Value of Trade

Students should read this Post by Greg Mankiw, who tries to define Paul Samuelson’s position on Trade, by citing the Bhagwati, Panagaryia, and Srinivasan (2004) rebuttal of Samuelson’s Paper. It sounds good, but may contain some elements of confusion (remember this comes from a individual who has read only parts of the Samuelson Paper, and none of the Rebuttal). The first Step in the Trade cycle develops, not necessarily because of Comparative Advantage alone, but also because of a lack of knowledge (Technology and Expertise) in the continuum of Sales in the Other’s domestic markets. The second Step is achieved with the Trader learns to effect Sales in the Trading Partner’s domestic markets, providing competition in those markets under the pressure of minimizing Production Costs. The third Step consists of domestic Producers learning to match the competition of their Trading partners effectively, and much of the value of Trade dissipates for both Trading Partners, with Trade reduced to basic raw Production materials. I happen to agree with Samuelson, and believe that the spread of Information and Technology will destroy any Comparative Advantage of Trade, except in the realm of raw Production materials, over the long haul.

Hillary Clinton may be mistaken on her views on Trade, but where has this ever stopped any Politician? My contention, possibly or impossibly backed by Samuelson, attests that Economists overinflate the value of Trade. My ideation fundamentally asserts that all Trade must be either discriminatory or confiscatory (as hidden taxation), based upon a lack of Information and technology spread. Even raw materials must be based upon a Worldwide Pricing system, with full spread of Information, to avoid this artificial taxation. The basic trouble with Ricardo’s Comparative Advantage lay in its excellent analysis of Costs; its basic failure comes in its inability to integrate Assets pricing successfully into the spectrum.

Economists will say the Above is a Question of Ethics, not Economics, and they will ignore the natural Cost pricing of discrimination. There is real reason why leading Trade partners invariably lose their preeminence in World Trade, which is basically the spread of technology and expertise. Great Britain was the leader in Trade in 1900, and trailed drastically by 1950. Japan was a major leader in the 1970s, and has been struggling since the 1990s. Is this some major loss of Comparative Advantage? Well, yes, but a specific loss through Information Spread; remember, Japan still remain as a technological leader. American Economists should realize that the United States needs to take the lead in some industrial advance–Computers and Boeing jets are getting a bit worn. lgl

Government Mentality

Here is a prime example of the Workings of Government, Science, and bureaucracy. Even if they can finally establish that there is a Danger, any Solution can be blocked by any segment by multiple counter-Proposals. I will tell Kids right now, that if We are actually dependent upon reaching some critical goals within a specified Period–We are doomed! I am reminded of the old Racist statement that if you put Two Jews in a room, you would come up with five Opinions; I have always contended it cannot just be restricted to Jews. Before I scare these same Kids about the Danger of Global Warming, I will say that if Greenhouse Gases continue to be released by humanity at current expanding rates, We should equal five active Volcanos somewhere in the next thirty years. We might fry in Our own homes, so be it; I think We should talk about scraping the Greenhouse Gases out of the atmosphere, a sensible Plan which could also counteract those Volcanos.

Here is another instance of the intricate workings of bureaucracy. The Federal Government wants to put a driver away for life, because he drove bin Laden around. They claim this individual knew of the Sept. 11 attacks prior to that date. So what? What were the Options of the individual involved? He might have made a Collect Call to the White House. He might have told bin Laden to hell with his $400 a month Job, which would not have stopped the Attack or saved anyone, but would have showed he was not a Terrorist. He might have refused to carry Weapons in his car, though he had a legal Permit to carry firearms, and there has never been any Injunction seriously enforced to carrying Arms in Afghanistan–ask any Taliban member or American soldier. It is another instance of burning the Small Fry, while leaving the real issues unresolved.

We now turn to the subprime Mortgage bailout announced by Bush, but devised by the industry itself. The industry only wants to save those Mortgage holders who cannot possible renegotiate new Mortgages, with all the charges of refinance. They lock in those losers into paying what they originally agreed, and forcing all Others to refinance with all the expenses involved. A real humanitarian effort exhibited by the big money Lenders; who can claim righteously that they have been injured horribly, and insist on even more years of indebtedness for the Mortgage debtors–at higher Interest rates. I love America, if you can stay above the flow at floor level. lgl

Short-Sighted Economic Theory

This BLS Report may miss the boat. It bases its evaluation on past performance, not resorting to a study of economic trends. I will first say there is no obvious indication of a Recession anytime soon, but that a Recession will undoubtedly occur within the next 5 years, based solely on the extreme complexity of current economic integration. The next Recession, whenever it comes, will create a great Watershed; Government having already exploited almost every venue to expand the economy: the National Debt is huge, the Dollar is already declining, and the economy has already expanded into sectors capable of utilizing lowered Interest rates because of quick Profits turnover. The Government will itself be a major Debtor looking for subprime financing, which will not be found. It is my Thought that the only avenue out of a new Recession will consist of a reconstruction of American industry, there being no where else to regenerate positive growth. We are going to need those Blue-Collar Workers once more.

Gilles Saint-Paul presents an insightful Argument on the impact of interest rates as a price of a Product–financing. A Fed-dominated Interest rate constitutes artificial shelving of Product at non-Market pricing, remaining unconcerned about the quantity of the Product unless it raises the prices of other Products. Normal economic theory would suggest that the practice would bring constriction of Product provision–or finance. The trouble resides in there being a inversion of normal economic theory concerning the flow of Money resulting from the practice of Reserve banking. Extension of Loans become increases of Reserves, through the simple practice of the Debtor, or later Seller of other Product, redepositing the funds back into the banking system. Reserve banks obtain an almost limitless supply of Reserve funds to be lent out, all they need is the Debt purchasers. The Fed can set the interest rates, or Reserve rates, too low, and suddenly there are more Borrowers than is economically sound.

Gilles touches on how low Interest rates will affect Imports, which will increase in amount. Debtors and Product Sellers will wind up with a larger flow of Income because of low Interest rates, and will want to spend a greater share of that flow on themselves. Demand outstrips Supply of Consumer Goods, and foreign Imports quickly fill the Gap; a practice helped by Production Costs historically being cheaper Overseas. Those Products which must be filled by domestic production rapidly increase in Price, due to the increased Demand; Gilles’ increase is assets pricing. Saint-Paul says bubbles might be created, I will say that bubbles are automatic under such practice, it only being an equation of impactive Time and Pressure. lgl

Extortion and the Abuse of Police Power

Cactus at Angry Bear provides two Graphs which should make the Reader contemplate current Conservative economic theory. Marginal Tax Cuts do not appear to operate as economic theory would dictate. I have previously written of my belief that higher Tax rates with sound Tax collection practice, if not beyond the absorbent qualities of the economy, provide a spur to economic growth; my position being that Management is forced to work harder, greater Wage Demand exists, and Service industries expand to acquire the added Wages generated. Cactus may focus on the lax Tax collection practices under Republicans, but the real Story is that there is a spur to economic growth under higher Taxes, and elimination of a spur to growth with Tax Cuts.

The EPI studies the better outcomes of Canadian health care compared to the United States system, while the U.S. spends almost double that of Canada. They also note that Canadians consult with Physicians almost twice as often (6.0 v. 3.8). The American practice of limiting Medical School enrollments has been a major factor in the last statistic, which is not endured by the Canadian system. The limitation has cost the American economy greatly, ever since the Grenada invasion to rescue American medical students. Why must Americans go Overseas to attain Medical School, if We possess the finest health program in the World?

This Piece brings Us back to the original paragraph, but ties in with the second paragraph in an insane manner. My Comment on the Free Exchange Post is that if the American economy was overheated by the low Taxes, the disparate Government Spending deficits of the Bush administration, and unsound Pork Barrel Spending of both Parties, then an excess of liquidity will not propel growth, only Inflation. Mark Thoma makes the essential point that Consumers are in the mood to pay down Debt, rather than engage in further Spending. I do not like the arguments of Thoma, and agree mostly with William Polley. He thinks there should be a lower funds rate, which I happen to also disagree with in both theory and practice. My Solution would be to eliminate the impediments to economic growth now on the books, like the above difficulty of obtaining a medical license if qualified. I would also incite new laws, like compelling fines for use of Tires more than 50,000 miles (Fine to be equal to the replacement cost of the Tires). A spectacular number of things can be accomplished with the simple application of Fines for non-performance, like a $200 Fine for filing a late Income Tax Return. Employment would rise if there was a $100 Fine per Compliance Report not filed upon scheduled Date. There are multiple way to affect Change. lgl

The Blitz never works

Here and here are two articles which reflect the pressures which Wall Street is trying to apply to the Federal Reserve for lowering Interest rates. Here is my dilemma: I have always wanted the Overnight rates to be pegged at 4.25% forever without change, and cannot fault the Fed if they cute the rate by 25 Base Points. The Economy, though, fails to meet the criteria for a Rate Cut. Mortgage rates have returned to Interest rate levels from which they will not decline. The DOW Industrial index is over 13,000, and cannot reach much higher numbers without inflationary pressures. The Slowdown for the next year is a basic restructuring to meet current Demand, and will not be viably altered by the presence of easy money. Little more Product will be produced, cheap money or not. The value of the Dollar has suffered drastically this year, and a Rate cut will incite foreign exit from their Dollar Holdings, probably without increase in the purchase pattern for American Products. Neither Wall Street or the Fed will gain from a Rate Cut, and it will provide an additional Shock to an already battered Economy.

