Labor Compression

We find labor lamentation here. I feel that I must discuss Labor Compression at this Point. The later consists of a developing sector of the economy adding more and more labor until it hits a maximum point; noting here that labor assets are introduced initially because they are the cheapest resource to bring online at any given point in time, and that every developing sector is in a rush to fully develop as long as markets for their Products have excess Demand. Still, there is an outside limit to the labor which can be employed in the industry even before the full development of the sector due to Costs of Capital, Resource, available Land, and limits on Labor Supply. Read the previous Sentence several times, and consider the implications!

The first Consideration must be that each economic sector will only hold a relevance in relationship to the rest of the economy. Labor will drift to areas where Wages are higher. Technology will craft equipage for the economic sector only when paid amply, and never when those technological resources can find higher employment elsewhere; this means that technological development meets stiff competition in attempted technological development, all based upon the amounts of Cash the economic sector will devote to technological improvement. Land can also be constrained, due to the pollution of the economic sector, it’s relationship to a developed Transportation network, and the ease of acquiring the necessary resources; totally inside a stiff competition for the most desirable Production areas. Finance often enjoys the Flavor of the Month concept, and often makes Capitalization more difficult just when there is great opportunity for expansion–the Flavor greatly influenced by the Speed and Largesse of the Profits within the economic sector. This all grinds away under a process of Mechanization, where labor always loses out to Machines, because of their infallibility and higher production levels; they do not Rest, and work perfectly until they break down.

An interesting element enters the discussion at this point, which states that there exists blockage within the basic context of Land, Labor, Capital, and Resources. Economists and Students can easily determine How Capital often limits Labor and Wages, but do not understand that the lack of trained Mechanists can limit Capital expansion. Pollution Concerns limit both Land and Resource, and the Finance of both. Immigration seems like a Godsend to Some who witnesses the lack of Skilled Labor, and native refusal to undertake Unskilled Labor. All must be judged by what is brought to the Table of economic production. What bothers me is the fact that Capitalized Technology will always reduce Labor elements, and the introduction of new economic sectors into the economy is very limited, both in terms of Invention, and in terms of expansion into the Finance, Land, and Resource sectors. This is Why Immigration bothers Me, because of serious doubt that it will induce Long-Run reduction in Unemployment. I believe that the more unenjoyable elements of Labor will proliferate under Immigration; a contestation with the views of Tyler Cowen, outlined in his current NYTimes article–which I should have a link but do not as yet! lgl

Cutting Out the Middlemen

I have read this article, and now wonder how We could have gone so wrong. I started thinking on the issue, and decided Government was not only going to continue borrowing, but have to pay Interest on that borrowing; this meaning nothing at present, though most important when Creditors cease to desire Us so highly. I contemplate the Tax Code, and think as how no real revenues will ever be raised under such a mishmash of nightmare regulations. It is time for Change, and I mean real Change!

I continued my Thought, and decided it was time to set up a rational borrowing system. Suddenly, a great Light did appear in my head, even if Some could confuse the result with adverse effects of alcohol–though it is morning, and I have not been drinking. I decided We are taking exactly the wrong course in the collection of taxes, and also in the payment of Interest on public debt. We are letting a considerable number of exterior organizations make a substantial amount of Profit from our Confusion. I studied on the issue, and here is a list of proposed Changes:

1) I would first decree that all Income coming to any Individual or Organization be deemed simple Income, no matter How derived. There would be only Income; Capital Gains, Inheritance, etc. would be taxed in one and only one way.
2) There would be a set flat Tax–I would suggest 21% which must be paid by Everyone–Rich or Poor. There would be no Tax Exemptions or Deductions at this Point at all–meaning that the Tax would be collected. This is what will be collected at this Point, actual Tax rates could be higher. There would not even be a personal deduction allowed, special deductions for Children, any cut rates for marriage, or allowance of any type for retirement funds.
3) Is the entire Taxpayer World up in arms at this Point? This is where I set the Hook by the way! All of these tax allowances will still exist, but only come to the fore with the filing of a Tax Return. Everyone can file away claiming any and every deduction they can think of, and the IRS will not only return the desired funds, but an Interest rate on those funds equivalent to the federal Overnight rate for the entire Period before of the funds.

Many great things will likely occur with passage of such a Tax law. Congress may think to revise many of the deductions and Exemptions which they have issued. We as a Government and Community would be far less dependent on exterior sources of Cash and Debt. The Fed might be more inclined to leave Interest rates alone. Taxpayers would find a lump-sum method of Savings, which they would be less inclined to blow on Consumption, or payment of Consumer Debt. Business would be far more discretionary about Capital Expenditures, knowing immediate access to funds are delayed. Further legislation would insist that Social Security (FICA) taxes would be maximized before Taxes were extended to the general fund–bringing security to the Social Security system. We all get benefits from the revision, though We would have less Cash to spend in the Short-Run; it is still returned in the Intermediate Period plus a Profit. lgl

Too Strident???

An old Politician I knew in bygone days once said that gaining a Majority on any political issue was like starting a barbecue; you first must start the coals glowing. Congressional Democrats, deeply influenced by lobbyists, refused to bring the issue of Tax Cuts forward before the Election. They did not realize that this denial left them without a platform. Democrats, if they lose this Election, lost it through timidity. The Vocals in Congress could have energized a Democratic Voter as no other, and a Republican block of any final Vote on the Issue would have solidified Democratic cohesion. The reason Democrats did not bring the Issue forward was likely the fact that they did not want to tax themselves and their Class to any greater extent than the current faulty Tax spread.

I myself oppose any extension of the Bush Tax Cuts. My last Post on this site explained my hesitation such type Stimulus. The damage has always been greater than any immediate benefit, bodes to inflict catastrophic injury in the Long Run. The loss of tax revenues cost Us a share of the additional federal debt, and contributed to the concept currently in vogue of No Interest on federal extension of Credit to financial institutions. There has been a channeled Fan to rob both Depositors and Investors of a rational rate of Return. Low and Medium Incomes have had their profitable venues of Investment canceled–which is a studied taxation of low Incomes. Income channels for Investment have been redirected towards sources of Investment which enhance the profitability of higher Incomes through management manipulation at much greater rate than what is granted to normal Investors. Business leadership, rather than Stockholders, maintain their high Incomes through control of the mechanisms of Investment operation.

The Owners of the traditional portfolios find their Returns sequestered at any point where there is likely to be a Profit. Refusal or minimized provision of Dividends, excessive Executive Pay Packages, business deals delayed until corporate Executives can buy a cheap position in the Stock expected to advance, and stocking of Executive Pay Packages overseas. Courts have defended Corporate Boards from revelation to Stockholders of Pay Packages, degree of Corporate liquidity, what percentage of Profits which Dividends actually comprise, and the largesse of liquid funds unused by the Corporation in investment. The situation becomes worse each year, and the rate of Return on Investments decreases for the average Investor every year. It is time for a Change. lgl

Where I disagree with Economist and Business

I have not checked these numbers, and do not expect to do so, though I would imagine they are about right. I do not quite agree with Justin on the culprit being the loss of tax revenues precisely, but the Republican negative Spending of Tax cuts, combined with both Parties insisting on the Pork Barrel for their individual States to election support. The elimination of the Tax Cuts, and suppression of outrageous Pork Barrel, would have easily led to a distinct Surplus of tax revenues. It is my estimate that there would have been no Financial Crisis, Recession, or Stimulus without the Tax Cuts, and this leads Us to consider the Question of funding Government at all levels through the Interim Period.

