Spending v. Tax Cuts

Analyzing the Economic and Budgetary Effects of a
10 Percent Cut in Income Tax Rates
CBO
http://www.cbo.gov/ftpdocs/69xx/doc6908/12-01-10PercentTaxCut.pdf

An important Read for Economists, but the Daniel Altman article in the NYTimes points out a real need to regain reality in the argument. Government Spending has far greater effect upon the Economy, than any Tax Cut could; especially with Tax rates at an incredible Low, considering the size of the Federal deficit. Borrowing from Overseas will become harder, with only a higher attainable Interest rate, as the Federal Government borrows more from foreigners. This Argument has yet to bring up discussion of the effect on the Dollar of such borrowing; something the Author does not want to enter into here.

A serious ignored component in the discussion lay in the division of Government Spending. Social Welfare programs promote Economic performance, while Spending on High-Tech weaponry and Capital infrastructure does not produce as high an economic performance. Why?

Social Welfare programs attain higher economic performance because Consumers receive far higher after-Tax Income to spend on Consumption. This Spending generates Jobs, to supply the greater draft of Consumption Goods. The additional Labor, even if not paying a high or any rate of Income tax, pay basic Sales taxes, State Taxes, and Social Security Taxes; all generating greater Tax revenues, and expanding the Tax base paying those Taxes.

High-Tech and Capital Infrastructure Spending relies on a limited, high-Paid Labor force who enjoys the greatest set of Tax deferment advantages of any Tax-paying class. This is a very specialized Labor force, and celebrated for the minute percentage of the Labor force which they represent. Industry and Business concentrate in the High-Tech and Capital Infrastructure arena solely because of the limited Labor Costs and high Profits. This concentration is exhibited in the lobbying effort exerted to maintain this type of Government Spending.

The CBO estimates a 10% nominal reduction in Taxes would produce no more than a 1% increase in economic performance under Conventional evaluation, and less under a combination of Supply-Side and Demand-Side effects. Altman dreams up a $2.4 trillion increase in economic performance. This Author contends that an alteration in Government Spending patterns could effect up to a 8% change in economic performance, and for the better; if and only Government Spending patterns are rationalized. lgl

All Aboard!

Air Freight Growth Seen Slowing Sharply in 2005
By REUTERS
Published: December 29, 2005
http://www.nytimes.com/reuters/business/business-airlines-growth.html

Reuters provides good statistical information often better than the other Services:

IATA, the Geneva-and Montreal-based International Air Transport Association, said cargo carried by its 265 member airlines by the end of November was only 2.8 percent up on the first 11 months of 2004.
This figure, which industry analysts said could be boosted slightly by December traffic as companies rushed to meet holiday period orders, contrasted with the 15.8 percent freight growth for the whole of last year compared to 2003.
In October, the World Trade Organization said that by the end of this year global goods trade would have grown by only 6.5 percent year on year, down from the 9 percent growth of 2004. It also recorded a slowdown in the IT sector.
IATA said that in January-November 2005, passenger traffic on international routes grew by 7.7 percent over the same period last year. With December traffic likely to provide a small boost, the full-year figure was expected to be 7.8 percent.

They present a better economic sense than does the Airline industry. The industry is not going to become profitable through increase in traffic or Trade; this condition due to the reality of Air traffic congestion, Airport congestion without the ability to expand facilities or produce added Airports, and the incapacity to multiply the Air lanes through which Commercial traffic flies. Simple increase in Ticket pricing will adversely affect Consumer use.

It is time to consider Boarding Pass charges and Pick-up charges for receipt of freight. They possess the capability to be increased and decreased on momentary notice to respond to Fuel Costs, without hampering the Processes involved. Other alternatives will not fulfill Airline guarantees of Service, or pay for the Fuel bill. lgl

Reinsurance

Munich Re to Up Dividend Despite Losses
By THE ASSOCIATED PRESS
Published: December 29, 2005
http://www.nytimes.com/aponline/business/AP-Germany-Munich-Re.html

Munich Re happily report it can still maintain its 12% Dividend:

It said the company's board plans to propose an increase in the dividend to 3.10 euros ($3.67) from 2.00 euros.
Munich Re shares were up 1.1 percent at $138.80 in early trading on the Frankfurt exchange

The Company released some other estimates:

Total insured losses to the industry from natural disasters this year exceeded $75 billion, almost doubling the previous record set last year, the company said.

It put total economic losses -- including uninsured property -- at more than $200 billion, up from $145 billion a year earlier.

Study of the data begs of several questions. 2005 held record losses for the Insurance industry, coming immediately after the worst losses ever before in 2004. Still, the largest Reinsurer in the World--with potentially the largest losses of any Insurer--can still pay a 12% dividend of three Euros per share. One has to ask what level of Capital assets Insurers hold against commitments, and what this does to Insurance premiums. The Insurance industry has had back-to-back worst losses on Record, and still can pay a 12% premium. Most Business and industry absorbs Production losses as the Cost of entrepreneurship. What level of premium would Insured have to pay, if Insurers keep sufficient Reserves to pay Claims with a zero Dividend on Shares, as most Business must do in the face of acute losses. lgl

Trains

Europe is again buying trains:

Bombardier Gets $262 Mln Order From Deutsche Bahn
By REUTERS
Published: December 28, 2005

