pay period. The lump-sum payments would be paid by direct taxation on all Americans; the limit of payment size being the sole determinant of level of Taxation. I would suggest that initial Tax levels should equal about $300 per person per year; all overage of Cost to be repaid by higher Taxation in following years. The whole Concept will provide a drag holding down medical Costs, as health care Providers find getting additional repayments is as much Fun as going to a Dentist for an Extraction. It might work, though the charade of payment evasion will always continue. lgl

Hot Air Ballooning

The Federal Reserve system may be running out of rationale for existence. This Post discusses some of it. The Fed has shown remarkable failure in Monetary policy; throwing in too much Cash in Boom times, and unable to get Cash to functioning Business and Consumer under Recession conditions. They express little effect on stopping the growth of Unemployment. They now want additional regulation to maintain Bank integrity. The Politics of this remains totally Special Interests, with absolutely no solution for Small Business, Homeowner, or Retail Consumer. I doubt that the Fed will be able even to aid Investors, and if so, it might necessitate a real revision of the Charter behind the Fed. Merkel suggests that regulation of the financial institutions will politicize the Fed; I would emphasize that the Fed policy is already far too political, and far beyond its original mandate to shift funds between Agriculture and Industry. Greenspan and Reagan turned the Fed into a political machine, and the Change has been a benefit for no one.

I differ from the majority of economists in thinking the real threat to the economy is Inflation, rather the standard view of Deflation. Read this Post to get somewhat of an overall view of the discussion with links. I know that Inflation’s normal operation is not gradual rise, but periodic Jerks presaged by Supply Shocks. I also know that the Fed has pumped vast sums of Cash into the economic system while there has been a downturn of Production. The Supply Shocks I worry about most is Gas reaching $4 a gallon, or the onset of Home Heating in October. The increase in Fuel Costs will raise Food Costs upwards to a potential 12%, while Home Heating Costs will double the current default rate on mortgages. All the above trends will increase Business Costs, increase the volume of Business Profits necessary for sustained operation, and increase the Cost of Operating funds for both Business and Consumer. It does not look Good!

Tim Harford wonders if Anyone can tell the difference between Governments being lucky, or that they are skilled. There is much evidence that it requires almost 30 months to turn around any economic trend which affects the entire economy. It is equally as obvious that Government cannot alter any economic trend, without a consistent program extending for a couple of years. No American Government has had a consistent policy since the early days of Bill Clinton; he waffling in later years to avoid alteration in his base support under the Impeachment process. The Rudder has not really being consistently grasped since that time. I am afraid that We are going to find that no Government is better than misguided Government, and that Keynesian policy has long since ran out of Gas, due to the sheer magnitude of the economy. You can blow up a balloon, but doubling the pressure in the Good Year Blimp might carry hazards. lgl

Short-Sightedness

I don’t know Why I advise you to read this article, except it highlight the confusion in the EU as to the manner in which Labor should be handled under the conditions of an extended Recession. Europe truly does not want to abandon the principles of Job security; yet, every ongoing Recession increases the numbers of Jobs which must be underwritten in excess from the previous Recession. It does not help that each Job in question provides less Profitability per Product element in the face of advancing technology. The Labor intensity of Production is definitely declining, in a Time where greater Product sales are desired; a Condition entailing less Labor reward exactly at that point where We desire that Labor to purchase more Product. This is much of the real propellent behind the financial crisis, where artificial methods of Sales empowerment failed under the lack of an effective Repayment system. Shotgun Advertising fails miserably under the inefficient repayment schedules. The mess throws off the entire Production system, because of the failure of followup reward.

Arnold Kling is discussing this same problem, just much better than I; so you should read his commentary. Where I would take Arnold to task is his refusal to admit that the shortcomings of the Government were the direct result of Business lobbying for the financial loopholes which brought Us the financial crisis. Government is a convenient ‘Whipping Boy’, but lay the Whip at the feet of Those truly responsible. Business is a Profits-maximizing machine, and they would not have been Spending the millions which they did on Politics, if they had not been getting the legislative and regulatory Profitability that they sought. The wide range of Interest groups Arnold defined possessed a well-funded means of political leverage, which never came from potential Homeowners seeking a mortgage. The financial crisis, and much else, could be saved by proper regulation of lobbyist Interests.

I will finish with advisement to read this article by Oliver Blanchard. He is quite right about the Need to address the global imbalances, but his plans may require substantial revision. The extension of Social Welfare to a significant portion of the World’s population would require much alteration to Business practice. The United States cannot afford its health care system today, and extending it to half the World’s population would exert a yearly Cost much higher than the World could provision. Doctors would have to be paid at the same level as automobile mechanics, and Hotels and Motels would have to be converted to specialize in Hospital patients for sufficient Bed space. The taxation for these benefits would exceed any freeing of Savings to utilize in Consumption, so that it would convert Savings into Public Spending. China recognizes it must provide Jobs, or face Revolution. Blanchard suggests investment in Consumption rather than Production, but it is a proscription for anarchy. The final idea I would advance consists of China’s inability to finance any internal development without the existence of their Export credits; so Blanchard’s ideation fails here as well. lgl

The new dim Bulb

Here is an important graph, backed by commentary which must be considered ‘middle-of-the-road’ Standard consideration. I think maybe there might be some difference from the Standard View, mainly asking myself what happens as Energy inflation returns, and Banks go back to loaning the Funds which the Fed always wished they would Lend. I believe that the 4th Quarter will be a real Bounce, as Home heating and Christmas Gifts reach for the Sky. The Fed should be prepared to sell many Treasuries very rapidly. Larry Kudlow did not help by stating that Inflation could not affect Us this Year; he being Wrong so many times that he is almost the ‘Kiss of Death’.

