Good Readings

Greg Mankiw comes forward with an excellent Post on Tax Policy. He presents the exact matrix necessary for discussion of Tax impacts. He deals with Efficiency from the viewpoint of Incentives, while I would be more concerned with Tax Placement confusion, and the structural inability to match Spending and Revenues. This also is a question of Goal orientation, and is not to suggest that His position is not a very defensible position. I do not put much weight on Intergenerational equity, believing as I do that such inequities are canceled by Wage Restraints and Inflation. Greg and I possibly agree on the issue of Egalitarian measures, which I believe only interrupts normal Profit flows, though unlike him, I could accept something like a 20-40% Surtax of devolvable Tax revenues upon the appearance of success (Income some 20% higher than the Average Income of Taxpayers). I probably will find extreme disagreement with Economists on my doubts as to the viability of seeking Full Employment; predicating Business success upon issues of Volume become increasingly irrelevant under conditions of rising Material Costs, retirement of the truly heavy Consumers, and an eventual shrinking Labor Force. We need to produce Smarter, not Greater.

This Post may explain the State of the Union better than Bush’s Speech, but I must forewarn the Reader that it is not as bad as it seems. It certainly does not call for a Tax Rebate package, though no one could stop the Package, considering that it is an Election year. Readers should not expect an immediate reward, though, as Politicians will come to realize that the Rebate has to materialize in September or October to impact the Election. Downgrade of the Ratings for the monoline insurance firms could shake up the Market, but not really affect holdings; the Investment Tie-up is already existent, and unstructured Selling will only provide sharp losses immediately. The communications cable disruption is not actually so bad, as it drains a lot of the hyper activity in the Markets when We need a Breathing Space.

Those concerned with Inflation should read this Post. I could attempt a long-winded discussion how every Point of Inflation reduces a set Cost of future Debt Service, but would entangle within Numbers, whilst Economists could all claim that the Numbers are wrong. I will only say that Inflation is only the failure of Tax Policy (to get back to the first paragraph), which should insist all Expenditures (both Public and Private Sector) should be adequately funded. Think of the Concept of unsecured Debt which is never paid, but revolved down through the years, with draft of material Profits which were never earned by the Expenditure. lgl

Marketing Strategies

Starbucks will open 1,175 new Stores this year (1,250 Stores including foreign Openings), but is worried about the 1% growth in Sales last year. Maybe it is only me, but Starbucks is trying to push into already saturated markets (covered by other Business stores), with a format of higher Prices than current Coverage, during a downturn of Consumer Spending. I would suggest they need to get rid of more than Breakfast Sandwiches, possibly returning to their original Company format, but more likely to insist on a Cut in Pricing. Of course, I may be one of the older Generation, who does not understand Precepts of Status Marketing; still, the later Concept may require less-congested Stores to be effective. I knew that I should have taken Marketing courses in college.

I like this article about the advantages of Small Business going global. I think it is a question of Marketing Costs compared to Volume, but with a possible extended Consideration. Small Business Executives may be in search of free Tourism in Europe. Can any Product of less than 3000 Sale units be marketed in a foreign land at extreme Distance? The Mark-Up of Product due to Transportation Cost would seem to alienate Sales, unless the Product was of high Price and complexity, and not facing regional competition of relatively equal quality.

I seem to remember JC Penneys’ trying something like this in previous years, and suffering some Sales loss because of it. Their Stores cater to a clientele who likes to evaluate the quality of the Product before Sale, plus a wider market who need an immediate source of high-quality Product for unexpected Events. They could actually lose in Sales because of this change in format, which will not serve Customer interests. I could be wrong in this assessment, as I could possibly be in my other commentary on this Post; it basically being an attempt to outguess the Consumers. I personally would make a reconsideration of such Moves. lgl

Current Construction of Operating Costs

Kraft starts to find that an additional Production Cost, i.e., ethanol subsidies, has begun to eat into their 4th Quarter Profits. I would comment Kraft has benefitted from its Share reduction program, without which Today’s announcement would have been a funeral dirge. High Commodities costs had dragged down operating earnings in their Food Division by 53% by their Accounting, even while the Food Division is trying to spread the Profit loss away from their primary Products to their sideline Products; an attempt to mollify the 40% increase in dairy prices. Kraft lost 15% of full year Profits because of higher Operating Costs, though revenues increased by 8.4%. I am not an Intimate of Kraft business details, but you can bet at least 80% of the increase in Operating Costs came from ethanol subsidies, given that Kraft’s Food Division has maintained steady Operating structure for years.

China endures a major natural disaster–Snow. How to explain to an Average American what the danger of that Snow holds for the Chinese economy, when We traditionally undergo much deeper Snow drifts. It is all a question of Population density, combined with absolute lack of Transportation expansion for Product. American Snow Days means that the kids legally get to play hokey; Chinese Snow Days mean that Product doesn’t move, and lack of excess Transport units entails that Production fall behind, from which there is no basic recovery. The Chinese Production year is shortened by a much larger number of Days, than is the American trend response. There is also no realistic Recovery mechanism.