Do they know something We don't know? Let's see if We can figure that out. Trains cost a lot less than big Jets. Trains used a lot less fuel than large Jets. Trains haul a lot more than the barns in the Sky. The load of three Semi-tractors can fit on one train flatcar. The load of four Semi-tractors can fit in one train boxcar. Let's be honest: a Train locomotive uses about Seven times the fuel as does the Semi-Tractor, but can haul the equivalent of about 55 Tractor-trailers. Train locomotives, working in tandem, are able to haul a Train over 3 miles long for about the fuel cost of 15 Semi-Tractors. (the later statistics Author estimates--therefore questionable)

Business and industry talk about slimming Inventories and Speed; they stipulating We live in a new business environment where the 3-day cross-country trip by Train is too long a period to Order and Stock. Where did this excessive hurry come from, and why can't We meet the slower Production schedules used by Everyone else on this planet?

The irony of this Argument states the Airlines are going bankrupt anyway--Fuel Costs are too high. Aircraft remains the worst Carrier of bulk freight, because of Weight and Fuel Costs. We are the only Nation on Earth who lacks effective Passenger trains, when maintenance of such Service costs immeasurably less than maintaining Our commercial Air fleet. Travel by Rail actually is more comfortable, safer, and more spacious; the Time expended in Rail traffic easily utilizable for entertainment or Paperwork. Business moguls will not be restricted from flying through the air, but why join them? An effective, expanded Rail system would not only cancel extreme Fuel Costs, by also Traffic congestion, Pollution emissions, and Routing problems. lgl

Economic Crime

http://www.pwc.com/gx/eng/cfr/gecs/PwC_2005_global_crimesurvey
Global Economic Crime Survey 2005
PriceWaterhouseCooper

A Must-Read for Corporate Executives. Fraud Risk Management systems are over-trusted, and Companies are still underreporting instances of economic crime. Large Companies are reporting about One-Third more instances than small Companies; this does not indicate better supervision at the small Company-level, as the Survey were more likely to be questioning the senior Executives who were engaged in Economic crime at the small Company. Senior Executives were shown to be more likely to engage in economic crimes, while the incidence of severe punishment was much lower than for Middle Management or Workers.

The level of citement of maintaining lifestyle as cause for engagement in economic crime implies that the senior Executive Pay Packages have grown too rapidly. Middle and upper Management will foster economic crime to match the Payscale of better-paid senior Executives.

there has been a 71% increase in the
number reporting corruption & bribery,
a 133% increase in the number
reporting money laundering, and a
140% increase in the number reporting
financial misrepresentation.

Company Employees are losing their allegiance to their Organizations due to the wide disparity in Compensation in this Author's estimation. The old factors, cited by this Report as beneficial to forestalling economic crime, are likely to nullify as senior Management gorges itself on high Pay Packages.

The Problem is not going to go away, and it is bad:

45% of companies worldwide have
fallen victim to economic crime in the
past two years – an 8 percentage point
increase on our previous survey.

The only effective control may be Stockholder demand that all Pay Packages retain some relationship to Earnings potential. lgl

The Big Trucks in the Next Lane

LARGE TRUCK SAFETY
Federal Enforcement Efforts Have Been Stronger Since 2000, but Oversight of State Grants Needs Improvement
http://www.gao.gov/new.items/d06156.pdf

About 5,000 people die and more than 120,000 are injured each year from crashes involving large trucks. The Federal Motor Carrier Safety Administration (FMCSA) has several enforcement programs to improve truck safety and funds similar enforcement programs in states through its Motor Carrier Safety Assistance Program (MCSAP). Following concern by Congress and others in 1999 that FMCSAÂ’s enforcement approach was ineffective, the agency committed to take stronger actions.

Most of Us drive the Highways and Interstate of this Country relatively daily. We find Ourselves side by side, or in front or behind the Big Rigs constantly. They are always pushing the Speed limit, because their Pay comes in ton-miles of haulage, and faster delivery means higher Pay--as new loads can be hauled. How safe are the large Trucks?

The Answer makes sense: Real Safe--if you are not pushing it. Several elements can consistently maintain Safety. (FMCSA) will not focus on these elements, though, as it would increase freight charges. A quick list can be given:

1) No Driver should drive longer than 3 hours at a time, and no more than 9 hours per day.
2) No Driver should drive any Road systems with which he is unfamiliar. Drivers should be licensed for Routes, not just ability to drive a Rig.
3) No Driver should be allowed to drive distances greater than 1000 miles from his origin base. Drivers cannot remember Route conditions under longer Drives, it will shorten Drivers' Away time with fewer forced long drives, and actually lessen Driver compulsion for high speed. The Downside lay in Trailer surrender for long hauls, but trailers should be centrally-owned and maintained by Distribution Centers for Profit.
4) Mechanical Truck Boxes should record Fuel mileage as well as driving times, and Fines issued for excessive Fuel consumption and/or Exhaust emissions. This would improve Overall upkeep by around 12%, with Safety issues being dealt with in the Garage.
5) Drivers should be prohibited from insuring themselves, Insurance regulated and paid by the Shippers at a ton-mile rate; Insurance companies can insist specific Drivers must be relicensed or prohibited from Driving, due to exhibited Carelessness.