Study this Article, and ask yourself if the current Administration is capable of either avoidance of a federal debt crisis, or safely handling an adequate Health Care system. They avoid any discussion of Tax Increases, though skipping realistic Taxation has not maintained the economy, or even has the support of the majority of Americans. Americans do not care about Taxes, if they come only with Lost Wages, and the later is coming anyway. Americans also want adequate health care; but marginally recognize this Country cannot survive under Conditions that only Health Care Provision exists under a Booming economy; the other Production sectors must pay for the Health Care increases, and cannot do so when in deep Recession. There has been absolutely no sound proposal for limiting Health Care Costs, basically blocked by the industry itself. They may think they can get a new source of Income without regulation of Costs; they not understanding that the Firing Squad is facing them. Mark my Words: if the Government screws it up, then Americans will have no Health Care, and no one to buy Treasuries; all meaning more Pressure to reform Government effectively.

I so rarely agree with Karl Marx, that the Reader must pursue this Post. I have real trouble with ideology, being an advocate of the old saying that Everyone has some link to some old economic concept, which has since been proven to be Wrong. Consider the position of both Democrats and Republicans. They both expound Ideas and Concepts first birthed decades ago, all disregarded previously in the political sense, because of the unworkability of the programs designed. George W. Bush utilized Republican concepts originating in Reaganomics, and loaded Us with huge federal debt and slow Growth if Inflation is accounted. Now the Democrats want to take back to the failures of the 1970s. I don’t know if I can survive another Heart attack; but I find no Threat in the new Old Plans, because if any are adopted, I am prepared to die a Pauper. It will undoubtedly be my fate to endure continued Survival with Money worthless, and Production in shambles. lgl

Bucking the System

I have always noticed that Monetary policy seems to lack performance, ever since Milton Friedman first proposed its major elements. The Fed purchase of Treasuries produced only a 67 DayLoop in long-term Interest rates. The long-term object of providing the funding for Growth itself seems too often punctuated with undesirable Inflation; this may rightly be that this struggle for funding by Production sets the proper Production Costs under competition, a Subject not to get me on because I quickly ascend into the Ozone. Milton Friedman was a brilliant Economist with a brilliant theory, yet the theory possessed the same limitations as Milton himself–no real Testing of the practical environment. Economists today should advocate such theories in recessionary times as can possess some proven validity; an idea that Ben Bernanke may be reaching a greater appreciation. We got TARP, but We still received the Unemployment and lack of loans. We have the Fed buying Treasuries, but still have medium-range Interest rates. We have massive federal spending, but realistically have only arrived at the same drop of Production, but with a massive disruption of the federal funding apparatus. Is it Time to start doing Nothing?

It is the common paradigm that small men in the modern environment seek to change the Rules of the Game to make themselves feel important. Here is a very good example. They generally fail to attain prominence of any kind, and their drivel most often presents Us with more confusion than correction. Instead of writing vast reams of regulatory powers (inevitably nonexistent because of being unread and unworkable), I would simply establish a Standing Grand Jury to investigate malfeasance in financial transactions, with replacement of Jurors every Three months. U.S. Attorneys would know they had to prove their Case to the Jury within that Time, and the Justice Dept. could assign as many Attorneys as necessary to answer all Public and Private charges against any practice or financial institution. It would probably hold more financial Feet to the Fire than any Regulation ever designed.

This Post discusses where the Rave mentality on the push for Regulation is coming from, and who is responsible both for it, and for its containment. Simon Johnson obviously believes this Push is focused behind some Individual, while I think it is only the incoherent roar of a mob; with rare venting of a coaxial regulatory Concept by some momentary lucid member of the mob. Geithner and Summers obviously belong to the Security services of the financial world, and are trying to suppress the more outrageous constraint of the financial world, while Writing the actual regulations so loose so that they can be safely ignored, or successfully defended against by financial institutions. The Mob should understand their goals are bound for Defeat, as Impulse cannot stay the Course against systematic design of Special Interests. lgl

The fallacy of Policy

Arnold Kling has the Gift of expressing the components of real issues in concise, debatable language. Health Care Spending need to be controlled, but his Proposal to cut health care spending by making the patients pay more has a crippling effect on expanding Coverage. All Wonkish propositions of such order have the effect of refusing to consider secondary impacts. I prefer a less ideological venue, knowing that no precise solution will ever be adopted in a politicized environment. My Thought was that all Health Providers be limited to a set amount they can charge any given Patient per Calender year. I would pick the 1-3-5 Solution, with Doctors being unable to charge more than $1000 per Patient per year, Clinics no more than $3000 per year per Patient, and Hospitals no more than $5000 per Patient per year. I would insist that Drug Companies register their treated Patients, and be limited to a maximum of $500 per Drug per Patient per year. I would grant all Health Care Providers a $500 Tax Credit per Patient per year, but only if they can prove that medical equipment costs exceeded more than half of each Patient’s allowed compensation to them. The Program will automatically expand Coverage as Health Care Providers actively seek Patients to increase their allowed Income, separates the issue of Coverage from the Payment mechanism, allows for easy Government contribution at all levels, spreads the Health Care Costs through the entire Patient load, and entices the Health Care Providers to work harder.