Edward Hugh puts an intelligent Take on the stability of the American economy. The real factor remains the growth of foreign competition to American development, a reoccurrence previously seen in the 1960s with the rise of the Japanese economy. The real problem comes in the U.S. economy being tied to systemic technologies due to previous Capital investments in the technologies, while Developing nations placed initial Capitalization into sounder technologies. The whole situation will revolve to an improved American position with further Capitalization, though We currently have reached a certain plateau. The American economy is not going to disintegrate in the interim Period; it will simply redirect its Capitalization efforts. Efforts to propel faster change will fail, and stupid efforts to do so will worsen the situation. lgl

The New Wrong Direction

Here is an erudite article about the potential Gains and Risk of Deflation. I remain a prime Deflator on the basis of theory, knowing Currency stability must include the provision of Risk, in order for Value to restock in the currency; pure Economics insists that any Product cannot be set by Market forces, if measures are taken to artificially support the Product price–impacting Currency as seriously as any other Product. The most serious fault with such Protection comes from excess liquidity, which compounds what inflationary pressures are existent. Giving Consumers more and cheaper Money is not the Means to fight Inflation.

I am most offended by the Concept of making Debt too onerous to repay. Debt should be hard to repay, it being the sole inhibiting force forestalling Spendthrift policies. The Fed may take the Credit for the loss of Savings in this Country; educating an entire Generation to live on Credit Cards and Mortgages until the Debt is so preponderantly great that it is time for Bankruptcy. Everything is today organized to empower Everyone to Spend until they literally Drop, without any recourse to establishing financial reserves. We now have a Government which has the lowest Taxes but greatest Debt, the greatest instability of Low Income and High Debt coupled to a lack of financial reserves, and a continuous need to refinance Debt obligations. There once was a Time when a new House cost about 3 years Wages; today, 70% of Labor will retire with outstanding Mortgage debt still existing on their homes.

There are Economists who exclaim that this Condition holds no impact on Prices. There is underutilization of Product throughout the Market; how many empty Business facilities exist, solely to gain the Tax advantage of Mortgage Costs, such new facilities ever more elaborate and expensive to increase the Tax deductibility. All Product prices increase due to the transfer of the financial costs of financing Sales to the initial Price offering; this is no mean thing, which can generate 30% of the total Cost of the Product. Garbage Dumps are filled with last year’s Christmas Gifts and PCs, most still in fairly good operating condition.

Thanks to Mike Moffit for the link to the article. lgl

Tyler Cowen presents an excellent argument for ignoring the declining Dollar, and there are sound economic reasons for such an attitude. The trouble resides in the fact there are some resounding economic arguments to support the Dollar. The major impact for Consumers sits within a rapid change in Pricing in Dollars, coupled with extreme resistence to Wage inflation. Business and Fed policy is firmly committed to Wage suppression, though rather open to Dollar devaluation; such a combination does horrid things to Consumer viability across decades. Tyler’s comment about there being little to do about Currency transactions may be a little evasive, as simple reduction of Federal Debt would have an immense impact upon a sound Dollar.

William Poole at the St. Louis Federal Reserve is admittedly a Front Man for Bernanke and the Federal Reserve Board, but he talks before groups, like the Cato Institute, who overembellish any Comments forwarded. Poole’s advocacy of interest rate cuts irrespective of current trends in the financial markets excites the rapid Profits crowd, who want the cut rates to finance the Margin markets. Mortgages are extremely tight, but this is because of decreasing Home values, not because of outrageous interest rates. We are coming off a extended Period of construction push, and a slowing construction rate was bound to bring Value adjustments. The fact exists that liquidity actually exists in the Mortgage market, if Mortgage applicants accept a sound Mortgage structure. Study of other Markets indicate acceptable liquidity, considering the high Stock values and Commodity pricing. The Federal Reserve should be cautious about an effective ‘Guns and Butter’ policy, when We don’t need the Guns, and the price of Butter is already too high. This Graph from Mark Perry proves my previous Point, as Mortgage rates are again coming down.

Here is a NYTimes article which accounts the corruption in Iraqi society, where Everyone steals from the Government and the U.S. This is a Feel-Good article pointing out how much safer and easier it is in the United States, where you have to be an Accountant to steal from either the Government or Private Contractors. The real point of the article, though, is that it is impossible to engender proper Business ethics, unless and until Splintered Law Enforcement can be eliminated. Punishment for Corruption must be uniformly applied to be applied at all. lgl

I will never make a Bookie

One should read both the new Forecast and the News Release given by Eddie Lazear, provided by Greg Mankiw. My own Take on the Forecast is that it is too optimistic, I believing that growth will be present, but only about 1.5% for next year. The basis for my estimate is the fact that the American Consumer is shaken, and plans to pay down some of their Mortgage debt, refinancing more for safe Repayment schedules, rather than for more Spending. A real criteria to watch is the total Finance numbers on new Vehicles; if these numbers start to retreat, even if they are only very marginal, it means that Consumers have altered their Preference practices. The real element of discrimination will probably be the After-Christmas Sales, determined by the Percentage rollback of Product Pricing, conjoined with the total volume of such Sales. Eddie Lazear did an excellent Job in the Press conference, but he might be promoting a Product which will require an excessive amount of Advertising, and still fail.

You can find the major opposition to my Position here, with Lawrence Summers promoting an Activitist policy. I personally believe it is the wrong time to be loosening the Fed control, what with the shaken Dollar and rising Energy and Food Prices. I have always held the supposition that volatile Prices, if they exceed 3% of average Consumer Income, negate any reliance or trust in consistent Core Inflation; the volatile Prices will impact on Consumer Sentiment (maybe the exact Point at which to reset the Inflation rate). I will probably be crucified for this sentiment, but it might be time to Sunset the Bush Tax Cuts; they providing no stimulus–if they ever did, raised Tax revenues will stabilize the Dollar, Production impact will be effectively nil, and both financial markets and Business interests will find it easier to accept Profit Margin Cuts. It is a Mean Call, but Investors never liked me anyway!

I am not a whiz at Math, but I do not understand the equating of this game to Investing. All Investment I have seen possesses a premium for Engagement in the Game. A better formalization would have 4 White balls, 6 Black balls, and freedom to withdraw from the Game at any time. Continuance in play, though, would provide a 4% payment for the balls remaining in the hat, every time a ball was removed from the Hat. At a Dollar per ball, the preference premium under normal Investing was be $.36/removal of the first ball, $.32/removal of the second ball, . . . Initial investment is very profitable if White balls are pulled out, loss is minimized by the premium if black balls are pulled out, while the odds of pulling out White balls increase with every removal of a black ball. I might be wrong in this assessment of the actual functioning of Investment, but I will retain my own ideas, even if proven wrong (Born Loser). lgl

The Unpleasantness

Government as business protection, as it normally operates. The whole issue is actually based upon the existence of Special Interests, who co-opt the fears of some segment of their fellow Citizens, finding some means to make a Profit from this terror. Some people, like myself, even go so far as to believe that around 60% of all Government expenditures are simply Rent-Seeking, which presents no real value except for the Special Interests involved. I once proposed a national act closing every Government office for one Week every 16 Weeks, and if no one noticed, the Period was to be extended to Two Weeks every four months. I could have cited as defense of the bill that the average Citizen claim for Government action requires almost 11 Weeks for approval, and no probable notice would have been taken. I could now propose a bill which would mandate nonpayment of 3% of any and all Government claims, based totally on Random number generation; the repetitive nature of Claim filings would generate only a minor decrease in Business Interests’ Profits and/or Citizen satisfaction, but at great Savings to the Government budget. No one agrees with my modern Accounting methods!

You know things are bad when ‘Hayseed’ theft (couldn’t help it, I just had to say it) hits the Associated Press. Farmers are transferring to Corn and Wheat because of high Prices, and Hay is heading to $200/ton before Winter. The ethanol subsidies has to be cut, if not canceled; the only question is When. American housewives are going to be dragged into this, as Meat prices will increase by $2/lb. by next Spring, if both Corn and Hay stay high in Price. Government subsidies are always bad, but can become disastrous when it places an industrial sector in competition with Feed and Food prices. Farmers and Industry thinks this is good business, but wait until 12 cents of every Dollar of Food price increase translates into higher Wage Demand.

What is wrong with Post? The Answer may be the Dollar loss of value against other Currencies which has not yet hit the Restock equation for American consumption. It seems so good, but how much of the Gain was Inflation, but hidden until the next Round of Product Pricing? So much of what enters American Products has already undergone high Price increases, or will be generated forward with the new Production models. I am not just talking a specific Series of Products, but an overall Factor Price increase of around 11%. Passed on without any Business intervention to forestall Consumer Sales reduction, this increase will lead to about 6% overall Product Price increases. lgl

Deep Deposit Carbon

This is a sound assessment of the integration of forestry sequestration into the climate model for reducing Carbon emissions, thanks to Tim Haab (be sure to read his Post for important element). My major comment states that forestry sequestration must engage major segments of the Populace, in a manner which is both economically and environmentally viable. Carbon sequestration has to be disbursed throughout the areas of heaviest Carbon emissions; it cannot be restricted only to underdeveloped countries and Tropical areas. Effective conversion must be constructed in a local base. Wind flows will alter in direction and speed with a Smokestack effect, creating adverse Weather conditions which are of higher turbulence; higher Storm surges, concentrations of Acid Rain, and expansion of Drought areas. Current models do not integrate such data into Climate models.