Join with economists in the groan realizing that these are my estimates. The real Question becomes where does One start to unravel the complex puzzle. I’ll start with the contention that there would have been 21% less Construction commissioned since 2000 without the full Republican Tax Cuts, and the joint Tax deductions favoring Mortgages. This would lead me to surmise that 74-78% of the at risk mortgages would not have been issued. It also leads me to the conclusion that Resource pricing for Construction would have been some 14% less in Price over the entire Period than was experienced. Occupancy rates among Commercial Property would never have dropped below 70%, and the added Rents would have provided equal Profits to the financial community which they did experience. Consumers would never have refinanced their homes to subsidize their Consumption patterns, and their debt ratios would have been about 31% less than it is at Present; this within a scenario that actual Retail consumption would not have decreased more than 8% of the rates expressed through the Period.

We now turn to the question of Employment. Business would have had to take measures to reinforce Consumption throughout the Period under discussion, and would have accepted a Profit/Item ratio which was 11% less, and resulted in Business Profits which were only about 18% less overall. The interesting element here, comes in my consideration the about 8% of that lost Profit/Item would have went to Labor Cost. Here will come the real contention with my estimates: my belief that the 8% of Profits/Item would have developed into a 21% increase in the Labor Rolls over the entire Period. People have often asked Why I was so against the Bush Tax Cuts and Tax Deductions; I think you may better understand my position. lgl

Me Talking Big Again!

Should you ignore this? I would advise that you not be an ostrich! First, I would say that Investors are nervous Nellies! Any News shakes the markets, and bad News reminds of a woman reaching menopause. Erratic behavior is to be expected. The sheer existence of an Election means an alteration potential in leadership. Candidates can easily worsen the situation with Talk about Change, a circumstance certain to shake the confidence of any Investor; who made his investment decisions based upon a static Reality. Here is the humor of the situation: the nervous state of the Investment world practically ensures there will be no real Change in policy; a least, any Change which will have a measurable, adverse impact. This factor, though, does not lessen the extreme possibility that it will lead to another Recession; remember I mentioned that Investors were subject to Hot Flashes!

Here is a man who is wrong, but would not admit even if he believed it; it simply confounding his basic economic mores. Brad knows that Government investiture in private securities will alter the nature of Pricing of these securities, and that Investors will forever demand Government action to secure such investments every time there is a threat to their maintenance. Brad, though, believes the economy needs more Cash, and here is an easy manner to obtain it through Fed purchase of private securities. The economy first does not need the added Cash, and would not employ it in economic production if it is received. We cannot involve the Fed in private securities without Investors demanding a continuous Price Support for these Securities, utterly destroying the limited Pricing mechanism which discourages excessive Debt collection, while it encourages artificially low Interest rates which will not pay for the Debt aggregation or capital renewal. We should not attempt to stop a forest fire by starting a backfire in a downtown shopping mall. This is saying that down the road injuries should be avoided in immediate Aid practice–for Those of Us resembling myself.

You can find the basic positions of members of the FOMC to the question of QE2. I will go immediately on Record and say I vote NO! Of course, this means absolutely nothing, as they would not let me on the FOMC even if I promised to throw in the money for QE2. There is absolutely no indication that such reckless financing will even induce any added Investment in the economy. It is exactly like Tax Cuts; giving a Profit to Business personnel who cannot make a Profit by simply managing their businesses. I would suggest a simple alternate Rule to replace a ridiculous increase in the Money Supply. This simply to state that Banks cannot keep their FDIC insurance, unless and until 40% of their loans and 30% of their funds go to small and intermediate business investments. Much simpler, and lacking all the great Threats existent to financial stability. It might seem harsh, but I think even the bankers would approve of this Ruling. lgl

Through my tired, old Eyes

Paul Krugman cannot believe there is an eternal and external value which makes competitive devaluations especially bad. I will try to explain in my poor, unorganized manner. One can start by stating there must be a transfer mechanism to transmit Value across Time. This is normally attributed to be called Property; and yet, there can not be an understandable medium of transmission without some form of universal value exchange–what I am talking about here is Money! Now the perfect transfer mechanism would be without Inflation or Deflation, just a constant Pricing of Property. No one would be able to mistake the intrinsic value of any Property. Such an idyllic state could not long exist with humans involved, with their rabid desire for chicanery.

Property Holders want greater payment than the Value they ever put into their Property, and Debtors never desire to repay the full value of what they borrowed. Herein, Inflation is a God, as long as it is slow and steady; Deflation is a Demon–Satan himself–because people must separate themselves from Dollars which buy more if only retained. It is now time to discuss a Special Class, which I will define as Labor. These are people who work hard, and even do what their Peers–the Property Holders–tell them to do; which is Save their Money. They often put in years and decades doing exactly this, but find that they never have the wherewithal to join the major Property Holders. This leaves them with a dim prospects for use of their limited amount of Money. They can place their Money in banks, buy shares in their Government–here called Treasuries, or involve themselves in equity schemes–whether Mutual Funds, Hedge funds, or wildcat self-delusion Investing.

We now come to a combination of forces which must be discussed. Bernanke and the Fed insist that banks be precluded from paying a decent Interest rate to Depositors through the supply of artificial cash from elsewhere–another term for printing Money without the Ink. Mutual Funds and Hedge Funds always come up with enough Charges on Money-handling that they never pay more than banks would normally pay for Savings deposits. The deluded individual Investors regularly watch their capitalization wiped out, while Investors in Mutual and Hedge Funds periodically witness their 401k plans get cut in half; a taxation much greater than ever coming from taxation ever in history. Everyone is told to put in their funds, which they will only lose if they think to remove those funds on a uniform basis; the important item here being what happens to market prices whenever there is a serious removal of such funds. Now economists assert that the proper use of said Money is to devalue it, when and however it is removed. The devaluation, though, remains a devaluation of the labor which went into the making of said funds in the first place; this all meaning that Labor bears the full Cost of every Inflation–Great or Small–which is never made up in sustained economic growth; thereby inciting the slashing of those 401k plans once more. lgl

The Cost of Doing Business

Read this article, and go where it leads you! The fortitude of the Brits shows vastly greater support than in America; methinks, this may be due to having already endured a Thatcher rather than a Reagan, who only manned up in 1987. Brits remember Thatcher straightening out the shoddy budget practice, and genuine economic gains did result. We got the S&L Bailout, and Clinton stabilization. This was fine, except that Clinton surrendered in 1997 due to personal attacks. Tax-Cutters imagined Victory, and think continually to extend it. This later sentiment has already destroyed the Clinton stabilization, and will soon destroy the Country.

This Post may be a little challenging for those of my Readers who are like me, somewhat deficient in the arena of details. It is all about the leadership of a foreign central bank. I bring mysticism to the discussion because here is the Question to be asked: Can any institution operating in an environment larger than itself hope to avoid reducing to being simply another Player on the market? I ask this because the Federal Reserve suffers from the same possibilities. A Player influences the markets, but cannot control them. They also possess a most disturbing aspect: their action, or lack of action, comes to be expected, and thereafter figured into the Pricing of all aspects of the markets. Under this Scenario the institution in examination imposes an new Opportunity Cost into the entire matrix of markets, increasing the costs of doing Business without intention; the Whole shifting the Supply Curves downward. The situation actually makes an economy more recessive, and Recovery much more difficult.