Stan Collender has a very good commentary about the federal debt. It provides some idea of how others would push the issue, based upon the economic information available. I am of the old persuasion that Government doing nothing remains the best Government initiative. I was inordinately Proud when We achieved the first Surplus in the 1990s, thinking Americans had finally learned to live within their Means. It led to the formulation of my famous axiom: What is Good for Business is not actually good for Business; what is Good for the Consumer is actually Good for Everyone. George W. Bush and his Crew immediately set out to prove this axiom Wrong, and proved beyond Doubt that Business personnel cannot run a Government. The horror of their activity rests in the fact that they make Government unmanageable for Anyone. The federal debt is only a symptom of the malaise where Government rests upon a feather-bedding system of empire-building Pirates. It only gets worse with Age.

Read Tyler Cowen’s Notes on Energy Policy, and One can feel the unreality of Business views. The spewing of Carbon is wrong, of course, but the most environmentally sensitive Energy policy will only add about 11 years to the Heating Process, without any significant improvement in Air Quality. Business is adamant in stating that Pollution controls cannot be so Tight as to limit economic expansion, yet; they can propose $5 per gallon Gasoline for which they pay only an insignificant amount, the Consumer stuck with an Expenditure pattern equal to their Medical Costs. Business should someday realize they will not make their Profits, if Consumers do not receive their Wages and Dividends. They might even be generating their own Need for their Pay Packages. lgl

Land of the Lost

Here is a Piece which clarifies the entire financial crisis. Six Flags declared bankruptcy because it had $2.4 billion in debt. One might ask Why this seems so unusual to myself. Six Flags would appear to possess about $1000 per Customer of debt–not counting Operating Costs or anything else, had Record attendance at their Parks, and had already sold off some 7 of their Parks to raise revenue. One can accept some claims that the Parks made about $600 per Customer, it does not fit with an estimated Operating Cost of $75 per Customer, and actual Paying Customers probably equal one in three or four. I am talking here without any verified information of any kind, but would estimate that Debt Service equaled about $35 per Customer–whether they paid or not. I would use an old Organized Crime term of ‘Shelling out the Company’ but might subject myself to charges of Slander, one of the few areas of Libel which still seems to be enforced–never mess with Corporate Management.

Consider the Above in the context of this article. Paul Krugman finds it hard to imagine that ignorant Consumers may have actually chosen the correct solution, both to their own personal hardship, and to the reorganization of the economy. Ordinary people recognize that massive dislocation of the economy calls for massive reorganization, while well-paid Economists pretend that bankruptcy proceedings are a bad smell to be avoided at all Costs. Their Solution, parroted most effectively by Paul, is for the Government to become the Spendthrift replacement for a more cautious Business and Consumer. It is tacitly ignored that Government can adopt as worthless an Expenditure pattern, as had any Mortgage-Holder taking out Paper on Property worth 30 times their yearly Income. It might be as they described the Peasant fears in the feudal period, where the Lowly could smell disaster on the Wing.

One can finish Today’s reading with this Post, which may explain what is happening; Anyone who had sense enough to avoid the pitfalls of bad Spending policy, faces loss of Profits through Government policy to replace the Losses sustained. The Result will be the destruction of all previous Profits within the economy. It is instructive that the most prevalent Losers in the economy always utilize their power in Government to ensure All suffer the ravages of economic failure; the malignant power of Government at its worst. People soon comes to realize that Community spirit is more to be feared as an evil Ghost, rather than a benign folktale. lgl

Why Me?

One can find the fallacy of most behavioral science if you are diligent and perceptive, or you can rely on the Tim Harfords of the world to explain the real lack of quality associated with the Testing procedures. Dim Lights frighten, Bright Lights hurt the Eyes, and Management wants to feel an empowerment which they have never had, or will ever have. The ‘Hawthorne Effect’ probably has no more real determination than any other behavioral ideation, as inclement Change have a very short half-life itself. Tim also argues that the Six-Degrees of Separation, so proudly championed, was based on a huge default rate; I could have told Stanley Milgram that Nebraskans makes poor Test subjects, as helping Someone for nothing hits the trash can faster than Advertising. We are great Believers in ‘What’s in it for Us?’ with the Answer being ‘A lot of Postage for which I am not paid, and I am supposed to dump This on good friends!’ A sensible Nebraskan would not forward such trash, and only send it to people they dislike if they decided to go along. It is upon such behavior that great Insight is found–Right!

Here is an article dealing with mortgages which actually makes some sense. It should be recognized by the Readers that mortgages are the tanks of the battle, while Banks are the Command bunkers. Both are extremely rugged and defended in depth. Homeowners, on the other hand, are the foot soldiers of the battlefield, easily injured and incapable of rapid Return to Duty when once hit. One always endures huge Injury on the battlefield because of failures of Command, or inefficient deployment of forces (also a Command decision). The Reader may not understand that Command is always the first to Bug Out if the battle is simply in Doubt, and Troops are left on the field to cover their Retreat. Readers should recognize that Banks, Mortgages, or even Congress, are doing nothing for the foot soldiers; with no Intent to ever do so, though they might claim professed Aid to the poor Mortgage-holders holding the bag. Such profuse protests never extend to allowing Mortgages to be altered, they want the poor Homeowners to be destroyed, saving their own butts until they can remove from the Combat area. It matters to no one the level of destruction, unless so many foot soldiers have been wounded, that they cannot reconstruct the battlefield later. This is what this article actually deplores, the lack of durability in the foot soldiers.