One may ask how We can engineer a uniform spread of Carbon sequestration. A most important venue would start with separating Carbon emissions into Deep Deposit v. Surface Carbon emissions. I prefer a Carbon Tax to Carbon Permits, but in either case, said taxation or Permit should only apply to Deep Deposit Carbon emissions. This Separation would establish a preference to Surface Carbon energy sourcing, and provide the Capitalization of Surface Carbon utilization for Energy. This will not be as difficult as Most think, as Wood Chipping practices are very widespread, and monitored (timed) Wood Chip furnaces can be designed for sufficient Temperatures for Heating and Energy production. The same effort could be exhibited for the burning of Sewage and Garbage Product.

Public involvement could be engendered by an allowance of Property taxes to be paid in 60lb. Bags of Wood Chips–at a monitor rate of say $6/bag. Local Governments could replace Deep Deposit Carbon emission for Heating and Energy for Surface Carbon emission. Local landowners would plant fallow lands to Trees and Bushes, while the 60lb. Bags of Wood Chips could be produced for about $4/bag. Lawn Products would reduce in consumption, pumped Water would reduce, Carbon sequestration would increase, and Deep Deposit Carbon emissions would reduce. Overall Temperatures over Urban areas would reduce, as would intense Smog and Greenhouse levels, and Wind pattern flows would normalize to greater degree. The Energy bill of Local Government could be reduced by a probable 60% of Heating Costs, and 20% of Energy Costs at a comparable rate to Deep Deposit Carbon pricing. lgl

Truth in Advocacy

The first Casualty of War has always been Truth (really original this morning, aren’t I). I will give the first Rule of Statistics: never use any Numbers which disagree with your position. One does not want to create any confusion in Those listening to you. I have enjoyed an excellent grounding in Statistics, and always use casual boundaries to express direction, such as ‘People are still being shot at in Iraq, and fairly frequently’. Pressed for Detail, I might reiterate that most of Iraq is slightly more dangerous than Central Park after Dark. One could also suggest that Iraq suffers from Serial Killers with an Incidence some 70,000% greater than the United States. Such general use of Statistics allows the Reader to understand the progression of events being studied.

Mark Perry and the FDIC provide serious help in understanding the Credit Crisis in the Country today. The greatest problem coming from the Credit Crunch may be that Bank Officers may not get the level of Bonuses to which they have become accustomed, and Bank liquidity may not inflate the Stock Market as a consequence. Hedge Funds are decidedly worried, as Investors wonder if they should pay the extreme Charges demanded from the Funds. I would not assert that the Crisis does not exist, but would suggest that Bankers are most concerned about covering their own ass, rather than worrying about the state of the economy. The greatest Point to remember about the Housing market is that House pricing may hold an average Price equal to what was found somewhere in the last five years.

The New Economist has expectations that Robert Reich should entertain real Solutions for the problems afflicting the current World economy. What is the real source of the Problems? There are too many People, consuming far too much, and in a manner which is extremely Resource-consumptive. Will Capitalism ever fix the Problem? No, but will Welfare or Government Regulation do any better job? The Answer is again No! I will suggest that it will require a fundamental failure with massive human suffering, to redirect human civilization to a sustainable economic platform. Do I sound excessively cruel? I could say that I hope the crippled World will crimp along for as long as possible; hopefully, until after my own demise. lgl

A Waste of My Free Time

JohnWhitehead sucked me into reading the latest EIA Report on Greenhouse Emissions (pdf); a facility which Instructors and bloggers are supposed to possess. I have to say I do not agree with the decline in Methane emissions, considering the melting of the tundra of the Alaskan shelf, the drought in the South (remember that the Report is for 2006), the forest burn patterns in the West and Florida, and the dried overall Groundcover since 2005. The same could be said for the CO2 emissions (natural causes). The N2O emissions increase seems heavy, as 9.9MMTCO2e from agricultural sources seems high, when there should be a consistent pattern, or drop, due to increased Fertilizer Costs. The included 2005 Carbon sequestration rate must be adjusted as well, due to forest fires and Drought; I would suggest about a 20% decline of the 2005 sequestration rates by subsequent environmental damage in 2006. It smells like a very loose Report to me.

I find some disbelief with the U.S. Greenhouse Gas Intensity Summary. Only the last Statement contains real relevance, which is indicative of Production transfers Overseas, rather than any industry adjustment to lower Emissions standards. Redirection to American Manufacturing would again place Us into the earlier ranges for Carbon Gas Intensity. The Greenhouse Gas Emissions Overview show that both Industrial and Transportation releases should be cut by 40% apiece, while Residential releases could be minimized to 20% of current levels. Transportation releases occur because of excessive Product transfers, and better Production practices could produce far less Emission release (moving the Emissions to a regenerated resource).

I will leave the rest of the Report to dedicated Students, as I am tired and in search of a cup of coffee. The report highlights a characteristic of recent Administrations, claiming victories on the environmental front, when there has only an alteration of economic pattern without intrinsic structural alteration for better Emission rates. The American Public will have to learn that the only method to fix anything is to change its operation. lgl

The New Production Lines

David Leonhardt points out a real problem, but is rather short on real Solutions. Identification of the Problem insists that it centered around the switch from traditional practices in almost all Sectors of the economy, this switch itself focused on technological, high-energy use of heavily-capitalized equipment for higher Production levels. Can the Trend be reversed, and would We want that Reversal even if We could accomplish it? The Answer to either question is a probable NO. The advantages of technological Production remain too great to be spiked by accessory problems.

We must learn to turn the disadvantages of technological Production around to Our advantage, retaining the current values of technology while eliminating Capital and Operating Costs from the equation. Some Rules of Thumb are valuable in this context: Smaller is cheaper than larger, micro-production units can maintain Production levels with lower Energy and Materials Costs; alternative Energy sources work far more successfully with micro-production units, there being far less Cost in the Collection processes of alternative Energy production; micro-production units employ higher levels of labor, this labor divided by Job design rather than the previous Production element fulfillment; and multiple Sourcing of Production materials supplies suppression of Material and Energy Costs, in conjunction with eliminating primary dependence on Material sources.

Research must assume the leadership role in transition to greater Productivity, but also an identical position in Job Creation. Government and Business need to fund the Research Costs. I still await a high-Tech small farm experiment where Size is limited to 40 acres, Energy source is underground electrical cables supplied with Energy from solar panels, watered by treated sewage pumped in collectively from neighboring communities and animal confinements at night, capital equipment limited only to the base needs–equipment to run on Set-pattern lines conforming to electrical line access, and powered by no larger than a 12-Horse electrical motor; all of such Equipment to function automatically without human supervision–only human maintenance and Sensor cut-outs, with the Equipment component-capable of being easily switched from Plot to Plot. I cannot wait to see a small Harvester (think Combine) totally powered by Solar, which can harvest 10 acres per day, leaving the Grain in end-bins for Collection purposes; the totality of Capital Equipment Cost for the average Plot coming to less than $100,000.

I have used Agriculture as a base example, but any Production enterprise can be converted to micro-production. Think of a Machine totally run by the Solar panels above it, which costs no more than five times the Cost of the Product which it produces, and which produces only one unit of Production per day. Seem Insane? Designed Buildings, Solar panels and Mirrors, stacked machinery, and alternative materials for Capital equipment could provide all the necessary Energy and Materials for Production; while eliminating Heating Costs, heavy Building construction to protect against Weather, with high levels of Job Creation in Machine Maintenance, Material supply, and Product Distribution. Think about it! lgl

Wandering through the forest

Here is one of those Cases where the judicial system is screwed either way it goes: one way, nuisance suits multiply without end; the other way, the actual viability of 401(k) style funds will be threatened because of a lack of institutional discipline. The real Answer may be passage of a new Law governing such structured investments, one I like to call the Three Plus Profits Rule. It is a simple thing, insisting the average gain on Accounts must exceed 3% per year, before the investment institution can declare a Profit, the intervening funds to be distributed between the Accounts evenly, to maximize growth of Accounts. This Rule does not say that Accounts must make a Profit yearly, but does insist that institutional employees and Stockholders cannot engage in Profits-sharing before such a gain for the Accounts is reached. Such a law nullifies Court commitment to a set of Suits which are unsatisfactory, and provides protection to Account-holders automatically; the IRS can insist upon the necessary documentation.

This Puppy will make people happy, but will play too long; the Fed should have closed the funds down within the year, I would have chosen December 27. The Fed is trying the wrong help for the Banks. It should have forced the Banks to carry the losses within this fiscal year. The attempt to average out the losses will only destabilize the financial markets for a much greater Period. The uncertainty introduced into the financial markets will impede economic growth far more, than the jolt therapy of registered losses on the Books. Next year will be a Repeat of this year, with Banks still in a race to discount losses on their balance sheets.