I will now give my Readers this Post. I prefer Professor Stiglitz’s analysis here. Here are the things I consider important. Past labor is being discounted with the loss of value in the Dollar, and the lack of Interest paid to Depositors, and owners of Treasuries. I would put up model presentations if more acclimated to such graphing, but can exclaim that the current policy of the Fed seeks to cancel the power of the Baby Boomers, through artificial loss of Wealth. Joe Stiglitz is absolutely right in the claim that equity Prices will be only marginally affected, and that Investment will not likely increase at all. What worries me is the fact that Banks will show no increased inclination to loan to small and Intermediate businesses. The American people are posed to lose a great amount of their economic advantage for very little Gain for the interior economy. lgl

Hard Choices maybe made Easy

Wheels pounding down, and We have a short time to get there! Read this Post from the Tax Foundation. State and Local entitlement commitments continue to increase at real performance rates, yet taxes are assumed to be gaining; though not anywhere near 2008 standards. Current recapture rates means there will not be a equivalent Tax base until sometime in 2014. It is my estimate that State and Local commitments will have increased by around 28% within that Time-frame, and States were not paying the bill even in 2008.

The situation is left in the air with this Post information. You can really begin to groan when We reach the understanding this concerns federal commitments, and not the State and Local commitments discussed in the previous paragraph. We are short of revenue at all three levels of Government, and almost no one comes to rescue even with Suggestions. The We face the reality that any redress proposed will be opposed by practically half of the body politic. It may be time to await the Collapse, but I will attempt some sensible Rules which might get a mild majority of support.

Rule Number One: Separate Social Security and Medicare. It is the only way to shore up the real Social Security Fund, and allowed Medicare to integrate with Medicaid and Private Health into a guaranteed Health Care program. This later is utterly necessary to save State and Local forms of Taxation without breaking the bank.

Rule Two: Establish a formal agreement between Local, State, and Federal Government on the type and consistency of taxation. This agreement should clearly outline that Localities are expected to pay for 70% of their budgets from Property taxation, and receive the rest (30%) of their budgets from State transfer of Sales taxes, and Entertainment admittance Taxes. States will collect all Sales taxes, but are committed to paying 20% of Local budgets from Sales taxes. States will also collect 20% of all Property tax revenues within the State, the Sales taxes, and no more than 20% of their budget requirements from Income taxation. The federal government will receive full value for all Excise taxation, and all Income taxation must be based upon the federal Income tax system. The federal government, in order to get State and Local agreement to limit their intrusions in federal tax areas, will pay Local governments the entirety of all Capital Gains collected within the locality; this while granting State and Local authorities to stop reduction of such Capital Gains below 15%. States will be disallowed from collection of Inheritance taxes, but the federal government must agree to collect at least 15% on all inheritances exceeding $5 million which they must share equally with State and Local governments (33%-33%-33%). Now We can start the Argument. lgl

Contemplative Problems

I decided, in the goodness of my heart, that I should request my Readers to read this link. I personally like Smith and Ricardo, but do not think that Schumpeter is a flake. There was definite economic life before Smith, and it evolved to quite a high state. Ancient Athens itself had sliding scale tariffs, and even earlier Persia had higher taxes placed on items sold below what was considered Market standard. The Kings of Spain limited the speed of Gold sales from the New World, in order to maintain the value of Gold. I have some agreement with Kauder, but cannot quite understand the Rothbard denial of the Scholastic belief in Demand. The entire point about the later consisted of setting a utilitarian value of Demand, which went far beyond Price into the realm of God’s desire. They tried to fix a monopoly Price on what people should want, according to God’s desires. The Scholastics differ markedly from the Austrians, and shows clearly through the discussed issue of usury. Rothbard cannot understand the Scholastic stance while I can; they simply thought that God should profit, rather than individual, in all transactions; finding that God was the only true Owner of any fundamental Resource.

I now include this link, basically due to the fact that Karl Smith seems more understandable than Paul Krugman at this point. Karl starts by trying to define the two-tier yuan, where China will let Dollars in, but not yuan. Seems a little far-fetched, especially knowing the long tradition of Chinese smuggling; hauling currency seems as easy a smuggling item as you can find–easy to hide, and impossible to detect after it is spread. Foreign Consumers are given an advantage over domestic Consumers, but considering the splash of Wealth inside China; I do not believe it is very serious discrimination. It is my belief that the Chinese Government finds it far more convenient to take measures to forestall Utilities and Infrastructure from collapse, rather than it is an interest to sell more Chinese Goods overseas. I ask myself Why Paul Krugman and Karl Smith imagine that Chinese leadership has more capacity to affect their economy, than does Ben Bernanke to affect the American economy.

I finish with this link, and ask if there stands a fundamental principle being violated here. Can Local Governments grant third Parties the semblance proprietary rights to an individual’s property without due process of law. Local Governments will claim it is simply assessment of property taxes in which the individual is delinquent; yet, the individual finds that the third Parties have been granted proprietary right never granted to themselves. The specific issue being the right of third Parties to purchase debt without the property-holders Consent, which is justified by local government recognition with allowing them to have paid the tax involved without assignment by the property-holder. Business has been trying evasion of property rights since they attempted to expand the right of eminent domain in years past. This is one of those issues which the US Supreme Court should issue a Ruling, especially the practice of local governments selling personal information of Taxes in arrears. lgl

Me and the Khmer Rouge

I read this article, and decide to take a radical stance on the entire issue of Poverty. I honestly believe that the disadvantages of the Poor come primarily from association with each other. Does this sound Rude and Cruel? I study on the issue of Poverty, and first decide it is too expensive to underwrite Poverty in the Cities where it occurs. Housing, Food, Clothing, and Medical Services are just too expensive within Cities to underwrite effectively. Everyone will imagine that I am in love with Small Town America past this point, and a ridiculous idealist who cannot understand the complexities of the issues involved. People should first understand that I am rather cynical and lack a genuine degree of empathy with Anyone, and Anger issues have never bothered me; I being rather Angry myself.

My solution to Poverty goes back to early America, and the creation of County Farms with a twist. I would purchase farmland of high quality to establish Garden farms. These would not be traditional modern Garden farms. I would establish several Rules, which will alter the nature of the farms. Here is my list:

1) There will be only traditional Garden vegetables and fruits grown on said farms.
2) All Produce sold by the farms must be processed on the farm; which means cleaned, Cooked or Canned.
3) Labor cannot purchase outside replacement vegetables and fruits on the Open market if such substances are produced on the farms.
4) All labor, except for Management supervisors, will be paid a standard Wage consistent with Minimum Wage of the States involved.
5) All such farms will be located in small communities, without respect for County or State boundaries.