It is Saturday morning, and I am bored; so I will call it a Day. It has to do with the behavioral economics discussed Above, as I simply cannot work up the Impulse Energy necessary for a normal Workday. It is a primary effect which has a real impact upon Management decisions; they knowing that Overtime produces less production for higher Wages, and should be avoided whenever possible. I, as a Management Consultant, have successfully avoided the higher Pay being granted to myself; but I believe that my Worker is going to shut down at this Point. It is not that I hate my Job, it means only I have too much of it. lgl

Method and Madness

I would debunk this article by Paul Krugman, except I smell too much evidence that mainstream Conservatives feel a compulsion to provide Cover to extremist elements. Fear Mongering always have had a difficult time divorcing from Extremism, the old Pot calling the Kettle black, due to the fact that they are painted with the same brush. It is actually as prevalent among Liberals, who could never seem to denounce Communists–or even Stalinists. The only effective curative to separate the Majority from the fringe elements remains Good Manners among the Majority. The only failure such behavior has had was in pre-WWII Japan, which was actually Bad Manners because it was a corruption of the Samurai ideal. It might be the resultant of Yellow Journalism, but that is only an Effect, not a Cause; the thirst for Ratings can be conducted without Pandering to the malignant. What is known is that it has absolutely nothing to do with Coalition building, which it has always failed to accomplish; noting the radicalism of the Abortion movement on the Right, and manic Demands for universal health care on the Left; neither will attain any good End, because Each insists on a political solution which is unpalatable to the Majority. Extremists cannot define the difference between Exhortation and Violence; Moderates cannot perceive the distinction between Extremism and Support.

It is around this Point that I start to lose my own ability to discern between Extremism and Moderation. I watch the Expenditure pattern of the federal government, and start to develop a Ninja attitude. It really bothers me because I know it will eventually lead to Property-holders losing either their Property, or their Currency. Either Case is going to lose them their ability to aggregate Profits and Wealth from Property, a circumstance which possesses a horrid detrition for the Work Ethic. The situational element I find most disturbing lay in the fact that the major component opposing fiscal responsibility is actual Business itself, which demands lucrative Government contracts, while being equally resistant to Taxation of itself. Repetitions of the revenue-neutral theme of taxation makes me dream of an effective Secret Police force. We find it so difficult to maintain a sense of balance under Population congestion.

Tyler Cowen appears to suffer the same element debris as I, trying hard to place some importance on the economic calculations of past years. I feel much as does Russ Roberts, thinking that nothing has been settled in Economics since Ricardo. I remember an argument I had with a previous Instructor, who advocated non-ending issuance of Treasuries; One who is probably embarrassed Today, as he likely has a Cato preference philosophy. Another Professor discounted an entire regression because he would not truncate the tails of a Bell Curve Spot graph; insisting a valid regression must work in all cases. I don’t know anymore, except that I wound up here because of reading too many homework assignments. lgl

Robert should know

I don’t agree with Robert Reich’s premise, or his conclusions, but he makes his Point the Hard Way. Robert still support the idea that Government Spending can cancel Recessionary conditions; refusing to accept any stigma of ‘Crowding Out’. The greatest threat to Small Business must be Government Spending usurping their traditional Product niche. Government Spending could alter the construct of the Recession, but only if it is spent with distribution to attack low Production ratios; Government Spending directed to enhance already existent Profits only introduces monopoly pricing to areas previously free of such distress, potentially where artificial pricing could not be accomplished by any other method. We first must determine if We want to favor any segment of the economy over another, before We can determine How best to achieve this End if desired.

I will contest Robert’s contention that Deficit and Debt numbers do not matter, except in comparison to gross aggregate GDP numbers. It is the small little numbers which I would like to know, like if national debt repayment was set at $.10/Hour worked, how many Work hours would be required to pay for the Debt. Then I would like to know How many Workweeks would be required to pay for the Debt, based upon a basic standard 40-hr. Week. Just to show Robert that I am not some fanatical fiscal Conservative with only one approach to the Problem, I would also ask How many Dollars of Profits would have to be taxed if a Debt repayment tax of $.04 was assessed against every Dollar of Profit. I would also ask the length of Time necessary to pay off the National Debt, based upon the this simulation plus the known levels of Profits from the economy at this time. These are the type of Statistic which I can chew on (Some say I should stick to my Cud), while I have a real dislike of Progressive desire for new Government programs.

All I know about the Debt really is that Interest on the Debt Service has been going up as the amounts grow, and We will have to pay a Premium already massive in terms of Government largesse, but validly below What private Debtors have to pay. The old pressure points lose impact with all Debtors, and Lenders wish for the good ole Days when they could actually clear their books with debts paid. What I fear the worst is not Rants against the Debt, but Thought that the Debt can grow twice as fast as Wages in this Country. I want a better World, and have wanted a Better World ever since I was a Child. Now, I only want a different one; sometime soon, I may be paying a premium simply to get off this Planet. lgl

Where do We Go?

I first glanced through this article, then studied upon this Post from which I drew the link; both are from David Leonhardt. I read a little further and found this graphic link. Both the graphic and the Writings are very informative, and grant no potential Policy measures to bring the Deficit under control. Washington will never alter its desire to Spend, and Economist Thought should not support fiscal policy which they know will lead to future economic crisis because of Government Spending; California is only the ‘John the Baptist’ model of what will arrive with full fury; the decisive point probably coming when Debt Service exceeds the total Imports Deficit. The Later does actually fuel the Former with Cash, though It is only a rudderless power; the real blame must stay with Congress and President.