Mike Shedlock will tell you everything which you didn’t want to know about the American economy. Price Wars between Discount houses will not bring out the Shoppers this time, except to grab the announced Bargain offers. Shopping carts will remain empty of the associated items common in ordinary Shopping, due to constrained Consumer income. The later has been reduced by an induced higher overall Cost structure without Wage Increase relief. A Tax Rebate will not change the context of current Shopping structure. It reminds of the Federal Court Review issued today which reversed a lower Court Ruling that stated Packing companies must pay for knowingly underpaying Beef Producers, because the Beef Producers could not prove that the Packers had read current federal regulation on such Pricing; whatever happened to the long-established dictate that it is the duty of the Criminal to know and understand the nature of the Edict? lgl

The Current Hipe

I thought to respond to the Bush State of the Union Speech this morning, but then considered that Everyone and their Dog would have their own Take on it. I will only say that the same mistakes of the Administration will be continued to the End, and whoever is likely to replace him will likely adopt the same Mistakes for him or herself. We will still be operating in Deficit, still covering Problems which do not exist, while leaving the political spectrum to deteriorate. We have had several years of hectic growth of the Economy, and some degree of slowdown is expected; but a spread Evaluation of GDP numbers sees no Recession over four years. Spastic attempts to stimulate the Economy is much like whipping a dead horse. All should just accept the current advance as the best accomplishment possible, until a retrenchment drives false Profits from the bloated system.

I chose instead to examine the ridiculous role of Drugs in the current economy. I stated, accurately or not, last night that the vast majority of Drugs designed in the last decade replaced already existent Drugs treating the same Conditions with 98% of the Drug effectiveness, and the earlier Drugs carried only One-Quarter of the Cost. I called for a 45% reduction in Research Budgets for Medicine, in response to Bush’s Call for increased Funding. I even vindictively suggested that Researchers actually Pass their Medical Boards, and try attempting to treat Patients personally for Profit–We need more Doctors, not more Medical Patents. I may have made permanent enemies in the American Medical Association.

Here We have a real battle of the Numbers, with Durable Goods up a solid 2.6% in December, but with the ISM (Institute of Supply Management) manufacturing index reading of 47.7, detailing potential Recession. What is Right? I will adopt the irreverent attitude which suggest that the ISM indexes show greater aptitude for evaluating the viability of recent economic trends, than it calculates long-term economic performance. This means that the ISM does better at evaluating the effectiveness of current initiatives over the long-run, than it is at examination of economic funding of long-term economic performance. Study of latest industrial trends and their survival factors remain easier than Crystal Ball research of total economic performance. It still might not explain it to Readers, so I will say that ISM indexes adequately express the survival characteristics of recent Investment Capital, leaving economic Brownian movement to evolve as it will. lgl

New Fed Policy Option

Manchau has a Post which I believe is essentially correct. The Fed will again drop 50 base points on the Fed funds rate, and could even equalize the Discount rate. I do believe that the next financial crisis is pre-programmed. The Stimulus package will not stimulate, due to Inventory drag and the excessive debt of current Consumers. The President could help in his State of the Union Message, if he would actually forbid Government agencies from spending the earmarks, whether they are Congressional Report terminology or legislation; he is in the perfect position to do so, with the Democrats shooting themselves in the foot, alongside his own inability to get reelected. It would not matter if the Courts later overturned his Ruling, as the earmarks still would not get spent in the remainder of his Presidency.

Another potential Gain for both Stimulus and Fed policy viability would be the passage of a Rule by the Fed stating that both the Fed funds rate and the Discount rate would increase automatically by 10 base points every month that the rates were below 5%. This would trigger immediate Stimulus, because Investors would understand that Investment must be immediate to retain favorable funding rates; reliance on Fed Open Market meetings could be very risky. Most would ask why I would set the automatic mechanism at 500 base points when I believe 425 base points is the proper setting, the higher Signature setting would maintain the power of the Fed to operate significantly within the financial markets; the Fed retaining a real Whip. lgl

How to get less from More

Shipyards cannot find Help, even recruiting at High School level for in-house Training programs, and Pay approaching $20/hr. They are covering vast areas, and even importing foreign labor. The main Stumbling Block appears to be aversion of modern Labor to adopt Blue Collar Jobs. Everyone wants to labor from a computer keyboard; but if some sweaty occupation must be endured, nothing which entails special clothing or Protective gear. A Welder has a hot, sweaty Job requiring protective clothing, including the Threat of Burns–both major and minor. A Shipyard has dozens of Jobs similar to that of a Welder, and finds little Interest expressed by the available Labor market. Job Imports from foreign countries even seem to be on the wane, as Labor looks to Automation to even greater degree than Management.