Now the Reader will ask where the labor will come from? The Answer consists of current Welfare Recipients. Old Welfare Recipients will be required to relocate to such farms for a mandatory year before receiving further Welfare aid. New Recipients must start on the farms to enter the program. Free Health Care will be given to all residents of the farms. Every adult resident on the farms must work on the farm–whether in field work, the Processing Plant, or in Child Care and Cooking for the central kitchen provision of meals. Children will attend School through the entire year, but only in the morning, if they can maintain a B-Average; less than this Average will mean a 4-hour afternoon Study Hall must be attended. All management personnel on the farm will come from the transferred Welfare recipients whenever possible. All Sale of the Produce of the farms will go to defray the cost of the farms, with any Profits going to provide health care or expand the farm system. The goal will be to force every Welfare recipient to attend the farms for one calender year, and during such period to destroy the Housing from which they had come; the farms should provide a resettlement office to suggest relocation areas whenever possible. lgl

Vile Language--sometimes the only Comment possible

I never know what to write about when I start Writing, but decided on this article. It describes Japan under deflation, but considering the state of the rest of the World economies, can be utilized as a substitute for the rest of the World. It is time to make some general observations; which while a poor instrument, can sometimes provide Insight. The first and foremost element I would like to express consists of the fact that almost all Inflation has come not from the domestic markets, but from that ever-desirable God–Exports. I remember a famous description of Revolution in the old movie–The Professionals–where Revolution was defined as a raving Beauty at first, and the disappointment of Men when they find Revolution is a used, and old Whore. Trade is much the same as Revolution, where Participants imagine far greater beauty and honor than they actually find.

Everyone desires Trade, because Business sees an expansion of Profits from selling to more than the domestic market. Where it is initially successful, Labor and Resource Costs increase; where it is unsuccessful, Labor Costs are suppressed but Resource Costs continue to increase. The key element in this discussion states that whether Trade is successful or unsuccessful, it still destabilizes the domestic Profitability of native industry. Domestic industry must keep pace with the Resource and Labor Costs of the Export Trade, and therefore domestic Prices must rise. People find themselves in pursuit of a better life that eludes them because of the increasing Costs; said expenditures not geared to the Production Costs of domestic production, but of Trade production. The simple Transportation Costs of Trade raises the Transport Costs of domestic production around 2-4% at a continually maintained scale.

Trade Production Costs always sinks to the bottom because of those self-same Transportation Costs; and so, every nation easily loses its Trade advantage as Resource capital flows outward in search of higher Return. Loss of Trade advantage quickly bring declines in Production quantities, demanding less Labor and Resource; all making Capital less Profitable, so that further capitalization is less desirable. Production soon finds its way back to domestic production levels, facing stiff competition from Trade, and paying the enhanced Costs of Inflation which occurred in pursuit of Trade production. All deflation scenarios is actually only a devolvement back to the price and Profitability structures of domestic production; it requiring less Labor and Resource with less Capitalization. The is the problem with Trade and resulting deflation; she is truly the old Whore of which We speak. lgl

Rude Economic Modeling

I felt that my Readers ought to read this link today, even though I did not plan to Post; blogging being one of those Jobs where a Day Off is belittled. I would further advise pursuing her Recent Post links. I cannot say that I agree with all which she writes, but it is comforting to know that someone other than I considers Taxation to be a normal Operating Cost. It is relevant that it has been during the shrinking Tax Years (1997-2010) that Income Inequality has grown so proportionate–remember back when We talked about the Top 10%, rather than the Top 1%? It started immediately after Republicans starting the virtues of massive Tax Cuts. I remember back even so far as 1987 when Reagan himself thought there should be Tax increases–We were talking about the Top 20% back then.

I will follow with this link. The Risk premium seems only transferred to the Government, and necessary reorganization of the financial sector can be put off as too expensive for those Banks which are Too-Big-To-Fail. The whole thing holds a stench of protecting the funds of the One-Percent Icons, who already seem to possess too much influence within the halls of Congress. I could honestly back a 10% Surtax on a Individuals possessing more than $1 billion in assets, and all Corporations or Businesses holding more than $10 billion in assets. I seriously do not think it would curtail long-term economic growth, while probably raising the Trickle-Down Effect of economic productivity by 2000%. It might even quadruple the Dividend Yield of most Corporate venture stocks.

It is a Saturday, and I am feeling particularly lazy, so will finish only with the Observation that no human program–whether economic, social, or individual–will ever exist which does not possess limits. This means that initial benefits are generally Low, Intermediate benefits are generally High, but continuation beyond a certain point leads to a declining scale of benefit. Plot on a Bell Curve would tell Us We are currently below the X-axis on the issue of Tax Cuts. I am the only one to believe this, but almost all factors in the economy express this datum. lgl

View from the Backseat

I will start with providing this Link, and then turn to a slightly different analysis, even though I totally agree with Mike Shedlock on this Issue. I want to examine the situation from the point of view of the Consuming Household. They have primary Labor Income, and Secondary Income from whatever Investment and Retirement Portfolios they possess. Primary Labor Income is basically examined from the viewpoint of Pay per Hour or bi-weekly Salary. Secondary Income from Investments is graded by Percentage gain in total capital. The first suffers from total elimination at much greater rate than reduction of Pay. The later suffers almost totally from reduction of Return, though there is the hazard of total investment loss–rare, but always potentially existent. Now We must examine How each of these Incomes affect Consumption by the Household.

I will first answer Those who will point out I didn’t mention the hazard of reduced Hours of Work; this I don’t consider because this late in the Recovery (???), Partial Labor has already been primarily set. The elimination threat of Primary Labor Income may be Mild or Acute, but the possibility has little affect at this time, all due to the fact that Household Needs remain Constant, and are not permanently deniable. Primary Labor Income, therefore, has little impact on Consumption patterns at this late stage, unless there is complete elimination past this Point.

Now We must turn to Secondary Investment Income. Interest rates vitally affect the amount of this Income in that Depositors and/or Bond-holders receive a rate of Return which will pay for an expanded Consumption, or negate the possibility of an expanded Consumption. This is apparent especially in older households, where the adults are above the Age of 50. They are intent upon maximizing their Income before Retirement, or are already in Retirement; meaning that their Income for Discretionary Consumption comes principally from Investment returns. It is also true that Stocks which pay Dividends set that Return in relationship to the reigning Interest rates, as they do not wish to pay more than that which leads to investment in their venture Stock. Now, I don’t want to harp on a thing, but the amount of Discretionary Investment Income actually determines How Much older households are willing to spend on younger households, and Children and Grandchildren will get Shorted in both Gifts and Money; much of which is Clothing and Money for Necessities and Appliances; to say nothing about aid in Mortgage payments.

I have not studied the amounts or degree of Aid provided by older Households to younger Households, but know it is usually extensive and continuous; except when Someone like Ben Bernanke makes the mistake of thinking this natural flow of Income should be short-circuited. Mish has stated that replacement of Necessities is not naturally repetitive, and therefore not expansionary. Myself, I think the corruption of this Secondary flow of Income costs Business about 5 times what they retain in those fanciful Tax Cuts. In any case, low Interest rates are not going to spur anything! lgl

My Sour Note for Today

Here is a Post which leads me to contest the rest of current economic thought in the Country. Every Easing of Finance in this Country has worsened the conditions under which this Country has to operate. We are leaving the Cash in the hands of Those who are not operating in the native economy. Whether Consumer or Business personnel are spending the Dollars from the Easing, they are spending those funds on foreign product. I must take the Readers on a far distant reach here, but it is the only resolution which makes sense: Current economic policy effectively only increased the Profits of Exports, even where there is no growth in Exports. This devolves into capital concentration within the Export sectors, with a discrimination against the capitalization of domestic industry. The upshot of this directional flow insists that Prices will increase in the domestic market, while Prices in the Export markets will be suppressed. Domestic Income will face increasing Price discrimination, while American Incomes will be drained.