These are costly Initiatives, but when introducing and Accounting Accident Costs currently paid by all American Drivers, they are actually cheaper than the current system of irresponsible noncompliance with Safety measures. lgl

Merry Christmas

Everyone hoped for a solid Christmas season, but Sales were only lukewarm. 2005 was the Year of Problems, and they still have not been undone. Energy pricing is beginning to eat Profit margins, Wages are still not keeping pace with Prices, and Jobs are still disappearing in the Manufacturing sectors. A sad story for 2006.

There are good things happening, though! The Cost of Medical expenses are losing their inflationary push, narrowing the Gap between themselves and ordinary Products. Outsourcing is losing some speed as well, as many businesses realize utilization of a common language carries Expense savings. The appeal of Brand-Name Products is disappearing, and advertising Companies turn to Company self-promotion; a fortunate effect of funding for worthwhile projects to brag about begins to show up. The World could be a lot harsher place!

Merry Season for All, and enjoy Santa!
lgl

Will the Euro Eventually Surpass the Dollar
as Leading International Reserve Currency?
Menzie Chinn and Jeffrey Frankel
December 2005
RWP05-064
http://ksgnotes1.harvard.edu/Research/wpaper.nsf/rwp/RWP05-064/$File/rwp_05_064_frankel.pdf

A econometric Working paper which is relatively easy to read and evaluate. The basic question asked is whether the Euro with eventually surpass the Dollar as the common international Currency. The authors believe the EU must become a larger Production factor than the U.S. Economy, and/or real depreciation of the Dollar continues. It will not be swift in any Case, with Year 2022 cited as changeover Year if it happens. Twelve Countries trade currently solely in the Euro, and more are expected to convert. The Problem centers on the issue the sustainability of Current Account imbalances of the G7 nations: this Paper written to be given at a Conference considering the issue.

The Authors of the Paper found that the international debt situation had little impact upon the data skew, but the willingness of the Central Banks to maintain a high volume of Reserves as dollar stocks was vital, the U.S. Government needing absorption of the Dollar stocks to ensure low Interest rates for huge Government debt. The Later necessary to maintain the long-term loss of Tax revenues in the magnitudes to enjoin political support for a Federal program matrix highly disliked by American Voters. lgl

Rumsfeld and Cheney Visits to Iraq

Rumor has it that the 138,000 Troop level limit chaffs for the American leadership in Iraq, jointly Ambassador and American Military Command. Rumor states they requested an additional 30,000 Civilian Contractors (Mercenaries) to replace the drawn-down Troop levels. It costs the U.S. Military about $67k per year more for a Contractor than a Troop element; Health Insurance being about equal in Cost, without an assumed Retirement benefit. The good Republicans of the Bush administration are said to be somewhat perturbed, thinking the Cost to be quite excessive, while the recruitment of this level of Contractors will reflect in the Press. Even the extension of the Patriot Act does not buoy Spirits in the Oval office. Secretary and Vice-President have both journeyed to Iraq to lift the morale of Our Servicemen; Some say to silence various Press leaks in the American Command structure. This is the Story, at least as visualized by this Author.

It does not help that Home Sales dropped in November by 11%, indicating that the Fed rate hikes alongside Energy prices are indeed inflicting drag on the Economy. The increase in the sale of Durable Goods reflect only Price increase, as Capital formation in the Durable Goods arena decreased, when aircraft are removed from the format. Too many Economists spin their numbers on the specialized industry of Aircraft, as earlier they crowed about the Housing boom. lgl

What is Myth?

http://cafehayek.typepad.com/hayek/2005/12/twelve_myths.html
December 21, 2005
Twelve Myths

Some might think I mistrust or suggest Don Boudreaux is less than a good economist, but such is not true. The problem lies in the fact this Post is rather too sweeping in tone and content. A major Trade deficit is indication of malaise, and a debt of specific order. The debt is composed of misspent Labor resources, whether underutilized, underfunded, or undermanaged; all consisting of an economic existence which is bad.

Corporate managers do sacrifice long-run performance to ensure that their Pay Packages are always maintained, so Profits are maximized in the short-run. Prices and Wages are manipulated in order to direct Profits to arenas of personal benefit to the Corporate managers. Rare has been the government regulation ever been passed into law, except where Corporate managers have already shown deficiency of self-regulation. Government, itself, could do a far better job of protecting its Citizens against Violence; a true laudable goal of government.

More People does mean a greater draft of resources in economic supply of well-being support, and concentration of economic resources to supply of Toys for the Rich cost the greatest losses of Capitalization. Increased levels of well-being is the culprit here, with greater numbers joining Those to purchase these Toys provides an overall rise in Economic Costs. The advance of technology remains the only means to conserve overdrafted economic resources; We would fold drastically if the economic cost of individual support was as high as 30 years ago.

Democratic governments hold the probable worst record for allocation of Public funds for overall benefit of Citizens, but there is the downside; other forms of Government think to meddle with basic economic structures--far worse than democratic over-spending. The beast which is the Economy does act like an Individual, though more a spoiled child of schizophrenic character, as decentralized behavior destroys collective effort and common benefits. Government law reminds of the demands of Children, regrettably without the restraint of sensible Adults. It is fortunate Politicians do not understand the force of Economic and Financial law, the only control over Government existent in a democratic society.