I agree with the supposition, but disagree with the rationale behind this Peak analysis. The U.S. economy will not weaken that much, the Dollar will gain renewed strength, and China will face more problems with Quality Control which will deter the American Consumer. China’s lost position, though, results from inability to bring more Power online because of Construction delays, clogged Transport networks which cannot transport both Coal and Finished Products, and increased material Costs in construction materials for Ports, which is almost in direct competition with Dam construction and City Skyscrapers’ construction. The averaged increase in Wholesale Costs of Chinese Products will lead American Purchasers to the more-normalized Cost structure presented by India and Latin America. I may not be right in this analysis, but the Chinese Government no longer has the power to prioritize the Production Schedule. lgl

As the World Churns

Oh my, the use of ‘black propaganda’ when Santa is trying to determine who is being naughty and nice. The EAEPC claims that the EAASM (read the article to get some idea of the ridiculous names) uses maligning claims about Drugs to protect Sales of patented Drugs. It is just wrong to assert that the EAASM would use Scare tactics to protect about $20-80 billion per year of Profits likely to be lost by spread manufacture of Drugs, all of which accrues to a half-dozen companies. Children should play nice, and not accuse each other of Wrongdoing. Besides, there is probably about $2-4 billion of legal fees necessary to prove such an allegation.

Chris Dillow outlines the policy which probably will not work. Extended Education will cost more, pay less, and exceeds the intellectual attainments of a massive share of the Labor force. Workers do not want to spend their most-productive years training for a Position in short supply, and One which may even be eliminated before completion of the necessary study. The whole element reminds of the mid-1980s, when Waiters with Ph.D’s were common. I remember the Graduate Student in Art who gave up Painting and Stipend teaching of Undergraduates to become a Plumber, as it pays the Bills; even selling a few Pieces for some Thousands could not compete with feeding a wife and two kids. I must say that he is a very successful Plumber today.

George W. Bush keeps trying to play Santa Claus for the U.S. Military, but this glossary of military terms shows he may has some distance to go. I personally think that Asymmetrical Threats will defeat the current Military Concept. The definition of Mission as stated by ILSM will be equally self-defeating, especially the outsourcing of architectural design for $10 million PX buildings before the War even starts. Network centric is the capacity for national leadership to screw up an Area Commander’s job, as well as they do their own. The modern military’s greatest Victories come within the halls of Congress, supported by Special Interests as long as the Military can supply high-Profits Contracts. lgl

Merry?? Christmas

John Whitehead attempts to express his apprehension on the occasion of the arrival of the Christmas Season, in his own enviable style. I hope he gets to Pilgrim’s Progress. My own intrinsic need for a Christmas tree might alter the Opportunity Cost Equation, as I have not put One up the last Two years; of course, my sister and brother-in-law altered my economic decisions by buying me a small, artificial tree–no change? Now I got to put the damned thing up! The Twelve Days of Christmas is also up over 3%–higher via the Internet, this saying something about the Core Inflation issue. Retail information says Sales down, but Customers up on Black Friday, only proving that damned fools will get up at 4 am to go Shopping; I won’t even do it after a decent lunch.

Here is another Grinch Stole Christmas, no matter which Side you are on the Question; I stealing the Grinch from Newmark’s Door. I once made the remark that the level of Taxes did not matter, once people became hungry, they would Work despite the Taxes on the practice–now, I am not so sure! Honest Business personnel become Thieves in the Night, when it comes to paying Taxes. Tax evasion is the leading crime in this Country by total volume of Commissions, the most common forms being self-payment in Cash, and filing of exorbitant Expenses; these two forms rapidly being challenged by No Filings at all. I could tell you the Tale of four Businesses being run by One Taxpayer, but Reporting only one Business, except no one likes a Tattletale on Christmas Eve.

Here is the Grinch who wants to have Christmas, placing much of the blame for the Credit Crunch on Greenspan; well, really not so much, as David Warsh tries to spread the blame with the traditional ‘Well, he was with me!’. The one thing which no one mentions about the ‘new-fangled Securities instruments’ is that they were designed to hide the degree of Risk involved, to aid in their Sale and dispersal of that Risk. The Designers actually did too great a Job, no one can put Humpty Dumpty back together again. All I Want for Christmas, Is my Two Front Teeth, preferably in Gold at the current Market value. lgl

Modern News Print

Joe Nocera objects to Cable going a la carte. He says it would be too expensive for the Consumer, as networks charge by total Consumer volume, rather than specific Consumer use. A group can buy any old Studio, run in Second-hand equipment, program nonsense, get a Cable company to bundle your station in, and suddenly you are one of the major networks. One of the channels in my bundle finally gave up the Ghost. Did they quit? Oh no, they simply went to total Paid Programing without any editorial at all, and rarely even change the Paid Programing; I think the Station is down to Tapes and a Duty Engineer. Still, I wonder at the national revenues generated by this stimulating network. I guess I am only saying that Cable bundling is crap, and the anti-corruption people should be looking at their own television sets; if there is no Kickback system at work, then Cable executives have been imitating Forrest Gump too well, or they have been watching re-runs of Dumb and Dumber too often.

Nelson Schwartz is trying to tell the Investor that success at Retail does not mean success as Stock Share value. Why? The Answer is simple: the Retail market has been saturated, and Stock issuances have destroyed the value of the Stock. It is all a question of Retail volume and Stock volume. Stock is issued in Good Times, and Retail volume must continue to match the volumes of the Good Times Retail, or the Stock is in the Toilet. One of the potential values coming from a Recession, if it comes, will be a mechanism to regulate issuance of Stock Options, Stock Grants, and Stock buyouts. The current system of doing Business is designed to limit previous Stockholders to the same level of Stock Dividends, without Stock divisions or rise in the Price of the basic Stock; simply so that the value of increased performance can go to the Executives who engineered the Windfall. The Trouble comes in the failure to build up intrinsic value in the over- issued Stock, and the tying of Retail volume to a treadmill simply to keep constant value: the Greyhound eventually runs itself to death.

This article by Robert Schiller bothers me, though not because Robert is a bad economist, even Elizabeth Warren’s advocacy of a Financial Products Safety Commission has much merit. I do not like the Schiller/Weiss proposed blockage of market forces determining home values by venue of insurance; which would fail at any rate, under a sharp decline of housing market values. His praise of Fannie Mae/Freddie Mac lacks of real sincerity, as both institutions have shown all the foibles of private lenders, simply maximized by Government intervention. I am afraid that the Schiller advocacy for Business as Usual is the wrong sentiment, as that is what has brought Us to this Point in the first place. lgl

Efficiency Value of Current Leadership

The regional leadership will not enforce national policy in China when it comes to the Environment, so what else is New? Regional leaders have about as much Power to change national policy, as does national leadership in the EU possesses to alter policy; knowing the national leadership in China will not replace them, until they fail to meet the Production priorities of other regional leaders. This Country should not feel complacent; the American Electorate has consistently shown an unwillingness to replace their own leadership, and political leadership’s response to Special Interests is as great as has ever been shown, with almost no response to a national conscience. The only difference is American leadership only does that which will rob, rape, or corrupt the Electorate, while Chinese leadership will engage in practices which will eventually kill Us all.

Here is an attempt by Republicans to center the coming campaign upon reforming Social Security, a situation which is not vital to either the Electorate, or national interests. Social Security needs to be fixed, but We have a 20-year Window in which to fix it. Medical practice must be reformed in the near term, else it will fail within the next 8 years; this means construction of a Means to control Prices in the industry, Millions will have to opt out of Medicare within this Period simply because they cannot even afford the partial Payments of the medical expense. Switching Everyone to Medicaid as well as Medicare will not fix the Problem; We cannot ask the States to fund the largest, and most expensive, industry in the Economy. This paragraph also has something to do with the preceding one, with Voters being unwilling to punish corrupt leadership.

This gives Us an article of Wistful Thinking, where the Money managers hope to avoid claims of a Recession through practices to devalue the Dollar, and thereby lower the Standard of Living of average Americans; rather than endure the embarrassment of admission of Recession. This is again throwing the burden of maintaining the economy onto the family households, a form of hidden taxation aimed at destroying their viability. The Money managers do not understand that the wreckage of this practice will be far more violent and destructive to the American economy, than would be any Recession. I fully expect universal Wage Demands of in excess of 15% within a year, and future attempts at preventing Inflation will fail in the face of the Demand pressures allowed to have been built up. So much for a qualified leadership with foresight. lgl

Oil, Retail, and the Dollar

This article makes me turn philosophical about the entire situation. I am going to go way out on a limb, and say that I don’t believe Oil will hit $100/barrel, Now or any time in the near future. This runs against the greatest majority of Thought on the matter, but there are real reasons I could base my suspicion upon: early Christmas Shopping numbers could easily be very low, Air traffic snarls and high Gas prices could reduce Christmas travel by a potential 8-10 million, any Recessionary conditions will generate new Jobs closer to the Home environment, and foreign consumption of Oil will decrease equally or faster than American domestic consumption. This is followed by the fact that any new Congress will pass a Carbon tax of some type; economic studies have indicated such taxation impacts the Supplier more than the Consumer, and with a Carbon tax, higher Prices can translate into actual lower Profits. The impulse towards higher Prices has been expended in this market cycle, and the future trend is Downward.

