Modern Business

Chinese Central Banks are worried, but the NYTimes article misses the major worry of Chinese leadership. Chinese families place most of their Savings in Banks (averages about half their Income), and the major criminal element in China are bankers or Those to whom they lend funds. The level of corruption in the Banking system in China probably exceeds any other nation. Uncollectible loans are a way of life in Chinese banking, and a probable 30% of major Bank loans are issued with no expectation of repayment. Bank officers get a healthy kickback on such loans, while the Borrowers scam out their take through excess Operating Expenses and Salaries before Bankruptcy. The Depositors pay the price of the Scam, while continual new Deposits hide the loss of funds.

The real worry of Chinese leadership stands as twofold: first, the growing quantity of Plant, Equipment, and land being left empty by shelled-out projects, and; the increasing Chinese lifestyle threatens to lessen the level of Deposits, so that there may be an approaching Bank Scandal because Deposits may not be redeemable. Leadership must suppress Consumption until Bank profits can provide the needed Cash, but Chinese bankers refuse to surrender their corrupt ways.

The London Exchange moved to protect some heavy Player Short-Sellers. Nickel had a $300 per ton per Day limit on Short-Sellers who could not supply the metal; clear protection for the Short-Sellers. The nickel, which is used to make Stainless Steel, has more than doubled in Price this Year, and Exchange warehouses have barely more than 15% of last Year’s supply. The interesting note, here, lies in nickel Producers attaining monopoly pricing of their Product through claimed Production problems at Mining sites; does it remind of the Oil industry.

A last Note: About half of Hatch, N.M., Chili crop was washed out by rain. Hatch is a wonderful town only a half-hour's drive from where I once lived. It is sad, as they raised some of the best jalepenos in the World. The economic consequences are bad for the town, and the Deming Processing plant will import a greater percentage from across the border. The trouble comes in an inferior Chili at higher Price with more Imports from Mexico, and higher Costs for American Farmers. lgl

Run for Bernanke's Job?

Tyler Cowen is an exceedingly good Economist, and his Post “Why I disagree with Milton Friedman” (http://www.marginalrevolution.com/) stands as self-explanatory. His use of the Swiss example of the 1980s proves his knowledge of the Subject. I myself am opposed to the fixed monetary rule as proposed by Milton Friedman. The trouble for me results in my distaste for the floating monetary rule as well.

My belief holds that volatile Short-term Interest rates are necessary for the proper functioning of the Market. The lack of this volatility secures the practice of Stock Options, removes Business suppression of Wages in negotiation, impels excessive construction of Consumer Credit, and leads to low-Profit Capital construction. I like Short-term Interest rate volatility.

My Solution is to peg the current Money Supply, and let the ‘Creative Destruction’ of that Peg flow through the Market. It would intrinsically increase the value of present Capital Construction, lead to extended Productivity of such Capital, allow Market reduction of extreme levels of Consumer Credit, and reintroduce a Savings rate into the American economy. I would even go so far as to accredit it with a potential to reduce the level of Imports, and increase the level of Exports. I doubt it would have any impact upon the current level of Employment. lgl

The State of the Economy

In July, of 2,625 explosive devices, 1,666 exploded and 959 were discovered before they went off. In January, 1,454 bombs exploded or were found.

The Quote comes from an article based on a new Report of the DIA. One unidentified high-level Defense Dept. Official states:

"The insurgency has more public support and is demonstrably more capable in numbers of people active and in its ability to direct violence than at any point in time."

The Article goes on to catagorize:

Yet some outside experts who have recently visited the White House said Bush administration officials were beginning to plan for the possibility that Iraq’s democratically elected government might not survive.

Meanwhile, the CBO suggests that the total Federal deficit will be $1.76 trillion between 2007 through 2016. The telling point of the AP article on the CBO Report states:

That is based on an assumption that the deficits will shrink dramatically beginning in 2012, reflecting the fact that Bush's first term tax cuts will have all expired by that time. The president is working to get Congress to make those tax cuts permanent.

It seems We are fighting a War which is lost already, and it is driving Us into Bankruptcy; though We must not discount the power of the Bush Tax Cuts. Why were the Bush Tax Cuts initiated? To fuel the Economy remains the common answer. This Economy with the Tax Cuts never matched the rates of Recovery from previous Recessions, which did not possess the benefits of those Tax Cuts. Some Economic Indicators point to a coming economic slowdown, with soft Employment, weakened Housing, and relatively static Manufacturing. There appears little reason for Bush to desire making the Tax Cuts permanent, except for the Wealthy to keep their preferential Tax breaks. lgl

Wages and Housing

The Tax Policy Blog has a good article which quotes Chris Edwards from his Washington Post article, but does not paraphrase the most important element:

Why is federal compensation growing so quickly? For one thing, federal pay schedules increase every year regardless of how well the economy is doing. Thus in recession years, private pay stagnates while government pay continues to rise. Another factor is the steadily increasing "locality" payments given to federal workers in higher-cost cities.

This can be combined with a BLS News Release which states:

Average weekly earnings rose by 4.1 percent, seasonally adjusted, from July
2005 to July 2006. After deflation by the CPI-W, average weekly earnings
decreased by 0.1 percent. Before adjustment for seasonal change and inflation,
average weekly earnings were $571.48 in July 2006, compared with $542.49 a year earlier.

combined with:

U.S. single-family housing starts fell 2.3 percent in July to an annual pace of 1.452 million units, the slowest since May 2003.

Overall housing starts were down 13.3 percent from July 2005. Total housing permits were down 20.8 percent from the same month last year.

This means that the 62% advantage of Federal Employees over Private Sector Employees will increase, while Total Compensation for Federal Employees will increase even more rapidly (now standing at twice that of Private Sector Workers). Reminder to myself: Check the growth of Federal Employment. A 20% drop in Housing Starts average What?--a probable 31% drop in Construction employment (including Supplier Payrolls and maybe a 9% increase in Emergency Room visitations?). lgl

Economic Growth

Timing remains everything in Economics, and curtailment of foreign investment in the U.S. economy may have already started in Q2, though any indication as yet is small. What if the downturn is real and will accelerate in following Periods? It would mean foreign confidence in American economic growth is waning. This lack of confidence will, in itself, act as a self-fulfilling prophecy. Government, industry, and Consumer will be compelled to reduce their economic activities, lacking the revenues to continue current trends.

Where does the World stand in terms of economic growth?

The World Population grows, but it is also Ageing, so the percentage of Working Age Population is declining as a percentage of total Population. This was previously true only for the basic Developed Nations, but the reality collects more nations yearly. The entire World will be looking for Labor within a score of years. Mining Operations (for everything from Oil to Iron and Minerials) have scraped off the surface deposits, and while there is still plentitude, the wealth lies deeper and harder to mine. It will take more technology and Labor to extract, and a greater level of Investment. All will require more Energy and Time, so less material will be brought to the surface for use. Reduced Economic Growth will come as Time passes, but what will it mean?

Many will think loss of Standard of Living. They will be wrong! We cannot lose any of the Standard of Living, without loss of the Labor elements to be drafted from the Population. What will occur is transfer back to Mass Transit modes, development of Long-Life Products, and Housing which maximizes Agricultural reclamation--not luxury living. A cessation of actual economic growth will alter Business practice as well, not least removal of Stock Grants and Stock Options from the Benefits package--as they have turned into drect erosion of Stockholder equities. Skilled Labor will be the key to success again.

Could I be wrong?

I estimate this World cannot acquire even another billion of human population, without the acute shortage of Potable Water. Fresh Water is already at a premium, and current Business practice shrinks the available amounts daily. Agriculture and Animal Husbandry itself necessitates a heavy degree of Water, mostly Fresh, and the human population cannot survive without them. We need to replace forest, and other sources of CO2 conversion. We need to start Today, to built for the future. lgl

Basket of Goods

John Whitehead has posted an article, Rounding Error, outlining the Bureau of Labor Statistics consideration of more precise rounding of data for the CPI. My own idiot Thought immediately was why no consideration of the Producer Price Index as well? The reportage since 2001 has seemed somewhat politically biased. Why is Core Inflation indexing so often utilized, without pronounced publication of Overall Inflation? Why is there so little discussion of Year over Year Inflation? Where are the Tables showing economic growth rates over the last 50 years? Why does one have to dig to find the old Breakdown tables of Federal Spending these days?

There once was a Time when Economists could discuss the Economy in a straight-forward manner, then We went Open on the Internet, and Economists became Journalists. Numbers which were previously analytical now approach the grandeur of Press releases. Where are the Days where One could easily adjudge the Inflation rate for an entire Presidential term? Did DSL kill the honest Economist?

Other News says Yasuo Takei is dead in Japan. The second richest man in Japan, he is probably the first of the New Age Capitalists (format like Gates and Buffet) to die. Age catches up with Us all. lgl

Oil Recession?

The WSJ had an Econoblog August 11th, Will Oil History Repeat Itself?, between James Hamilton and Stephen Brown. Both accept the posis that the rise in Oil pricing resulted from the growth in Oil Demand Worldwide this time, rather than specific Short-term Oil Shocks as in previous Oil-induced Recessions. Each ascribes in some form to the proposition this latest Run-up in Oil prices did not incite either Consumer or Producer cutbacks, due to the Housing boom building equities and Consumer choice to expand Credit Debt with equal contraction of Personal Savings. This author also concurs with the sentiments expressed.