By the way, this Author thinks the Boudreaux piece is quite good, but Students should know of the need for qualifications. lgl

The Dollar

The Dollar is rising against the European currencies, and Gold and Silver are dropping in Dollar evaluations. It is because of the increase in American GDP of 4.3%, which counteracts the bad news last week of a widening Current Accounts deficit and an end to the Fed interest rate hikes. Everyone may be celebrating, but it may be premature.

Energy prices are still rising, both due to Speculation and to Shortages, keeping pace with the increase of Consumer spending of 4.1%--the major cause of the rise in GDP. Consumer Spending, though, will undoubtedly deflate after the post-Christmas Sales (Author-estimated 9%). The present Interest rates imposed by the Fed will triple their impact at this point, as Grandpa and Grandma stop buying Presents. The Energy prices, though, will not be going down at all. It remains extremely hard to imagine an increase in Housing Starts or In-place Home Sales, so the Spring Construction burst will probably not spurt, but fizzle. The trouble of tying economic growth totally to Consumer Spending lay in the latter's commitment to seasonality. lgl

Bush Rewriting of Law

George W. Bush declares that he has the power to order domestic spying in case of national emergency, basically based upon the Patriot Act; now refused reenactment by Congress. Bush vows to continue the practice without mandate, to protect the interests of Those who find little need of protection--except from the grasping reach for power by George W. Bush.

Bush utilizes the same defense used by Hitler in 1933: It was okay because it we He who was engaging in it. A greater measure of egocentric megalomania can hardly be found, where an Individual claims the power forbidden to Others in like place, simply because it is He who is doing it, instead of Anyone else. The greatest danger to this Mindset is best portrayed by the Watergate Break-In, where Enemies are defined as Enemies solely because they are political opponents. The childish defense of The Terrible Two (Bush and Cheney) as they invade and despoil Rights inviolate to Americans is becoming old and boring even to the deep Republican supporters who put the Two in office to begin with.

This Author believes a Joint Statement made by the ex-Presidents condemning this usurpation of power would reassure the American polity, especially if the elder Bush added to the just criticism. The Two in Question have yet to understand some of the basic precepts of the American political spectrum, which insists Participants play by the rules of the Game. It is the wrong time for the American Electorate to call 'Foul' , so the Retired Players must act as Field Judges. lgl

Omnibus Bills

The Concept consists of tying necessary legislation or action to unadulterated crap, so that the crap can get passed. It remains a venue used by All today, consider the Hong Kong talks of the WTO. An article in the AP lineup mentions that Farmers are being injured by Tax provision 1033, which artificially raises Land prices beyond Operational Return mortgage payments. The Tax Code is replete with such type provisions, which destroy as much as they benefit. The House just included Artic Oil drilling in the Military bill; One can even favor such Drilling, and know this is the wrong approach.

Very little actual gain derives from such procedures. Political opposition induces bureaucratic obstruction and greater erratic initiatives to block measures which have not been politically resolved. The President and Vice-President are currently engaged in defending the expansion of Presidential powers, and criticizing the defeat of reinstatement of the provisions of the Patriot Act, another omnibus bill which was an over-reaction to a perceived threat; We now have Government domestic spying on Private Citizens, and transfer of Prisoners for their specific torture.

The confusion of political issues through use of omnibus bills should be constrained. Said activities allow gross inequities and violations which would not be allowed elsewise. There is need for clarity of expression, for decisiveness of political action. lgl

The Wind that Smells (Passed Gas?)

The WTO has reached a deal, but nothing is to happen right now, or even close to Now! Farm subsidies are to end by 2013, a nice Date which places the current World leadership in retirement mode at time of implementation. Three top Vacancies at the Fed in 2006, as no one wants to be responsible for whatever new Fed policy is enacted: a tight Money policy is needed, but it will doom the current Generators of economic growth. All the above-mentioned Participants were quick to join the bandwagon when unstable and dangerous leniency was introduced into Markets Worldwide that were bound to buoy up the economies of the World in the Short-run, but were all destined to create over-Investments in Capital and disbalance in development strategies of the several economies. The Later series of events is Now!

The developing countries are not going to benefit from Trade with the Developed Nations. Selling the Wealthy nations cheap Agricultural products is no panacea. Capitalization of Agricultural products will be too excessive, and Capitalization of Industrial Goods will disappear as Developed Nations undercut the Cost structures of native manufactures. Both sides of the Trade equation will also have to capitalize an excessive Transportation industry, and provision it with Energy needs which no one can afford. It can be simply put for easy understanding: Developing Countries need Trade barriers, they are the only protection from the parasitism of foreign advanced development.

There are Those who honestly believe that Trade is the salvation of the Poor, Why are the numbers of the Poor increasing Worldwide, in both Developed and Developing Nations? This Author started economic life as a Free Trader, but thinks he may end that life as a Trade Protectionist. lgl

WTO

Global Trade talks have stalled about where this Author imagined they would--where real national interests were involved. The EU refuses to set a time to eliminate Agricultural subsidies, purportedly because India and Brazil will not eliminate duties on Industrial Goods imported. The United States says it will eliminate Agricultural export subsidies, and 60% of domestic Agricultural subsidies--rubbish; the Bush Negotiators are dreamers. Farmers throughout the industrialized nations are not going to let themselves be undersold by Agricultural Products raised with 20% of the efficiency, 30% of the Productivity, and 40% of the Cost of their own high-tech Agricultural production.