The Shipyards might look to Emporia, Kansas, where there will be an excess of Workers, who will likely not care seriously about Work Conditions. Tyson’s decision to shut down beef slaughter in eastern Kansas doesn’t simply highlight a Switch of beef production to western Kansas, but a major cutback in total beef production because of the ethanol subsidies. I have a running battle with a friend over the issue of more expensive Feed, he naturally taking the position that the subsidies are a Godsend; he being the Producer of several Hundred Thousand bushels of Corn per year. Emporia is only one example, missing 10-14000 Head of beef per day in eastern Kansas which had been previously raised. I expect the entire loss of my native State, Nebraska, would average a 30,000 Head per day loss; remember, We are talking about Two of the most Productive Beef Producer areas in the World. This Process will entirely lack humor for American Housewives.

Another practice which tends to endanger American production, as observed by Tim Haab. Cap-n-Trade inevitably creates the opportunity to make Money by curtailment of Production, this establishing alternative Means to earn without former provision. Little economic preoccupation has been given to this potential Practice, especially in industries with rapid related Increases of ancillary Production Costs. Agriculture utilizes very expensive Fertilizer, and much Fuel, in addition to Water. These three areas often make up half of the Operating Costs of Agriculture. What happens when We make all Three into Cap-n-Trade entities; ask the Co-ops about the hidden Private Sector conversion to Cap-n-Trade for Fertilizer. Some may not understand the danger of paying Producers for not working, but Consumers will eventually feel the difference. lgl

The New Strategy

The role of successful Dictators always fascinates the News media, and Suharto of Indonesia may have been the most successful of all Time. He differed from his predecessor, Sukarno, by never attempting to move the Country in any given direction, and only responded to the Events he had to respond to in order to survive in power. It may have the key to his survival, though I believe that Survival came from his refusal to impede economic agents from Capitalist operations. The article makes much of his family acquiring great wealth under his Rule, but so did all Indonesians, as well as private segments of Indonesian society and international conglomerates. Suharto fostered a regime which was economically profitable to All, and fell only under economic crisis. Indonesian rule since his reign can arguably not have been as superior from an economic standpoint. His Human Rights abuses, while admittedly vile, can be seen as the commission by the entirety of the Ruling classes of Indonesia, not his or his family’s alone.

Robert J Shiller gives Us an excellent article which should be read by Those interested in Market structure, but is a basic Argument with which I disagree strongly. The current trend by all major scholars in the area remains to remove Risk from the operating environment of the Markets. This is exactly the wrong Signal to send. Government never successfully removes Risk as a factor in the Market, and that Risk inevitably carries greater impact, due to the enjoined delays of its operation from Government intervention. Markets would be far more stable with less Inflation in their expansion, if Wealth was allowed to be destroyed as easily as it is constructed; We would lose the basic Wildcatting so prevalent under the current system. Profits are supposed to be bounded by the degree of Risk associated with the investment. Reduction of those Risks to leave only Profit-taking capacities only incites widely inadequate financial management.

Christopher Caldwell has written an article I can agree with, though I doubt We would agree on the adoption of Curatives. The decline in Manufacturing over the last thirty years contains the aberration, not the development of ancillary Marketing venues. Our labor cadres will never be geared towards an international Marketing framework; unsuited by Education, Experience, and Imagination. The failure of the modern American economy is the failure to provide sufficient employment for ordinary labor, who are afflicted with only average skills. Their effective underemployment is pulling down the American economy, while Trade Deficits are eroding our Exchange rates. Domestic entrepreneurs must once again be reinvented, providing widespread employment at competitive rates. We need labels proclaiming American Made on the extensive assortment of domestic consumption Products on Retail shelves. Technical Minds need to forget about designing Software programs, and start to contemplate construction of competitive Production lines. Financial Minds must invent the new competitive American Product lines. lgl

Monetary Policy

I was looking for a Counterpoint to a verbal debate I had yesterday about fiscal and monetary policy, and this Piece gave me exactly what I wanted. It should be carefully studied for what it says, and the graphs reviewed. Then I can stipulate that I disagree with the entire field of Thought. Comparison with the 1930s Depression is always the great Bugaboo of the economics profession, even though every economist has agreed that the Great Depression was an aberration which was instigated by a whole series of adverse economic factors which are nonexistent today. Inventories are not overly large, Employment is not keyed to massive unitary Employers, Banks are not tied to limited Subscription markets for liquidity, Trade barriers are not massive, and Consumer Credit is widely extended. It is hard to conjure an economic pattern today, which could even come close to imaging the economic structure of the 1930s, without sharp reversal of modern day economic practice. A Depression may still be possible in this Time, but it would be built upon totally unrelated circumstances.

The Argument I had yesterday concerned basic monetary policy. Simply put: I have never believed in the secular power of Monetary Policy. I have been a longtime advocate of setting the Fed funds rate and Discount rates at 4.25%, and keeping it there throughout Time; a Concept which disagrees sharply with most Economists and the Open Market Committee of the Fed. They hold a belief that manipulation of monetary rates possesses a power to alter the Purchase patterns of Consumers. This may be understood as effective by comparison of Consumer Expenditures in the United States versus other advanced economic nations, but the Argument is still missing for the high economic value of this excessive Consumption. We burn more Energy resources, fill more Landfills, and automate more Production facilities–all at greater Production Costs, and yet; can never seem to fulfill Full Production criteria for exploitation of Unit resources.