The Question becomes will this condition persist?

Hamilton fails to provide clear comment, but Brown suggests an economic slowdown. Study of the elements of the current Consumption choice must be made. The nature of Consumers has changed in the interval since most of the previous Recessions. Consumers of previous Recessions, along with Producers, were graduates of much harsher economic times; especially the crucial Middle Class buyers who were the children of the Great Depression. Younger Buyers in these earlier Recessions had experienced the hard times in Employment after the end of the Vietnam Conflict, and the hard Economic policy of the early Reagan era.

The current list of Buyers were either too young, or firmly emplaced in the economic structure, and did not suffer from the duress of the later Recessions. They are the first Generation totally comfortable with Credit Cards, Debit Cards, and Overdraft insurance. Their Wages, Salaries, and Equities have been rising competitive with the Inflation rate, also gaining in Work experience so that normal Wage increases for Productivity have also applied. They have not seen the Bear yet!

The trouble comes in that their Home equities are decreasing, their mortgage rates are increasing, their Credit Card balances are at an all-time High, and probably, Work Incentive bonuses and Seniority Wages may have maxed. The Need is to keep them Buying, but they have not learned the methodology of how to stretch their Paychecks, or economize on the Entertainments. The Need may be a tough Sell. lgl

A New Educational System

An article in the LATimes (courtesy of Greg Mankiw) led me to contemplate my Thoughts on Education. Milton Friedman advocates deregulation of Education as espoused in the article. I imagine this may actually be backing away from the problem of poor Elementary and Secondary Education in this Country. I will advocate the economic advantages of more significant regulation–again the Devil’s Advocate.

The current system does not assure acquirement of the basic skills associated with each Grade level. Teachers push the Students through each Grade so they can ‘stay with their Class’. Only about 20% actually learn the material, 30% field the basic elements sufficiently to match the superior 20%–though later dropping the essence of the material, and 50% express inferior grasp of the basic in one or more areas of study. Does this sound like an efficient system?

I would call for a complete revolution in the Educational system, but one which would benefit All, not just a certain segment of Students. My Concept is to establish Grade, Secondary, and Remedial campuses, like unto College campuses. Here We get much greater regulation, with all Students living in dormitory facilities (Parents finding it necessary to check their Students in and out only on specified days). Study Periods would be mandatory (but with Instructor assistance), Students would have to test out of all Subjects, never advanced in any area until proven to have achieved a quantified mastery of the Subject; complete discard of the system of Grades and Grade levels. Each Student would attend until the appropriate Age has been reached.

Parents would be freed of the burden of Child Care, except in the entertainment Periods assigned (of necessity being very liberal as We are talking of children). Instructors could instill common goals and discipline on all Students; while at the same time, being supervised for proper behavior on their own part. Employers could ascertain the strengths and weaknesses of potential Employees far better with access to these records, while Students would have already attained a disciplined Work Ethic with years inside an institutionalized form of Workplace. The Total Costs of such a system would actually be less, as Parents paid in Taxes, rather than in Subsistence Costs, Spoiling activities, and Supervision Costs. lgl

Soft Landing

EDmund Andrews had an article where he expresses the doubt of many Economists that the Fed can effect a 'Soft Landing' slowdown of the Economy while suppressing Inflation. Some excerpts:

Many other economists contend that inflation is more entrenched and will be more painful to reverse than the Fed thinks. Others predict that inflation will indeed subside, but only because the economy will weaken much more than the Fed is expecting.

To be sure, economists differ on how weak the economy already is or how severe inflation pressure is. And skepticism abounds on the chances of achieving a true soft landing.
===========================
There often is depressed Thinking when economic activity stands less than robust. One Economist cited in the article, Robert Gordon, even states the Economy is ripe for stagflation. Can a Soft Landing be affected? Certainly! How?

The major detriment in the Economy at the Present is Government Spending. There are methods to curb such Spending, though no one inside or outside the Administration likes to speak of it. The easiest and sole way to curb Government Spending is to cut Defense Spending. We need to get out of Iraq, get out of Afghanistan, and slash almost all Weapons development.
Sound like Treason? It is not!

Iraq must establish its own Government and Society, as must Afghanistan. Nothing which American troops can do will forestall potential Terrorist Recruitment and Training in either nation post American occupation, and leavetaking is to the benefit of All. The United States military is the most technologically-advanced force in the World, and cutting Weapons development will not hamper this supremacy more than marginally; easily rebounded in the face of Threat with the Research already accomplished.

Cutting U.S. military contracts would save the most Federal revenues at the least Cost. Far less personnel would face Unemployment, and they would enjoy greater advantage in finding other work. The households of these Employees are among the most inflation-generating of all households, spending widely and rapidly on the entire range of Consumer products. Cutting military contracts would reduce Materials Demand about 8-11% for Metals, 4-12% for Energy, and take the edge off Wage Demand. Just because Politician and General state We require such Expenditures for Safety, does not assure that the Need is even real.

Why have I brought up all of this? Cancellation of those military Contracts will rid the American economy of inflationary pressures, without supplying any real suppression of the economy at all. Unemployment is minimized, Business Profits are predictably cut by about 15%, and draft of material resources will be cut so that materials Pricing could witness a 10-30% drop in prices. Is that likely? As likely as the Fed getting a Soft Landing out of the current mix. lgl

Terrorism 2

Greg Mankiv provided a excellent Paper to be read. The Authors, Alan B. Krueger and Jitka Malec’kova, established a sound base with which to understand the economic base of Terrorism. It exists, and is the driving force behind Terrorism. The place to start comes from two Quotes from the Paper:
====================================
Definitions used by scholars tend to place more emphasis on the intention of
terrorists to cause fear and terror among a target audience rather than the harm caused to the immediate victims. Also, scholarly definitions often include nation states as potential perpetrators of terrorism, as well. We readily acknowledge that the line between terrorism and resistance can become blurred.
and,

Nevertheless, the evidence we have assembled does not indicate a connection between poverty and terrorism, and we are not aware of compelling evidence that points in the opposite direction.
=============================
I disagree with the assessment that the intention of the terrorists is to ‘cause fear and terror among a target audience rather than the harm caused the immediate victims’. The goal in terrorism remains the capture of Popular Support and funding through shown activity, from their base of support. Like any Political movement, funding and support dry up in the face of inactivity.

The involvement of the Educated in support of Terrorism comes from actual personal relationships with the Terrorists; the overwhelming breeding ground for Terrorism comes from highly-educated children of the basic Haves of their native society. Why?

Economic growth of underdeveloped nations is the culprit. These societies produce far more talented, trained Educated than their native societies can employ. These Educated must endure menial Jobs if they return to their native societies, or find employment in foreign economies with a alien culture. These Individuals feel isolated and abused in their foreign employment, and turn their anger against the foreign cultures who they are forced to be a part of. Terrorism is a method to gain stature and improvement in lifestyle in both native society and the foreign cultures in which they feel they are captives. They seek to return to their native lands as Heros. The Paper highlights the fact that the basic Poor and Laboring Classes express less enthusiasm for Terrorism than do the more educated and well-off in the native societies. lgl

Understanding Terrorism plus

Arnold Kling provides a good article, The Age of Post-National Warfare, on the failure to counteract Terrorism. I personally do not agree with him in his approach of it being a Blood Feud warfare. Categorization of Terrorism actually limits the boundaries of the defense. It still should be read for the quality of it’s comments–a typical Kling quality.

The basic underlying drive behind all Terrorism resides in the Have-Nots of any society attempting to displace the traditional power of the Haves. Terrorists search for a Cause which the majority of their society will support; once found, they have acquired Popular Support, and can always find some segment of the Haves to provide funding for the Cause. They do this, even though the rise to power of the Terrorists diminishes the class power of the Haves. No Terrorist has ever been very religious, or of high Principle. Suicide Bombers only exhibit a Terrorist’s power over the more destitute of their own society, granted by the strength of Popular Support. Terrorism has been with Us throughout human history, it’s modern version tracing its roots back to the 1825 Officers’ Revolt against the Tzar of Russia.

Other News
The NYTimes and AP both have articles on Water Management today. The Associated Press article holds real interest, because of down-the-road implications about Meat pricing. The Crisis of Potable Water will be as great in a decade, as is the Oil prices of Today. lgl

Advertising

There is a major movement (behind the Scenes) to change the basic format of Advertising, with redesigned technology which will prevent Consumers from using their own equipment to avoid advertisements. Soon DVDs and TVs will prohibit scooting past commercial Ads. Many Businessmen witness this process, and think that it should go further. It will. Another decade will see the debacle of Internet Users forced to sit through Advertising, before they are able to arrive at their desired destination. Many of You may think the time has already arrived, but you do not know of which you speak; negotiations have already opened with Internet Service Providers over selling captive audience periodic overrides which must be watched. The alternative to this Advertising will be lack of Service.