Discussion of the Deficit contains real liability for Everyone; I finding it difficult to be specific and cover the entire format equally; generally losing the Reader or his Interest. The foremost culprit must be Congress, whose membership pushes programs which have become pure Porkbarrel, even if they had originally held some advantage for the Nation as a Whole. Weapon systems with no Opponent potential, Infrastructure Development with no real traffic, Water and Conservation efforts with insufficient Water or Land available, Office Building construction which only serves to increase federal employment, and Tax Benefits which rob federal revenues without serving Anyone but Special Interests. A sincere prohibition of Omnibus bills could at least give Presidents the power to Veto obvious willful Expenditures. None of the Above will ever be subtracted from the matrix without Public pressure to improve performance, which simply states that a clean-up of political practices will not occur.

Intelligent individuals will prepare for future dislocations. This will be extremely hard as We have learned that the Corruption has reached the Banks in the last Crisis. One cannot sever their efforts from the greater economy, though, and you have to expect Everyone will suffer under the truly Big One which is coming. My best Suggestion when it comes must be abandonment of federal policy, and concentrate rebuilding upon Local initiatives, that can be closely monitored to eliminate corrupt practices draining the Profits from the enterprise. The Big Bang will pull Attention away from national policy, back to State and Locality where Accounting can be enforced. Any national initiative must first come in Tax Reform, with the elimination of the vast majority of specialized benefits, in favor of uniform and enforced Tax rates of sufficient size to generate the necessary Tax revenues. lgl

Position, Skill, and Ability

Mark Thoma comments on a debate of whether a specialized Education provides a real Income differential. I doubt the spectacular nature of Income generation when it comes to Education, knowing it takes much more than simple Skills to rise to higher Income. The greatest necessity for large Income increase is Innovation, but Innovation that is discrete, can be separated and controlled; whose access can be constrained with a Monetary charge placed upon its availability. Any focus inside Oneself limits the Income to basic Wages, and cheaper Labor can always be found with the Skill levels necessary. Those who wish great Wealth must always concentrate upon the Product; a serious provision of better Product for Consumers will get the great aggregation of Wealth. The current financial crisis is a good Case in Point, where Investment bankers forgot the first axiom of operation, which is that the Investors must make money to be successful. Failure to provide the Profits led to the downfall of the entire industry.

I ran across this article from Bloomberg, and asked myself if improved performance generated the residual Price; something which I doubt. It can be admitted these tranches were probably valued too low, due to the uncertainty of the Crisis. It is a fact, though, that the only improvement in performance of these things is longevity; they have not failed as yet. Investors might imagine that continuation of the tranches suppresses their failure rate, but only under Conditions that the terms of these agreements are being met; the Kicker here being that payment schedules are not being maintained, and therefore, the Risk remains as great. I am not attempting to rain upon their Parade, but Mutual Fund and Hedge operators might remember the old magical trick of a Coin disappearing in the Hand. They have to get major funds invested, yet they must still consider the quality of Investment, else find themselves the Guest of Honor at a Roast–One without a happy humorous ending.

I have always enjoyed Mish’s comments, though this Post may be a little too directional. The Boston Globe has a multitude of problems, of which the Unions are only One, and possibly not the worst of the lot. Their Paper Costs are too high, their Advertising rates are too low, their Subscription rates are too cheap, and they show a reluctance to invade Waiting Rooms and Reception areas–a definite lack of pursuit of alternate venues of Subscription. The Advertisers who have abandoned the Globe were always going to abandon the Paper, the Remaining Advertisers would pay a higher frame Cost for the speciality Advertising they need. It is not up to the Globe to support inefficient Paper production, and the Paper should pursue the cheapest route. Management and Investor should not insist on high Returns, while asking for Wage Cuts for everyone else, and there should be serious effort expended on acquiring a long-term Mortgage to absorb all Debt with a more reasonable Repayment schedule. One must meet the Times, or be slammed by them (Pun intended). lgl

Keep It Simple!

Paul Krugman has been getting a lot of heat for this thing, and actually, much of it is quite undeserved. Ronald Reagan may not have seen the hazard in which Garn-St. Germain Depository Act may have placed the nation, but the villainy had to wait for more corrupt lesser men. Paul is right, though, as the decision and passage of the Act cost Americans some $130 billion–I would actually add another $40 billion to that, through considering interruption of business flows. It must be admitted by all Sides that We picked up the habit of accumulating Public Debt from this Period, though One has to accept that Congress was even more responsible for this addiction than Reagan can ever be held accountable–both Democrats and Republicans. Reagan can be held responsible more than Most for the financial deregulation, but never as negligent as George W. Bush, whose inactivity deactivated any regulations once placed for safety. Blame should be placed where it actually exists, and the benefits of Hindsight should not be utilized to condemn, even though George W. Bush may seem a desecration of American values.

Mike Shedlock expresses more alarm than I would suggest, but the Kennedy proposal is pretty bad. I would suggest an Alternative where Medical Costs are first discussed rationally, then Payment schedules can be designed to pay for the Expense. Medical Wages should be separated from other Medical Costs; I would pay an averaged yearly payment to every Doctor, Clinic, and Hospital per registered Patient; this being the sole Wage payment to the specific entity, they expected to pay their help from this source which cannot be increased or subject Patients to further billing. This will be the method of determining Medical Wage scales, with much howling from medical personnel, but with a viable system for Wage suppression in the medical industry.