I believe that Stability of financial institutions is the greatest Key to economic success. I chose a set rate for the Fed funds to insure that stability. I pick 4.25% because it is a traditional approximate 70% of the real Return on Stocks and Bond issues, the lesser rate of Return determined by the greater guarantee of safety from Bank Deposits. Stability is extended throughout the financial structure: in the value of Currency, the demand for collateralization, the existence of Repayment guarantees, and the uniform spread of funds to investment potential. The rate of 4.25% also serves as a vital suppression of Inflation, which under such circumstances, entails a curtailment of Investment return. Students of Economics should understand that extreme Consumption is not a Sign of economic health, or is a lack of Savings generated by a failure to pay sufficient Return on those Savings. lgl

The Sad Role of Americans

A real article which you can sink your teeth into; can you find the Rent-seeking here? The IRS is much too busy collecting last year’s taxes to send out the Giveaway checks. Only Taxpayers who file Tax Returns will get a Check, whether Withholding was applied or not (One must join the mess, to get paid for the mess). Earning less brings on discrimination, unless you had other Organizations earn the money for you; though non-filers are seldom pursued, let’s face it, expensive bureaucrats spend more than they collect. Reprogramming the computers will cost money, again one must spend money to make money. They try to assure that the alternative tax patch will not affect the Rebate patch, We wouldn’t want one Tax Giveaway to cause delays in other Tax Giveaways. There will be a Time lag, though, and one which will undoubtedly be very expensive for the Budget and Taxpayers.

It is reassuring that the projected slowdown has not yet affected the Military/Industrial complex, an excellent avenue for Government fuel to the economy. It is nice to know that revenues for equipment to supply deployed military forces is down (the F16), while revenues for the equipment not to come online (F35) is also down; it seems there must be less flights, or Servicemen are not using up their equipment sufficiently fast. The total appears to be that Sales are up, Product is actually decreased, but Prices are doing a jump. It looks to be typical of Government finance.

The rest of the World is angry at American Consumers for not Spending enough, though they are also angry at Us for using too many resources, and contracting bad debt. Did I forget that Americans pollute too much? We are responsible for Recession, bad Mortgages, the declining Dollar, the lack of American Exports, and We are not paying our Credit Card debt on time. It is obvious that Americans are the demons of the World, and We should take responsibility for Our behavior, though not by exercise of fiscal restraint. lgl

Rousing Bronx Cheer

It has been a long time since I have read any Commentary on Karl Marx, and I would first like to admit that The Skeptical Optimist effectively and accurately described Marx’s Thought, this not being any criticism of his evaluation. I would further state that David Ricardo presented a better exhibition of the ‘labour theory of value’, than did the bitter Marx. The Point I would like to stipulate consists of the fact Capitalists of the time in which Marx wrote were basically as evil as Marx alleged, and Marx misconstrued the Capitalist system as the Evil, rather than the Social system in which it operated. Bill Gates also tends to blame the Message for the behavior of the Messenger. I wonder if he realizes he is functionally that Messenger.

Everyone in the blogosphere is weighing in on any Stimulus package, but this Post gives a good, balanced view of the possible venues. I do not like Tax Rebates for a number of reasons. They reinforce economic trends which need no assistance. Rebates to the Poor will inevitably be spent on the most Inflationary aspect of the economy–Energy, Food, and Utility bills; providing no increase in provision, only increase in Pricing. Rebates to Business do not lead to Investment within a declining Consumption pattern, only an effective entrenchment of policies which led to the Recession in the first place. Rebates to the Wealthy, or even the Middle Class, do not generate the necessary amendment of Consumption patterns which favors future economic performance, while simply expanding the Debt of Government. The Whole is trying to use a Mistake, as a Cure for a summation of past mistakes.

Here is a projection of the various positions on fiscal and monetary stimulus by PGL at Angry Bear. I do not agree with Most of the Espousers listed, and their Views leaves One with the desire to retreat into the Mountains, and leave the World to its fate. I must chose some option from the Measures proposed–or must I? There is always the Option of letting the Economy alone, and letting market forces extend whatever curatives to be obtained. My Favorite Option would be to reverse the Bush Tax Cuts immediately, introduce a $1/gallon Gas tax, and repeal any and all Tax remissions for Investment Overseas. Do I sound as bad as Karl Marx? Nah, about as many people read Me as much as they ever really read him. lgl

Cutting Edge Theory

Joseph Stiglitz wrote an honest Opinion this morning, basically stating that We need to find a Stimulus that actually works. I agree with him, but also wonder why We need stimulus at all. What is wrong with economy can best be enumerated with the Statement, ‘The Rich are not getting Richer.’ All the Stimulus packages proposed bring on some form of giving this savaged group Relief. I, on the other hand, have the suspicion that the distress extends beyond this prized, and select segment of the economy. I actually believe they might suffer less from the expected Downturn than other groups like Mortgage-Holders or the Poor. It would be nice to extend potential stimulus to all Groups likely to face a bitter Retreat, or not.