We already face DVDs which will not fast forward through Commercial spots. This Author is old enough to remember the major Selling point of original Cable TV: avoidance of Advertising. I do not believe any Cable network has ever ran without Commercial advertising, even from it's inception. Business and Advertisers are set to invade the Internet, and your basic Internet User sits complacent. They currently demand We pay for Hookup, extract a monthly Service fee, and populate all Sites with stationary or Pop-up Ads. When will it stop?

Children will eventually reach my Age, though they refuse to believe it. The current technology crafted for Business by Business will one day insist they watch old Commercial Ads (some undoubtedly already for out-of-business Concerns) simply to show their children Old Favorites. Another elementwill also intrude: more and more Airtime is being consumed by Advertising. The system is also inefficient: I once estimated that only One-in-230+ actually ever bought any individual Product advertised; Business relying on millions of Viewers of said Advertising to achieve their Sales goals.

Advertising will be regulated some day, but only after Consumers are sufficiently angered to demand Change. People will be paying high Prices for Entertainment which will grow to be One-Third advertising or greater. People will be paying for Internet Service where they will be forced to watch maybe Two hours of Advertising per Day just to maintain access. Consumer Airtime is valuable as well, and they must accomplish in their Day. Control measures must be studied. lgl

Where are We at?

Ben Stein has a Commentary in the NTImes today, and Anyone who can access it should. He provides insight into many areas, and makes the declarative statement:

In total, profits are by far the highest they have ever been, running at a rate of very roughly $1.38 trillion in the first quarter of 2006. As a percentage of gross domestic product, profits are also the highest they have been since the statistics began being kept in 1959 — roughly 12.7 percent.

Ben is the Commentator of known reputation, and often grants shrewd insight. The statistics above are probably true, although there will be revisions before We arrive at total determination of exact numbers for 2006. What possibly can be said is Total Profits will undoubtedly reach over $3 trillion for 2006. We are over halfway through the Year, and baring absolute collapse, Profits will not shrink below 10% until the new Year.

Other Aspects of his commentary could use a little explanation. He questions the persistent American discontent with the Oil companies. A simple explanation for All: The Oil companies, counting Executive bonuses and Stock options, were making approximately (17%?) Profit overall Average when Oil was $36/barrel. Today, Oil companies are drawing about (17%?) Profit on average, excluding Executive bonuses and Stock Options, on a higher Volume of Oil (no numbers without Search, but think over 12-14%). Their Labor Costs have at most increased by 20%, and their Capital Costs by a probable 10-12%. Does it make Anyone desire to join the Oil industry.

Ben wonders why Retail and Trade Labor is not getting the Pay Raises normally associated with an increase of Profits--what he considers normal practice, but something which realistically occurs only with the presence of a strong Labor Movement. Study of 19th and 20th America states that prior to WWII, outlines Pay Raises came only with Strikes. The low rate of Employment, combined with Immigration, keeps longterm Wage rates static. The low Labor Participation Rate highlights the American Change, when before Americans used to Work for a Living; now, they accept Welfare or live off Profits. Some Economists may even admit that the later two forms of Subsistance are the most expensive forms existent, and will eventually kill an Economy. lgl

Pension Law

The new legislation holds no real gain according to some Sources--both Economist and Journalist. This Author holds the suspicion it contains the same incompetance average as all the rest of the passed legislation of Our new Century. Pensions reside beside Concert Tickets in the realm of Scalphers.

I remember (you kids are too young) when People used to talk about fully-funded Pensions, and even comments of independent Pensions (Danny Devitto playing Larry the Eliminator). It would be nice if Pensions were once again considered Labor payment, instead of Corporate dodge to obtain a Savings ratio for Capital Investment. How did Pensions become a Slush Fund for Corporate Managers? Maybe We should ask Devitto.

The current Pension legislation only continues in the tradition of the Corporate Raiders, with Pensions still resemblant of the Social Security Fund, and Corporate leadership telling all Americans they must personally invest and Save for their own Retirement. I may have missed something somewhere (I often do), but wasn't the idea of Pensions to achieve a standardized form of Savings for retirement for the more mentally-Challenged of Us?

Why is it every time We design a institutional security for Labor, who are too busy to keep proper track of such exterior activity to their own economic effort, Corporate Raiders always seem to denude the program of adequate funding and resultant security? lgl

Why I Blog

Several bloggers today comment on why People blog, varying from high academic tones to down-to-earth bull; generated by a article on why Economists blog in The Economist (I provide no links because they are all ove the Net--just Search). I search my soul for an answer to why I myself blog, and it is simple: to be read! I have written many books, all assumed to be too short and too expensive (Many claiming they were insufficiently researched, though I had written them in Cliff's Notes style to aid Anyone interested in the study of Economics without confusing detail). They did not sell (I contest Those who comment the Works were boring--Not So!).

Why I have come to enjoy blogging, mainly because of the freedom given to the medium. I will give a Case in Point, where no one will be able to discern whether I am discussing the matter Tongue-in-cheek, or am serious in intent:

A NYTimes article today described efforts to eventually turn Georgia Peaches into fuel for Cars. I immediately leaped forward with a great innovative Thought: Why limit Oneself to sweet Peaches, when Grocery consumption of Peaches would rise in Price with the competition of fuel distillers? Why not any type of fruit? A vast burst array of possibilities appeared in my mind's eye.

Riverlines and hillsides traditionally were deep in all forms of Berries before the day of intense agriculture. They are naturally acclimated to the territory, and need no excessive work to facilitiate production. These type Berries are extremely erosion-resistent, are of high natural productivity, and would lower Grocery Store Price for these Berries with proliferation. My mind wandered on: these Berries were of high Sugar content, and would make excellent alcohol sourcing. My mind traveled far afield: These Berries are produced by bushes which would made fine impediment barriers, We could plant all Road ditches and Interstate medians to these bushes; cutting the Cost of artificial barriers while the bushes would do an equally good Job except for possibly scratching the paint on the vehicles. A $2/hour Minimum Wage increase could put another 5 million Americans at work at Living Wage as Pickers and Pruners--first needed as Planters. Quick Thought on Costs: Mass Distillation of such Berries could be obtained for about $.40/gallon, Labor Cost would be equal to about $.70/gallon, and Total Production could cut maybe 15% of Our Fossil Fuel use.

And People ask me why I blog! lgl

Green Energy Production

This Author has claimed since the 1070s (yes, I am that old) that the United States needs to develop the technology for Energy production from Water--oceans and rivers. The failure comes mainly from a conceptionalism rooted in huge structures and massive machines. It is the wrong approach.

Conceive of lines of Generators set up like ferries. Basic barges run lines across major rivers (equally useable in oceans), pulling them up and laying them down periodically for maintenance and cleaning. Spaced along these Lines would be generators made to lay along the bottom like Crab traps to prevent fish mutilations', connected at the origin point to a trunk line to draw off the electicity. Every barge could run about 15-20 Generation lines, connecting to the trunk lines by easy connection Twist attachments and Safeties. The entire system must be designed for simplicity, maximization of pwoer generation, and periodic maintenance service. Simple and Cheap is the key?

Elsewhere, the Institute of Supply Management index is down to 54.0 in July, a drop of some three points (score of 50--economy is supposedly still growing). The trouble here lies in the fact that the ISM index is a fairly solid forecaster of trends. The economy is definitely slowing, but by how much? lgl

Fidel and Tax Compliance

There is no relationship in the two elements of the title, but this Author found some amusement in linking the Two: I am sure Fidel would be all for tighter Tax compliance. The man, though, has turned over the Cuban to his younger brother Rauel (spelling?). It seems unlikely that he will ever return to the World stage, approaching 80 yrs. old, and another Cold Warrior had bit the dust. His brother lacks sufficient political capital to make a transition of the Cuban economy to a modern-Day economy. He will not last much longer than Fidel.

Alicia Hensen has a good Post on the cost of Tax Compliance, which she states makes up some 22% of the total Income taxes paid. This is based upon a January 2006 Study by Hodge, Moody, and Warcholik. I make no attempt to deny the statistics, yet feel it is a might too high. Much of the Accounting Cost to Business would need be made anyway, as Operating Debt justification and Production Accounting. Business assigns such Accounting to Tax compliance for Ranting reasons, and mollify Investors. Hensen and the Others have some justification in adopting the fictionalized 22% Compliance Cost assigned to total collected Tax revenues.

Here is where I really get myself in trouble!

The Federal Income Tax law is a jungle of provisions extending back to its first application. Deductions, Exclusions, Exemptions, Preferments, and Tax Credits abound without estimatable boundary. They are composed of the Standard, commonly-recognized reductions of Tax burden, then follows the quicksand of special provisions, for which All need the aid and assistance of Tax Preparers; who consistently get it wrong as well. Now comes the Problem! Past the Standard reductions, which Anyone can figure, I estimate the special provisions may save individual Taxpayers no more than 7% of the demanded Tax revenue, while Business is saved at most about 12-14% of the Tax burden. It is clear that special Tax considerations are uneconomical! A standardized, clear Income Tax is the most economically efficient, and least burden of Compliance. lgl

Minimum Wage

What really determines Legislative decisions like raising the Minimum Wage?