Medical Drug and Equipment Costs will be switched to payment of actual Production Costs plus 10%, plus whatever Royalties from Patents are applicable; though I very much would alter the Royalties granted. I would pass legislation which would limit potential royalties to $.10 per 4,000 proven Research or Development hours utilized in designing the Product. Such accounted hours will have to be presented and Approved prior to future Patent award, and current Patents must switch over to the new system within one Tax year following passage of the Act. This will seem oppressive to Research personnel, but this places them within the realm of suppressed Wage scales for Research personnel, and desirous for mass production and usage of their Product at reasonable Cost. I am only explaining the system; only economic analysis can effectively determine the base number of Hours which should be used to set the increment level of payment, with even the numeral payment amount subject to change. lgl

I promised myself I would not do this!

There are some men who are very brave, as this Post will amplify. I agree with 1&2, believe the next Dip will be because of fiscal mismanagement, and believe We have already settled into that long-range lower economic growth rate; perhaps even a slight decline in Production as the Baby Boomers retire from the Production cycle. I have a touch more confidence than Tyler, which undoubtedly means only that I am more of a Fool. The real Problem with Prediction comes from the fact that previous economic forces rested upon a basic fraud, and upwards of 20% of the reported Production was based upon ‘Blue Sky’; and working off such numbers as Origin will always be difficult. I applaud Tyler for his honesty, and feel eternally grateful that human kind never remembers predictions in the first place.

Now comes the hard part where I must place myself in the matrix of Gordon, Shilling, Grantham, and Schiff from the source article. Gordon believes there is an economic God, while Schiff knows there is only the Devil; Shilling, Grantham, and I all believe in God, but that he simply ignores all of Us. All things examined, I expect you will make the most Money by going with Shilling. You have to understand that only Gordon believes in economic miracles, though We have all watched American markets for at least 30 years. I will only state my willingness to be an Apostate, quite unwilling to join Schiff’s father in prison; or even other forms of duress. I remember the old Story about the Mule Trader who was asked if he would buy a particular mule. The Trader said Yes, if the Seller could provide the Ownership papers on the animal. The Seller looked in amazement at the Trader, stating, ‘Boy, you really do want to get out of the Business.’

Robert Shiller may not understand that the element he defines can spread across other economic decisions made. The most important may be Business Start-Ups, which is a major Job generator. Such Decision-making process may have already destroyed the Car companies, and Commercial building shows the same-type erosion. It is not a pleasant time to be in American Production, and many Americans are looking for Employment within areas least affected by market conditions, though these Jobs may pay substantially less both immediately and over the long-run. The entire Scenario leaves One a little cold, without Expectation of warm winter clothing anytime soon. lgl

Fool Me Once, Twice, . . .

I will leave it to the Reader to ask how definitive behaviourial economics can be, urging you to read this Post by Tim Harford. I would take a slightly different tack, and ask to what degree are bubbles engineered by some segment of the economy. Wall Street’s thirst for IPOs was an obvious culprit in the dotcom bubble, as manipulators realized Profits of 300-400% could be realized in the short term with a highly successful IPO offering. Vast amounts of excess Stock was sold at highly-touted, market-competitive, high-pressure Phone Sales. Prices–from Stock price through Product price–became artificially ramped up; Investor and Consumer expected to pay for it all. Investment Bank management, in Today’s crisis, wrote bad paper at Record rates, simply to ramp up their Profits Share programs. One can identify an economic segment who was the prime generator behind the S&L Bailout of the 1980s. It is also known that bubbles are characterized by excess massive flows of Cash to some institutional entities as bubble engineers could not just grab the Dollars, but had to designate some lucky industry as the Winner of the Lottery. The S&L bubble of the 1980s brought Us a superabundance of Strip Malls and Commercial Office Space, the Dotcom bubble brought Us vastly over-capitalized Investment programs in Tech areas which could never be self-supporting, and the financial crisis brought Us a house for every SUV. One must finally consider the position of Government and Fed, who of late has decided to support all bubbles, based upon the belief that what is good for Special Interests is good for the Country.

The next bubble resides here, or in health care. I would suggest that Cap-n-Trade of Carbon will be the next bubble slush fund. Carbon limits has greater bubble potential than does Health Care, which has already exploited most of the high-Cost bubble elements such as artificial Pricing, and over-rich capitalization. Health Care is also limited in scope to a few industry segments, while Carbon Trading can flow across the entire economy. The Sharks will find much more exploitable material in the Carbon Trade, and could not even be forestalled by an outright Carbon tax based upon on Pigou principles. I await an final Outcome, knowing that it will take years for the Dust Cloud to settle, and will take decades more to get elemental Change in any Windfall designed.

Here is another simple flow example of a bubble. Consumers themselves are closing down Credit Card accounts at a tremendous rate, realizing that a simple 6-month delay in Consumer Spending can save a 20% Credit charge against the Purchases. Here is the incipient conditions necessary for a bubble, and the number of Account closings suggests there was a real bubble in the Consumer Credit extension. Convincing people that they needed a higher level of available Consumption Credit seems like a good method to generate artificial financial charges of simple existence, and easy expansion of the Credit lines helps generate the delayed payments which was the main source of revenue for Credit Card companies. Here again are the Conditions for a bubble. lgl

The March of the Penguims

Read the entire article, then ask yourself What was behind the great financial crisis in the first place. Bankers will not use the Legacy Loan program, because they would have to write down their losses. The availability of Choice means there is no real necessity of Bankruptcy adoption, so why is Congress and Government so insistent on pumping funding into the Banking system? The obvious rationale has Public stance of fueling the economy; but Banks are not lending anyway, the economic indexes and factors are dropping, and no one is giving any Cash to Anyone who could actually apply it to the production process. No one but I may notice it; still, that Cash is not reaching Storefront, and no Goods are leaving in the Hands of happy Consumers. I am going to rename the financial crisis as the Recession and Recovery of the One-Percenters of 2008-9.