People ask me what Solution I would advocate for a better Recovery. I suggest the truly hated venue–higher Taxes. The one aspect of Government Spending which makes it advantageous remains the fact that the funds must be spent within the domestic economy–which means Jobs. Higher Taxes suck a great amount out of Disposable Income, leaving Tied Income relatively alone; else there are many Politicians who face worse than Hanging in effigy. This decreases the Profitability of Imports with a favoritism shown to domestic production in the long-run with their wedge pricing for profitability against set production costs. Both Government and Private Sector begin to hire domestic labor as enhanced rates, while Imports reduce to resource necessities.

I am neither a liberal Democrat, or a capitalist Republican. I dislike Government Spending in almost every case, except for infrastructure construction and mass labor projects based upon minimum wages. Readers should be able to understand the first is for the advancement of Production, the later is to spur the economy under levels of unemployment. The first actually increases the Income levels in the areas impacted, while the later raise the Household Income of the labor involved; which is almost entirely spent on Consumer Goods. I do not believe, Now or Ever, that anything can be achieved by granting Rich people even more Tax Breaks. I do believe a change in philosophy must occur before We get a rising Standard of Living. lgl

What is the Purpose?

Where are We going here? It goes back to asking about Why recessions are such a problem. The only Answer which will hold up states that recessions are bad because people lose some share of their Standard of Living. Investors are an integral part of the population which suffers from recessions, but they are not the only segment of the population which suffers from the recession. They are not even the first to suffer, as Layoffs start long before poor Profits are reported. They are not the worst to suffer as well, with Labor losing a far greater share of their total Income. They do happen to be the most organized and vocal, with the greatest swing weight to influence Government officials.

Here is the Problem: Government, especially the Fed, categorically expound that there is little Inflation. What exactly is Inflation? Some who claim that it is only a change in Prices which is higher. I would advance another definition which will be picked apart drastically as soon as it is heard: Inflation is an alteration in the stasis between Income and Pricing, where Prices increase in percentage Cost in relation to Income. Inflation is often hidden under recessionary conditions, but it remains existent. People still suffer from the percentage Cost increase of Prices, even though nominal Prices have not altered. Now We enter into the realm of QE1 and QE2. Investors love Quantitive Easing because it lowers their Investment Costs, but What does it do for the rest of the Price Structure?

We can first fairly determine that it will not lower Consumer Prices in the Short-Run as would a Business demand to raise Cash through Sales, and increase those Prices in the Intermediate and Long-Run. This means that there is assured Inflation in the future, which the Fed states is needed. Is It? One has to ask if a Recession can be defined as Over when Average Income is still below the previous Average, and Prices have continued to increase. This is a good Question to answer, but there is an even more important Question to be asked: Have not QE1 and QE2 both been designed to worsen the loss of Average Income to the advantage of a specific Class–namely, the Investors? The Fed is part of the Problem, rather than a part of the Solution under these Conditions. These are definite indications that We are on the wrong Course, when We should be designing Mass Labor Public projects. lgl

How can You Win?

I wish sometimes that Greg Mankiw sounded as intelligent in the NYTimes as he does in this Post. It is at that point of discussion where We can have an intelligent discussion on Taxes. I have always wondered Why exactly that Economists insist that Taxes are an automatic distortion of the economic optimum. How can one define that Infrastructure Cost of Production without Taxation. There are Economists who consider Economics only from the position that the sole Goal must be maximization of individual wealth. The proper scope of economics should be the social growth of the entire economy. It must include Taxation as a Production Cost, else there would be no Production of magnitude. The deadweight Cost of Taxation must be amended by the enhancement benefit of Production increase by the infrastructure construction.

Tyler Cowen believes that marginal tax rates are morally wrong. It is true that its entire basis relies on the ‘Deep Pockets’ formula of lawyers, and enjoys all the respect that our dear lawyers possess. I suggest there is a way to remove the moral hazard of marginal tax rates for Tyler, but it is one he would not enjoy; eliminate the Work-up phase of Taxation; not granting lower Tax rates to the Wealthy on lower Income earned first. It would clearly delineate the difference in taxation between alternate Income levels, and positively assert the Social demand to Tax.

I will finish with this Post from Stan Collender. One can ask Why, and I will only state that all exemptions from taxation that one finds in the law have already garnered the support necessary to pass such legislation into law. This support rarely changes under any conditions, and Reformers face this opposition anytime they attempt a serious revision in tax law. It is admitted that current tax law is patently unfair through much of its operation, but the favored groups are organized, while Reform is not; particularly in the fact that it is idealistic, but not individually rewarding. Everyone is desirous of changing some aspect of tax law; still, the chances of making the situation worse are higher than the chances of making things better. lgl

How can you talk Turkey when they only gobble?

How often do you listen to Carnival barkers? My entire study of economics leads me to suggest that only a relatively set Interest rate of around 4.25% for the Overnight rate is the only sustainable rate with a steady rate of growth for the economy; the Fed maybe having a Percentage point to play with for or against. Higher than this rate causes Business to find it impossible to get the Operating Credit to do business. Lower than this damages the ability of all Investors, not just Depositors, to get a sound rate of Return; necessary for themselves to be a full participant in the economy. Taylor wants a sliding scale when there needs to be relative constant placement of Rates, while Meyer wants to give Business money, though there is absolutely no indication that Business would ever pass it on to Others. Bernanke made a reputation on claiming the Fed of Depression years was too Static in Policy; I must accuse Ben of being too flighty in applying Policy. Time will probably show that We were all Wrong!

The Nobel Prize Commission chose again to highlight current research into the latest economic problem–Unemployment. It is not that I think the Three do not deserve it; they have performed a profound level of research; I will tell the Reader now that if they do not pursue the Tyler Cowen link, they will miss an excellent experience. I differ from the Three Prize Winners in that I do not want a kick-start to the housing markets, before there has been a massive reduction in Housing prices. The Mortgage Crisis was caused by falling Home prices, and I would not see them replaced where they would fall again under economic stress. I personally would reintroduce a Selective Service Draft solely for military training, and run up to two million kids through it; it would build up necessary Reserves, and offer Trainees some Concept of military service other than the common liberal contempt. Such Thinking would present actual Household Income to a vast number of currently unemployed Youth.

Business and Politics will never truly invest in Labor, though they spend huge amounts at every other idiot thing. Millions could be employed and learn vital labor skills cleaning up and beautifying our environment. But Business and Politician will not consider anything which does not make some Business sector widely-inflated Profits. We have lost the sense of Community which got Us through the Great Depression. The attitude of the Criminals of the 1930s have migrated to the Business mentality. Politicians should learn that they can Vote for something, even when their Contributors do not gain from it; all it takes is to be the Right Thing to do. We will not likely see such behavior in our lifetime, though We might see the downfall of our Way of Life. lgl

Some of the Reason Why I am disliked!