The lack of balance to the WTO Draft agreement ascribed to it by the EU remains nothing more than retained commitment to established national interests by each Participant. Free Trade stands as an unreachable Goal, due to the political processes of individual nations remaining unchanged. Violative concessions are blocked at the 'Grass Roots' level of political action. It is particularly worthless to beat a dead horse. The WTO has seen its day, and will probably go the way of the League of Nations.

The Author, on the other hand, still perceives beneficial access to global integration. He believes there should be a international Conference on Pensions and Pension Rights, Disability and Medical Benefits, and on Unemployment. Stupid as it may sound, there should be international treaties covering all of these areas, guaranteeing Worker Rights sanctified by law, and thereby leveling the Playing Field of international Trade by percentage set-asides. This could well be the next Best Step. lgl

Pensions

The House passes a Pension bill different from the Senate bill, Everyone knowing the real legislation will be written in Conference. Bush is posturing to demand a tougher bill than either of the two versions currently existent, but no one takes the threatened Veto seriously, the Bush bark lacks teeth when dealing with American politics. Will significant Pension legislation get passed? NO!!

Pension plans can pay for themselves, if and only if there is uniformity to both the Contributions and Benefits schedules. This means a singular contribution alongside a singular Benefit payment. The greater the disparity between the levels of Contributions, and/or the disparity between the levels of Benefit payment, the more unstable becomes the system; no matter how devised. Contribution increases never match Benefit payment increases in the higher ranges, while inability of payment of increased Contribution at the lower ranges ensures loss of Benefit payment purchase capacity or over-size liabilities for the Pension fund.

The Author favors a unitary Contribution of 13% of the Median salary of the Beneficiaries, and a unitary Benefit payment of 35% of that Median Income annually. Eligibility for Pension benefits require at least 23 years of contribution. Disability and Medical benefits are to be separated from Pension funds with establishment of their own contributory funds. The time for Changes to Our Pension systems is Now. lgl

Statistics

People are busy reporting that Consumer Prices are down, but realistically, it was only elimination of balloon profits in crude Energy Sales. There is conflict reportage on Mall Sales this Christmas Season, with Commerce Dept. and Mall operators claiming a rise in Sales, but some tracking companies reporting actual declines over last Year. This Author has observed a heavy increase in traffic at the Discount stores (no hard numbers), but a traffic flow not just responsive to Walmart's advertised Discounts; the Dollar stores (of all various types) do not utilize traditional Pricing discounts in favor on set low Prices, and they are exceptionally full this Year.

Oil Prices are still excessive, due to Target-Buying strategies which are not based upon on hard statistical shortage Run-ins. The threat of an actual shortage of Energy for the American market has been declining since September; the latest flux rise in Oil Prices having little basis in fact. The less-marked, but more important element is the rise in Energy usage in the United States, something vastly unreported. It is a time when actual American Energy usage should be declining, instead of increasing. Economists dislike discussion of Energy conservation, knowing much of laxity in the Japanese economy came from the heavy concentration on Energy conservation. Americans, though, will eventually have to make the switch to Energy controls in Production; the Price of Energy is simply not sufficient high to frighten the current American Business elite. lgl

It's the Economy, Stupid

U.S. Trade Deficit Hits All-Time High
By THE ASSOCIATED PRESS
Published: December 14, 2005
http://www.nytimes.com/aponline/business/AP-Economy.html?hp&ex=1134622800&en=f3a432a9bfcb16cc&ei=5094&partner=homepage

For October, imports of goods and services rose by 2.7 percent to an all-time high of $176.4 billion, led by the surge in oil shipments. U.S. exports also rose by a slower 1.7 percent to $107.5 billion.

Critics blame the soaring trade deficits for a loss of 3 million manufacturing jobs since mid-2000 and they argue that Bush's push to strike free trade agreements eliminating all trade barriers between the United States and other nations has opened American workers to unfair competition from low-wage countries.

The United States set deficit records with most of its major trading partners including a $12.1 billion imbalance with the 25-nation European Union, a $8.1 billion imbalance with Canada, the country's largest trading partner, and a record $4.8 billion deficit with Mexico.

Economists of all stripes continually strip Oil prices from the matrix to find a Core Inflation. They also need to strip Oil Imports from the Trade figures to get Core Trade Deficit. The American Economy is losing Production to practically Everyone. Why? The bottom line is that the American Economy has become too specialized.

American Corporate philosophy has driven Business, Financial, and Economic Thought since the Reagan years. This Philosophy demands huge Profit ratios, with Plant closings and Production line phaseouts if the Turnover profits do not match Business format desires. A Turnover Profit of less than 10% deserves nothing but contempt, as defined by Corporate Executives who are Bill Gates' Wannabees. Tens of Thousands can be Laid-Off, but nothing can interfere with their own structured Payment package--overpriced to begin with.

Tongue in Cheek, this Author would say current American Business philosophy provides a rational justification for State-owned Enterprises. lgl

The Business Tax

The latest Presidential panel to reconsider Tax reform produces only a formula for further tax complication, and the current Bush has decided to put off Tax reform. Conservatives want Tax reduction without Spending reduction, Liberals want Tax increases to match Spending increases. Bush and other graduates of Reaganomics all believe Government debt means nothing. We drift into a greater proliferation of Taxes, Tax concession, Tax rebates, and Tax remissions which defeat Tax revenue collection of sufficient magnitude; all the while Middle-Class taxpayers are ground under by excess tax payments. Everyone, except Congress and President, think Congress should stop Spending.