Here is another example of why it might be a bad Christmas season for both Shoppers and Business. Advertising areas are too large, Discounted Product are too few in numbers and with insufficient supply of Product, and Consumer resistence to paying normal Market margins. Consumers do not have the funds to adopt normal Purchase patterns, and Businesses lag in conversion to a large-volume, low Profit margin environment. The later event is especially sad, as a large volume sell-off would have secured much relief throughout the Production chain.

Here is access to Economists’ views on the weakening Dollar for all those dedicated Readers, who are not watching the Nebr./Colorado game like myself as I write. I agree with Tyler, by the way, on the undervalued Dollar. The major underlying component for my belief comes from the still necessary American markets for foreign Manufacturers; a weaker Dollar generates insufficient Profits for them, and alternate market Sales have not yet been devised. I think I will leave it there. lgl

Thankful??

Here is an interesting Read provided by the WSJ Blog. Study the graph provided, which gives the actual breakdown on Incomes based upon purchasing power parity. It would be nice if there was a similar graph describing PPP outcomes divided between American States. It could present a good overview of the distribution in the United States, and highlight the importance of Local and State regulation of Business in determining overall success. Concentration on the elements generating success, and distribution of capital to develop regional advantages, could be far more effective than crowding in high-Profit arenas.

Readers may want to read about the Liberty Dollar. It is interesting, but boring. Alternate Currencies will always fail if their value is listed on the Coin in other Currencies. Money is the prime market Product, which cannot attain any value at all outside of Trade. Precious metal bases can achieve some value, though only with the defacement of the Coin. Markets and Currency must intertwine, else both the Currency and Market are ruined.

Here is a list of things to be Thankful for this holiday. Six of the things listed are not what I would really be Thankful for, but to Each his own. 1,2, and 3 hold real resident dangers; 5 does not present a real evaluation of purchasing power parity, 6 could mean excessive economic Heat, and 8 seems great only to Those who do not fear the erosion of Survivalist traits in the various economies. Alan Greenspan might be like Old Soldiers who should fade; still, antagonism is not something to be Thankful. lgl

Social Security Revisited

Paul Krugman first wrote this article saying that Social Security was not one of the pressing problems. Greg Mankiw rebuts Paul claim, saying that all fears came from dispassionate analysis by some of the best policy economists. Brad Delong and Mark Thoma both criticize the attitude expressed by Greg Mankiw, but the best rebuttal must be given to Dean Baker, who attempts to deflate the hysteria. The whole Issue might be simplified by first stating that Conservative desire is concentrated in minimizing all potential taxation, refusal to repay the Social Security Trust Fund by venue of discarding Social Security Benefits, and forcing a dismantlement of the basic Social Security system.

Economists would do far better to simply answer certain basic Questions about Social Security. I will list a number of Questions, whose Answers could aid the Argument:

What percentage of Benefits would have to be foregone, to maintain the current rate of Taxation without the Social Security Fund falling into deficit?

What percentage of Tax increase must be mandated to maintain the level of Social Security Benefits without the Fund falling into deficit? What would be the added actual taxes per $100,000 of Income per year?

How much longer could the Fund remain in surplus, if Medicare was broken off from Social Security, and Medicare funded by a proper Health Care law?

What increase of Fund security would come from cutting the Federal ability to spend the surplus from the Social Security Fund, and dictating that the Federal Reserve first lend Social Security receipts in intra-bank loans, before using their own reserves?

How much longer could the Social Security Fund surplus survive, if the system was switched to a uniform monthly Benefit?

Dozens of Questions could be posed, but these above could provide sufficient detailed information on which to base a policy decision. Study of these Questions could even suggest Means to better Social Security performance. Readers have to understand Politicians, Economists, and Ideologues hate to be pinned down for actual specific Answers, hiding both their Sins and foibles within confusion. lgl

Trade, Jobs, and the Farm Bills

Dani Rodrik led me to this Paper(pdf), and Dani states it is the strongest evidence to date he has found that ‘new products play in shaping the pattern of export composition during the development process’. It does provide that defense, but I believe that the Paper tells Us a little more than just that. Export facility (capital infrastructure) will probably be found to come mainly from the ‘within’ component of traditional exports; therefore, the change in ‘between’ trade expansion past a PPP$14,000 can be accounted in the completion of the capital infrastructure formation in normal economic patterns. The second element of importance is that a concentration of exports occurs around PPP$20000-22000. I believe that it is around this Point that normal economies develop the technology and trained labor to eliminate dependence upon foreign sources in all common-practice industrial sectors--redirecting their Trade commitment. It is my belief Economists perhaps confuse themselves with unimportant issues in the trade development evaluation.

Mark Perry makes a very valid Point, there were far more Jobs generated in other sectors to replace those Jobs lost in the Manufacturing sector since 1997. There was actually about a 14 million increase in Jobs, two-thirds of which actually paid more than the eliminated Manufacturing Jobs. The Rub, though, comes in the form of two Questions: one, did the increase in Jobs keep pace with the increase in the size of the Labor force; and two, did the new Jobs maintain Wage increases to keep even with the Inflation rate? The Answers to those Questions bring a little depression (Could this be called the Little Depression?) where real Personal Purchasing Power has been declining, but hidden by a ballooning of personal debt. Those whose Income is ahead of the curve of Inflation like to claim Times are great, but about 83% of the Labor force cannot enjoy that claim.

I rarely agree with Don Boudreaux, but in this Case I must agree. It is not that I believe that farmers and ranchers should not have some form of federal underwriting; it is only that every version of farm support fueled by lobbying interests is ridiculous. I have long been an advocate of farm subsidies based upon the Cost structure, not on potential Yield capacity. This would insure that no Subsidies would go to Anyone not engaged in Agriculture, such Subsidies would be dependent on actual verified Costs, and perhaps exclude all Payments to any Agricultural enterprise which made more than a 10% Profit. Such a Program could be limited to less than $50 billion in good years, and less than $100 billion in bad years. But what do I know, except that I grew up on a farm. lgl

Oil, and the state of American mentality

James Hamilton presents a very balanced look at the World Oil Supply, though he doesn’t enter into speculation on methods to rejuvenate older fields. It is all a question of Pocket pressures, where Oil production in new fields is added by the higher pressures of the original state, in the extraction of the Oil. Some Oil companies are experimenting with injecting Greenhouse gases deeper in the fields than the Oil-producing wells. Other companies are attempting to pump water at depth in the fields to maintain the pressure. The Greenhouse gasses provide an added chemical reaction to separate the Oil from the holding sands and clay. The problem with the later is the Cost of Sequestration of the Greenhouse gasses, which actually does very little to improve the environment, considering the released gasses present in the Oil itself. My Solution would be to pump raw sewage to the bottom of the Oil fields, a process which would provide the needed chemical reaction, bury affluent whose degeneration releases great amounts of methane gas–a far worse Greenhouse gas, and which would be far cheaper to obtain. It has a much greater attraction, in that it would produce a larger interjection of pressure on the Oil, which would increase over time through the degeneration process.

Here is a Post which almost All will actually find hard to answer. Are the allegations true? Most Readers would hopefully claim not, but all hold the glow of truth; meaning their charge will be hard to bury. The greatest share of Americans are disenfranchised, recognizing their leadership have not been working in their own interest for years. They have little association with Immigration outside the economic arena, and the majority of small Businesses are still mainly employing Workers who they watched grow up. They watch their Property taxes go up to fund Education for Immigrants, as their children have cultural conflicts with Immigrant youth. They endure Coffee and Lunch Breaks where English is a foreign language in their own lunch room. They go to a Walmart or Pizza Hut, and Spanish rings in their ears. The worst Insult comes when they watch their own Incomes stagnate, while illegal Immigrants fill Showroom floors looking at vehicles which they themselves cannot afford. Americans wonder where the promise of America has gone.

Tim Haab wonders why Walmart even bothers to be Green. He can identify with Walmart’s desire to make Money, but has trouble with Kant’s moral obligations. He should not worry, because Many before him have struggled with Kant’s offer of a perfect world, by venue of the pursuit of a pure heart. Walmart may do injury, or perhaps aid, by their desire for the wealth in the pockets of Those feeling guilty about the rape of the Earth. Neither Case will incite irreversible damage, either to the altruistic, or to the immortal Kant. It will make Walmart serious money, else it will be discarded. lgl

Medical Accountability

Cynthia Fitzgerald faced the question of whether to be a Whistle-blower, and answered in the affirmative. The only Change over the years has been that such practices have even invaded her home State of Nebraska since her move to Texas. It is indeed Common Practice today, and even extends to the level of Practitioners; Doctors insisting on Lab trials which they know are valueless, and insisting on Brand-Name proscriptions though they are aware that other Drugs are more efficient and less-Costly. Will Novation be found guilty? Of course! Federal prosecutors will not take on a Case they cannot win; it is again a Prestige and Money-making thing. Will Novation discontinue the practices–then, Now, or in the Future? No! Everyone will simply consider it the Cost of doing business, and pass the Expense onto the Patients. Isn’t there something which can be done?