I do not want to sound like Sour Grapes here, but Greg Mankiw breaks my heart over his oppression as a Taxpayer. He states that Taxes destroy his incentive to make more money. I say that if my desires were fulfilled, and the Tax Cuts of 2001-03 were completely withdrawn, then he would be working much harder. I will go on to ask him How Much he saves from these Tax Cuts before he hits the big $250k? While I feel terrible for his kids, how level is the Playing Field if they get through College without debt, when the rest of the Student Body had to borrow a quarter-million apiece to get the same degree? I should suggest that he also remonstrate with his kids not to purchase their housing based upon the level of mortgage they can get, or their inheritance will disappear without substantive gain. I will finish with the Comment that he may one day appreciate that increased Medicare taxation.

It seems that I must discuss Malpractice in the health care industry today. What amazes me about Malpractice arguments lies in their refusal to separate between Corrective Damages and Putative Damages. I first know for a fact that Insurance companies will not support malpractice reform if premium rates for malpractice are limited by the same legislation. I know that Corrective Damages will still incur, whether paid by malpractice Insurer or Government entity. I myself do not like the tort system, and would have every lawyer’s fees limited in magnitude for such Cases; I would suggest a maximum of $50k through completion of the litigation. I would insist that the Insurer pay all litigation Costs of the Plaintiff if found financially liable in the Case. I would follow with the provision that the lawyers are solely liable for the Plaintiff litigation Costs if they lose; this to forestall spurious claims. The entire medical Cost of any Injury will fall back upon Government programs if the Insurer can escape Claims, so the issue of Corrective Damages should be decided above and beyond Putative Damages. I think I can hear the malpractice Costs shrinking already.

I will finish with this attraction. I personally like the Japanese system of medicine, where Doctors own their own small hospitals, must hire their own staff, and receive Government support based upon their successful provision of health care. It is clear that there is too much Cash in American health care, that medical Patents are an expensive Joke, and medical Insurers make too much Money denying claims–which have to be paid by alternate (read Government) means. Medicare should not be an arena where Everyone can make a 20% Profit on their Prostitution. I would still like to witness Doctors switched to Government Employee status after filing over $80k/year in Wage claims from the Government–Local, State, and Federal lumped together to derive the amount. Modern hospitals are super-sweet hotel rooms with fine Service, where We need the potential for massive bed space. I would pay hospitals a flat rate for occupied beds paid by the Government, and a rate which will increase with the number of beds actually filled. Hospitals will scream if they get only say $500/day per Government-paid Patient, but I equally believe they will find a method to make a Profit at that provision. It will take a Bully to change the health care system, not a bunch of lobbyist-controlled less than Public Servants. lgl

Honesty and Deception

I do not think most of my Readers possess the economic technique sufficient to understand all of this Post–I don’t! The graphing of moral hazard leaves something to be desired, counting as it does a constant Public reaction under financial risk. This variable reaction can alter the shifts in MR and MC, as both MR1 and MC1 are actually a sonic wave pattern. Government policy can also be perceived as a wave pattern as well, with sudden shifts in temperament. Ex-ante constraints will always be suppressed by the financial industry itself, and not rigorously enforced by government regulators under constant pressure. Mark Thoma does possibly not realize it, but he has proposed the only solution to apply constraint to shadow banking. This cannot be Insurance, and cannot be in-line failures, and must not be firm failures. The only Answer left is immediate Takeover of all shadow banking firms upon loss of liquidity by Government regulators; assets never to be returned until all liabilities are paid, and Government Costs are subtracted. Mark will contest my implying that Insurance is impossible, but it remains so when the amounts at risk cannot be formulated at any level than that of the shadow bankers’ desire to draw percentage Profits from the deals.

I do not agree with Mish at all on this one, but it stands as more coherent than the entirety of the Right. Here is my stance: Higher Taxes will not further slow the economy, or will it impede further Gains in the Private sector; the high-paid, heavily-pensioned Government Workers should go, I stand with Mike on this, but massive employment of Workers at the Minimum Wage level will produce much needed Income for Households especially if it covered by health care insurance bought by the Government as bargain rates; Business needs no further re-balancing of Spreadsheets, myself firmly opposed to Business welfare, they need to bear normal Risk in order to earn those Profits they acclaim; and finally, there is real need to turn the health industry semi-Public through a Surtax on all Profits above 10% annually to pay for Welfare health Costs which are unfunded. The problems of Cost Over-runs on public projects should insist that Business absorb the same Cost as the Public; on Public projects, Business need a tax equal to the percentage Over-run incurred mandated and collected–this to assure that the Real Costs are integrated into the Bids.

I will not go further Today, imaging that most Readers will be like me, and bored to Death to all the Solutions out there to a limited number of Problems; none of which is likely to work. I would like to create a mandatory Political Court, where every official and elected person must endure periodically; the entire idea is that the individual must pay a $2500 Fine for every Lie or Misrepresentation he has made Publicly, after which he did not fulfill the implied Promise made to the Public. Americans can take a ‘No Comment’ or Bad News, but We tire of the bull—. No one thinks like myself, though, because of the huge increase of Unemployment which would probably occur. lgl

It's not Bad, It's not Bad, awh Damn!

There is a ton of material on the BLS Job Report today, but this quick Post might express it better than windier Posts. Mark Thoma would desire more quantitative easing, but I cannot find any value in a policy so obviously failed. The Fed simply does not have the pull to turn the economy around by itself, and it has no help anywhere. Business is simply using the funds to create Profits for themselves. Banks are not lending, because there are safer investment elsewhere with better Profits for themselves. The increase in Part-Time employment only means that Business is gearing for a bad Christmas Season and coming year. Labor is being shorted, and Households are losing Income, yet everyone expects Consumer Demand to remain steady–I do not!

The data I would like to preview is the activity of the used Product markets. A rise in this area will mean bad News for the economy, especially if the new direction of Start-Ups begins to resemble Repair Shops. This would mean a downgrade of Consumer Preference to older, but reliable, Products. Purchase of older Vehicles because of Price premium may be beyond Us, as also in the Sale of Used Furniture and Appliances. The Reader may find this to be far-fetched, but Dealers are relying on a $3000 Mark-Up for newer Used Cars. Vehicle Warranties will not hold up under this resort, if Consumers need transportation and cannot afford the $3000. Economists will tell you what this will do to the New Car market, if long-term New Vehicle purchasers cannot afford the $8000 Mark-Up price.

Three years of current economic trend could lead to the American economy beginning to resemble the Mexican economy, with heavy usage of aged Product. It is my fear that the American Consumer is getting ready to Downshift, and the economy will only suffer from such an assault. I have been trying to source data for my estimate, but my Guess is that Computer equipment is as Aged as it have been since the early 1980s. There is indication that Main Street Consumers are not upgrading their Software, as long as it effectively works. Blockbusters–the highest-priced of the Trade stores–has filed for bankruptcy, and the greatest Sales of DVDs are found in the Used Disk Counters. I know positively that Amazon’s Resale program has ruined independent Authors, who get nothing from Used Books. I share not the optimism of Wall Street, and am cognizant of Wall Street’s partying most heavily right before the Crash. lgl

Anyone want a Job?