We can discount Economic theory, as Economists generally insist that Minimum Wage levels retard Hiring and total Labor employment. I somewhat doubt this rationale! It seems to me that Hiring occurs whenever there is productive labor to be performed, with Businessmen moaning but still hiring. A Posting today suggested difficulty of Firing led to reluctance to Hire. The United States remains easy to dismiss excess labor, whether through Firing, layoffs, downsizing, or forced Retirements. It does not seem the basic force behind American business refusal to Hire at speeds of previous times.

We have witnessed Outsourcing within the last two decades, but a special Outsourcing; it not be a question of American productivity or Production Cost, simply that greater Profits could be realized by foreign production. Corporate leadership realized this fact, but forgot it was based upon certain underpinnings. The real constant need was American Consumer Demand. The later had to stay high and constant, else foreign production lost its Profits alure. Production has to be sold, requiring a solid market.

Why the interest in Minimum Wage today?

Corporate leadership recognizes Trends in the economy even faster than the Fed. They noticed a slaking in Consumer Demand, especially in Transportation and Energy-consumptive Products, though consistent across the economic spectrum. Consumers are reaching their Credit Card limits, and their Home values are dropping; many having high, habitual monthly Costs in Mortgage debt. They glance at Minimum Wage laborers, and visualize a scenario: A $2/hour Minimum Wage hike often enough means a $64, $80, or $96 a Week increase in labor incomes; translating into a rise in Credit Card limits without any significant rise in Taxes upon it. Again, it is Christmas for the Corporations.

Jeff Cornwall has a nice article on self interest. His contention stands as self interest does not necessarily mean greed or failure to meet social commitments. I am not sure this spread of self interest motivation can be assigned to the Corporate structure. lgl

Where is the Reality?

Remember the old Commercial line: Where's the Beef? Republican Spin Doctors talk about reaching out to Minority groups, and Democratic Spin Doctors speak of empathy with the plight of the Poor. Legislation has grown in size and complexity with the years, today being nothing more than Add-Ons where every legislator and Senator gets to include his own bit of graft provision; nothing included in the bill over which any Special Interest could possibly object to, all of it bought and paid for with lobbyist money. The neighborhood Millionarie is as underrepresented as is Our Poor, Blue Collar Workers, College-Educated, Women, Children, and Dogs. Any suggestion otherwise flies in the face of Common Sense, and is an indication of lower Intelligence.

This Author has long supported Public Finance of all Political campaigns, once a Candidate has been nominated by his Party (any Party with sufficient levels of Voter regristation, I advocate 10% of average Voter Turnout). People tell me I am a fool, and state I do not know how much Campaigns cost. I reply with the Statement that Campaigns could be limited to Newspaper Ads and Political Debates of specific number on TV before the Election (herein depending on prohibitation of exterior Campaign funding). I continue to inquire 'What part of current Government spending is incurred by political promises for campaign funds?' does the Individual expect comes from the current system. I relate that probably $1 trillion is spent by the Federal Government, and a like amount is likely spent by State Legislatures; all simply to fulfill Campaign promises made by Politicians to Special Interests to gain Contributions.

Does these amounts seem too high? I doubt it, but even if it were half that, would it not be cheaper to give each Senatoral candidate a half-million dollars, each Representative candidate a quarter-million dollars, and every State legislator candidate $50,000 dollars each. We could give every Presidential candidate some $2 million, and every gubernatorial candidate a million dollars. No matter what it cost, it would still be cheaper than the present system; and the forbiddance of exterior funding would reenfranchise the American Voter. lgl

Flow of the World

Mark Thoma has a good Post on a Project seminar of ordinary citizens, asking them how to fix the current debt levels of Government. They came up with higher taxes as the No. 1 choice; of course, they were not lobbyed. Read the Commentaries as well, as of equal interest. PGL at Angry Bear has a good Posting on the actual growth generated by the Bush Tax Cuts, nothing new, but good methodology for evaluation. Menzie Chinn highlights Administration fielding of Questions on the current climate; I also have read the Critten book, and wondered how much certain Parties paid to have it written (not slander, but simply research for my own personal advancement).

I, like dear Michael, am a Layperson; with even less scientific base than the esteemed author. Still, I must pontify of my Thoughts on Gobal Warming. My belief remains more down to earth than Greenhouse Gases. Work has been done on Heat Centers--places where Population density emits higher Heat levels, than do uninhabited areas. Heat Center interiors can be as much as 4 degrees higher in Temperatures. Climate is determined by Wind patterns more than anything else. Higher Heat Updrafts block and devert Wind patterns, as well as reduce their intensity. Human population expansion over the last Century, especially the last 50 years, have been placed within the natural Flow channels of Wind patterns. An appreciable amount of Wind pattern movement is being deflected back into ocean areas, from where it normally came ashore. Many areas of previously greater Rainfall are getting less Rain than was the average of a half-Century ago; most noteably Northern and Central Africa, and the American Midwest and Southwest.

The lack of Rainfall in the central-belt of the World creates greater absorption of Solar heat, and occular Wind patterns push this excess heat onto traditional Glacier formations with the abscence of normal Rain patterns. Did I sound as good as Michael Critten? Ah, I knew I wouldn't. lgl

The Inheritance Tax and other things.

Readers:
Angry Bear and the Economists View present a fairly accurate expression of the House passage of a bill promoting a Minimum Wage increase, along with about everything else; but espically further shaving of the Inheritance Tax and continuance of several Tax Cuts. PGL also provides and interesting post on the cost of Tax Cuts, they requiring future Tax levies when financed by Debt acquisition. Steve Verdon presents an article, The Impact of Medicare on Health-Care Spending, which is well worth reading; remembering this is a crowding in effect of health care Providers finding a Cash Cow--Patients must adopt all a Doctor's proscriptions and health demands, else they could lose their Coverage.
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Republicans are rabid to eliminate Inheritance Taxes before they face a potentially diferent Political spectrum, one without control of both White House and Congress. They will attempt any methodology to accomplish their desired Goal, even emplacing Inheritance Tax reductions within a Minimum Wage bill. The Bill, passed by the House, is ridden by multiple provisions covering almost the entire range of Republican economic desires; Anyone else would be ashamed of a Minimum Wage bill which exceeded 900 pages--most of it for special provisions. This is set up so Republicans get what they want, whether the measure passes in law or not. It even purportedly (I have not read it) originates a new health care Insurance plan. No matter, this bill is an obtuse book which no one could read.

Why the drive to end the Inheritance Tax?

Almost no one pays it. This Author cannot remember the Exemption level, but less than 10% of Estates will ever be affected by it. Only the Millionaries' lobby could find real interest in it. What duress does it apply to Agriculture or Small Business? It would only insist the Inheritors face the same Mortgage debt to pay the Inheritance Tax on the Properties, as did their Benefactors to gain the Properties in the first place. Is this such a horrid Concept? lgl

Business Profits Tax

Someone just stated that if I was going to advocate a form of taxation, people could evaluate it better if I gave a general outline of the scheme. I thought about this for a moment, and decided there was a shred of truth to that statement. It made me organize my Thoughts, and herein follows my desired definition:

Business Profits Tax:

1) Taxation must be placed upon the total Dollar volume of Sales, not simply Business Profits, but those Profits should be taxed though not penalized.
2) Volume Sales should have an irreducible base tax of 7%, but should increase at a rate sustainable with success. Profits below a minimum base, Negative-5% Profit should endure a 7% tax on total Sales. The tax would increase 1 percentage point for every percentage point increase in Profits; with the Tax rate rounding to the next higher number. The total tax would maximize in most case at 19% of total Sales, for Profits of 14% and up.
3) Most would say this is a National Sales tax, but it is not; for the tax increases in rate with the increase in Profitability, and the next provisions will provide more impact.
4) The only deductions from the Tax will be justifiable Expense in the year in question. To this End, Business will be allowed to deduct as Expense only that Debt which is not self-financed; in other words, the Debt must be Publicly-held by an Organization independent of their own borrowing company, and only such Interest and payment of Capital made in the Tax year will be accepted as a deductible Expense. (My suggestion is Corporations put their excess funds in Capitalization ventures or in a Bank like Everyone else).
5) Profits above $100 million per year will have a 2% Surtax added to such Profits above their scheduled Tax rate. Profits above $1 billion per year will have an additional 4% Surtax added to their scheduled Tax rate. Profits above $10 billion per year will have a 6% Surtax added to their scheduled Tax rate.

Certain Base Facts must be known:
1) All Special taxations will still be withheld from Employees and Employers, such as Social Security, Unemployment Insurance, and possible mandatory minimum Health or other Care Insurance.
2) Capital Gains Taxation will probably be retained.
3) Income Tax would be repealed.
4) The taxes would be assessed solely of Business, tax rates will not show up at the Cash Registers.
5) The Tax rates will give automatic Tax relief to struggling Business operations with lower rates built in, with more profitable Business paying their fair share of the total Tax burden without excess burden. lgl

Business Taxation

This author will first direct Readers to Calculated Risk which gives a fair interpretation of the current Beige book; there being some interested in the current stage of the Economy. The NYTimes, along with most other News media, say that the numbers and indicators are mixed. It reminds me more of a Breakpoint in a Tennis match.