There are Options, but can Patients get Congress to resist the extremely powerful health lobby? The probable best enactment which Congress could pass would be a limitation upon Proscription Costs ( a legally-mandated Drug Benefit for all Patients), past which the Doctors themselves must pay for all Drug Costs utilized out of their personal charges to the Patient. Patients could Shop around for Cost-effective Doctors. Here is the Rub: Say that the Drug Benefit is set at a maximum of $2500 per year. Within a relatively Short Period, all Patients would be paying $2500 per year for Drugs; Drug companies soon realizing the Value of Kickbacks to Doctors. Malfeasance will continue as long as leeway is allowed.

A more effective Option would be making the Doctors, Clinics, and Hospitals defend their Medical Expense practices–sort of like having an Income Tax audit. The difference would be that all Three would have a mandatory Audit every 3-5 years. The Auditors would be a Commission consisting of equal numbers of Doctors and Medical Economists. Fines would be very simple, the crime being excess over-charging: 15% of all disputed charges. The Commission would also be entailed to periodically publish an Overview Manual listing the best overview discovery of means to save on Medical Costs in Treatment. This Manual would become mandatory practice withing 3 years of publication. Any added Cost of Paperwork would be paid with a mandatory Sales tax on all medical Drugs, medical equipment, and services. The entire purpose, here, would be to criminalize bad medical practice, in a manner which does not punish individual action, but records and punishes overall poor performance. lgl

China as Trading Partner

Many are the comments on the Chinese Trade surplus, this article more reflective than the Norm. China is downplaying its Trade surplus, while developing alternate Trading partners with Third World countries. Study of these Relationships will find China attempting to replace Western technology in the Development policies of these Third World countries, desiring to become the principle Technology supplier for them. Their goal is to get the Western industrialized nations to capitalize this transition, and they have been fairly successful in this endeavor. They hope to utilize the U.S. Debt held by Chinese to counteract any counter-cyclical effort by the industrialized nations to forestall this dominance. Readers may do well to remember that the Chinese have always led the World in negotiating bad faith Agreements, which there was never even any attempt to live up to the terms of the Agreements.

The nature of Chinese politics stands as the major culprit behind this Stance, as it has since the origins of China. China has always been ruled by a Warlord style of Provincial Chief, who has almost unlimited power within his fiefdom, setting and interpreting the laws, but responsible for meeting the goals set by the central throne; this consisting of the entire coalition of Provincial chiefs. All are judged by a very ruthless All, and replaced if there is any failure of Group desires. Provincial chiefs have absolutely no impulse to meet any legal standards–especially legalities established by foreign powers. Laws against intellectual piracy will never be enforced, as it introduces an added Cost as well as slowing the Production function; making it difficult to meet the goals of the congregated Provincial chiefs. Coal is cheap and abundant, while Pollution abatement is extremely expensive and Time-consuming; again making it difficult to meet the national demands of the Provincial chiefs. Product Quality means nothing to Provincial chiefs, unless the Product is designed to be distributed within their own Province. Uniform Business law impedes the control of Provincial chiefs, as well as curtailing the impost of desired levies to defray Provincial expenses. American Business have always believed there was a fortune to be made in China; the problem remains that the Provincial chiefs will never allow such a fortune to leave their own particular Province, let alone China.

One must understand these Provincial chiefs are quite unabashed in their pursuit of their own aims, to the point of arresting foreigners until they have squeezed the Profitability from them of their Chinese Production operations. Foreign Business will still be protesting previous ill-treatment, when they are hit by further discriminatory action from the Provincial chiefs. Chinese businessmen, under the protection of Provincial chiefs, will run up huge debts to Westerners, and claim Bankruptcy under hard pressure; never ceasing their Purchases and extension of financial liabilities to Western suppliers of Capital. Foreigners will file lawsuits, which will get lost in the Chinese courts by order of the Province chiefs; a situation which will either be denied by the national government, or by promising corrective action which is never pursued. What every Westerner needs to understand is that what goes to China, stays in China; it is a Tradition older than Capitalism itself. lgl

Different Attitude

I tried reading the CBO’s Economic Forecasting Record: 2007 Update (pdf), at least, until I went to sleep at my desk. Menzie Chinn advises his Readers to pay attention to pages 11 and 12; I would advise simply to pursue the pages 40 and 42. The later pages are far easier to compare as to the validity of CBO and Administration Forecasts. What I like most about such Papers is the proven theorem that Numbers can confuse as well as highlight, and only firm grounding in the basics of Economics can save Anyone from intrinsic error.

E.J. Dionne presents an incisive argument for placing the Iraq/Afghanistan Wars in context with the rest of the Federal Budget. Several Questions should be asked about the Wars, which no one asks. What is the exact value of Our intervention in Iraq; what are the real consequences of chaos in Iraq to Our national interests. The Answer to that One is not much; in fact, pulling out unilaterally would alter the nature of Geopolitical demographics, with Mideast concentration on securing a Regional conflict, rather than resisting the United States or elimination of Israel. Are We really going to advance the cause of Democracy in Iraq, Afghanistan, or anywhere else in the Mideast? The Answer is No. This Region has about 4000 years of history, with Democracy never but a pale, unworkable Choice; always failing soon after introduction. The fact remains that wastage of American resources in the Region will never overcome a religious and cultural bias against the United States.

The correct policy for all of the industrialized world, not simply the United States, would be to drive home to the Mideast the real economic Cost of the provision of Goods and Services, without the West running scared from the loss of Oil supply. This would again call for a effective Tariff system, which almost all Economists rant against. Western Economists cannot endure the thought of discriminatory tariffs against the Underprivileged, simply because they are a bunch of Terrorist-sponsoring totalitarian Governments who happen to treat their own people as badly as their Terrorists treat Us. lgl

Fairness in Economics

John Whitehead paraphrases this WSJ article which discusses the Cap-n-Trade, and in doing so explains the inferiority of the methodology when compared with the Carbon Tax. Caps, first of all, can be manipulated by Congressional action, and the Energy industry and Business possess the only lobby coalitions capable of affecting Congress effectively; this means that the Caps will never hold. Probably a great number of Economists, and most certainly the CBO, will have long and involved equations which will prove that Consumers will pay about 88% of a Carbon Tax by higher Prices with the introduction of the Cap-n-Trade provisions, even if the Caps are given away for free. The Energy industry, on the other hand, will get out of paying the Carbon tax, and will even gain from the Transactions which place the full blunt of the Cost on the Consumers and Government–if the Permits are free. Cap-n-Trade is basically only a Corporate Tax Break, injureous the Consumers, and does nothing to alter the Pollution problem.

Do Women know something We don’t? Caroline Baum certainly thinks so, though she doesn’t come straight out and Say it. The trouble is that I think she is right. The sensible Proof of the assertion is to check current News articles to following Events, to see how the Predictions co-aligned with resulting Reality per Quarter over the last 25 years, or 100 Quarters. I will not say that the Women would win, as I have not did the Survey, but I will take small Side-Bets. Men, even the most perceptive, tend to ignore unsavory signs which conflict with their desires, while Women are Achievement-oriented, and place Price frames on their Goals which will match final needs.

Mark Thoma leads Us to this Paper which tries to put a Price on distributive justice (fancy term for redistribution efforts) while they classify three Types of Distribution: Need, Equality, or Equity. This segregation is excellent for their Study, but highly irrelevant in the Real World. No one needs more than a Welfare recipient receives, but tell that to the greatest majority of People. 80% of People could not manipulate the funds adequately to produce a Surviving Economy, if funds were distributed equally. Equity possession can be either fair or unfair. Fair Equity would insist that Equity holders have no higher Tax exemptions than Average Income Earners, after which Equity holders would pay the full nominal Tax rates as real tax. Fair Equity would state Equity holders could not pass onto heirs more untaxed Equity, than that which is passed by the Average Death amount. Fair Equity would insist that Capital Gains be taxed by the same Progressive rates as Income tax. Notice that Fair Equity does not prohibit any current practice of Equity exercise, it simply insists that Equity pays in the same magnitude as Income Earners of Taxes designed to restrict individual division of their Earnings. Does this sound excessively altruistic? lgl

Doing Things Wrong???

Some of my people may be somewhat angry for my yesterday’s advocation of buying JC Penney stock as a hedge against Inflation. It first expresses how reliable I am as a Stock Analyst, and second, I think the heavy Players are wrong and Investors should buy counter-cyclical to the Market. I still think that Penney Stock were better $5 per share for the year, which is better than 10 percent at current Market price. It does highlight the fact that I should not be treated as a Guru capable of solving Anyone’s problems, including my own.

It is sad to learn that I owe myself $10 million because of Smoking, especially as I spent so much to do it in the first place. The Paper states the Tobacco Tax should be increased by 2675%, a minor effect of making it more expensive than Driving a vehicle at current Prices. Viscusi and Hersch, to get these Numbers, had to ignore every other source of illness. They might need an additional Course in Counterweight theory. I contend that Petrol fumes comprise an equal danger to that of Smoking, and don’t get me started on Food Additives. I’ll finish with the Statement that the Kids have lost sight of the term: Natural Causes.