I tend to discount Mike Shedlock’s approach sometimes because it sounds a little more dire than warranted, but this account is truly sad. (Roubini never had it so good!) I am trying to remember an old Report on budgetary channeling from the Dark Ages of the 1970s, as I spout the drivel which might have changed with the advent of Credit Cards with serious balances; this stating that Christmas Shoppers never begin to budget seriously for the Christmas Season until October. We might be getting Unemployment at exactly the wrong moment in history. The mortgage foreclosure rate and the decline of labor hours may join with the above information to suggest the largest buying segment of the Christmas Shoppers may be short a significant number of people. Mortgage holders traditionally are well-adjusted Tw0-Income families with young children, the Shopper who has the most to buy with the heaviest Mark-Ups. Card-Holders have been paying down their balances throughout the Recovery, but is it enough to produce effective Christmas budgets?

Catherine Rampell also notes the growth of Job Seekers, but from another venue. The interesting fact here may be that the Hire rate for Professionals and Business personnel is much slower and analytical than for Construction Workers. Construction foremen find Job Skill levels much easier to track, as they only need to know what previous Job sites the Workers have worked to understand the viable capability of the Worker. Professional and Business want to pick the exact composite which is right for their business model, and truly interview the Job Seeker. Both methods are effective for the sectors involved, but it does make a difference to our model. Construction labor with likely be receiving Income at the end of October, over labor undertook in the early part of October. Professional and Business Job Seekers will likely start getting their first Paycheck somewhere in late November. Economists will tell you this stands as too late to save the Christmas Season for these new Job Holders.

The information can be considered so dire to the point that I would include this link. My entrance on discussion of this Post must be the Cost of a Retraining program to eliminate or forestall the destructive criteria of Obsolete. What does this Retraining Cost do to the natural investment for Retirement? What does the use of Retirement funds for Retraining do for that Retirement fund? Is the fundamental Cost of Education cancelling the real value of Education, under a Business model and program sheering Labor at immediate sign of Profit weakness? Could this not be the real problem which Government policy should concentrate upon? lgl

Can my Voice be heard in the Wilderness?

I agree and disagree with Joseph Stiglitz in this article by Phil Izzo. Central banks are certainly raising havoc with banking practice, Government expenditures, and Consumer Demand. Central banks are extending Cash to individual banks practically for nothing, destroying Interest rates for Depositors along with their Consumer Demand. Governments are borrowing Cash at extraordinary rates on every level because of low or nonexistent Taxes and huge expenditures. No one should even imagine that this Government debt will disappear before the Interest rates return to normal. Banks Depositors are following the banks themselves in investing only in Treasuries–the only place where there is any rate of Interest; Consumers going further and curtailing normal Spending because the 10-year Treasuries exact a great deal of Time before you get repayment or even market sale. Banks can derive a secure rate of Return by investment in Treasuries, or much higher Risk Return by investment overseas. None of this helps the American economy, where Unemployed Labor cuts its Consumer Expense drastically.

I agree with Stiglitz that there should be great Government expenditure on Labor programs, especially cheap level Employment which brings high Return in Consumer Demand. Paying Business to provide this Employment is stupid, though, and is much too expensive to be withstood. We do not need Business to borrow all Operating Capital funding from Banks at Prime rates, then give Business a 20% Return on their investment, simply to employ large numbers of people. Government can borrow at much cheaper rates, hire more people at cheaper rates than Business, pay managerial personnel much less, and additionally coordinate the national effort. Government programs have an added advantage over Business–greater ease of downsizing past the period of Recovery; Business demands continued program maintenance after their initial capitalization. It should not be the economic policy of the Government to maintain Businesses in the Black, when they should themselves downsize.

I have always advocated the elimination of the Bush Tax Cuts of 2001-03 at all levels; they should have never been instituted in the first place. Current economic thought suggests a policy of maintaining Business activity, even in those areas where Capitalization is bloated, and Profits are truly marginal. Their Solution is a ever-increasing award of Tax Cuts. I would take the exact opposite course. Everyone–Consumers, Business, Corporate, Capital Gains, and Inheritance should be taxed at rates which will pay for Government Expenditures at least in Boom periods; this means adjusting Tax rates to fully pay for Government Expenses at the time of the height of the last Boom. Government expenditures which are higher than they were at such a time will be repaid by a return to Boom conditions, or at least seriously retard our Debt acquisition. Such a policy would force Business to reinvent itself in order to maintain Profitability, spark a considerable amount of domestic investment to reduce taxation, and narrow the gap between High and Low Incomes in this Country. It is interesting that the effort would actually improve Business performance, as it forces the business remodeling which always occurs in a return to a economic boom. lgl

Balmy--but Happy!!!

I do not doubt that all of these Concerned Experts know what they are talking about. But it is actually not about the Money. The Cash can be found and impounded for the necessary Work, just as soon as the real Cracks in the system (pun intended) can be found and curatives identified. My Thought, though, holds an incredible assumption, which is this Century may be known as the Period of Road Removable, in the sense of the current Road system. I am not getting all Sc-Fi weird here, simply acknowledging that current systems are rapidly running out of viable Resource and Material. Do I believe that the current Transport systems will be replaced by a new, better system–Yes. Will it come close to being the current style of system–No!

I will state for the Record that I do not agree with this Evaluation. No expenditure of Public funds will rebalance the World economy. The Developing nations will never be able to take the lead from the Advanced nations no matter How Much economists would desire it; the Developing nations simply need too much Technology and Finance from the Advanced nations. What is needed is for the Advanced nations to find a new direction for growth, which is Why I implanted the previous paragraph. Nothing could be as beneficial to all nations as the development of an entirely new Transportation system; low on Energy Cost, heavy of Freightage, and with great durability.

It is time for mechanical Engineers to shine, like their Computer and Electrical brethren. I am currently thinking of closed-liquid canals with propellent of liquid flow–possibly with Pull straps upon Cargo. It would be nice if it could be a liquid Plastic made from waste Fuel by-products. I am thinking of uniform Cargo barges transported clear across the Country on a level canal sped by canal flow and grinder gears propelling the barge the full length of the barge to attain the canal flow. Automatic switching would divert Cargos to proper destination with drainage locks, and wheels on the barges to simple hook up tractors to pull to final placement. It would require immense amounts of electrical energy to drive the grinder gears, and there would need be great banks of such gears to develop the liquid flow ahead of the barges between cities, but once started; the flow would be much easier to maintain. Insane?–Possibly, but We need a massive new direction for the economy, and this would be a massive endeavor and accomplishment. lgl

Try Ridiculous if All Else Fails

I may not intrinsically agree with all of this article, but Arnold like always makes an excellent statement. I am an old Hand at this stuff, and believe all economic Downturns come from mis-structure of the Profit distribution. When participants in the economy do not receive their proper allocation of Wage and Profit, then they do not maintain their normal Expenditure patterns; this leading to further shortage of normal Profits distribution, all leading eventually to Production failures. That Statement is easy to spout, but not as easy to prove. This stands as the base insecurity in the economy: everyone knows there is something wrong with the economy, but no one can precisely point out the trouble with effectiveness.

I like this Piece, because it made me reconsider my precepts. Robert Higgs says that Consumer Demand has been growing nicely, and cannot be the source of the Downturn. He has a Point which is hard to contradict. He relies on belief that the Downturn comes from the threat to private investment, which has declined. I will grant him this Point. The Question to be answered is what caused the reduction of private Investment. I think the source of the reduction came from two activities, on which most economists will not agree.