This Author believes all taxes should be eliminated (at least at the Federal level) except for a Business tax based upon volume of Sales (in Dollar assessment). There are a number of reasons for this decision: Business will pass all taxation onto the Consumer anyway; Demand and Supply Curves will access the exact tax on all Products, based upon Business desire to maximize Sales; Private Sector Accounting holds the greatest efficiency in spreading Tax impact; higher charges to the Consumer will limit the aggregation of Consumer Debt; and pressure can be applied to Legislators to apply revenue-generating rates of Taxation. lgl

Trade Talks

The WTO has reached the end of its grasp! The political patronage of farm subsidies is immense, and farm subsidies will never be eliminated from Democracies. Concentration of eliminating Duties on Exports from poorer Countries also lack perceptivity. The Goods produced in these poorer nations directly compete with the production capacity of the poorer elements of richer nations. Real rationale exists for Trade Union opposition to the WTO and unrestricted Trade.

Elimination of Trade barriers has been attained across a broad spectrum, but far too many Economists wish for a complete sweep. They should not, as it could risk all of what has presently been gained. The words of Chavez are reaching throughout the World, and those words condemn the concentration of wealth in the hands of the Corporate power structure. Corporate Executive and Economists are not only outvoted, but they are outgunned. lgl

The Pandemic Threat

This Author has previously Posted commentary basically stating: Pandemics are cheaper and easier to deal with, without previous Planning or Stockpiling of Drugs. Pandemics stretch the breath of physical animal health, and can potentially affect anything; even with introduction of viral mutation from Plant life. Identification of a primary source of a Pandemic even fails, because of the potential directional spread of the mutation--which can seriously alter for every animal entity the infection might enter. The rate of mutation also defeats, as it can occur within minutes, or require decades. No Designed Drug will ever deal precisely with the ailment for which it was designed to counter.

There is almost no potential for a universal Immunization therapy. No Anti-viral or Anti-Bacterial drug is 100% effective in eradicating an undesirable infection. The residue survival stands a the main source of mutation, where the most-resistant strain of infection survives. The only true source for human salvation is the development of successful antibodies in the human structure, these developed by infection survivors and their progeny. The danger of any Flu strain will not attain the danger levels existent in WWI because of the intervening development of antibodies (not even the Bird flu), but it is entirely possible more People will suffer longer and worse bouts of flu than ever before, with a huge Pricetag attached.

There is little major threat from the Bird flu, which probably could not even cause the Death rate per Ten Thousand caused by the Flu in the 1950s. This is not to say We could not have half the World sicker than they have ever been before at a huge Cost. lgl

The Pandemic Threat

This Author has previously Posted commentary basically stating: Pandemics are cheaper and easier to deal with, without previous Planning or Stockpiling of Drugs. Pandemics stretch the breath of physical animal health, and can potentially affect anything; even with introduction of viral mutation from Plant life. Identification of a primary source of a Pandemic even fails, because of the potential directional spread of the mutation--which can seriously alter for every animal entity the infection might enter. The rate of mutation also defeats, as it can occur within minutes, or require decades. No Designed Drug will ever deal precisely with the ailment for which it was designed to counter.

There is almost no potential for a universal Immunization therapy. No Anti-viral or Anti-Bacterial drug is 100% effective in eradicating an undesirable infection. The residue survival stands a the main source of mutation, where the most-resistant strain of infection survives. The only true source for human salvation is the development of successful antibodies in the human structure, these developed by infection survivors and their progeny. The danger of any Flu strain will not attain the danger levels existent in WWI because of the intervening development of antibodies (not even the Bird flu), but it is entirely possible more People will suffer longer and worse bouts of flu than ever before, with a huge Pricetag attached.

There is little major threat from the Bird flu, which probably could not even cause the Death rate per Ten Thousand caused by the Flu in the 1950s. This is not to say We could not have half the World sicker than they have ever been before at a huge Cost. lgl

Jobs and Recovery

The Bush administration is touting its record on the Economy. The nature of the success has to be examined for an accurate view. The Economy likens unto the Shopping Mall which was worth $6 bn doing great business, because it has just had a Facelift costing $2 bn. The worth of the Mall is still only $6 bn, and Rents must be approx. 25% higher, but Business is great; great at least until the next necessary Facelift.

How many hundreds of billions did the Bush Tax Cuts give away to get a anemic performance inferior even to the Reagan recovery? When dealing with economic performance One has to understand where it has come from, what it is doing now, and the options open to the Economy for future economic performance. The current economic picture is dismal:

Government spending--Federal, State, and Local--is easily expanding at twice the rate of Inflation; something which is double the real rate of growth.

Government debt--Federal, State, and Local--is expanding more rapidly than even Government spending.

U.S. Exports are stagnant, while foreign Imports are still increasing rapidly. We are currently not only borrowing everything from Overseas, but We are actually putting Few back to work.