Everyone who reads my material steadily realizes I hate Tax remissions of almost every type. My proposal of any such type benefit suggests not only significant hypocrisy, but a fear which does not reside in my breast; I believing that We are working out of the Recession already, it only being a fact that the major losers of the Recession have yet to record their losses. I still need to get back to my original argument, though, to state that any stimulus should counteract the common potential Business reaction to losses, which is Layoffs of labor. My Stimulus package would be far simpler than that advanced by Others, though very specific: Business should be allowed to deduct 120% of all Labor Costs incurred within the confines of the United States, and this with direct provision that this Tax remission can only last for Three years; with absolutely no other Stimulus offered.

What does this Stimulus do? It will be of short duration, and grant succor only with the extension of employment. Those who are responsible for factors igniting the Crisis will be left in isolation to work through and record their losses; the most wondrous methodology to teach such Plungers not to repeat their adverse performance. It does not do anything for Consumers who already have a Job, but increases the ability of Consumers without Jobs to find one; a beautiful method to again teach Consumers to adequately budget their resources. Businesses quickly realize that they must extend Employment in order to enjoy potential stimulus, and Employment could possibly increase in the Period cited, simply because only about 40% of the labor value to Businesses will be taxed. Labor Productivity in the Period would obviously lower, raising Employment, with little Complaint extended by Businesses–increasing the number of Jobs. Total Wages will increase, while lower Consumption sales will be received less frantically. It is also one of those incredible Tax remissions which might actually raise long-term Tax revenues. Of course, We could also do nothing, and let the economy correct itself. lgl

Reality--Where are you?

David Smith gives a good factual presentation of the events behind the Fed rate Cut. Everyone is happy–except me, and possibly William Poole. The source of my unease consists that the rate cut will not spur anything, but will erode any remaining stability within the financial markets. The financial Wizards of Wall Street imagine Investors are going to race back into the market. It won’t happen! The P/E ratios are waving the wrong flag, the Households are getting no Gain from the Rate cut in the near term–probably not in the long term, and Business will not invest in a shrinking Consumption market. It is stealing about 75 base points from about $1 trillion, where neither Banks or Depositors can easily absorb the loss. The Feds simply have informed Banks that they must receive less from their Overhead loans, when they are already scrambling for extra Cash.

Ken Jarboe provides Us with an Insight of the potentials of current stimulus thought, but I find the entire Stimulus argument to be somewhat foolhardy. It is Six months too late to generate the Effect which they desire, induces greater upward pressures on Prices, and leaves Businesses searching for Profits that will never appear. Business will be faced with a reduced Consumption Sales schedule, until Household debt has paid down 12-14% of their Debt load. No amount of Stimulus will likely alter this fact, the Stimulus packages simply repaying previous Consumption expenses. The Party lasted too long, and the booze was too expensive.

Readers should understand the effects of the Bush Tax Cuts. They created an artificially-induced pressure for Investment, when the potential for real Capital Investment did not exist because of saturation. The desire to invest the Cash split into two forms–an upgrade of Housing, and the creation of middleman Paper Investment options. It has led to an additional $2 trillion in Paper instruments, all of which hope for a 5% Return on the initial Investment; a capacity which does not exist, given the state of current real Capitalization. Five Overnight Millionaires per million people per year is a tribute to Hard Word and Genius; 200 Overnight Millionaires per million per year is an infestation of parasitism. Creation of Billionaires without the advance of massive industrial innovation means only economic distortion of the economic reward system. lgl

The Market Solution

This Post by Stumbling and Mumbling started me thinking about the exact nature of Spending, especially Government funding and expenditure. My Conclusion simply states that Government overspending results from the unification marketing of Government programs and the raising of Government revenues. Persistent Spending desires retain their corrosive power because they are obscured within the Budgetary formulation. A separation in the Process may be mandatory to effect fiscal stability.

I thought of varied forms of Separation, the leader being the creation of a all-powerful Budgetary Committee, which could only be overruled by Acceptance of President and Supreme Court. This had two factors wrong with the methodology: Presidents and Courts possess a worse Record on fiscal Conservatism than even legislators, and two, any degree of developed Expertise would not forestall the power and impact of Special Interests manipulation. There did not seem to be any Means to impel fiscal responsibility among elected officialdom.