A mild Recession at this time, no one could want for anything worse, would bring to the forefront dicussion of Taxes once more. Tax Cuts, the pride of the Republicans, will again be rightfully depreciated once more. The Cuts only generated a vast Government Debt load, without producing American Labor Employment or heavy recapitalization of American industry. Exports have never risen in the same magnitude as Imports, and the United States has become tied to foreign Imports on both the Manufacturing and Consumption levels. A major change of Economic policy will gain momentum if We are flung back into the Recession of 2000.

This Author relentlessly advocates an elimination of Income Taxes, a scarred Wasteland of old bombardments of specially legislated reliefs of every type and kind--some outrageously obsolete. My solution, though, does not call for a National Sales Tax, or any other form of Consumer tax rape. I advocate switch to complete Business taxation.

A graduated Profits Tax, based solely on Business Profits stands as the real answer to Growth promotion and realistic Economic policy. Business produces the real value of the Economy, providing the Income and Profits in total for the expenditures of Government, Consumers, and even Investors. This is the level at which Economic production should be taxed. Business already employs the Accounting procedures to meet Tax authority needs for rational taxation; they would face no greater Expense in Paperwork. All elements of the Production, Distribution, and Consumption cycle would develop the proper taxation based upon the real Cost of provision of the Goods and Services. Consumers would possess their Total Income upon which to decide their Buying decisions, while Business would finally treat Taxation as they should--a Production Cost. lgl

Backdating and Futuredating

Backdating Stock options is illegal, simply another form of Insider Trading. A NYTimes article today states Backdating Stock options cannot really be stopped. Pure trash! It is one of the simplest forms of Stock fraud to prevent, it only taking a realistic law to be introduced. What type of law? I can give a rough sketch:

Stock options can only be granted the following Year to any performance, and must be issued at the highest Price of said Stock the previous year of performance. No Stock option may be exercised by any Employee while he is employed, and must be exercised within 30 Workdays of his discontinuance of employment.

Employees granted Stock options will understand that longterm growth and Profitability must be maintained, for the Employee to benefit from Stock options. Fraud is automatically suspended, because the highest Price of the Stock in the performance Year is publicly known. Choice of Date of Retirement is still available to the Employee, but individual Stockholding is curtailed as he must finance acquisition of the Stock within a Set timeframe. The Corporation gets what it purportedly wants, performance, while Stockholders and Investors limit the excess of Executives granting themselves vast wealth without referral and deferment to Stockholders. lgl

Blue Tuesday

Oil is pegging above $75/barrel for Sweet Crude. Existing Home sales declined by 1.3%, and year over year House prices rose only 0.9%. The biege book is supposed to be released tomorrow, covering Production in the Midwest. Bad numbers here could mean a poor Third Quarter and miserable Christmas season. Are bad numbers expected? Economists say No, but they say it like they were sucking on a sour Pickle.

What do I say?

I have been to exercise and muscles are tired, the sky is overcast, and I am on a Diet. The Consumer Confidence numbers are up in spite of high Oil prices (Translation: the Soccer Moms are again out in force, mainly to keep the kids quiet), putting on a probable 75 miles per day on their Gas-guzzling SUVs. Credit Cards are tapped, and as a consequence of Consumer buying, Production Costs for Businesses are going up. Consumer Credit can be as inflationary as Government debt, and as addictive as Gambling. The Fed sounds like it is going to continue the insanity of raising Interest rates.

Interest rates hikes do not even touch the two basic causes of Inflation. Government spending will continue, Tax revenues or not, until Voters get the gumption to throw Legislators out of office, or reactionaries are convinced to start Sniper attacks against them (that was no call for Terrorism in an way, shape, or form). Credit companies respect the Demand/Supply curves and set their rates high, but in the service of high Sales, refuse to raise their Interest above their maximised Sales levels--totally indifferent to Fed impulses.

The Solution: We need those same Legislators to repeal the honored (totally undeserved) Tax Cuts granted since 2000, and force them to pass legislation granting the Fed the right to set Credit Interest rates over a legislated range--one spread enough to encourage or retard Consumer Credit expansion. lgl

Swing and the Herd

Arnold Kling and Tyler Cowan both have commented today on:
Willpower and the Optimal Control of Visceral Urges.
I should not comment on the Article, having read only the Abstract (too cheap to pay the $5 online fee for Download). The Abstract, at least, sounded very realistic and viable in its assumption: Willpower is a depleting resource. People simply tire of self-discipline, and when absent of exterior discipline, will soon lose enthusium with any denial program. I know I eat too much and too often.

I immediately translate knowledge of individual behavior unto group behavior. Alternately stated: What does this mean in the Political context? Conservative Republicans, Neocons, Libertarians, and fundamentalist Economists have attempted to place the American people on a Welfare diet for 6 years. Social programs starve for funds, and has been an ongoing condition since the first George W. Bush years. What they received for this starvation was initial meager Tax reductions replaced with State and Local taxation, and watching the boon award granted to Corporations and the Wealthy. Single Proprietors often watch Corporate competitors award Stock Options and Bonuses in excess to what they can pay their Employees in salary. Why? Infamous Corporate lobbying efforts grant injuries Tax concessions which are discriminatory. The rest of Us gaze on the Wealthy spending more and more money which used to be their share of the Tax Burden.

The next Administration will find heavy demand, I am afraid, for an expansion of Welfare measures; this occuring whether the Administration is Republican or Democratic, likewise for the Congress. Americans tire of seeing money leave their accounts bound elsewhere, be it to the Government, foreign Suppliers, or American Corporations shifting their assets to foreign shores. A NYTimes article today highlighted a facet of the current administration which angers the American people: the hypocritical passage of legislation into law to please Constituents, but refusal to enforce provisions of the law to please Special Interests or saite Bush desires. There is an ill wind blowing for the sitting Congress, even if George W. can head to Europe with his formalized graft. lgl

Take Your Medicine

Peter W. Huber provides an excellent defense of the Drug Manufacturers (Source article obtained through Greg Mankiv). It makes the poor Drug companies seem picked upon. Let Us examine the Issue a little further before We make up our minds. We must first remember Pharma utilizes a Accounting methodology which comes straight from Santa Claus. Their average In-Year Costs rarely translate into an Expenditure of Development Cost greater than one-quarter of the amount claimed; there being in-house Profit-taking, Bonuses for Project segment completion, and Our old friend, Stock Options, for the Executives all-around. Second, any Drug developed is produced in vast quantity for it's Debut, sufficient to saturate the Market that their expenditure on advertising (much disguised as Research Cost) when the Drug is cleared for Sale by the FDA. The American Taxpayers and Government are expected to fund the Research by lack of taxation on the Profits actually generated; did I forget the high Price of Drugs to fund those Profits?

My Primery GP and his Confederates get a Free Lunch every Workday, granted daily by Representatives of Drug companies, obstentially to discuss new Drug capabilities. Do Doctors have to be reminded of what Drugs can do that often? Regardless, I am sure the Expenses for such Conferencing are deducted as either Advertising (unlikely), or as Research (such Expense may not be deductible as Advertising, if the Product is not yet on the Market). My Primary Question, though, is how many GPs are there in the Country, and how many Drug Representatives does it take to supply them all with Lunch five days a Week?

It is obvious Drug Company Representatives must have some level of education, like they can tell the difference between an Aspirin and a Suppository. It is also necessary they be in possession of a Vehicle and Fuel to go get the Take-Out food; another miserily Expense paid by either Expense account or Salary. I suggest most Doctors can attend a Seminar, all Expenses paid at their choice of Vacationing, about 4 times a Year if not monthly; oh yes, Someone does discuss the Drug use at the Seminar--if any actually make to the Conference floor.

We live in the Land of the Corporations, praise be to George W., Our current Corporate political leadership; who fires Tax Accountants who were looking into Estate and Gift Tax fraud Cases for the IRS. Some Economists mention rudely there remains a shortfall between Federal liabilities and Frederal revenues at current Tax rates of some $60 trillion over the longrun; but the Wealthy and Connected get a freebee past wasteful Tax provisions which might force them to pay Taxes. Is there something wrong with this Picture? lgl

Patents

Dean Baker has a blog posting today which is fairly interesting. He provides a good rant about the adverse economic constriction of Patent protection, with the resultant high Cost of Drugs. Everything he states is relatively accurate, though he would call for Patent elimination as a restraint of Trade. I suggest the elimination is too radical, as it is a form of reward payment for innovators, where otherwise they might receive no compensation. Cancellation of an alternate form of Wage is never desirable.

The real culprit actually resides in federal Courts, specifically in their enforcement of the Patent provisions. What needs be altered is their decision that Patents remain the resident property of Companies who employ the Developers of a Patent. A more realistic (and much cheaper) decree would be the resident property of a Patent remains with the Developers throughout the extension of Patent life. Such a Patent determination decree would declare no non-human Entity can hold a Patent, due to relative inability of such to Organization to consciously design anything worth a Patent in the first place.