Cactus at Angry Bear found this article somewhat disturbing as well he might, though I knew that something of like order was in the Works, due primarily to the accumulation of Debt ratios since 2000, and since 1990. The Cost of Consumption has been increasing for a long time, defined by the degree of Debt raised–holding Wages around a Inflation-related increase level. The Effect, if found to be true, indicates that the Consumption-Now philosophy in America, propelled by American Advertising, not only artificially raised Consumption but generated the excess use of Resources. This concentration on Retail Sales, rather than on infrastructure development of Private Sector Manufacturing, will leave Us poorer. lgl

Swarm Behavior

Stormy at Angry Bear establishes a position simply extending the state of nature to the field of Economics. The Concept might seem hard to refute, except for the use of Innovation in altering the direction of the swarm. Only humanity seems capable of self-modification of swarm behavior. A major element of swarm direction in the last Century has been the development of ‘Pocket Plants’ instead of huge ‘Total Production’ Plants. Almost all industry today outsources Parts to subsidiary plants throughout the World; partly to cheapen the Production Costs, but also in efforts to environmentally remain sound in their locale (shared usage of Power requirements, shared use of Transportation facilities, shared cadres of Labor, etc.). Industry found that simple Dumping procedures to extrude Waste could not continue, then found some value in Recycling; the entire Process likely not to be completed, until such time that it is cheaper to do than simple Dumping. Animals are not terribly efficient, as all species must accept some degree of migration regularly in their habitat. Humanity, through Economics, Technology, and Science, has devised methods to survive in environments for thousand of years, even through vast climate changes. It is not exactly Swarm behavior.

Don Boudreaux also expresses his own fears of Swarm behavior, though he uses the conservative term of Collectivism. Conservatives and Free Market advocates possess inherent belief in bucking the Trend, thinking this methodology garners some real gain; though it does not advance actual (real) Profitability of ventures, and funding for any endeavor (other than Personal investment) requires a Consensus concerning the Profitability of proposed ventures. This means that an alteration of Swarm direction cannot be achieved without Communications skill, as well as Political or Business acumen. Collectivism, on the other hand, again destroys its own environment, due to the lack of adaptability through the suppression of Innovation. Neither the Swarm or the Individual could survive in isolation, but they will not admit to the fact.

Jonathon Chevreau files a good Piece in the National Post on how to balance Portfolios in order to weather possible double-digit Inflation. I do believe such an Inflation rate is possible, especially if the Fed again responds to Market leaders, who want cheaper funds no matter what the Cost to the Economy. The Problem resides in the fact I believe that Energy, Agricultural stocks, base metals, and Gold are already over-priced, and you will be following the Swarm to invest in these areas which have already enjoyed their Inflation. One must remember that it is always the Swarm who endures the double-digit inflation, else it would not be Inflation. It always occurs in pulling other Market Products into line with Price leaders. lgl

A Short Dip into Reality

Josh White and the Congressional Democrats may be a little over the Top with their latest Report, but possibly not contemplating the long-term effects of the Wars. This means that they will cost probably in excess of $2 Trillion to the American Taxpayers, though not for the reasons cited. Oil price is dictated by Consumption patterns, and now with the additional consideration of Speculation. There is an immense increase in Demand for Oil through the manufacture of Weapons and Munitions, Transport of such to the War zones, and their usage in the field. No one else will estimate it, but I will contend it increased American Demand for Oil by around 12%. Understand this Increase probably generated about $7/barrel in added Oil price, strict Oil Demand Worldwide would place the price of Oil at a Production Cost of about $51/barrel; the rest of the $96/barrel comes from nothing other than Speculation. The Wars did contribute to the Cost of Oil, but it was only a numeric, not a geometric, progression.

The Report obviously utilizes widely-popularized Income statistics for Income, when concerning the Costs of withdrawing Labor for Service in the Military, and later Cost of Loss of Productivity by Those injured in the Wars. I would first like to say I support the Troops as much as Anyone, and possibly to greater extent, due to the circumstances of my life. The fact still remains that the average active Serviceman, Reservist, and National Guard member has a lower Educational attainment than the total Adult Average which is utilized to evaluate Income potential, and 90% of these veterans form a great segment of the Population which counterbalances the Incomes of the upper 30% of Income-Earners. Service in the Military might actually give the overall complement higher-Earning Job skills once they are home.

The real Cost of the War must be evaluated in terms of the material resources utilized in the conduct of the War. 30% of the Aircraft, 70% of the Helicopters, and 100% of the Patrol vehicles will have to be replaced in the Military. Some 25% of the Transport Aircraft will also have to be replaced. Huge amounts of Construction materials have been used in building Military bases which will one Day have to be abandoned. Relocation of Troops upon Removal from the War zones will cost about One-Third as much as the original Deployment, once We have to clean up after Ourselves. The World which We must operate within is not a cheap place to operate in, and is getting more expensive every day. The final Price for the Wars will be high, but Economists should focus on the actual Cost structure, not on wild claims. lgl

Bad Business Practices

Does this article sound familiar? The News kind of makes me yuan, and brings up the old economic argument of whether economic growth is best engendered by the transference of Capital, or the transference of technical expertise. The current transfer of Capital to China has brought about high rates of Inflation in both China and the United States, with Infrastructure Costs almost destroying the Chinese Government’s ability to engage in other activities. I estimate that at least 50% of Chinese manufacturing capacity is geared to Sale of Product to highly industrialized nations, and now China will be buying heavy quantities of Food; American Pork Producers should be talking to Chinese officials already, who could substitute for the declining American interest in Pork Products (though not in Bacon, Ham, Ribs, and Sausage). The real impact will be in the American market, where Consumers will find any increase of Prices for Chinese Goods decisive in the Purchase pattern; American Wholesalers are probably looking elsewhere even now, considering the current fears of Chinese Product Safety and Quality. China may have real trouble ahead, in that the United States has relatively no Quality Control agencies in Imports supervision like most of the World, but is finding they are necessary.

This article shows the difficulty of an industrialized nation relying upon Exports as the mainstay of its economy, especially when it also has a heavy reliance on resource Imports. Americans feel that the American economy is too large to be adversely impacted, but there is ever-increasing reliance on Imports, and a recognizable plateau has been reached for American Exports, unless there is a revitalization of the American manufacturing sector. Current Corporate philosophy stands as an impediment to this revitalization in their search for low Wage rates, bringing on a contempt among American Youth for technical positions. We may endure the same pattern as the Japanese economy of the 1990s, simply not sufficiently Productive to generate the Profits necessary for American growth.

Here is a real example of Corporate policy which must be countered, if there is going to be real growth in the American economy. The Corporate mentality is pricing itself out of the family market, as families have to budget for Vacations. Transportation, Room rates, and entertainment venue rates are all going up at a faster rate than are American Incomes, but Corporations hope to restrict the Las Vegas Strip to the heavy Players–Most of whom chose Investment dalliance over the short-term thrill of wild Betting. The Corporate mentality will think to concentrate upon becoming a Convention Center as the Betters leave for much cheaper and closer Indian Reservations, but Business will look at the Cost forecast of massive Transportation and Room Costs of moving Staff great distance to adverse Room rates–they won’t come in the volume desired. Corporations do not seem to understand the limitations of the Tourist industry. lgl

Howdy-Doody Time

Here is another article which suggests the next Recession will only be a Recession of Corporate Profits, not a Recession of Lost Productivity. Some may ask what I mean by that Statement. My basic Contention asserts that standard Business practice remains vibrant, and will continue to be so; but intemperate release of Corporate Stock Issuances, couple with the involved Credit instruments designed over the past two decades, have proven to be a failure. The funds desired were raised, though only by the creation of a Chain Letter of Debt, which Everyone now finds to be very difficult to repay. It is likely to be the first Recession, if it comes, where Employment is not threatened in economic measure; and one where, for the first time, the Money Managers will be seen applying for Unemployment Claims.

Here is another example of the new Money Management style, and I would advise the use of extreme care in the purchase of 144a securities. Small Investors should be extremely worried, as 144a issues are needed by Hedge Fund operators in order to generate the high levels of Profitability which they find a necessity, both to pay themselves and to attract Investors to their Funds. Investors must understand that these high Profits come only with an extreme degree of Risk attached, and no way to identify and confirm the real degree of that Risk. My younger Readers may not understand this statement, so I will state that if these Type securities match historical records for such securities, some 14-16% of the Investors will not see their Money again. These securities are not for Retirement-directed accounts.

Felix Salmon seems to have some degree of residual issues with Ben Stein. One should not get mad at a Writing Hack who makes a good Paycheck. He might have done better to simply refer to his own Argument which highlights the deficiency of the Banking Group Boards. Both reach the same end, though, that the Board members should be replaced for being asleep at the Switch. Stein does not like Rubin, and Felix does, but both Merrill Lynch and Citigroup are involved in the new 144a market setup, so We can await punishing the delinquency until such time as We can file Criminal charges. lgl

Which Direction?