I chanced upon the stray Thought of a Market solution. This was like a dim memory with no shine to it, barely spotted by the acquiring Mind. The first element of the Process would limit legislative activity to determination of the Budget size, and determination of How it would be funded. This determination would be limited to the first Three Days of every legislative month. This Period could be made effective by Constitutional mandate prohibiting any new Government Spending without in-place allocation of Budgetary funds; legislators would spend the rest of the month convincing themselves that some sound Budget had to be implemented in order for them to derive the political clout of Program funding. This system would require a mutual willingness to work with each other, or lose their ability to gain political support.

The second element is to create a Market floor in the halls of Congress. Each Congressman and Senator would be granted the Dollar amount of Revenue expected from his District under the current Budgetary constraints, consisting of both the actual Tax revenues collected from his District, plus the Dollar evaluation of Cost to his District to repay any Federal Debt incurred by the Process. No Congressman or Senator could bid more Dollars per monthly session than have been allocated on the totality of programs he would underwrite, as recorded by the Congressional staff. The Process would set the relative level of political clout any Member could exert, and structure that Clout in a manner that would inhibit excessive Spending; the Whole of the Process itself constrained by constitutional prohibition of any expenditure of funds until such time that the measure has been fully funded. How serious is your belief in Markets? lgl

The Failures of the West

The Past has always been only a Step away in Africa. Ethnic Violence has always meant that racial identity becomes too often a Death Warrant. Tradition and Overpopulation guarantee that the Practices of ethnic cleansing will not end. It also puts the national policies of the World in a quandary: Throughout the Twentieth Century, We were bombarded by the ideological condemnation of Colonialism, yet it was Colonialism which kept Tribal rages under control. It did this effectively for practically half a Century, also bringing these Tribal societies into the Twentieth Century in terms of economic adjustment; although Colonialism produced a very ineffective effort to exterminate Tribal rivalries. The Period since Colonial Days has been systemically predicated by Violence, utilized by Tribes in their bid for Power over other Tribes. Colonialism was evil because of its failures, not for its successes.

The inability of the Whole to combine to prevent deviant behavior may be the real legacy of Western Civilization. I chose this Reminder basically because it is still controversial. The Planet is Warming, there is no doubt of this effect; but there is no actual indication it is the fault of humanity, or even that humanity has the power to affect this Warming trend. My own estimate states simply it is the degenerative process of Species overpopulation; We are drafting too excessive an amount of resource to survive. I simply await the arrival of a successful Pandemic, knowing that in my case, it will make little difference.

The failures of Western Civilization could best be examined in this format, where both Journalism and Blogging refuse to point out the failures of military intervention. Criticism is countered by refusal of access by military authorities, and the Wars continue; though still without essential purpose or Goal. Success is adjudged to rely upon the development of a political process, a idiocy even in terms of the truly democratic nations of the West. A Coup d’etat could eliminate in hours all the Work accomplished by years of struggle, while the Struggle will continue as long as foreigners reside on Native soil. We always seek Pinnacles which could not be maintained, even if they could ever be attained. lgl

Austan Goolsbee points out that the Supply-side rhetoric still lacks a real flair of honesty. What evidence of Gain which can be garnered may be countered by other downside factors, which are given little play by Supply-Siders. The whole issue actually has little flavor as the argument has gone on for some Generations now. The real compelling Point for me is the functional freezing of Income for the 90% of Labor. We all can understand the possibilities of Labor Substitution, but should such substitution functionally freeze Labor Costs in place? Conservative Economists, especially Supply-Siders, assert that the heavy inequality of Reward is the main drive of the Economy. Is it? This is the Question which must be answered, before We can properly assess the impact of Taxes on this Wealth-building. I suspicion that the real culprit in the novel is the intermixture of Payroll and Equity, which always led to the downfall of the Laboring Class; and here you thought that the Butler did it.

One reason for the freeze in Labor Wages can be found potentially in this article, which basically accounts how Corporations force the Cost of countering Greenhouse Gas emissions lower into the Supply Chain, onto the small Companies which make up that Chain. It is the smaller companies who are the labor-intensive elements of the Production cycle, and large Corporations are forcing their utilization of Profits to meet the larger Corporations Greenhouse Gas emission standards, rather than to allow those Profits to flow to Labor participation at the lower level. The Goal of the large Corporations wears a good Public face, but will undoubtedly wipe out Growth and Wage Growth potential at the lower level; all while the larger Corporations are lauded for their monopolistic purchasing pattern. Most of what glitters is actually Fool’s Gold!