This is Our vibrant Economy. lgl

Tax Cuts

Despite Deficit, House Approves $56 Billion in Tax Cuts
By EDMUND L. ANDREWS
Published: December 8, 2005
http://www.nytimes.com/2005/12/08/politics/08cnd-cong.html?hp&ex=1134104400&en=180f3d878c4e1b4d&ei=5094&partner=homepage

The article explains the situation sufficiently. The crux of the problem, though, exists in the Inflationary pressure behind the Tax Cuts. We are talking at the minimum of some $75 bn additional unfunded Federal spending, no one stupid enough to imagine legislators and Senators will actually allow final vote reduction of Spending.

This Author is not a devotee of Monetarism, in any sense of the term, but the obvious increase of unfunded Federal spending would seem to nullify the drag of 3% of the nominal Overnight rates. No wonder Fed members are talking about neutral Interest rates. lgl

How Good Does the Economy Have To Be?

The Fed reports that Americans are paying more for Debt service than ever before, somewhere over 13%. A analylitical statement of the Problem states the current level of Economic performance produced a 13% Debt service rate. Reduction of this Debt service will require an increase in Productivity, without an increase in this Debt. Here is the rub of the equation: Increased Productivity insists on increased Demand, functional only with increased Consumer debt, or expansion of the number of Consumers. Elimination of Consumer debt demands an expansion of markets.

The alternative states Productivity remain static throughout the course of Debt service repayment, Consumer Demand growing only as older Debt is retired. Many Models could be constructed to overview this Scenario, but this Author sees 7.7 years as rapid enough to replace necessary Demand, while 8.6 years as too slow to generate strong necessary Consumer Demand. Both are in the absence of debt service growth! Change in debt service(increase) would lengthen time of debt service, but would increase need for Consumer Demand. lgl

Gold and Silver

World markets are agog with the specticule of twenty year highs in the price of precious metals. Most Market anaylists are betting on a sharp Price correction downward. This would seem highly likely due to Profits-taking by Market Speculators. But what if there is no correction?

Running Costs for Mining recovery have been increasing for the last Quarter-Century, while accumulated Precious Metal stocks have been diminuishing. It is obvious nothing has become cheaper, both within and without the Mining industry. The Question must be asked: Are Precious Metals regaining their Standard-Bearer definition of True Value?

The Monetarist power of Central banks may have eroded under the venue of too-slim Reserve margins, combined with unrealistic Interest rates. Only Time will tell. lgl

Three-Card Monte

White House Tries to Trim Military Cost
By LESLIE WAYNE
Published: December 6, 2005
http://www.nytimes.com/2005/12/06/business/06military.html

An excellent article which does not even scratch the surface of the Problem. Logistic replacement of equipment lost or worn out in Iraq and Afghanistan remains a simple Productivity formula, employing at most industrial engineers and Plant workers. The Profit/per Dollar spent in Production seems ridiculously low--sometimes no more than normal Private Sector production activity. An excessive Lobbyist effort could not be afforded, even if Anyone involved thought to get excited.

Weapons Systems Development, on the other hand, contains a totally different sentiment. The Profits reside not in Capital profits, but in the unscalable arena of human expertise. A probable excess of 50% of all Funds flow to human labor at rates much higher than normal Production pay. Those involved, at both levels of Corporate Executive and Specialized Labor, find the extended Pay to be vastly advantageous, to the point that it is reasonable to assume some 20% of all Funds directed to Weapons Development winds up as Lobbyist budgets.

The Pentagon has about $1.3 trillion in weapon systems in some stage of development, with over $800 billion of those costs yet to be paid.

Spending for the current year, not including the supplemental appropriations to cover the costs of Iraq and Afghanistan, has reached $444 billion, a growth of 41 percent since 2001, according to the Pentagon.

It should seem outlandish, but it is not, for this Author to suggest approximately One-Quarter of the increase in Defense spending since 2001 goes to Lobbyist expenditures to ensure these Weapons Systems are not discontinued. It reminds of the famous Song:

Tell Me No Lies, and Keep Your Hands to Yourself lgl

Oh--It will be alright!

CRS Report for Congress
Received through the CRS Web
Order Code RL33140
Is the U.S. Trade Deficit Caused by a Global
Saving Glut?
November 4, 2005
http://opencrs.cdt.org/rpts/RL33140_20051104.pdf

Conventional wisedom, Ben Bernacke, and the IMF all telling Us that the Bush Spending pattern will be alright. This Author suffers from the delusion that Investment remains dependent upon Funds undrafted to some other purpose--this drafting process governed by low, real Interest rates. There is currently low Savings throughout the World, not just the United States. There is also low Investment rates throughout the World, not just the United States. There are massive Government Budget deficits throughout the World, not just the United States. Bernacke's Savings Glut does not quite fit, nor does the Conventional wisedom that Savings would be higher if Interest rates were higher. The Report makes a nice comment at the end about how most of the American Investment has been in Residential Housing, with some commentary on the uselessness of such Investment in the Productivity process of debt repayment.

Mythical Egypt (the USA) has eaten a large share of it's eight fat Cows--One could claim more than the Five scheduled for. Maybe God will provide Manna from Heaven--not wait; that is an unfunded Social weilfare program. lgl

The Age of Speculation

Speculative Investors have always been with Us, spurred by Profits derived in enterprise where little further expansion can be utilized. Such Speculators lack expertise in the areas which they enter, and turn to what little help they can find; the slick Investment Counselor--an Individual with Standards generally on a par with Used Car Salesmen. This fact does not truly matter--as the adage about a Fool and his Money is amazingly resilient. Trouble does arise, though, in that Republican-brokered Tax Cuts have placed far to large an amount of Speculative funds in the hands of Those without understanding of mechanisms of Markets.