I will provide this analysis by Tyler Cowen because it presents some support to my Above contention, though I do not agree with some of the assessment. Most of the damage which Tyler speaks upon derives from the method that the legislation is written. I first do not agree with the necessity of revenue neutrality, doubting any effective rates will ever be generated on anything where Taxpayers are assured that their Income will not be further taxed; it only means that the primary Consumers will be taxed, but secondary elements will make Money from it. The Reader may not understand that primary Consumer and secondary business are almost never the same. Under those circumstances, any Tax will present a degradation of economic incentive. Cap-n-Trade will be much worse than straight Carbon tax in this effect, though this is a minor side-effect. Tyler’s contention still holds to the belief that there is value in Carbon reduction per sec which I have long abandoned; the rise in Greenhouse Gases may even be necessary to protect from the chill of a little Ice Age of coming decades; watch your History Channel.

I would advise that Readers study this Keynes’ Quote presented by Don Boudreaux. Inflation does possess the destructive power to rob economic participants of Wealth without taxation. The exact statement of the process, though, should also be advanced. Inflation destroys the real payment schedule of previous Wage scales and Profits, reducing the aforementioned before they can be spent. Consistent Inflation minimizes both the desire for hard labor, and the inclination to Save. Monetary policy does utilize Inflation to expand the Money Supply easily, increasing the drift from actual Production Profitability to Middleman interjection of Profits-Taking. Consumers and Labor bear the overwhelming brunt of Inflation and resultant Profits-Taking, which is often greater than any Tax would have been on their Income, Purchases, or Assets. lgl

Griping

I will present this Post from Mish without much comment, except to ask why established Politicians with normally successful personal lives seem to believe that the borrowing practices of obvious failures in the economic system can be adopted for the spending practices of a Government. The later is left with no degree of Savings, no element of Recapitalization or Investment, adamant refusal of Down-sizing, and a Pricing policy (in this case: Taxes) allowing for no profitable operation. Every venue shown to be a failure in the personal lives of economic participants is adopted by Government leadership, under the publicity that it will be successful on a national scope. Read Mish, and ask yourself if you would want any of those cited to manage your Investment portfolio.

I advance this Piece as a further example of my contention. Why in God’s Name would We want to pursue a negative nominal Interest rate? It is most like giving the proverbial dead horse CPR, while whipping him. There are natural limits to economic initiatives, and reaching Zero is a good indication of reaching the dead horse. No one can understand my confusion at witnessing otherwise supposedly skilled craftsmen trying to design new techniques for reaching bankruptcy. I would, if I were the federal Judge in charge of the GM bankruptcy, nullify all agreements made prior to entrance into my Court; because of the clear discrimination utilized in their construction. The Reader should understand that I favor no Side or Interest in the affair; I am just outraged by denial of personal interest involved by GM leadership backed by Government. Everyone has the right to expound their own Stake in the Outcome, even if it is eventually denied by the Court. Government policy seeks an easy Bankruptcy solution, but loss of vast amounts of economic power for major segments in the dispute is neither easy or satisfactory.

Another Sign of the delinquency of modern Government policy. Bankruptcy is becoming the desirable route for American families again, whose medical bills are growing much faster than their ability to Pay. Some 6,000 Bankruptcies per Day, mostly medically derived, indicates that there is real hazard in the current medical billing system. Government has not seriously approached the area, though there has been continual vocalization of such Need, every since the introduction of Medicare. It is good indication of poor Government practice, when regulation and law only provides advantage for Special Interests, while leaving the majority Interest to rot on the vine so to Speak. lgl

And off We ride!

I am going to get a little technical for some people, but this might eventually sound like fun as I explore tow Posts, here and here; which people should read to understand. Alex Tabarrok first details how nominal growth is relatively rapid, then Casey Mulligan provides a comparison between the 1981-2 Recession and the current Recession. Alex reminds people that the nominal economic growth will double in 14 years, if the growth rate is 5% per year due to compound interest. Casey makes the Case that the 1981-2 Recession should be viewed as the 1980-2 Recession if compared with the current Recession, as the 1981 Recovery was so Short that it was an actual false Reading. Casey fails to state that the 1981 Recovery was generated by the financial world failing in its first attempt to restart the economy effectively. Now I will explain Why I have combined the two Posts.

Alex Tabarrok is quite right in his evaluation of nominal growth first of all. He does not include the Concept that economic expansion is always only Partial, with many Sectors having reached their full potential in previous Periods–with little opportunity to actually expand their capacity or production–at least not as high or continuous as growth sectors. The later Sectors have excess potential compared to filled Sectors to expand, and their expansion applies inflationary pressure to the Resource markets–which are accessed by both filled and expanding sectors. The prices of Resources go up, and filled Sectors have to raise Prices to keep pace with the growth Sectors. It is here that We see the spread between Real and Nominal growth; one which will continue to widen throughout the economic expansion, and the element that may well bring on the next Bust in the economy. Consumers are fully provisioned by the growth Sectors, but only partially provided for by the filled Sectors; their money buying real value and partial value in that order. It is the basic source of Inflation in the economy, and the underpinning of the Bust cycle.