Work your way through this short Post by Greg Mankiw by venue of the links to get to Paul Krugman, Greg’s own estimate, and a Review by Dean Baker. Study the articles carefully, because they are all basically right about the connection between the Savings rate, reduction of Consumption, lower Interest rates, and the cheaper Dollar. Where they might be a shade wrong lay in the translation of this mechanism into an improved Trade deficit picture. This later has a constraint of foreign government action, not necessarily to maintain a surplus Trade pattern with the United States, but more generally to keep a balanced Trade pattern with all of their Trade partners.

These three Economists might ask why such foreign government action is inevitable in my estimation. The first rationale remains in the fact that the United States imports too much of everything, foreign countries knowing that this places too much pressure on all World Consumption Pricing; foreign central bank purchasing of U.S. Dollars not only insures a favorable Price for their own Exports, but also gives them a productive share (Interest) in what they consider an overheated U.S. economy. The second rationale for foreign government action to maintain generalized Trade patterns lay in their realization that the U.S. economy must eventually alter its economic performance pattern because of the over-consumption of Resources, and foreign governments do not want to be captured in an economic dependence upon the American economy as it is. A cheaper Dollar and lower Interest rates will not significantly sell greater American Exports under these conditions.

The real method to eliminate the Trade Deficit is to reduce American consumption. The real way to achieve this reduction is higher Interest rates, higher Taxes, and introduction of a Carbon tax. Letting the Bush Tax Cuts sunset (much sooner than 2010) would be a great way to curb American consumption, without affecting the Sale of American Exports in the slightest. Paul Krugman himself has written on the fact that a Carbon tax (rather than Carbon Credits) would impact Producers to greater degree than Consumers, due to the high variability of Demand associated with Price in the Energy industry. Another great reduction in Consumption would be to sacrifice the Sacred Cow: the Mortgage Tax Credit. Economists will scream that all of these factors would propel an economic Recession; but would it be a Recession of lost Productivity, or simply a Recession of lost Corporate Profits? The Population of this Country and the World is too extensive for it ever to become a Recession of lost Productivity. The final great Tax imposition of great value is the elimination of Corporate Tax credits for foreign investment; assuring a redirection to capital investment to domestic resources. Does all this mean Hard Times for Americans? Yes, but not as hard as it will be when We cannot purchase the foreign Products because of the lost value of the Dollar. lgl

Using Numbers Carefully

Felix Salmon notes the major points of Joe Stiglitz’s article in Vanity Fair. Stiglitz states, which Felix notes, that a young male in his 30s today, adjusted for Inflation, makes 12% lower than his Father did 30 years ago. Both fail to mention the same condition basically existed for the Period 1981-1993 ( contestable as I don’t keep Records, and my memory is a Seeve). The poverty of Americans today is not the fault of President or Congress, but generated by Inflation, and unresolved by a Welfare program lacking focus and specific design. The Agricultural subsides are asinine, but not because of their existence; simply because they have been allowed to engage in Corporate welfare. The soaring bankruptcy rate is only a testament to the falling Dollar and Inflation. John Whitehead comments that it is mostly true, though Bush cannot be blamed for the Oil prices. I ask myself why Bush can’t be blamed for the Oil prices; his administration functionally tripling the Defense Dept. consumption of Oil, what with constant Fighter Overflights, the massive movement of military supplies to Iraq and Afghanistan, and putting American Fleets to Sea about twice as often. The sensible Median measure would have been to minimize Passenger flights, raising Passenger fares to honestly sell available Seats, avoided a massive movement of military Supplies and military Patrolling, and stationed the Fleets in the most accessible positions.

I might as well make Everyone mad at me, and criticize Greg Mankiw’s repetition of Joe Doyle’s statement that ‘the typical value of a life-year saved of $100,000.’ It admittedly is quite generally utilized, and as such, probably as misconstrued as any Statement. It is generically false for probably 80% of Individuals under 45 years of age, viable for about 60% of Individuals between 45 and 62 years of age, and representative of only about 20% of those Individuals over 62. Those for whom is not proved true have too low an Income, face complicating medical problems, face Accidental Death, cannot reach such a magnitude before Retirement, or lack the resovle to return to Work. Recovery times for such Individuals, and even Those returning to the Workplace, are not factored into the Estimate; or is the total Cost of Recovery utilized to subtract from the Income-earning ability.

My Readership will think I am getting picky in citing these individual authors for poor numbers, when I am so very subject to such hazards myself. Somewhat calling the Kettle black, as it were. Why I am so critical comes from my belief that the favoritism shown Business in this Country, both in the Reagan era and the Bushs’ eras, did not actively promote the Economy, or did it better the Standard of Living in this Country; though it did incite a great increase in Income Inequality. The criticism of the typical value of Life-saving obscures the attempts to make Health Care cost-effective, so that it can be allocated in a manner to the benefit of Society. We need to spend 40% more on Those under 45 years of age, an equal amount on Those between 45 and 62, and half as much on Those over 62; don’t think I am especially mean, as I will be 62 in five years, and will likely not live to see that Birthday. lgl

The Snat v. The Nobel Laureate

Amartya Sen has an article in the Guardian which I could not disagree with more, if he had cited religious leadership. Modern economic models can even predict the number of Disaffected Elements which will be found with any level of Population, as well as any direction of economic development. Disaffection centers around lack of economic opportunity, prestige, and positions of Power for economically disenfranchised individuals. The cadre of Terrorists comes from basically educated young males, who cannot find the economic positional levels of their Parents and Relatives. They are most often disassociated from their families, due their forced migration elsewhere to find any employment at all. The employment found most often remains inferior to what their educational level has led them to expect, while they are impacted by the loneliness of the Migrant in full measure.

The Disaffected find Religion to present the only pattern of a sense of family, where they can meet companions and a feeling of integration. Religion provides this aura, but only with the concept of Sin, a component necessary for the definition of Enemies. Wrongful behavior passes beyond to become evil Intent with the introduction of Sin, and Religion teaches that Evil must be fought, and hopefully, destroyed. The Disaffected’s position leaves a context where busy People do not have the time to pay attention to Strangers in their midst, and becomes an evil design to destroy the Righteous. Young males naturally assume that fighting must contain some element of violence; the Terrorist is born.

I have always resisted the belief that the majorities of Society are at fault in the development of Terrorists, and place the blame on Religion itself. The later assimilate the Disaffected gratefully, ignoring the deviancy of behavioral tendencies exhibited, as the Disaffected bring much emotional commitment and dedication to the practice of Religion. Religion defines Sin and Evil, and teaches the Disaffected to search out both, and fight them without definition of method. Amartya Sen adopts the religious conviction that the greater society must be at fault, due to their pedagogical faults which should be corrected; such an attitude will never attain any success in fighting Terrorist activity. lgl

Using Common Sense

Matthew Wald actually finds people who are working on something other than ethanol from Corn, and then We find them still producing ethanol because of the 51 Cents per gallon Tax Break for ethanol. I pointed out yesterday, or the day before, that planting Sugar Beets would be superior to the ethanol from Corn; I even made a sketch estimate which I show no one, but shows that Sugar Beet production would be about 6-8 gallons cheaper in vehicle fuels per acre over Corn production, Fertilizer Costs would be about half that of Corn production, and that Equipment Costs per acre would be about 75% of Corn production. Farmers, though, are heavily capitalized for Corn production, and ethanol plants are currently designed for Corn, though they could easily be converted to Sugar Beets. We should have Zero Interest Federal loans for conversion to Sugar Beet production, and Zero Interest Federal loans for development of fuels other than ethanol from Sugar Beets, Garbage, and Sewage; the Above best utilized by elimination of the ethanol Tax Break.

This Act passed by the House sounds good, but almost all the hazards cited in the article do apply. A much simpler reworking of the Insurance laws could provide much greater Aid, while limiting liability. I would pass legislation which insisted that Home Insurance be issued in lots of $100k, where the Insurer had to accept liability for Damage from any source, and Insured could buy as many lots of Insurance as they needed, desired, or could afford. It suddenly becomes less expensive to Insurers who can set premium rates based upon Risk, and can estimate the relative Risk they might run. Insured can insure for less than the full value of the dwelling, and assume a great share of the Risk burden themselves, while knowing the full danger to personal finance of building expensively in high Risk areas. Poorer Residents in Risk areas generally can suffice elimination of Risk with one lot of $100k, and Tax law can be altered to give a Tax credit for the Average of one lot at $100k to all Taxpayers. The Whole treatment in this manner does not cancel the Risk, but forces awareness of the Risk on both Homeowners and Insurers, and does dismiss the gamble as to Who pay What.

Felix Salmon has the wrong attitude towards the lack of skilled blue collar labor in this Country, suggesting that We need more Immigration. What We need is an additional Year of Technical training at the Community College level paid for by the School Board system, qualifying all High School students for Apprenticeship entrance into blue collar positions. This could best be facilitated by making it mandatory–regular College, or Community College. Such a level of Schooling would give Personnel Directors greater choice of Applicants, lower Training Costs per Intern, and mention of the high Pay scales available will attract the Applicants. The later attraction can be enforced by labor contracts which assure at least a 3-year Tenure, if the Internship is successfully completed. The best way is to offer the young Workers a venue to success in blue collar occupations, not to impact this Country with huge increases of foreign labor who cannot truly integrate the Training programs due to lack of language skills and extremely variable rates of unverifiable experience. lgl