A real Case in Point is the current Crude Oil Price. It is pushing over $60/barrel, when it's real Market worth is less than $40/barrel. The real problem does not reside in the current Pricing, though, but in the fact $60/barrel does not do its job of restricting Oil usage. It becomes further complicated so that a mild drop in Demand would bring an incredible drop in Oil price. The level of Speculation has brought a increased level of corruption to the Market process itself. lgl

The Ire of Academics

The NY Times ran a series of articles yesterday outlining Bush administration usage of Academics. The most noteworthy recent entrant, Feaver, was clearly chosen for his propagandist value The Administration is resorting to Academic youth to fill important Posts, as tenured Academics refuse to be drawn into a forum, where the Administration has shown a tendency to abandon Subordinates--where they do not fulfill propagandist desires of the Admininstration.


Sunday, December 04, 2005
The Budget Deficit in Context
http://angrybear.blogspot.com/2005/12/budget-deficit-in-context.html

Kash clearly shows that Federal Spending has stayed consistent, while Revenues have been dropping because of Tax Cuts. There are projected $400-500 bn deficits through 2010. Most Academics intutively recognize real percentage Tax Cuts have not really gone to the average Taxpayer, only the Superich. We can understand the hesitation. lgl

A Volume Tax

Tyler Cowan posted a good piece on Taxation:

http://www.marginalrevolution.com/marginalrevolution/2005/12/what_is_the_evi.html

Does capital taxation hurt an economy?

It contains links to a number of good Studies to be considered. The trouble lay in the fact they all may miss the mark somewhat. This Author has lately been considering a monetary Volume Tax. This basically means taxation based upon the rotation of funds through each Tax-paying account without resort to any preference of any kind. Economists will quickly protest such a movement, stating loss of economic incentive. Below is a list of some of my Thoughts:

1) Taxation distorts the equalization process of equating one Product to Another through Pricing. Taxation serves as an outside Cost striking the two Products with different impact.

2) Capital Investment is distorted in that the highest Investment ratios flow to those economic elements who can generate the highest Tax reductions.

3) The sheer magnitude increase in Revenues in excess proportion to Others provide individual Taxpayers with excessive leverage, even against other Producers of higher Capitalization.

4) A taxation on Volume of Cash Turnover would regulate such turnover, and more adequately reflect the true Cost of Capitalization of enterprise.

The real primary question to be asked is whether Tax incentives actually affect the volume of Capitalization. Investors are skilled in the arenas where they have expertise, and work in a schedule which generates a consistent amount of Investment Capital. This requires much deeper thought, by both the Author and Others. lgl

Greenspan's Warning

Greenspan criticizes excess Government spending and Trade barriers. He calls for repudiation of Social welfare promises and unrestricted Free Trade. He conveniently ignores the one fact that American Consumer importation is destroying the Trade balance, alongside the erosion of native manufacturing. There is also no proof that the cheaper Consumer pricing is better for either the American Consumer or American Business. The second fact he ignores is the reality that excess American Government spending occurs due to excessive American military adventurism off Our native shores. He asks American Workers to again pay for Government excess through loss of benefits.

The intrinsic horror of the American political spectrum comes in the Participant refusal to call the kettle black. American Taxpayers should insist that Government list the total amount of Taxes paid over the last 50 years. Then they should insist the Government list the specific amount of Social Security taxes paid in the last 50 years, plus the addition of a 4% rate of Return on those funds. Greenspan, like other American leaders, blame Those who have always been the Solution--not the problem. lgl

The Bush Speech

It makes one think he is falling back through time to the days of Nixon's Vietnamization of American military limitations. Some realities could be introduced into the matrix, but they will dishearten. The first dictum must be the insufficiency of Iraqi military and police pay; a Pay sufficient incentive with less than 5 Days fighting per year, totally inadequate when fighting approximately 85 Days per year. We pay American servicemen in the low Five figures to go to Iraq, We pay Western Mercenaries in the low Six figures to fight in Iraq, and We pay native Iraqis in the military in the middle Four figures. Americans get to go home and spend their wealth, while native Iraqis must stay and face the enemies they have made. Expectation that morale or performance will improve among native Iraqi Police and Military is wishful thinking.

The American Taxpayer will eventually tire of funding both Iraqi pay and the backup weaponry necessary for the Iraqi Police and Military. The current Iraqi Government consists of those Who lived well under the Saddam regime, though most did so Overseas. They are demanding support from Those too poor, or too patriotic, to have left Iraq under Saddam. They endured the years of Saddam terror, now the years of International terrorism, without forgetting the years of American terror bombing. The personnel of the current regime lived well before, during, and now after the Iraqi war; and expect to live well even if ejected from power. One does not know how much political support they may generate. Reminds of the difference between a Bush American and a Lux American--a difference of a few figures of income.
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The ISM states that Manufacturing is doing better than expected in the United States, but Exports are static. Construction is high, but a lot is Replacement structures from a Weather-torn South. Everything looks good, but Everyone knows there has been structural damage in the Economy. lgl