The real value for growth is the sustainable growth factor, while the nominal value of Growth is a false Reading; the spread being the Inflation within the filled Sectors. The only accurate measure of Inflation remains the value of increase in Resource prices during the Boom period, while it effectively remains hidden during the Bust period; though it will continue to increase as long as there is a disparity of productive Returns between filled and partial Sectors. I know that this discussion is somewhat Wonkish, but the Reader should have some realization of the impellent force behind Inflation. lgl

Adjustable Deficit Tax

Stan Collender believes it is time to start talking about the deficit. He thereafter adopts the traditional growl against the force of the deficit, only describing the threat without any adoptive solutions advanced. It was a good piece by the way, so don’t misinterpret my description as criticism of the article; it simply did not take Us forward. This stasis seems totally reeking of hubris this morning, so I decided to attempt something different; it may stink equally as much, but I am at least trying.

I hereby call for new form of taxation, which is called the Adjustable Deficit Tax. It will be a federal Sales Tax, but with a vast difference; people will be able to choose their level of commitment to the Tax, and to the Country. This will herein get a bit tricky, so I will list the provisions so that Everyone can laugh.

1) No Cash Register will ring, no ATM will operate, no Cash Transfer will be made, until the Customer is asked if he would pay the Adjustable Deficit Tax, which by law will be solely limited to the payment of the federal deficit and/or State debt.
2) The Customer is asked for his participation which will cost him 2% of the Transaction, an amount which will be cited by the outlet with accuracy of approximation. The Customer at site can decide whether he would accept the taxation, thereby setting for himself the level of taxation he will accept for himself.
3) The Seller, or Transfer Agent, will by law be committed to filling out a monthly form listing the amount of Collection, and providing the IRS with the Proceeds of the Tax. Failure to do the above will have the traditional lines of punishment for the poor Business personnel.
4) Every Taxpayer or Customer can look into himself, to find the level of his patriotism and translate that emotion into an adjustable Cost. He might find Tax payment easy and acceptable paying Grocery bills at the Check-Out, but provision of Mortgage payments unacceptable for a Tax payment. He can ask for automatic Withdrawal of the Tax at the Time of Purchase for a Time-Payment Product, or simply add a personally chosen amount at monthly payment, amount of tax signified by written notice upon Notice: Businesses committed to provision of a Form line statement of the potential Tax.

Passage of the Adjustable Deficit Tax should also be accompanied with a continuing Advertising campaign Stating the largesse of the federal deficit, the dangers of State Debt, and the nature of the Tax law. There should be an Appeal to Patriotism, and the Statement that the Tax can be individually adjusted to suit each Taxpayer’s position and Needs. Proceeds might be bacchus, or may actually even pay off the Deficit. The Outcome is not relevant if the Tax and Program brings Taxpayer awareness of the dangers of the Deficit. lgl

Needle in the Haystack Syndrome

Felix Salmon expect a downturn in American auto sales for years to come, and I agree; though I believe that the downturn will have a greater depth of argument than he advances. Americans have first gotten the Notion into their heads that burning too much fuel is bad for the environment (I wonder where they found this idea). The Gas Run-up reminded them of the full-power increase in the price of Cigarettes, which finally brought reduction in their consumption after 40 years of simple maligning the Product. The price of Gas finally came down, though wiggling to go back up; but the downfall in the combination of Price and Advertising had already started the slide. The low-hanging fruit of that second Fill-up per Week per vehicle was so easy that the SUV Moms almost stopped taking their kids to Soccer practice. Many Parents, not fully integrated into the Full Consumption cycle, even discovered they could not only save the Cost of Gas and cavalcade of Five Dollar Bills taking the kids to Video Arcades on Sunday afternoon by staying home and learning How to talk to their kids. It not only sometimes enhanced their children’s Grades in certain Subjects, but gave them the mis-impression that they could even maintain a personal relationship with their kids through the process of Growing Up. The Writing was finally on the Wall, when Mom confessed she did not like to Window Shop under conditions that she could not afford to bring anything home. The Damage was done, as all members of the family realized they could live elsewhere than in a car seat.

No one would find this type of article in an American paper. Americans remain committed to definition of Crisis combined with their Solution, with no identification of the policy-makers who may have provided the Solution, or even the initial offense. It can be freely admitted, though, that the British express little greater aptitude than do Americans in Crisis Solution. Economists have an additional problem of an inevitable multitude of published Papers in support or rebuttal of every meaningful addendum to Economic Thought (just too many Dissertations by Graduate students needing some Subject to talk about). Some Economists even make their reputation by definition of some bibliography capable of giving some grasp of one element of the Economic realm. Dare One say that some 40% of Dissertations could be denied, if there was some Congress of Dissertation Committees? Great Britain may be small enough, with ample dissemination of material along a constrained geographic locale, that ordinary educated people can read and understand possible distinctions in a Newspaper. We Americans cannot get the NY Times and The Wall Street Journal to agree on most things, even though they are in one City.

The bewilderment of Americans, relating to the Above, can be found in this list of economic blogs. I applaud Anyone who has read more than 10 of these blogs (by which I mean some part of, not the entirety). I have personally read some 20 of them, mainly to gain information for my own blog (Truth in Advertising: I belong to one of them, but will not embarrass Anyone by being more specific). Readers will quickly discern that my blog is not listed, here or elsewhere on any Index, as I myself am considered a bane to consistent blogging. It is sufficient for Our discussion to state that the indexed economic blogs make up only about 10% of the economic blogs of major note out there, and blogging fare makes up only about 20% of the total economic literature out there. One cannot keep track of any argument, as it scatters to the Winds of Internet and Library. One can only hope not to miss necessary Research. lgl