The first is the rise of Property taxes and Utilities Costs. These forced small firms to raise their Retail prices some 18-20% higher than the rise in Production and Distribution Costs increases. They lacked the volume and Cost-shifting capacity of the large Retail outlets, and competition forced small firms out of the markets. The image of Sole Proprietorship became tarnished and unprofitable–Investment left the small, independent Concerns; the greatest source of Employment. The second disaster was the Bush Tax Cuts. They insisted that there must be a continual growth of Government debt in magnitudes never before seen; this due to the great growth of Government Spending. Private Investors found a source of low-Profit, but absolutely Safe, investment. Where Have all the Flowers Gone?–to bankroll the Government everywhere. lgl

Am I the only One?

I really like this Piece from Paul Krugman, though I do not agree with his conclusions. It at least explains the Race of Death trying to connect Labor, Finance, Capital, and Production. The Keynesian approach fails to stipulate the relationship of Treasuries to M1 and M2 in that Treasuries are the creation of Money when they are eventually Cashed; even if only to be renewed. It is the old Story of the original Holders of the Funds getting back their starting funds, plus a considerable amount of Interest, while the Government still owes the same magnitude of debt plus Interest payments. Keynesians would not call this a massive growth in the Money Supply, yet it does make an incredible number of people feel considerably Richer than they are; all based on the printing of Paper. It would work from the Keynesian View, if the production managers believed the misconception. They, and Consumers, fail to appreciate the great growth of Wealth; they maintain their original stance, and well, people are still unemployed.

Ferguson’s listed Remarks are also some bother to myself as well. He asks who is going to buy the Treasuries, as any competent economist should understand immediately: exactly those People who find further Investment Capital to enhance Production to be currently unprofitable. This means the Government is only providing an alternate Investment center for massive amounts of funds no longer devoted to Production growth. I don’t know if it is valid economic policy for Government to provide an acceptable rate of Profit for obtained funds which, in many instances, came from economics Profits that corroded the original Boom.

A little Hint to the Readers here: Downturns are the natural Pressure value which presses economic profits from an economy. These economic profits always build up in a Boom, as Producers start charging above viable Price to increase their Profits. The Downturns result from normal Profits being suppressed under the economic profit pricing. Now many in Government suggest paying Business to build those economic profits through paying Interest on those Profits during Downturns is a genuine good economic policy. I would dissent, as it simply continues an imaginary pursuit of artificial Wealth. It prevents normal Profits from reasserting its control over the economy, and creates a false new Class of Wealth. lgl

The Dogs will be nipping at my heels!

There have been Requests for greater explanation of yesterday’s Post as to effects on Production, mainly issuing from malicious individuals who want to watch me fall on my face. There still remains that small segment of the reading Public who would want clarification, so I advance with full Warning that mysterious are the ways of Production, and I am the last person to ask about the Process. The heaviest inquiry seems to be for my definition of scope between the factors, an area where Anyone will fail; simply pick the advantageous Period of Time, and Error will resound! Here is my estimate of the Situation, and I will state categorically that it will be wrong some 30% of the Time.

I will start with the easiest–Supply contracts. The first statement on them is that they are always fulfilled; something to do with financial liability. They are of two types: those in which you guarantee a certain provision of Product, and those in which you are guaranteed a certain level of Product. Some are of set Price for the Product, others are tied to a sliding Scale based upon an agreed upon estimate of Inflation. When you are guaranteed a certain level of Delivery, reduction of Production schedules lead to intricate problems of building Inventory without maintenance of Production schedules. When you promised to deliver a certain level of Product, then the above mentioned financial liability comes into being. Production schedules are almost always maintained to eliminate the problems associated with Supply contracts; outside of the issue of declared bankruptcies. The current economy suffered from a shortage of Supply contracts before the last downturn, as everyone figured that Production Costs would reduce while Consumer Demand would remain High; seriously sapping a normal Recovery mechanism.

No one takes to the Time to supply me with a fund of accurate Answers to the following, so I am giving my best guess-estimates. Prices affecting Production schedules seem to center around these rates: a 1% rise in Material Costs equate to roughly a $.70 increase in the unit of Energy utilized and/or about a 4% rise in the Cost of Capital (holding True only in the Short-Run, and then only until Interest Costs reach 9% Prime rate). Land or Capital Costs came be contemplated to remain the Same throughout the intermediate period, and affect Production only in the long-term. Labor is the most difficult to judge, but I estimate that a 1% Material Cost increase, a $.70 Energy Cost, a 4% Finance Cost, and a $2.15 labor unit Cost (Hour) remain roughly the same in impact on total Production Costs. Remember that all these sub-Costs are in flux, and can counter each other’s impact. The final element must be stated that Consumer Demand is second in power only to Supply contracts, and can be impacted by all of the sub-Costs, but has relatively no impact upon the sub-Costs in the Short or Intermediate Runs. I will Now leave it to any and every decent economist to acclaim that I am full of it! lgl

The Wages of Sin--not! The Sin of Wages

I will allow my Readers to ponder this Post with its varied links. I will let them read all the materials, which I of course didn’t. I ask only that they consider a series of Questions:

1) Output is determined basically by managerial schedules. There are various factors which go in to establishment of Production schedules: Land, Labor, Material Costs, Taxes, Energy Costs, prior Supply contracts, and Consumer Demand. Most of this examination suggests that loss of Profits from one Cost sector can be counterbalanced by gain of Profits from lower Costs in another sector. Attempt to adjudge the value of each element within the creation of any Production schedule. What carries the most Weight? How will one sector affect the other surrounding sectors in the complex of schedule formation? What is the heavy Hitter in determination of Production schedule choice?

2) Remember We are looking at these things from the viewpoint of Production managers who must set Production schedules. How would a 25% Rise in Energy Cost per Unit affect the other sectors?—clearly need to know the number of Energy units utilized in the Production process. What impact would a 3% Rise in Material Costs do to the Production schedule?–again, We must know how much of the Production Cost can be attributed to Material Costs. What would a 3% reduction in Finance Costs do to the Production schedule?–here We must find the total Cost of Finance to the overall Production Cost. We come to Labor and its Impact upon the Production schedules. We would first have to determine the Labor Cost per Unit in the Production process.

3) Is it likely that Labor Cost per Production unit equals even 50% of the total Production Cost?–maybe in some Third World country where the Production floor is rolling Cigarettes by Hand. Rule of Thumb here: Figure that Material Cost is about 20% usually, Plant is functionally about 40% of Production Costs, Energy Cost range around 12-25%, and Labor Costs come in around 25%–though It can vary about 15% in the Production process.

4) Economists make a really big deal about the difference between nominal Wage levels and real Wages levels. What exactly could be the difference between the two levels?–Hint: think about 14-16% actual or real, though Business personnel like to dream of 50% or greater. How great a factor can 14-16% of 25-40% of the Production Cost impact the decision-making of the managers, when they are setting up Production Schedules?

The heavy Hitters in managerial decision-making on Production schedules are prior Supply contracts and Consumer Demand. Neither are affected by the Costs of the Production schedules, but both can increase the Costs of Distribution and Marketing the Product. Understand that Distribution and Retail establish their own Cost level which is priced into the Product Pricing; this to solidify the Profit margins for the Product. I wish that good economists would ignore the Wage issues which constrain Production–which they really don’t–and concentrate on Wage issues which markedly impact Consumer Demand. Economists and Business personnel want Inflation everywhere except in Wages. lgl