Patent rights would take their place besides Stock Options as incentives to do good work. Companies would have to negotiate with their own Employees to utilize Patent value, and Patent royalties will go down, as they express reluctance to overpay for Patent usage. The monopoly advantages of a Patent reduces in structure and content with being individualized, while Patent role as alternate means of Work payment continues. lgl

Bored or Resigned?

This Author has been checking the News today, and finds the most interesting article read was one on Fort Tilden in the NYTimes. Some economic indicators seem to be flat over last week, others saying it would be worse except that the Job market held up well. Maybe it is simply more active when the Temperature outside is hitting Record levels, unlike the Cooling today; high heat meaning a battle for survival.

I suppose I should advance a Question: Will the Markets sustain a deminishment of Consumer Demand brought on by high Fuel prices and a real potential declining Workweek?

The first part of the Question must again ask: Is Consumer Demand declining? Undoubtedly! High Fuel and Utility charges are eating into Household budgets, Consumers already possess high Consumer Debt profiles, Interest rates absorb undue amounts of normal Debt repayment schedules while the demand for Mortgages reduces. Index factors track these declines poorly, but the Intelligent can estimate We may see better than a 5% decline in Retail Sales over the next Year (remember this is an Author estimate, deniable by All, and they will). The Author will respond with childish vigor, stating: Tis so, and might even decline by 12%!!

A secondary problem emerges with a decline in Retail Sales. Stock Grants and Stock Options have been issued with profusion, and the Stock Market today has a far larger composition of Shares, than it did the last time there was a Retail Sales decline. Both Markets and Corporate structures stand shaky upon foundations more unsound, trying to spread Profits across an extended Share base. The Job market will not save Retail Sales, if Corporate executives attempt to grind additional Profits from cutting Employment rolls. My advise to Corporate leadership: Do not invest in capital overproduction facilities; invest in Stock Buybacks with the excess funds. lgl

Turnstile Taxation

It seems much comment has been recently devoted to methods of Taxation. The trouble from the discussion remainss that it hinges around elimination of Income Taxes. Almost every Proposal seems destined to be a regressive tax, most advocates desireous of reducing their own personal Tax costs. This may be a laudable enterprise (this Author never overly concerned about Tax rates in the upper ranges of Income). The Carbon Tax proposal extends itself as a good regressive tax vehicle; the people most able to reduce Carbon taxation per Production unit being the most able to pay the Carbon Tax.

This Author has previously (somewhere in the garbage dump of my files) suggested complete switch to Turnstile fees. Mind, I speak not of just Turnpike stations! Entrances to all buildings (hopefully even Government, churches, and stadiums) will gain Us elimination of Income taxes. Everyone begins to enjoy the security of Gated Communities. Businesses can refund Employees for the Cost of gaining access to their Workplace. Shoppers will limit their trips to Retail outlets (vast relief to Husbands and Fathers), while Welfare recipients will be allowed to use Food Stamps to gain entrance to Groceries. All Peoples would reduce unnecessary trips to anywhere, and We can rig some type of Turnstile payment system to get Gas nozzles out of the Pumps. It will be a wonderous system with Everyone charged for exact use of Services.

One must think of the advantages involved: The Poor would have to stay home or get charged. The Homeless must find a home (I am trying to devise a Turnstile for walking down the Street). The beauty of the Tax is beyond compare: One has to be productive in order to earn sufficiently to move. The Carbon Tax is nothing but a waffling measure, which would hardly stop traffic congestion. lgl

Inflation/Deflation

Mike Sedlock (Mish) provides an interesting Post with several Links to other of his articles on Inflation and Deflation. The Good Reader should read The Kondratieff Cycle Revisited, not because the Kondratieff Cycle holds validity, but because it discusses the propellents of Inflation and Deflation; it listing a table of Deflation cause:

Here is the Deflation Case once again:
Rising productivity and rampant credit expansion led to massive overcapacity.
Global wage arbitrage is putting downward pressure on wages and benefits.
An enormous bubble in credit lending developed causing malinvestments and speculation.
Speculative credit lending fueled bubble prices in houses and other assets including the stock market
At some point housing prices will fall as the pool of stupid buyers exhausts itself. The housing sector will stall
A stalled housing sector will cause rising unemployment and lower demand for goods and services, appliances, eating out, etc, etc, etc.
Bankruptcies will rise.
Banks will not be willing to extend further credit on assets declining in value, especially to those out of work, or nearly underwater on their homes. In fact, appraisals get tighter at long last.
Credit lending plunges. We have already seen the second consecutive month of declining consumer credit. This is the first time since 1992. There is every reason to believe a reversal is underway. If not now then soon.
Bankruptcies and falling asset prices and people walking away from mortgage loans is a destruction of credit.
If credit counted as inflation on the way up, a destruction in credit MUST be counted as deflationary on the way down.
The destruction in credit, rising bankruptcies, an unwillingness of banks to lend, and a rising propensity for people to save will be greater than any monetary printing by the FED to stop it. That is what happened in Japan and that is what will happen here.

I do not intend to present a Case for Deflation here, though I will state some of the above listing is purely imaginery or wrong. What does concern me is the listed causes of Inflation located in the Postings, as they are the current belief of most Economists. My Studies of Inflation finds myself long proclaiming the worst cause of Inflation is Government Deficit Spending, followed by loose extension of Consumer Credit, and ending with overInvestment of Business Profits to escape Taxation. The real Source of Inflation, in final analysis, is overzealeous pursuit of Business profits, which leads to Overpricing of Products, evasion of Taxes, and incitement of Consumers to exceed their Spending capacities. Here is the crux of the problem! lgl

Regulations

An old reprobate friend of mine asked me how Government regulation could affect the Energy supply and Fuel prices, as I implied yesterday. I thought I should provide an answer. Regulation could cut Oil consumption by prohibition of certain practices which are fuel-use excessive. Here I will give some Regulation proposals, and suggest their likely consequences (remember Murphy's law, and the fact the unintended often holds more reality than anything else).

1) Shutdown of all heavy freight on Highways and Interstate between Noon and 3 p.m. during the Summer, and between Midnight and 6 a.m. in the Winter. Both Periods require the greatest fuel consumption for heavy vehicles. Local loads with local licenses would be exempted from the prohibition (Manifest destinations less than 100 miles). This Prohibition cuts Coolings Costs in Summer with faster flow of traffic, and cuts Heating Costs during the Winter. Drivers would plan their Trips with their mandatory layovers durings these periods, along with their loading and unloading schedules. Fines would be sufficiently high with obvious ease of Ticketing.

2) Doubling by Federal law all Toll Road fees during the Periods of 6-9 a.m and 4-6p.m. This would impel Car-pooling, increase the flow of existent traffic, and reduce Traffic jams and slowdowns. A coincident act to serve the same purpose would close Interstate access routes during these periods to halve the number of access routes to any Interstate system confronted with traffic congestion during Rush hours.

3) Charge a Dollar Federal Tax per fillup at Service Stations during established Rush hours periods. This would help Drivers to understand the cost of individual driving to Work.

4) Closure of Downtown areas to individual traffic, forcing movement by Bus and Cab. This tells Consumers they will be forced to utilize Public transportation anyway, so they might as well adopt the cheapest forms of Transportation.

5) Charge a Federal Tax of $2 per access to Public Garage Parking for all Vehicles parked during the period of 6-9a.m. This increases the Cost of personal vehicle use to go to work.

These measures are all designed to reduce the excessive use of Energy by Individuals. Access and Cost are emphasized. Other measures can be enacted to foster fuel economy, say a Federal tax of $10 per mile of rating on any vehicle rated below 24mpg City, 27mgp Highway. The SUV craze might be curtailed; this Federal tax to be assessed every time the Vehicle is serviced. Lack of Servicing of vehicles will quickly reduce the value of Resale and longevity of the vehicle life. This is outright Government pressure to get such vehicles off the Road.

Regulations can be designed ad infinitum. Government regulation can sculpt Consumer desires without outright denial in most instances. This Curtailment, though, must be based upon sound Business practice, and rigidly enforced; the first sign of leniency destroyed not only the Intent of the regulation, but also capability of enforcement. lgl

Year over Year Readings

I wonder at the Readings We are getting now in the economy. Year over Year readings can be an expression of Inflation more defined than any other, if actual Volume Output remains relatively the same or reduces. Industrial Production is a Case in point: Vehicle Volume is down, Utilities usage has been relatively stable, and Business Inventories has been rising with a slight decline in ReOrders. The Year over Year reading increase of better than 4.5% for Industrial Production indicates real Inflation in the primary-base Sector. It does not help that Consumer Demand can be seen as faltering; Retailers raise base Prices during declining Sales, to be able to claim high Discount Sales. The BLS can still play with the numbers, but Inflation is present; Fed action will only further deterioate Business stability without eliminating any of the Inflationary pressures.

The G-8 leadership wants a 2-Week extension of the timeline for Talks, so they can avoid admission that the Doho round of Trade talks was a complete bust. None of the Conflicting Interests in the Talks can alter their basic positions, due to the fact any concessions would be overruled by the political process in their homelands. Most Economists would insist this reality is deplorable. I would not! The truth states all Participants would have to absorb real-loss Costs, while few Gains would be realized, and None in the Short-term. Failure of the Doho Round should be seen as a success.