One cannot blame Environment Concerns for everything, though, as this article will describe. Slowing vessels and turning to alternative Energy-sourcing will not only cut Emission and Fuel Costs, but the transference will basically bring higher Labor Costs. The Equipment must be serviced, and more machinery and longer voyage times bring higher Wages to employees. Good for the Environment does not have to mean Bad for Labor. I am toying with Vessel concepts of elevated generator risors and submerged current swells to generate electrical power for new electric motors. All of such Toys require huge Manpower hours to design, build, and supervise during Operation; all of which is done at actual Savings to Ships and Owners. lgl

Definition of Recession

Some Readers have been asking me what exactly is a Recession, and the simple Definition is that it is a drop in level of actual production of Gross Domestic Product. Simple, isn’t it? No!!! The GDP cannot be evaluated in actual Product, because there are always variations in the levels of Product production, while there is the impossibility of comparison of the value of one product to another, except through equating a third value to them–i.e., Money. The later is a poor evaluative tool, because not only does the tool tend to inflate and deflate, but it does so because of the alternating value of the various Products in comparison to one another. An Example is Food: A highly rated Product value in comparison to other Products, but one which loses value rapidly after Supply equals about 1.8 lb. per day per person (seems like it should be higher, doesn’t it?). What this means is individual Products inflate and deflate at individually-dictated rates, and this really screws up Evaluations made upon the data translated into Dollar values. Economists are always trying to find alternative formulas to evaluate Recessionary conditions, this article is a Case in Point.

I have always thought to concentrate on Households myself, or more specifically, on the resiliency of those Households; a concept which becomes as confusing as the original monetary evaluations. The major elements of such an evaluation as I undertake consists of the increase or decrease of Household debt by Income class, the Food Costs of the Households–due to the fact that Food is a mandatory staple, as is Utility Costs and organized Rent Costs. These taken in total, is compared to the average monthly Income of Households, and when these Costs rise over 8% of the monthly Income of Households (measure of resiliency); I deem the Economy to have entered Recession. Economists will insist there is much wrong with this evaluative process, but what process is perfect? I only know Households are contracting their Expenditure patterns under such an evaluation.

Most Economists would access Recessionary conditions from the position of Business enterprise, but such proclivity ignores the actual interaction of all Participants in the Economy. It does not account for the viability of labor or the impact on Stable Income dependency. My system is complex, and brings forth a degree of false Readings, but gives a rendition of the impact of the Economy on the entirety of Participants. It foreshadows actual declines in economic participation, including the all-important Consumption cycle. lgl

Late Out of the Gate

Mish has a great amount of intelligent commentary in this Post, most of which I find highly relevant to the issues involved. He touches on one aspect which I want to reinforce. Can the Federal Government even mount a stimulus package that would be effective? We have had an extreme amount of expansionary, Second-source lending (utilizing Bank Reserves), while there has been a huge loss of Bank Reserves due to the Credit Crisis; the old Bean-Counter accounting element that does not recognize the difference between Reserves and Second-hand money creation. The Accounting models only register loss of Reserves (artificial contraction equally starting from the origin). This systemic fault, which cannot be corrected in any rational form, defines a multiplicity to the contraction of Credit. Stimulus may be impossible inside such a rigged deck.

Tim Schilling presents another Post which should be read by those interested in the stimulus dilemma. Tim assures Us that Congress will act too late to be of value; a Comment on which I could agree. I am of the conviction that a Recession actually started in July, 2007, and was only hidden from the traditional Index models by a combination of circumstances–expansion of Exports, Household creation of Immigrants and School Graduates, the Run-up of Energy and Food prices, and high expansion of Credit Card debt. All of the effect from these factors fully utilized the full impact of the heavy Inflation rate of 4%. The Households were already in trouble in July, and We had our heads in the sand. The key element, here, is the Two-Quarter impact of the Recession has already inflicted almost full Recessionary damage to the Households, and a stimulus package is already too late to aid. lgl

Validity of Economic Concepts

Erwan Quinton and Jason L. Saving provide and excellent article on the interrelationship between Income Inequality and Poverty, by exploring current theory on the issue; I scalped this link from Mark Thoma (a tendency I should quit, but a lot of bloggers find better material than I can). My essential position on Income Inequality states that economic growth does not demand such inequality with the advent of modern banking practices, and effective Markets cannot be established with the existence of Income Inequality (the concept of Consumer disenfranchisement). One cannot get sustainable growth without full utilization of Consumer potential, and growth should not be geared to massively reward innovative, effective economic behavior because the reward system has to be changed to institute full Consumer participation (Returns must eventually be Percentage-reduced to gain superior Sales). The issue is very important as the great Wealth sectors are rarely focused prior to their development, and little evidence exists that this specter was a factor in initial development.

I often disagree with Mark Perry and WSJ editorials, finding them to be a tad ruthless in their expounded Conservatism. This time they have a decided Point, much as the Politicians would like to ignore it. Simple creation of Debt is not an economic stimulus. The ‘leaky bucket’ does exist. There is the added dictum that economic stimulus which is too weak may be worse than no stimulus; I have always claimed that any Rebate less than a Week’s Income will only pay down bills (finish off previous Consumption), without providing venue for additional expenditures.