This Author also disagrees with the general Economic disgust with the practice of Regulation. It would seriously save many of the current Economic costs of high Energy pricing, with real Government curtailment of Supply; remember, shortages of Energy supply propels Energy Conservation and technological innovation. Schedules to bring Energy Savings technology online can be cut to One-Third of current Planning, and artificial constraint on Energy implanted by Government could be multiple times the Inflation Fighter, as is already excessive Interest rates. There is a place for Regulation in the Economy. lgl

Sculpted Agendas

The WTO will be a failure, as will Medicare and Medicaid. Why? It is because of Sculpted performance. Every nation in the WTO wants special consideration, and every Recipient of Medicare or Medicaid wants preferential treatment. Special concessions for nations defeat the overall agenda of the WTO, and exotic medial treatments paid for by Medicare and Medicaid absorb the funds and economic viability of the programs. The multilateral nature of the WTO was self-defeating from the first, as no nation was voluntarily going to surrender its own personal pet desires; no President or Congress will ever get sufficient Votes to cancel the level or content of agricultural subsidies given to farmers, to do so, realistically means a percentage rise of Consumer Income devoted to Food. Every nation has its own preferences, with commitant damage accuring with relinquishment of those preferences. The WTO will not survive national needs.

Medicare and Medicaid will not survive unless the switch is made to standardized medical care. What does this mean? This means set payments for clinic visits and standard daily hospitalization payments. This means a positive list for Drug payments, like South Korea has insisted upon, where Drugs must be on a established list to be paid for, the positive list based solely upon Medicare and Medicaid ability to pay. One-Shot medical treatment needs can be settled by a lifetime Drug account which cannot be exceeded for exotic drugs. These alterations are necessary to forestall health care and Drug Costs from exceeding the Public ability to pay.

Special Concessions work worst in the arena of Tax reductions. Granting of special Tax credits for any endeavor or activity impedes the ability of the Tax Rate system to function. It is possibly best to initiate a Constitutional amendment which would state: No Tax Concession may be granted of any type which does not affect all Tax Payers equally. Every Tax reduction past this point would be a direct and obvious reduction of Tax rates for all Taxpayers. It is actually the only way to save the Tax system, which is in its Death throes. lgl

Pellet-Feed Carburators.

The NYTimes ran an article on making the U.S. economy independent of Imported Oil by 2030, through use of four different technologies: ethanol from waste product of agriculture, making Oil from shale, converting Coal, and whatever. It's major claim was independence was available because material source product was existent in almost all States. Am I the only one who understnads there must be a fundamental change in engines to produce this magnitude of altered fuel use?

They propose changing Solids into liquid fuel, simply to be utilized in a gaseous reaction based upon the introduction of heat in the form of electrical discharge. They intend a multiple level of chemical steps to produce a Product to be utilizable in a transformance reaction to produce power. Ethanol production is fairly simple, with just a multiple-distillation process to produce a fuel, but one that is extremely reactant to environmental intervention--it burns relatively as rapidly as Gasoline with the advent of a stray spark. Does Engineering insist We invest in a technology producing all the hazards of the product it replaces?

All of these Fuels require a basic grinding or cracking operation to alter these materials into some form of solid dust or uniform liquid, before any other more complex chemical operations can be conducted. Could not technology come up with a method to compact this very reactant dust and cover it with some form of celleose shell--i.e., making a pellet. The power of dust explosions can be catalogued by the history of grain elevator explosions in American history. The interesting fact of any Carbon product from any source, even human and animal sewage, it can be dryed by simple process and then ground to a fine dust of high volitity. Transport of such dust increases Safety factors immensely, if they are encased in small quantities surrounded by a protective coating of less flamible material--the Pellet.

The only need after reaching the stage of the Pellet ramains an Engineering process to transform the dust inside the Pellet into a gaseous form for burning. Engineers need a conceptualism of one pellet for idling an engine, two pellets for maintaining the cyclic speed of an engine, and three pellets emplaced and crushed in a cylinder of an engine to produce acceleration. Coatings of the pellets must be made out of flamible material, themselves consumed in the burning process. The crushing of the pellets can be achieved by a contraction process at piston head at the start of the upstroke. Isn't Everyone glad I am not an engineer? lgl

The Drop in Retail Sales

Retail Sales droppec 0.2% after Gasoline was removed. Does this tell Us something?

It actually tells Us a number of things. Inventories have grown approx. 1.5% over the last two months, so exprected return of Demand did not materialize. This Author is an advocate of plateau Consumptions patterns: there exists a Minima and Maxima mentality in the minds of Consumers, who will not alter Expenditure patterns to Price changes until a certain point is reached either higher or lower. This is what makes Consumer expectations so important; a Price range close to the Maxima with expectation the Price rise will continue, will engage a sharper reduction in Consumption than a normal Economic modeling sampling prediction.

The Retail Sales drop may also entertain longterm implications as well. The Sales may not come back. Why? Consumers let immediate circumstances affect longterm Consumption patterns. Mortgage Debt is at alltime Highs, as is Consumer Credit. The rise in Pricing, both Across-the-Board and volitile Products, can lead to a Consumption pattern designed to pay down debt. Oil have just exceeded $78/barrel, with futures trading above $80/barrel. Consumers may turn in Consumption conservatives.

Another factor has entered the matrix as well which is Population Growth. Adverse Economic data, combined with already-high debt, will constrict the number of Pregnancies. It does not help that fertility drugs (radically more expensive) has produced a record number of Premies and Twins (very much an increased Cost factor). One advantage of the Baby Boomers to Economic performance is the increase in Death rates; Seniors being extemely excessive Consumers, if only in health care provision. Baby Boomers will likely await the death of their parents before their own death, but Retail provision of health care will decline with every death. The end-result, though, may be a reduction in Retail Sales faster than the actual shrinkage of Population. lgl

Standard Economic Theory Failure

This Author decided to do something today which would get him yelled at a lot (no masochistic tendencies, just rattling the Tree a might). He searched and searched, maybe a nanosecond or so, and decided to discuss Trade theory. Standard Economic theory states the value of the Dollar is too high, constricting the Sale potential of American Exports; potential Buyers (including Americans) opt for lower-valued Foreign Goods. Sounds Good as explanation, but leaves much unsaid.

Dollar devaluation holds many hidden horrors which no One explores. The first unspoken Fact We should examine is what the production of Exports cost. Production of such Goods increase Demand for the material resources to produce Exports in the domestic market; this Demand raising market Prices for the material resources, with complement rise in the cost of production of domestic Goods. The second element resides in the fact that Exports must be distributed (i.e., transported to the Coast and shipped Overseas). Reversion to Economic theory: Business, confronted by transitional Costs to be distributed through market prices, will transfer Costs upon Assured Markets (already established), rather than Acquisitional Markets (always open to Competitive bidding). Translation into English: Exporters will universally throw Distribution, Retail, and even Production Costs of Exports onto the domestic Consumers wherever and however possible (the Minimum being equalization of Total Costs over all Product Pricing, the Maximum being Domestic Consumers paying all Export Costs in higher Pricing.)

What does this Information mean?

Domestic Consumers are faced with a higher-Cost Supply Curve, one in which they are funding Business Export adventures. They are hit with payment of higher Production Costs, and with Business desire to expand foreign markets. The Minimum of this higher Cost will usually range from 8-12%, while the Maximum could potentially range up to 300% of Product Price. Now We come to the concept of Dollar Devaluation. Business wants the devalued Dollar to ease capture of foreign markets. The Consumer, already faced with extraordinary Product pricing, finds Wages are keyed to Production Costs, not to Consumer Prices; only Labor demands can attach Wages to Consumer Prices, inhibited by a surplus of Labor via Immigration or heavy Unemployment.

Dollar Devaluation turns into an Ogre under the above conditions, so that it evolves into direct reduction of the Standard of Living. Business, and many Economists, suggests this is good for the Country, but I would counterclaim it reminds of the hipe of the Chicago Board of Trade (enter upon the later only at your own risk). lgl

Environmental Economics

The U.S. Food blog came up with a good Post, Clever solutions to fish dilemmas, which is a basic description of the purchase of deep-sea Trawlers and fishing permits by the Nature Conservatory as a Conservation measure to protect certain areas of the Ocean floor from destruction. Sounds good, does it not? Well, it might also have some other connotations. Check John Whitehead's blog on market forces with a reduction of demand for seafood. It works in the opposite direction as well--with reduction of supply, serving as a floor for seafood prices when such Nature Conservatory actions are taken.

Is that Bad?

The Answer is very simple: This type action, serving both the interests of Conservation and of Business, will prove the only sustainable method of Conservation. The interests of Nature can only be fulfilled with the benevolence of Business interests; they being the only recourse to the necessary financial assets, and legal resources, to maintain Conservation measures. Nature and Economy must work as partners before any gain of Conservation can be attained. lgl

In the Air

China reports another Record-breaking Trade surplus, India shelves current round of sale of Public companies to Private Investors, and Republicans claim an increase of Tax revenues will reduce the Government Deficit. We also find an extended Article of Pentagon Cost Overruns which (Surprise?) is generating delays in weapons systems delivery along with reduced numbers of weapons. Another common Tuesday in mid-July.