I think Tim Worstall is talking about me, as I have always doubted the projected benefits of the Laffer Curve. My major problem with the Concept origins in all effects are focused in creation of a specialized Wealth class under the tax modification, with no real transference to the general class of Taxpayers. The later inevitably are faced with a heavier Percentage taxation, or a greater Debt burden–which is the current preferred stream. The Laffer Curve may simply extol the beauty of Tax evasion. Tim also makes a somewhat outsize claim that somehow the Laffer Curve can produce a greater progressivity of taxation, through the use of Personal Exemptions. This effect might occur, but in what manner of tax neutrality? I am not saying precisely that national debt is taxation of the future; my claim states simply that We must accept a consistent 4% Inflation rate to maintain Debt Service into that future. lgl

Deficient Economic Theory

Craig Depken provides an interesting Post on the effects of Price-setting by legislative action. He gives the Conservative traditional view of legislated prices, an alignment which in striated situations will apply (condensed market of limited volume with high variable Cost spread). It is clearly not the case in the presence of varied Cost markets where achievement of service possesses extensive routes with large Consumer volume (Case in Point: the Energy Cost of the trip between Grand Central Station and Wall Street with projected Consumer traffic v. the route from the Harbor to the Bronx). Most legislative action insists that the longer, less-traveled Routes be subsidized by the greater volume of the shorter, more traveled and cheaper Cost Routes. Conservatives would acclaim that this rerouting of Corporate Profits is a Government invasion of Property rights, but lacks validity when Companies themselves engage in such practice to engender higher Volume sales. Governments only claim for themselves an Accounting procedure to aid the Poor, which the Company utilizes for itself to attain more sequestered Profits.

Ben Bernanke proves that he has greater intelligence than most of his Critics. Keynes himself was a brilliant Economist of great worth, who failed only in his acceptance of the principle of continuous economic stimulus. Such Aid extended beyond two economic Quarters will automatically transform into Inflationary pressure past this Point, and will even start in the transformed condition, if Capital Goods have already returned to 60%(of the interum loss) of their pre-Recession value before interjection of the stimulus. Permanent Tax Cuts will not present any economic stimulus, even in the Short-term, beyond simple Investment of the saved Revenues; where they serve as little value because of their distributed array (insufficient for real Capital construction), but demand an immediate draft of Return from the Economy. The Costs of Capital concentration for Investment always erodes the Short-term benefit. The Short-term and Intermediate effect of Permanent Tax Cuts will insist on deficit Government spending, while the Long-term effect will always be the implementation of adverse taxation elsewhere.

This Post will fulfill the desires of the most masochistic of Readers. The Housing market is in the dumps, and the Outlook for rapid improvement does not exist. Unsold Homes will have to be cut in half before Realtors will again start to smile. That level of Sold Homes cannot be reached until the Mortgage markets can again establish a flow of Cash. A real drag on the entire Process is the vast numbers of Homeowners who cannot get their equity out of their homes, and the real dangers such presents to their personal Consumption patterns. I only wish Economists would recognize what got Us to this place: lax Mortgage lending practice; and stop preaching that what will be a curative would be an extension of such lax practice. lgl

The Fast-Forward Tax System

I am probably the wrong individual to come out against this FDA decision, but there it is cluttering up my day. The reason I am the wrong one comes from my long advocation for turning Food crops into Perennials, thereby cutting out one of the most expensive Steps in Agriculture to a substantial degree. My problem with the FDA decision resides in its rejection of the process of Natural Selection. Cloned animals takes the chosen animals from the process, repeating a locked genetic strain over and over, the rationale for Production in the first place. The trouble comes the process also rejects the natural construction of Immunities within Nature, not only in the animals, but also with the Consumers of the Product. This freezing one aspect of the Natural Selection process could cost Us some essential Amino Acid at some future point.

Alex Tabarrok seems destined to challenge the hallowed American tradition of Freedom of the Roads. It is not him alone, as Many at the Local and State levels of Government find the Work fascinating as a Means to cancel one extreme Expense from their budgets. I personally detest Toll roads, as much for the congestion at Toll booths as anything, a national transference to Toll Roads could cost Us an additional 2% of Fuel Costs, due to the heavy fuel consumption of altering Speeds. Alex’s suggestion of monitored Charges utilizing GPS technology lands close to the National Identity Card Issue, and I am also somewhat unhappy about that element. I think I would prefer a new Vehicle tax upon Sale, based upon expected Fuel consumption and the Cost of maintaining Roadways. The only element I am happy with is my expectation that total Travel by Americans will decrease by 12% over the next decade, as my fellow Americans discover the joy and Savings of staying relatively stationary.

This Piece from Eddy Elfenbein comes by way of Greg Mankiw, who should be read for the Indictment of the Fed; I would not scream at them, except for my Thought it was the initial tampering with the Fed funds rates which got Us here today. The Elfenbein Piece wants more complication than the Flat Tax, and compiles his Reasoning in mathematical form. I still prefer a simpler Tax, but based upon criteria other than a Flat Tax. I would see a complete elimination of all Tax Deductions or Reductions of any type, with Tax rates set by averaged Expected Costs of each Income tax rate group. It would nullify Need for all that intricate Bean-Counting, but still shaft the Taxpayer. Some, like Elfenbein, would claim the lack of Foreplay was rude. lgl