None of these Problems are new, as a matter of fact, all of them have been building for years without any effective Counters from Anyone. Government leadership try to imply it is simply 'Business as Usual' on all fronts. India has the same complication as does the Pentagon--localized Politics; national politicians cowed by organized Special Interests defended by bought Politicians whose Votes are legislatively vital. China utilizes every leverage which can be hidden to slow the purchase of American Goods on Chinese markets. Bloggers prove that Tax revenues are increasingly volitile, and likely to decrease even before the end of the current Budget Year. Hint: The Government must get Tax Revenues equal to 20% of GDP, if it intends to spend 20% of total GDP inside a balanced Budget.

China has moved ahead of Japan to become the No. 1 holder of Foreign Currency Reserves, and has become the 4th largest Economy in the World ahead of Britain. Chinese-controlled Defense industries produce Weapons Systems of comparable capability to U.S. weapons systems (though more technologically Standard, and less grasping for Top-Gun status) for about 40% of the Cost of the U.S. defense industry. Also, when adjusting for Standard-of-Living differences, Chinese defense industry labor probably are better-Paid. Of course, China chose to Downsize Management, instead of Labor, and dismissed the real value of Stock ownership. lgl

Wheat and Fear

This Author has just finished Rueter articles discussing the decline of the Wheat harvest this year, some 23% reduction of hard red winter wheat, and a projection of a 16% lower Wheat harvest overall for the Country. The projection will be even lower, if rainfall does not increase in the States west of the Mississippi. Too little rain, or too much at harvest time, could cut harvest yields in the northern States. The decline does not seem serious, but there are always complications. A short aside of history: The Tsar of Russia was brought down in 1917, bringing an eventual rise of Communism, because of the shortage of Food, where Wheat and Rye yields were down less than the current projection (remember that Russian acreage yeilds were far lower than in the current U.S., and alternative foods were only about 14% of present American options).

Why then the current worry?

Several things come to mind! Both China and India are rapidly driving their farming complement out of business; China by forcibly converting acreage to industrialization, and India through a poor agricultural policy bankrupting farmers with reduction of planted acreage and yields. The two greatest Populations in the World will be looking for purchasable Hard Grains this year. Numbers from other Countries have not been gathered by this Author, but north Africa is suffering from Drought conditions with already starving Populations. South American agriculture is switching from Grain production to ethanol production, or civil unrest is curtailing acreage harvesting. Eastern U.S. agricultural production may be drowned this year, as may be Western Europe. There may be extreme demand for Export Grains this Year.

A further trouble may come from Speculative sources. We have witnessed the huge rise in Oil prices since Speculative Cash moved from Stocks to the Commodities markets. It will not take long for Speculaters to notice there is an increased demand for Food grains on the international market. Americans have witnessed higher Driving Costs because speculative Fund managers wanted a higher Return on their money. We might get to watch People starve to death, courtesy of CNN, because these same Managers see rich Profits in Food Grains. lgl

Nuclear Waste

Putin and Bush discovered another way to enrich Russian criminals and Corporate Profits, by the Plan to store nuclear waste in Russia. Reality states that Russians will not accept one pound of nuclear waste from the United States. Russia simply gets the United States to pay for their own nuclear waste disposal needs, where American Corporations take a 20% Profit, and Russian criminals boost the Site Costs by 300%; all paid by the American Taxpayer. All of the Business Elite exalt, and no one cares that Russians especially, but all Citizens of the World will forbid transit of nuclear waste through populated areas.

It is a typical Bush resolution to a vital threat, real Corporate profits are dug from a situation, while the Problem of nuclear waste is left dormant and threatening for future Administrations. The U.S. military finds further problems with discipline in Iraq and Afghanistan, but this Administration is going to push off American Exit from these two Countries until after the next Inaguration, when Someone else can resolve the problems this Administration created. We are beginning to witness the problems created by profligate Spending, Tax Evasion legislated into law, creation of the poorly-thought-out Cash Cow of Proscription D, and letting Corporations handle the groundwork of Homeland Security; all new elements introduced by the Bush administrations. lgl

Back Online

My Computer and myself are barely on Civil terms as yet, but are back to talking with each other. My Computer Services remain slow (my Guru was on Vacation), if Anyone can understand my ramblings. I personally felt some advantage from my own Relaxation, as in truth, I did not have much to say.

Personal paranoia has begun to crest at the latest summit of Oil prices. N. Korea does not help! There is increasing evidence that Incidents are being stage-managed to insure Oil prices remain high. It is also fact that real evidence of cracks in the American economy begin to appear, caused by the high Oil prices. Iraq also does not help! It has become time for a Change. lgl

Fantastic Prediction

This Author has never been noted for moderation when making predictions about economic events, but this one will be extreme to say the least. I will probably hear about this one, every time I am proven wrong. What is the prediction?

This extended Fourth of July Weekend will see the highest Sales volume of Gasoline in the history of the United States--Past, Present, and Future. It is my estimation that We will never witness such Fuel consumption again on the July 4th Weekend, but also on any Weekend and/or Holiday event. I believe We are making history as We prepare for the Fireworks. We will never travel this way again!

The Minicouper is coming to America. Car Sales are down for SUVs overall, and it is never stated, but down even further in Resales. I have not checked, but estimate RV Sales reflect that free-wheeling adventures of the Home-on-the-Road are coming to an end as well. Boating and Jetsking may start to decline, as both are high-fuel Entertainment. The bigger-is-better lawnmowers may even have peaked. Soccer Moms may be viewing the end of their Tour-Bus industry. I may be Wrong, but I may be Right. lgl

Agricultural Subsidies

The World Trade talks are getting nowhere again, and actually, because the demands of each Side would injure the standard of living of the other Side. They all want to invade each other's markets, but they do not want to pay for the privilege. This Author has never held much respect for multi-Trade agreements, and the present Talks simply express that Trade agreements have to be sculpted to each Participant in the agreement, they cannot be an ad hoc 'Rule of Thumb' for Everyone--no matter how badly economies are battered.

Take the Issue of American Agricultural subsidies. They created Corporate Agribusiness without helping the average individual Farmer very much. Is this the way to go? Farming is a specialist trade, I possess this knowledge being the Son and Grandson of Farmers, and having engaged in Farming myself. Corporate Executives without farming experience are not qualified to make decision of 'What' and 'Where' to plant and 'When', likwise for using fertilizer, herbicide or pesticide, what type of seed to use, when to Cultivate, when and how to harvest, and what types of Grain storage to use. Farmers need be allowed the freedom to determine the best use of resources, but Farmers must also make a living.

American Farm subsidies must eventually be altered to eliminate the inequities in the system, as well as limit the incrusion of Corporate life into the basic trade. This Author favors a simple system, easily undersood, with simple structural Accounting placed upon the Farmers. A simple Draft of the Enactment would be:

All registered Farmers owning or renting agricultural land, will be guaranteed a Wage of $16 per Hour worked, if they can prove they have worked over 1000 Hours at the Occupation.

Such a law does not guarantee Farm debt, does not promise success at Farming, or the accumulation of wealth. All Agribusiness will need to register one Farmer for each piece of land, and will have to prove each registered Farmer worked at least 1000 hours on the land (We will be generous, and allow each laborer to work any agricultural land to make up the hours). Non-Farmers will not be allowed subsidy because they cannot register the hours worked. Agribusiness must turn into businesses, who are expected to be Profitable without Government welfare. The pay is sufficiently guaranteed to assure Farmers will not be forced from Farming, but insufficiently high to promote artificial assumption of Debt load. The final note states Farmers will not have to exercise greater Accounting than regularly utilized in Income Tax payment. lgl

Impressions

http://authorsden.com/visit/viewarticle.asp?id=22974&AuthorID=23453

People utilize sources in their writing, and an old Internet friend, David Arthur Walters, recently contacted me about using my Thoughts in one of his articles. I agreed to his use of this material, which he had acknowledged would be a compliation of various items I had written through a multitude of postings. The end-result, while sounding more strident than it actually was, helped me clarify my own ideas on the reviewed Subject:

In 2004, military historian and economist Lawrance Lux noted that: “Contemporary
fascism is initially funded by wealthy vested interests. Slogans are coined to
appeal to middle class values, but are quickly dropped when perceived as
conflicting with the desires of the wealthy class. Inheritance taxes are
abolished, ostensibly to help out small businesses. Middle class values are
touted as superior while the economic base of this same class is deliberately
undermined. In a relatively prosperous country, wages are bound to drop and
prices and profits will rise as fascism takes its toll; the standard of living
shall decline accordingly, as the percentage of wealth held by the few rises.
The nation will be incited to war for the aggrandizement of big corporations and
their fascist leaders, distracting the populace from the exploitation at home by
uniting them in fear and hate – naturally unionism and worker unrest will
naturally be condemned as unpatriotic.”

As I said, the tone is too strident. Still, if I could only get him to deal with the Left and the Religious Fundamentalists in the same manner. lgl